-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DFKkWZOOA97g4DpVu2h5WVDgpYqFY5ZEiXvtHdgSc/b6W9q+uOV91uWZWGq79Dbp gAv2xNuhwlMDjj/G79NAlg== 0001125282-02-000803.txt : 20020415 0001125282-02-000803.hdr.sgml : 20020415 ACCESSION NUMBER: 0001125282-02-000803 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 20020126 FILED AS OF DATE: 20020312 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PALL CORP CENTRAL INDEX KEY: 0000075829 STANDARD INDUSTRIAL CLASSIFICATION: GENERAL INDUSTRIAL MACHINERY & EQUIPMENT, NEC [3569] IRS NUMBER: 111541330 STATE OF INCORPORATION: NY FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-04311 FILM NUMBER: 02573325 BUSINESS ADDRESS: STREET 1: 2200 NORTHERN BLVD CITY: EAST HILLS STATE: NY ZIP: 11548 BUSINESS PHONE: 5164845400 MAIL ADDRESS: STREET 1: 2200 NORTHERN BLVD CITY: EAST HILLS STATE: NY ZIP: 11548 10-Q 1 b316968_10q.txt QUARTERLY REPORT 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarterly Period Ended January 26, 2002 Commission File No. 1-4311 PALL CORPORATION Incorporated in New York State I.R.S. Employer Identification # 11-1541330 2200 Northern Boulevard, East Hills, N.Y. 11548 Telephone Number (516) 484-5400 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ---- ---- At March 6, 2002, 122,335,030 shares of common stock of the Registrant were outstanding. 2 PALL CORPORATION INDEX TO FORM 10-Q ----------------------------------- COVER SHEET 1 INDEX TO FORM 10-Q 2 PART I. FINANCIAL INFORMATION Item 1. Financial Statements: Condensed consolidated balance sheets - January 26, 2002 and July 28, 2001 3 Condensed consolidated statements of earnings - three months and six months ended January 26, 2002 4 and January 27, 2001 Condensed consolidated statements of cash flows - six months ended January 26, 2002 and January 27, 2001 5 Notes to condensed consolidated financial statements 6 Item 2. Management's discussion and analysis of financial condition and results of operations 11 PART II. OTHER INFORMATION Item 1. Legal Proceedings 18 Item 4. Submission of matters to a vote of security holders 18 Item 6. Exhibits and reports on Form 8-K 19 SIGNATURES 20 EXHIBIT INDEX 21 3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS PALL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited) (in thousands) January 26, July 28, ASSETS 2002 2001 Current Assets: ---------- ---------- Cash and cash equivalents $ 59,058 $ 54,927 Short-term investments 68,700 146,600 Accounts receivable, net of allowances for doubtful accounts of $8,451 and $7,197, respectively 283,306 309,171 Inventories 199,244 209,499 Other current assets 58,363 58,791 ---------- ---------- Total Current Assets 668,671 778,988 Property, plant and equipment, net of accumulated depreciation of $493,736 and $477,232, respectively 499,391 503,016 Goodwill, net 53,592 54,044 Intangible assets, net of accumulated amortization of $27,471 and $24,606, respectively 36,268 37,009 Other assets 164,660 175,453 ---------- ---------- Total Assets $1,422,582 $1,548,510 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Notes payable to banks $ 38,861 $ 57,089 Accounts payable and other current liabilities 167,004 203,647 Income taxes 18,774 27,531 Current portion of long-term debt 27,136 25,582 ---------- ---------- Total Current Liabilities 251,775 313,849 Long-term debt, less current portion 312,016 359,094 Deferred taxes and other non-current liabilities 103,392 105,525 ---------- ---------- Total Liabilities 667,183 778,468 ---------- ---------- Stockholders' Equity: Common stock, $.10 par value 12,796 12,796 Capital in excess of par value 110,250 108,164 Retained earnings 820,239 825,247 Treasury stock, at cost (120,869) (120,431) Stock option loans (3,735) (4,635) Accumulated other comprehensive loss: Foreign currency translation adjustment (58,204) (49,947) Minimum pension liability (1,734) (1,799) Unrealized investment (losses) gains (1,929) 1,704 Unrealized losses on derivatives (1,415) (1,057) ---------- ---------- (63,282) (51,099) Total Stockholders' Equity 755,399 770,042 ---------- ---------- Total Liabilities and Stockholders' Equity $1,422,582 $1,548,510 =========== ===========
See accompanying Notes to Condensed Consolidated Financial Statements. 4 PALL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited)
(in thousands, (in thousands, except per share data) except per share data) Three Months Ended Six Months Ended -------------------------- ----------------------- Jan. 26, Jan. 27, Jan. 26, Jan. 27, 2002 2001 2002 2001 ---------- ---------- ---------- ---------- Net sales $ 285,435 $ 304,697 $ 559,554 $ 582,848 ---------- ---------- ---------- ---------- Costs and expenses: Cost of sales 145,394 145,163 280,464 274,920 Selling, general and administrative expenses 101,152 103,195 199,226 201,037 Research and development 12,468 14,147 25,315 27,251 Interest expense, net 2,815 4,270 6,078 8,497 ---------- ---------- ---------- ---------- Total costs and expenses 261,829 266,775 511,083 511,705 ---------- ---------- ---------- --------- Earnings before income taxes 23,606 37,922 48,471 71,143 Income taxes 5,191 8,011 10,664 15,652 ---------- ---------- ---------- ---------- Net earnings $ 18,415 $ 29,911 $ 37,807 $ 55,491 ========== ========= ========= ========= Earnings per share: Basic $ 0.15 $ 0.24 $ 0.31 $ 0.45 Diluted $ 0.15 $ 0.24 $ 0.31 $ 0.45 Dividends declared per share $ 0.170 $ 0.170 $0.340 $ 0.335 Average number of shares outstanding: Basic 122,151 122,402 122,200 122,686 Diluted 123,408 123,347 123,530 123,611
See accompanying Notes to Condensed Consolidated Financial Statements. 5 PALL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(in thousands) Six Months Ended --------------------- Jan. 26, Jan. 27, 2002 2001 --------- --------- NET CASH PROVIDED BY OPERATING ACTIVITIES, NET OF EFFECT OF ACQUISITIONS $ 63,603 $ 88,481 --------- --------- INVESTING ACTIVITIES: Capital expenditures (33,919) (40,023) Disposals of fixed assets 1,164 2,022 Short-term investments 77,900 (11,900) Benefits protection trust (1,562) (3,947) Investments and licenses - (4,005) Acquisitions of businesses, net of cash acquired - (1,426) --------- --------- NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES 43,583 (59,279) --------- --------- FINANCING ACTIVITIES: Notes payable (17,931) (194,931) Long-term borrowings 1,034 223,236 Payments on long-term debt (44,530) (30,085) Net proceeds from stock plans 10,993 11,773 Purchase of treasury stock (10,000) (24,977) Dividends paid (41,542) (40,523) --------- --------- NET CASH USED BY FINANCING ACTIVITIES (101,976) (55,507) --------- --------- CASH FLOW FOR PERIOD 5,210 (26,305) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 54,927 81,008 EFFECT OF EXCHANGE RATE CHANGES ON CASH (1,079) (842) --------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 59,058 $ 53,861 ========= ========= Supplemental disclosures: Interest paid $ 10,245 $ 8,516 Income taxes paid (net of refunds) 19,483 12,110
See accompanying Notes to Condensed Consolidated Financial Statements. 6 PALL CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except per share data) (Unaudited) - -------------------------------------------------------------------------------- NOTE 1 - BASIS OF PRESENTATION The financial information included herein is unaudited. However, such information reflects all adjustments which are, in the opinion of management, necessary to present fairly the Company's financial position, results of operations and cash flows as of the dates and for the periods presented herein. These financial statements should be read in conjunction with the financial statements and notes set forth in the Company's Annual Report on Form 10-K for the fiscal year ended July 28, 2001. NOTE 2 - INVENTORIES The major classes of inventory are as follows: Jan. 26, July 28, 2002 2001 ---------- --------- Raw materials and components $ 71,759 $ 78,487 Work-in-process 28,016 22,104 Finished goods 99,469 108,908 ---------- --------- Total inventory $ 199,244 $ 209,499 ========== ========= NOTE 3 - NEW ACCOUNTING STANDARDS In fiscal 2001, the Company adopted the provisions of Emerging Issues Task Force Consensus No. 00-10 Accounting for Shipping and Handling Fees. Accordingly, the Company reclassified freight costs incurred to deliver products to customers, which were historically included in "Selling, general and administrative expenses" to "Cost of sales". The amount of freight cost reclassified to cost of sales approximated $1,935 and $3,702 for the three months and six months ended January 27, 2001, respectively. Effective July 29, 2001, the Company adopted SFAS No. 142, Goodwill and Other Intangible Assets ("SFAS No. 142"). SFAS No. 142 requires that goodwill and intangible assets determined to have indefinite lives no longer be amortized, but instead be tested for impairment at least annually and whenever events or circumstances occur that indicate impairment might have occurred. Upon the adoption of SFAS No. 142, the Company reassessed the useful lives of its intangible assets to make any necessary amortization period adjustments. No adjustments resulted from this assessment. The Company's intangible assets, which are comprised almost entirely of patents, are subject to amortization. Amortization expense for these intangible assets for the three months and six months ended January 26, 2002 was $1,317 and $2,511, respectively. In fiscal year 2001, amortization expense for the three months and six months ended January 27, 2001 was $1,111 and $2,173, respectively. Amortization expense is estimated to be $2,300 for the remainder of fiscal 2002, $4,700 in 2003, $4,700 in 2004, $3,700 in 2005 and $3,200 in 2006. 7 The statement provides a six-month transitional period from the date of adoption for the Company to perform an assessment of whether there is an indication that goodwill is impaired. The assessment requires the comparison of the fair value of each of the Company's operating segments, or a component thereof, to the carrying value of its respective net assets, including allocated goodwill. If the fair value is below the carrying value, the Company must perform a second test to measure the amount of impairment. The second test must be performed as soon as possible, but no later than the end of the fiscal year. The Company has completed this impairment test on goodwill in the current quarter, including the creation of estimated segment balance sheets solely for the purpose of carrying out the impairment tests required by SFAS No. 142. The assessment indicates that no impairment of goodwill exists. The following table presents goodwill, net of accumulated amortization prior to the adoption of SFAS No. 142, allocated by reportable segment solely for purposes of SFAS No. 142 disclosure as of January 26, 2002 and July 28, 2001: Jan. 26, July 28, 2002 2001 ----------- ---------- Blood $ 18,298 $ 18,349 BioPharmaceutical 15,151 15,302 ----------- ---------- Life Sciences 33,449 33,651 ----------- ---------- General Industrial 13,983 14,234 Aerospace 6,035 6,032 Microelectronics 125 127 ----------- ---------- Industrial 20,143 20,393 ----------- ---------- Total $ 53,592 $ 54,044 ----------- ---------- There was no goodwill acquired or disposed of during the first six months of 2001. The change in the carrying amount of goodwill is entirely attributable to the translation of goodwill contained in the financial statements of foreign subsidiaries using the rates at each respective balance sheet date. Pro forma net earnings and earnings per share for the quarter and six months ended January 27, 2001, adjusted to exclude goodwill amortization expense (net of taxes), is as follows.
Three months Six months ended ended Jan. 27, 2001 Jan. 27, 2001 ----------------------------------------- --------------------------------------- Basic Diluted Basic Diluted earnings earnings earnings earnings per share per share per share per share Reported net earnings $ 29,911 $ 0.24 $ 0.24 $ 55,491 $ 0.45 $ 0.45 Goodwill amortization, net of tax 740 0.01 0.01 1,435 0.01 0.01 -------- -------- -------- -------- -------- -------- Pro forma net earnings $ 30,651 $ 0.25 $ 0.25 $ 56,926 $ 0.46 $ 0.46 ======== ======== ======== ======== ======== ========
8 NOTE 4 - NOTES PAYABLE AND LONG-TERM DEBT During the three months ended October 28, 2000, the Company completed a $100 million private placement of 7.83% unsecured senior notes due in 2010. In addition, the Company closed a $200 million unsecured senior revolving credit facility, of which $150 million expires in 2005 and $50 million renews annually. Borrowings under this facility bear interest at a floating rate based upon LIBOR. The agreements contain various covenants, including financial covenants pertaining to interest coverage, funded debt and minimum net worth. As a result of these transactions, uncommitted lines of credit amounting to $230 million were cancelled and the immediate credit availability of the Company increased $70 million. Such proceeds are reflected in the consolidated statement of cash flows for the six months of fiscal 2001. NOTE 5 - COMPREHENSIVE INCOME Comprehensive income was comprised of the following for the three months and six months ended January 26, 2002 and January 27, 2001:
Three months ended Six months ended ------------------------------------------------ Jan. 26, Jan. 27, Jan. 26, Jan. 27, 2002 2001 2002 2001 -------- -------- -------- -------- Net income $ 18,415 $ 29,911 $ 37,807 $ 55,491 -------- -------- -------- -------- Foreign currency translation adjustment (9,177) 7,379 (7,588) (5,881) Income taxes (927) (143) (669) (579) -------- -------- -------- -------- Foreign currency translation adjustment, net (10,104) 7,236 (8,257) (6,460) -------- -------- -------- -------- Minimum pension liability adjustment 39 - 25 193 Income taxes (19) - 40 (77) -------- -------- -------- -------- Minimum pension liability adjustment, net 20 - 65 116 -------- -------- -------- -------- Unrealized investment (losses) gains (2,528) 3,129 (5,648) 1,444 Income taxes 924 (1,094) 2,015 (505) -------- -------- -------- -------- Unrealized investment (losses) gains, net (1,604) 2,035 (3,633) 939 -------- -------- -------- -------- Unrealized gains (losses) on derivatives 417 (618) (550) (470) Income taxes (146) 217 192 165 -------- -------- -------- -------- Unrealized gains (losses) on derivatives, net 271 (401) (358) (305) -------- -------- -------- -------- Total comprehensive income $ 6,998 $ 38,781 $ 25,624 $ 49,781 ======== ======== ======== ========
9 NOTE 6 - SEGMENT INFORMATION AND GEOGRAPHIES
Market Segment Information: Three Months Ended Six Months Ended ---------------------- ----------------- Jan. 26, Jan. 27, Jan. 26, Jan. 27, 2002 2001 2002 2001 - ------------------------------------------------------------------------------------------------------------ Sales to Unaffiliated Customers (a): Blood $ 54,814 $ 58,613 $ 107,087 $110,697 BioPharmaceuticals 86,264 82,121 165,955 156,436 -------- --------- --------- -------- Total Life Sciences 141,078 140,734 273,042 267,133 -------- --------- --------- -------- General Industrial 80,738 83,289 160,695 157,044 Aerospace 38,738 35,738 76,382 72,249 Microelectronics 24,881 44,936 49,435 86,422 -------- --------- --------- -------- Total Industrial 144,357 163,963 286,512 315,715 -------- --------- --------- -------- Total $285,435 $ 304,697 $ 559,554 $582,848 - ----------------------------------------------------------------------------------------------------------- Operating Profit (a): Blood $ 9,527 $ 12,619 $ 13,564 $ 24,574 BioPharmaceuticals 18,420 14,410 35,900 28,448 -------- --------- --------- --------- Total Life Sciences 27,947 27,029 49,464 53,022 -------- --------- --------- --------- General Industrial 5,832 15,890 16,296 28,774 Aerospace 7,246 9,611 18,711 19,279 Microelectronics 114 5,749 144 10,496 -------- --------- ---------- -------- Total Industrial 13,192 31,250 35,151 58,549 -------- --------- ---------- -------- Subtotal 41,139 58,279 84,615 111,571 General corporate expenses (14,718) (16,087) (30,066) (31,931) Interest expense, net (2,815) (4,270) (6,078) (8,497) --------- --------- ---------- -------- Earnings before income taxes $ 23,606 $ 37,922 $ 48,471 $ 71,143 - ----------------------------------------------------------------------------------------------------------- Geographies (a): Sales to Unaffiliated Customers: Western Hemisphere $ 126,320 $ 141,432 $ 252,012 $ 273,977 Europe 105,284 101,699 200,020 190,232 Asia 53,831 61,566 107,522 118,639 --------- --------- --------- --------- Total $ 285,435 $ 304,697 $ 559,554 $ 582,848 - ----------------------------------------------------------------------------------------------------------- Intercompany Sales between Geographic Areas: Western Hemisphere $ 26,808 $ 32,841 $ 54,863 $ 62,234 Europe 14,285 15,627 26,365 27,754 Asia 565 1,461 966 2,887 ---------- --------- ---------- -------- Total $ 41,658 $ 49,929 $ 82,194 $ 92,875 - ----------------------------------------------------------------------------------------------------------- Total Sales: Western Hemisphere $ 153,128 $ 174,273 $ 306,875 $ 336,211 Europe 119,569 117,326 226,385 217,986 Asia 54,396 63,027 108,488 121,526 Eliminations (41,658) (49,929) (82,194) (92,875) --------- --------- ---------- -------- Total $ 285,435 $ 304,697 $ 559,554 $ 582,848 - ----------------------------------------------------------------------------------------------------------- Operating Profit: Western Hemisphere $ 13,348 $ 27,721 $ 31,583 $ 58,044 Europe 19,198 17,769 34,684 33,096 Asia 8,763 11,491 17,567 21,600 Eliminations (170) 1,298 781 (1,169) --------- ---------- --------- --------- Subtotal 41,139 58,279 84,615 111,571 General corporate expenses (14,718) (16,087) (30,066) (31,931) Interest expense, net (2,815) (4,270) (6,078) (8,497) --------- --------- ---------- -------- Earnings before income taxes $ 23,606 $ 37,922 $ 48,471 $ 71,143 - -----------------------------------------------------------------------------------------------------------
(a) Certain prior year amounts have been reclassified to conform to the current year presentation. 10 NOTE 7 - SUBSEQUENT EVENT On February 14, 2002, the Company signed a definitive agreement to purchase the Filtration and Separations Group ("FSG") from USFilter Corporation, an indirect wholly-owned subsidiary of Vivendi Environnement (Paris Bourse:VIE and NYSE:VE) for total cash consideration of $360 million. FSG engages in the design, manufacture and sale of filtration products for the separation and purification of liquids and gases. The transaction is expected to be completed by mid-April, and is subject to regulatory approval and other customary closing conditions. In connection with the transaction, the Company will borrow $360 million on a long term basis and, beginning in the third quarter of fiscal 2002, it has reduced the quarterly dividend to $.09 from the current $0.17 level. The approximately $40 million in cash conserved annually may be used for future investments, debt reduction or other means of creating shareholder value. The acquisition will be accounted for under the purchase method in accordance with SFAS No. 141, Business Combinations. NOTE 8 - OTHER MATTERS The Company bought back an additional $10 million of its common stock during the first six months of fiscal 2002 leaving $140 million remaining under the current $200 million authorization program. 11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management's discussion & analysis may contain "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. These statements are based on current Company expectations and are subject to risks and uncertainties, which could cause actual results to differ materially. Such risks and uncertainties include, but are not limited to: fluctuations in foreign currency exchange rates; regulatory approval and market acceptance of new technologies; changes in product mix and product pricing and in interest rates and cost of raw materials; the Company's success in enforcing its patents and protecting its proprietary products and manufacturing techniques; global and regional economic conditions and legislative, regulatory and political developments; and domestic and international competition in the Company's global markets. I. Acquisition On February 14, 2002, we signed a definitive agreement to purchase the Filtration and Separations Group ("FSG") from USFilter Corporation, an indirect wholly-owned subsidiary of Vivendi Environnement for total cash consideration of $360 million. The transaction is expected to be completed by mid-April, and is subject to regulatory approval and other customary closing conditions. The acquisition will be accounted for under the purchase method in accordance with SFAS No. 141, "Business Combinations". FSG, with approximately $270 million in sales in 2001, is a pioneer and global leader in the design, manufacture and sale of filtration products for the separation and purification of liquids and gases. The company serves the food & beverage, industrial, biotech and pharmaceutical industries, among others. With a diversified portfolio of filter media, FSG provides end-users with an array of filter elements, housings and systems with high technology and superior performance. The acquisition of FSG complements our global franchise with outstanding branded products and technology, enabling us to provide the fullest range of integrated filtration products and services. This acquisition also broadens our exposure to the growth and stability of the food and beverage sector and enhances our ability to better serve our customers. In connection with the transaction, we plan to raise the purchase price of $360 million by the issuance of long-term debt and will reduce our quarterly dividend to $0.09 from the current $0.17 level. The reduction in the quarterly dividend brings our dividend payout ratio to a level consistent with industry averages. The approximately $40 million in cash we will conserve annually may be used for future investments, debt reduction or other more tax-efficient means of creating value for our shareholders. The dividend action does not reflect a fundamental change in our earnings or asset quality outlook for 2002. 12 II. Results of Operations Review of Consolidated Results Sales for the quarter were $285.4 million as compared to $304.7 million in the second quarter of last year. For the six months, sales were $559.6 million as compared to $582.9 million last year. Exchange rates reduced reported sales for the quarter and six months by $7.7 million, or 2 1/2% and $10.7 million, or 2%, respectively, reflecting the weakness of the Yen and to a lesser extent the European currencies. Excluding the effects of exchange rates, sales declined 4% in the quarter and 2% for the six months. Overall, pricing was flat for the quarter and for the six months pricing reduced sales by 1%. The second quarter and six months sales results were achieved in spite of the extremely difficult operating environments in the U.S. industrial markets and globally in the semiconductor industry. Excluding Microelectronics sales, which have been negatively impacted by the continued downturn in the semiconductor industry, sales in local currency for the balance of our business increased 2 1/2% and 4 1/2% for the quarter and six months, respectively. For a detailed discussion of sales, refer to paragraphs below under "Review of Market Segments and Geographies". In fiscal 2001, we adopted the provisions of Emerging Issues Task Force Consensus No. 00-10, Accounting for Shipping and Handling Fees. Accordingly, freight costs incurred to deliver products to customers, that were historically included in selling, general and administrative expenses were reclassified to cost of sales. The reclassification to cost of sales was approximately $1.9 million and $3.7 million for the quarter and six months ended January 27, 2001, respectively. Cost of sales, as a percentage of sales, increased to 50.9% in the quarter from 47.6% last year. For the six months, cost of sales was 50.1% as compared to 47.2% last year. The increases for the quarter and six months reflect the reduced pricing related to multiple long-term contracts with large blood center customers, most of which took effect in the fourth quarter of fiscal 2001. Additionally, a change in business mix in the industrial business contributed to the increase in cost of sales. Selling, general and administrative expenses for the quarter and six months declined by $2.0 million and $1.8 million, respectively as compared to the same periods last year. R&D declined $1.7 million and $1.9 million for the quarter and six months, respectively. The decreases in selling, general and administrative expenses and R&D reflect our continued efforts to contain costs and use resources efficiently. Net interest expense declined as compared to last year by $1.5 million and $2.4 million for the quarter and six months, respectively. The reduction in interest expense reflects decreased interest rates and lower debt levels as compared to last year, as well as the benefits reaped from a "receive fixed, pay variable" interest rate swap that we entered into on our $100 million private placement fixed rate debt at the end of the fourth quarter of fiscal 2001. The underlying effective tax rate was 22% in the quarter, the same rate achieved in last year's second quarter when we were able to reduce our underlying effective tax rate from 23% to 22% due to increased sourcing from lower tax jurisdictions such as Puerto Rico and Ireland. Management believes that a rate of approximately 22% will be sustained at least through the end of fiscal 2002, including the effect of the acquisition of FSG. 13 Net earnings were $18.4 million, or 15 cents per share for the quarter, compared with net earnings of $29.9 million, or 24 cents per share last year. For the six months, net earnings were $37.8 million, or 31 cents per share as compared with net earnings of $55.5 million, or 45 cents per share last year. The majority of the decline in net earnings relates to lower sales, principally in Microelectronics, and a lower gross profit margin, partly offset by the benefits of lower expenses. In addition, it is estimated that earnings per share decreased approximately 2 cents in the quarter and 3 cents for the six-month period, due to the negative effect of foreign currency exchange rates, primarily the Yen. We implemented SFAS No. 142, Goodwill and Other Intangible Assets ("SFAS No. 142") in the first quarter of fiscal 2002. On a pro forma basis, if SFAS No. 142 had been implemented in last year's first quarter, earnings per share for the second quarter and six months of fiscal 2001 would have been 25 cents and 46 cents per share, respectively. The full year effect on fiscal 2001 was $3 million, after pro forma tax effect, or 2 cents per share. Review of Market Segments and Geographies The sales growth by segment and geographies discussion below is in local currency unless indicated otherwise. Life Sciences sales for the quarter and six months grew 2% and 3 1/2%, respectively, as compared to the same periods last year. Life Sciences represented approximately 49% of our total sales in the quarter and year-to-date. Overall Blood segment sales declined in the quarter and six months by 5% and 2%, respectively, as compared to last year. A reduction in pricing related to multiple long-term supply agreements with large blood bank customers, which took effect in the fourth quarter of last year, reduced sales by 7% and 10% in the quarter and six months, respectively. In addition, sales of better margin, lower priced dockable filters reduced the top line. This was offset by increases in unit sales of 12% and 13% in the quarter and six months. Sales in the quarter were also negatively impacted by OEM sales delayed to the third quarter. Sales to blood centers continue to comprise approximately three quarters of our worldwide blood filter sales. By geography, Western Hemisphere Blood sales, which represent about two-thirds of worldwide Blood sales, declined 6% and 3 1/2% in the quarter and six months, respectively, primarily due to decreased hospital and cardiovascular product sales. Blood center sales increased 2 1/2% in the quarter and 2% year-to-date despite the aforementioned change in product mix and the pricing decreases in the long-term supply agreements, by achieving increased volume. In Europe, Blood sales declined 4 1/2% and 6% for the quarter and six-month period, respectively, as growth in hospital sales were offset by declines in blood center sales. Blood sales in Asia were flat in the quarter, however for the six-month period grew 15%, primarily related to increases in both blood center and hospital business. BioPharmaceuticals sales grew 7 1/2% in both the quarter and six-month period as compared to last year. The growth in the BioPharmaceuticals segment was driven by Pharmaceutical products sales which grew 10% and 11% for the quarter and six months, respectively, reflecting robust sales in the biotechnology sector. Pharmaceutical product sales were particularly strong in Europe and Asia. BioSciences product sales increased 4% in the quarter and 3 1/2% year-to-date. 14 Sales in our Industrial business, which accounts for approximately 51% of total sales in the quarter and for the six months, declined 9% in the quarter and 7% for the six-month period compared to last year. Excluding Microelectronics, sales for the balance of our Industrial business grew 3% and 5% in the quarter and six months, respectively. General Industrial segment sales, which comprise the largest portion of our Industrial business, were flat in the quarter and grew 5% for the six-month period, despite a tenuous worldwide industrial environment. For the quarter and six months, strong growth was achieved in the Power Generation, Food & Beverage and Water Processing product lines, as these are generally non-cyclical in nature. Fuels & Chemicals, although down in the quarter, posted near double-digit growth for the six-month period. Sales in Machinery & Equipment, the largest product line of General Industrial, declined 7% in the quarter and 6% for the six months, primarily as a result of the malaise in the U.S. industrial marketplace. By geography, Asia reported growth in the quarter and six months of 15 1/2% and 17 1/2%, respectively, reflecting double-digit gains in most of the General Industrial product lines. Sales in Europe increased 2% in the quarter and 7 1/2% for the six months, driven by growth in all of the product lines with the exception of Machinery & Equipment. In the Western Hemisphere, we continued to be affected by the slowdown in the U.S. Industrial arena. As a result, sales declined 12% in the quarter and 8 1/2% for the six-month period. Despite the overall decline, growth was achieved in the Food & Beverage, Power Generation and Water Processing product lines. Aerospace sales increased 9 1/2% in the quarter and 6% for the six-month period, in spite of the commercial airline slump and a difficult comparison to the same periods last year when sales grew 10% and 15%, respectively. In the quarter, Military Aerospace sales grew 41%, while the Commercial side of the business declined by 11 1/2%. For the six-month period a similar trend was evident. Military comprised 51% of the total Aerospace business in the quarter as compared to 40% last year. Strong growth in the Commercial Marine Water product line in the quarter and six-month period also buoyed the Aerospace growth. By geography, Europe reported growth of 32 1/2% in the quarter, reflecting strong Military and Marine Water sales, partly offset by a decline in the balance of the Commercial business. For the six months, sales in Europe increased 16% with a similar trend evident. In the Western Hemisphere, where approximately 60% of the Commercial Aerospace business is generated, sales declined 4% in the quarter and 1% year-to-date, as the declines in Commercial sales more than offset strong growth in Military. Microelectronics sales declined 41% in the quarter due to the continued slump in the semiconductor industry and a difficult comparison to the second quarter of last year when sales grew 28%. For the six-month period, sales declined 39 1/2%. Again, the comparison is difficult as last year's six months sales grew 35%. All geographies reported double-digit declines in Microelectronics sales in the quarter and six months. In dollars, the Western Hemisphere and Asia were hit the hardest. We believe the recovery in the semiconductor industry will start in early summer, which coincides with our fiscal 2002 fourth quarter. 15 The consolidated operating profit as a percentage of sales for the second quarter declined to 14.4% from 19.1% last year. For the six months, operating profit declined to 15.1% from 19.1% last year. In Life Sciences, overall operating profit in the quarter increased to 19.8% from 19.2% last year. Within Life Sciences, Blood operating profit for the quarter of 17.4% declined from 21.5% last year primarily due to price decreases related to contracts with major blood bank customers as mentioned previously. Operating profit in BioPharmaceuticals increased to 21.4% from 17.5% last year, attributable to increased sales volume and pricing increases, as well as a charge taken in last year's second quarter for costs to update certain membrane filtration systems. For the six-month period, Life Sciences operating profit declined from 19.8% last year to 18.1% this year as the decline in Blood operating profit offset the increase in BioPharmaceuticals. Blood operating profit improved on a sequential quarter basis from 7.7% in the first quarter to 17.4% in the current quarter, reflecting manufacturing labor savings through automation of processes in our plant in Italy and in our California facility by utilizing lower cost labor in Mexico. Additionally, both the average selling price and business with independent blood centers increased in the U.S. Overall operating profit in Industrial decreased to 9.1% from 19.1% last year, reflecting the effect of lower overall sales in the quarter coupled with a change in product mix. For the six-month period the same trend was evident as operating profit declined to 12.3% from 18.5% last year. In General Industrial, operating profit declined in the quarter to 7.2% from 19.1% last year and for the six-month period declined to 10.1% from 18.3%. Contributing to the profit declines were decreased Machinery & Equipment sales and increased systems business in the Water Processing and Food & Beverage sub-markets. Aerospace operating profit in the quarter declined to 18.7% from 26.9% last year and for the six months declined to 24.5% from 26.7%, primarily due to a change in product mix. Reflecting the sales volume reduction, Microelectronics broke even for the quarter and six-month period as compared to operating profit margins of 12.8% and 12.1% for the same periods last year. General corporate expenses were reduced $1.4 million in the quarter and $1.9 million for the six months as compared to the same periods last year, reflecting our continued efforts to contain costs. By geography, sales in the Western Hemisphere decreased 10 1/2% in the quarter compared to last year, while operating profit declined to 8.7% from 15.9%. For the six-month period, sales declined 8%, while operating profit declined to 10.3% from 17.3% last year. The shortfalls in operating profit reflect the reduced pricing in the blood bank contracts mentioned above as well as the effects of lower Industrial sales coupled with a change in the Industrial product mix. In Europe, sales increased 6% and 5 1/2% for the quarter and six months, respectively. The weakening of European currencies negatively impacted sales in the quarter and six months by $2.5 million and $.6 million, respectively, reducing sales growth on a reported basis to 3 1/2% and 5%. Operating profit for the quarter increased to 16.1% from 15.1% last year and for the six-month period improved to 15.3% from 15.2%. The improvements in operating profit were primarily due to increased sales volume. 16 Asia's sales declined 4 1/2% and 1% for the quarter and six months, respectively. A weakening of the Yen reduced sales by $5 million and $9.8 million in the quarter and six months, resulting in a decline in sales on a reported basis of 12 1/2% and 9 1/2%, respectively. Operating profit declined in the quarter to 16.1% from 18.2% last year and for the six months to 16.2% from 17.8%, primarily due to the effects of the weakening Yen and the shortfall in Microelectronics sales. III. Liquidity and Capital Resources Our balance sheet is affected by spot exchange rates used to translate local currency amounts into U.S. dollars. In comparing spot exchange rates to those at the end of fiscal 2001, the Asian currencies (especially the Yen) and the European Currencies (especially the Euro and the Pound Sterling) have weakened against the U.S. dollar. In the second quarter, net cash provided by operating activities decreased by $2.9 million, as a decline in earnings was largely offset by decreased inventory and accounts receivable. The decrease in inventory reflects improved inventory turnover that resulted from improvements in supply chain management. Compared to the first six months of fiscal 2001, net cash provided by operating activities has decreased by approximately $24.9 million primarily due to the decrease in earnings as well as the payment of a rebate to a major blood bank customer in the first quarter of fiscal 2002, partly offset by a decline in inventory. We purchased approximately $10 million of treasury stock during the first six months, all of which was purchased in the first quarter, leaving $140 million of the $200 million authorized by the Board of Directors in January 2000. Partially offsetting the cash outlays to purchase stock were proceeds from stock plans of $7.8 million in the quarter and $11 million year-to-date. Capital expenditures were $33.9 million during the first half of fiscal 2002, of which $14.5 million was spent in the second quarter. Depreciation and amortization expense was $17.5 million and $35 million in the quarter and six months, respectively. Our goal is to keep capital expenditures at or below $85 million in fiscal 2002. We continue to work with our partner V.I. Technologies on a pathogen inactivation co-funded R&D program. Phase II clinical trials have been completed and we have applied for FDA approval to commence Phase III clinical trials. Upon commencement of Phase III, we will make a milestone investment of $4 million through the purchase of VITEX stock. R&D costs for this project are currently running at about $1.5 million per quarter. When operating the business day-to-day, excluding acquisitions but including funding capital expenditures and buying back common stock, our guideline is to keep net debt (debt, net of cash and cash equivalents) at 25% to 30% of total capitalization (net debt plus equity). Debt and short-term borrowings, net of cash and short-term investments, increased by $10 million, compared to year-end fiscal 2001. Overall, net debt, as a percentage of total capitalization, was 25% at the end of the second quarter of fiscal 2002 as compared to 24% at year-end fiscal 2001. 17 We consider our existing lines of credit along with the cash generated from operations to be sufficient for future growth. As indicated above, it is our intent to finance the $360 million purchase price for FSG through the issuance of long-term debt. IV. Other Matters In October 2001, the Financial Accounting Standards Board issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" effective for fiscal years beginning after December 15, 2001. SFAS No. 144 supersedes SFAS No.121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" and provides a single accounting model for long-lived assets to be disposed of. We will adopt the statement in fiscal year 2003, which begins August 4, 2002. We are currently assessing the impact of this new statement on our consolidated financial position and results of operations and have not yet determined the impact of adoption. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK Information about market risks for the three months ended January 26, 2002 does not differ materially from that discussed under Quantitative and Qualitative Disclosure About Market Risk in our Annual Report on form 10-K for 2001. 18 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. In February 1988, an action was filed in the Circuit Court for Washtenaw County, Michigan ("Court") by the State of Michigan ("State") against Gelman Sciences Inc. ("Gelman") (a subsidiary acquired by the Company in February 1997) requesting reimbursement of costs the State had expended in investigating contamination near Gelman's Ann Arbor facility, which the State alleged was caused by Gelman's disposal of waste water from its manufacturing process. Pursuant to a consent judgment entered into by Gelman and the State in October 1992 (amended September 1996 and October 1999), which resolved that litigation, Gelman is remediating the contamination without admitting wrongdoing. In February 2000, the State Assistant Attorney General filed a Motion to Enforce Consent Judgement in the Court seeking approximately $4.9 million in stipulated penalties for alleged violations of the consent judgment and additional injunctive relief. Gelman disputed these assertions and in July 2000, the Court took the matter of penalties "under advisement" and held that Gelman was not in violation of the Consent Judgement. The Court issued a Remediation Enforcement Order requiring Gelman to complete the cleanup within five years under a Court approved plan. In the opinion of management, the Company is in substantial compliance with applicable environmental laws and its current accruals for environmental remediation are adequate. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. (a) The Annual Meeting of Shareholders of the Company was held November 14, 2001. (b) Not required. Proxies for the meeting were solicited pursuant to Regulation 14A under the Securities Exchange Act of 1934. There was no solicitation in opposition to management's director nominees as listed in the proxy statement and all of management's nominees were elected. (c) The matters voted upon and the results of the voting were as follows: 1. Holders of 101,334,858 shares of common stock voted either in person or by proxy for the election of four directors. The number of votes cast for each nominee were as indicated below: Director For Withheld -------- --- -------- John H.F. Haskell, Jr. 99,750,351 1,584,507 Katharine L. Plourde 99,679,217 1,655,641 Heywood Shelley 99,159,194 2,175,664 Edward Travaglianti 99,140,602 2,194,256 2. The Executive Incentive Bonus Plan was approved as follows: For Against Abstain --- ------- ------- 84,799,036 15,819,292 716,530 19 3. The 2001 Stock Option Plan for Non-Employee Directors was approved as follows: Broker For Against Abstain Non Votes --- ------- ------- --------- 88,761,646 11,931,999 607,913 33,300 (d) Not applicable. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits. See the Index to Exhibits for a list of exhibits filed herewith. (b) Reports on Form 8-K. The Company filed no reports on Form 8-K during the three months ended January 26, 2002. 20 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PALL CORPORATION March 12, 2002 /s/ John Adamovich, Jr. - --------------- ------------------------ Date John Adamovich, Jr. Chief Financial Officer and Treasurer March 12, 2002 /s/ Lisa Kobarg - --------------- ------------------------ Date Lisa Kobarg Chief Corporate Accountant 21 Exhibit Index ------------------ Exhibit Number Description of Exhibit - ------------- ------------------------------ 2 Stock Purchase Agreement by and between United States Filter Corporation and Pall Corporation dated February 14, 2002. This agreement as filed does not include the schedules and exhibits to such agreement listed in the table of contents thereto. The Registrant undertakes to furnish such schedules and exhibits to the Commission upon its request. 3 (i)* Restated Certificate of Incorporation of the Registrant as amended through November 23, 1993, filed as Exhibit 3 (i) to the Registrant's Annual Report on Form 10-K for the fiscal year ended July 30, 1994. 3 (ii)* By-Laws of the Registrant as amended on October 5, 1999, filed as Exhibit 3 (ii) to the Registrant's Annual Report on Form 10-K for the fiscal year ended July 31, 1999. 4* Credit Agreement dated as of August 30, 2000 by and among the Registrant and Fleet Bank, National Association as Administrative Agent, The Chase Manhattan Bank as Syndication Agent, Wachovia Bank, N.A. as Documentation Agent and The Lenders Party Thereto, filed as Exhibit 4 to the Registrant's Quarterly Report on Form 10-Q for the quarterly period ended October 28, 2000. The exhibits filed herewith do not include other instruments with respect to long-term debt of the Registrant and its subsidiaries, inasmuch as the total amount of debt authorized under any such instrument does not exceed 10% of the total assets of the Registrant and its subsidiaries on a consolidated basis. The Registrant agrees, pursuant to Item 601 (b) (4) (iii) of Regulation S-K, that it will furnish a copy of any such instrument to the Securities and Exchange Commission upon request. 10.1 (a) Employment agreement dated December 18, 2001 between the Registrant and Eric Krasnoff. 10.2 (a) Employment agreement dated December 18, 2001 between the Registrant and Jeremy Hayward-Surry. 10.3 (a) Employment agreement dated November 15, 2001 between the Registrant and Donald B. Stevens. * Incorporated herein by reference. (a) Management contract or compensatory plan or arrangement. 22 Exhibit Index ------------------ Exhibit Number Description of Exhibit - ------------- ------------------------------ 10.4 (a) Employment agreement dated November 15, 2001 between the Registrant and John Adamovich. 10.5 (a) Employment agreement dated November 15, 2001 between the Registrant and Steven Chisolm. 10.6 (a) Employment agreement dated November 15, 2001 between the Registrant and Charles Grimm. 10.7 (a) Employment agreement dated November 15, 2001 between the Registrant and Paul Kohn. 10.8 (a) Employment agreement dated November 15, 2001 between the Registrant and Samuel Wortham. 10.9 (a) Employment agreement dated November 15, 2001 between the Registrant and John Miller. 10.10 (a) Employment agreement dated November 15, 2001 between the Registrant and Reed Sarver. 10.11 (a) Pall Corporation Employee Stock Purchase Plan. * Incorporated herein by reference. (a) Management contract or compensatory plan or arrangement. EX-2 3 b316968_ex2.txt STOCK PURCHASE AGREEMENT Final Form EXHIBIT 2 CONFIDENTIAL STOCK PURCHASE AGREEMENT BY AND BETWEEN UNITED STATES FILTER CORPORATION AND PALL CORPORATION dated February 14, 2002 TABLE OF CONTENTS Page ARTICLE I DEFINITIONS; CONSTRUCTION.........................................1 1.1 Definitions.....................................................1 1.2 Construction....................................................8 ARTICLE II THE TRANSACTION..................................................9 2.1 Sale and Purchase of USFCA Shares...............................9 2.2 Purchase Price..................................................9 2.3 Purchase Price Adjustment.......................................9 2.4 Procedures for Calculating and Paying the Purchase Price Adjustment...............................................10 2.5 Closing........................................................11 2.6 Payment........................................................11 ARTICLE III REPRESENTATIONS AND WARRANTIES OF USF..........................11 3.1 Organization and Authority.....................................12 3.2 Authorization; Enforceability..................................12 3.3 Shares; Capitalization.........................................12 3.4 No Violation of Laws or Agreements; Consents...................13 3.5 Financial Statements...........................................14 3.6 No Changes.....................................................14 3.7 Taxes..........................................................15 3.8 Owned and Leased Property......................................16 3.9 No Pending Litigation..........................................18 3.10 Compliance With Law; Permits...................................18 3.11 Labor Matters..................................................18 3.12 Intellectual Property Rights...................................19 3.13 Employees; Employee Related Agreements and Plans; ERISA........21 3.14 Environmental Matters..........................................24 3.15 Bank Accounts..................................................25 3.16 Material Contracts.............................................26 3.17 Brokers, Finders, Etc..........................................26 3.18 Insurance......................................................26 3.19 Absence of Undisclosed Liabilities.............................27 3.20 Disclaimer of Warranties.......................................27 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER.........................27 4.1 Organization...................................................27 4.2 Authorization; Enforceability..................................27 4.3 No Violation of Laws; Consents.................................28 4.4 No Pending Litigation or Proceedings...........................28 4.5 Brokers, Finders, Etc..........................................28 4.6 Investment.....................................................28 4.7 Financial Ability..............................................28 i ARTICLE V ACTIONS PRIOR TO CLOSING DATE....................................28 5.1 Access to Group Information....................................29 5.2 Notifications..................................................29 5.3 Consents of Third Parties......................................29 5.4 Filings Under the HSR Act and Laws of Foreign Jurisdictions....30 5.5 Operations Prior to Closing Date...............................31 5.6 Negotiations...................................................32 5.7 Guaranty and Surety Obligations................................32 5.8 Alternative Structures.........................................32 5.9 Directors' Shares..............................................32 5.10 Removal of Certain Liens.......................................32 ARTICLE VI ADDITIONAL AGREEMENTS...........................................33 6.1 Use of Names; Transfer of Intellectual Property Assets.........33 6.2 Tax Matters....................................................34 6.3 Employees and Employee Benefit Plans...........................41 6.4 Insurance......................................................44 6.5 Securities Law Compliance and Legends..........................44 6.6 No Public Announcement.........................................45 6.7 Expenses.......................................................45 6.8 Environmental Access...........................................45 6.9 Employees......................................................45 6.10 Assignment.....................................................46 6.11 Shared Facilities..............................................46 6.12 Agreements with USF and Affiliates.............................46 6.13 Legal Opinion of USF...........................................46 6.14 Legal Opinion of Buyer.........................................46 6.15 Noncompetition.................................................46 6.16 Patent Licenses................................................49 ARTICLE VII CONDITIONS TO CLOSING; TERMINATION.............................49 7.1 Conditions Precedent to Obligation of Buyer....................49 7.2 Conditions Precedent to Obligation of USF......................51 7.3 Termination....................................................52 ARTICLE VIII INDEMNIFICATION...............................................52 8.1 Survival of Representations, Warranties, Covenants and Agreements.....................................................52 8.2 General Indemnification........................................53 8.3 Procedures.....................................................54 8.4 Consequential Damages..........................................55 8.5 Sole Remedy....................................................55 ARTICLE IX MISCELLANEOUS...................................................55 9.1 Books and Records..............................................55 9.2 Further Assurances.............................................56 9.3 Notices........................................................56 9.4 Assignment; Governing Law......................................57 9.5 Amendment and Waiver; Cumulative Effect........................59 9.6 Entire Agreement; No Third Party Beneficiaries.................59 9.7 Severability...................................................59 9.8 Counterparts...................................................59 ii LIST OF SCHEDULES AND EXHIBITS Schedule A-1 - U.S. Members Schedule A-2 - Foreign Members Schedule A-3 - Joint Venture Entities Schedule 1.1P - Permitted Encumbrances Schedule 1.1S - Sensor Technology Business Patents Schedule 2.3 - Purchase Price Adjustments Schedule 3.1 - Organization Schedule 3.5 - Financial Statements Schedule 3.6 - Absence of Changes Schedule 3.7 - Taxes Schedule 3.8(a) - Owned Real Property Schedule 3.8(b) - Leases of Real Property Schedule 3.8(d) - Shared Facilities Schedule 3.8(e) - Sufficiency of the Assets Schedule 3.9 - Litigation Schedule 3.10 - Compliance With Law; Permits Schedule 3.11 - Labor Matters Schedule 3.12(b) - Intellectual Property Agreements Schedule 3.12(c)(i) - Rights in Intellectual Property Schedule 3.12(c)(ii) - Patents Schedule 3.12(c)(iii) - Marks Schedule 3.13(a) - Employee Benefit Plans Schedule 3.13(b) - Status of Plans Schedule 3.13(c) - Liabilities under Employee Benefit Plans Schedule 3.13(d) - Contributions Schedule 3.13(h) - Employees Schedule 3.13(i) - Agreements and Plans Schedule 3.14 - Environmental Matters Schedule 3.15 - Bank Accounts Schedule 3.16 - Material Contracts Schedule 3.17 - Brokers, Finders of USF Schedule 3.18 - Insurance Schedule 4.5 - Brokers, Finders of Buyer Schedule 5.3 - Material Consents Schedule 5.4 - Antitrust Laws Schedule 5.5 - Operations Prior to Closing Date Schedule 5.7 - Guaranty and Surety Obligations Schedule 6.4 - Workers Compensation Claims Schedule 6.15 - Noncompetition iii Exhibit 1 - Form of Opinion of USF General Counsel Exhibit 2 - Opinions of Buyer's General Counsel Exhibit 3 - Guaranty of Vivendi Water S.A. iv LIST OF APPENDICES Appendix I - Financial Statements Appendix II - Patents Appendix III - Marks Appendix IV - Bank Accounts Appendix V - Insurance Policies Appendix VI - Insurance Claims (Non-Workers' Compensation) Appendix VII - Insurance Claims (Workers' Compensation) v Stock Purchase Agreement (the "Agreement"), dated the 14th day of February, 2002, by and between UNITED STATES FILTER CORPORATION, a Delaware corporation ("USF"), and PALL CORPORATION, a New York corporation ("Buyer"). WITNESSETH A. USF directly owns all of the issued and outstanding capital stock of USFC Acquisition, Inc. ("USFCA"), a Delaware corporation (the "USFCA Shares"). B. USFCA owns directly or indirectly all of the issued and outstanding capital stock (the "Subsidiary Shares" and together with the USFCA Shares the "Shares") of the entities listed on Schedule A-1 [US] and Schedule A-2 [Foreign]. C. USFCA indirectly owns a majority of the issued and outstanding capital stock of the entities listed on Schedule A-3. D. On the terms and subject to the conditions set forth in this Agreement, USF desires to sell to Buyer, and Buyer desires to purchase from USF, the USFCA Shares. NOW, THEREFORE, in consideration of the representations, warranties, covenants and agreements contained herein, USF and Buyer, each intending to be legally bound hereby, agree as set forth below. ARTICLE I DEFINITIONS; CONSTRUCTION 1.1 Definitions. As used in this Agreement, the following terms have the meanings specified in this Section 1.1. "AAA Arbitration" has the meaning given that term in Section 2.4. "Account Transfer Date" has the meaning given that term in Section 6.3. "Accounting Mediator" has the meaning given that term in Section 2.4. "Acquired Business" has the meaning given that term in Section 6.15. "Affected Employees" has the meaning given that term in Section 6.3. 1 "Affiliate" means, with respect to any Person, any other Person that, directly or indirectly, through one or more intermediaries, controls, is controlled by or is under common control with such Person. "Affiliated Group" has the meaning given that term in Section 3.7. "Agreement" means this Stock Purchase Agreement, as it may be amended from time to time. "Antitrust Division" means the Antitrust Division of the United States Department of Justice. "Antitrust Law" has the meaning given that term in Section 5.4. "Balance Sheet" has the meaning given that term in Section 3.5. "Balance Sheet Date" has the meaning given that term in Section 3.5. "Business" means the business of the Group as conducted on the date hereof, which consists of the design, manufacture and sale of filtration products for the separation and purification of liquids and gasses, but which excludes the Memcor Business and the Sensor Technology Business. "Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday that is not a day on which banking institutions in New York, New York are authorized or obligated by law or executive order to close. "Buyer" means Pall Corporation, a New York corporation. "Buyer Benefit Programs" has the meaning given that term in Section 6.3. "Buyer's 401(k) Plan" has the meaning given that term in Section 6.3. "CERCLA" has the meaning given that term in the definition of "Environmental Law". "Closing" has the meaning given that term in Section 2.5. "Closing Date" has the meaning given that term in Section 2.5. "Closing Date Adjusted Net Assets" means total assets of the Group less total liabilities of the Group, as of the Closing Date, determined (i) in accordance with GAAP (applied on a basis consistent with USF's past practice relating to the Group) except as set forth in the last paragraph of Schedule 3.5, (ii) subject to the same type of adjustments set forth on Schedule 2.3, and (iii) pursuant to the procedures set forth in Section 2.4. "COBRA" has the meaning given that term in Section 3.13. "Code" means the United States Internal Revenue Code of 1986, as amended from time to time, and the applicable rulings and regulations thereunder. 2 "Contract" and "Contracts" means any written agreement, note, letter of credit, indenture, financial instrument, lease or license to which any Member is a party (other than with another Member) or by which it is bound. "Debt Obligations" shall mean any Contract evidencing an obligation for borrowed money by any Member (except intra-Group indebtedness), any capitalized lease obligation of any Member, any obligation properly classified as indebtedness or debt under GAAP, or any guarantee of any Member in respect of any indebtedness or obligation for borrowed money of any Person (other than in respect of the obligations of another Member and other than the endorsement of negotiable instruments for deposit or collection in the ordinary course of business). "Differences" has the meaning given that term in Section 2.4. "Directors' Shares" means the Shares identified as such on Schedule A-2. "Encumbrance" means any mortgage, deed of trust, pledge, security interest, claim, easement, lien, charge, option, restriction on transfer, conditional sale or other title retention agreement, defect in title or other restriction of a similar kind. "Environmental Laws" means all Laws relating to (a) the control of any pollutant or the protection or restoration of the environment (including air, water and land), workplace safety, human health or natural resources; (b) the generation, manufacture, processing, use, handling, treatment, storage, disposal, release, distribution and transportation of solid, gaseous or liquid wastes, including Laws relating to releases or threatened releases of Hazardous Materials (including releases to ambient air, surface water, groundwater and land) including the Clean Air Act ("CAA"), 42 U.S.C. ss.7401 et seq., the Resource Conservation and Recovery Act ("RCRA"), 42 U.S.C. ss.6901 et seq., the Federal Water Pollution Control Act, as amended by the Clean Water Act ("CWA"), 33 U.S.C. ss.1251 et seq., the Comprehensive Environmental Response, Compensation, and Liability Act, as amended by the Superfund Amendments and Reauthorization Act ("CERCLA"), 42 U.S.C. ss.9601 et seq., the Toxic Substances Control Act ("TSCA"), 15 U.S.C. ss.2601 et seq., the Oil Pollution Act of 1990 ("OPA"), 33 U.S.C. ss.2701 et. seq., the Emergency Planning and Community Right to Know Act ("EPCRA"), 42 U.S.C. ss.1101 et seq., and the Hazardous Materials Transportation Act ("HMTA"), 49 U.S.C. ss.1501 et seq., as each may be amended from time to time. "ERISA" means the United States Employee Retirement Income Security Act of 1974, as amended, and the applicable rulings and regulations thereunder. "Excess Section 338 Tax Liability" has the meaning given that term in Section 6.2. "Expenses" means any and all reasonable expenses incurred in connection with defending any claim, action, suit or proceeding incident to any matter indemnified against hereunder (including court filing fees, court costs, arbitration fees or costs, witness fees and reasonable fees and disbursements of legal counsel, investigators, expert witnesses, accountants and other professionals). "Final Payment Date" has the meaning given that term in Section 2.4. 3 "Financial Statements" has the meaning given that term in Section 3.5. "Foreign Jurisdiction" means any Governmental Body having lawful jurisdiction in a place outside the United States of America in which any Member carries on the Business. "Foreign Member" means each of the Members listed on Schedule A-2 and Schedule A-3. "Foreign Member Retirement Plan" means any written plan established, maintained, sponsored or contributed to by any Foreign Member that provides retirement or pension benefits to non-U.S. employees of such Foreign Member, excluding any plans maintained or required by applicable Law or any Governmental Body. "FTC" means the United States Federal Trade Commission. "GAAP" means United States generally accepted accounting principles in effect for the relevant time period. "Gas Filtration" has the meaning given that term in Section 6.15. "Governing Documents" means, with respect to any Person who is not a natural Person, the certificate or articles of incorporation, bylaws, deed of trust, formation or governing agreement and other charter documents or organizational or governing documents or instruments of such Person. "Governmental Body" means any court or government (federal, state, local, foreign or provincial) or any political subdivision thereof, including without limitation, any department, commission, board, bureau, agency or other regulatory, administrative or governmental authority or instrumentality. "Group" means all of the Members. "Group Names" has the meaning given that term in Section 6.1. "Hazardous Materials" means (a) any radioactive materials, asbestos in any form that is friable, and transformers that contain dielectric fluid containing levels of polychlorinated biphenyls; and (b) any chemicals, materials or substances classified as "hazardous substances," "hazardous wastes," "hazardous materials," "extremely hazardous wastes," "restricted hazardous substances," or "toxic substances" under any applicable Environmental Law. "HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. "Income Tax" (and, with correlative meaning, "Income Taxes") means any Tax on net or gross income, profits or receipts, together with any interest or penalties, imposed by any Governmental Body. "Indemnified Party" has the meaning given that term in Section 8.2. 4 "Indemnifying Party" has the meaning given that term in Section 8.2. "In-Process Liquid Filtration" has the meaning given that term in Section 6.15. "Intellectual Property Assets" has the meaning given that term in Section 3.12. "IP" has the meaning given that term in Section 3.8. "IRS" means the United States Internal Revenue Service. "Joint Venture Entities" means the entities listed on Schedule A-3. "Law" means any applicable statute, law, ordinance, rule, regulation, order, judgment or decree enacted, adopted, issued or promulgated by any Governmental Body. "Licensed Buyer Patents" has the meaning given that term in Section 6.16. "Licensed USF Patents" has the meaning given that term in Section 6.16. "Litigation" means any action, suit, arbitration or proceeding of any nature or kind whatsoever, whether civil, criminal or administrative, at law or in equity, by or before any Governmental Body or arbitrator. "Losses" means, without duplication, any and all losses, costs, obligations, liabilities, settlement payments, fines, penalties, damages, Expenses or other charges. "Marks" has the meaning given that term in Section 3.12. "Material Adverse Effect" means a material adverse effect on the results of operations or financial condition of the Group, taken as a whole, other than changes (i) relating to generally applicable economic conditions or the industry in which the Group operates in general or (ii) resulting from the announcement by USF of its intention to sell the Group. "Member" means each of the U.S. Members and each of the Foreign Members. "Memcor Business" means the manufacture, sale and distribution of water and wastewater treatment systems and equipment based on a backwashable hollow membrane fiber filtration technology. "Multiemployer Plan" means a multiemployer plan within the meaning of Section 4001 of ERISA. "Non-Compete Period" has the meaning given that term in Section 6.15. "Operative Period" has the meaning given that term in the first paragraph of Article III. "Owned Real Property" has the meaning given that term in Section 3.8. "Party" means each of USF and Buyer. 5 "Patents" has the meaning given that term in Section 3.12. "Permits" has the meaning given that term in Section 3.10. "Permitted Encumbrances" means (a) liens for Taxes and other governmental charges and assessments that are not yet due and payable, (b) liens of landlords and liens of carriers, warehousemen, mechanics, materialmen and repairmen and other similar liens arising in the ordinary course of business for sums not yet due and payable, (c) liens reflected in the Financial Statements, (d) purchase money security interests, (e) other liens on, or imperfections of title with respect to, property that are not material in amount and do not materially detract from the value of or materially impair the existing use of the property affected by such lien or imperfection and (f) Encumbrances set forth on Schedule 1.1P. "Person" means and includes a natural person, a corporation, an association, a partnership, a limited liability company, a trust, a joint venture, an unincorporated organization or a Governmental Body. "Plymouth Businesses" has the meaning given that term in Section 6.15. "Policies" has the meaning given that term in Section 3.18. "Pre-Closing Period" has the meaning given that term in Section 3.7. "Proceedings" has the meaning given that term in Section 8.2. "Prohibited Activity" has the meaning given that term in Section 6.15. "Purchase Price" has the meaning given that term in Section 2.2. "Purchase Price Adjustment" has the meaning given that term in Section 2.3. "Recoverable Loss" means any Losses arising out of any single act, omission, event or circumstance (or series of related acts, omissions, events or circumstances) if such Losses exceed $25,000 (and, if such Losses are incurred, the entire amount of such Losses shall be a Recoverable Loss). "Reference Rate" means the U.S. prime rate published in the Wall Street Journal on the Closing Date, plus 125 basis points. "Related Party" means (i) any Affiliate of a Party or (ii) any officer or director of a Party or of any Person identified in clause (i) preceding. "Reserved Names" has the meaning given that term in Section 6.1(a). "Section 338 Elections" has the meaning given that term in Section 6.2. "Section 338(h)(10) Elections" has the meaning given that term in Section 6.2. "Securities Act" has the meaning given that term in Section 4.6. 6 "Sensor Technology Business" means the operations and business conducted by certain Members relating to the development and exploitation of the U.S. and foreign patents identified in Schedule 1.1S. "Shares" has the meaning given that term in the recitals of this Agreement. "Stamp Duty Clawback" means a stamp duty that becomes due on or after the Closing Date arising from the intragroup transfer of a Member prior to the Closing Date for which there was a stamp duty holiday. "Straddle Period" has the meaning given that term in Section 3.7. "Subsidiary" means any corporation, partnership, joint venture or other entity of which any Person owns, directly or indirectly, more than 50% of the outstanding voting securities or equity interests. "Tax" (and, with correlative meaning, "Taxes" and "Taxable") means taxes of any kind, levies or other like assessments, customs, duties, imposts, charges or fees, including income, gross receipts, ad valorem, value added, excise, real or personal property, asset, sales, use, license, payroll, transaction, capital, net worth and franchise taxes, estimated taxes, withholding, employment, social security, workers compensation, utility, severance, production, unemployment compensation, occupation, premium, windfall profits, transfer and gains taxes or other governmental taxes imposed by or payable to any Governmental Body. "Tax Matters" has the meaning given that term in Section 6.2. "Tax Return" means any return, declaration, form, report, claim for refund, or information return or statement relating to any Tax, including any schedule or attachment thereto, and including any amendment thereof. "Territory" has the meaning given that term in Section 6.15. "Transferred Assets" has the meaning given that term in Section 6.3. "USFCA Share Transfer" has the meaning given that term in Section 2.1. "USFCA Shares" has the meaning given that term in the recitals of this Agreement. "U.S. Company Employees" has the meaning given that term in Section 6.3. "U.S. Members" means the entities listed on Schedule A-1, including USFCA. "USF" has the meaning given that term in the introductory paragraph of this Agreement. "USF 401(k) Plan" means the United States Filter Corporation Retirement Savings Plan. "USF Employee Benefit Plan" means any (i) "employee benefit plan," within the meaning of Section 3(3) of ERISA or (ii) stock option, stock purchase, restricted stock, VEBA, profit sharing, pension, retirement, deferred compensation, medical, life, disability, accident, salary continuation, sick pay, sick leave, supplemental retirement and unemployment benefit plans or programs (whether or not insured), that has been established, maintained, sponsored or contributed to by USF or any United States Subsidiary of USF for the benefit of any active, retired or former employee or director of any Member; provided, that "USF Employee Benefit Plan" shall not include any Foreign Member Retirement Plan, any Vivendi Employee Benefit Plan or any Multiemployer Plan. 7 "USF's Knowledge" means the present actual knowledge of Robert Joyce (as to all matters), Stephen Stanczak (as to all matters), Thomas Witt (as to all matters), Andrew Denver (as to all matters), Joy Gaetano (as to the matters which are the subject of the representations and warranties in Section 3.13 only), Duane Huennekens (as to the matters which are the subject of the representations and warranties in Section 3.7 only), Gary Ganzi (as to the matters which are the subject of the representations and warranties in Section 3.12 only) and Fred Kile, John Coyne and Rodney Huerter (as to the matters which are the subject of the representations and warranties in Section 3.14 only), after reviewing this Agreement (including the representations and warranties made herein) with each of the following persons: David McGarvey, Ron Riley, Dr. Erbil Turgay, Minoru Okazaki, Klaus Merck and Claude Grunewald (together, for purposes of this definition, the "Management Group"). All matters disclosed to the persons listed above in this paragraph (other than the Management Group) by the Management Group in reviewing and discussing this Agreement (and the representations and warranties made herein) shall be deemed within the present actual knowledge of such persons. If USF, any Member, or any of their employees, agents, directors or officers has disclosed information to Stephen Stanczak or Thomas Witt that would be relevant to a determination of or could constitute USF's Knowledge, USF will waive any attorney-client privilege it may have pertaining to such information and with respect to periods prior to the Closing Date cause all Members to waive any attorney-client privilege they may have pertaining to such information. "USF MDCP" has the meaning given that term in Section 6.3. "USF Licensed Field" has the meaning given that term in Section 6.16. "Vivendi Employee Benefit Plan" means any of the plans identified as such on Schedule 3.13(a). "VNAO" means Vivendi North America Operations, Inc., a Delaware corporation and the sole stockholder of USF. "WARN Act" means the Federal Workers' Adjustment and Retraining Notification Act. "Water or Wastewater Filtration Applications" has the meaning given that term in Section 6.15. 1.2 Construction. (a) Unless the context otherwise requires, as used in this Agreement: (i) an accounting term not otherwise defined herein has the meaning ascribed to it in accordance with GAAP; (ii) "or" is not exclusive; (iii) "including" and its variants mean "including, without limitation" and its variants; (iv) words defined in the singular have the parallel meaning in the plural and vice versa; (v) references to "written" or "in writing" include in electronic form; (vi) words applicable to one gender shall be construed to apply to each gender; (vii) the terms "hereof", "herein", "hereby", "hereto", and derivative or similar words refer to this entire Agreement, including the Schedules hereto; and (viii) the terms "Article", "Section" and "Schedule" refer to the specified Article, Section, or Schedule of or to this Agreement. 8 (b) A reference to any Person includes such Person's successors and permitted assigns. (c) Any reference to "days" means calendar days unless Business Days are expressly specified. (d) The Schedules, Appendices and Exhibits to this Agreement are incorporated herein by reference and made a part hereof for all purposes. (e) Any references to "dollars" or "$" means dollars of the United States of America unless expressly specified otherwise. Except as otherwise noted, any reference to an amount in dollars in Article III or Article IV means such amount or the equivalent amount in the applicable foreign currency, assuming exchange rates as of September 30, 2001. (f) USF and Buyer, each represented by legal counsel, have each participated in the negotiation and drafting of this Agreement. If an ambiguity or question of intent or interpretation should arise, this Agreement shall be construed as if drafted jointly by the Parties, and no presumption or burden of proof shall arise favoring or burdening either Party by virtue of the authorship of any of the provisions of this Agreement. ARTICLE II THE TRANSACTION 2.1 Sale and Purchase of USFCA Shares. Upon the terms and subject to the conditions of this Agreement and in consideration of the Purchase Price, at the Closing, USF shall sell, assign, transfer and deliver to Buyer (such sale, assignment, transfer and delivery, the "USFCA Share Transfer"), and Buyer shall purchase and take delivery of the USFCA Shares, free and clear of all Encumbrances except those arising under federal, state or foreign securities Laws. The certificates representing the USFCA Shares shall be registered in the name of Buyer or as Buyer may direct. 2.2 Purchase Price. The aggregate purchase price for the USFCA Shares shall be $360,000,000 (the "Purchase Price"), as such price may be adjusted in accordance with the provisions of Section 2.3. and Section7.1(h). 2.3 Purchase Price Adjustment. After the Closing, the Purchase Price shall be adjusted by an amount (the "Purchase Price Adjustment") determined by USF and Buyer in accordance with this Section 2.3 and Section 2.4. If the amount of Closing Date Adjusted Net Assets exceeds $208,452,000, the Purchase Price set forth in Section 2.2 shall be increased by the amount of such excess (a Positive Purchase Price Adjustment). If the amount of Closing Date Adjusted Net Assets is less than $208,452,000 the Purchase Price set forth in Section 2.2 shall be reduced by the amount by which Closing Date Adjusted Net Assets is less than $208,452,000 (a Negative Purchase Price Adjustment). The amount of $208,452,000 in the preceding sentence has been arrived at by making the adjustments to the Balance Sheet shown in Schedule 2.3. 9 2.4 Procedures for Calculating and Paying the Purchase Price Adjustment. (a) Calculation. As soon as practicable after the Closing Date but in no event later than the 120th day after the Closing Date, Buyer shall prepare or cause to be prepared, and shall deliver to USF a schedule setting forth Buyer's calculation of the Purchase Price Adjustment, including a worksheet setting forth its calculation of Closing Date Adjusted Net Assets, and Buyer shall thereafter provide to USF such supporting work papers or other supporting information as may be reasonably requested by USF. The Purchase Price Adjustment shall be calculated using the same foreign exchange rates as were used in the preparation of the Balance Sheet. If USF shall have any objections to Buyer's calculation of the Purchase Price Adjustment, USF shall so notify Buyer no later than ten (10) Business Days after delivery of the schedule, and Buyer and USF shall endeavor in good faith for a period not to exceed 10 Business Days from the date of delivery of such notice to resolve their differences (the "Differences"). If at the end of the 10 Business Day period the parties are unable to resolve any of their Differences, USF and Buyer shall submit the calculation and resolution of such Differences to an independent public accounting firm of recognized national standing in the United States that they agree on in writing. If Buyer and USF have not agreed on an independent public accounting firm by the end of the 10 Business Day period referred to above, such firm shall be selected by lot from those independent public accounting firms of recognized national standing in the United States that are willing to act and, if there are no such independent public accounting firms, from the willing independent public accounting firms of recognized regional standing in one or more regions of the United States in which a Member has offices (the independent public accounting firm selected pursuant to the foregoing procedures, the "Accounting Mediator"). The Accounting Mediator shall be instructed to resolve such Differences and such resolution shall be (i) set forth in writing and signed by the Accounting Mediator, (ii) delivered to Buyer and USF as soon as practicable after the Differences are submitted to the Accounting Mediator but not later than the 30th day after such submission, (iii) made in accordance with this Agreement and (iv) conclusive and binding on the Parties on the date of delivery of such resolution. The Accounting Mediator shall only be authorized on any one issue to decide in favor of and choose the position of either of the Parties or to decide upon a compromise position between the ranges presented by the Parties to such Accounting Mediator. The Accounting Mediator shall base its decision solely upon the presentations of the Parties to the Accounting Mediator at a hearing held before the Accounting Mediator and upon any materials made available by either Party and not upon independent review. If the foregoing procedure does not result in the selection of an Accounting Mediator or if the Accounting Mediator does not or is unwilling to resolve all of the Differences on or before the expiration of 30 days from the date of submission of the Differences, either Party shall be entitled for a period of 10 additional Business Days to apply for arbitration of the unresolved Differences to the American Arbitration Association ("AAA Arbitration") and, if a Party so applies, the Parties shall submit the matter to AAA Arbitration in the City of Wilmington, Delaware, which shall be binding upon the Parties. If neither Party shall apply for AAA Arbitration of the unresolved Differences, the Purchase Price Adjustment shall be deemed to be the amount provided by Buyer to USF pursuant to this subsection, adjusted to reflect those Differences that were theretofore resolved, if any, by the Parties or, if applicable, by the Accounting Mediator. The fees and expenses of the Accounting Mediator or AAA Arbitration, or both, if any, shall be borne equally by Buyer and USF. 10 (b Amount. If the Purchase Price Adjustment as finally determined (whether by agreement of the Parties, lapse of time or resolution of the Differences) is positive, Buyer shall pay to USF the amount of the Purchase Price Adjustment plus interest from the Closing Date to the date of payment, inclusive of each such date, at the Reference Rate. If the Purchase Price Adjustment as so finally determined is negative, USF shall pay to Buyer the amount of the Purchase Price Adjustment plus interest for the period and at the rate described in the preceding sentence. (c) Payment. Payment of the Purchase Price Adjustment plus accrued interest shall be made by Buyer or USF, as the case may be, to the other Party in United States Dollars by wire transfer of immediately available funds to the wire transfer address of such other Party on the 5th Business Day following the date on which the procedures for resolution of the Differences in this Section 2.4 have been completed (the "Final Payment Date"), which wire transfer address shall be designated by Buyer or USF, as the case may be, by notice to the other on or before the 2nd Business Day prior to the Final Payment Date. 2.5 Closing. Unless this Agreement shall have been terminated and the transactions contemplated hereby shall have been abandoned pursuant to Section 7.3, and subject to the satisfaction or waiver of all of the conditions set forth in Article VII, the closing of the USFCA Share Transfer (the "Closing") shall take place at 10:00 A.M. at the offices of Sutherland Asbill & Brennan LLP, 999 Peachtree Street NE, Atlanta, Georgia 30309, as soon as practicable, but in any event within three (3) Business Days after the last of the conditions set forth in Article VII hereof is satisfied or waived, other than those conditions that by their nature are to be satisfied at the Closing, but subject to the fulfillment or waiver of those conditions, or at such other date, time or place as the Parties shall agree in writing. Such date is herein referred to as the "Closing Date." 2.6 Payment. Upon the terms and subject to the conditions of this Agreement, at the Closing, Buyer shall pay the Purchase Price by wire transfer of immediately available funds to an account designated by USF. ARTICLE III REPRESENTATIONS AND WARRANTIES OF USF As an inducement to Buyer to enter into this Agreement and to consummate the transactions contemplated hereby, USF represents and warrants to Buyer as follows (provided, however, that all representations and warranties of USF in this Article III are made only with respect to the period from and after the date which is the later of (i) December 9, 1997 (being the date on which USF acquired Memtec, Ltd., the predecessor of the Group), (ii) to the extent any such representation or warranty relates to any Member acquired by USF or any of its Affiliates after December 9, 1997, the date upon which such Member was acquired by USF or any of its Affiliates, and (iii) any date specifically referred to in such representation or warranty (any such period, the "Operative Period")): 11 3.1 Organization and Authority. USF is a corporation duly organized, validly existing and in good standing under the Laws of the State of Delaware. USF has all corporate power and authority to enter into this Agreement and to perform its obligations hereunder. Each of the Members is duly organized, validly existing and in good standing under the Laws of its jurisdiction of organization (in those jurisdictions in which the concept of good standing is applicable) and has all corporate power and authority to own, operate or lease its properties and carry on its business as now conducted. Each of the Members is duly qualified to do business and is in good standing (in those jurisdictions in which the concept of good standing is applicable) in each jurisdiction in which the character of the properties owned, operated or leased by it or the nature of the activities conducted by it make such qualification and good standing necessary, except where the failure to be so qualified or in good standing could not reasonably be expected to have a Material Adverse Effect. Schedule 3.1 sets forth a list of all jurisdictions where the character of the properties owned, operated or leased by a U.S. Member or the nature of the activities conducted by such U.S. Member make such qualification and good standing necessary, and a list of all Foreign Jurisdictions (other than the respective jurisdiction of formation or incorporation) where any Member owns material physical assets. 3.2 Authorization; Enforceability. This Agreement has been duly executed and delivered by and constitutes the legal, valid and binding obligation of USF, enforceable against it in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium and other Laws of general application relating to or affecting creditors' rights and to general equity principles. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly and validly authorized by all necessary corporate proceedings on the part of USF and by the other Members of the Group if and to the extent required by Law or Governing Documents. 3.3 Shares; Capitalization. (a) Members. Other than the Directors' Shares, the Shares constitute all of the issued and outstanding shares of capital stock of the Members. The authorized capital stock of each Member (other than the Joint Venture Entities) and the number of shares of capital stock issued, outstanding and held in treasury are listed on Schedule A-1 and Schedule A-2, respectively. All of the USFCA Shares are owned of record and beneficially by USF and are free and clear of any and all Encumbrances, except those created by or on behalf of Buyer and those arising under federal, state or foreign securities Laws. All of the Member Shares (other than the Shares of the Joint Venture Entities and the USFCA Shares) are owned of record and beneficially by direct or indirect wholly-owned Subsidiaries of USFCA and are free and clear of all Encumbrances, except those created by or on behalf of Buyer and those arising under federal, state or foreign securities Laws. All of such outstanding shares of capital stock have been duly authorized and validly issued and are fully paid and nonassessable. None of the Members has any outstanding options, warrants, rights or subscriptions, or has entered into or incurred any other binding commitment or obligation which remains enforceable to issue or sell any shares of its capital stock, or any securities or obligations convertible into or exchangeable for any shares of its capital stock, or has granted to any Person any right which remains enforceable to subscribe for or acquire from it any shares of its capital stock, and no such securities, obligations or rights are outstanding. 12 (b) Joint Venture Entities. Schedule A-3 contains a list of each Member that is not directly or indirectly wholly owned by USFCA and sets forth the authorized and outstanding capital stock of each such Joint Venture Entity. The number of the outstanding shares of capital stock of each such Joint Venture Entity as shown on such Schedule are owned of record and beneficially by direct or indirect wholly-owned Subsidiaries of USFCA, as indicated on such Schedule, free and clear of any and all Encumbrances, except those created by or on behalf of the Buyer and Permitted Encumbrances. The outstanding shares of capital stock of such Joint Venture Entities which are indirectly owned by USFCA have been duly authorized and validly issued, and are fully paid and nonassessable. None of such Joint Venture Entities has any outstanding options, warrants, rights or subscriptions, or has entered into or incurred any other binding commitment or obligation which remains enforceable to issue or sell any shares of its capital stock, or any securities or obligations convertible into or exchangeable for any shares of its capital stock, or has granted to any Person any right which remains enforceable to subscribe for or acquire from it any shares of its capital stock, and no such securities, obligations or rights are outstanding. (c) Transfer of Title. Upon delivery of the USFCA Shares hereunder, Buyer will acquire title thereto, free and clear of any and all Encumbrances except those arising under federal, state or foreign securities Laws. 3.4 No Violation of Laws or Agreements; Consents. (a) No Violation of Laws or Agreements. Except as set forth on Schedule 5.3, neither the execution and delivery by USF of this Agreement, the consummation of the transactions contemplated hereby, nor the compliance with or fulfillment of the terms, conditions or provisions hereof by USF: (i) violates any provision of the Governing Documents of USF or any of the Members; (ii) conflicts with, breaches, constitutes a default or an event of default under any of the terms of, results in the termination of, accelerates the maturity of or creates any Encumbrance on the USFCA Shares or any asset or property of any of the Members or under any lease, license, indenture, mortgage or any other contract, agreement or instrument to which any Member is a party or by which any of its assets may be bound or affected, the result of which would have a Material Adverse Effect; or (iii) violates any Law to which any Member is subject or by which any asset of the Members is bound or affected, the result of which would have a Material Adverse Effect. (b) Consents. Other than filings required in compliance with the provisions of the HSR Act and other Antitrust Laws as set forth on Schedule 5.4, and such consents, approvals, authorizations, registrations or filings the failure of which to obtain or make would not have a Material Adverse Effect, and except as set forth on Schedule 5.3, no consent, approval or authorization of, or registration or filing with, any Person is required in connection with the execution or delivery by USF of this Agreement or the consummation by USF of the transactions contemplated hereby. 13 3.5 Financial Statements. The audited combined balance sheets as of December 31, 1999 and 2000 and the audited combined income statements and statements of cash flows for the Group for the two-year period ended December 31, 2000 and the unaudited consolidated balance sheet and income statement for the Group as of December 31, 2001 and for the year then ended (collectively, the "Financial Statements") have been delivered to Buyer and are attached hereto as Schedule 3.5. The Financial Statements (i) have been prepared in accordance with GAAP on a consistent basis throughout the indicated period, except as set forth on Schedule 3.5, and (ii) present fairly in all material respects the financial condition and results of operation of the Group at the dates and for the relevant periods indicated. The unaudited consolidated balance sheet of the Group as of December 31, 2001 included in the Financial Statements shall be referred to herein as the "Balance Sheet," and December 31, 2001 shall be referred to herein as the "Balance Sheet Date." The amounts set forth in Schedule 2.3 followed by reference to footnote (3), which footnote reads, "Transfer of Sensor related assets and liabilities to Parent Company Investment," set forth truly and correctly in all material respects the assets and liabilities attributable to the Sensor Technology Business as of the Balance Sheet Date. 3.6 No Changes. Except as set forth on Schedule 3.6 or as contemplated by this Agreement, since the Balance Sheet Date the Group has conducted the Business only in the ordinary course and there has not been: (i) any change in the financial condition or assets of the Group which has had, individually or in the aggregate with other such changes, a Material Adverse Effect; (ii) any damage or destruction to or loss of any asset of the Group, whether or not covered by insurance, that has had, individually or in the aggregate with other such damages, destruction or losses, a Material Adverse Effect; (iii) any material increase in the salary, wage or bonus payable by any Member to any managerial employee of the Group whose cash compensation as of the Balance Sheet Date exceeded $150,000 annually, except in the ordinary course of business and consistent with past business practices; (iv) any material change in any method of accounting, other than as required by GAAP; (v) any sale, lease or other disposition of any material assets of the Group (other than inventory in the ordinary course of business) other than for fair value, or any condemnation or expropriation or other taking of any assets of the Group by any Governmental Body; (vi) any issuance, sale or disposition of capital stock or any other securities or grant of any options, warrants or other rights to subscribe for or purchase any capital stock or any other securities of any Member; 14 (vii) any declaration or payment of any dividend or distribution with respect to the capital stock of any Member or any redemption, purchase or acquisition of the capital stock of any Member other than dividends or distributions to other Members; (viii) any write-offs, write-downs or write-ups of the value of any of the inventory or other assets of the Group outside the ordinary course of business; (ix) any mortgage or pledge of any material assets of the Group, except for Permitted Encumbrances arising in the ordinary course of business; (x) any creation or assumption of any Debt Obligation for borrowed money, except for Debt Obligations incurred in the ordinary course of business or pursuant to Contracts disclosed on Schedule 3.16 or entered into in the ordinary course of business; (xi) any guarantee of any liability (whether directly, contingently or otherwise) for the obligations of any other Person (other than another Member) except in the ordinary course of business and except for the endorsement of negotiable instruments by any Member in the ordinary course of business; or (xii) any agreement or commitment to do any of the foregoing. 3.7 Taxes. (a) Affiliated Group. The U.S. Members are members of an "affiliated group" (the "Affiliated Group") within the meaning of Section 1504(a) of the Code, and VNAO is the "common parent" of the Affiliated Group. (b) Liabilities. Except as set forth in Schedule 3.7, each of the Members or USF or VNAO, on such Member's behalf, has: (i) duly and timely filed with the appropriate federal, state, local or other taxing authorities all material Tax Returns required to be filed by or on behalf of such Member, and (ii) duly and timely paid all Taxes shown to be due on such Tax Returns with respect to the Member. Any Tax Return or Taxes for which an extension to file or pay has been obtained will be deemed to be timely if filed and paid by the date provided by any such extension. (c) Tax Payments. Except as set forth on Schedule 3.7 and except for Income Taxes, all Taxes and Tax liabilities of the Members (x) for all Tax periods ending on or prior to the Closing Date or (y) with respect to any taxable year or period beginning before and ending after the Closing Date (a "Straddle Period"), the portion of such Straddle Period ending on and including the Closing Date (each such year or period or portion thereof ending on or before the Closing Date, a "Pre-Closing Period") to the extent due and payable have been paid. (d) Audits; Examinations. Except as set forth on Schedule 3.7: 15 (i) (A) no audit or other examination of Taxes is currently pending with respect to any of the Members, which audit or examination would materially adversely affect the Tax liability of any of such Members; and (B) no such audit or examination has been conducted with respect to which there is any outstanding Tax liability; (ii) no Member is in receipt of any written notice of any federal, state, local or foreign income Tax deficiency outstanding, proposed or assessed against or allocable to it, which has not been finally resolved; and (iii) as of the Closing Date, no statute of limitations will remain open as a result of its having been waived or extended with respect to the assessment, payment or collection of Taxes of any Member. (e) Agreements. There are no Tax sharing, allocation, indemnification or similar agreements in effect as between any of the Members and any other Person (except for customary agreements to indemnify lenders or security holders in respect of Taxes and except for provisions in agreements for the divestiture of subsidiaries, assets or business lines of any of the Members that require such Member(s) to indemnify a purchaser for amounts of Taxes of any of the Members in the nature of sales or similar Taxes incurred as a consequence of any such divestiture transactions). (f) Consolidated Returns; Transferee Liability. Except with respect to the Affiliated Group or as set forth on Schedule 3.7, none of the Members has been included in any "consolidated," "unitary" or "combined" Tax Return provided for under any Law with respect to Taxes for which any Member may be liable for any taxable period for which the statute of limitations has not expired, and none of the Members has any liability for the Taxes of any non-Member as a transferee or successor. (g) General. None of the Members has filed a consent under Code ss.341(f) concerning collapsible corporations. None of the Members has made any payments, is obligated to make any payments, or is a party to any agreement that under certain circumstances could obligate it to make any payments that will not be deductible under Code ss.280G. None of the Members has been a United States real property holding corporation within the meaning of Code ss.897(c)(2) during the applicable period specified in Code ss.897(c)(1)(A)(ii). Except for U.S. Filtration Pty Ltd., Presian Pty Limited and Vessel S.r.l., all Members are classified for U.S. Tax purposes according to their default classification as prescribed in Treas. Reg. ss.301.7701-3. 3.8 Owned and Leased Property. (a) Owned Real Property. Schedule 3.8(a) sets forth a complete and accurate list of all real property owned as of the date hereof by each Member (the "Owned Real Property"). Except as set forth on Schedule 3.8(a), the relevant Member has good and marketable title to its Owned Real Property, free and clear of all Encumbrances, except for Permitted Encumbrances. Except as disclosed in any of the Schedules to this Agreement and except for exceptions from the representations and warranties in the following subparagraphs (i) through (v) which do not have a Material Adverse Effect: 16 (i) (condemnation) there are no pending or, to USF's Knowledge, threatened, condemnation proceedings relating to the Owned Real Property; (ii) (right of occupants) there are no leases, subleases, licenses or other agreements, granting to any party other than a Member the right of use or occupancy of any portion of any Owned Real Property; (iii) (options) there are no outstanding options or rights of first refusal to purchase any parcel of Owned Real Property, or any portion thereof or interest therein; (iv) (possession) there is no party (other than a Member) in possession of any parcel of Owned Real Property except as a tenant under a written lease agreement with a Member in possession of space to which it is entitled; (v) (utilities) all facilities located on Owned Real Property are supplied with utilities and other services necessary for the operation of such facilities, including gas, electricity, water, telephone, sanitary sewer, and storm sewer; and (vi) (access) each parcel of Owned Real Property abuts on and has vehicular access to a public road, or has access to a public road via an appurtenant easement benefiting such parcel of Owned Real Property. (b) Leases of Real Property. Schedule 3.8(b) sets forth a complete and accurate list of all leases of real property to which any of the Members is a party on the date hereof or by which any of them is presently bound (whether as lessee or lessor) and which provides for annual lease payments in excess of $150,000. Except as set forth on Schedule 3.8(b), the Member lessee under each lease set forth on Schedule 3.8(b) is in possession of the real property covered thereby. Except as disclosed in any of the Schedules to this Agreement and except for exceptions from the representations and warranties in the following subparagraphs (i) through (iv), which do not have a Material Adverse Effect: (i) (enforceability) each such lease or sublease of a Member is a legal, valid, binding and enforceable obligation of the Member and, to USF's Knowledge, of the other party thereto, and is in full force and effect; (ii) (no default) no Member is in breach or default under such a lease, and to USF's Knowledge, no other party is in breach or default of such a lease; (iii) (encumbrances) no Member has assigned, transferred, conveyed, mortgaged, deeded in trust, or encumbered any interest in the leasehold; (iv) (approvals) for all real property currently leased to a Member, such Member has obtained all approvals of Governmental Bodies required of such Member as a lessee or in connection with such Member's operations therein; and (v) (utilities) all facilities leased thereunder are supplied with utilities and other services necessary for the operation of said facilities. 17 (c) Personal Property. Each Member owns or holds under valid leases all material plant, machinery, equipment and other tangible personal property used for the conduct of its Business, subject to no Encumbrances other than Permitted Encumbrances. (d) Shared Facilities. There is no office or other facility shared by any of the Members with USF or any of USF's Affiliates (other than another Member), except as set forth on Schedule 3.8(d). (e) Rights in the Assets. Except as set forth on Schedule 3.8(e) or in Section 6.1, the Members own or control or have valid contractual rights to use all of the assets required to enable them to collectively operate the Business after the Closing Date in substantially the same manner as the Business is presently conducted (including trademarks and service marks; corporate names, including the corporate name of each of the Members, fictional business names and trading names currently used by the Members; patents, patent applications and invention disclosures; copyrights in both published works and unpublished works; websites and Internet domain names; and know-how, trade secrets, confidential information, customer lists, software, technical information, data, process technology, plans, drawings and blueprints, required to enable the Members to collectively operate the Business after the Closing Date in substantially the same manner as the Business is presently conducted, collectively, "IP"); provided, however, USF makes no representation as to the adequacy of the working capital of the Group which is delivered at Closing. 3.9 No Pending Litigation. Except as set forth on Schedule 3.9, no Litigation is pending or, to USF's Knowledge, threatened against any Member, with respect to which there is a reasonable likelihood of a Loss not covered by insurance, which would, individually or in the aggregate, have a Material Adverse Effect. 3.10 Compliance With Law; Permits. (a) Compliance With Law. Except as set forth on Schedule 3.10, to USF's Knowledge each of the Members is in compliance with all applicable Laws except to the extent that any noncompliance would not, individually or in the aggregate, have a Material Adverse Effect. (b) Permits. Each of the Members owns, holds or possesses all governmental licenses and permits (collectively, "Permits") that are required under applicable Laws to entitle it to own or lease, operate and use its assets and to carry on and conduct the Business as currently conducted by it, except for any Permit the absence of which would not have a Material Adverse Effect, and all such Permits are valid and in full force and effect, except for those the failure of which to be in full force and effect would not have a Material Adverse Effect. 3.11 Labor Matters. To USF's Knowledge, each of the Members is in material compliance with all Laws applicable to it respecting employment and employment practices, terms and conditions of employment and wages and hours, except where the failure to be in compliance would not have a Material Adverse Effect. Except as set forth on Schedule 3.11, there is no collective bargaining agreement which is binding on any of the Members, and to USF's Knowledge, there is no union organizing effort underway, pending or threatened with respect to the employees of any of the Members. There are no strikes, slowdowns or work stoppages pending between any of the Members and any of their respective employees that would reasonably be expected to have a Material Adverse Effect, and no U.S. Member has experienced any such event in the past five (5) years. No Member has engaged in any unfair labor practices as defined in the National Labor Relations Act and there is no unfair labor practice charge or complaint against any Member pending or, to USF's knowledge, threatened before the National Relations Board or any similar state or foreign agency. 18 3.12 Intellectual Property Rights. (a) Intellectual Property Assets. For purposes of this Section 3.12, "Intellectual Property Assets" means: (i) all domestic and foreign trademarks and service marks which are registered or have applications to register pending and unregistered trademarks and service marks of the Members and all such trademarks and service marks of USF and its Subsidiaries other than Members which are used in the conduct of the Business (collectively, "Marks") and, subject to the provisions of Section 6.1, the corporate name of each of the Members and all fictional business names and trade names currently used by the Members; (ii) all domestic and foreign issued patents and patent applications or invention disclosures of the Members and all such patents and patent applications or invention disclosures of USF and its Subsidiaries other than Members which are used in the conduct of the Business (collectively, "Patents"); (iii) all copyrights of the Members in both published works and unpublished works including any registrations and applications appurtenant thereto; (iv) all websites and Internet domain names used in the Business, other than any websites of USF and its Affiliates that contain hyperlinks or references to any websites of the Members or the Group or provide support to any websites of the Members or the Group; and (v) all know-how, trade secrets, confidential information, customer lists, software, technical information, data, process technology, plans, drawings and blue prints of the Members. (b) Intellectual Property Agreements. Schedule 3.12(b) sets forth a complete and accurate list of all material agreements relating to the Intellectual Property Assets to which any of the Members is a party on the date hereof or by which any of the Members is bound on the date hereof, except for (i) any license implied by the sale of a product and (ii) perpetual, paid-up licenses for software programs with an individual value of less than $10,000 per license under which any of the Members is the licensee. There are no outstanding or, to USF's Knowledge, threatened disputes with respect to any such agreement. (c) Rights in Intellectual Property. 19 (i) In General. Except as set forth on Schedule 3.12(c)(i), neither USF nor any of its Subsidiaries (other than any of the Members), nor, to USF's Knowledge, any other Person, including any Affiliate of USF, owns or controls any IP material to the operation of the Business as presently conducted by the Group. A. Except as set forth on Schedule 3.12(c)(i), a Member is the owner of all right, title and interest in, or the licensee of, or otherwise has the right to use, without payment to a third party, the Intellectual Property Assets, free and clear of all Encumbrances, except as provided in the relevant licenses identified in the Schedules hereto. B. Except as set forth on Schedule 3.12(c)(i), to USF's Knowledge, neither USF nor its Subsidiaries (including the Members) have received any demand, claim or notice from any Person in respect of the Intellectual Property Assets which challenges the validity, right to use or ownership of any material Intellectual Property Asset. C. All statutory fees, payments and annuities related to the Intellectual Property Assets, including those required to maintain the registration of such assets in good standing have been paid when and as they became due, and USF agrees to cause the Members to timely pay all such fees, payments and annuities that become due prior to the Closing. (ii) Patents. A. Schedule 3.12(c)(ii) sets forth a complete and accurate list of all Patents. B. Except as set forth on Schedule 3.12(c)(ii), no Patent has been or is now involved in any interference, reissue or reexamination proceeding. C. Except as set forth on Schedule 3.12(c)(ii), to USF's Knowledge, no Patent is infringed or threatened to be infringed. (iii) Marks. A. Schedule 3.12(c)(iii) sets forth a complete and accurate list of all Marks. B. All Marks that have been registered with the United States Patent and Trademark Office or other foreign equivalent are currently in compliance with all formal legal requirements (including the timely post-registration filing of affidavits of use and renewal applications). C. Except as set forth on Schedule 3.12(c)(iii) no Mark has been or is now involved in any opposition or cancellation proceeding, and, to USF's Knowledge, no such action is threatened with the respect to any of the Marks. D. Except as set forth on Schedule 3.12(c)(iii), to USF's Knowledge, no Mark is infringed or threatened to be infringed. To USF's Knowledge, none of the Marks used by any of the Members infringes or is alleged to infringe any trade name, trademark, or service mark of any third party. 20 3.13 Employees; Employee Related Agreements and Plans; ERISA. (a) List of Plans. Set forth on Schedule 3.13(a) is an accurate and complete list of all USF Employee Benefit Plans, all Vivendi Employee Benefit Plans and all Foreign Member Retirement Plans. (b) Status of Plans. (i) Each USF Employee Benefit Plan (including any related trust) complies in form and has been maintained and operated in accordance with the requirements of all applicable Laws, including ERISA and the Code, and each USF Employee Benefit Plan (in each case, including any related trust) has been maintained and operated in substantial compliance with its terms. Except as set forth on Schedule 3.13(b), no complete or partial termination (described in Section 411(d)(3) of the Code) of any USF Employee Benefit Plan has occurred or is expected to occur. No USF Employee Benefit Plan is a plan described in Section 4063(a) of ERISA. (ii) Except as disclosed on Schedule 3.13(b), the Vivendi Employee Benefit Plans are the only plans maintained by Vivendi Environnement S.A. or Vivendi Universal S.A. which benefit employees of the Members and none of such plans is subject to ERISA. Except for payroll tax obligations which may arise upon exercise of outstanding stock options granted under Vivendi Employee Benefit Plans, none of the Members has any obligations in respect of, or any unfunded liabilities pursuant to, any Vivendi Employee Benefit Plan. (iii) Except as set forth on Schedule 3.13(b), each of the Foreign Member Retirement Plans and all related trusts, insurance contracts and funds have been created, maintained, funded and administered in all respects in material compliance with all applicable Laws, including Tax Laws regarding reserves, and the governing document, trust agreement, insurance policy or other writing creating the same or applicable thereto. (c) Liabilities. (i) No USF Employee Benefit Plan is subject to Title IV of ERISA or Section 412 of the Code. (ii) Each USF Employee Benefit Plan which is a "group health plan" (as such term is defined in Section 5000(b)(1) of the Code or Section 607(1) of ERISA) has been administered and operated in substantial compliance with the applicable requirements of Part 6 of Subtitle B of Title I of ERISA and Section 4980B of the Code ("COBRA"), and no Member is subject to any liability, including additional contributions, fines, taxes, penalties or loss of tax deduction as a result of the administration and operation of any such USF Employee Benefit Plan. No USF Employee Benefit Plan which is such a group health plan is a "multiple employer welfare arrangement," within the meaning of Section 3(40) of ERISA. Each USF Employee Benefit Plan that is intended to meet the requirements of Section 125 of the Code meets such requirements in all material respects, and each program of benefits for which employee contributions are provided pursuant to elections under any USF Employee Benefit Plan meets the requirements of the Code applicable thereto. 21 (iii) No USF Employee Benefit Plan (whether qualified or non-qualified under Section 401(a) of the Code) provides for post-employment or retiree health, life insurance and/or other welfare benefits, and no Member has any obligation under any USF Employee Benefit Plan to provide any such benefits to any retired or former employees or active employees following such employees' retirement or termination of service except as required by COBRA or any similar state law. No Member has any unfunded liabilities pursuant to any USF Employee Benefit Plan that is not intended to be qualified under Section 401(a) of the Code. (iv) No Member has incurred any liability or civil penalty under Section 409, 502(i) or 502(l) of ERISA or liability for any tax or excise tax arising under Chapter 43 or Section 6652 of the Code with respect to any USF Employee Benefit Plan and no event has occurred and no condition or circumstance exists that could reasonably be expected to give rise to any such liability with respect to any USF Employee Benefit Plan. (v) There are no actions, suits or claims pending or, to USF's Knowledge, threatened against or with respect to any USF Employee Benefit Plan or the assets of any such plan (other than routine claims for benefits and appeals of denied routine claims). No civil or criminal action brought pursuant to the provisions of Title I, Subtitle B, Part 5 of ERISA is pending or, to USF's Knowledge, threatened against any Member or, to USF's Knowledge, any fiduciary of any USF Employee Benefit Plan with respect to any USF Employee Benefit Plan. USF has not received any written notice that any USF Employee Benefit Plan or any fiduciary thereof is presently the direct or indirect subject of an audit, investigation or examination by any governmental or quasi-governmental agency. (vi) Except as shown on Schedule 3.13(c), no Member has any liabilities (actual or contingent) with respect to any USF Employee Benefit Plan. (d) Contributions. Except as set forth on Schedule 3.13(d), each Member has made full and timely payment of all amounts required to be paid by it as contributions or premiums to any USF Employee Benefit Plan. (e) Tax Qualification. Each USF Employee Benefit Plan intended to be qualified under Section 401(a) of the Code, as currently in effect, is the subject of a favorable determination letter issued by the IRS and the remedial amendment period described in Section 401(b) of the Code applicable to any amendment of any such USF Employee Benefit Plan adopted after the date of such letter has not expired. Each trust established in connection with any USF Employee Benefit Plan which is intended to be exempt from federal income taxation under Section 501(a) of the Code, as currently in effect, is the subject of a favorable determination letter issued by the IRS and the remedial amendment period described in Section 401(b) of the Code applicable to any amendment of any such USF Employee Benefit Plan adopted after the date of such letter has not expired. Since the date of each most recent determination letter referred to in this paragraph (e), no event has occurred and no condition or circumstance exists that has resulted or is reasonably likely to result in the revocation of any such determination letter or that is reasonably likely to adversely affect the qualified status of any such USF Employee Benefit Plan or the exempt status of any such trust. 22 (f) Transactions. No Member nor any of the directors, officers or employees of any Member or, to USF's Knowledge, other Persons who participate in the operation of any USF Employee Benefit Plan or related trust or funding vehicle, has engaged in any transaction with respect to any USF Employee Benefit Plan, or breached any applicable fiduciary responsibilities or obligations under Title I of ERISA that would subject any of them to a tax, penalty or liability for prohibited transactions or breach of any obligations under ERISA or the Code or would result in any claim being made under, by or on behalf of any such USF Employee Benefit Plan by any party with standing to make such claim. (g) Documents. USF has delivered or caused to be delivered to Buyer and/or its counsel true and complete copies of the United States Filter Corporation Retirement Savings Plan; all amendments to such plan, the most recent IRS determination letter, if any, obtained with respect to such plan, the trust agreement applicable to such plan, the most recent annual report on Form 5500 for such plan, and the United States Filter Corporation Section 125 Flexible Benefit Plan. USF has made available to Buyer and its counsel a listing and description of each Foreign Member Retirement Plan. (h) Employees. (i) To USF's Knowledge, Schedule 3.13(h) sets forth a list of all employees of any of the Members with annual base cash compensation in excess of $150,000 as of the Balance Sheet Date, their annual base salaries and their job titles. (ii) During the last four years, no U.S. Member has effectuated (A) a "plant closing" (as defined in the WARN Act) affecting any site of employment or one or more facilities or operating units within any site of employment or facility of a U.S. Member; or (B) a "mass layoff" (as defined in the WARN Act) affecting any site of employment or facility of a U.S. Member and no U.S. Member has been affected by any transaction or engaged in layoffs or employment terminations sufficient in number to trigger application of any similar state or local law. Except as and to the extent set forth on Schedule 3.13(h), none of the employees of the U.S. Members have suffered an "employment loss" (as defined in the WARN Act) during the past six months. (i) Agreements and Plans. Except as described in Schedule 3.13(a) or Schedule 3.13(i), no Member is, with respect to the employees of the Member or otherwise directly relating to the Business, a party to or bound by any written: (i) plan or agreement with any such employee that cannot be unilaterally terminated with notice of 90 or fewer days without liability to the Member or that entitles the employee to receive any salary continuation or severance payment (in excess of USF's or the Member's standard severance policy) or retain any specified position with the Member; 23 (ii) agreement with any officer or director (other than employment agreements disclosed in response to clause (i) or excluded from the scope of clause (i)) of the Member; (iii) stock option, stock purchase, bonus or other incentive plan or agreement; (iv) agreement which requires any Member to make any payment to any officer, director or employee of any Member as a result of the transactions contemplated by this Agreement, including any "change in control" provisions or agreements; or (v) no Member has agreed in any collective bargaining agreement upon future increases in benefit levels or wages, and no such increases are currently the subject of collective bargaining agreement negotiations. (j) No Multiemployer Plans. No Member contributes, or is obligated to contribute, to any Multiemployer Plan and no Member has contributed, or had an obligation to contribute, to any such plan during the six-year period ending on the Closing Date. (k) No Controlled Group Liabilities. No Member has incurred any, and no transaction contemplated by this Agreement will result in any, liabilities (actual or contingent) to the Pension Benefit Guaranty Corporation under Section 302(c)(11), Section 4062, Section 4063, Section 4064, Section 4069 of ERISA with respect to any defined benefit pension plan that is subject to Part 3 of Title I of ERISA, Title IV of ERISA or Section 412 of the Code. No Member has any liability (actual or contingent) under Section 4980B(e) of the Code with respect to any "group health plan," as defined in (c)(ii) hereof, other than a USF Employee Benefit Plan. 3.14 Environmental Matters. Except as provided on Schedule 3.14: (a) Compliance. The Group has operated the Business in compliance with all applicable Environmental Laws, except where the failure to so operate in such compliance would not have a Material Adverse Effect. To USF's Knowledge, there is no material obligation or liability existing under any Environmental Laws relating to or arising from the operation or activities of the Business prior to the Operative Period. (b) Claims. There are no pending or, to USF's Knowledge, threatened actions, suits, claims or proceedings by or before any Governmental Body directed against the Group or any Member that pertain to (i) any obligations or liabilities under any applicable Environmental Law; or (ii) violations of any Environmental Law. The Balance Sheet does not reflect any reserves for any amounts expected to be spent in connection with violations of Environmental Laws. (c) Permits. All Permits required to be obtained or filed by a Member under all applicable Environmental Laws in connection with the Business have been duly obtained or filed and are in full force and effect and will remain in full force and effect following the transfer of the USFCA Shares to Buyer, except where the failure to possess such Permits or the failure of such Permits to be or remain in full force and effect following the transfer of the Shares would not have a Material Adverse Effect. 24 (d) Notice. No Member (i) has received written notice that any existing Permit that was obtained under any Environmental Law is to be revoked or suspended by any Governmental Body; or (ii) is currently operating or required to be operating under, or subject to any outstanding compliance order, decree or agreement, any consent decree, order or agreement, or corrective action decree, order or agreement issued or entered into under, or pertaining to matters regulated by, any Environmental Law. (e) Storage Tanks. None of the Members own or operate any underground storage tanks that are in material violation of any Environmental Law. (f) Listed Properties. Except as set forth on Schedule 3.14, none of the Owned Real Property nor, to USF's Knowledge, any of the real property currently leased to a Member, is listed on the National Priorities List pursuant to CERCLA, or on an equivalent state or, to USF's Knowledge, foreign, list of sites required to be investigated or cleaned up or suspected of contamination under an Environmental Law. (g) Hazardous Materials. To USF's Knowledge, no Person has treated, stored, disposed of, transported to, or released any Hazardous Materials on or under any Owned Real Property or any of the real property currently leased to a Member, except in material compliance with applicable Environmental Laws or except as would not otherwise have a Material Adverse Effect. (h) Required Notice or Consent. No notice or other filing, consent or approval is required under any Environmental Law as a prerequisite to the transfer of the Shares to Buyer. (i) Summary Overview Matrix. To USF's Knowledge, the information set forth in the document delivered to Buyer by USF entitled "FSG Sites of Interest and Environmental Audit Due Diligence Reports" is true and correct and includes a complete list of the current major manufacturing sites of the Group. (j) Asbestos Materials. There is no asbestos or asbestos-containing material in or on any facility on which any Member operates, any Owned Real Property, or any real property that is currently leased to any Member that is friable. For purposes of this Section 3.14(j), "friable" shall be defined as capable of being crumbled, pulverized or reduced to powder by hand pressure, when dry. No action to remove asbestos or asbestos-containing material is required at any facility at which any Member operates, any Owned Real Property, or any real property that is currently leased to any Member. (k) Asbestos Claims. No claims have been made against any Member, or to USF's Knowledge, for which any Member could have financial responsibility, for injury, disability or death of any present or former employee of any Member related to or allegedly caused by asbestos. 3.15 Bank Accounts. Schedule 3.15 lists all bank, money market, savings and similar accounts and safe deposit boxes of each Member, specifying the account numbers and the authorized signatories or persons having access to such accounts or safe deposit boxes. 25 3.16 Material Contracts. Schedule 3.16 sets forth a list of all currently active Contracts of the Members in the following categories: (a) each partnership, limited liability company or joint venture agreement; (b) each Contract (or group of related Contracts) (i) under which any Member has created, incurred, assumed or guaranteed Debt Obligations (other than a guaranty given in respect of the Debt Obligations of another Member) or (ii) whereby any Member has an obligation to make an investment in or loan to any Person other than to another Member; (c) each Contract (or group of related Contracts) for the purchase by any Member of goods and/or services involving total annual payments in excess of $500,000; (d) each Contract (or group of related Contracts) for the sale by any Member of goods and/or services involving total annual revenues in excess of $500,000; (e) each Contract (or group of related Contracts), other than sales agency or distributor agreements which grant the agent or distributor territorial rights, and confidentiality agreements in respect of business combination or acquisition inquiries, containing covenants materially restricting or limiting the freedom of any Member to engage in any line of business; or (f) each Contract between a Member and USF and/or an Affiliate who is not a Member (other than Contracts providing for the supply of bottled water) which provide for terms less favorable to the Member than what would have been available to the Member from an unaffiliated third party and which cannot be terminated upon six months' or less notice, it being agreed that Buyer shall have the right to terminate any Contract required to have been disclosed on Schedule 3.16 pursuant to this clause (f) that was not so disclosed. Except as set forth on Schedule 3.16, (1) each such Contract is (A) a valid and binding obligation of the Member which is party to such Contract and (B) to USF's Knowledge, a valid and binding obligation of each other party thereto, and (2)(A) the Member which is party to such Contract is not in material breach thereof or material default thereunder (and to USF's Knowledge no event or circumstance has occurred that with notice or lapse of time or both, would constitute an event of default) and (B) to USF's Knowledge, no other party to any such Contract is in material breach thereof or material default thereunder. 3.17 Brokers, Finders, Etc. Except as set forth on Schedule 3.17, neither USF nor any Affiliate has employed, nor is any of them subject to any valid claim of liability or obligation to, any broker, finder, consultant or other intermediary in connection with the transactions contemplated by this Agreement who might be entitled to a fee or commission in connection therewith. USF is solely responsible for any payment, fee or commission that may be due to the parties listed on Schedule 3.17 in connection with the transactions contemplated hereby. 3.18 Insurance. (a) Policies. Schedule 3.18 sets forth a list of the policies of insurance currently maintained by USF or any Member with respect to the products, properties, assets, operations and Business of the Members (including any policies of insurance maintained for purposes of providing benefits such as workers' compensation and employers' liability coverage) (collectively, the "Policies"). All such Policies are in full force and effect. All premiums due on such Policies have been paid and no notice of cancellation or termination or intent to cancel has been received by USF or any Member with respect to such Policies. (b) Claims. Schedule 3.18 sets forth a list of all pending claims (including with respect to insurance obtained but not currently maintained) and the claims history for each of the U.S. Members during the Operative Period (including with respect to insurance obtained but not currently maintained) and all claims asserted in foreign jurisdictions during the Operative Period for which the relevant insurance carrier has reserved $50,000 or more in respect of such claim. 26 3.19 Absence of Undisclosed Liabilities. There exist no material liabilities, whether absolute or contingent, of the Group which would be required to be reflected, reserved for or disclosed in a consolidated balance sheet of the Group prepared as of the date of this Agreement in accordance with GAAP and consistent with the Balance Sheet, other than (i) liabilities that are reflected, reserved for or disclosed in the Financial Statements, (ii) liabilities incurred in the ordinary course of business since the Balance Sheet Date, (iii) liabilities, the incurrence of which is not proscribed by Section 5.5 or which are reflected in Schedule 5.5, incurred from the date of this Agreement until the Closing Date or (iv) liabilities for Income Taxes which are the responsibility of USF pursuant to Section 6.2. 3.20 Disclaimer of Warranties. (a) Disclaimer. EXCEPT AS TO THOSE MATTERS EXPRESSLY COVERED BY THE REPRESENTATIONS AND WARRANTIES IN THIS AGREEMENT, USF DISCLAIMS ALL OTHER WARRANTIES, REPRESENTATIONS AND GUARANTIES WHETHER EXPRESS OR IMPLIED. (b) No Additional Representations. Buyer acknowledges that (i) neither USF nor any of its Affiliates has made any representation or warranty, express or implied, beyond those expressly given in this Agreement, as to the accuracy or completeness of any memoranda, charts, summaries or schedules relating to the Group or the Business and previously made available to Buyer or any of its Affiliates by USF or any of its Affiliates or any other information (including the Confidential Information Memorandum dated October 2001 prepared with respect to the Group) which is not included in this Agreement or the Schedules hereto and (ii) neither USF nor any of its Affiliates will have or be subject to any liability to Buyer or any of its Affiliates resulting from the distribution of any such information to, or use of any such information by, Buyer or any of its Affiliates. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER As an inducement to USF to enter into this Agreement and consummate the transactions contemplated hereby, Buyer represents and warrants to USF, as follows: 4.1 Organization. Buyer is a corporation validly existing and in good standing under the Laws of its state of incorporation, and has the corporate power and authority to own, operate or lease its properties, carry on its business, enter into this Agreement and to perform its obligations hereunder. 4.2 Authorization; Enforceability. This Agreement has been duly and validly authorized by all necessary corporate and other actions by Buyer and constitutes the legal, valid and binding obligations of Buyer enforceable against it in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium and other Laws of general application relating to or affecting creditors' rights and to general equity principles. 27 4.3 No Violation of Laws; Consents. Neither the execution and delivery of this Agreement, the consummation of the transactions contemplated hereby nor the compliance with or fulfillment of the terms, conditions or provisions hereof by Buyer will: (i) violate any provision of the Governing Documents of Buyer, or (ii) violate any Law to which Buyer is subject or by which any of its assets may be bound or affected the result of which would have a material adverse effect on the financial condition, operation or business of the Buyer. Except for the expiration of any applicable waiting periods under the HSR Act and other Antitrust Laws, no consent, approval or authorization of, or registration or filing with, any Person is required in connection with the execution or delivery by Buyer of this Agreement or the consummation by Buyer of the transactions contemplated hereby. 4.4 No Pending Litigation or Proceedings. No Litigation is pending against or affecting or, to the knowledge of Buyer, threatened against Buyer in connection with any of the transactions contemplated by this Agreement. There is presently no outstanding judgment, decree or order of any Governmental Body against or affecting Buyer in connection with the transactions contemplated by this Agreement. 4.5 Brokers, Finders, Etc. Except as set forth on Schedule 4.5, neither Buyer nor any of its Affiliates has employed, nor is any of them subject to any valid claim of liability or obligation to, any broker, finder, consultant or other intermediary in connection with the transactions contemplated by this Agreement who might be entitled to a fee or commission in connection therewith. Buyer is solely responsible for any payment, fee or commission that may be due to the parties listed on Schedule 4.5 in connection with the transactions contemplated hereby. 4.6 Investment. Buyer is purchasing the USFCA Shares for investment for its own account, and not with a view to, or for the offer or sale in connection with, any distribution thereof. Buyer acknowledges that the USFCA Shares have not been registered under the Securities Act of 1933, as amended (the "Securities Act"), or any state securities Laws, and that the USFCA Shares may not be transferred or sold except pursuant to the registration provisions of the Securities Act and any applicable state securities Laws or pursuant to an applicable exemption therefrom. 4.7 Financial Ability. Buyer has the financial ability to consummate the transactions contemplated by this Agreement without any delay or restriction which would adversely impact the certainty of Buyer's ability to so consummate. Buyer has furnished to USF all documentation or other evidence of such financial ability that has been requested by USF. ARTICLE V ACTIONS PRIOR TO CLOSING DATE 28 The Parties covenant and agree to take the following actions between the date hereof and the Closing Date: 5.1 Access to Group Information. (a) Access by Buyer. USF shall permit the officers, employees and authorized representatives of Buyer (including investment bankers, independent public accountants and attorneys) to have reasonable access during normal business hours, upon reasonable advance notice to the offices, properties and senior managers of the Group, and the business and financial records of the Group (to the extent that they are not trade secrets or otherwise competitively sensitive and, in the case of the Joint Venture Entities, to the extent that USF or the Members have a right of access), to the extent Buyer shall reasonably deem necessary or desirable in connection with the transactions contemplated hereby, and shall furnish to Buyer or its authorized representatives such additional information concerning the Group as shall be reasonably requested; provided, however, that: (i) USF shall not be required to violate any obligation of confidentiality to which it or any Member is subject in discharging its obligations pursuant to this Section 5.1; provided, however, that USF shall not have the right, by virtue of this paragraph or otherwise, to withhold any significant information relating to customers, suppliers or regulatory authorities and, if USF is withholding any information based on an obligation of confidentiality, USF shall so advise Buyer specifically of that fact in each instance and shall use its commercially reasonable good faith efforts to obtain a waiver from the party to whom the obligation of confidentiality is owed to allow disclosure to Buyer of such information as is provided for in Section 5.1(a); and (ii) Such investigation shall be conducted in such a manner as not to interfere unreasonably with the operations of USF or any of its Subsidiaries. (b) Notice of Breach. If in the course of any investigation, Buyer discovers any breach of any representation or warranty contained in this Agreement, or any circumstance or condition that upon Closing would constitute a breach of a representation, warranty or covenant, Buyer covenants that it will promptly inform USF in writing of the nature of such breach. 5.2 Notifications. Each Party shall promptly notify the other Party of any action, suit, proceeding or investigation that shall be instituted or threatened against such Party to restrain, prohibit or otherwise challenge the legality of any transaction contemplated by this Agreement. Each Party shall promptly notify the other of any action, suit, proceeding or investigation that may be threatened or asserted in writing, brought or commenced against any Member, USF or Buyer, as the case may be, that would have been listed in Schedule 3.9 or disclosed under Section 4.4 as the case may be, if such action, suit, proceeding or investigation had arisen prior to the date hereof. 5.3 Consents of Third Parties. Each Party shall use commercially reasonable efforts to secure, before the Closing Date, in form and substance reasonably satisfactory to the other Party, any consent, approval or waiver required to be obtained from any Person with respect to any Contract to which a Member is a party and which the Parties have identified on Schedule 5.3 as those for which the failure to obtain such consent, approval or waiver would have a Material Adverse Effect. If such consent, approval or waiver cannot be obtained, USF shall cooperate in any commercially reasonable arrangement designed to obtain for the Buyer the material benefits, privileges and obligations of the applicable Contract; provided, however, that no Party shall have any obligation to offer or pay any consideration in order to obtain any such consent, approval or waiver. In addition, if and to the extent (and in the manner) required by French law, USF shall give notice of the change in control which will result upon the Closing hereunder to any Workers' Councils having jurisdiction over any Member which is incorporated in France or by reason of its operations in France is subject to the jurisdiction of any such Workers' Council or Councils. 29 5.4 Filings Under the HSR Act and Laws of Foreign Jurisdictions. (a) General. USF and Buyer acknowledge that the transactions contemplated by this Agreement require filings with the FTC and the Antitrust Division under the HSR Act and with certain Foreign Jurisdictions under applicable foreign Laws as set forth on Schedule 5.4 (each, an "Antitrust Law"). (b) Consents; Approvals. USF and Buyer shall each use its reasonable best efforts to obtain and to cooperate with each other in order to obtain all consents, waivers, approvals, authorizations or orders and to make all filings (including, without limitation, the filings under the HSR Act and other Antitrust Laws and all other filings with United States and non-United States Governmental Bodies) lawfully required to be obtained from or filed with all applicable Governmental Bodies in connection with the authorization, execution and delivery of this Agreement by USF and Buyer and the consummation by them of the transactions contemplated hereby. Each Party shall (i) file or cause to be filed, as promptly as practicable but in no event later than the fifth Business Day after the execution and delivery of this Agreement, with the FTC and the Antitrust Division, all reports and other documents required to be filed by such Party under the HSR Act concerning the transactions contemplated hereby and (ii) promptly comply with or cause to be complied with any requests by the FTC and the Antitrust Division for additional information concerning such transactions, in each case so that the waiting period applicable to this Agreement and the transactions contemplated hereby shall expire as soon as practicable after the execution and delivery of this Agreement. USF and Buyer shall each furnish to the other Party all information about such Party or its Affiliates required to be included in any application or other filing to be made by such other Party pursuant to the rules and regulations of any United States or non-United States Governmental Body in connection with the transactions contemplated by this Agreement. In furtherance and not in limitation of the agreements of the Parties contained in this Section 5.4, each Party shall use its reasonable best efforts to resolve such objections if any, as may be asserted by a Governmental Body or other Person with respect to the transactions contemplated hereby under any Antitrust Law. In connection with the foregoing, if any administrative or judicial action or proceeding, including any proceeding by a private party, is instituted (or threatened to be instituted) challenging any transaction contemplated by this Agreement as violative of any Antitrust Law, each Party shall cooperate in all respects with the other and use its respective reasonable best efforts to contest and resist any such action or proceeding and to have vacated, lifted, reversed or overturned any decree, judgment, injunction or other order, whether temporary, preliminary or permanent, that is in effect and that prohibits, prevents or restricts consummation of the transactions contemplated by this Agreement. 30 5.5 Operations Prior to Closing Date. (a) Prohibitions. Except (x) as set forth on Schedule 5.5, (y) as otherwise contemplated by this Agreement or (z) with the consent of Buyer (which consent will not be unreasonably withheld or delayed), USF shall comply and shall cause each Member to comply, from and after the date of this Agreement until the Closing Date, with the following: (i) operate the Business in the ordinary course in accordance with past practices and in material compliance with all Laws; (ii) not grant any bonus to any employee or implement any material increase in the rates of salaries or compensation of the employees of the Group, except in accordance with any Contracts in effect on the date hereof or regularly scheduled periodic increases and bonuses consistent with prior practices; (iii) not institute any material increase in any profit-sharing, bonus, incentive, deferred compensation, insurance, pension, retirement, medical, hospital, disability, welfare or other employee benefit plan with respect to the employees of the Group, except as may be required to comply with Law or Contracts in effect on the date hereof and except in connection with modifications made to any USF Employee Benefit Plan or Vivendi Employee Benefit Plan; (iv) not amend the Governing Documents of any Member or enter into any merger, consolidation, restructuring, recapitalization, reorganization or share exchange agreement or adopt resolutions providing therefor; (v) not sell, pledge, dispose of or encumber any assets of any of the Members (except for (A) sales of assets in the ordinary course of business and in a manner consistent with past practices, (B) dispositions of obsolete or worthless assets, and (C) sales of immaterial assets not in excess of $1,000,000 in the aggregate); (vi) not (A) issue, sell, split, combine, reclassify, pledge, dispose of or encumber, or authorize the issuance, sale, pledge, disposition or encumbrance of, any shares of capital stock of any class, or any options, warrants, convertible securities or other rights of any kind to acquire any shares of capital stock, or any other ownership interest in any of the Members; (B) repurchase, redeem or otherwise acquire any securities of any Member; (C) adopt a plan of complete or partial liquidation or resolutions providing for or authorizing a liquidation or dissolution of any Member; or (D) declare or pay any dividend or distribution with respect to the capital stock of any Member, other than dividends or distributions to other Members and dividends or distributions necessary or appropriate to eliminate intercompany balances among the Members or between any of the Members and USF or any Affiliate, as indicated on Schedule 2.3; (vii) not take any action to change accounting policies or procedures (including procedures with respect to revenue recognition, payments of accounts payable and collection of accounts receivable) except as required by a change in GAAP occurring after the date hereof; 31 (viii) not pay, discharge or satisfy any claims or liabilities (absolute, accrued, asserted or unasserted, contingent or otherwise) of the Group in excess of $1,000,000 in the aggregate, other than the payment, discharge or satisfaction of liabilities in the ordinary course of business and consistent with past practices; and (ix) not expend or agree to make capital expenditures in excess of $2,000,000 per month. (b) No Agreements. Neither USF nor any Member shall enter into any agreement to do any of the actions prohibited by Sections 5.5(a)(i) through 5.5(a)(ix). 5.6 Negotiations. Until the Closing or until this Agreement is terminated, USF shall not, and USF shall cause each of the Members not to, solicit or enter into any discussions or negotiations with, or furnish or cause to be furnished any information concerning the Business to, any Person (other than Buyer and its employees and agents) in connection with any proposed acquisition of the Business by any Person other than Buyer. 5.7 Guaranty and Surety Obligations. Schedule 5.7 sets forth a list of all guaranties, letters of credit and surety bonds outstanding as of the date of this Agreement issued for the benefit of any Member under which USF or any of its Affiliates (other than the Members) may bear the ultimate responsibility to make payments. Such Schedule will be supplemented as required from time to time prior to the Closing Date if and as required in the ordinary course of business of the Group. Buyer shall, on or prior to the Closing Date, obtain at its own cost and expense the release of any and all such surety bonds, guaranties or letters of credit which are listed on Schedule 5.7 at least ten (10) Business Days prior to the Closing Date and shall, as soon as practicable after the Closing Date, obtain at its own cost and expense the release of any and all such surety bonds, guaranties or letters of credits added to Schedule 5.7 less than ten (10) Business Days prior to the Closing Date. 5.8 Alternative Structures. USF agrees to consider in good faith one or more alternative structures under which Buyer (and/or one or more of its Affiliates) would acquire the Members, and/or all of the Members' assets and liabilities, in a manner that would be superior from Buyer's Tax perspective and neutral or superior in all respects to USF, as compared to the structure otherwise contemplated by this Agreement. 5.9 Directors' Shares. With respect to all Shares of Members outstanding and owned by directors on the date of this Agreement, USF shall cause such Directors' Shares to be transferred, at the Closing, to Buyer or Persons designated by Buyer so that all of the capital stock of Members outstanding at the conclusion of the Closing will be owned either by Buyer or Persons designated by Buyer. 5.10 Removal of Certain Liens. Schedule 3.8(a) discloses liens on two properties of SeitzSchenk Filtersystems GmbH in Bad Kreuznach, Germany with a footnote indicating that such liens secure underlying debt obligations that have been terminated. Prior to the Closing Date, USF shall use all commercially reasonable best efforts to cause such liens to be removed of record and, if they have not been so removed, USF at its expense shall cause such liens to be removed as promptly as practicable after the Closing. 32 ARTICLE VI ADDITIONAL AGREEMENTS 6.1 Use of Names; Transfer of Intellectual Property Assets. (a) Notwithstanding any provision of Section 3.12 to the contrary, except to the limited extent and for the limited time periods in subparagraphs (b) and (c) of this Section 6.1 USF is not conveying to Buyer any ownership rights for, or licensing Buyer to use, any of the following names: "USF," "U.S. Filter," "US Filter," "USFilter," "United States Filter Corp.," "United States Filter Corporation" or any derivation or variation thereof (collectively, the "Reserved Names"). With respect to all corporate names of Members, Marks, fictional business names and trade names currently used by a Member or Members or the Group and Internet domain names that include or consist in part of a Reserved Name (collectively, "Group Names"): (i) Buyer shall be permitted and entitled to use, and shall have the sole rights to, all Group Names exclusive of any Reserved Name included in or forming a part thereof, and (ii) USF and its Affiliates shall, after the Closing, have no right to use all or part of any Group Name other than the Reserved Name included in or forming a part thereof. (b) After the Closing Buyer shall: (i) promptly (but in no event later than 120 days after the Closing) destroy all stocks of written, printed or other graphic materials in its possession or control that use or embody any names or marks of USF or any of its Affiliates (other than the Members) including the Reserved Names or modify such materials to remove or cover over any such names or marks; and (ii) promptly (but in no event later than 30 days after the Closing) remove or cause to be removed any links from any of the Member's websites on the World Wide Web to any website maintained by or on behalf of USF or its Affiliates (other than the Members) and cease the use of any metatags utilizing any Reserved Name or any confusingly similar word or phrase to direct traffic to a website not owned by the owner of the Reserved Names. (c) After the Closing, USF shall and shall cause its Affiliates to: (i) promptly (but in no event later than 120 days after the Closing) destroy all stocks of written, printed or other graphic materials in its possession or control that use or embody any names or marks of the Members including the Member names or modify such materials to remove or cover over any such names or marks and cease all use of a Member name or a name confusingly similar to a Member name; (ii) promptly (but in no event later than 30 days after the Closing) remove, disable or eliminate or cause to be removed, disabled or eliminated from any website of USF and its Affiliates any links or other references to any websites of the Members or the Group and cease the use of any metatags utilizing any Member name or any confusingly similar word or phrase to direct traffic to a website not owned by USF or its Affiliates. 33 (d) Anything elsewhere herein to the contrary notwithstanding but subject to the other provisions of this Section 6.1 regarding the use of the Reserved Names, any Intellectual Property Assets which are owned by or licensed to USF or any of its Subsidiaries other than Members and which are used in the conduct of the Business shall, at the Closing, by appropriate instruments, either be transferred to Buyer or Buyer shall be granted a permanent irrevocable royalty-free license to use the same in the conduct of the Business after the Closing. (e) It is expressly understood and agreed by the Parties that Buyer shall not cause the Members to undertake any business using, or otherwise act in, the Reserved Names following the Closing Date, and that Buyer shall cause the Members to, on the Closing Date, assign all rights to use the Reserved Names pursuant to an assignment agreement in form and substance reasonably satisfactory to the Parties to be delivered at Closing, and shall thereafter cause the Members to change their legal names, if necessary to remove references to the Reserved Names, by filing the necessary documents with the applicable Governmental Bodies within thirty (30) days following the Closing Date. If Buyer fails to make the filings required by the preceding sentence, USF shall be entitled, beginning 31 days following the Closing Date, to file with the applicable Governmental Bodies, at Buyer's expense, such amendments to the Members' Governing Documents as are necessary to effect such name changes, pursuant to a power of attorney granting such power to USF placed in escrow on the Closing Date with Sutherland Asbill & Brennan LLP pursuant to an escrow letter. Said power of attorney and escrow letter shall be in forms reasonably agreed upon by Sutherland Asbill & Brennan LLP and Carter, Ledyard & Milburn. (f) If either party violates any of its obligations under this Section 6.1, the other party may proceed against it in law or in equity for such damages or other relief as a court may deem appropriate. Each party acknowledges that a violation of this Section 6.1 may cause the other party irreparable harm which may not be adequately compensated for by money damages. Each party therefore agrees that in the event of any actual or threatened violation of this Section 6.1, the other party and its Affiliates shall be entitled, in addition to other remedies that they may have, to a temporary restraining order and to preliminary and final injunctive relief against the breaching party to prevent any violations of this Section 6.1. 6.2 Tax Matters. (a) Liability for Taxes. (i) USF shall be liable for and, pursuant to Article VIII, USF shall indemnify and hold harmless Buyer and the Members against all Taxes (whether assessed or unassessed) (A) applicable to any Member (1) attributable to a Pre-Closing Period, (2) pursuant to Treas. Reg. ss.1.1502-6 (or any comparable provision under state, local or foreign law or regulation imposing several liability upon members of a consolidated, combined, affiliated or unitary group) for any Pre-Closing Period, (3) under any agreement entered into on or prior to the Closing Date pursuant to which any Member is liable for the Taxes of any other Person (except for customary agreements to indemnify lenders or security holders in respect of Taxes), (4) as a result of any Member having become liable, in a transaction prior to the Closing, as transferee or successor for Taxes of any other Person, or (5) which would have been attributable to a Pre-Closing Period but for (x) Code ss. 481 (or any corresponding or similar provision of state, local or foreign income Tax law) as a result of a change in method of accounting for a Pre-Closing Period, or (y) a "closing agreement" as described in Code ss. 7121 (or any corresponding or similar provision of state, local or foreign income Tax law) executed on or prior to the Closing Date; or (z) Treasury Regulations under Code ss.1502 (or any corresponding or similar provision of state, local or foreign Tax law) as a result of a deferred intercompany transaction, excess loss account or similar event which arose in a Pre-Closing Period, or (B) attributable to any Stamp Duty Clawbacks; provided, however, (I) in the case of Taxes imposed on a Joint Venture Entity USF shall be liable to the Buyer for the product of such Taxes and the percentage ownership of the Group in such Joint Venture Entity as set forth opposite the name of such entity on Schedule A-3; (II) USF shall not be liable for any Taxes (other than Income Taxes) to the extent accrued on the books and records of the relevant Member and reflected in the Closing Date Adjusted Net Assets; (III) any Taxes imposed on any Member as a result of transactions occurring on the Closing Date that are properly allocable (based on, among other relevant factors, factors set forth in Treas. Reg. ss. 1.1502-76(b)(1)(ii)(B)) to the portion of the Closing Date after the Closing shall not be considered attributable to a Pre-Closing Period; and (IV) USF shall not be liable for any interest or penalties attributable to the negligence or bad faith of Buyer or its Affiliates. USF shall be entitled to any refund of (or credit for) Taxes allocable to any Pre-Closing Period unless such refund (or credit) is reflected in Closing Date Adjusted Net Assets. Buyer or the appropriate Member shall pay over to USF any such refund or the amount of any credit within fifteen (15) days after receipt or crediting. 34 (ii) Except as provided in Section 6.2(a)(i), Buyer shall be liable for and, pursuant to Article VIII, Buyer shall indemnify and hold harmless USF and its Related Parties against all Taxes (whether assessed or unassessed) applicable to any Member (A) attributable to (1) taxable years or periods beginning after the Closing Date, (2) transactions occurring on the Closing Date that are properly allocable (based on, among other relevant factors, factors set forth in Treas. Reg. ss. 1.1502-76(b)(1)(ii)(B)) to the portion of the Closing Date after the Closing, and (3) with respect to any Straddle Period, the portion of such Straddle Period beginning after the Closing Date or (B) to the extent such Taxes (other than Income Taxes) are accrued on the books and records of the relevant Member and reflected in the Closing Date Adjusted Net Assets. Except as otherwise provided herein, Buyer shall be entitled to any refund of (or credit for) Taxes allocable to any taxable year or period that begins after the Closing Date and, with respect to any Straddle Period, the portion of such Straddle Period beginning after the Closing Date. (iii) For purposes of Section 6.2(a)(i) and Section 6.2(a)(ii), whenever it is necessary to determine the liability for Taxes for a Straddle Period, the determination of the Taxes for the portion of the Straddle Period ending on and including, and the portion of the Straddle Period beginning after, the Closing Date shall be determined by assuming that the Straddle Period consisted of two taxable years or periods, one which ended at the close of the Closing Date and the other of which began at the beginning of the day following the Closing Date, and items of income, gain, deduction, loss or credit for the Straddle Period shall be allocated between such two taxable years or periods on a "closing of the books basis" by assuming that the relevant books including the relevant books and records of any Joint Venture Entity (whether or not taxed on a flow-through basis) were closed at the close of the Closing Date; provided, however, that (A) transactions occurring on the Closing Date that are properly allocable (based on, among other relevant factors, factors set forth in Treas. Reg. ss. 1.1502-76(b)(1)(ii)(B)) to the portion of the Closing Date after the Closing shall be allocated to the taxable year or period that is deemed to begin at the beginning of the day following the Closing Date, and (B) exemptions, allowances or deductions that are calculated on an annual basis, such as the deduction for depreciation, shall be apportioned between such two taxable years or periods on a daily basis and Taxes that are computed on a periodic basis, such as property Taxes, shall also be so apportioned on a daily basis. Notwithstanding the foregoing provisions of this paragraph (iii), if the transactions contemplated by this Agreement result in the reassessment of the value of any property owned by any Member for property Tax purposes, or the imposition of any property Taxes at a rate which is different than the rate that would have been imposed if such transactions had not occurred, then (x) the portion of such property Taxes for the portion of the Straddle Period ending on and including the Closing Date shall be determined on a daily basis, using the assessed value and Tax rate that would have applied had such transactions not occurred, and (y) the portion of such property Taxes for the portion of such Straddle Period beginning after the Closing Date shall be the total property Taxes for the Straddle Period minus the amount described in clause (x) of this sentence. Sales and use Taxes (and their foreign equivalents, including VAT) shall be deemed to accrue in accordance with GAAP. 35 (iv) USF or Buyer, as the case may be, shall provide reimbursement for any Tax paid by one Party all or a portion of which is the responsibility of the other Party in accordance with the terms of this Section 6.2(a). Within a reasonable time prior to the payment of any such Tax, the Party paying such Tax shall give written notice to the other Party of the Tax payable and the portion which is the liability of each Party, although failure to do so will not relieve the other Party from its liability hereunder. (v) If, as a result of any action, suit, investigation, audit, claim, assessment or amended Tax Return, there is any change after the Closing Date in an item of income, gain, loss, deduction, credit or amount of Tax that results in an increase in Tax liability for which USF would otherwise be liable pursuant to this Section 6.2(a), and such change results in a net decrease in the Tax liability of Buyer for taxable years or periods beginning after the Closing Date (including the portion of any Straddle Period beginning after the Closing Date), USF shall be liable only for the net amount of such increase after taking into account such decrease in accordance with the provisions of this Section 6.2(a) (and, to the extent such increase in Tax liability is paid to a taxing authority by USF or any Affiliate thereof, Buyer shall pay USF an amount equal to such decrease). (vi) Notwithstanding anything to the contrary in this Agreement, nothing in Section 3.7 shall cause USF to be liable to Buyer for any amounts relating to any Taxes for which USF is not expressly liable pursuant to this Section 6.2. (b) Tax Returns. 36 (i) USF shall have the exclusive authority and obligation on behalf of the U.S. Members to prepare, execute and timely file, or cause to be prepared, executed and timely filed, all federal and state income Tax Returns of the U.S. Members that are due with respect to any taxable period ending prior to or ending on and including the Closing Date, provided, however, that any Tax Return prepared by USF shall be prepared by treating items on such Tax Return in a manner consistent with the prior Tax Returns of the relevant Member. USF will take no position on any such Tax Return that would adversely affect a Member after the Closing Date unless such position is clearly proper and would be reasonable in the case of a Person that owned the Member both before and after the Closing Date. (ii) Except as provided in Section 6.2(b)(i), Buyer shall have the exclusive authority and obligation to prepare and timely file, or cause to be prepared and timely filed, all Tax Returns of the Members. Any Tax Return prepared by Buyer with respect to a Pre-Closing Period shall be prepared by treating items on such Tax Return in a manner consistent with the prior practices and positions of the relevant Member(s) unless such treatment is not permitted by applicable Law. With respect to any such Tax Return which includes a Pre-Closing Period for which USF may be required to indemnify Buyer under Article VIII, Buyer shall provide USF with draft copies of such Tax Returns and an opportunity to review and comment on such Tax Returns at least thirty (30) days prior to the date for filing such Tax Returns. Buyer shall in good faith take into account such comments in its preparation of such Tax Returns. (c) Tax Audits. (i) Buyer shall promptly notify USF in writing upon receipt by Buyer or any of its Affiliates of notice of any pending or threatened federal, state, local or foreign Tax audits, examinations, notices of deficiency or other adjustments, assessments or redeterminations ("Tax Matters") relating to a Pre-Closing Period for which USF may be liable to indemnify Buyer under Article VIII. (ii) USF shall have the sole right to control, contest, resolve and defend against any Tax Matters or initiate any claim for refund or amend any Tax Return relating to the Income Taxes (and, after Buyer's Recoverable Losses have reached the threshold set forth in Section 8.2(a), the Taxes) of any Member for Pre-Closing Periods other than Straddle Periods, in each case provided USF is obligated to indemnify Buyer for such Taxes under Article VIII, and to employ counsel of its choice at its own expense; provided, however, that (A) USF shall keep Buyer informed with respect to the commencement, status and nature of any such Tax Matter, (B) USF shall conduct such Tax Matter in a manner that would be reasonable in the case of a Person that continued to own the Member, (C) neither USF nor the ultimate U.S. parent entity filing the consolidated return that is the subject of such Tax Matter nor any of their respective Affiliates shall enter into any settlement of or otherwise compromise any such Tax Matter which adversely affects or may adversely affect the Tax liability of Buyer, any of the Members or any Affiliate of the foregoing (to the extent Buyer, any of the Members or any Affiliate of the foregoing may be required to make any payment for such Tax liability that is not fully indemnified by USF pursuant to the terms hereof) without the prior written consent of Buyer, which consent shall not be unreasonably withheld or delayed, and (D) USF may decline to control any Tax Matters by providing Buyer with written notice of such decision. 37 (iii) Except as otherwise provided in Section 6.2(c)(ii), Buyer shall have the sole right to control any Tax Matters relating to any Member, and to employ counsel of its choice; provided, however, that (A) Buyer shall keep USF informed with respect to the commencement, status and nature of any Tax Matter for which USF may be liable pursuant to Article VIII, and (B) neither Buyer nor any of its Affiliates shall enter into any settlement of or otherwise compromise any Tax Matter for which USF is required to indemnify Buyer hereunder without the prior written consent of USF, which consent shall not be unreasonably withheld or delayed. USF shall indemnify and hold harmless the Buyer and the Members against any costs or expenses reasonably incurred by them in contesting their liability for Taxes for which USF is liable under Section 6.2(a)(i). (iv) In the event that Buyer fails to notify USF with respect to a Tax Matter in accordance with the provisions of Section 6.2(c)(i), USF shall not be obligated to indemnify Buyer under Article VIII of this Agreement with respect to such Tax Matter to the extent that such failure to notify USF adversely affects USF's ability to adequately defend against such Tax Matter under Section 6.2(c)(ii). (v) Neither the Buyer nor any Member may extend any statutory period of limitations for Taxes for a Pre-Closing Period (other than a Straddle Period) by giving any waiver or agreeing to any extension thereof without the express prior written consent of USF, such consent not to be unreasonably withheld. (d) Assistance and Cooperation. After the Closing Date, each of USF and Buyer shall (and shall cause their respective Affiliates, including each of the Members, to): (i) assist the other Party in preparing any Tax Returns which such other Party is responsible for preparing and filing in accordance with Section 6.2(b); (ii) upon reasonable notice and without undue interruption to the business of such Party or the Members, provide access during normal business hours to the books and records of such Party relating to the Taxes of the Members prior to the Closing Date; (iii) furnish the other with copies of all correspondence received from any taxing authority in connection with any Tax Matter or information request with respect to any taxable period for which the other may have a liability under this Section 6.2; (iv) timely provide to the other powers of attorney or similar authorizations reasonably necessary to carry out the purposes of this Section 6.2; and (v) assist in a timely manner in the preparation of tax related aspects (including the calculation under GAAP of Income Tax accounts as of the Closing Date) of the initial financial statements prepared by the other Party following the Closing Date. (e) Prior Tax Agreements. USF and the Members shall terminate or cause to be terminated any and all Tax sharing agreements in effect on the Closing Date as between USF or any Affiliate thereof (other than the Members), on the one hand, and any of the Members, on the other hand, for all Taxes imposed by any government or taxing authority, regardless of the period in which such Taxes are imposed, and there shall be no continuing obligation to make any payments under any such agreements after the Closing Date. 38 (f) Disputes. If the Parties disagree as to the calculation of any amount relating to Taxes governed by this Section 6.2, the Parties shall promptly consult with each other in an effort to resolve the disagreement. If any such disagreement is not resolved within 30 days after either Party gives the other written notice that it cannot be resolved, the Parties shall jointly select a firm of nationally recognized independent accountants (or, if they cannot agree on the selection of such a firm within that 30-day period, the default firm specified in Section 2.4) to resolve the disagreement. Such firm's determination shall be final, binding and conclusive on the Parties, and any expenses relating to the engagement of such firm shall be shared equally by the Parties. (g) Purchase Price Adjustment. Any payment by Buyer or USF to or on behalf of the other under this Section 6.2 will be an adjustment to the Purchase Price even though such payment may be made after the period specified in Section 2.4(a). (h) Carrybacks. USF will promptly pay to Buyer any Tax refund (or reduction in Tax liability) resulting from a carryback of a post-acquisition Tax attribute of any Member to a Tax Return of the Affiliated Group, when such refund or reduction is realized by the Affiliated Group. USF will cooperate with Buyer in obtaining such refunds (or reductions in Tax liability), including through the filing of amended Tax Returns or refund claims. Buyer agrees to indemnify USF for any Taxes resulting from the disallowance of such post-acquisition Tax attribute on audit or otherwise. (i) Section 338 Elections. (i) Subject to the provisions of this Section 6.2(i), at Buyer's option, USF will, and will cause any required Affiliate to, join with Buyer in making one or more timely elections under Section 338(h)(10) of the Code (and/or corresponding elections under any state or local Law relating to Taxes) with respect to the direct or indirect acquisition of any Member hereunder (collectively "Section 338(h)(10) Elections"). Buyer shall in its sole discretion be entitled to make one or more elections under Section 338(g) of the Code for any Member (all such elections together with all Section 338(h)(10) Elections, hereafter the "Section 338 Elections"). 39 (ii) In the event that Buyer considers making one or more Section 338 Elections, Buyer shall provide to USF all information reasonably required by USF (and not otherwise in its possession) to compute the Excess Section 338 Tax Liability (as defined below), including, with respect to a Section 338(h)(10) Election, the allocation among the assets of the relevant Member of the portion of the grossed-up Purchase Price attributable to such Member in accordance with the regulations under Section 338 of the Code, an allocation among the states in which such assets are physically located, and a schedule setting forth any and all transfer, sales and use, registration, documentary, stamp and similar Taxes resulting from the Section 338(h)(10) Election. Buyer shall also provide to USF written notice of any election made under Section 338(g) for a Member, and shall provide USF all information reasonably required by USF to report the transactions resulting from such election, including information with respect to items of such Member arising during the portion of USF's taxable year which is after the Closing Date. USF shall use its commercially reasonable best efforts to assist Buyer in obtaining in a timely manner any information Buyer may deem relevant in determining whether to make one or more Section 338 Elections, provided that Buyer shall reimburse USF for any related out-of-pocket costs incurred by USF in obtaining or calculating such information. USF agrees that Buyer may select and instruct any third party retained to obtain or calculate information as contemplated in the preceding sentences. Within forty-five (45) days following receipt by USF of the information required by USF and not otherwise in its possession, USF shall provide Buyer with an estimate of the combined net amount of federal, state, local and foreign Taxes (including all transfer, sales and use, value added, registration, documentary, stamp and similar Taxes and taking into account all Tax benefits) related to the transactions contemplated by this Agreement (A) for which USF or its Affiliates would be liable if such Section 338 Elections were made and (B) for which USF and its Affiliates would be liable if the Section 338 Elections were not made (the amount of the excess of (A) over (B), if any, shall be hereinafter referred to as the "Excess Section 338 Tax Liability"), and USF shall provide Buyer with calculations supporting USF's estimate of the Excess Section 338 Tax Liability, including information with respect to the tax basis of the stock (and, in the case of any Section 338(h)(10) Election, the tax basis of the assets) of the Members with respect to which the Section 338 Elections are proposed to be made. USF and Buyer agree to use good faith efforts to resolve any disagreement with respect to the computation of the Excess Section 338 Tax Liability. For purposes of computing the Excess Section 338 Tax Liability, a net operating loss or capital loss which is attributable to a Member shall be taken into account; however, a net operating loss or capital loss which is attributable to an entity other than a Member shall be taken into account in computing the Tax liability resulting under the Section 338 Elections only to the extent of the amount of such loss which is taken into account in determining the Taxes for which USF and its Affiliates would be liable on the sale of the USFCA Shares if the Section 338 Elections were not made. (iii) At any time following the calculation of the Excess Section 338 Tax Liability, Buyer may notify USF of its intention to make a Section 338 Election and USF shall, or shall cause any required Affiliate to, join in any Section 338(h)(10) Election pursuant to the provisions of Section 6.2(i)(i). Buyer shall, prepare all such Section 338 Election forms and attachments in accordance with applicable Tax Laws, at its own expense and with the assistance and cooperation of USF. With respect to a Section 338(h)(10) Election, Buyer shall provide USF with draft copies of such forms and attachments and an opportunity to review and comment with respect thereto at least ten (10) days prior to the filing due date thereof. Buyer shall in good faith take into account USF's comments in its preparation of such forms and attachments. (iv) If Section 338 Elections are made, then not later than thirty (30) days after Buyer makes such Section 338 Elections, Buyer shall pay to USF in immediately available funds to an account designated by USF an amount equal to the net Excess Section 338 Tax Liability related to all such Section 338 Elections plus (z) all interest accrued on such Excess Section 338 Tax Liability to the date of payment and (zz) all penalties imposed on USF to the date of payment as a result of the late payment of such Excess Section 338 Tax Liability, calculated on an "after-tax basis," which shall mean an amount which is sufficient to fully compensate USF for the Excess Section 338 Tax Liability plus interest and penalties, determined after taking into account the net increase in Taxes payable by USF or its Affiliates as a result of the payment pursuant to this Section 6.2(i)(iv), such that USF and its Affiliates are placed in the same position on an after tax basis that they would have been in had the Section 338 Elections not been made. USF shall have no obligation to pay any of the Excess Section 338 Tax Liability to the relevant taxing authority prior to receipt of payment under this Section 6.2(i)(iv). USF shall provide Buyer with reasonably detailed evidence of payment made to the relevant taxing authorities with respect to the Excess Section 338 Tax Liability, penalties and interest within ten (10) days of USF or its Affiliates making such payment. 40 (v) If at any time an allocation of the Purchase Price prepared by Buyer pursuant to Section 6.2(i)(ii) is redetermined by any taxing authority and as a result of such redetermination the amount of the Excess Section 338 Tax Liability is greater than or less than the original estimate of such amount, Buyer shall promptly pay to USF (if the amount of the Excess Section 338 Tax Liability is greater than the original estimate of such amount) or USF shall promptly reimburse to Buyer (if the amount of the Excess Section 338 Tax Liability is less than the original estimate of such amount), in each case on an "after-tax basis," the difference between such original estimate and the amount of the Excess Section 338 Tax Liability after taking into account such redetermination. USF shall notify Buyer of, and agrees to use and to cause its Affiliates to use reasonable good faith efforts in contesting, any claim by a taxing authority that would result in an increase in the amount of the Excess Section 338 Tax Liability as a result of such redetermination; provided that to the extent Buyer requests that USF or its Affiliates contest any such claim, Buyer reserves the right to control and direct such contest of any such claim and shall reimburse USF or its Affiliates, as applicable, for reasonable out-of-pocket costs incurred in connection with any such contest which is within the scope of Buyer's request. Notwithstanding the foregoing, USF or Buyer, as the case may be, shall not have any liability to the other Party under this Section 6.2(i)(v) unless and until the aggregate amount of the liability of USF or Buyer pursuant to this Section 6.2(i)(v) exceeds $100,000, in which event the entire amount of such liability shall be recoverable. (vi) The valuations and allocations prepared by Buyer pursuant to Section 6.2(i)(ii) and used to compute the Excess Section 338 Tax Liability shall be used for purposes of all relevant Tax Returns, reports and filings made by USF, Buyer and their respective Affiliates, unless it would be unreasonable to do so. 6.3 Employees and Employee Benefit Plans. (a) Notice to Employees. Subject to the provisions of this Section 6.3, on or prior to the Closing Date, Buyer and USF shall jointly give notice to all employees who are then employed by one of the Members (the "Affected Employees") that all benefits previously provided to the Affected Employees under the USF Employee Benefit Plans are discontinued on the Closing Date with respect to such Affected Employees and will be replaced by the employee benefit plans of the Buyer (the "Buyer Benefit Programs"). Such notice shall also inform the Affected Employees of the effect of the transaction contemplated by this Agreement on the Vivendi Employment Benefit Plans. Subject to the provisions of this Section 6.3, Buyer may amend or terminate the Buyer Benefit Programs at any time for any reason. 41 (b) Credit for Prior Service. Buyer agrees that the Affected Employees shall be credited with their length of service with the Members and USF and its Affiliates under the policies of the Buyer and for all purposes under the Buyer Benefit Programs (other than for purposes of benefit accrual under a pension plan as defined in Section 3(2) of ERISA and early retirement subsidies under a defined benefit plan as defined in Section 3(35) of ERISA) after the Closing. (c) Vacation; Sick Leave. Buyer shall take responsibility for and cause to be paid in the normal course of business the vacation pay of all Affected Employees for all days of vacation to which each such employee was entitled under USF's or the applicable Member's vacation pay policy as of the Closing Date. For purposes of computing eligibility for and the amount of vacation or holiday pay of Affected Employees to be accrued after the Closing, employment of such employees by any of the Members or USF or any of its Affiliates prior to Closing shall be taken into account to the same extent as if it had been employment by the Members or Buyer. Buyer shall credit all Affected Employees with all days of accrued sick leave to which such employees were entitled as of the Closing Date under USF's or the applicable Member's sick leave policy as of the Closing Date. (d) Existing Claims. USF shall retain the responsibility for payment of all covered medical and dental claims or expenses actually incurred by any employee (or covered dependent of any employee) of any U.S. Member (i) prior to the Closing Date and (ii) during a continuous period of hospitalization which commences on or before the Closing Date and ends after the Closing Date, and in each such case Buyer shall not assume nor shall Buyer or any U.S. Member be responsible for any liability with respect to such claims or expenses. (e) COBRA. USF shall be responsible for providing any employee of any U.S. Member whose "qualifying event" within the meaning of COBRA occurs prior to the Closing Date (and such employees' "qualified beneficiaries" within the meaning of COBRA) and for providing any "qualified beneficiaries" of any employee of any U.S. Member whose "qualifying event" occurs prior to the Closing Date with COBRA continuation coverage, and, if the Closing occurs, Buyer shall be responsible for providing such COBRA continuation coverage to the extent required by Law for any U.S. Member employee whose qualifying event occurs on or after the Closing Date. (f) Disability. If the Closing occurs, Buyer and the Members shall be responsible for short-term disability benefits and long-term disability benefits for those Affected Employees of any U.S. Member who became disabled prior to or after the Closing Date; provided, however, that USF shall retain responsibility for any long-term disability benefits for any employee of any U.S. Member who had qualified for long-term disability benefits as of the Closing Date and for any long-term disability benefits for any employee of any U.S. Member who had qualified for short-term disability benefits as of the Closing Date and who subsequently qualifies for long-term disability benefits as a consequence of the same injury or disability. (g) WARN Act. Buyer shall be responsible for all liabilities or obligations under the WARN Act resulting from Buyer's or any of the Member's actions following the Closing. 42 (h) Transfer from the USF 401(k) Plan. As of a date (the "Account Transfer Date") as soon as practicable after the Closing Date, USF shall cause to be transferred from the USF 401(k) Plan to the 401(k) plan sponsored by the Buyer (the "Buyer's 401(k) Plan") cash or property acceptable to Buyer in an amount equal to the aggregate balances of all participants in the USF 401(k) Plan as of such Account Transfer Date who, as of the Closing, are employed by any U.S. Member ("U.S. Company Employees"), including actual investment earnings or losses through the Account Transfer Date, except that all promissory notes reflecting participant loans to U.S. Company Employees outstanding as of such Account Transfer Date shall be transferred in kind and except for any amounts as to which withdrawal requests have been duly submitted prior to such transfer and which shall be paid by the USF 401(k) Plan to U.S. Company Employees in accordance with ERISA and the Code and the terms of the USF 401(k) Plan (the "Transferred Assets"). As of the Account Transfer Date, Buyer shall assume all liabilities applicable to U.S. Company Employees under the USF 401(k) Plan to pay benefits, consistent with the terms of the USF 401(k) Plan, equal to the amount transferred. In the event any U.S. Company Employee has a qualified domestic relations order pending or approved in the USF 401(k) Plan at the time of transfer, all documentation concerning such qualified domestic relations order shall be assigned to the Buyer's 401(k) Plan. USF and the Buyer agree to cooperate fully with respect to any governmental filings, including but not limited to the filing of any Internal Revenue Service Form 5310A reporting obligations, information and procedures necessary to effect the transactions contemplated by this Section 6.3(h). Pending the transfer of the Transferred Assets, the accounts of the U.S. Company Employees shall remain in the trust fund for the USF 401(k) Plan and USF shall cause the trustee of the USF 401(k) Plan to pay any current benefits or make any distributions to U.S. Company Employees, including, without limitation, such benefits as may be payable to U.S. Company Employees on account of termination of employment with the U.S. Members, as they become due. USF and Buyer agree to provide each other with such records and information as they may reasonably request relating to their respective obligations under this Section 6.3 or the administration of the USF 401(k) Plan or the Buyer 401(k) Plan. As of the Closing Date, Buyer agrees to cause any U.S. Member to remit to the trustee of the USF 401(k) Plan all matching contributions for periods on or before the Closing Date due to the USF 401(k) Plan from any U.S. Member which have not been paid as of the Closing Date. USF agrees to amend the USF 401(k) Plan pursuant to Treasury Regulation Section 1.411(d)-4 (Q&A2(e)) to eliminate as of or prior to the Account Transfer Date any and all non-lump sum and in-kind optional forms of benefit and to provide notice to affected participants in the USF 401(k) Plan in accordance with such regulation at least 90 days prior to the Account Transfer Date and deliver a copy of such notice to Buyer before the Account Transfer Date. (i) USF Flexible Benefit Plan. After the Closing Date, Buyer shall adopt a cafeteria plan under Section 125 of the Code and under such plan shall honor claims by U.S. Company Employees with respect to deferrals made by such U.S. Company Employees during calendar 2002 under the United States Filter Corporation Section 125 Flexible Benefit Plan; provided, however, that at the Closing, USF shall transfer to Buyer all amounts that USF has received in respect of such deferrals, net of any amounts previously paid out by USF to U.S. Company Employees in respect of eligible medical and dependent care expenses incurred in 2002. 43 (j) USF Management Deferred Compensation Plan. As soon as practicable following the Closing Date, Buyer agrees to cause each of the U.S. Members to remit to the trustee of the United States Filter Corporation Management Deferred Compensation Plan (the "USF MDCP") all amounts required to be withheld from employees' pay as described on Schedule 3.13(d), in respect of U.S. Company Employees participating in the USF MDCP. 6.4 Insurance. (a) Termination by USF. Effective as of the Closing Date, USF will cause the termination of all coverage relating to the Members, the Business or any of the Member's assets and current or former employees and directors under policies of insurance that cover USF or any of its Subsidiaries as well as Members. USF will not take any action that would affect the coverage of one or more Members under any policies of insurance maintained solely by or on behalf of any Member. (b) Information. To the extent that after the Closing either Party requires any information from the other Party regarding claim data, payroll or other information in order to make filings with insurance carriers or self insurance regulators, the other Party will promptly supply such information. (c) Workers Compensation. USF shall retain responsibility to administer and pay all workers compensation claims made by U.S. Company Employees prior to March 1, 2001. If the Closing occurs, Buyer shall be responsible to administer and pay all workers compensation claims made by U.S. Company Employees on or after March 1, 2001 but prior to the Closing Date up to a stop-loss amount of $250,000 per individual claim; provided, however, that Buyer shall not be responsible for any such claims which have as of the Closing Date been settled or paid by a Member, USF or its Affiliates and shall not be obligated to reimburse USF or its Affiliates for any amounts paid by USF, its Affiliates or a Member prior to the Closing pursuant to a claim that has not been settled as of the Closing Date. USF shall be responsible for any amounts in excess of the stop-loss amount with respect to claims made on or after March 1, 2001 that relate to the period prior to the Closing; provided, that Buyer notifies USF of any such claims that are filed after Closing in accordance with procedures established by USF and communicated to Buyer in writing at the time of the Closing. Schedule 6.4 contains a list of pending workers compensation claims indicating the date of incident. USF and Buyer will cooperate with one another after the Closing Date and will provide access to claims data, medical history and employment records as may be reasonably required to effect the cost-efficient resolution of such outstanding claims. The amounts payable by USF pursuant to this paragraph shall not be deemed indemnification payments for purposes of Article VIII and, accordingly, shall not be subject to any of the limitations or other provisions of that Article. 6.5 Securities Law Compliance and Legends. Buyer agrees and understands that the USFCA Shares have not been, and will not be, registered under the Securities Act or the securities laws of any state. Accordingly, Buyer will not sell or otherwise dispose of the USFCA Shares except in one or more transactions registered under the Securities Act and applicable state securities laws or as to which an exemption from the registration requirements of the Securities Act and applicable state securities laws is available. 44 6.6 No Public Announcement. Neither Buyer, USF nor their respective Affiliates shall, without the written approval of the other Party, make any press release or other public announcement concerning the transactions contemplated by this Agreement, except as and to the extent that any such Person shall be so obligated by Law, in which case the other Party to this Agreement shall be advised and the Parties shall use their best efforts to cause a mutually agreeable release or announcement to be issued; provided, however, that the foregoing shall not preclude communications or disclosures necessary to implement the provisions of this Agreement or to comply with applicable accounting and disclosure obligations of any Governmental Body or the rules of any stock exchange. 6.7 Expenses. Except as otherwise specifically provided in this Agreement, each Party will pay all costs and expenses incident to its negotiation and preparation of this Agreement and to its performance and compliance with all agreements and conditions contained herein on its part to be performed or complied with, including the fees, expenses and disbursements of its counsel, investment banker and independent public accountants and the filing fees payable in connection with each Party's respective filing required by the HSR Act and any similar filing with any non-United States Governmental Body. 6.8 Environmental Access. USF shall grant access to Buyer and its employees, agents and representatives to the facilities of the Group for such non-invasive environmental inspections as Buyer reasonably deems necessary or desirable, will make available for interviews employees with managerial responsibility for environmental matters at the Group's facilities, and will authorize Buyer and its employees, agents and representatives to gain access to governmental records concerning environmental matters that relate to or affect facilities of the Group. 6.9 Employees. (a) For a period of two (2) years following the Closing, neither USF nor any of its Subsidiaries shall induce or seek to induce any salaried employee of any Member to leave the employ of such Member. For a period of one (1) year following the Closing, neither USF nor any of its Subsidiaries shall employ or otherwise engage as an employee, independent contractor or otherwise, any salaried employee of any Member unless such person's employment has been terminated by Buyer or a Member for reasons other than cause (in which case such person could be employed by USF immediately following such termination). USF and its Subsidiaries shall use commercially reasonable efforts to comply with the requirements of the preceding sentence. In the event that either USF or its Subsidiaries employ a person in violation of this provision, the Buyer's sole remedy shall be to require USF or the applicable Subsidiary to terminate such person's employment promptly upon providing USF with notice of such violation. Buyer shall provide USF with written notice at the time of termination of each salaried employee of any Member during the one year following the Closing and upon request by USF, Buyer shall advise USF as to whether a particular employee whose employment was terminated by Buyer or a Member is deemed by Buyer to have been terminated "for cause" for purposes of this paragraph. Notwithstanding the terms of this Section 6.9(a) to the contrary, (i) Buyer agrees that, should Buyer inform USF in writing at any time on or after the Closing Date that it or the Members will not continue to employ Andy Denver and/or David McGarvey or should Buyer or a Member at any time after the Closing terminate the employment of either of them without giving such notice, then immediately following the date of such notice or such termination USF may offer employment to and hire the individual or individuals as to whom such notice or termination applies, and (ii) USF agrees that (x) should Buyer or the Members desire to continue Andy Denver's employment following the Closing Date, USF shall assign its rights under its employment agreement with Andy Denver to Buyer or one of the Members, and (y) if Buyer or the Members terminate at any time following the Closing Date Andy Denver's and/or David McGarvey's employment with Buyer or the Members and USF hires such person(s) pursuant to the terms of (i) above, USF shall use its good faith efforts to cause such employees to make themselves reasonably available, for up to two years following the Closing Date, to Buyer and the Members, during normal business hours, on a limited basis (in such a manner as will not interfere with their normal job duties) to answer any questions related to the operations of the Members prior to Closing. 45 (b) Buyer also agrees that for a period of one (1) year following the Closing, Buyer shall use its good faith efforts not to directly solicit (other than by way of generalized or mass media advertising) or hire any employee of USF or its Subsidiaries known to be working in research and development. 6.10 Assignment. Buyer shall have the right to assign this Agreement to an Affiliate of Buyer provided that Pall Corporation shall remain the primary obligor as to all of the obligations of Buyer under this Agreement until the Closing. 6.11 Shared Facilities. Between the date of this Agreement and the Closing Date, Buyer and USF shall use commercially reasonable good faith efforts to, effective as of the Closing Date, enter into mutually acceptable agreements with respect to, or terminate all occupancy arrangements relating to, the Shared Facilities (all of which are identified on Schedule 3.8(d)). In the absence of an agreement regarding such arrangements as of the Closing Date, all occupancy arrangements relating to the Shared Facilities shall continue for a period not to exceed six months following the Closing Date, on terms at least as favorable to the applicable Member as are in effect as of the date hereof, provided, however, that the parties agree to use their commercially reasonable good faith efforts to reach a mutually acceptable arrangement regarding such Shared Facilities prior to the six month anniversary of the Closing Date. 6.12 Agreements with USF and Affiliates. USF shall notify Buyer and provide Buyer with all of the material terms of and copies of any agreements proposed to be entered into between any Member and USF and/or any Affiliate of USF at any time between the date of this Agreement and the Closing Date. The Members shall not enter into any such agreements unless and until Buyer shall consent to such agreements. 6.13 Legal Opinion of USF. At the Closing, USF shall cause to be delivered to Buyer an opinion of its Executive Vice President and General Counsel, in the form attached hereto as Exhibit 1. 6.14 Legal Opinion of Buyer. At the Closing, Buyer shall cause to be delivered to USF an opinion of its Senior Vice President and General Counsel as to the matters set forth in Exhibit 2 attached hereto. 6.15 Noncompetition. 46 (a) Agreement Not to Compete. Except as provided in Section 6.15(c), USF agrees that during the Non-Compete Period, it shall not, and shall cause each of its Subsidiaries (so long as they remain Subsidiaries of USF) not to, engage in a Prohibited Activity anywhere in the Territory. (b) Definitions. For purposes of this Section 6.15 and Section 6.16, the following terms shall have the meaning set forth below: "In-Process Liquid Filtration" means filtration, separation and purification of liquid streams by means of materials, products and systems specifically designed, marketed and used for such purposes. "Gas Filtration" means filtration, separation and purification of gas streams by means of materials, products and systems specifically designed, marketed and used for such purposes. "Non-Compete Period" means the period from the Closing Date until the second anniversary of the Closing Date. "Plymouth Businesses" means those businesses of the USF Consumer & Commercial Group, which, among other things, manufacture and compound media and incorporate such media into (i) filter and adsorber housings, filter and adsorber cartridges (including without limitation carbon cartridges), specialty cartridges, bag housings, bag filters, and other products that filter or adsorb contaminants in water and/or other fluids; (ii) reverse osmosis systems; and (iii) water softeners and related accessories and systems; all of which may be used for In-Process Liquid Filtration or Gas Filtration within the served market segments shown in Column III of Schedule 6.15. "Prohibited Activity" means the combination of: (1) manufacturing a filtration, separation or purification material listed in Column I of Schedule 6.15; and (2) incorporating such manufacturing materials into a product configuration listed in the corresponding section of Column II of Schedule 6.15 for use in Gas Filtration or In-Process Liquid Filtration; and (3) selling such product to end users or distributors for intended use in any of the served market segments listed in Column III of Schedule 6.15. "Territory" means the entire world. "Water or Wastewater Filtration Applications" includes, without limitation, water, wastewater or gray water filtration, separation and purification, water recycling, dewatering, and resource recovery involving the removal of water from aqueous cleaning solutions, hydrocarbons or metals, and similar applications. 47 (c) Permitted Activities. Notwithstanding any other provision of this Section 6.15 to the contrary, the Parties agree that USF and each Subsidiary may at any time engage in any or all of the following activities anywhere in the Territory: (i) the design, manufacture, production and/or sale of any filtration product, including any product described above in the definition of Prohibited Activity, for use in Water or Wastewater Filtration Applications; (ii) directly or indirectly acquire, including by way of a purchase of assets or securities or by way of merger or consolidation, any Person or business (such Person or business, an "Acquired Business") engaged in any Prohibited Activity, if less than twenty-five (25%) of the consolidated gross revenues of such Acquired Business during the last completed fiscal year of such Acquired Business prior to such acquisition were derived from any Prohibited Activity. USF or any Subsidiary may conduct such Prohibited Activity through such Acquired Business without limitation or restriction and without regard to the provisions of this Agreement; (iii) directly or indirectly acquire, including by way of a purchase of assets or securities or by way of merger or consolidation, any Acquired Business even if twenty-five (25%) or more of the consolidated gross revenues of such Acquired Business during the last completed fiscal year of such Acquired Business prior to such acquisition were derived from any Prohibited Activity; provided that, in such event, USF shall use (or cause the Subsidiary of USF that acquired such Acquired Business to use) its commercially reasonable efforts to dispose (in whole or in part) of all or some business units of such Acquired Business that is then engaged in such Prohibited Activity as soon as practicable after the consummation of such acquisition, so that less than twenty-five (25%) of the consolidated gross revenues of such Acquired Business during the fiscal year of such Acquired Business in which such acquisition occurred and thereafter during the Non-Compete Period will be derived from such Prohibited Activity; (iv) form, join, enter into or participate in any partnerships, joint ventures, consortia and other relationships (including, without limitation, as a subcontractor to, or pursuant to a subcontract with, a provider engaged in any Prohibited Activity) which engage in any Prohibited Activity, so long as the goods or services contributed by USF or any of its Subsidiaries to any such partnership, joint venture, consortium or other relationship do not require USF or any such Subsidiary to directly engage in such Prohibited Activity; (v) perform under the terms of any contract or bid proposal entered into or made in the ordinary course of business by USF or its Subsidiaries (other than the Members) on or prior to the date of this Agreement; (vi) operate, conduct and develop the Plymouth Businesses in the ordinary course; and (vii) provide replacement hollow fiber membrane products for use in filtration equipment and systems sold by USF or its Subsidiaries prior to the date of this Agreement. (d) If USF or any of its Subsidiaries violates any of their obligations under this Section 6.15, Buyer and any of its Affiliates (which for purposes of this Section 6.15(b) with respect to Buyer shall include the Members of the Group following the Closing hereunder) may proceed against any of them in law or in equity for such damages or other relief as a court may deem appropriate. USF acknowledges that a violation of this Section 6.15 may cause Buyer or any of its Affiliates irreparable harm which may not be adequately compensated for by money damages. USF therefore agrees that in the event of any actual or threatened violation of this Section 6.15, Buyer and any of its Affiliates shall be entitled, in addition to other remedies that they may have, to a temporary restraining order and to preliminary and final injunctive relief against USF and any of its Subsidiaries to prevent any violations of this Section 6.15. 48 6.16 Patent Licenses. (a) At the Closing, USF shall, and shall cause its Subsidiaries to, license to Buyer the patents and patent applications listed in Schedule 6.16(a), and any continuations, divisionals, re-examinations, re-issues, foreign patents, or other patents and patent applications claiming priority therefrom, that issue and are derived from or correspond to said patents and patent applications (collectively, the "Licensed USF Patents"), on a royalty-free basis in the Territory, according to the terms of the Patent License Agreement in Schedule 6.16. (b) At the Closing, Buyer shall, and shall cause the Members to, license to USF the patents and patent applications listed in Schedule 6.16(b), and any continuations, divisionals, re-examinations, re-issues, foreign patents, or other patents and patent applications claiming priority therefrom, that issue and are derived from or correspond to said patents and patent applications (collectively, the "Licensed Buyer Patents"), on a royalty-free basis in the Territory, in the field of Permitted Activities as defined and described in Sections 6.15(b) and 6.15(c)(i), 6.15(c)(v), 6.15(c)(vi), and 6.15(c)(vii) (collectively, the "USF Licensed Field"), according to the Terms of the Patent License Agreement in Schedule 6.16. ARTICLE VII CONDITIONS TO CLOSING; TERMINATION 7.1 Conditions Precedent to Obligation of Buyer. The obligation of Buyer to proceed with the Closing under this Agreement is subject to the fulfillment prior to or at the Closing of the following conditions, any one or more of which may be waived in whole or in part by Buyer: (a) Bringdown of Representations and Warranties; Covenants. Each of the representations and warranties of USF contained in this Agreement shall be true and correct in all material respects on and as of the Closing Date, except to the extent that any representation and warranty relates to an earlier date, in which case such representation and warranty shall be true and correct as of such earlier date. USF shall have performed in all material respects all of the covenants and complied in all material respects with all of the provisions required by this Agreement to be performed or complied with by it at or before the Closing, except where such nonperformance or noncompliance would not have a Material Adverse Effect. (b) Orders; Litigation. No statute, regulation or order of any Governmental Body shall be in effect that restrains or prohibits the transactions contemplated hereby, and no proceeding shall have been commenced that restrains or prohibits the consummation of all or any portion of the transactions contemplated hereby. 49 (c) Consents. USF or Buyer shall have received the consents or other approvals referred to in Section 5.3. (d) Antitrust. All waiting periods applicable to the consummation of the USFCA Share Transfer under the HSR Act and other Antitrust Laws shall have expired or been terminated, and all clearances and approvals required to be obtained in respect of the USFCA Share Transfer prior to the Closing shall have been obtained. (e) Share Certificates and Instruments of Transfer. USF shall have delivered to Buyer stock certificates representing all of the USFCA Shares and shall have executed, acknowledged and delivered to Buyer such instruments of transfer of the USFCA Shares as shall be reasonably requested by Buyer to vest in Buyer all right, title and interest in and to the USFCA Shares. (f) Documentation. USF shall have delivered to Buyer the following documentation and such other documentation as Buyer may reasonably request: A. The current by-laws of each of USF and USFCA. B. Certificate of the Corporate Secretary of USF stating that no corporate action has been taken by the board of directors or the stockholders of USF providing for, relating to or contemplating the dissolution of USF. C. Certificate of the Corporate Secretary of USFCA stating that no corporate action has been taken by the board of directors or the stockholders of USFCA providing for, relating to or contemplating the dissolution of USFCA. D. Copies, certified by the Corporate Secretaries of USF and USFCA, of all board and stockholder resolutions of USF and USFCA relating to the execution and delivery of the Stock Purchase Agreement and the completion of the transactions contemplated thereby. E. Certificate of the Corporate Secretary of USFCA confirming that the total authorized capital stock of USFCA consists of 1,000 authorized shares of common stock, all of which are issued and outstanding and none of which are held as treasury stock. F. Certificate of the Corporate Secretary of USFCA setting forth all USFCA board resolutions authorizing or otherwise relating to the issuance of all outstanding USFCA shares and describing the consideration paid for such shares. G. The originals of all certificates evidencing the 1,000 outstanding shares of USFCA common stock, with evidence of the cancellation and retirement thereof. H. USFCA stock register, certified by its Corporate Secretary. 50 (g) FIRPTA Certificate. USF shall have delivered to Buyer pursuant to Code ss.1445(b)(2) and in conformity with Treas. Reg. ss.1.1445-2(b)(2)(iii)(B), a duly executed certification of non-foreign status. (h) Material Adverse Effect Breaches. If Losses arising from breaches of more than one representation and warranty and/or covenant of USF contained in this Agreement (whether a representation and warranty or covenant has been breached shall, for purposes of this Section only, be determined for representations including references to Material Adverse Effect as if such representations did not include a reference to Material Adverse Effect) exceed $20 million USF shall have agreed to reduce the Purchase Price by the amount of such Losses in excess of .5% of the Purchase Price. If the Purchase Price is reduced in that amount, the 1% Purchase Price limitation on Buyer's recovery of Recoverable Losses under Section 8.2 shall be deemed to have been exceeded and the deductible of .5% of the Purchase Price in said Section 8.2 shall be deemed to have been satisfied. If such Losses exceed $20 million and USF does not agree to such reduction of the Purchase Price, Buyer may either (x) exercise its right not to close by reason of non-fulfillment of a Closing condition or (y) waive such condition, in which event (assuming fulfillment of all other Closing conditions) the Closing shall take place and Buyer shall have the right to seek recovery of such Losses pursuant to Article VIII hereof. (i) Guaranty. Vivendi Water S.A., a French corporation, shall have executed and delivered a Guaranty of this Agreement in the form of Exhibit 3 attached hereto. 7.2 Conditions Precedent to Obligation of USF. The obligation of USF to proceed with the Closing under this Agreement is subject to the fulfillment prior to or at Closing of the following conditions, any one or more of which may be waived in whole or in part by USF: (a) Bringdown of Representations and Warranties; Covenants. Each of the representations and warranties of Buyer contained in this Agreement shall be true and correct in all material respects on and as of the Closing Date, except to the extent that any representation and warranty relates to an earlier date, in which case such representation and warranty shall be true and correct in all material respects as of such earlier date. Buyer shall have performed in all material respects all of the covenants and complied in all material respects with all of the provisions required by this Agreement to be performed or complied with by it at or before the Closing, except where such nonperformance or noncompliance would not have a Material Adverse Effect. (b) Orders; Litigation. No statute, regulation or order of any Governmental Body shall be in effect that restrains or prohibits the transactions contemplated hereby, and no proceeding shall have been commenced that restrains or prohibits the consummation of all or any portion of the transactions contemplated hereby. (c) Antitrust. All waiting periods applicable to the consummation of the USFCA Share Transfer under the HSR Act and other Antitrust Laws shall have expired or been terminated, and all clearances and approvals required to be obtained in respect of the USFCA Share Transfer prior to the Closing shall have been obtained. 51 7.3 Termination. (a) Termination of Agreement. This Agreement may be terminated at any time prior to the Closing by: (i) mutual consent of Buyer and USF; (ii) Buyer, if any of the conditions specified in Section 7.1 hereof shall not have been fulfilled by August 1, 2002 and shall not have been waived by Buyer; (iii) USF, if any of the conditions specified in Section 7.2 hereof shall not have been fulfilled by August 1, 2002 and shall not have been waived by USF; or (iv) by either USF or Buyer if a Governmental Body shall have issued a nonappealable final order, decree or ruling or taken any other nonappealable final action having the effect of permanently restraining, enjoining or otherwise prohibiting the USFCA Share Transfer. (b) Remedies. In the event of termination of this Agreement by either Buyer or USF pursuant to clause (ii) or (iii) of the preceding Section 7.3(a), Buyer, on the one hand, and USF, on the other hand, shall be liable to the other for any breach hereof by such Party, which breach led to such termination. Buyer and USF shall be entitled to seek any remedy to which such Party may be entitled at law or in equity in the event of such termination, which remedies shall include injunctive relief and specific performance. (c) Limitations. Notwithstanding the foregoing, in the event that this Agreement is terminated by one Party pursuant to clause (ii) or (iii) of the first sentence of subsection (a) solely as a result of a failure by the other Party to satisfy the conditions set forth in Article VII which failure could not have been reasonably anticipated by such other Party and was beyond the reasonable control of such other Party, then the remedy of the Party terminating this Agreement shall be limited solely to recovery of all of such Party's reasonable costs and expenses incurred in connection herewith. ARTICLE VIII INDEMNIFICATION 8.1 Survival of Representations, Warranties, Covenants and Agreements. Subject to the provisions of this Article VIII, the representations and warranties of USF contained in Article III and those of the Buyer contained in Article IV and the covenants and agreements of the Parties contained in this Agreement shall survive the Closing (and any investigation by the Parties with respect to such representations and warranties) but shall terminate and be of no further force or effect on the second anniversary of the Closing Date and no claims shall be made by any Indemnified Party (as hereinafter defined) under this Section 8.1 thereafter. Notwithstanding the foregoing, (a) any such representation or warranty as to which a claim relating thereto is asserted in writing (which states with specificity the basis therefor) in accordance with Section 8.3 during such survival period shall, with respect only to such claim, continue in force and effect beyond such survival period pending resolution of such claim, (b) the representations and warranties of USF set forth in Section 3.3(c) shall survive forever, (c) the representations and warranties of USF set forth in Section 3.7, Section 3.13(k) and the covenants of USF and Buyer set forth in Section 6.2 shall survive until the expiration of the relevant statutory period of limitations applicable to the underlying claims, (d) the covenants and agreements in this Article VIII shall survive the Closing and shall remain in full force and effect for such period as is necessary to resolve any claim made with respect to any representation, warranty, covenant or agreement contained in this Agreement during the survival period thereof, and (e) the remaining covenants and agreements of the Parties contained in Article VI of this Agreement shall survive the Closing without any contractual limitation on the period of survival. 52 8.2 General Indemnification. If the transactions contemplated hereby occur at the Closing, subject to the provisions of Section 8.1: (a) Indemnification by USF and Buyer. Each of the Buyer and USF hereby agrees (in such capacity, an "Indemnifying Party"), from and after the Closing, to indemnify and hold harmless the other Party and its Related Parties (in such capacity, an "Indemnified Party") against any Losses that such Indemnified Party shall actually incur, to the extent that such Losses (or claims, actions, suits or proceedings in respect thereof and any appeals therefrom ("Proceedings")): (i) arise out of any breach of any representation or warranty made herein in Article III (or out of any matter that would have been such a breach but for the fact that it did not itself constitute a Material Adverse Effect) (other than Section 3.7, for which the remedies are specified in Section 6.2) for the benefit of the Buyer or in Article IV for the benefit of USF; or (ii) arise out of any failure to perform any covenant made herein by the Indemnifying Party for the benefit of the Indemnified Party. Notwithstanding the foregoing, the Indemnifying Party shall not have any liability to the Indemnified Party under this Section 8.2(a) unless and until the aggregate amount of all Recoverable Losses exceeds 1% of the Purchase Price, in which event only the amount of Recoverable Losses in excess of .5% of the Purchase Price shall be recoverable; and the liability of the Indemnifying Party under this Section 8.2(a) shall not exceed 50% of the Purchase Price in the aggregate; provided, however, that the limitations set forth in this sentence shall not apply with respect to USF's liability to Buyer (x) for Income Taxes of any Member for Pre-Closing Periods as set forth in Section 6.2(a)(i)(A)(1), (2) and (5) and related costs and expenses pursuant to the last sentence of Section 6.2(c)(iii), (y) for any applicable Stamp Duty Clawback or (z) arising out of breaches of Section 3.3(c) or Section 3.17. All indemnity payments made under this Article VIII shall be treated as adjustments to the Purchase Price, even though such payments may be made after the period specified in Section 2.4(c). For the purposes of determining the amount of Losses incurred by an Indemnified Party in accordance with this Article VIII, such Losses shall be offset by (i) the proceeds of any insurance received by the Indemnified Party with respect thereto and (ii) the amount of any Income Tax benefit actually realized by the Indemnified Party with respect thereto. (b) Limitations. USF shall not be liable for any Losses resulting from a breach of any of the representations, warranties and covenants set forth in Article III of this Agreement or any of the covenants set forth in Article VI of this Agreement to the extent that: (i) the liability for such breach occurs or is increased as a result of the adoption or imposition of any Law not in force at the date of this Agreement or as a result of any increase in rates of taxation after the date of this Agreement; or 53 (ii) the Losses would not have arisen but for a change in accounting policy or practice of the Buyer or any Member after the Closing. (c) Waiver of Conditions. Notwithstanding anything to the contrary in this Agreement, to the extent that USF or the Buyer waives in writing satisfaction of one or more of the conditions set forth in Section 7.1 or Section 7.2, which conditions were not satisfied due to the occurrence of one or more events, conditions or circumstances that was specifically disclosed in writing (including by inclusion on a Schedule hereto) to USF or the Buyer, respectively, prior to the Closing, the disclosing Party shall not be liable for any Losses resulting from such matter or matters to the extent so disclosed. (d) Indemnification by Buyer. To the fullest extent permitted by Law, the Buyer hereby agrees, from and after the Closing, to indemnify and hold harmless USF and its Related Parties against any Losses incurred by such Person to the extent that such Losses (i) arise out of or are based upon the ownership and operation of the Group from and after the Closing Date, (ii) relate to Taxes which are the obligation of the Buyer or the Members in accordance with the provisions of Section 6.2, or (iii) arise out of a breach of Section 4.5. This indemnification shall be in addition to (but not in duplication of) the indemnification provided under Section 8.2(a) and shall not be subject to the thresholds, deductibles and other limitations on amount set forth in Section 8.2(a). 8.3 Procedures. (a) Notice of Claim. Promptly after receipt by the Indemnified Party under Section 8.2 of notice of a Recoverable Loss or the commencement of any Proceeding with respect to which it believes it is entitled to be indemnified under this Agreement, the Indemnified Party shall, if a claim in respect thereto is to be made against the Indemnifying Party under this Article, notify the Indemnifying Party in writing of the commencement thereof; provided, however, that the omission to notify the Indemnifying Party shall not relieve it from any liability that it may have to the Indemnified Party to the extent that the Indemnifying Party is not prejudiced by such omission. (b) Settlement; Compromise. An Indemnifying Party will not, without the prior written consent of the Indemnified Party (which consent shall not be unreasonably withheld), settle or compromise or consent to the entry of any judgment with respect to any pending or threatened Proceeding unless such settlement, compromise or consent includes an unconditional release of the Indemnified Party from all liability arising out of such Proceeding. An Indemnified Party will not, without the prior written consent of the Indemnifying Party, settle or compromise or consent to the entry of any judgment with respect to any pending or threatened Proceeding. (c) Procedure. If a Proceeding shall be brought against an Indemnified Party and it shall notify the Indemnifying Party thereof in accordance with subsection (a) of this Section 8.3, the Indemnifying Party shall be entitled to assume the legal defense thereof. The Indemnified Party shall have the right to employ separate counsel in any such action and participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of the Indemnified Party unless (i) the employment of such counsel shall have been specifically authorized in writing by the Indemnifying Party, (ii) the Indemnifying Party shall have failed to assume the defense of such action or (iii) the named parties to any such Proceeding (including any impleaded parties) include both the Indemnified Party and the Indemnifying Party, and the Indemnified Party shall have been advised by such counsel that there is a conflict for counsel in representing both the Indemnifying Party and the Indemnified Party. In any such case, the Indemnifying Party shall not, in connection with any one action or separate but substantially similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the fees and expenses of more than one separate firm of attorneys (in addition to any local counsel) for the Indemnified Party. Except as aforesaid, after notice from the Indemnifying Party to the Indemnified Party of its election to assume the defense of such claim or such action, the Indemnifying Party shall not be liable to the Indemnified Party under this Section for any attorneys' fees or other expenses (except reasonable costs of investigation) subsequently incurred by the Indemnified Party in connection with the defense thereof. To the extent of any inconsistency between the provisions of this Section 8.3(c) and Section 6.2(c), the provisions of Section 6.2(c) shall control. 54 (d) Resolution of Disputes. In the case of an alleged Recoverable Loss which is disputed by the Indemnifying Party, the Parties shall attempt in good faith to resolve their differences for a period of 60 days and, if the Parties are unable to resolve their differences within such period, the Indemnified Party or Parties may submit the matter to judicial proceedings (unless an alternate dispute resolution procedure is specified in this Agreement). 8.4 Consequential Damages. Neither Party shall be liable to any other Party for claims for punitive, special, exemplary or consequential damages, including damages for loss of profits, loss of use or revenue or losses by reason of cost of capital, arising out of or relating to this Agreement or the transactions contemplated hereby, regardless of whether a claim is based on contract, tort (INCLUDING NEGLIGENCE), strict liability, violation of any applicable deceptive trade practices act or similar Law or any other legal or equitable principle, and each Party releases the other from liability for any such damages. No Party shall be entitled to rescission of this Agreement as a result of breach of any other Party's representations, warranties, covenants or agreements, or for any other matter. 8.5 Sole Remedy. Except as provided in Section 6.1(c), from and after the Closing the provisions of this Article VIII shall be the sole and exclusive remedy of each Party for (i) any breach of a Party's representations or warranties contained in this Agreement, (ii) any breach of a Party's covenants or other agreements contained in this Agreement, or (iii) any other matters relating to this Agreement other than claims for fraud. The Buyer and USF and their respective Related Parties are the only Persons entitled to exercise any remedy provided by this Article VIII. ARTICLE IX MISCELLANEOUS 9.1 Books and Records. (a) From and after the Closing Date, Buyer shall cause the Members to maintain copies of all books and records in the possession of the Members at the time of the Closing and shall prevent the Members from destroying any of such books and records for a period of five (5) years following the Closing Date or such longer period as may be required by applicable law without first allowing USF, at USF's expense, to make copies of the same. During that period, Buyer shall cause the Members (i) to grant to USF and its representatives reasonable cooperation, access and staff assistance at all reasonable times and upon reasonable notice to all of such books and records relating to the period prior to the Closing (including workpapers and correspondence with taxing authorities) that are not otherwise protected by legal privilege, (ii) to afford USF and its representatives the right, at USF's expense, to take extracts therefrom and to make copies thereof, and (iii) to have access to the employees of the Members, all to the extent reasonably necessary for the preparation of Tax Returns and the handling of Tax audits, disputes and litigation; provided, however, that such requested cooperation, access and assistance shall not unreasonably interfere with the normal operations of Buyer or the Members. 55 (b) Litigation Assistance. Each of USF and Buyer shall, upon request by the other Party, use all commercially reasonable efforts to assist the requesting Party in the evaluation, defense or resolution of any litigation or other claim (other than litigation or claims relating to this Agreement brought by a Member or the parties to this Agreement) concerning the Group or any Member that exists as of the Closing or is initiated after the Closing and is based on events occurring prior to the Closing (including making available all personnel (including directors, officers and employees) whose assistance or testimony is necessary to assist the requesting Party in the evaluation, defense or resolution of such litigation or claim and making available for review and copying copies of all books and records and other reasonably requested information (including financial information) to the extent reasonably relevant to such litigation or claim and to the extent not protected by legal privilege, not competitively sensitive and not proprietary in nature. The requesting Party shall reimburse the other Party for all reasonable expenses of such Party or such Party's personnel related to providing such assistance. 9.2 Further Assurances. USF shall, at any time and from time to time on and after the Closing Date, upon request by Buyer and without further consideration, take or cause to be taken such actions and execute, acknowledge and deliver, or cause to be executed, acknowledged and delivered, such instruments, documents, transfers and conveyances as may be required for the better conveying, transferring, assigning and delivering of the USFCA Shares to Buyer. 9.3 Notices. All notices and other communications given or made pursuant to this Agreement shall be in writing and shall be deemed to have been duly given or made (i) the second Business Day after the date of mailing, if delivered by registered or certified mail, postage prepaid; (ii) upon delivery, if sent by hand delivery; (iii) upon delivery, if sent by prepaid courier, with a record of receipt; or (iv) the next day after the date of dispatch, if sent by facsimile, telecopy or e-mail (with a copy simultaneously sent by registered or certified mail, postage prepaid, return receipt requested or by prepaid courier), to the Parties at the following addresses: (i) if to Buyer, to: Pall Corporation 2200 Northern Boulevard East Hills, New York 11548 Attention: Jeremy Hayward-Surry, President Fax: (516) 484-3529 E-Mail: jeremy_hayward-surry@pall.com 56 with a required copy to: Carter, Ledyard & Milburn 2 Wall Street New York, New York 10005 Attention: Heywood Shelley Fax: (212) 732-3232 E-Mail: shelley@clm.com and Gilbert Weiner, Esq. Senior Vice President and General Counsel Pall Corporation 2200 Northern Boulevard East Hills, New York 11548 Fax: (516) 484-3529 E-Mail: gil_weiner@pall.com (ii) if to USF, to: United States Filter Corporation 40-004 Cook Street Palm Desert, California 92211 Attention: General Counsel Fax: (760) 346-4024 E-Mail: stanczaks@usfilter.com With a required copy to: Sutherland Asbill & Brennan LLP 999 Peachtree Street NE Atlanta, Georgia 30309 Attention: Mark D. Wasserman Fax: (404) 853-8806 E-Mail: mdwasserman@sablaw.com Either Party may change the address to which notice to it, or copies thereof, shall be addressed by giving notice thereof to the other Party in conformity with the foregoing. 9.4 Assignment; Governing Law. 57 (a) Assignment. This Agreement and all the rights and powers granted hereby shall bind and inure to the benefit of the Parties and their respective permitted successors and assigns. This Agreement and the rights, interests and obligations hereunder may not be assigned by either Party without the written consent of the other Party. (b) Governing Law. This Agreement shall be governed by and construed in accordance with the Laws of the State of Delaware without regard to its conflict of laws doctrines, except that for purposes of determining compliance with or the existence of liabilities under Environmental Laws, the Environmental Laws of the Governmental Body with jurisdiction over the real property, personal property, facility or activity involved shall govern. (c) Consent to Jurisdiction; Service of Process. Each of the Parties hereby irrevocably acknowledges and consents that any legal action or proceeding brought with respect to any of the obligations arising under or relating to this Agreement shall be brought in the courts of the State of Delaware, or if it has or can acquire jurisdiction, in the United States District Court for the District of Delaware, as the Party bringing such action or proceeding may elect, and each of the Parties hereby irrevocably submits to and accepts with regard to any such action or proceeding, for itself and in respect of its property, generally and unconditionally, the jurisdiction of the aforesaid courts. Each Party hereby further irrevocably waives any claim that any such courts lack jurisdiction over such Party, and agrees not to plead or claim, in any legal action or proceeding with respect to this Agreement or the transactions contemplated hereby brought in any of the aforesaid courts, that any such court lacks jurisdiction over such Party. Each Party irrevocably consents to the service of process in any such action or proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, to such Party, at its address for notices set forth in Section 9.3 of this Agreement, such service to become effective ten (10) days after such mailing. Each Party hereby irrevocably waives any objection to such service of process and further irrevocably waives and agrees not to plead or claim in any action or proceeding commenced hereunder or under any other documents contemplated hereby that service of process was in any way invalid or ineffective. Subject to Section 9.4(d) of this Agreement, the foregoing shall not limit the rights of either Party to serve process in any other manner permitted by law. The foregoing consents to jurisdiction shall not constitute general consents to service of process for any purpose except as provided above and shall not be deemed to confer rights on any Person other than the Parties to this Agreement. (d) Waivers. Each of the Parties hereby waives any right it may have under the laws of any jurisdiction to commence by publication any legal action or proceeding with respect to this Agreement. To the fullest extent permitted by applicable Law, each of the Parties hereby irrevocably waives the objection which it may now or hereafter have to the laying of the venue of any suit, action or proceeding arising out of or relating to this Agreement in any of the courts referred to in Section 9.4(c) of this Agreement and hereby further irrevocably waives and agrees not to plead or claim that any such court is not a convenient forum for any such suit, action or proceeding. (e) Enforcement. The Parties agree that any judgment obtained by either Party or its permitted successors or assigns in any action, suit or proceeding referred to above may, in the discretion of such Party (or its permitted successors or assigns), be enforced in any jurisdiction, to the extent permitted by applicable Law. 58 (f) Deemed Acceptance. Each Related Party of Buyer or USF, as the case may be, seeking the benefit of Article VIII of this Agreement shall be deemed to have accepted and agreed to the provisions of this Section 9.4 as a condition to obtaining any benefits under Article VIII as if such Person was one of the Parties named herein. 9.5 Amendment and Waiver; Cumulative Effect. To be effective, any amendment or waiver under this Agreement must be in writing and be signed by the Party against whom enforcement of the same is sought. Neither the failure of either Party to exercise any right, power or remedy provided under this Agreement or to insist upon compliance by the other Party with its obligations hereunder, nor any custom or practice of the Parties at variance with the terms hereof shall constitute a waiver by such Party of its right to exercise any such right, power or remedy or to demand such compliance. The rights and remedies of the Parties are cumulative and not exclusive of the rights and remedies that they otherwise might have now or hereafter, at law, in equity, by statute or otherwise. 9.6 Entire Agreement; No Third Party Beneficiaries. This Agreement, the confidentiality agreement entered into by the Parties in connection with the transactions contemplated hereby, and the Schedules set forth all of the promises, covenants, agreements, conditions and undertakings between the Parties with respect to the subject matter hereof, and supersede all prior or contemporaneous agreements and understandings, negotiations, inducements or conditions, express or implied, oral or written. This Agreement is not intended to confer upon any Person other than the Parties any rights or remedies hereunder, except the provisions of Article VIII to the extent they relate to Related Parties of USF or the Buyer. 9.7 Severability. If any term or other provision of this Agreement is held by a court of competent jurisdiction to be invalid, illegal or incapable of being enforced under any rule of Law in any particular respect or under any particular circumstances, such term or provision shall nevertheless remain in full force and effect in all other respects and under all other circumstances, and all other terms, conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to either Party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the Parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the fullest extent possible. 9.8 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original but all of which together shall be deemed one and the same instrument. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 59 IN WITNESS WHEREOF, the Parties have executed this Agreement as of the day and year first above written. PALL CORPORATION By: /s/ Eric Krasnoff ----------------- Eric Krasnoff Title: Chairman & Chief Executive Officer UNITED STATES FILTER CORPORATION By: /s/ Stephen P. Stanczak ----------------------- Stephen P. Stanczak Title: Executive Vice President 60 EX-10.1 4 b316968ex_10-1.txt EMPLOYMENT AGREEMENT -- ERIC KRASNOFF EXHIBIT 10.1 EMPLOYMENT AGREEMENT dated December 18, 2001, between PALL CORPORATION, a New York corporation (the "Company"), and ERIC KRASNOFF ("Executive"). WHEREAS, the parties hereto are parties to an Employment Agreement dated November 15, 2001 (the "Existing Agreement"), and WHEREAS, on the date hereof the Compensation Committee of the Board of Directors of the Company has approved the substitution of subsection (f) of ss.6 hereof for ss.6(f) of the Existing Agreement and, accordingly, the parties desire to terminate the Existing Agreement and simultaneously replace it with this Agreement, effective August 1, 2001 (that having been the effective date of the Existing Agreement), NOW, THEREFORE, in consideration of the foregoing and the mutual agreements hereinafter set forth, the parties hereto agree as follows: ss.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 ss.2, for a term (hereinafter called the "Term of Employment") which began August 1, 2001 (the "Term Commencement Date") and ending, unless sooner terminated under ss.2 or ss.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. ss.2. Duties. (a) As used herein, the term "chief executive officer" means the person who has the title of chief executive officer of the Company and also has such authority and duties as are customarily possessed by and assigned to a chief executive officer. If at any time during the Term of Employment-- (i) the Board of Directors shall fail to elect Executive to, or shall remove him from, 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 chief executive officer, 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 of and the authority and duties which are customarily possessed by and assigned to a chief executive officer, then in either such event Executive shall have the right at his option to terminate the Term of Employment by not less than 30 days' 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 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. ss.3. Compensation and Benefits During Term of Employment. (a) Base Salary. With respect to the period beginning on the Term Commencement Date and ending on July 31, 2002, the Company shall pay to Executive a Base Salary (in addition to the compensation provided for elsewhere in this Agreement) at the rate of $666,916 per annum (hereinafter called the "Original Base Salary"). With respect to each Contract Year beginning with the Contract Year which starts August 1, 2002, the Company shall pay Executive a Base Salary at such rate as the Board of Directors may determine but not less than the Original Base Salary adjusted 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, 2002, the minimum compensation payable to Executive under this ss.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 2001. The term "Consumer Price Index" as used herein 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 N. J. - Long Island, NY-NJ-CT-PA". To illustrate the operation of the foregoing provisions of this ss.3(a): Executive's Base Salary for the Contract Year August 1, 2002 through July 31, 2003 shall be not less than the Original Base Salary adjusted by the percentage increase (or decrease) of the Consumer Price Index for June 2002 over (or below) said Index for June 2001. 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 2001 as the base except as provided in the immediately following paragraph hereof and (ii) applying the percentage increase (or decrease) in the Consumer Price Index since said base month to the Original Base Salary to determine the Minimum Base Salary. The Base Salary shall be paid in such periodic installments as the Company may determine but not less often than monthly. -2- If with respect to any Contract Year (including the Contract Year beginning August 1, 2002) the Board of Directors fixes the Base Salary at an amount higher than the Minimum Base Salary, then (unless a resolution adopted simultaneously with the resolution fixing such higher Base Salary for such Contract Year provides otherwise), for the purpose of determining the Minimum Base Salary for subsequent Contract Years: (i) the amount of the higher Base Salary so fixed shall be deemed substituted for the Original Base Salary wherever the Original Base Salary is referred to in the immediately preceding paragraph hereof, and (ii) the base month for determining the Consumer Price Index adjustment shall be June of the calendar year in which the Contract Year to which such higher Base Salary is applicable begins (e.g., if the Board fixes a Base Salary for the Contract Year beginning August 1, 2002 which is higher than the Minimum Base Salary, then June 2002 would become the base month for the purposes of making the CPI adjustment to determine the Minimum Base Salary for subsequent Contract Years). -3- (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 August 3, 2002, Executive shall be eligible to receive a Bonus (in addition to his Base Salary) in accordance with the terms of the Pall Corporation Executive Incentive Bonus Plan adopted by the Compensation Committee of the Board of Directors of the Company on July 17, 2001 and approved by shareholders at the annual meeting of shareholders on November 14, 2001, a copy of which is annexed hereto and incorporated herein by reference (the "Bonus Plan"). Words and terms used herein with initial capital letters and not defined herein are used herein as defined in the Bonus Plan. For purposes of determining the amount of the Bonus payable to Executive for any Fiscal Year under the Bonus Plan (the "Plan Bonus"), Executive's Target Bonus Percentage shall be 100% of his Base Salary for such Fiscal Year. (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) Vacation. 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. (e) Relocation Expenses. If at any time during the Term of Employment Executive changes the location of his principal office, either at the request of the Company or because it is in the best interests of the Company for him to do so, to a location more than one hour's commuting time from the present principal office of the Company in East Hills, Long Island, New York, the Company shall reimburse Executive for all costs and expenses reasonably related to or arising from such relocation, including but not limited to the cost of suitable housing at the new location, the cost of continuing to maintain his residence at the old location if he so elects, moving expenses, and the amounts necessary to equalize Executive's taxes and cost of living between the old and new locations so that Executive will not have suffered any financial disadvantage from having relocated. -4- ss.4. Termination by Reason of Disability, Death, Retirement or Change in Control. (a) Disability or Death. If, during the Term of Employment, Executive, by reason of physical or mental disability, has been incapable of performing his principal duties hereunder for an aggregate of 130 working days out of any period of 12 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 12-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, (i) Executive's Base Salary to the end of the month in which such death or termination for disability occurs and (ii) any Plan Bonus or pro rata portion thereof that Executive is entitled to receive in accordance with the terms of the Bonus Plan. (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 the latter 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 ss.4(b) 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, (i) Executive's Base Salary prorated to the date on which the Term of Employment ends and (ii) any Plan Bonus or pro rata portion thereof that Executive is entitled to receive in accordance with the terms of the Bonus Plan. -5- (iii) Anything hereinabove to the contrary notwithstanding, if any provision of this ss.4(b) 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 in Control. In event of a Change in Control (as defined in the Bonus Plan), Executive shall have the right to terminate the Term of Employment, by notice to the Company given at any time after such Change in 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. ss.5. Severance. Executive shall be entitled to receive severance pay from the Company, in the amount determined as hereinafter in this paragraph provided, in the event that the Term of Employment is terminated by the Company under ss.1 hereof or by Executive under ss.2 or ss.4(c) hereof. The amount of such severance pay shall be an amount equal to the Base Salary which would have been payable to Executive during the 24 months following the date on which the Term of Employment ends by reason of such termination, plus 100% of such Base Salary (representing the maximum Bonus payable to Executive under the Bonus Plan). Executive shall have the option of (i) having such severance payment made in installments, over the 24 months following the end of the Term of Employment, at the same times at which Executive's Base Salary and Bonus would have been paid had the Term of Employment not been terminated or (ii) accepting as such severance pay an amount equal to the present value, as of the date on which the Term of Employment ends, of the stream of payments payable under clause "(i)" of this sentence, except that if Executive elects a lump-sum payment under this clause "(ii)", there shall be no cost-of-living adjustment of the Base Salary as would otherwise be made in accordance with ss.3(a) hereof (because at the time such lump-sum payment is made, the amount of the cost-of-living adjustment would not be known). In determining such present value, a discount rate of 8% shall be utilized. The severance payment provided for herein if Executive elects a lump sum shall be made within 20 days after the end of the Term of Employment. -6- ss.6. Annual Contract Pension and Medical Coverage After Term of Employment. (a) For a period of 120 consecutive months beginning at the end of the Term of Employment (unless Executive is entitled to severance pay under ss.5 hereof, in which event said period of months shall begin on the second anniversary of the end of the Term of Employment), the Company shall pay (i) to Executive during his lifetime, and (ii) if Executive is not living at the time any such payment is due, then to such payee or payees (including a trust or trusts) as Executive may at any time (whether during or after the Term of Employment) designate by written notice to the Company or in his last will and testament or, if no such designation is made, then to the legal representatives of Executive's estate (any such designated payee or estate being hereinafter called "Executive's Successor") an "Annual Contract Pension" computed as follows: The term "Final Pay" as used herein means one-third of the aggregate of Executive's total cash compensation (i.e., Base Salary plus incentive compensation and any other bonus payments) for those three full fiscal years out of the last five full fiscal years of the Term of Employment with respect to which three fiscal years Executive received the highest total cash compensation. The Annual Contract Pension payable to Executive for each "Retirement Year" (as hereinafter defined) shall be an amount determined by (I) adjusting Executive's Final Pay for changes in the Consumer Price Index in the manner set forth in ss.3(a) except that for purposes of the adjustment under this ss.6, the base month, instead of being June 2001, shall be the month preceding the month in which payment of the Annual Contract Pension commences and the comparison month shall be the same month in each succeeding year and (II) multiplying the Final Pay as so adjusted by 60% and subtracting therefrom the amount which, as of the last day of the Term of Employment (i.e., the effective date of termination of the Term of Employment under any of the provisions of ss.ss. 1, 2 or 4 hereof), is the maximum annual benefit payable, in accordance with ss.415(b)(1)(A) of the Internal Revenue Code (or successor section), as adjusted by the Secretary of the Treasury to such last day under ss. 415(d) of the Code (or successor section), under a pension plan which qualifies under ss. 401(a) of the Code (or successor section). Such maximum annual benefit is hereinafter called the "Maximum Qualified Plan Pension". Each 12-month period beginning on the first day of the month in which the Annual Contract Pension first becomes payable hereunder and on the first day of the same month during each of the succeeding years in which the Annual Contract Pension is payable hereunder is herein called a "Retirement Year." There shall be no adjustment of the Final Pay based on the Consumer Price Index for the purpose of determining the Annual Contract Pension for the first Retirement Year so that during such first Retirement Year the Annual Contract Pension shall be 60% of Final Pay minus the Maximum Qualified Plan Pension; there shall be such adjustment of Final Pay for the purpose of determining the Annual Contract Pension for the second and each succeeding Retirement Year. -7- (b) The Company hereby represents to and agrees with Executive, in order to induce Executive to enter into this Employment Agreement, as follows: For purposes of the Company's Supplementary Pension Plan, the amount of the offset pursuant to ss. 3.1(b)(i) thereof shall be the amount of the pension in fact payable to Executive under the Pall Corporation Cash Balance Pension Plan, after giving effect to any distribution theretofore made under said Plan pursuant to a qualified domestic relations order. The immediately preceding sentence shall not, however, be deemed to modify the penultimate sentence of said ss. 3.1, which reads and provides as follows: "For purposes of this Section, the amount of the pension payable to the Member under any Other Retirement Program shall be deemed to be the amount payable thereunder to the Member in the form of a single life annuity for the Member's life, whether or not the Member receives payment of such pension in such form; provided, however, that the amount of such pension shall be taken into account under (b)(i) above only on and after the date on which payment of the Member's pension under such Other Retirement Program commences or is paid." (c) The Annual Contract Pension shall be paid in equal monthly installments on the last business day of each month during the period with respect to which the Annual Contract Pension is payable. (d) So long as Executive is living it shall be a condition of the payment of the Annual Contract Pension that, to the extent permitted by Executive's health, he shall be available for advisory services requested by the Board of Directors of the Company, the Executive Committee of said Board or the chief executive officer of the Company, provided that such advisory services shall not require more than 15 hours in any month. The Company shall reimburse Executive for all travel and other expenses which he incurs in connection with such advisory services. -8- (e) At the option of the Board of Directors of the Company, payment of the Annual Contract Pension shall cease and the right of Executive and Executive's Successor to all future such payments shall be forfeited if Executive shall, without the written consent of the chief executive officer of the Company, render services to any corporation or other entity engaged in any activity, or himself engage in any activity, which is competitive to any material extent with the business in which the Company or any of its subsidiaries shall be engaged at the end of the Term of Employment and in which the Company or any such subsidiary shall still be engaged at the date such services or activity is rendered or engaged in by Executive, provided, however, that if the Company terminates under ss.1 following a Change in Control (as defined in the Bonus Plan), the provisions of this ss.6(e) shall be deemed deleted from this Agreement and shall have no force or effect. (f) Beginning at the end of the Term of Employment, the Company at its sole expense shall provide, in accordance with the provisions set forth below, medical coverage for Executive and his Dependents (as hereinafter defined) during his lifetime and following Executive's death, for Executive's surviving Dependents during their respective lifetimes. As used herein, the term "Dependents" shall mean Executive's spouse and each child or stepchild of Executive. (i) Subject to (ii) and (iii) below, the medical coverage to be provided hereunder shall consist of the same coverages and benefits as provided under the terms of the hospitalization, medical and dental plans maintained by the Company for its U.S. employees who are not covered by a collective bargaining agreement (the "Company's Medical Plans"), as in effect immediately prior to the end of the Term of Employment. (ii) If prior to the end of the Term of Employment any of the Company's Medical Plans is amended following the occurrence of a Change in Control (as defined in the Bonus Plan) to eliminate any coverage or benefit previously provided under such Plan, or to make any coverage or benefit so provided available on terms less favorable to Executive than those in effect prior to such amendment, such coverage or benefit, as provided under the terms of the Plan in effect immediately prior to such amendment, shall be included in the medical coverage to be provided under this Section 6 (f). -9- (iii) If at any time after the end of the Term of Employment any of the Company's Medical Plans is amended to add any coverage or benefit that was not provided under such Plan immediately prior to the end of the Term of Employment, or to provide any coverage or benefit on terms more favorable than those applicable to Executive, or to any of his surviving Dependents, under the Plan as in effect immediately prior to the end of the Term of Employment, the coverage or benefit so added or so modified shall be included in the medical coverage to be provided under this Section 6 (f), commencing as of the effective date of such amendment. As soon as practicable after any amendment is made to any of the Company's Medical Plans after the end of the Term of Employment, the Company shall furnish to Executive (or, in the case of any such amendment that is made after the Executive's death, to each of his surviving Dependents), a revised Summary Plan Description for such Plan and copies of any other written notices that the Company furnishes to its employees explaining the changes made to the Plan pursuant to such amendment. (iv) The coverages and benefits to be provided hereunder shall be provided upon the same terms and conditions (including required deductibles, co-payments and annual and lifetime maximum benefits) as would have applied to Executive, or to his surviving Dependents, if such coverages and benefits had been provided under the Company's Medical Plans as in effect on the date or dates applicable hereunder, other than any provision therein requiring an employee or his spouse or other dependents to make payments to the Company, by payroll deduction or otherwise, towards the cost of their coverage under such Plan. (v) At the Company's option, the coverages and benefits to be provided hereunder may be provided through insurance, or by the Company directly paying, or reimbursing Executive or any of his Dependents for his or her payment of, expenses covered under this Section 6 (f). (vi) The Company's obligation to provide any coverage or benefit otherwise required under this Section 6(f) shall be reduced to the extent that such coverage or benefit has been or will be provided under (A) any policy of insurance maintained by Executive or any of his Dependents, (B) any plan, program or insurance policy maintained by a subsequent employer of Executive or by an employer of any of Executive's Dependents, or (C) the provisions of any federal or state law. However, neither Executive nor any of his Dependents shall be required to obtain any hospitalization, medical or dental coverage from any source referred to in clause (A), (B) or (C) of the preceding sentence as a condition for eligibility for the medical coverage to be provided under this Section 6(f). -10- (vii) Notwithstanding any other provision herein, medical coverage provided pursuant to this Section 6 (f) for any Dependent who is a child of Executive shall cease (A) as of the end of the calendar year in which such child attains age 18, or (B), if such child is a "student", as defined in section 151(c)(4) of the Internal Revenue Code of 1986, as amended (or any successor provision thereto) during the calendar year referred to in clause (A), as of the end of the earlier of (x) the calendar year in which such child attains age 23, or (y) the calendar year in which such child ceases to be a "student", as so defined. ss.7. Internal Revenue Code ss.4999. If any payments to Executive, whether under this Agreement or otherwise, would be subject to excise tax under Section 4999 of the Internal Revenue Code of 1986, as amended, then payments hereunder shall be reduced or deferred to the extent required (and only to the extent required) to avoid the application of Section 4999; provided, however, that no such reduction or deferral shall be made unless as a result thereof Executive's after-tax economic position (taking into account not only payments under this Agreement and the taxes thereon, but also the taxes that would otherwise be imposed on any payments to which Executive is otherwise entitled) would be improved. In making the determination whether Executive's after-tax economic position would be so improved, the judgment of a certified public accountant or attorney chosen by Executive shall be final. In the event of a reduction or deferral of payments pursuant to this paragraph, Executive shall be entitled to specify which payments shall be reduced or deferred. ss.8. Acceleration of Stock Options. On the date which is 30 days before the date on which the Term of Employment will end by reason of a notice of termination given by either party hereto under any of the provisions hereof, all employee stock options held by Executive shall become exercisable in full (i.e., to the extent that any such option or portion thereof is not yet exercisable, the right to exercise the same in full shall be accelerated) and such option shall thereafter be fully vested and exercisable in full (to the extent not theretofore exercised) until it expires by its terms. -11- ss.9. Covenant Not to Compete. For a period of 18 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 ss.1, ss.2 or ss.4 hereof, or for a period of 12 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 ss.1 or ss.4 hereof or terminates under ss.4 by reason of Executive's attaining the age of 65, Executive shall not render services to any corporation 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 ss.1 following a Change in Control (as defined in the Bonus Plan), the foregoing covenant not to compete shall not apply. ss.10. 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. ss.11. 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. -12- ss.12. 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 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. ss.13. Mergers and Consolidations; Assignability. In the event that the Company, or any entity resulting from any merger or consolidation referred to in this ss.13 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 ss.13, 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. ss.14. 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. -13- ss.15. 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. ss.16. Entire Contract. This Agreement 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 any waiver, change, modification, extension or discharge is sought. ss.17. Notices. All notices given hereunder shall be in writing and shall be sent by registered or certified mail or overnight delivery service such as Federal Express or delivered by hand, and, if intended for the Company, shall be addressed to it (if sent by mail or overnight delivery service) 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 or overnight delivery service) 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 on which it is mailed or received by the overnight delivery service or, if delivered personally, on the date so delivered. ss.18. Termination of Existing Agreement. The Existing Agreement is hereby terminated and replaced and superseded by this Agreement, effective August 1, 2001. All payments, of Base Salary or otherwise, made by the Company under the Existing Agreement (or under the Restated and Amended Employment Agreement dated October 6, 1997 which was replaced by the Existing Agreement), with respect -14- to any period commencing on or after August 1, 2001, shall be credited against the corresponding payment obligations of the Company under this Agreement. IN WITNESS WHEREOF, the parties hereto have executed this Employment Agreement as of the day and year first above written. PALL CORPORATION By: /s/ Jeremy Hayward-Surry ------------------------ Jeremy Hayward-Surry, President /s/ Eric Krasnoff ------------------------ Eric Krasnoff -15- PALL CORPORATION EXECUTIVE INCENTIVE BONUS PLAN ----- 1. Purpose This document sets forth the Pall Corporation Executive Incentive Bonus Plan as adopted effective July 17, 2001. The purpose of the Plan is to encourage greater focus on performance among the key executives of the Corporation by relating a significant portion of their total compensation to the achievement of annual financial objectives. 2. Certain Definitions As used herein with initial capital letters, the following terms shall have the following meanings: "Average Equity" shall mean, for any Fiscal Year, the average of stockholders' equity as shown on the fiscal year-end consolidated balance sheet of the Corporation and its subsidiaries as of the end of such Fiscal Year and as of the end of the immediately preceding Fiscal Year except that the amounts shown on said balance sheets as "Accumulated other comprehensive" income or loss, as the case may be, shall be disregarded. "Base Salary" shall mean, with respect to any Executive and for any Fiscal Year, the annual rate of base salary in effect for the Executive as of the first day of such year or, if later, as of the first day of the Executive's Term of Employment, as determined under the Executive's Employment Agreement. "Board of Directors" shall mean the Board of Directors of the Corporation. "Bonus" shall mean the bonus payable to an Executive under this Plan for any Fiscal Year. "CEO" shall mean the Chief Executive Officer of the Corporation. "Change in Control" means the occurrence of any of the following: (a) the "Distribution Date" as defined in Section 3 of the Rights Agreement dated as of November 17, 1989 between the Corporation and United States Trust Company of New York as Rights Agent, as amended by Amendment No. 1 thereto dated April 20, 1999, and as the same may have been further amended or extended to the time in question or in any successor agreement (the "Rights Agreement"); or (b) any event described in Section 11(a)(ii)(B) of the Rights Agreement; or (c) any event described in Section 13 of the Rights Agreement; or (d) the date on which the number of duly elected and qualified directors of the Corporation who were not either elected by the Board of Directors or nominated by the Board of Directors or its Nominating Committee for election by the shareholders shall equal or exceed one-third of the total number of directors of the Corporation as fixed by its by-laws; provided, however, that no Change in Control shall be deemed to have occurred, and no rights arising upon a Change in Control as provided in Section 6 shall exist, to the extent that the Board of Directors so determines by resolution adopted prior to the Change in Control. "Code" shall mean the Internal Revenue Code of 1986, as amended. "Committee" shall mean the Compensation Committee of the Board of Directors. "Corporation" shall mean Pall Corporation. "Covered Executive" shall mean, with respect to any Fiscal Year, each individual who is a "Covered Employee" of the Corporation for such year for the purpose of section 162(m) of the Code. "Employment Agreement" shall mean, with respect to any executive employee of the Corporation, an employment agreement between the Corporation and such employee which provides that the employee shall be eligible to receive annual bonuses under this Plan. "Executive" shall mean an executive employee of the Corporation with whom the Corporation has entered into an Employment Agreement. "Fiscal Year" shall mean the fiscal year of the Corporation ending on August 3, 2002, and each subsequent fiscal year of the Corporation. "Maximum R.O.E. Target" shall mean, for any Fiscal Year, the Return on Equity that must be achieved or exceeded in order for the Performance Percentage for the year to equal 100%, as determined by the Committee prior to the first day of such year or within such period of time thereafter as may be permitted under the regulations issued under section 162(m) of the Code. "Minimum R.O.E. Target" shall mean, for any Fiscal Year, the Return on Equity that must be exceeded in order for any Bonus to be paid to any Executive for the year, as determined by the Committee prior to the first day of such year or within such period of time thereafter as may be permitted under the regulations issued under section 162(m) of the Code. "Net Earnings" shall mean, for any Fiscal Year, the after-tax consolidated net earnings of the Corporation and its subsidiaries as certified by the Corporation's independent accountants for inclusion in the annual report to shareholders ("Annual Report"), adjusted so as to eliminate the effects of any decreases in or charges to earnings for (a) the effect of foreign currency exchange rates, (b) any acquisitions, divestitures, discontinuance of business operations, restructuring or any other special charges, (c) the cumulative effect of any accounting changes, and (d) any "extraordinary items" as determined under generally accepted accounting principles, to the extent such decreases or charges referred to in clauses (a) through (d) are separately disclosed in the Corporation's Annual Report for the year. 2 "Plan" shall mean the Pall Corporation Executive Incentive Bonus Plan, as set forth herein and as amended from time to time. "Return on Equity" shall mean, for any Fiscal Year, the percentage determined by dividing the Net Earnings for the year by the Average Equity for the year. "Target Bonus Percentage" shall mean, with respect to any Executive, the target bonus percentage specified for such Executive in his or her Employment Agreement. 3. Determination of Bonus Amounts For each Fiscal Year falling in whole or in part within an Executive's Term of Employment, as defined in his or her Employment Agreement, the Executive shall be entitled to receive a Bonus in an amount determined in accordance with the provisions of this Section 3, subject, however, to the provisions of Section 4. (a) The amount of the Bonus payable to an Executive for each such Fiscal Year shall be equal to (i) the Target Bonus Percentage of the Executive's Base Salary for such year, multiplied by (ii) the Performance Percentage for such year, as determined under (b) below. (b) The Performance Percentage for any Fiscal Year shall be determined in accordance with he following provisions: (i) If the Return on Equity equals or exceeds the Maximum R.O.E. Target for the year, the Performance Percentage for the year shall be 100%. (ii) If the Return on Equity is less than the Maximum R.O.E. Target for the year but exceeds the Minimum R.O.E. Target for the year, the Performance Percentage for the year shall be equal to the quotient resulting from dividing (A) the excess of the Return on Equity for the year over the Minimum R.O.E. Target for the year, by (B) the excess of the Maximum R.O.E. Target for the year over the Minimum R.O.E. Target for the year. (iii) If the Return on Equity equals or is less than the Minimum R.O.E. Target for the year, the Performance Percentage for the year shall be zero, and no Bonus shall be payable under the Plan for such year to any Executive. 3 (c) If an Executive's Term of Employment commences after the start of a Fiscal Year, or ends prior to the close of a Fiscal Year, the amount of the Bonus payable to the Executive for the Fiscal Year in which the Executive's Term of Employment commences, or for the Fiscal Year in which the Executive's Term of Employment ends, as determined in accordance with the other applicable provisions of the Plan, shall be prorated on the basis of the number of days of such Fiscal Year that fall within the Executive's Term of Employment; provided, however, that (i) if an Executive's Term of Employment ends within 5 days prior to the close of a Fiscal Year, there shall be no proration and the Executive shall be entitled to receive the entire amount of the Bonus payable to the Executive for such year, as determined in accordance with such other provisions, and (ii) if the Executive's Term of Employment ends within 5 days following the start of a Fiscal Year, the Executive shall not be entitled to receive any Bonus with respect to such Fiscal Year. 4. Adjustment of and Limitation on Bonus Amounts The amount of the Bonus otherwise payable to an Executive for any Fiscal Year in accordance with Section 3 shall be subject to the following adjustments and limitation: (a) The Committee may, in its discretion, reduce the amount of the Bonus otherwise payable to any Executive in accordance with Section 3, (i) to reflect any decreases in or charges to earnings that were not taken into account in determining Net Earnings for the year pursuant to clause (a), (b), (c) or (d) contained in the definition of such term in Section 2, (ii) to reflect any credits to earnings for extraordinary items of income or gain that were taken into account in determining Net Earnings for the year, (iii) to reflect the Committee's evaluation of the Executive's individual performance, or (iv) to reflect any other events, circumstances or factors which the Committee believes to be appropriate in determining the amount of the Bonus to be paid to the Executive for the year. (b) The Committee may, in its discretion, increase the amount of the Bonus otherwise payable to any Executive who is not a Covered Executive, as determined under Section 3, to reflect the Committee's evaluation of the Executive's individual performance, or to reflect such other circumstances or factors as the Committee believes to be appropriate in determining the amount of the Bonus to be paid to the Executive for the year. The Committee shall not have any discretion to increase the amount of the Bonus payable to any Covered Executive for the year, as determined under Section 3. (c) Notwithstanding any other provision herein to the contrary, the amount of the Bonus otherwise payable to any Executive for any Fiscal Year shall not exceed the lesser of (i) $1.0 million and (ii) 100% of the Executive's Base Salary for the year. 5. Payment of Bonuses The Bonus payable to an Executive for any Fiscal Year shall be paid in accordance with the following provisions: (a) Except as otherwise provided in (b) or (c) below, (i) if the Executive is not a Covered Executive for such year, 50% of the estimated amount of the Executive's Bonus shall be paid to the Executive at such date in August next following the close of such year as the Committee in its discretion shall determine, and the remaining amount of the Executive's Bonus shall be paid to the Executive by no later than January 15 next following the close of such year; 4 (ii) if the Executive is a Covered Executive for such year, 50% of the amount of the Executive's Bonus shall be paid to the Executive as soon as practicable after the Committee has certified in writing that all conditions for the payment of such Bonus to the Executive for such year have been satisfied, and the remaining amount of the Executive's Bonus shall be paid to the Executive by no later than January 15 next following the close of such year; (iii) each amount payable to an Executive under (i) and (ii) above, reduced by the amount of all federal, state and local taxes required by law to be withheld therefrom, shall be paid to the Executive in the form of a single lump sum cash payment. (b) To the extent that an Executive has elected under the applicable provisions of the Pall Corporation Management Stock Purchase Plan (the "MSPP") to have any part of the Bonus payable to the Executive for any Fiscal Year paid in the form of Restricted Units to be credited to the Executive's account under the MSPP, no cash payments shall be made to the Executive pursuant to (a) above with respect to the part of the Executive Bonus that is subject to such election; and the obligation of the Corporation under this Plan with respect to payment of such part of the Executive's Bonus shall be fully discharged upon the crediting of Restricted Units to the Executive's account under the MSPP in accordance with the applicable provisions of such Plan. (c) To the extent that an Executive has elected under the applicable provisions of the Pall Corporation Profit-Sharing Plan (the "Profit-Sharing Plan") to have any part of the Bonus payable to the Executive for any Fiscal Year reduced, and to have an amount equal to such part of the Executive's Bonus contributed to the Profit-Sharing Plan as a 401(k) Contribution on the Executive's behalf, an amount equal to such part of the Executive's Bonus shall be contributed to the Profit-Sharing Plan on behalf of the Executive; and thereupon, the obligation of the Corporation under this Plan with respect to payment of such part of the Executive's Bonus shall be fully discharged. However, no such contribution shall be made to the extent it would cause any limitation applicable under the 401(k) Plan to be exceeded. 6. Change in Control Notwithstanding any other provision in the Plan to the contrary (but subject to the "provided, however" clause contained in the definition of "Change in Control" in Section 2), upon the occurrence of a Change in Control, the following provisions shall apply. (a) The amount of the Bonus payable to any Executive for the Fiscal Year in which a Change in Control occurs shall be at least equal to the Target Bonus Percentage of the Executive's Base Salary for such year or, in the case of any Executive whose Term of Employment commences after the start of such year or ends prior to the close of such year, a pro rata portion thereof determined on the basis of the number of days of such Fiscal Year that fall within the Executive's Term of Employment. 5 (b) Each Executive whose Term of Employment has not ended prior to the occurrence of a Change in Control shall be entitled to receive a Bonus for each Contract Year (as defined in the Executive's Employment Agreement) that falls in whole or in part within the Executive's Term of Employment and that ends after the Fiscal Year in which the Change in Control occurs. The amount of the Bonus payable to the Executive for each such Contract Year shall be at least equal to the Target Bonus Percentage of the Executive's Base Salary for such Contract Year or, in the case of any Executive whose Term of Employment ends after the start of such Contract Year but prior to the close of such year, a pro rata portion thereof determined on the basis of the number of days of such Contract Year that fall within the Executive's Term of Employment. (c) The entire amount of the Bonus payable to an Executive for any Fiscal Year or Contract Year pursuant to (a) or (b) above, reduced by the amount of all federal, state and local taxes required to be withheld therefrom, shall be paid to the Executive in a single cash lump sum as soon as practicable after the close of such Fiscal Year or Contract Year. 7. Rights of Executives An Executive's rights and interests under the Plan shall be subject to the following provisions: (a) An Executive's rights to payments under the Plan shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment, or garnishment by creditors of the Executive. (b) Neither the Plan nor any action taken hereunder shall be construed as giving any Executive any right to be retained in the employment of the Corporation or any of its subsidiaries. 8. Administration The Plan shall be administered by the Committee. A majority of the members of the Committee shall constitute a quorum. The Committee may act at a meeting, including a telephone meeting, by action of a majority of the members present, or without a meeting by unanimous written consent. In addition to the responsibilities and powers assigned to the Committee elsewhere in the Plan, the Committee shall have the authority, in its discretion, to establish from time to time guidelines or regulations for the administration of the Plan, interpret the Plan, and make all determinations considered necessary or advisable for the administration of the Plan. The Committee may delegate any ministerial or nondiscretionary function pertaining to the administration of the Plan to any one or more officers of the Corporation. All decisions, actions or interpretations of the Committee under the Plan shall be final, conclusive and binding upon all parties. Notwithstanding the foregoing, any determination made by the Committee after the occurrence of a Change in Control that denies in whole or in part any claim made by any individual for benefits under the Plan shall be subject to judicial review, under a "de novo", rather than a deferential standard. 6 9. Amendment or Termination The Board of Directors may, with prospective or retroactive effect, amend, suspend or terminate the Plan or any portion thereof at any time; provided, however, that (a) no amendment, suspension or termination of the Plan shall adversely affect the rights of any Executive with respect to any Bonus that has become payable to the Executive under the Plan, without his or her written consent, and (b) following a Change in Control, no amendment to Section 6, and no termination of the Plan, shall be effective if such amendment or termination adversely affects the rights of any Executive under the Plan. 10. Successor Corporation The obligations of the Corporation under the Plan shall be binding upon any successor corporation or organization resulting from the merger, consolidation or other reorganization of the Corporation, or upon any successor corporation or organization succeeding to substantially all of the assets and business of the Corporation. The Corporation agrees that it will make appropriate provision for the preservation of Executives' rights under the Plan in any agreement or plan which it may enter into or adopt to effect any such merger, consolidation, reorganization or transfer of assets. 11. Governing Law The Plan shall be governed by and construed in accordance with the laws of the State of New York. 12. Effective Date The Plan was adopted effective as of July 17, 2001 by the Board of Directors, acting by the Committee, subject, however, to approval by the shareholders of the Corporation by a majority of the votes cast in person or by proxy at the 2001 annual meeting of the Corporation's shareholders, including any adjournment thereof. [The Plan was approved by shareholders at the annual meeting on November 14, 2001.] 7 EX-10.2 5 b316968ex_10-2.txt EMPLOYMENT AGREEMENT -- JEREMY HAYWARD EXHIBIT 10.2 EMPLOYMENT AGREEMENT dated December 18, 2001, between PALL CORPORATION, a New York corporation (the "Company"), and JEREMY HAYWARD-SURRY ("Executive"). WHEREAS, the parties hereto are parties to an Employment Agreement dated November 15, 2001 (the "Existing Agreement"), and WHEREAS, on the date hereof the Compensation Committee of the Board of Directors of the Company has approved the substitution of subsection (f) of ss.6 hereof for ss.6(f) of the Existing Agreement and, accordingly, the parties desire to terminate the Existing Agreement and simultaneously replace it with this Agreement, effective August 1, 2001 (that having been the effective date of the Existing Agreement), NOW, THEREFORE, in consideration of the foregoing and the mutual agreements hereinafter set forth, the parties hereto agree as follows: ss.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 ss.2, for a term (hereinafter called the "Term of Employment") which began August 1, 2001 (the "Term Commencement Date") and ending, unless sooner terminated under ss.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. ss.2. Duties. (a) Executive agrees that during the Term of Employment he will hold such offices or positions with the Company, and perform such duties and assignments relating to the business of the Company, as the Board of Directors or the chief executive officer of the Company shall direct except that Executive shall not be required to hold any office or position or to perform any duties or assignment inconsistent with his experience and qualifications or not customarily performed by a corporate officer. The Company represents to Executive that the Board of Directors (acting by its Compensation Committee) has authorized the making of this Agreement and expressed its present intention that during the Term of Employment Executive will be an elected officer of the Company. The failure of any future Board of Directors to elect Executive as an officer of the Company shall not, however, be deemed to relieve either party hereto of any of his or its obligations under this Agreement. (b) If the Board of Directors or the chief executive officer of the Company so directs, Executive shall serve as an officer of one or more subsidiaries of the Company (provided that the duties of such office are not inconsistent with Executive's experience and qualifications and are duties customarily performed by a corporate officer) and part or all of the compensation to which Executive is entitled hereunder may be paid by such subsidiary or subsidiaries. However, such employment and/or payment of Executive by a subsidiary or subsidiaries shall not relieve the Company from any of its obligations under this Agreement except to the extent of payments actually made to Executive by a subsidiary. (c) During the Term of Employment, Executive shall, except during customary vacation periods and periods of illness, devote substantially all of his business time and attention to the performance of his duties hereunder and to the business and affairs of the Company and its subsidiaries and to promoting the best interests of the Company and its subsidiaries, and he shall not, either during or outside of such normal business hours, engage in any activity inimical to such best interests. ss.3. Compensation and Benefits During Term of Employment. (a) Base Salary. With respect to the period beginning on the Term Commencement Date and ending on July 31, 2002, the Company shall pay Executive a Base Salary (in addition to the compensation provided for elsewhere in this Agreement) at the rate of $455,729 per annum (hereinafter called the "Original Base Salary"). With respect to each Contract Year beginning with the Contract Year which starts August 1, 2002, the Company shall pay Executive a Base Salary at such rate as the Board of Directors may determine but not less than the Original Base Salary adjusted 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, 2002, the minimum compensation payable to Executive under this ss.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 2001. The term "Consumer Price Index" as used herein 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 N. J. - Long Island, NY-NJ-CT-PA". To illustrate the operation of the foregoing provisions of this ss.3(a): Executive's Base Salary for the Contract Year August 1, 2002 through July 31, 2003 shall be not less than the Original Base Salary adjusted by the percentage increase (or decrease) of the Consumer Price Index for June 2002 over (or below) said Index for June 2001. 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 2001 as the base except as provided in the immediately following paragraph hereof and (ii) applying the percentage increase (or decrease) in the Consumer Price Index since said base month to the Original Base Salary to determine the Minimum Base Salary. The Base Salary shall be paid in such periodic installments as the Company may determine but not less often than monthly. -2- If with respect to any Contract Year (including the Contract Year beginning August 1, 2002) the Board of Directors fixes the Base Salary at an amount higher than the Minimum Base Salary, then (unless a resolution adopted simultaneously with the resolution fixing such higher Base Salary for such Contract Year provides otherwise), for the purpose of determining the Minimum Base Salary for subsequent Contract Years: (i) the amount of the higher Base Salary so fixed shall be deemed substituted for the Original Base Salary wherever the Original Base Salary is referred to in the immediately preceding paragraph hereof, and (ii) the base month for determining the Consumer Price Index adjustment shall be June of the calendar year in which the Contract Year to which such higher Base Salary is applicable begins (e.g., if the Board fixes a Base Salary for the Contract Year beginning August 1, 2002 which is higher than the Minimum Base Salary, then June 2002 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 August 3, 2002, Executive shall be eligible to receive a Bonus (in addition to his Base Salary) in accordance with the terms of the Pall Corporation Executive Incentive Bonus Plan adopted by the Compensation Committee of the Board of Directors of the Company on July 17, 2001 and approved by shareholders at the annual meeting of shareholders on November 14, 2001, a copy of which is annexed hereto and incorporated herein by reference (the "Bonus Plan"). Words and terms used herein with initial capital letters and not defined herein are used herein as defined in the Bonus Plan. For purposes of determining the amount of the Bonus payable to Executive for any Fiscal Year under the Bonus Plan (the "Plan Bonus"), Executive's Target Bonus Percentage shall be 75% of his Base Salary for such Fiscal Year. -3- (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) Vacation. 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. ss.4. Termination by Reason of Disability, Death, Retirement or Change in Control. (a) Disability or Death. If, during the Term of Employment, Executive, by reason of physical or mental disability, has been incapable of performing his principal duties hereunder for an aggregate of 130 working days out of any period of 12 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 12-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, (i) Executive's Base Salary to the end of the month in which such death or termination for disability occurs and (ii) any Plan Bonus or pro rata portion thereof that Executive is entitled to receive in accordance with the terms of the Bonus Plan. -4- (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 the latter 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 ss.4(b) 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, (i) Executive's Base Salary prorated to the date on which the Term of Employment ends and (ii) any Plan Bonus or pro rata portion thereof that Executive is entitled to receive in accordance with the terms of the Bonus Plan. (iii) Anything hereinabove to the contrary notwithstanding, if any provision of this ss.4(b) 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 in Control. In event of a Change in Control (as defined in the Bonus Plan), Executive shall have the right to terminate the Term of Employment, by notice to the Company given at any time after such Change in 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. -5- ss.5. Severance. Executive shall be entitled to receive severance pay from the Company, in the amount determined as hereinafter in this paragraph provided, in the event that the Term of Employment is terminated by the Company under ss.1 hereof or by Executive under ss.4(c) hereof. The amount of such severance pay shall be an amount equal to the Base Salary which would have been payable to Executive during the 12 months following the date on which the Term of Employment ends by reason of such termination, plus 75% of such Base Salary (representing the maximum Bonus payable to Executive under the Bonus Plan). Executive shall have the option of (i) having such severance payment made in installments, over the 12 months following the end of the Term of Employment, at the same times at which Executive's Base Salary and Bonus would have been paid had the Term of Employment not been terminated or (ii) accepting as such severance pay an amount equal to the present value, as of the date on which the Term of Employment ends, of the stream of payments payable under clause "(i)" of this sentence, except that if Executive elects a lump-sum payment under this clause "(ii)", there shall be no cost-of-living adjustment of the Base Salary as would otherwise be made in accordance with ss.3(a) hereof (because at the time such lump-sum payment is made, the amount of the cost-of-living adjustment would not be known). In determining such present value, a discount rate of 8% shall be utilized. The severance payment provided for herein if Executive elects a lump sum shall be made within 20 days after the end of the Term of Employment. ss.6. Annual Contract Pension and Medical Coverage After Term of Employment. (a) For a period of 60 consecutive months beginning at the end of the Term of Employment (unless Executive is entitled to severance pay under ss.5 hereof, in which event said period of months shall begin on the first anniversary of the end of the Term of Employment), the Company shall pay (i) to Executive during his lifetime, and (ii) if Executive is not living at the time any such payment is due, then to such payee or payees (including a trust or trusts) as Executive may at any time (whether during or after the Term of Employment) designate by written notice to the Company or in his last will and testament or, if no such designation is made, then to the legal representatives of Executive's estate (any such designated payee or estate being hereinafter called "Executive's Successor") -6- an "Annual Contract Pension" computed as follows: The term "Final Pay" as used herein means one-third of the aggregate of Executive's total cash compensation (i.e., Base Salary plus incentive compensation and any other bonus payments) for those three full fiscal years out of the last five full fiscal years of the Term of Employment with respect to which three fiscal years Executive received the highest total cash compensation. The Annual Contract Pension payable to Executive for each "Retirement Year" (as hereinafter defined) shall be an amount determined by (I) adjusting Executive's Final Pay for changes in the Consumer Price Index in the manner set forth in ss.3(a) except that for purposes of the adjustment under this ss.6, the base month, instead of being June 2001, shall be the month preceding the month in which payment of the Annual Contract Pension commences and the comparison month shall be the same month in each succeeding year and (II) multiplying the Final Pay as so adjusted by 60% and subtracting therefrom Executive's Qualified Plan Pension Benefit (as hereinafter defined). As used herein, "Executive's Qualified Plan Pension Benefit" means the annual amount which Executive would be entitled to receive as a pension benefit under the Pall Corporation Cash Balance Pension Plan in the form of a pension (i) payable only to him and during his lifetime (whether or not he elects to receive payment of his qualified plan pension in some other form, e.g., a joint and survivor annuity) and (ii) which begins on the first day of the month in which payment of the Annual Contract Pension commences (whether or not the qualified plan pension in fact begins on such first day). The amount of the offset for Executive's Qualified Plan Pension Benefit as fixed in accordance with the preceding sentence shall remain constant throughout the term of the Annual Contract Pension irrespective of any election which Executive may make under the Pall Corporation Cash Balance Pension Plan, e.g., an election to defer the start of benefit payments under that plan to a later date. (b) Each 12-month period beginning on the first day of the month in which the Annual Contract Pension first becomes payable hereunder and on the first day of the same month during each of the succeeding years in which the Annual Contract Pension is payable hereunder is herein called a "Retirement Year." There shall be no adjustment of the Final Pay based on the Consumer Price Index for the purpose of determining the Annual Contract Pension for the first Retirement Year so that during such first Retirement Year the Annual Contract Pension shall be 60% of Final Pay minus Executive's Qualified Plan Pension Benefit; there shall be such CPI adjustment of Final Pay for the purpose of determining the Annual Contract Pension for the second and each succeeding Retirement Year. -7- (c) The Annual Contract Pension shall be paid in equal monthly installments on the last business day of each month during the period with respect to which the Annual Contract Pension is payable. (d) So long as Executive is living it shall be a condition of the payment of the Annual Contract Pension that, to the extent permitted by Executive's health, he shall be available for advisory services requested by the Board of Directors of the Company, the Executive Committee of said Board or the chief executive officer of the Company, provided that such advisory services shall not require more than 15 hours in any month. The Company shall reimburse Executive for all travel and other expenses which he incurs in connection with such advisory services. (e) At the option of the Board of Directors of the Company, payment of the Annual Contract Pension shall cease and the right of Executive and Executive's Successor to all future such payments shall be forfeited if Executive shall, without the written consent of the chief executive officer of the Company, render services to any corporation or other entity engaged in any activity, or himself engage in any activity, which is competitive to any material extent with the business in which the Company or any of its subsidiaries shall be engaged at the end of the Term of Employment and in which the Company or any such subsidiary shall still be engaged at the date such services or activity is rendered or engaged in by Executive, provided, however, that if the Company terminates under ss.1 following a Change in Control (as defined in the Bonus Plan), the provisions of this ss.6(e) shall be deemed deleted from this Agreement and shall have no force or effect. (f) Beginning at the end of the Term of Employment, the Company at its sole expense shall provide, in accordance with the provisions set forth below, medical coverage for Executive and his spouse during his lifetime and following Executive's death, if he is survived by his spouse (Executive's "Surviving Spouse"), for Executive's Surviving Spouse during her lifetime. (i) Subject to (ii) and (iii) below, the medical coverage to be provided hereunder shall consist of the same coverages and benefits as provided under the terms of the hospitalization, medical and dental plans maintained by the Company for its U.S. employees who are not covered by a collective bargaining agreement (the "Company's Medical Plans"), as in effect immediately prior to the end of the Term of Employment. -8- (ii) If prior to the end of the Term of Employment any of the Company's Medical Plans is amended following the occurrence of a Change in Control (as defined in the Bonus Plan) to eliminate any coverage or benefit previously provided under such Plan, or to make any coverage or benefit so provided available on terms less favorable to Executive than those in effect prior to such amendment, such coverage or benefit, as provided under the terms of the Plan in effect immediately prior to such amendment, shall be included in the medical coverage to be provided under this Section 6 (f). (iii) If at any time after the end of the Term of Employment any of the Company's Medical Plans is amended to add any coverage or benefit that was not provided under such Plan immediately prior to the end of the Term of Employment, or to provide any coverage or benefit on terms more favorable than those applicable to Executive, or to his Surviving Spouse, under the Plan as in effect immediately prior to the end of the Term of Employment, the coverage or benefit so added or so modified shall be included in the medical coverage to be provided under this Section 6 (f), commencing as of the effective date of such amendment. As soon as practicable after any amendment is made to any of the Company's Medical Plans after the end of the Term of Employment, the Company shall furnish to Executive, or to his Surviving Spouse, a revised Summary Plan Description for such Plan and copies of any other written notices that the Company furnishes to its employees explaining the changes made to the Plan pursuant to such amendment. (iv) The coverages and benefits to be provided hereunder shall be provided upon the same terms and conditions (including required deductibles, co-payments and annual and lifetime maximum benefits) as would have applied to Executive, or to his Surviving Spouse, if such coverages and benefits had been provided under the Company's Medical Plans as in effect on the date or dates applicable hereunder, other than any provision therein requiring an employee or his spouse to make payments to the Company, by payroll deduction or otherwise, towards the cost of his or her coverage under such Plan. (v) At the Company's option, the coverages and benefits to be provided hereunder may be provided through insurance, or by the Company directly paying, or reimbursing Executive or his Surviving Spouse for his or her payment of, expenses covered under this Section 6 (f). -9- (vi) The Company's obligation to provide any coverage or benefit otherwise required under this Section 6(f) shall be reduced to the extent that such coverage or benefit has been or will be provided under (A) any policy of insurance maintained by Executive or his Surviving Spouse, (B) any plan, program or insurance policy maintained by a subsequent employer of Executive or by any employer of Executive's Surviving Spouse, or (C) the provisions of any federal or state law. However, neither Executive nor his Surviving Spouse shall be required to obtain any hospitalization, medical or dental coverage from any source referred to in clause (A), (B) or (C) of the preceding sentence as a condition for eligibility for the medical coverage to be provided under this Section 6(f). ss.7. Internal Revenue Code ss.4999. If any payments to Executive, whether under this Agreement or otherwise, would be subject to excise tax under Section 4999 of the Internal Revenue Code of 1986, as amended, then payments hereunder shall be reduced or deferred to the extent required (and only to the extent required) to avoid the application of Section 4999; provided, however, that no such reduction or deferral shall be made unless as a result thereof Executive's after-tax economic position (taking into account not only payments under this Agreement and the taxes thereon, but also the taxes that would otherwise be imposed on any payments to which Executive is otherwise entitled) would be improved. In making the determination whether Executive's after-tax economic position would be so improved, the judgment of a certified public accountant or attorney chosen by Executive shall be final. In the event of a reduction or deferral of payments pursuant to this paragraph, Executive shall be entitled to specify which payments shall be reduced or deferred. ss.8. Acceleration of Stock Options. On the date which is 30 days before the date on which the Term of Employment will end by reason of a notice of termination given by either party hereto under any of the provisions hereof, all employee stock options held by Executive shall become exercisable in full (i.e., to the extent that any such option or portion thereof is not yet exercisable, the right to exercise the same in full shall be accelerated) and such option shall thereafter be fully vested and exercisable in full (to the extent not theretofore exercised) until it expires by its terms. -10- ss.9. Covenant Not to Compete. For a period of 18 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 ss.1 or ss.4 hereof, or for a period of 12 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 ss.1 or ss.4 hereof or terminates under ss.4 by reason of Executive's attaining the age of 65, Executive shall not render services to any corporation 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 ss.1 following a Change in Control (as defined in the Bonus Plan), the foregoing covenant not to compete shall not apply. ss.10. 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. ss.11. 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. -11- ss.12. 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 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. ss.13. Mergers and Consolidations; Assignability. In the event that the Company, or any entity resulting from any merger or consolidation referred to in this ss.13 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 ss.13, 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. ss.14. 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. ss.15. 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. -12- ss.16. Entire Contract. This Agreement 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 any waiver, change, modification, extension or discharge is sought. ss.17. Notices. All notices given hereunder shall be in writing and shall be sent by registered or certified mail or overnight delivery service such as Federal Express or delivered by hand, and, if intended for the Company, shall be addressed to it (if sent by mail or overnight delivery service) or delivered to it (if delivered by hand) at is 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 or overnight delivery service) 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 on which it is mailed or received by the overnight delivery service or, if delivered personally, on the date so delivered. ss.18. Termination of Existing Agreement. The Existing Agreement is hereby terminated and replaced and superseded by this Agreement, effective August 1, 2001. All payments, of Base Salary or otherwise, made by the Company under the Existing Agreement (or under the Restated and Amended Employment Agreement dated October 6, 1997 which was replaced by the Existing Agreement), with respect to any period commencing on or after August 1, 2001, shall be credited against the corresponding payment obligations of the Company under this Agreement. -13- IN WITNESS WHEREOF, the parties hereto have executed this Employment 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 -14- PALL CORPORATION EXECUTIVE INCENTIVE BONUS PLAN ----- 1. Purpose This document sets forth the Pall Corporation Executive Incentive Bonus Plan as adopted effective July 17, 2001. The purpose of the Plan is to encourage greater focus on performance among the key executives of the Corporation by relating a significant portion of their total compensation to the achievement of annual financial objectives. 2. Certain Definitions As used herein with initial capital letters, the following terms shall have the following meanings: "Average Equity" shall mean, for any Fiscal Year, the average of stockholders' equity as shown on the fiscal year-end consolidated balance sheet of the Corporation and its subsidiaries as of the end of such Fiscal Year and as of the end of the immediately preceding Fiscal Year except that the amounts shown on said balance sheets as "Accumulated other comprehensive" income or loss, as the case may be, shall be disregarded. "Base Salary" shall mean, with respect to any Executive and for any Fiscal Year, the annual rate of base salary in effect for the Executive as of the first day of such year or, if later, as of the first day of the Executive's Term of Employment, as determined under the Executive's Employment Agreement. "Board of Directors" shall mean the Board of Directors of the Corporation. "Bonus" shall mean the bonus payable to an Executive under this Plan for any Fiscal Year. "CEO" shall mean the Chief Executive Officer of the Corporation. "Change in Control" means the occurrence of any of the following: (a) the "Distribution Date" as defined in Section 3 of the Rights Agreement dated as of November 17, 1989 between the Corporation and United States Trust Company of New York as Rights Agent, as amended by Amendment No. 1 thereto dated April 20, 1999, and as the same may have been further amended or extended to the time in question or in any successor agreement (the "Rights Agreement"); or -15- (b) any event described in Section 11(a)(ii)(B) of the Rights Agreement; or (c) any event described in Section 13 of the Rights Agreement; or (d) the date on which the number of duly elected and qualified directors of the Corporation who were not either elected by the Board of Directors or nominated by the Board of Directors or its Nominating Committee for election by the shareholders shall equal or exceed one-third of the total number of directors of the Corporation as fixed by its by-laws; provided, however, that no Change in Control shall be deemed to have occurred, and no rights arising upon a Change in Control as provided in Section 6 shall exist, to the extent that the Board of Directors so determines by resolution adopted prior to the Change in Control. "Code" shall mean the Internal Revenue Code of 1986, as amended. "Committee" shall mean the Compensation Committee of the Board of Directors. "Corporation" shall mean Pall Corporation. "Covered Executive" shall mean, with respect to any Fiscal Year, each individual who is a "Covered Employee" of the Corporation for such year for the purpose of section 162(m) of the Code. "Employment Agreement" shall mean, with respect to any executive employee of the Corporation, an employment agreement between the Corporation and such employee which provides that the employee shall be eligible to receive annual bonuses under this Plan. "Executive" shall mean an executive employee of the Corporation with whom the Corporation has entered into an Employment Agreement. "Fiscal Year" shall mean the fiscal year of the Corporation ending on August 3, 2002, and each subsequent fiscal year of the Corporation. "Maximum R.O.E. Target" shall mean, for any Fiscal Year, the Return on Equity that must be achieved or exceeded in order for the Performance Percentage for the year to equal 100%, as determined by the Committee prior to the first day of such year or within such period of time thereafter as may be permitted under the regulations issued under section 162(m) of the Code. "Minimum R.O.E. Target" shall mean, for any Fiscal Year, the Return on Equity that must be exceeded in order for any Bonus to be paid to any Executive for the year, as determined by the Committee prior to the first day of such year or within such period of time thereafter as may be permitted under the regulations issued under section 162(m) of the Code. "Net Earnings" shall mean, for any Fiscal Year, the after-tax consolidated net earnings of the Corporation and its subsidiaries as certified by the Corporation's independent accountants for inclusion in the annual report to shareholders ("Annual Report"), adjusted so as to eliminate the effects of any decreases in or charges to earnings for (a) the effect of foreign currency exchange rates, (b) any acquisitions, divestitures, discontinuance of business operations, restructuring or any other special charges, (c) the cumulative effect of any accounting changes, and (d) any "extraordinary items" as determined under generally accepted accounting principles, to the extent such decreases or charges referred to in clauses (a) through (d) are separately disclosed in the Corporation's Annual Report for the year. -16- "Plan" shall mean the Pall Corporation Executive Incentive Bonus Plan, as set forth herein and as amended from time to time. "Return on Equity" shall mean, for any Fiscal Year, the percentage determined by dividing the Net Earnings for the year by the Average Equity for the year. "Target Bonus Percentage" shall mean, with respect to any Executive, the target bonus percentage specified for such Executive in his or her Employment Agreement. 3. Determination of Bonus Amounts For each Fiscal Year falling in whole or in part within an Executive's Term of Employment, as defined in his or her Employment Agreement, the Executive shall be entitled to receive a Bonus in an amount determined in accordance with the provisions of this Section 3, subject, however, to the provisions of Section 4. (a) The amount of the Bonus payable to an Executive for each such Fiscal Year shall be equal to (i) the Target Bonus Percentage of the Executive's Base Salary for such year, multiplied by (ii) the Performance Percentage for such year, as determined under (b) below. (b) The Performance Percentage for any Fiscal Year shall be determined in accordance with he following provisions: (i) If the Return on Equity equals or exceeds the Maximum R.O.E. Target for the year, the Performance Percentage for the year shall be 100%. (ii) If the Return on Equity is less than the Maximum R.O.E. Target for the year but exceeds the Minimum R.O.E. Target for the year, the Performance Percentage for the year shall be equal to the quotient resulting from dividing (A) the excess of the Return on Equity for the year over the Minimum R.O.E. Target for the year, by (B) the excess of the Maximum R.O.E. Target for the year over the Minimum R.O.E. Target for the year. (iii) If the Return on Equity equals or is less than the Minimum R.O.E. Target for the year, the Performance Percentage for the year shall be zero, and no Bonus shall be payable under the Plan for such year to any Executive. -17- (c) If an Executive's Term of Employment commences after the start of a Fiscal Year, or ends prior to the close of a Fiscal Year, the amount of the Bonus payable to the Executive for the Fiscal Year in which the Executive's Term of Employment commences, or for the Fiscal Year in which the Executive's Term of Employment ends, as determined in accordance with the other applicable provisions of the Plan, shall be prorated on the basis of the number of days of such Fiscal Year that fall within the Executive's Term of Employment; provided, however, that (i) if an Executive's Term of Employment ends within 5 days prior to the close of a Fiscal Year, there shall be no proration and the Executive shall be entitled to receive the entire amount of the Bonus payable to the Executive for such year, as determined in accordance with such other provisions, and (ii) if the Executive's Term of Employment ends within 5 days following the start of a Fiscal Year, the Executive shall not be entitled to receive any Bonus with respect to such Fiscal Year. 4. Adjustment of and Limitation on Bonus Amounts The amount of the Bonus otherwise payable to an Executive for any Fiscal Year in accordance with Section 3 shall be subject to the following adjustments and limitation: (a) The Committee may, in its discretion, reduce the amount of the Bonus otherwise payable to any Executive in accordance with Section 3, (i) to reflect any decreases in or charges to earnings that were not taken into account in determining Net Earnings for the year pursuant to clause (a), (b), (c) or (d) contained in the definition of such term in Section 2, (ii) to reflect any credits to earnings for extraordinary items of income or gain that were taken into account in determining Net Earnings for the year, (iii) to reflect the Committee's evaluation of the Executive's individual performance, or (iv) to reflect any other events, circumstances or factors which the Committee believes to be appropriate in determining the amount of the Bonus to be paid to the Executive for the year. (b) The Committee may, in its discretion, increase the amount of the Bonus otherwise payable to any Executive who is not a Covered Executive, as determined under Section 3, to reflect the Committee's evaluation of the Executive's individual performance, or to reflect such other circumstances or factors as the Committee believes to be appropriate in determining the amount of the Bonus to be paid to the Executive for the year. The Committee shall not have any discretion to increase the amount of the Bonus payable to any Covered Executive for the year, as determined under Section 3. (c) Notwithstanding any other provision herein to the contrary, the amount of the Bonus otherwise payable to any Executive for any Fiscal Year shall not exceed the lesser of (i) $1.0 million and (ii) 100% of the Executive's Base Salary for the year. 5. Payment of Bonuses The Bonus payable to an Executive for any Fiscal Year shall be paid in accordance with the following provisions: (a) Except as otherwise provided in (b) or (c) below, (i) if the Executive is not a Covered Executive for such year, 50% of the estimated amount of the Executive's Bonus shall be paid to the Executive at such date in August next following the close of such year as the Committee in its discretion shall determine, and the remaining amount of the Executive's Bonus shall be paid to the Executive by no later than January 15 next following the close of such year; -18- (ii) if the Executive is a Covered Executive for such year, 50% of the amount of the Executive's Bonus shall be paid to the Executive as soon as practicable after the Committee has certified in writing that all conditions for the payment of such Bonus to the Executive for such year have been satisfied, and the remaining amount of the Executive's Bonus shall be paid to the Executive by no later than January 15 next following the close of such year; (iii) each amount payable to an Executive under (i) and (ii) above, reduced by the amount of all federal, state and local taxes required by law to be withheld therefrom, shall be paid to the Executive in the form of a single lump sum cash payment. (b) To the extent that an Executive has elected under the applicable provisions of the Pall Corporation Management Stock Purchase Plan (the "MSPP") to have any part of the Bonus payable to the Executive for any Fiscal Year paid in the form of Restricted Units to be credited to the Executive's account under the MSPP, no cash payments shall be made to the Executive pursuant to (a) above with respect to the part of the Executive Bonus that is subject to such election; and the obligation of the Corporation under this Plan with respect to payment of such part of the Executive's Bonus shall be fully discharged upon the crediting of Restricted Units to the Executive's account under the MSPP in accordance with the applicable provisions of such Plan. (c) To the extent that an Executive has elected under the applicable provisions of the Pall Corporation Profit-Sharing Plan (the "Profit-Sharing Plan") to have any part of the Bonus payable to the Executive for any Fiscal Year reduced, and to have an amount equal to such part of the Executive's Bonus contributed to the Profit-Sharing Plan as a 401(k) Contribution on the Executive's behalf, an amount equal to such part of the Executive's Bonus shall be contributed to the Profit-Sharing Plan on behalf of the Executive; and thereupon, the obligation of the Corporation under this Plan with respect to payment of such part of the Executive's Bonus shall be fully discharged. However, no such contribution shall be made to the extent it would cause any limitation applicable under the 401(k) Plan to be exceeded. 6. Change in Control Notwithstanding any other provision in the Plan to the contrary (but subject to the "provided, however" clause contained in the definition of "Change in Control" in Section 2), upon the occurrence of a Change in Control, the following provisions shall apply. (a) The amount of the Bonus payable to any Executive for the Fiscal Year in which a Change in Control occurs shall be at least equal to the Target Bonus Percentage of the Executive's Base Salary for such year or, in the case of any Executive whose Term of Employment commences after the start of such year or ends prior to the close of such year, a pro rata portion thereof determined on the basis of the number of days of such Fiscal Year that fall within the Executive's Term of Employment. -19- (b) Each Executive whose Term of Employment has not ended prior to the occurrence of a Change in Control shall be entitled to receive a Bonus for each Contract Year (as defined in the Executive's Employment Agreement) that falls in whole or in part within the Executive's Term of Employment and that ends after the Fiscal Year in which the Change in Control occurs. The amount of the Bonus payable to the Executive for each such Contract Year shall be at least equal to the Target Bonus Percentage of the Executive's Base Salary for such Contract Year or, in the case of any Executive whose Term of Employment ends after the start of such Contract Year but prior to the close of such year, a pro rata portion thereof determined on the basis of the number of days of such Contract Year that fall within the Executive's Term of Employment. (c) The entire amount of the Bonus payable to an Executive for any Fiscal Year or Contract Year pursuant to (a) or (b) above, reduced by the amount of all federal, state and local taxes required to be withheld therefrom, shall be paid to the Executive in a single cash lump sum as soon as practicable after the close of such Fiscal Year or Contract Year. 7. Rights of Executives An Executive's rights and interests under the Plan shall be subject to the following provisions: (a) An Executive's rights to payments under the Plan shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment, or garnishment by creditors of the Executive. (b) Neither the Plan nor any action taken hereunder shall be construed as giving any Executive any right to be retained in the employment of the Corporation or any of its subsidiaries. 8. Administration The Plan shall be administered by the Committee. A majority of the members of the Committee shall constitute a quorum. The Committee may act at a meeting, including a telephone meeting, by action of a majority of the members present, or without a meeting by unanimous written consent. In addition to the responsibilities and powers assigned to the Committee elsewhere in the Plan, the Committee shall have the authority, in its discretion, to establish from time to time guidelines or regulations for the administration of the Plan, interpret the Plan, and make all determinations considered necessary or advisable for the administration of the Plan. The Committee may delegate any ministerial or nondiscretionary function pertaining to the administration of the Plan to any one or more officers of the Corporation. All decisions, actions or interpretations of the Committee under the Plan shall be final, conclusive and binding upon all parties. Notwithstanding the foregoing, any determination made by the Committee after the occurrence of a Change in Control that denies in whole or in part any claim made by any individual for benefits under the Plan shall be subject to judicial review, under a "de novo", rather than a deferential standard. -20- 9. Amendment or Termination The Board of Directors may, with prospective or retroactive effect, amend, suspend or terminate the Plan or any portion thereof at any time; provided, however, that (a) no amendment, suspension or termination of the Plan shall adversely affect the rights of any Executive with respect to any Bonus that has become payable to the Executive under the Plan, without his or her written consent, and (b) following a Change in Control, no amendment to Section 6, and no termination of the Plan, shall be effective if such amendment or termination adversely affects the rights of any Executive under the Plan. 10. Successor Corporation The obligations of the Corporation under the Plan shall be binding upon any successor corporation or organization resulting from the merger, consolidation or other reorganization of the Corporation, or upon any successor corporation or organization succeeding to substantially all of the assets and business of the Corporation. The Corporation agrees that it will make appropriate provision for the preservation of Executives' rights under the Plan in any agreement or plan which it may enter into or adopt to effect any such merger, consolidation, reorganization or transfer of assets. 11. Governing Law The Plan shall be governed by and construed in accordance with the laws of the State of New York. 12. Effective Date The Plan was adopted effective as of July 17, 2001 by the Board of Directors, acting by the Committee, subject, however, to approval by the shareholders of the Corporation by a majority of the votes cast in person or by proxy at the 2001 annual meeting of the Corporation's shareholders, including any adjournment thereof. [The Plan was approved by shareholders at the annual meeting on November 14, 2001.] -21- EX-10.3 6 b316968ex_10-3.txt EMPLOYMENT AGREEMENT -- DONALD B. STEVENS EXHIBIT 10.3 EMPLOYMENT AGREEMENT dated November 15, 2001 between PALL CORPORATION, a New York corporation (the "Company") and Donald B. Stevens ("Executive"). WHEREAS, the parties hereto are parties to an Employment Agreement dated January 22, 2001 (the "Existing Agreement"), and WHEREAS, in light of the approval by the shareholders of the Company on November 14, 2001 of the Pall Corporation Executive Incentive Bonus Plan, the parties desire to terminate the Existing Agreement and simultaneously replace it with this Agreement, effective August 1, 2001, NOW, THEREFORE, in consideration of the mutual agreements hereinafter set forth, the parties hereto agree as follows: ss.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 ss.2, for a term (hereinafter called the "Term of Employment") which began August 1, 2001 (the "Term Commencement Date") and ending, unless sooner terminated under ss.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. ss.2. Duties (a) Executive agrees that during the Term of Employment he will hold such offices or positions with the Company, and perform such duties and assignments relating to the business of the Company, as the Board of Directors or the Chief Executive Officer of the Company shall direct except that Executive shall not be required to hold any office or position or to perform any duties or assignment inconsistent with his experience and qualifications or not customarily performed by a corporate officer. The Company represents to Executive that the Board of Directors (acting by its Compensation Committee) has authorized the making of this Agreement and expressed its present intention that during the Term of Employment Executive will be an elected officer of the Company. The failure of any future Board of Directors to elect Executive as an officer of the Company shall not, however, be deemed to relieve either party hereto of any of his or its obligations under this Agreement. (b) If the Board of Directors or the Chief Executive Officer of the Company so directs, Executive shall serve as an officer of one or more subsidiaries of the Company (provided that the duties of such office are not inconsistent with Executive's experience and qualifications and are duties customarily performed by a corporate officer) and part or all of the compensation to which Executive is entitled hereunder may be paid by such subsidiary or subsidiaries. However, such employment and/or payment of Executive by a subsidiary or subsidiaries shall not relieve the Company from any of its obligations under this Agreement except to the extent of payments actually made to Executive by a subsidiary. (c) During the Term of Employment Executive shall, except during customary vacation periods and periods of illness, devote substantially all of his business time and attention to the performance of his duties hereunder and to the business and affairs of the Company and its subsidiaries and to promoting the best interests of the Company and its subsidiaries and he shall not, either during or outside of such normal business hours, engage in any activity inimical to such best interests. 2 ss.2. Compensation During Term of Employment (a) Base Salary. With respect to the period beginning on the Term Commencement Date and ending on July 31, 2002, the Company shall pay to Executive a Base Salary (in addition to the compensation provided for elsewhere in this Agreement) at the rate of $354,309 per annum (hereafter called the "Original Base Salary"). With respect to each Contract Year beginning with the Contract Year which starts August 1, 2002, the Company shall pay Executive a Base Salary at such rate as the Board of Directors may determine but not less than the Original Base Salary adjusted, 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, 2002, the minimum compensation payable to Executive under this ss.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 2001. 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 N. J. - Long Island, NY-NJ-CT-PA". To illustrate the operation of the foregoing provisions of this ss.3(a): Executive's Base Salary for the Contract Year August 1, 2002 through July 31, 2003 shall be not less than the Original Base Salary adjusted by the percentage increase (or decrease) of the Consumer Price Index for June 2002 over (or below) said Index for June 2001. 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 2001 as the base except as provided in the immediately following paragraph hereof and (ii) applying the percentage increase (or decrease) in the Consumer Price Index since said base month to the Original Base Salary to determine the Minimum Base Salary. The Base Salary shall be paid in such periodic installments as the Company may determine but not less often than monthly. If with respect to any Contract Year (including the Contract Year beginning August 1, 2002) 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, 2002 which is higher than the Minimum Base Salary, then June 2002 would become the base month for the purposes of making the CPI adjustment to determine the Minimum Base Salary for subsequent Contract Years). 3 (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 August 3, 2002, Executive shall be eligible to receive a Bonus (in addition to his Base Salary) in accordance with the terms of the Pall Corporation Executive Incentive Bonus Plan adopted by the Compensation Committee of the Board of Directors of the Company on July 17, 2001 and approved by shareholders at the annual meeting of shareholders on November 14, 2001, a copy of which is annexed hereto and incorporated herein by reference (the "Bonus Plan"). Words and terms used herein with initial capital letters and not defined herein are used herein as defined in the Bonus Plan. For purposes of determining the amount of the Bonus payable to Executive for any Fiscal Year under the Bonus Plan (the "Plan Bonus"), Executive's Target Bonus Percentage shall be 70% of his Base Salary for such Fiscal Year. (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. 4 ss.4. Termination by Reason of Disability, Death, Retirement or Change in 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 any Plan Bonus or pro rata portion thereof that Executive is entitled to receive in accordance with the terms of the Bonus Plan and (ii) for each month in 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 of any amount equal to 1/12th of 85% of the annual rate of Base Salary in effect for Executive immediately prior to the date on which Executive's death or termination for disability occurs (such 85% being comprised of one-half of such Base Salary and one-half of Executive's Target Bonus Percentage set forth in ss.3(b) hereof). (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. 5 (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 prorated to the date on which the Term of Employment ends and (ii) any Plan Bonus or pro rata portion thereof that Executive is entitled to receive in accordance with the terms of the Bonus Plan. (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 in Control. In event of a Change in Control (as defined in the Bonus Plan), Executive shall have the right to terminate the Term of Employment, by notice to the Company given at any time after such Change in 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. ss.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 ss.1 or ss.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 ss.1 or ss.4 hereof or terminates under ss.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 ss.1 following a Change in Control (as defined in the Bonus Plan), the foregoing covenant not to compete shall not apply. ss.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. 6 ss.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. ss.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 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. 7 ss.9. Mergers and Consolidations; Assignability In the event that the Company, or any entity resulting from any merger or consolidation referred to in this ss.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 ss.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. ss.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. ss.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. ss.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 any waiver, change, modification, extension or discharge is sought. ss.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. 8 ss.14. Termination of Existing Agreement The Existing Agreement is hereby terminated and replaced and superseded by this Agreement, effective August 1, 2001. All payments, of Base Salary or otherwise, made by the Company under the Existing Agreement with respect to any period commencing on or after August 1, 2001 shall be credited against the corresponding payment obligations of the Company under this Agreement. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. PALL CORPORATION By: /s/ Jeremy Hayward-Surry ------------------------ Jeremy Hayward-Surry President /s/ Donald B. Stevens ------------------------ Donald B. Stevens 9 PALL CORPORATION EXECUTIVE INCENTIVE BONUS PLAN ----- 1. Purpose This document sets forth the Pall Corporation Executive Incentive Bonus Plan as adopted effective July 17, 2001. The purpose of the Plan is to encourage greater focus on performance among the key executives of the Corporation by relating a significant portion of their total compensation to the achievement of annual financial objectives. 2. Certain Definitions As used herein with initial capital letters, the following terms shall have the following meanings: "Average Equity" shall mean, for any Fiscal Year, the average of stockholders' equity as shown on the fiscal year-end consolidated balance sheet of the Corporation and its subsidiaries as of the end of such Fiscal Year and as of the end of the immediately preceding Fiscal Year except that the amounts shown on said balance sheets as "Accumulated other comprehensive" income or loss, as the case may be, shall be disregarded. "Base Salary" shall mean, with respect to any Executive and for any Fiscal Year, the annual rate of base salary in effect for the Executive as of the first day of such year or, if later, as of the first day of the Executive's Term of Employment, as determined under the Executive's Employment Agreement. "Board of Directors" shall mean the Board of Directors of the Corporation. "Bonus" shall mean the bonus payable to an Executive under this Plan for any Fiscal Year. "CEO" shall mean the Chief Executive Officer of the Corporation. "Change in Control" means the occurrence of any of the following: (a) the "Distribution Date" as defined in Section 3 of the Rights Agreement dated as of November 17, 1989 between the Corporation and United States Trust Company of New York as Rights Agent, as amended by Amendment No. 1 thereto dated April 20, 1999, and as the same may have been further amended or extended to the time in question or in any successor agreement (the "Rights Agreement"); or (b) any event described in Section 11(a)(ii)(B) of the Rights Agreement; or (c) any event described in Section 13 of the Rights Agreement; or (d) the date on which the number of duly elected and qualified directors of the Corporation who were not either elected by the Board of Directors or nominated by the Board of Directors or its Nominating Committee for election by the shareholders shall equal or exceed one-third of the total number of directors of the Corporation as fixed by its by-laws; provided, however, that no Change in Control shall be deemed to have occurred, and no rights arising upon a Change in Control as provided in Section 6 shall exist, to the extent that the Board of Directors so determines by resolution adopted prior to the Change in Control. "Code" shall mean the Internal Revenue Code of 1986, as amended. "Committee" shall mean the Compensation Committee of the Board of Directors. "Corporation" shall mean Pall Corporation. "Covered Executive" shall mean, with respect to any Fiscal Year, each individual who is a "Covered Employee" of the Corporation for such year for the purpose of section 162(m) of the Code. "Employment Agreement" shall mean, with respect to any executive employee of the Corporation, an employment agreement between the Corporation and such employee which provides that the employee shall be eligible to receive annual bonuses under this Plan. "Executive" shall mean an executive employee of the Corporation with whom the Corporation has entered into an Employment Agreement. "Fiscal Year" shall mean the fiscal year of the Corporation ending on August 3, 2002, and each subsequent fiscal year of the Corporation. "Maximum R.O.E. Target" shall mean, for any Fiscal Year, the Return on Equity that must be achieved or exceeded in order for the Performance Percentage for the year to equal 100%, as determined by the Committee prior to the first day of such year or within such period of time thereafter as may be permitted under the regulations issued under section 162(m) of the Code. "Minimum R.O.E. Target" shall mean, for any Fiscal Year, the Return on Equity that must be exceeded in order for any Bonus to be paid to any Executive for the year, as determined by the Committee prior to the first day of such year or within such period of time thereafter as may be permitted under the regulations issued under section 162(m) of the Code. "Net Earnings" shall mean, for any Fiscal Year, the after-tax consolidated net earnings of the Corporation and its subsidiaries as certified by the Corporation's independent accountants for inclusion in the annual report to shareholders ("Annual Report"), adjusted so as to eliminate the effects of any decreases in or charges to earnings for (a) the effect of foreign currency exchange rates, (b) any acquisitions, divestitures, discontinuance of business operations, restructuring or any other special charges, (c) the cumulative effect of any accounting changes, and (d) any "extraordinary items" as determined under generally accepted accounting principles, to the extent such decreases or charges referred to in clauses (a) through (d) are separately disclosed in the Corporation's Annual Report for the year. 2 "Plan" shall mean the Pall Corporation Executive Incentive Bonus Plan, as set forth herein and as amended from time to time. "Return on Equity" shall mean, for any Fiscal Year, the percentage determined by dividing the Net Earnings for the year by the Average Equity for the year. "Target Bonus Percentage" shall mean, with respect to any Executive, the target bonus percentage specified for such Executive in his or her Employment Agreement. 3. Determination of Bonus Amounts For each Fiscal Year falling in whole or in part within an Executive's Term of Employment, as defined in his or her Employment Agreement, the Executive shall be entitled to receive a Bonus in an amount determined in accordance with the provisions of this Section 3, subject, however, to the provisions of Section 4. (a) The amount of the Bonus payable to an Executive for each such Fiscal Year shall be equal to (i) the Target Bonus Percentage of the Executive's Base Salary for such year, multiplied by (ii) the Performance Percentage for such year, as determined under (b) below. (b) The Performance Percentage for any Fiscal Year shall be determined in accordance with he following provisions: (i) If the Return on Equity equals or exceeds the Maximum R.O.E. Target for the year, the Performance Percentage for the year shall be 100%. (ii) If the Return on Equity is less than the Maximum R.O.E. Target for the year but exceeds the Minimum R.O.E. Target for the year, the Performance Percentage for the year shall be equal to the quotient resulting from dividing (A) the excess of the Return on Equity for the year over the Minimum R.O.E. Target for the year, by (B) the excess of the Maximum R.O.E. Target for the year over the Minimum R.O.E. Target for the year. (iii) If the Return on Equity equals or is less than the Minimum R.O.E. Target for the year, the Performance Percentage for the year shall be zero, and no Bonus shall be payable under the Plan for such year to any Executive. 3 (c) If an Executive's Term of Employment commences after the start of a Fiscal Year, or ends prior to the close of a Fiscal Year, the amount of the Bonus payable to the Executive for the Fiscal Year in which the Executive's Term of Employment commences, or for the Fiscal Year in which the Executive's Term of Employment ends, as determined in accordance with the other applicable provisions of the Plan, shall be prorated on the basis of the number of days of such Fiscal Year that fall within the Executive's Term of Employment; provided, however, that (i) if an Executive's Term of Employment ends within 5 days prior to the close of a Fiscal Year, there shall be no proration and the Executive shall be entitled to receive the entire amount of the Bonus payable to the Executive for such year, as determined in accordance with such other provisions, and (ii) if the Executive's Term of Employment ends within 5 days following the start of a Fiscal Year, the Executive shall not be entitled to receive any Bonus with respect to such Fiscal Year. 4. Adjustment of and Limitation on Bonus Amounts The amount of the Bonus otherwise payable to an Executive for any Fiscal Year in accordance with Section 3 shall be subject to the following adjustments and limitation: (a) The Committee may, in its discretion, reduce the amount of the Bonus otherwise payable to any Executive in accordance with Section 3, (i) to reflect any decreases in or charges to earnings that were not taken into account in determining Net Earnings for the year pursuant to clause (a), (b), (c) or (d) contained in the definition of such term in Section 2, (ii) to reflect any credits to earnings for extraordinary items of income or gain that were taken into account in determining Net Earnings for the year, (iii) to reflect the Committee's evaluation of the Executive's individual performance, or (iv) to reflect any other events, circumstances or factors which the Committee believes to be appropriate in determining the amount of the Bonus to be paid to the Executive for the year. (b) The Committee may, in its discretion, increase the amount of the Bonus otherwise payable to any Executive who is not a Covered Executive, as determined under Section 3, to reflect the Committee's evaluation of the Executive's individual performance, or to reflect such other circumstances or factors as the Committee believes to be appropriate in determining the amount of the Bonus to be paid to the Executive for the year. The Committee shall not have any discretion to increase the amount of the Bonus payable to any Covered Executive for the year, as determined under Section 3. (c) Notwithstanding any other provision herein to the contrary, the amount of the Bonus otherwise payable to any Executive for any Fiscal Year shall not exceed the lesser of (i) $1.0 million and (ii) 100% of the Executive's Base Salary for the year. 5. Payment of Bonuses The Bonus payable to an Executive for any Fiscal Year shall be paid in accordance with the following provisions: (a) Except as otherwise provided in (b) or (c) below, (i) if the Executive is not a Covered Executive for such year, 50% of the estimated amount of the Executive's Bonus shall be paid to the Executive at such date in August next following the close of such year as the Committee in its discretion shall determine, and the remaining amount of the Executive's Bonus shall be paid to the Executive by no later than January 15 next following the close of such year; 4 (ii) if the Executive is a Covered Executive for such year, 50% of the amount of the Executive's Bonus shall be paid to the Executive as soon as practicable after the Committee has certified in writing that all conditions for the payment of such Bonus to the Executive for such year have been satisfied, and the remaining amount of the Executive's Bonus shall be paid to the Executive by no later than January 15 next following the close of such year; (iii) each amount payable to an Executive under (i) and (ii) above, reduced by the amount of all federal, state and local taxes required by law to be withheld therefrom, shall be paid to the Executive in the form of a single lump sum cash payment. (b) To the extent that an Executive has elected under the applicable provisions of the Pall Corporation Management Stock Purchase Plan (the "MSPP") to have any part of the Bonus payable to the Executive for any Fiscal Year paid in the form of Restricted Units to be credited to the Executive's account under the MSPP, no cash payments shall be made to the Executive pursuant to (a) above with respect to the part of the Executive Bonus that is subject to such election; and the obligation of the Corporation under this Plan with respect to payment of such part of the Executive's Bonus shall be fully discharged upon the crediting of Restricted Units to the Executive's account under the MSPP in accordance with the applicable provisions of such Plan. (c) To the extent that an Executive has elected under the applicable provisions of the Pall Corporation Profit-Sharing Plan (the "Profit-Sharing Plan") to have any part of the Bonus payable to the Executive for any Fiscal Year reduced, and to have an amount equal to such part of the Executive's Bonus contributed to the Profit-Sharing Plan as a 401(k) Contribution on the Executive's behalf, an amount equal to such part of the Executive's Bonus shall be contributed to the Profit-Sharing Plan on behalf of the Executive; and thereupon, the obligation of the Corporation under this Plan with respect to payment of such part of the Executive's Bonus shall be fully discharged. However, no such contribution shall be made to the extent it would cause any limitation applicable under the 401(k) Plan to be exceeded. 6. Change in Control Notwithstanding any other provision in the Plan to the contrary (but subject to the "provided, however" clause contained in the definition of "Change in Control" in Section 2), upon the occurrence of a Change in Control, the following provisions shall apply. (a) The amount of the Bonus payable to any Executive for the Fiscal Year in which a Change in Control occurs shall be at least equal to the Target Bonus Percentage of the Executive's Base Salary for such year or, in the case of any Executive whose Term of Employment commences after the start of such year or ends prior to the close of such year, a pro rata portion thereof determined on the basis of the number of days of such Fiscal Year that fall within the Executive's Term of Employment. 5 (b) Each Executive whose Term of Employment has not ended prior to the occurrence of a Change in Control shall be entitled to receive a Bonus for each Contract Year (as defined in the Executive's Employment Agreement) that falls in whole or in part within the Executive's Term of Employment and that ends after the Fiscal Year in which the Change in Control occurs. The amount of the Bonus payable to the Executive for each such Contract Year shall be at least equal to the Target Bonus Percentage of the Executive's Base Salary for such Contract Year or, in the case of any Executive whose Term of Employment ends after the start of such Contract Year but prior to the close of such year, a pro rata portion thereof determined on the basis of the number of days of such Contract Year that fall within the Executive's Term of Employment. (c) The entire amount of the Bonus payable to an Executive for any Fiscal Year or Contract Year pursuant to (a) or (b) above, reduced by the amount of all federal, state and local taxes required to be withheld therefrom, shall be paid to the Executive in a single cash lump sum as soon as practicable after the close of such Fiscal Year or Contract Year. 7. Rights of Executives An Executive's rights and interests under the Plan shall be subject to the following provisions: (a) An Executive's rights to payments under the Plan shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment, or garnishment by creditors of the Executive. (b) Neither the Plan nor any action taken hereunder shall be construed as giving any Executive any right to be retained in the employment of the Corporation or any of its subsidiaries. 8. Administration The Plan shall be administered by the Committee. A majority of the members of the Committee shall constitute a quorum. The Committee may act at a meeting, including a telephone meeting, by action of a majority of the members present, or without a meeting by unanimous written consent. In addition to the responsibilities and powers assigned to the Committee elsewhere in the Plan, the Committee shall have the authority, in its discretion, to establish from time to time guidelines or regulations for the administration of the Plan, interpret the Plan, and make all determinations considered necessary or advisable for the administration of the Plan. The Committee may delegate any ministerial or nondiscretionary function pertaining to the administration of the Plan to any one or more officers of the Corporation. All decisions, actions or interpretations of the Committee under the Plan shall be final, conclusive and binding upon all parties. Notwithstanding the foregoing, any determination made by the Committee after the occurrence of a Change in Control that denies in whole or in part any claim made by any individual for benefits under the Plan shall be subject to judicial review, under a "de novo", rather than a deferential standard. 6 9. Amendment or Termination The Board of Directors may, with prospective or retroactive effect, amend, suspend or terminate the Plan or any portion thereof at any time; provided, however, that (a) no amendment, suspension or termination of the Plan shall adversely affect the rights of any Executive with respect to any Bonus that has become payable to the Executive under the Plan, without his or her written consent, and (b) following a Change in Control, no amendment to Section 6, and no termination of the Plan, shall be effective if such amendment or termination adversely affects the rights of any Executive under the Plan. 10. Successor Corporation The obligations of the Corporation under the Plan shall be binding upon any successor corporation or organization resulting from the merger, consolidation or other reorganization of the Corporation, or upon any successor corporation or organization succeeding to substantially all of the assets and business of the Corporation. The Corporation agrees that it will make appropriate provision for the preservation of Executives' rights under the Plan in any agreement or plan which it may enter into or adopt to effect any such merger, consolidation, reorganization or transfer of assets. 11. Governing Law The Plan shall be governed by and construed in accordance with the laws of the State of New York. 12. Effective Date The Plan was adopted effective as of July 17, 2001 by the Board of Directors, acting by the Committee, subject, however, to approval by the shareholders of the Corporation by a majority of the votes cast in person or by proxy at the 2001 annual meeting of the Corporation's shareholders, including any adjournment thereof. [The Plan was approved by shareholders at the annual meeting on November 14, 2001.] 7 EX-10.4 7 b316968ex_10-4.txt EMPLOYMENT AGREEMENT -- JOHN ADAMOVICH EXHIBIT 10.4 EMPLOYMENT AGREEMENT dated November 15, 2001 between PALL CORPORATION, a New York corporation (the "Company"), and JOHN ADAMOVICH ("Executive"). WHEREAS, the parties hereto are parties to an Employment Agreement dated January 5, 1998 (the "Existing Agreement"), and WHEREAS, in light of the approval by the shareholders of the Company on November 14, 2001 of the Pall Corporation Executive Incentive Bonus Plan, the parties desire to terminate the Existing Agreement and simultaneously replace it with this Agreement, effective August 1, 2001, NOW, THEREFORE, in consideration of the mutual agreements hereinafter set forth, the parties hereto agree as follows: ss.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 ss.2, for a term (hereinafter called the "Term of Employment") which began August 1, 2001 (the "Term Commencement Date") and ending, unless sooner terminated under ss.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. ss.2. Duties 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 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 (i) 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 a Group Vice President and the Treasurer of the Company and (ii) that under the by-laws of the Company as now in effect the Treasurer is the chief financial officer of the Company. Neither the failure of any future Board of Directors to elect Executive to the offices just named nor any amendment of the by-laws shall, however, be deemed to relieve either party hereto of any of his or its obligations under this Agreement. If 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 the Company from any of its obligations under this Agreement except to the extent of payments actually made to Executive by a subsidiary. 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. ss.3. Compensation During Term of Employment (a) Base Salary. With respect to the period beginning on the Term Commencement Date and ending on July 31, 2002, the Company shall pay Executive a Base Salary (in addition to the compensation provided for elsewhere in this Agreement) at the rate of $312,600 per annum (hereinafter called the "Original Base Salary"). With respect to each Contract Year beginning with the Contract Year which starts August 1, 2002, the Company shall pay Executive a Base Salary at such rate as the Board of Directors may determine but not less than the Original Base Salary adjusted 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, 2002, the minimum compensation payable to Executive under this ss.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 2001. 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 N. J. - Long Island, NY-NJ-CT-PA". To illustrate the operation of the foregoing provisions of this ss.3(a): Executive's Base Salary for the Contract Year August 1, 2002 through July 31, 2003 shall be not less than the Original Base Salary adjusted by the percentage increase (or decrease) of the Consumer Price Index for June 2002 over (or below) said Index for June 2001. 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 2001 as the base except as provided in the immediately following paragraph hereof and (ii) applying the percentage increase (or decrease) in the Consumer Price Index since said base month to the Original Base Salary to determine the Minimum Base Salary. The Base Salary shall be paid in such periodic installments as the Company may determine but not less often than monthly. -2- If with respect to any Contract Year (including the Contract Year beginning August 1, 2002) 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 of Directors fixes a Base Salary for the Contract Year beginning August 1, 2002 which is higher than the Minimum Base Salary, then June 2002 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 August 3, 2002, Executive shall be eligible to receive a Bonus (in addition to his Base Salary) in accordance with the terms of the Pall Corporation Executive Incentive Bonus Plan adopted by the Compensation Committee of the Board of Directors of the Company on July 17, 2001 and approved by shareholders at the annual meeting of shareholders on November 14, 2001, a copy of which is annexed hereto and incorporated herein by reference (the "Bonus Plan"). Words and terms used herein with initial capital letters and not defined herein are used herein as defined in the Bonus Plan. For purposes of determining the amount of the Bonus payable to Executive for any Fiscal Year under the Bonus Plan (the "Plan Bonus"), Executive's Target Bonus Percentage shall be 70% of his Base Salary for such Fiscal Year. -3- (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), at such time and on such terms and conditions as each such plan provides. (d) Vacations. Executive shall be entitled each year to a vacation or vacations in accordance with the policies of the Company as determined by the Board or by an authorized senior officer of the Company from time to time. The Company shall not pay Executive any additional compensation for any vacation time not used by Executive. ss.4. Termination by Reason of Disability, Death, Retirement or Change in 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 any Plan Bonus or pro rata portion thereof that Executive is entitled to receive in accordance with the terms of the Bonus Plan and (ii) for each month in 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 of an amount equal to 1/12th of 85% of the annual rate of Base Salary in effect for Executive immediately prior to the date on which Executive's death or termination for disability occurs (such 85% being comprised of one-half of such Base Salary and one-half of Executive's Target Bonus Percentage set forth in ss.3 (b) hereof). -4- (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 the latter 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 ss.4(b) 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, (i) Executive's Base Salary prorated to the date on which the Term of Employment ends and (ii) any Plan Bonus or pro rata portion thereof that Executive is entitled to receive in accordance with the terms of the Bonus Plan. (iii) Anything hereinabove to the contrary notwithstanding, if any provision of this ss.4(b) 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 in Control. In the event of a Change in Control (as defined in the Bonus Plan), Executive shall have the right to terminate the Term of Employment, by notice to the Company given at any time after such Change in 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. -5- ss.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 ss.1 or ss.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 ss.1 or ss.4 hereof or terminates under ss.4 by reason of Executive's 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 ss.1 following a Change in Control (as defined in the Bonus Plan), the foregoing covenant not to compete shall not apply. ss.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. ss.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. -6- ss.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 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. ss.9. Mergers and Consolidations; Assignability In the event that the Company, or any entity resulting from any merger or consolidation referred to in this ss.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 ss.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. ss.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. -7- ss.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. ss.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 any waiver, change, modification, extension or discharge is sought. ss.13. Notices All notices given hereunder shall be in writing and shall be sent by registered or certified mail or overnight delivery service such as Federal Express or delivered by hand, and, if intended for the Company, shall be addressed to it (if sent by mail or overnight delivery service) 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 or overnight delivery service) 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 on which it is mailed or on which it is received by the overnight delivery service or, if delivered personally, on the date so delivered. ss.14. Termination of Existing Agreement. The Existing Agreement is hereby terminated and replaced and superseded by this Agreement, effective August 1, 2001. All payments, of Base Salary or otherwise, made by the Company under the Existing Agreement with respect to any period commencing on or after August 1, 2001 shall be credited against the corresponding payment obligations of the Company under this Agreement. -8- IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. PALL CORPORATION By: /s/ Jeremy Hayward-Surry ------------------------ Jeremy Hayward-Surry President /s/ John Adamovich ---------------------------- John Adamovich -9- PALL CORPORATION EXECUTIVE INCENTIVE BONUS PLAN ----- 1. Purpose This document sets forth the Pall Corporation Executive Incentive Bonus Plan as adopted effective July 17, 2001. The purpose of the Plan is to encourage greater focus on performance among the key executives of the Corporation by relating a significant portion of their total compensation to the achievement of annual financial objectives. 2. Certain Definitions As used herein with initial capital letters, the following terms shall have the following meanings: "Average Equity" shall mean, for any Fiscal Year, the average of stockholders' equity as shown on the fiscal year-end consolidated balance sheet of the Corporation and its subsidiaries as of the end of such Fiscal Year and as of the end of the immediately preceding Fiscal Year except that the amounts shown on said balance sheets as "Accumulated other comprehensive" income or loss, as the case may be, shall be disregarded. "Base Salary" shall mean, with respect to any Executive and for any Fiscal Year, the annual rate of base salary in effect for the Executive as of the first day of such year or, if later, as of the first day of the Executive's Term of Employment, as determined under the Executive's Employment Agreement. "Board of Directors" shall mean the Board of Directors of the Corporation. "Bonus" shall mean the bonus payable to an Executive under this Plan for any Fiscal Year. "CEO" shall mean the Chief Executive Officer of the Corporation. "Change in Control" means the occurrence of any of the following: (a) the "Distribution Date" as defined in Section 3 of the Rights Agreement dated as of November 17, 1989 between the Corporation and United States Trust Company of New York as Rights Agent, as amended by Amendment No. 1 thereto dated April 20, 1999, and as the same may have been further amended or extended to the time in question or in any successor agreement (the "Rights Agreement"); or -10- (b) any event described in Section 11(a)(ii)(B) of the Rights Agreement; or (c) any event described in Section 13 of the Rights Agreement; or (d) the date on which the number of duly elected and qualified directors of the Corporation who were not either elected by the Board of Directors or nominated by the Board of Directors or its Nominating Committee for election by the shareholders shall equal or exceed one-third of the total number of directors of the Corporation as fixed by its by-laws; provided, however, that no Change in Control shall be deemed to have occurred, and no rights arising upon a Change in Control as provided in Section 6 shall exist, to the extent that the Board of Directors so determines by resolution adopted prior to the Change in Control. "Code" shall mean the Internal Revenue Code of 1986, as amended. "Committee" shall mean the Compensation Committee of the Board of Directors. "Corporation" shall mean Pall Corporation. "Covered Executive" shall mean, with respect to any Fiscal Year, each individual who is a "Covered Employee" of the Corporation for such year for the purpose of section 162(m) of the Code. "Employment Agreement" shall mean, with respect to any executive employee of the Corporation, an employment agreement between the Corporation and such employee which provides that the employee shall be eligible to receive annual bonuses under this Plan. "Executive" shall mean an executive employee of the Corporation with whom the Corporation has entered into an Employment Agreement. "Fiscal Year" shall mean the fiscal year of the Corporation ending on August 3, 2002, and each subsequent fiscal year of the Corporation. "Maximum R.O.E. Target" shall mean, for any Fiscal Year, the Return on Equity that must be achieved or exceeded in order for the Performance Percentage for the year to equal 100%, as determined by the Committee prior to the first day of such year or within such period of time thereafter as may be permitted under the regulations issued under section 162(m) of the Code. "Minimum R.O.E. Target" shall mean, for any Fiscal Year, the Return on Equity that must be exceeded in order for any Bonus to be paid to any Executive for the year, as determined by the Committee prior to the first day of such year or within such period of time thereafter as may be permitted under the regulations issued under section 162(m) of the Code. "Net Earnings" shall mean, for any Fiscal Year, the after-tax consolidated net earnings of the Corporation and its subsidiaries as certified by the Corporation's independent accountants for inclusion in the annual report to shareholders ("Annual Report"), adjusted so as to eliminate the effects of any decreases in or charges to earnings for (a) the effect of foreign currency exchange rates, (b) any acquisitions, divestitures, discontinuance of business operations, restructuring or any other special charges, (c) the cumulative effect of any accounting changes, and (d) any "extraordinary items" as determined under generally accepted accounting principles, to the extent such decreases or charges referred to in clauses (a) through (d) are separately disclosed in the Corporation's Annual Report for the year. -11- "Plan" shall mean the Pall Corporation Executive Incentive Bonus Plan, as set forth herein and as amended from time to time. "Return on Equity" shall mean, for any Fiscal Year, the percentage determined by dividing the Net Earnings for the year by the Average Equity for the year. "Target Bonus Percentage" shall mean, with respect to any Executive, the target bonus percentage specified for such Executive in his or her Employment Agreement. 3. Determination of Bonus Amounts For each Fiscal Year falling in whole or in part within an Executive's Term of Employment, as defined in his or her Employment Agreement, the Executive shall be entitled to receive a Bonus in an amount determined in accordance with the provisions of this Section 3, subject, however, to the provisions of Section 4. (a) The amount of the Bonus payable to an Executive for each such Fiscal Year shall be equal to (i) the Target Bonus Percentage of the Executive's Base Salary for such year, multiplied by (ii) the Performance Percentage for such year, as determined under (b) below. (b) The Performance Percentage for any Fiscal Year shall be determined in accordance with he following provisions: (i) If the Return on Equity equals or exceeds the Maximum R.O.E. Target for the year, the Performance Percentage for the year shall be 100%. (ii) If the Return on Equity is less than the Maximum R.O.E. Target for the year but exceeds the Minimum R.O.E. Target for the year, the Performance Percentage for the year shall be equal to the quotient resulting from dividing (A) the excess of the Return on Equity for the year over the Minimum R.O.E. Target for the year, by (B) the excess of the Maximum R.O.E. Target for the year over the Minimum R.O.E. Target for the year. (iii) If the Return on Equity equals or is less than the Minimum R.O.E. Target for the year, the Performance Percentage for the year shall be zero, and no Bonus shall be payable under the Plan for such year to any Executive. -12- (c) If an Executive's Term of Employment commences after the start of a Fiscal Year, or ends prior to the close of a Fiscal Year, the amount of the Bonus payable to the Executive for the Fiscal Year in which the Executive's Term of Employment commences, or for the Fiscal Year in which the Executive's Term of Employment ends, as determined in accordance with the other applicable provisions of the Plan, shall be prorated on the basis of the number of days of such Fiscal Year that fall within the Executive's Term of Employment; provided, however, that (i) if an Executive's Term of Employment ends within 5 days prior to the close of a Fiscal Year, there shall be no proration and the Executive shall be entitled to receive the entire amount of the Bonus payable to the Executive for such year, as determined in accordance with such other provisions, and (ii) if the Executive's Term of Employment ends within 5 days following the start of a Fiscal Year, the Executive shall not be entitled to receive any Bonus with respect to such Fiscal Year. 4. Adjustment of and Limitation on Bonus Amounts The amount of the Bonus otherwise payable to an Executive for any Fiscal Year in accordance with Section 3 shall be subject to the following adjustments and limitation: (a) The Committee may, in its discretion, reduce the amount of the Bonus otherwise payable to any Executive in accordance with Section 3, (i) to reflect any decreases in or charges to earnings that were not taken into account in determining Net Earnings for the year pursuant to clause (a), (b), (c) or (d) contained in the definition of such term in Section 2, (ii) to reflect any credits to earnings for extraordinary items of income or gain that were taken into account in determining Net Earnings for the year, (iii) to reflect the Committee's evaluation of the Executive's individual performance, or (iv) to reflect any other events, circumstances or factors which the Committee believes to be appropriate in determining the amount of the Bonus to be paid to the Executive for the year. (b) The Committee may, in its discretion, increase the amount of the Bonus otherwise payable to any Executive who is not a Covered Executive, as determined under Section 3, to reflect the Committee's evaluation of the Executive's individual performance, or to reflect such other circumstances or factors as the Committee believes to be appropriate in determining the amount of the Bonus to be paid to the Executive for the year. The Committee shall not have any discretion to increase the amount of the Bonus payable to any Covered Executive for the year, as determined under Section 3. (c) Notwithstanding any other provision herein to the contrary, the amount of the Bonus otherwise payable to any Executive for any Fiscal Year shall not exceed the lesser of (i) $1.0 million and (ii) 100% of the Executive's Base Salary for the year. 5. Payment of Bonuses The Bonus payable to an Executive for any Fiscal Year shall be paid in accordance with the following provisions: (a) Except as otherwise provided in (b) or (c) below, (i) if the Executive is not a Covered Executive for such year, 50% of the estimated amount of the Executive's Bonus shall be paid to the Executive at such date in August next following the close of such year as the Committee in its discretion shall determine, and the remaining amount of the Executive's Bonus shall be paid to the Executive by no later than January 15 next following the close of such year; -13- (ii) if the Executive is a Covered Executive for such year, 50% of the amount of the Executive's Bonus shall be paid to the Executive as soon as practicable after the Committee has certified in writing that all conditions for the payment of such Bonus to the Executive for such year have been satisfied, and the remaining amount of the Executive's Bonus shall be paid to the Executive by no later than January 15 next following the close of such year; (iii) each amount payable to an Executive under (i) and (ii) above, reduced by the amount of all federal, state and local taxes required by law to be withheld therefrom, shall be paid to the Executive in the form of a single lump sum cash payment. (b) To the extent that an Executive has elected under the applicable provisions of the Pall Corporation Management Stock Purchase Plan (the "MSPP") to have any part of the Bonus payable to the Executive for any Fiscal Year paid in the form of Restricted Units to be credited to the Executive's account under the MSPP, no cash payments shall be made to the Executive pursuant to (a) above with respect to the part of the Executive Bonus that is subject to such election; and the obligation of the Corporation under this Plan with respect to payment of such part of the Executive's Bonus shall be fully discharged upon the crediting of Restricted Units to the Executive's account under the MSPP in accordance with the applicable provisions of such Plan. (c) To the extent that an Executive has elected under the applicable provisions of the Pall Corporation Profit-Sharing Plan (the "Profit-Sharing Plan") to have any part of the Bonus payable to the Executive for any Fiscal Year reduced, and to have an amount equal to such part of the Executive's Bonus contributed to the Profit-Sharing Plan as a 401(k) Contribution on the Executive's behalf, an amount equal to such part of the Executive's Bonus shall be contributed to the Profit-Sharing Plan on behalf of the Executive; and thereupon, the obligation of the Corporation under this Plan with respect to payment of such part of the Executive's Bonus shall be fully discharged. However, no such contribution shall be made to the extent it would cause any limitation applicable under the 401(k) Plan to be exceeded. 6. Change in Control Notwithstanding any other provision in the Plan to the contrary (but subject to the "provided, however" clause contained in the definition of "Change in Control" in Section 2), upon the occurrence of a Change in Control, the following provisions shall apply. (a) The amount of the Bonus payable to any Executive for the Fiscal Year in which a Change in Control occurs shall be at least equal to the Target Bonus Percentage of the Executive's Base Salary for such year or, in the case of any Executive whose Term of Employment commences after the start of such year or ends prior to the close of such year, a pro rata portion thereof determined on the basis of the number of days of such Fiscal Year that fall within the Executive's Term of Employment. -14- (b) Each Executive whose Term of Employment has not ended prior to the occurrence of a Change in Control shall be entitled to receive a Bonus for each Contract Year (as defined in the Executive's Employment Agreement) that falls in whole or in part within the Executive's Term of Employment and that ends after the Fiscal Year in which the Change in Control occurs. The amount of the Bonus payable to the Executive for each such Contract Year shall be at least equal to the Target Bonus Percentage of the Executive's Base Salary for such Contract Year or, in the case of any Executive whose Term of Employment ends after the start of such Contract Year but prior to the close of such year, a pro rata portion thereof determined on the basis of the number of days of such Contract Year that fall within the Executive's Term of Employment. (c) The entire amount of the Bonus payable to an Executive for any Fiscal Year or Contract Year pursuant to (a) or (b) above, reduced by the amount of all federal, state and local taxes required to be withheld therefrom, shall be paid to the Executive in a single cash lump sum as soon as practicable after the close of such Fiscal Year or Contract Year. 7. Rights of Executives An Executive's rights and interests under the Plan shall be subject to the following provisions: (a) An Executive's rights to payments under the Plan shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment, or garnishment by creditors of the Executive. (b) Neither the Plan nor any action taken hereunder shall be construed as giving any Executive any right to be retained in the employment of the Corporation or any of its subsidiaries. 8. Administration The Plan shall be administered by the Committee. A majority of the members of the Committee shall constitute a quorum. The Committee may act at a meeting, including a telephone meeting, by action of a majority of the members present, or without a meeting by unanimous written consent. In addition to the responsibilities and powers assigned to the Committee elsewhere in the Plan, the Committee shall have the authority, in its discretion, to establish from time to time guidelines or regulations for the administration of the Plan, interpret the Plan, and make all determinations considered necessary or advisable for the administration of the Plan. The Committee may delegate any ministerial or nondiscretionary function pertaining to the administration of the Plan to any one or more officers of the Corporation. All decisions, actions or interpretations of the Committee under the Plan shall be final, conclusive and binding upon all parties. Notwithstanding the foregoing, any determination made by the Committee after the occurrence of a Change in Control that denies in whole or in part any claim made by any individual for benefits under the Plan shall be subject to judicial review, under a "de novo", rather than a deferential standard. -15- 9. Amendment or Termination The Board of Directors may, with prospective or retroactive effect, amend, suspend or terminate the Plan or any portion thereof at any time; provided, however, that (a) no amendment, suspension or termination of the Plan shall adversely affect the rights of any Executive with respect to any Bonus that has become payable to the Executive under the Plan, without his or her written consent, and (b) following a Change in Control, no amendment to Section 6, and no termination of the Plan, shall be effective if such amendment or termination adversely affects the rights of any Executive under the Plan. 10. Successor Corporation The obligations of the Corporation under the Plan shall be binding upon any successor corporation or organization resulting from the merger, consolidation or other reorganization of the Corporation, or upon any successor corporation or organization succeeding to substantially all of the assets and business of the Corporation. The Corporation agrees that it will make appropriate provision for the preservation of Executives' rights under the Plan in any agreement or plan which it may enter into or adopt to effect any such merger, consolidation, reorganization or transfer of assets. 11. Governing Law The Plan shall be governed by and construed in accordance with the laws of the State of New York. 12. Effective Date The Plan was adopted effective as of July 17, 2001 by the Board of Directors, acting by the Committee, subject, however, to approval by the shareholders of the Corporation by a majority of the votes cast in person or by proxy at the 2001 annual meeting of the Corporation's shareholders, including any adjournment thereof. [The Plan was approved by shareholders at the annual meeting on November 14, 2001.] -16- EX-10.5 8 b316968ex_10-5.txt EMPLOYMENT AGREEMENT -- STEVEN CHISOLM EXHIBIT 10.5 [Group Vice President Split Bonus] EMPLOYMENT AGREEMENT dated November 15, 2001 between PALL CORPORATION, a New York corporation (the "Company") and Steven Chisolm ("Executive"). WHEREAS, the parties hereto are parties to an employment agreement dated January 12, 1998, amended August 1, 1998 (the "Existing Agreement"), and WHEREAS, in light of the approval by the shareholders of the Company on November 14, 2001 of the Pall Corporation Executive Incentive Bonus Plan, the parties desire to terminate the Existing Agreement and simultaneously replace it with this Agreement, effective August 1, 2001, 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 ss.2, for a term (hereinafter called the "Term of Employment") which began August 1, 2001 (the "Term Commencement Date") and ending, unless sooner terminated under ss.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 (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 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. 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 a Group Vice President. The failure of any future Board of Directors to elect Executive to the office just named shall not, however, be deemed to relieve either party hereto of any of his or its obligations under this Agreement. (b) If 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 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 on July 31, 2002, the Company shall pay Executive a Base Salary (in addition to the compensation provided for elsewhere in this Agreement) at the rate of $182,364 per annum (hereinafter called the "Original Base Salary"). With respect to each Contract Year beginning with the Contract Year which starts August 1, 2002, the Company shall pay Executive a Base Salary at such rate as the Board of Directors may determine but not less than the Original Base Salary adjusted 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, 2002, the minimum compensation payable to Executive under this ss.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 2001. 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 N. J. - Long Island, NY-NJ-CT-PA". To illustrate the operation of the foregoing provisions of this ss.3(a): Executive's Base Salary for the Contract Year August 1, 2002 through July 31, 2003 shall be not less than the Original Base Salary adjusted by the percentage increase (or decrease) of the Consumer Price Index for June 2002 over (or below) said Index for June 2001. 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 2001 as the base except as provided in the immediately following paragraph hereof and (ii) applying the percentage increase (or decrease) in the Consumer Price Index since said base month to the Original Base Salary to determine the Minimum Base Salary. The Base Salary shall be paid in such periodic installments as the Company may determine but not less often than monthly. 2 If with respect to any Contract Year (including the Contract Year beginning August 1, 2002) the Board of Directors fixes the Base Salary at an amount higher than the Minimum Base Salary, then (unless the order fixing such higher Base Salary provides otherwise), for the purpose of determining the Minimum Base Salary for subsequent Contract Years: (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 of Directors fixes a Base Salary for the Contract Year beginning August 1, 2002 which is higher than the Minimum Base Salary, then June 2002 would become the base month for the purposes of making the CPI adjustment to determine the Minimum Base Salary for subsequent Contract Years). (b) Bonus Compensation. (i) Plan Bonus. 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 August 3, 2002, Executive shall be eligible to receive a Bonus (in addition to his Base Salary) in accordance with the terms of the Pall Corporation Executive Incentive Bonus Plan adopted by the Compensation Committee of the Board of Directors of the Company on July 17, 2001 and approved by shareholders at the annual meeting of shareholders on November 14, 2001, a copy of which is annexed hereto and incorporated herein by reference (the "Bonus Plan"). Words and terms used herein with initial capital letters and not defined herein are used herein as defined in the Bonus Plan. For purposes of determining the amount of the Bonus payable to Executive for any Fiscal Year under the Bonus Plan (the "Plan Bonus"), Executive's Target Bonus Percentage shall be 28% of his Base Salary for such Fiscal Year. 3 (ii) Business Segment Bonus. Inasmuch as Executive's services for the Company relate primarily to the operations of a subsidiary, a division or other segment of the overall operations of the Company and its subsidiaries (a "Business Segment"), Executive shall be considered for additional bonus compensation for each Fiscal Year based on the results of operations of such Business Segment for such Fiscal Year. The amount of such additional bonus compensation, if any, shall be determined by the Chief Executive Officer in his sole discretion but in no event shall such additional bonus compensation exceed 42% of Executive's Base Salary. (iii) Payment of Bonus Compensation. Executive's Bonus Compensation (which term as used herein includes both the Plan Bonus and the Business Segment Bonus, if any) shall be paid in accordance with ss.5 of the Bonus Plan. With respect to any Fiscal Year which falls in part but not in whole within the Term of Employment, the pro rata portion of the Bonus Compensation to which Executive is entitled under this ss.3(b) shall be determined in accordance with ss.3(c) of the Bonus Plan. (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. 4 Section 4. Termination by Reason of Disability, Death, Retirement or Change in 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 each month in 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 of an amount equal to 1/12th of 64% of the annual rate of Base Salary in effect for Executive immediately prior to the date on which Executive's death or termination for disability occurs (such 64% being comprised of one-half of such Base Salary and one-half of Executive's Target Bonus Percentage set forth in ss.3 (b) hereof). (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 the latter 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 ss.4(b) 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 ss.4(b) 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. 5 (c) Change in Control. In event of a Change in Control (as defined in the Bonus Plan), Executive shall have the right to terminate the Term of Employment, by notice to the Company given at any time after such Change in 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. 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 ss.1 or ss.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 ss.1 or ss.4 hereof or terminates under ss.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 ss.1 following a Change in Control (as defined in the Bonus Plan), 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. 6 Section 7. Inventions and Patents All inventions, ideas, concepts, processes, discoveries, improvements and trademarks (hereinafter collectively referred to as intangible rights), whether patentable or registrable or not, which are conceived, made, invented or suggested either by Executive alone or by Executive in collaboration with others during the Term of Employment, and whether or not during regular working hours, shall be disclosed to the Company and shall be the sole and exclusive property of the Company. If the Company deems that any of such intangible rights are patentable or otherwise registrable under any federal, state or foreign law, Executive, at the expense of the Company, shall execute all documents and do all things necessary or proper to obtain patents and/or registrations and to vest the Company with full title thereto. Section 8. Trade Secrets and Confidential Information Executive shall not, either directly or indirectly, except as required in the course of his employment by the Company, disclose or use at any time, whether during or subsequent to the Term of Employment, any information of a proprietary nature owned by the Company, including but not limited to, records, data, formulae, documents, specifications, inventions, processes, methods and intangible 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 ss.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 ss.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. 7 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 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 Existing Agreement The Existing Agreement is hereby terminated and replaced and superseded by this Agreement, effective August 1, 2001. All payments, of Base Salary or otherwise, made by the Company under the Existing Agreement with respect to any period commencing on or after August 1, 2001 shall be credited against the corresponding payment obligations of the Company under this Agreement. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. PALL CORPORATION By: /s/ Jeremy Hayward-Surry -------------------- Jeremy Hayward-Surry President EXECUTIVE /s/ Steven Chisolm -------------------- Steven Chisolm 8 PALL CORPORATION EXECUTIVE INCENTIVE BONUS PLAN ----- 1. Purpose This document sets forth the Pall Corporation Executive Incentive Bonus Plan as adopted effective July 17, 2001. The purpose of the Plan is to encourage greater focus on performance among the key executives of the Corporation by relating a significant portion of their total compensation to the achievement of annual financial objectives. 2. Certain Definitions As used herein with initial capital letters, the following terms shall have the following meanings: "Average Equity" shall mean, for any Fiscal Year, the average of stockholders' equity as shown on the fiscal year-end consolidated balance sheet of the Corporation and its subsidiaries as of the end of such Fiscal Year and as of the end of the immediately preceding Fiscal Year except that the amounts shown on said balance sheets as "Accumulated other comprehensive" income or loss, as the case may be, shall be disregarded. "Base Salary" shall mean, with respect to any Executive and for any Fiscal Year, the annual rate of base salary in effect for the Executive as of the first day of such year or, if later, as of the first day of the Executive's Term of Employment, as determined under the Executive's Employment Agreement. "Board of Directors" shall mean the Board of Directors of the Corporation. "Bonus" shall mean the bonus payable to an Executive under this Plan for any Fiscal Year. "CEO" shall mean the Chief Executive Officer of the Corporation. "Change in Control" means the occurrence of any of the following: (a) the "Distribution Date" as defined in Section 3 of the Rights Agreement dated as of November 17, 1989 between the Corporation and United States Trust Company of New York as Rights Agent, as amended by Amendment No. 1 thereto dated April 20, 1999, and as the same may have been further amended or extended to the time in question or in any successor agreement (the "Rights Agreement"); or (b) any event described in Section 11(a)(ii)(B) of the Rights Agreement; or (c) any event described in Section 13 of the Rights Agreement; or (d) the date on which the number of duly elected and qualified directors of the Corporation who were not either elected by the Board of Directors or nominated by the Board of Directors or its Nominating Committee for election by the shareholders shall equal or exceed one-third of the total number of directors of the Corporation as fixed by its by-laws; provided, however, that no Change in Control shall be deemed to have occurred, and no rights arising upon a Change in Control as provided in Section 6 shall exist, to the extent that the Board of Directors so determines by resolution adopted prior to the Change in Control. "Code" shall mean the Internal Revenue Code of 1986, as amended. "Committee" shall mean the Compensation Committee of the Board of Directors. "Corporation" shall mean Pall Corporation. "Covered Executive" shall mean, with respect to any Fiscal Year, each individual who is a "Covered Employee" of the Corporation for such year for the purpose of section 162(m) of the Code. "Employment Agreement" shall mean, with respect to any executive employee of the Corporation, an employment agreement between the Corporation and such employee which provides that the employee shall be eligible to receive annual bonuses under this Plan. "Executive" shall mean an executive employee of the Corporation with whom the Corporation has entered into an Employment Agreement. "Fiscal Year" shall mean the fiscal year of the Corporation ending on August 3, 2002, and each subsequent fiscal year of the Corporation. "Maximum R.O.E. Target" shall mean, for any Fiscal Year, the Return on Equity that must be achieved or exceeded in order for the Performance Percentage for the year to equal 100%, as determined by the Committee prior to the first day of such year or within such period of time thereafter as may be permitted under the regulations issued under section 162(m) of the Code. "Minimum R.O.E. Target" shall mean, for any Fiscal Year, the Return on Equity that must be exceeded in order for any Bonus to be paid to any Executive for the year, as determined by the Committee prior to the first day of such year or within such period of time thereafter as may be permitted under the regulations issued under section 162(m) of the Code. "Net Earnings" shall mean, for any Fiscal Year, the after-tax consolidated net earnings of the Corporation and its subsidiaries as certified by the Corporation's independent accountants for inclusion in the annual report to shareholders ("Annual Report"), adjusted so as to eliminate the effects of any decreases in or charges to earnings for (a) the effect of foreign currency exchange rates, (b) any acquisitions, divestitures, discontinuance of business operations, restructuring or any other special charges, (c) the cumulative effect of any accounting changes, and (d) any "extraordinary items" as determined under generally accepted accounting principles, to the extent such decreases or charges referred to in clauses (a) through (d) are separately disclosed in the Corporation's Annual Report for the year. 2 "Plan" shall mean the Pall Corporation Executive Incentive Bonus Plan, as set forth herein and as amended from time to time. "Return on Equity" shall mean, for any Fiscal Year, the percentage determined by dividing the Net Earnings for the year by the Average Equity for the year. "Target Bonus Percentage" shall mean, with respect to any Executive, the target bonus percentage specified for such Executive in his or her Employment Agreement. 3. Determination of Bonus Amounts For each Fiscal Year falling in whole or in part within an Executive's Term of Employment, as defined in his or her Employment Agreement, the Executive shall be entitled to receive a Bonus in an amount determined in accordance with the provisions of this Section 3, subject, however, to the provisions of Section 4. (a) The amount of the Bonus payable to an Executive for each such Fiscal Year shall be equal to (i) the Target Bonus Percentage of the Executive's Base Salary for such year, multiplied by (ii) the Performance Percentage for such year, as determined under (b) below. (b) The Performance Percentage for any Fiscal Year shall be determined in accordance with he following provisions: (i) If the Return on Equity equals or exceeds the Maximum R.O.E. Target for the year, the Performance Percentage for the year shall be 100%. (ii) If the Return on Equity is less than the Maximum R.O.E. Target for the year but exceeds the Minimum R.O.E. Target for the year, the Performance Percentage for the year shall be equal to the quotient resulting from dividing (A) the excess of the Return on Equity for the year over the Minimum R.O.E. Target for the year, by (B) the excess of the Maximum R.O.E. Target for the year over the Minimum R.O.E. Target for the year. (iii) If the Return on Equity equals or is less than the Minimum R.O.E. Target for the year, the Performance Percentage for the year shall be zero, and no Bonus shall be payable under the Plan for such year to any Executive. 3 (c) If an Executive's Term of Employment commences after the start of a Fiscal Year, or ends prior to the close of a Fiscal Year, the amount of the Bonus payable to the Executive for the Fiscal Year in which the Executive's Term of Employment commences, or for the Fiscal Year in which the Executive's Term of Employment ends, as determined in accordance with the other applicable provisions of the Plan, shall be prorated on the basis of the number of days of such Fiscal Year that fall within the Executive's Term of Employment; provided, however, that (i) if an Executive's Term of Employment ends within 5 days prior to the close of a Fiscal Year, there shall be no proration and the Executive shall be entitled to receive the entire amount of the Bonus payable to the Executive for such year, as determined in accordance with such other provisions, and (ii) if the Executive's Term of Employment ends within 5 days following the start of a Fiscal Year, the Executive shall not be entitled to receive any Bonus with respect to such Fiscal Year. 4. Adjustment of and Limitation on Bonus Amounts The amount of the Bonus otherwise payable to an Executive for any Fiscal Year in accordance with Section 3 shall be subject to the following adjustments and limitation: (a) The Committee may, in its discretion, reduce the amount of the Bonus otherwise payable to any Executive in accordance with Section 3, (i) to reflect any decreases in or charges to earnings that were not taken into account in determining Net Earnings for the year pursuant to clause (a), (b), (c) or (d) contained in the definition of such term in Section 2, (ii) to reflect any credits to earnings for extraordinary items of income or gain that were taken into account in determining Net Earnings for the year, (iii) to reflect the Committee's evaluation of the Executive's individual performance, or (iv) to reflect any other events, circumstances or factors which the Committee believes to be appropriate in determining the amount of the Bonus to be paid to the Executive for the year. (b) The Committee may, in its discretion, increase the amount of the Bonus otherwise payable to any Executive who is not a Covered Executive, as determined under Section 3, to reflect the Committee's evaluation of the Executive's individual performance, or to reflect such other circumstances or factors as the Committee believes to be appropriate in determining the amount of the Bonus to be paid to the Executive for the year. The Committee shall not have any discretion to increase the amount of the Bonus payable to any Covered Executive for the year, as determined under Section 3. (c) Notwithstanding any other provision herein to the contrary, the amount of the Bonus otherwise payable to any Executive for any Fiscal Year shall not exceed the lesser of (i) $1.0 million and (ii) 100% of the Executive's Base Salary for the year. 5. Payment of Bonuses The Bonus payable to an Executive for any Fiscal Year shall be paid in accordance with the following provisions: (a) Except as otherwise provided in (b) or (c) below, (i) if the Executive is not a Covered Executive for such year, 50% of the estimated amount of the Executive's Bonus shall be paid to the Executive at such date in August next following the close of such year as the Committee in its discretion shall determine, and the remaining amount of the Executive's Bonus shall be paid to the Executive by no later than January 15 next following the close of such year; 4 (ii) if the Executive is a Covered Executive for such year, 50% of the amount of the Executive's Bonus shall be paid to the Executive as soon as practicable after the Committee has certified in writing that all conditions for the payment of such Bonus to the Executive for such year have been satisfied, and the remaining amount of the Executive's Bonus shall be paid to the Executive by no later than January 15 next following the close of such year; (iii) each amount payable to an Executive under (i) and (ii) above, reduced by the amount of all federal, state and local taxes required by law to be withheld therefrom, shall be paid to the Executive in the form of a single lump sum cash payment. (b) To the extent that an Executive has elected under the applicable provisions of the Pall Corporation Management Stock Purchase Plan (the "MSPP") to have any part of the Bonus payable to the Executive for any Fiscal Year paid in the form of Restricted Units to be credited to the Executive's account under the MSPP, no cash payments shall be made to the Executive pursuant to (a) above with respect to the part of the Executive Bonus that is subject to such election; and the obligation of the Corporation under this Plan with respect to payment of such part of the Executive's Bonus shall be fully discharged upon the crediting of Restricted Units to the Executive's account under the MSPP in accordance with the applicable provisions of such Plan. (c) To the extent that an Executive has elected under the applicable provisions of the Pall Corporation Profit-Sharing Plan (the "Profit-Sharing Plan") to have any part of the Bonus payable to the Executive for any Fiscal Year reduced, and to have an amount equal to such part of the Executive's Bonus contributed to the Profit-Sharing Plan as a 401(k) Contribution on the Executive's behalf, an amount equal to such part of the Executive's Bonus shall be contributed to the Profit-Sharing Plan on behalf of the Executive; and thereupon, the obligation of the Corporation under this Plan with respect to payment of such part of the Executive's Bonus shall be fully discharged. However, no such contribution shall be made to the extent it would cause any limitation applicable under the 401(k) Plan to be exceeded. 6. Change in Control Notwithstanding any other provision in the Plan to the contrary (but subject to the "provided, however" clause contained in the definition of "Change in Control" in Section 2), upon the occurrence of a Change in Control, the following provisions shall apply. (a) The amount of the Bonus payable to any Executive for the Fiscal Year in which a Change in Control occurs shall be at least equal to the Target Bonus Percentage of the Executive's Base Salary for such year or, in the case of any Executive whose Term of Employment commences after the start of such year or ends prior to the close of such year, a pro rata portion thereof determined on the basis of the number of days of such Fiscal Year that fall within the Executive's Term of Employment. 5 (b) Each Executive whose Term of Employment has not ended prior to the occurrence of a Change in Control shall be entitled to receive a Bonus for each Contract Year (as defined in the Executive's Employment Agreement) that falls in whole or in part within the Executive's Term of Employment and that ends after the Fiscal Year in which the Change in Control occurs. The amount of the Bonus payable to the Executive for each such Contract Year shall be at least equal to the Target Bonus Percentage of the Executive's Base Salary for such Contract Year or, in the case of any Executive whose Term of Employment ends after the start of such Contract Year but prior to the close of such year, a pro rata portion thereof determined on the basis of the number of days of such Contract Year that fall within the Executive's Term of Employment. (c) The entire amount of the Bonus payable to an Executive for any Fiscal Year or Contract Year pursuant to (a) or (b) above, reduced by the amount of all federal, state and local taxes required to be withheld therefrom, shall be paid to the Executive in a single cash lump sum as soon as practicable after the close of such Fiscal Year or Contract Year. 7. Rights of Executives An Executive's rights and interests under the Plan shall be subject to the following provisions: (a) An Executive's rights to payments under the Plan shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment, or garnishment by creditors of the Executive. (b) Neither the Plan nor any action taken hereunder shall be construed as giving any Executive any right to be retained in the employment of the Corporation or any of its subsidiaries. 8. Administration The Plan shall be administered by the Committee. A majority of the members of the Committee shall constitute a quorum. The Committee may act at a meeting, including a telephone meeting, by action of a majority of the members present, or without a meeting by unanimous written consent. In addition to the responsibilities and powers assigned to the Committee elsewhere in the Plan, the Committee shall have the authority, in its discretion, to establish from time to time guidelines or regulations for the administration of the Plan, interpret the Plan, and make all determinations considered necessary or advisable for the administration of the Plan. The Committee may delegate any ministerial or nondiscretionary function pertaining to the administration of the Plan to any one or more officers of the Corporation. All decisions, actions or interpretations of the Committee under the Plan shall be final, conclusive and binding upon all parties. Notwithstanding the foregoing, any determination made by the Committee after the occurrence of a Change in Control that denies in whole or in part any claim made by any individual for benefits under the Plan shall be subject to judicial review, under a "de novo", rather than a deferential standard. 6 9. Amendment or Termination The Board of Directors may, with prospective or retroactive effect, amend, suspend or terminate the Plan or any portion thereof at any time; provided, however, that (a) no amendment, suspension or termination of the Plan shall adversely affect the rights of any Executive with respect to any Bonus that has become payable to the Executive under the Plan, without his or her written consent, and (b) following a Change in Control, no amendment to Section 6, and no termination of the Plan, shall be effective if such amendment or termination adversely affects the rights of any Executive under the Plan. 10. Successor Corporation The obligations of the Corporation under the Plan shall be binding upon any successor corporation or organization resulting from the merger, consolidation or other reorganization of the Corporation, or upon any successor corporation or organization succeeding to substantially all of the assets and business of the Corporation. The Corporation agrees that it will make appropriate provision for the preservation of Executives' rights under the Plan in any agreement or plan which it may enter into or adopt to effect any such merger, consolidation, reorganization or transfer of assets. 11. Governing Law The Plan shall be governed by and construed in accordance with the laws of the State of New York. 12. Effective Date The Plan was adopted effective as of July 17, 2001 by the Board of Directors, acting by the Committee, subject, however, to approval by the shareholders of the Corporation by a majority of the votes cast in person or by proxy at the 2001 annual meeting of the Corporation's shareholders, including any adjournment thereof. [The Plan was approved by shareholders at the annual meeting on November 14, 2001.] 7 EX-10.6 9 b316968ex_10-6.txt EMPLOYMENT AGREEMENT -- CHARLES GRIMM EXHIBIT 10.6 [Group Vice President Split Bonus] EMPLOYMENT AGREEMENT dated November 15, 2001 between PALL CORPORATION, a New York corporation (the "Company") and Charles Grimm ("Executive"). WHEREAS, the parties hereto are parties to an employment agreement dated August 1, 1998 (the "Existing Agreement"), and WHEREAS, in light of the approval by the shareholders of the Company on November 14, 2001 of the Pall Corporation Executive Incentive Bonus Plan, the parties desire to terminate the Existing Agreement and simultaneously replace it with this Agreement, effective August 1, 2001, 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 ss.2, for a term (hereinafter called the "Term of Employment") which began August 1, 2001 (the "Term Commencement Date") and ending, unless sooner terminated under ss.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 (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 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. 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 a Group Vice President. The failure of any future Board of Directors to elect Executive to the office just named shall not, however, be deemed to relieve either party hereto of any of his or its obligations under this Agreement. (b) If 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 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 on July 31, 2002, the Company shall pay Executive a Base Salary (in addition to the compensation provided for elsewhere in this Agreement) at the rate of $203,216 per annum (hereinafter called the "Original Base Salary"). With respect to each Contract Year beginning with the Contract Year which starts August 1, 2002, the Company shall pay Executive a Base Salary at such rate as the Board of Directors may determine but not less than the Original Base Salary adjusted 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, 2002, the minimum compensation payable to Executive under this ss.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 2001. 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 N. J. - Long Island, NY-NJ-CT-PA". To illustrate the operation of the foregoing provisions of this ss.3(a): Executive's Base Salary for the Contract Year August 1, 2002 through July 31, 2003 shall be not less than the Original Base Salary adjusted by the percentage increase (or decrease) of the Consumer Price Index for June 2002 over (or below) said Index for June 2001. 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 2001 as the base except as provided in the immediately following paragraph hereof and (ii) applying the percentage increase (or decrease) in the Consumer Price Index since said base month to the Original Base Salary to determine the Minimum Base Salary. The Base Salary shall be paid in such periodic installments as the Company may determine but not less often than monthly. 2 If with respect to any Contract Year (including the Contract Year beginning August 1, 2002) the Board of Directors fixes the Base Salary at an amount higher than the Minimum Base Salary, then (unless the order fixing such higher Base Salary provides otherwise), for the purpose of determining the Minimum Base Salary for subsequent Contract Years: (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 of Directors fixes a Base Salary for the Contract Year beginning August 1, 2002 which is higher than the Minimum Base Salary, then June 2002 would become the base month for the purposes of making the CPI adjustment to determine the Minimum Base Salary for subsequent Contract Years). (b) Bonus Compensation. (i) Plan Bonus. 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 August 3, 2002, Executive shall be eligible to receive a Bonus (in addition to his Base Salary) in accordance with the terms of the Pall Corporation Executive Incentive Bonus Plan adopted by the Compensation Committee of the Board of Directors of the Company on July 17, 2001 and approved by shareholders at the annual meeting of shareholders on November 14, 2001, a copy of which is annexed hereto and incorporated herein by reference (the "Bonus Plan"). Words and terms used herein with initial capital letters and not defined herein are used herein as defined in the Bonus Plan. For purposes of determining the amount of the Bonus payable to Executive for any Fiscal Year under the Bonus Plan (the "Plan Bonus"), Executive's Target Bonus Percentage shall be 28% of his Base Salary for such Fiscal Year. 3 (ii) Business Segment Bonus. Inasmuch as Executive's services for the Company relate primarily to the operations of a subsidiary, a division or other segment of the overall operations of the Company and its subsidiaries (a "Business Segment"), Executive shall be considered for additional bonus compensation for each Fiscal Year based on the results of operations of such Business Segment for such Fiscal Year. The amount of such additional bonus compensation, if any, shall be determined by the Chief Executive Officer in his sole discretion but in no event shall such additional bonus compensation exceed 42% of Executive's Base Salary. (iii) Payment of Bonus Compensation. Executive's Bonus Compensation (which term as used herein includes both the Plan Bonus and the Business Segment Bonus, if any) shall be paid in accordance with ss.5 of the Bonus Plan. With respect to any Fiscal Year which falls in part but not in whole within the Term of Employment, the pro rata portion of the Bonus Compensation to which Executive is entitled under this ss.3(b) shall be determined in accordance with ss.3(c) of the Bonus Plan. (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. 4 Section 4. Termination by Reason of Disability, Death, Retirement or Change in 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 each month in 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 of an amount equal to 1/12th of 64% of the annual rate of Base Salary in effect for Executive immediately prior to the date on which Executive's death or termination for disability occurs (such 64% being comprised of one-half of such Base Salary and one-half of Executive's Target Bonus Percentage set forth in ss.3 (b) hereof). (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 the latter 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 ss.4(b) 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 ss.4(b) 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. 5 (c) Change in Control. In event of a Change in Control (as defined in the Bonus Plan), Executive shall have the right to terminate the Term of Employment, by notice to the Company given at any time after such Change in 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. 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 ss.1 or ss.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 ss.1 or ss.4 hereof or terminates under ss.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 ss.1 following a Change in Control (as defined in the Bonus Plan), 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. 6 Section 7. Inventions and Patents All inventions, ideas, concepts, processes, discoveries, improvements and trademarks (hereinafter collectively referred to as intangible rights), whether patentable or registrable or not, which are conceived, made, invented or suggested either by Executive alone or by Executive in collaboration with others during the Term of Employment, and whether or not during regular working hours, shall be disclosed to the Company and shall be the sole and exclusive property of the Company. If the Company deems that any of such intangible rights are patentable or otherwise registrable under any federal, state or foreign law, Executive, at the expense of the Company, shall execute all documents and do all things necessary or proper to obtain patents and/or registrations and to vest the Company with full title thereto. Section 8. Trade Secrets and Confidential Information Executive shall not, either directly or indirectly, except as required in the course of his employment by the Company, disclose or use at any time, whether during or subsequent to the Term of Employment, any information of a proprietary nature owned by the Company, including but not limited to, records, data, formulae, documents, specifications, inventions, processes, methods and intangible 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 ss.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 ss.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. 7 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 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. 8 Section 14. Termination of Existing Agreement The Existing Agreement is hereby terminated and replaced and superseded by this Agreement, effective August 1, 2001. All payments, of Base Salary or otherwise, made by the Company under the Existing Agreement with respect to any period commencing on or after August 1, 2001 shall be credited against the corresponding payment obligations of the Company under this Agreement. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. PALL CORPORATION By: /s/ Jeremy Hayward-Surry ----------------------------- Jeremy Hayward-Surry President EXECUTIVE /s/ Charles Grimm ----------------------------- Charles Grimm 9 PALL CORPORATION EXECUTIVE INCENTIVE BONUS PLAN ----- 1. Purpose This document sets forth the Pall Corporation Executive Incentive Bonus Plan as adopted effective July 17, 2001. The purpose of the Plan is to encourage greater focus on performance among the key executives of the Corporation by relating a significant portion of their total compensation to the achievement of annual financial objectives. 2. Certain Definitions As used herein with initial capital letters, the following terms shall have the following meanings: "Average Equity" shall mean, for any Fiscal Year, the average of stockholders' equity as shown on the fiscal year-end consolidated balance sheet of the Corporation and its subsidiaries as of the end of such Fiscal Year and as of the end of the immediately preceding Fiscal Year except that the amounts shown on said balance sheets as "Accumulated other comprehensive" income or loss, as the case may be, shall be disregarded. "Base Salary" shall mean, with respect to any Executive and for any Fiscal Year, the annual rate of base salary in effect for the Executive as of the first day of such year or, if later, as of the first day of the Executive's Term of Employment, as determined under the Executive's Employment Agreement. "Board of Directors" shall mean the Board of Directors of the Corporation. "Bonus" shall mean the bonus payable to an Executive under this Plan for any Fiscal Year. "CEO" shall mean the Chief Executive Officer of the Corporation. "Change in Control" means the occurrence of any of the following: (a) the "Distribution Date" as defined in Section 3 of the Rights Agreement dated as of November 17, 1989 between the Corporation and United States Trust Company of New York as Rights Agent, as amended by Amendment No. 1 thereto dated April 20, 1999, and as the same may have been further amended or extended to the time in question or in any successor agreement (the "Rights Agreement"); or (b) any event described in Section 11(a)(ii)(B) of the Rights Agreement; or (c) any event described in Section 13 of the Rights Agreement; or (d) the date on which the number of duly elected and qualified directors of the Corporation who were not either elected by the Board of Directors or nominated by the Board of Directors or its Nominating Committee for election by the shareholders shall equal or exceed one-third of the total number of directors of the Corporation as fixed by its by-laws; provided, however, that no Change in Control shall be deemed to have occurred, and no rights arising upon a Change in Control as provided in Section 6 shall exist, to the extent that the Board of Directors so determines by resolution adopted prior to the Change in Control. "Code" shall mean the Internal Revenue Code of 1986, as amended. "Committee" shall mean the Compensation Committee of the Board of Directors. "Corporation" shall mean Pall Corporation. "Covered Executive" shall mean, with respect to any Fiscal Year, each individual who is a "Covered Employee" of the Corporation for such year for the purpose of section 162(m) of the Code. "Employment Agreement" shall mean, with respect to any executive employee of the Corporation, an employment agreement between the Corporation and such employee which provides that the employee shall be eligible to receive annual bonuses under this Plan. "Executive" shall mean an executive employee of the Corporation with whom the Corporation has entered into an Employment Agreement. "Fiscal Year" shall mean the fiscal year of the Corporation ending on August 3, 2002, and each subsequent fiscal year of the Corporation. "Maximum R.O.E. Target" shall mean, for any Fiscal Year, the Return on Equity that must be achieved or exceeded in order for the Performance Percentage for the year to equal 100%, as determined by the Committee prior to the first day of such year or within such period of time thereafter as may be permitted under the regulations issued under section 162(m) of the Code. "Minimum R.O.E. Target" shall mean, for any Fiscal Year, the Return on Equity that must be exceeded in order for any Bonus to be paid to any Executive for the year, as determined by the Committee prior to the first day of such year or within such period of time thereafter as may be permitted under the regulations issued under section 162(m) of the Code. "Net Earnings" shall mean, for any Fiscal Year, the after-tax consolidated net earnings of the Corporation and its subsidiaries as certified by the Corporation's independent accountants for inclusion in the annual report to shareholders ("Annual Report"), adjusted so as to eliminate the effects of any decreases in or charges to earnings for (a) the effect of foreign currency exchange rates, (b) any acquisitions, divestitures, discontinuance of business operations, restructuring or any other special charges, (c) the cumulative effect of any accounting changes, and (d) any "extraordinary items" as determined under generally accepted accounting principles, to the extent such decreases or charges referred to in clauses (a) through (d) are separately disclosed in the Corporation's Annual Report for the year. 2 "Plan" shall mean the Pall Corporation Executive Incentive Bonus Plan, as set forth herein and as amended from time to time. "Return on Equity" shall mean, for any Fiscal Year, the percentage determined by dividing the Net Earnings for the year by the Average Equity for the year. "Target Bonus Percentage" shall mean, with respect to any Executive, the target bonus percentage specified for such Executive in his or her Employment Agreement. 3. Determination of Bonus Amounts For each Fiscal Year falling in whole or in part within an Executive's Term of Employment, as defined in his or her Employment Agreement, the Executive shall be entitled to receive a Bonus in an amount determined in accordance with the provisions of this Section 3, subject, however, to the provisions of Section 4. (a) The amount of the Bonus payable to an Executive for each such Fiscal Year shall be equal to (i) the Target Bonus Percentage of the Executive's Base Salary for such year, multiplied by (ii) the Performance Percentage for such year, as determined under (b) below. (b) The Performance Percentage for any Fiscal Year shall be determined in accordance with he following provisions: (i) If the Return on Equity equals or exceeds the Maximum R.O.E. Target for the year, the Performance Percentage for the year shall be 100%. (ii) If the Return on Equity is less than the Maximum R.O.E. Target for the year but exceeds the Minimum R.O.E. Target for the year, the Performance Percentage for the year shall be equal to the quotient resulting from dividing (A) the excess of the Return on Equity for the year over the Minimum R.O.E. Target for the year, by (B) the excess of the Maximum R.O.E. Target for the year over the Minimum R.O.E. Target for the year. (iii) If the Return on Equity equals or is less than the Minimum R.O.E. Target for the year, the Performance Percentage for the year shall be zero, and no Bonus shall be payable under the Plan for such year to any Executive. 3 (c) If an Executive's Term of Employment commences after the start of a Fiscal Year, or ends prior to the close of a Fiscal Year, the amount of the Bonus payable to the Executive for the Fiscal Year in which the Executive's Term of Employment commences, or for the Fiscal Year in which the Executive's Term of Employment ends, as determined in accordance with the other applicable provisions of the Plan, shall be prorated on the basis of the number of days of such Fiscal Year that fall within the Executive's Term of Employment; provided, however, that (i) if an Executive's Term of Employment ends within 5 days prior to the close of a Fiscal Year, there shall be no proration and the Executive shall be entitled to receive the entire amount of the Bonus payable to the Executive for such year, as determined in accordance with such other provisions, and (ii) if the Executive's Term of Employment ends within 5 days following the start of a Fiscal Year, the Executive shall not be entitled to receive any Bonus with respect to such Fiscal Year. 4. Adjustment of and Limitation on Bonus Amounts The amount of the Bonus otherwise payable to an Executive for any Fiscal Year in accordance with Section 3 shall be subject to the following adjustments and limitation: (a) The Committee may, in its discretion, reduce the amount of the Bonus otherwise payable to any Executive in accordance with Section 3, (i) to reflect any decreases in or charges to earnings that were not taken into account in determining Net Earnings for the year pursuant to clause (a), (b), (c) or (d) contained in the definition of such term in Section 2, (ii) to reflect any credits to earnings for extraordinary items of income or gain that were taken into account in determining Net Earnings for the year, (iii) to reflect the Committee's evaluation of the Executive's individual performance, or (iv) to reflect any other events, circumstances or factors which the Committee believes to be appropriate in determining the amount of the Bonus to be paid to the Executive for the year. (b) The Committee may, in its discretion, increase the amount of the Bonus otherwise payable to any Executive who is not a Covered Executive, as determined under Section 3, to reflect the Committee's evaluation of the Executive's individual performance, or to reflect such other circumstances or factors as the Committee believes to be appropriate in determining the amount of the Bonus to be paid to the Executive for the year. The Committee shall not have any discretion to increase the amount of the Bonus payable to any Covered Executive for the year, as determined under Section 3. (c) Notwithstanding any other provision herein to the contrary, the amount of the Bonus otherwise payable to any Executive for any Fiscal Year shall not exceed the lesser of (i) $1.0 million and (ii) 100% of the Executive's Base Salary for the year. 5. Payment of Bonuses The Bonus payable to an Executive for any Fiscal Year shall be paid in accordance with the following provisions: (a) Except as otherwise provided in (b) or (c) below, (i) if the Executive is not a Covered Executive for such year, 50% of the estimated amount of the Executive's Bonus shall be paid to the Executive at such date in August next following the close of such year as the Committee in its discretion shall determine, and the remaining amount of the Executive's Bonus shall be paid to the Executive by no later than January 15 next following the close of such year; 4 (ii) if the Executive is a Covered Executive for such year, 50% of the amount of the Executive's Bonus shall be paid to the Executive as soon as practicable after the Committee has certified in writing that all conditions for the payment of such Bonus to the Executive for such year have been satisfied, and the remaining amount of the Executive's Bonus shall be paid to the Executive by no later than January 15 next following the close of such year; (iii) each amount payable to an Executive under (i) and (ii) above, reduced by the amount of all federal, state and local taxes required by law to be withheld therefrom, shall be paid to the Executive in the form of a single lump sum cash payment. (b) To the extent that an Executive has elected under the applicable provisions of the Pall Corporation Management Stock Purchase Plan (the "MSPP") to have any part of the Bonus payable to the Executive for any Fiscal Year paid in the form of Restricted Units to be credited to the Executive's account under the MSPP, no cash payments shall be made to the Executive pursuant to (a) above with respect to the part of the Executive Bonus that is subject to such election; and the obligation of the Corporation under this Plan with respect to payment of such part of the Executive's Bonus shall be fully discharged upon the crediting of Restricted Units to the Executive's account under the MSPP in accordance with the applicable provisions of such Plan. (c) To the extent that an Executive has elected under the applicable provisions of the Pall Corporation Profit-Sharing Plan (the "Profit-Sharing Plan") to have any part of the Bonus payable to the Executive for any Fiscal Year reduced, and to have an amount equal to such part of the Executive's Bonus contributed to the Profit-Sharing Plan as a 401(k) Contribution on the Executive's behalf, an amount equal to such part of the Executive's Bonus shall be contributed to the Profit-Sharing Plan on behalf of the Executive; and thereupon, the obligation of the Corporation under this Plan with respect to payment of such part of the Executive's Bonus shall be fully discharged. However, no such contribution shall be made to the extent it would cause any limitation applicable under the 401(k) Plan to be exceeded. 6. Change in Control Notwithstanding any other provision in the Plan to the contrary (but subject to the "provided, however" clause contained in the definition of "Change in Control" in Section 2), upon the occurrence of a Change in Control, the following provisions shall apply. (a) The amount of the Bonus payable to any Executive for the Fiscal Year in which a Change in Control occurs shall be at least equal to the Target Bonus Percentage of the Executive's Base Salary for such year or, in the case of any Executive whose Term of Employment commences after the start of such year or ends prior to the close of such year, a pro rata portion thereof determined on the basis of the number of days of such Fiscal Year that fall within the Executive's Term of Employment. 5 (b) Each Executive whose Term of Employment has not ended prior to the occurrence of a Change in Control shall be entitled to receive a Bonus for each Contract Year (as defined in the Executive's Employment Agreement) that falls in whole or in part within the Executive's Term of Employment and that ends after the Fiscal Year in which the Change in Control occurs. The amount of the Bonus payable to the Executive for each such Contract Year shall be at least equal to the Target Bonus Percentage of the Executive's Base Salary for such Contract Year or, in the case of any Executive whose Term of Employment ends after the start of such Contract Year but prior to the close of such year, a pro rata portion thereof determined on the basis of the number of days of such Contract Year that fall within the Executive's Term of Employment. (c) The entire amount of the Bonus payable to an Executive for any Fiscal Year or Contract Year pursuant to (a) or (b) above, reduced by the amount of all federal, state and local taxes required to be withheld therefrom, shall be paid to the Executive in a single cash lump sum as soon as practicable after the close of such Fiscal Year or Contract Year. 7. Rights of Executives An Executive's rights and interests under the Plan shall be subject to the following provisions: (a) An Executive's rights to payments under the Plan shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment, or garnishment by creditors of the Executive. (b) Neither the Plan nor any action taken hereunder shall be construed as giving any Executive any right to be retained in the employment of the Corporation or any of its subsidiaries. 8. Administration The Plan shall be administered by the Committee. A majority of the members of the Committee shall constitute a quorum. The Committee may act at a meeting, including a telephone meeting, by action of a majority of the members present, or without a meeting by unanimous written consent. In addition to the responsibilities and powers assigned to the Committee elsewhere in the Plan, the Committee shall have the authority, in its discretion, to establish from time to time guidelines or regulations for the administration of the Plan, interpret the Plan, and make all determinations considered necessary or advisable for the administration of the Plan. The Committee may delegate any ministerial or nondiscretionary function pertaining to the administration of the Plan to any one or more officers of the Corporation. All decisions, actions or interpretations of the Committee under the Plan shall be final, conclusive and binding upon all parties. Notwithstanding the foregoing, any determination made by the Committee after the occurrence of a Change in Control that denies in whole or in part any claim made by any individual for benefits under the Plan shall be subject to judicial review, under a "de novo", rather than a deferential standard. 6 9. Amendment or Termination The Board of Directors may, with prospective or retroactive effect, amend, suspend or terminate the Plan or any portion thereof at any time; provided, however, that (a) no amendment, suspension or termination of the Plan shall adversely affect the rights of any Executive with respect to any Bonus that has become payable to the Executive under the Plan, without his or her written consent, and (b) following a Change in Control, no amendment to Section 6, and no termination of the Plan, shall be effective if such amendment or termination adversely affects the rights of any Executive under the Plan. 10. Successor Corporation The obligations of the Corporation under the Plan shall be binding upon any successor corporation or organization resulting from the merger, consolidation or other reorganization of the Corporation, or upon any successor corporation or organization succeeding to substantially all of the assets and business of the Corporation. The Corporation agrees that it will make appropriate provision for the preservation of Executives' rights under the Plan in any agreement or plan which it may enter into or adopt to effect any such merger, consolidation, reorganization or transfer of assets. 11. Governing Law The Plan shall be governed by and construed in accordance with the laws of the State of New York. 12. Effective Date The Plan was adopted effective as of July 17, 2001 by the Board of Directors, acting by the Committee, subject, however, to approval by the shareholders of the Corporation by a majority of the votes cast in person or by proxy at the 2001 annual meeting of the Corporation's shareholders, including any adjournment thereof. [The Plan was approved by shareholders at the annual meeting on November 14, 2001.] 7 EX-10.7 10 b316968ex_10-7.txt EMPLOYMENT AGREEMENT -- PAUL KOHN [Group Vice President Single Bonus] EXHIBIT 10.7 EMPLOYMENT AGREEMENT dated November 15, 2001 between PALL CORPORATION, a New York corporation (the "Company"), and Paul Kohn ("Executive"). WHEREAS, the parties hereto are parties to an Employment Agreement dated August 5, 1996, amended August 1, 1998 (the "Existing Agreement"), and WHEREAS, in light of the approval by the shareholders of the Company on November 14, 2001 of the Pall Corporation Executive Incentive Bonus Plan, the parties desire to terminate the Existing Agreement and simultaneously replace it with this Agreement, effective August 1, 2001, NOW, THEREFORE, in consideration of the mutual agreements hereinafter set forth, the parties hereto agree as follows: ss.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 ss.2, for a term (hereinafter called the "Term of Employment") which began August 1, 2001 (the "Term Commencement Date") and ending, unless sooner terminated under ss.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. ss.2. Duties 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 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 a Group Vice President of the Company. The failure of any future Board of Directors to elect Executive to the office just named shall not, however, be deemed to relieve either party hereto of any of his or its obligations under this Agreement. If 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 the Company from any of its obligations under this Agreement except to the extent of payments actually made to Executive by a subsidiary. 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. ss.3. Compensation During Term of Employment (a) Base Salary. With respect to the period beginning on the Term Commencement Date and ending on July 31, 2002, the Company shall pay Executive a Base Salary (in addition to the compensation provided for elsewhere in this Agreement) at the rate of $250,016 per annum (hereinafter called the "Original Base Salary"). With respect to each Contract Year beginning with the Contract Year which starts August 1, 2002, the Company shall pay Executive a Base Salary at such rate as the Board of Directors may determine but not less than the Original Base Salary adjusted 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, 2002, the minimum compensation payable to Executive under this ss.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 2001. 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 N. J. - Long Island, NY-NJ-CT-PA". To illustrate the operation of the foregoing provisions of this ss.3(a): Executive's Base Salary for the Contract Year August 1, 2002 through July 31, 2003 shall be not less than the Original Base Salary adjusted by the percentage increase (or decrease) of the Consumer Price Index for June 2002 over (or below) said Index for June 2001. 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 2001 as the base except as provided in the immediately following paragraph hereof and (ii) applying the percentage increase (or decrease) in the Consumer Price Index since said base month to the Original Base Salary to determine the Minimum Base Salary. The Base Salary shall be paid in such periodic installments as the Company may determine but not less often than monthly. 2 If with respect to any Contract Year (including the Contract Year beginning August 1, 2002) 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 of Directors fixes a Base Salary for the Contract Year beginning August 1, 2002 which is higher than the Minimum Base Salary, then June 2002 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 August 3, 2002, Executive shall be eligible to receive a Bonus (in addition to his Base Salary) in accordance with the terms of the Pall Corporation Executive Incentive Bonus Plan adopted by the Compensation Committee of the Board of Directors of the Company on July 17, 2001 and approved by shareholders at the annual meeting of shareholders on November 14, 2001, a copy of which is annexed hereto and incorporated herein by reference (the "Bonus Plan"). Words and terms used herein with initial capital letters and not defined herein are used herein as defined in the Bonus Plan. For purposes of determining the amount of the Bonus payable to Executive for any Fiscal Year under the Bonus Plan (the "Plan Bonus"), Executive's Target Bonus Percentage shall be 70% of his Base Salary for such Fiscal Year. 3 (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), at such time and on such terms and conditions as each such plan provides. (d) Vacations. Executive shall be entitled each year to a vacation or vacations in accordance with the policies of the Company as determined by the Board or by an authorized senior officer of the Company from time to time. The Company shall not pay Executive any additional compensation for any vacation time not used by Executive. ss.4. Termination by Reason of Disability, Death, Retirement or Change in 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 any Plan Bonus or pro rata portion thereof that Executive is entitled to receive in accordance with the terms of the Bonus Plan and (ii) for each month in 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 of an amount equal to 1/12th of 85% of the annual rate of Base Salary in effect for Executive immediately prior to the date on which Executive's death or termination for disability occurs (such 85% being comprised of one-half of such Base Salary and one-half of Executive's Target Bonus Percentage set forth in ss.3 (b) hereof). 4 (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 the latter 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 ss.4(b) 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, (i) Executive's Base Salary prorated to the date on which the Term of Employment ends and (ii) any Plan Bonus or pro rata portion thereof that Executive is entitled to receive in accordance with the terms of the Bonus Plan. (iii) Anything hereinabove to the contrary notwithstanding, if any provision of this ss.4(b) 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 in Control. In the event of a Change in Control (as defined in the Bonus Plan), Executive shall have the right to terminate the Term of Employment, by notice to the Company given at any time after such Change in 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. ss.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 ss.1 or ss.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 ss.1 or ss.4 hereof or terminates under ss.4 by reason of Executive's 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 ss.1 following a Change in Control (as defined in the Bonus Plan), the foregoing covenant not to compete shall not apply. 5 ss.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. ss.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. ss.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 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. 6 ss.9. Mergers and Consolidations; Assignability In the event that the Company, or any entity resulting from any merger or consolidation referred to in this ss.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 ss.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. ss.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. ss.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. ss.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 any waiver, change, modification, extension or discharge is sought. 7 ss.13. Notices All notices given hereunder shall be in writing and shall be sent by registered or certified mail or overnight delivery service such as Federal Express or delivered by hand, and, if intended for the Company, shall be addressed to it (if sent by mail or overnight delivery service) 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 or overnight delivery service) 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 on which it is mailed or on which it is received by the overnight delivery service or, if delivered personally, on the date so delivered. ss.14. Termination of Existing Agreement. The Existing Agreement is hereby terminated and replaced and superseded by this Agreement, effective August 1, 2001. All payments, of Base Salary or otherwise, made by the Company under the Existing Agreement with respect to any period commencing on or after August 1, 2001 shall be credited against the corresponding payment obligations of the Company under this Agreement. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. PALL CORPORATION By: /s/ Jeremy Hayward-Surry ------------------------ Jeremy Hayward-Surry President EXECUTIVE /s/ Paul Kohn ------------- Paul Kohn 8 PALL CORPORATION EXECUTIVE INCENTIVE BONUS PLAN ----- 1. Purpose This document sets forth the Pall Corporation Executive Incentive Bonus Plan as adopted effective July 17, 2001. The purpose of the Plan is to encourage greater focus on performance among the key executives of the Corporation by relating a significant portion of their total compensation to the achievement of annual financial objectives. 2. Certain Definitions As used herein with initial capital letters, the following terms shall have the following meanings: "Average Equity" shall mean, for any Fiscal Year, the average of stockholders' equity as shown on the fiscal year-end consolidated balance sheet of the Corporation and its subsidiaries as of the end of such Fiscal Year and as of the end of the immediately preceding Fiscal Year except that the amounts shown on said balance sheets as "Accumulated other comprehensive" income or loss, as the case may be, shall be disregarded. "Base Salary" shall mean, with respect to any Executive and for any Fiscal Year, the annual rate of base salary in effect for the Executive as of the first day of such year or, if later, as of the first day of the Executive's Term of Employment, as determined under the Executive's Employment Agreement. "Board of Directors" shall mean the Board of Directors of the Corporation. "Bonus" shall mean the bonus payable to an Executive under this Plan for any Fiscal Year. "CEO" shall mean the Chief Executive Officer of the Corporation. "Change in Control" means the occurrence of any of the following: (a) the "Distribution Date" as defined in Section 3 of the Rights Agreement dated as of November 17, 1989 between the Corporation and United States Trust Company of New York as Rights Agent, as amended by Amendment No. 1 thereto dated April 20, 1999, and as the same may have been further amended or extended to the time in question or in any successor agreement (the "Rights Agreement"); or (b) any event described in Section 11(a)(ii)(B) of the Rights Agreement; or (c) any event described in Section 13 of the Rights Agreement; or (d) the date on which the number of duly elected and qualified directors of the Corporation who were not either elected by the Board of Directors or nominated by the Board of Directors or its Nominating Committee for election by the shareholders shall equal or exceed one-third of the total number of directors of the Corporation as fixed by its by-laws; provided, however, that no Change in Control shall be deemed to have occurred, and no rights arising upon a Change in Control as provided in Section 6 shall exist, to the extent that the Board of Directors so determines by resolution adopted prior to the Change in Control. "Code" shall mean the Internal Revenue Code of 1986, as amended. "Committee" shall mean the Compensation Committee of the Board of Directors. "Corporation" shall mean Pall Corporation. "Covered Executive" shall mean, with respect to any Fiscal Year, each individual who is a "Covered Employee" of the Corporation for such year for the purpose of section 162(m) of the Code. "Employment Agreement" shall mean, with respect to any executive employee of the Corporation, an employment agreement between the Corporation and such employee which provides that the employee shall be eligible to receive annual bonuses under this Plan. "Executive" shall mean an executive employee of the Corporation with whom the Corporation has entered into an Employment Agreement. "Fiscal Year" shall mean the fiscal year of the Corporation ending on August 3, 2002, and each subsequent fiscal year of the Corporation. "Maximum R.O.E. Target" shall mean, for any Fiscal Year, the Return on Equity that must be achieved or exceeded in order for the Performance Percentage for the year to equal 100%, as determined by the Committee prior to the first day of such year or within such period of time thereafter as may be permitted under the regulations issued under section 162(m) of the Code. "Minimum R.O.E. Target" shall mean, for any Fiscal Year, the Return on Equity that must be exceeded in order for any Bonus to be paid to any Executive for the year, as determined by the Committee prior to the first day of such year or within such period of time thereafter as may be permitted under the regulations issued under section 162(m) of the Code. "Net Earnings" shall mean, for any Fiscal Year, the after-tax consolidated net earnings of the Corporation and its subsidiaries as certified by the Corporation's independent accountants for inclusion in the annual report to shareholders ("Annual Report"), adjusted so as to eliminate the effects of any decreases in or charges to earnings for (a) the effect of foreign currency exchange rates, (b) any acquisitions, divestitures, discontinuance of business operations, restructuring or any other special charges, (c) the cumulative effect of any accounting changes, and (d) any "extraordinary items" as determined under generally accepted accounting principles, to the extent such decreases or charges referred to in clauses (a) through (d) are separately disclosed in the Corporation's Annual Report for the year. 2 "Plan" shall mean the Pall Corporation Executive Incentive Bonus Plan, as set forth herein and as amended from time to time. "Return on Equity" shall mean, for any Fiscal Year, the percentage determined by dividing the Net Earnings for the year by the Average Equity for the year. "Target Bonus Percentage" shall mean, with respect to any Executive, the target bonus percentage specified for such Executive in his or her Employment Agreement. 3. Determination of Bonus Amounts For each Fiscal Year falling in whole or in part within an Executive's Term of Employment, as defined in his or her Employment Agreement, the Executive shall be entitled to receive a Bonus in an amount determined in accordance with the provisions of this Section 3, subject, however, to the provisions of Section 4. (a) The amount of the Bonus payable to an Executive for each such Fiscal Year shall be equal to (i) the Target Bonus Percentage of the Executive's Base Salary for such year, multiplied by (ii) the Performance Percentage for such year, as determined under (b) below. (b) The Performance Percentage for any Fiscal Year shall be determined in accordance with he following provisions: (i) If the Return on Equity equals or exceeds the Maximum R.O.E. Target for the year, the Performance Percentage for the year shall be 100%. (ii) If the Return on Equity is less than the Maximum R.O.E. Target for the year but exceeds the Minimum R.O.E. Target for the year, the Performance Percentage for the year shall be equal to the quotient resulting from dividing (A) the excess of the Return on Equity for the year over the Minimum R.O.E. Target for the year, by (B) the excess of the Maximum R.O.E. Target for the year over the Minimum R.O.E. Target for the year. (iii) If the Return on Equity equals or is less than the Minimum R.O.E. Target for the year, the Performance Percentage for the year shall be zero, and no Bonus shall be payable under the Plan for such year to any Executive. 3 (c) If an Executive's Term of Employment commences after the start of a Fiscal Year, or ends prior to the close of a Fiscal Year, the amount of the Bonus payable to the Executive for the Fiscal Year in which the Executive's Term of Employment commences, or for the Fiscal Year in which the Executive's Term of Employment ends, as determined in accordance with the other applicable provisions of the Plan, shall be prorated on the basis of the number of days of such Fiscal Year that fall within the Executive's Term of Employment; provided, however, that (i) if an Executive's Term of Employment ends within 5 days prior to the close of a Fiscal Year, there shall be no proration and the Executive shall be entitled to receive the entire amount of the Bonus payable to the Executive for such year, as determined in accordance with such other provisions, and (ii) if the Executive's Term of Employment ends within 5 days following the start of a Fiscal Year, the Executive shall not be entitled to receive any Bonus with respect to such Fiscal Year. 4. Adjustment of and Limitation on Bonus Amounts The amount of the Bonus otherwise payable to an Executive for any Fiscal Year in accordance with Section 3 shall be subject to the following adjustments and limitation: (a) The Committee may, in its discretion, reduce the amount of the Bonus otherwise payable to any Executive in accordance with Section 3, (i) to reflect any decreases in or charges to earnings that were not taken into account in determining Net Earnings for the year pursuant to clause (a), (b), (c) or (d) contained in the definition of such term in Section 2, (ii) to reflect any credits to earnings for extraordinary items of income or gain that were taken into account in determining Net Earnings for the year, (iii) to reflect the Committee's evaluation of the Executive's individual performance, or (iv) to reflect any other events, circumstances or factors which the Committee believes to be appropriate in determining the amount of the Bonus to be paid to the Executive for the year. (b) The Committee may, in its discretion, increase the amount of the Bonus otherwise payable to any Executive who is not a Covered Executive, as determined under Section 3, to reflect the Committee's evaluation of the Executive's individual performance, or to reflect such other circumstances or factors as the Committee believes to be appropriate in determining the amount of the Bonus to be paid to the Executive for the year. The Committee shall not have any discretion to increase the amount of the Bonus payable to any Covered Executive for the year, as determined under Section 3. (c) Notwithstanding any other provision herein to the contrary, the amount of the Bonus otherwise payable to any Executive for any Fiscal Year shall not exceed the lesser of (i) $1.0 million and (ii) 100% of the Executive's Base Salary for the year. 5. Payment of Bonuses The Bonus payable to an Executive for any Fiscal Year shall be paid in accordance with the following provisions: (a) Except as otherwise provided in (b) or (c) below, (i) if the Executive is not a Covered Executive for such year, 50% of the estimated amount of the Executive's Bonus shall be paid to the Executive at such date in August next following the close of such year as the Committee in its discretion shall determine, and the remaining amount of the Executive's Bonus shall be paid to the Executive by no later than January 15 next following the close of such year; 4 (ii) if the Executive is a Covered Executive for such year, 50% of the amount of the Executive's Bonus shall be paid to the Executive as soon as practicable after the Committee has certified in writing that all conditions for the payment of such Bonus to the Executive for such year have been satisfied, and the remaining amount of the Executive's Bonus shall be paid to the Executive by no later than January 15 next following the close of such year; (iii) each amount payable to an Executive under (i) and (ii) above, reduced by the amount of all federal, state and local taxes required by law to be withheld therefrom, shall be paid to the Executive in the form of a single lump sum cash payment. (b) To the extent that an Executive has elected under the applicable provisions of the Pall Corporation Management Stock Purchase Plan (the "MSPP") to have any part of the Bonus payable to the Executive for any Fiscal Year paid in the form of Restricted Units to be credited to the Executive's account under the MSPP, no cash payments shall be made to the Executive pursuant to (a) above with respect to the part of the Executive Bonus that is subject to such election; and the obligation of the Corporation under this Plan with respect to payment of such part of the Executive's Bonus shall be fully discharged upon the crediting of Restricted Units to the Executive's account under the MSPP in accordance with the applicable provisions of such Plan. (c) To the extent that an Executive has elected under the applicable provisions of the Pall Corporation Profit-Sharing Plan (the "Profit-Sharing Plan") to have any part of the Bonus payable to the Executive for any Fiscal Year reduced, and to have an amount equal to such part of the Executive's Bonus contributed to the Profit-Sharing Plan as a 401(k) Contribution on the Executive's behalf, an amount equal to such part of the Executive's Bonus shall be contributed to the Profit-Sharing Plan on behalf of the Executive; and thereupon, the obligation of the Corporation under this Plan with respect to payment of such part of the Executive's Bonus shall be fully discharged. However, no such contribution shall be made to the extent it would cause any limitation applicable under the 401(k) Plan to be exceeded. 6. Change in Control Notwithstanding any other provision in the Plan to the contrary (but subject to the "provided, however" clause contained in the definition of "Change in Control" in Section 2), upon the occurrence of a Change in Control, the following provisions shall apply. (a) The amount of the Bonus payable to any Executive for the Fiscal Year in which a Change in Control occurs shall be at least equal to the Target Bonus Percentage of the Executive's Base Salary for such year or, in the case of any Executive whose Term of Employment commences after the start of such year or ends prior to the close of such year, a pro rata portion thereof determined on the basis of the number of days of such Fiscal Year that fall within the Executive's Term of Employment. 5 (b) Each Executive whose Term of Employment has not ended prior to the occurrence of a Change in Control shall be entitled to receive a Bonus for each Contract Year (as defined in the Executive's Employment Agreement) that falls in whole or in part within the Executive's Term of Employment and that ends after the Fiscal Year in which the Change in Control occurs. The amount of the Bonus payable to the Executive for each such Contract Year shall be at least equal to the Target Bonus Percentage of the Executive's Base Salary for such Contract Year or, in the case of any Executive whose Term of Employment ends after the start of such Contract Year but prior to the close of such year, a pro rata portion thereof determined on the basis of the number of days of such Contract Year that fall within the Executive's Term of Employment. (c) The entire amount of the Bonus payable to an Executive for any Fiscal Year or Contract Year pursuant to (a) or (b) above, reduced by the amount of all federal, state and local taxes required to be withheld therefrom, shall be paid to the Executive in a single cash lump sum as soon as practicable after the close of such Fiscal Year or Contract Year. 7. Rights of Executives An Executive's rights and interests under the Plan shall be subject to the following provisions: (a) An Executive's rights to payments under the Plan shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment, or garnishment by creditors of the Executive. (b) Neither the Plan nor any action taken hereunder shall be construed as giving any Executive any right to be retained in the employment of the Corporation or any of its subsidiaries. 8. Administration The Plan shall be administered by the Committee. A majority of the members of the Committee shall constitute a quorum. The Committee may act at a meeting, including a telephone meeting, by action of a majority of the members present, or without a meeting by unanimous written consent. In addition to the responsibilities and powers assigned to the Committee elsewhere in the Plan, the Committee shall have the authority, in its discretion, to establish from time to time guidelines or regulations for the administration of the Plan, interpret the Plan, and make all determinations considered necessary or advisable for the administration of the Plan. The Committee may delegate any ministerial or nondiscretionary function pertaining to the administration of the Plan to any one or more officers of the Corporation. All decisions, actions or interpretations of the Committee under the Plan shall be final, conclusive and binding upon all parties. Notwithstanding the foregoing, any determination made by the Committee after the occurrence of a Change in Control that denies in whole or in part any claim made by any individual for benefits under the Plan shall be subject to judicial review, under a "de novo", rather than a deferential standard. 6 9. Amendment or Termination The Board of Directors may, with prospective or retroactive effect, amend, suspend or terminate the Plan or any portion thereof at any time; provided, however, that (a) no amendment, suspension or termination of the Plan shall adversely affect the rights of any Executive with respect to any Bonus that has become payable to the Executive under the Plan, without his or her written consent, and (b) following a Change in Control, no amendment to Section 6, and no termination of the Plan, shall be effective if such amendment or termination adversely affects the rights of any Executive under the Plan. 10. Successor Corporation The obligations of the Corporation under the Plan shall be binding upon any successor corporation or organization resulting from the merger, consolidation or other reorganization of the Corporation, or upon any successor corporation or organization succeeding to substantially all of the assets and business of the Corporation. The Corporation agrees that it will make appropriate provision for the preservation of Executives' rights under the Plan in any agreement or plan which it may enter into or adopt to effect any such merger, consolidation, reorganization or transfer of assets. 11. Governing Law The Plan shall be governed by and construed in accordance with the laws of the State of New York. 12. Effective Date The Plan was adopted effective as of July 17, 2001 by the Board of Directors, acting by the Committee, subject, however, to approval by the shareholders of the Corporation by a majority of the votes cast in person or by proxy at the 2001 annual meeting of the Corporation's shareholders, including any adjournment thereof. [The Plan was approved by shareholders at the annual meeting on November 14, 2001.] 7 EX-10.8 11 b316968ex_10-8.txt EMPLOYMENT AGREEMENT -- SAMEUL T. WORTHAM EXHIBIT 10.8 [Group Vice President Split Bonus] EMPLOYMENT AGREEMENT dated November 15, 2001 between PALL CORPORATION, a New York corporation (the "Company") and Samuel T. Wortham ("Executive"). WHEREAS, the parties hereto are parties to an employment agreement dated February 1, 1992 as amended July 19, 1993, August 1, 1995 and August 1, 1998 (the "Existing Agreement"), and WHEREAS, in light of the approval by the shareholders of the Company on November 14, 2001 of the Pall Corporation Executive Incentive Bonus Plan, the parties desire to terminate the Existing Agreement and simultaneously replace it with this Agreement, effective August 1, 2001, 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 ss.2, for a term (hereinafter called the "Term of Employment") which began August 1, 2001 (the "Term Commencement Date") and ending, unless sooner terminated under ss.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 (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 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. 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 a Group Vice President. The failure of any future Board of Directors to elect Executive to the office just named shall not, however, be deemed to relieve either party hereto of any of his or its obligations under this Agreement. (b) If 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 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 on July 31, 2002, the Company shall pay Executive a Base Salary (in addition to the compensation provided for elsewhere in this Agreement) at the rate of $281,340 per annum (hereinafter called the "Original Base Salary"). With respect to each Contract Year beginning with the Contract Year which starts August 1, 2002, the Company shall pay Executive a Base Salary at such rate as the Board of Directors may determine but not less than the Original Base Salary adjusted 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, 2002, the minimum compensation payable to Executive under this ss.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 2001. 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 N. J. - Long Island, NY-NJ-CT-PA". To illustrate the operation of the foregoing provisions of this ss.3(a): Executive's Base Salary for the Contract Year August 1, 2002 through July 31, 2003 shall be not less than the Original Base Salary adjusted by the percentage increase (or decrease) of the Consumer Price Index for June 2002 over (or below) said Index for June 2001. 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 2001 as the base except as provided in the immediately following paragraph hereof and (ii) applying the percentage increase (or decrease) in the Consumer Price Index since said base month to the Original Base Salary to determine the Minimum Base Salary. The Base Salary shall be paid in such periodic installments as the Company may determine but not less often than monthly. 2 If with respect to any Contract Year (including the Contract Year beginning August 1, 2002) the Board of Directors fixes the Base Salary at an amount higher than the Minimum Base Salary, then (unless the order fixing such higher Base Salary provides otherwise), for the purpose of determining the Minimum Base Salary for subsequent Contract Years: (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 of Directors fixes a Base Salary for the Contract Year beginning August 1, 2002 which is higher than the Minimum Base Salary, then June 2002 would become the base month for the purposes of making the CPI adjustment to determine the Minimum Base Salary for subsequent Contract Years). (b) Bonus Compensation. (i) Plan Bonus. 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 August 3, 2002, Executive shall be eligible to receive a Bonus (in addition to his Base Salary) in accordance with the terms of the Pall Corporation Executive Incentive Bonus Plan adopted by the Compensation Committee of the Board of Directors of the Company on July 17, 2001 and approved by shareholders at the annual meeting of shareholders on November 14, 2001, a copy of which is annexed hereto and incorporated herein by reference (the "Bonus Plan"). Words and terms used herein with initial capital letters and not defined herein are used herein as defined in the Bonus Plan. For purposes of determining the amount of the Bonus payable to Executive for any Fiscal Year under the Bonus Plan (the "Plan Bonus"), Executive's Target Bonus Percentage shall be 28% of his Base Salary for such Fiscal Year. 3 (ii) Business Segment Bonus. Inasmuch as Executive's services for the Company relate primarily to the operations of a subsidiary, a division or other segment of the overall operations of the Company and its subsidiaries (a "Business Segment"), Executive shall be considered for additional bonus compensation for each Fiscal Year based on the results of operations of such Business Segment for such Fiscal Year. The amount of such additional bonus compensation, if any, shall be determined by the Chief Executive Officer in his sole discretion but in no event shall such additional bonus compensation exceed 42% of Executive's Base Salary. (iii) Payment of Bonus Compensation. Executive's Bonus Compensation (which term as used herein includes both the Plan Bonus and the Business Segment Bonus, if any) shall be paid in accordance with ss.5 of the Bonus Plan. With respect to any Fiscal Year which falls in part but not in whole within the Term of Employment, the pro rata portion of the Bonus Compensation to which Executive is entitled under this ss.3(b) shall be determined in accordance with ss.3(c) of the Bonus Plan. (c) Fringe Benefits and Perquisites. During the Term of Employment, Executive shall enjoy the 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. 4 (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 in 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 each month in 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 of an amount equal to 1/12th of 64% of the annual rate of Base Salary in effect for Executive immediately prior to the date on which Executive's death or termination for disability occurs (such 64% being comprised of one-half of such Base Salary and one-half of Executive's Target Bonus Percentage set forth in ss.3 (b) hereof). 5 (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 the latter 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 ss.4(b) 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 ss.4(b) 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 in Control. In event of a Change in Control (as defined in the Bonus Plan), Executive shall have the right to terminate the Term of Employment, by notice to the Company given at any time after such Change in 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. 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 ss.1 or ss.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 ss.1 or ss.4 hereof or terminates under ss.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 ss.1 following a Change in Control (as defined in the Bonus Plan), the foregoing covenant not to compete shall not apply. 6 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, 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 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. 7 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 ss.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 ss.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 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. 8 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 Existing Agreement The Existing Agreement is hereby terminated and replaced and superseded by this Agreement, effective August 1, 2001. All payments, of Base Salary or otherwise, made by the Company under the Existing Agreement with respect to any period commencing on or after August 1, 2001 shall be credited against the corresponding payment obligations of the Company under this Agreement. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. PALL CORPORATION By: /s/ Jeremy Hayward-Surry ---------------------------------- Jeremy Hayward-Surry President EXECUTIVE /s/ Samuel T. Wortham --------------------------- Samuel T. Wortham 9 PALL CORPORATION EXECUTIVE INCENTIVE BONUS PLAN ----- 1. Purpose This document sets forth the Pall Corporation Executive Incentive Bonus Plan as adopted effective July 17, 2001. The purpose of the Plan is to encourage greater focus on performance among the key executives of the Corporation by relating a significant portion of their total compensation to the achievement of annual financial objectives. 2. Certain Definitions As used herein with initial capital letters, the following terms shall have the following meanings: "Average Equity" shall mean, for any Fiscal Year, the average of stockholders' equity as shown on the fiscal year-end consolidated balance sheet of the Corporation and its subsidiaries as of the end of such Fiscal Year and as of the end of the immediately preceding Fiscal Year except that the amounts shown on said balance sheets as "Accumulated other comprehensive" income or loss, as the case may be, shall be disregarded. "Base Salary" shall mean, with respect to any Executive and for any Fiscal Year, the annual rate of base salary in effect for the Executive as of the first day of such year or, if later, as of the first day of the Executive's Term of Employment, as determined under the Executive's Employment Agreement. "Board of Directors" shall mean the Board of Directors of the Corporation. "Bonus" shall mean the bonus payable to an Executive under this Plan for any Fiscal Year. "CEO" shall mean the Chief Executive Officer of the Corporation. "Change in Control" means the occurrence of any of the following: (a) the "Distribution Date" as defined in Section 3 of the Rights Agreement dated as of November 17, 1989 between the Corporation and United States Trust Company of New York as Rights Agent, as amended by Amendment No. 1 thereto dated April 20, 1999, and as the same may have been further amended or extended to the time in question or in any successor agreement (the "Rights Agreement"); or 10 (b) any event described in Section 11(a)(ii)(B) of the Rights Agreement; or (c) any event described in Section 13 of the Rights Agreement; or (d) the date on which the number of duly elected and qualified directors of the Corporation who were not either elected by the Board of Directors or nominated by the Board of Directors or its Nominating Committee for election by the shareholders shall equal or exceed one-third of the total number of directors of the Corporation as fixed by its by-laws; provided, however, that no Change in Control shall be deemed to have occurred, and no rights arising upon a Change in Control as provided in Section 6 shall exist, to the extent that the Board of Directors so determines by resolution adopted prior to the Change in Control. "Code" shall mean the Internal Revenue Code of 1986, as amended. "Committee" shall mean the Compensation Committee of the Board of Directors. "Corporation" shall mean Pall Corporation. "Covered Executive" shall mean, with respect to any Fiscal Year, each individual who is a "Covered Employee" of the Corporation for such year for the purpose of section 162(m) of the Code. "Employment Agreement" shall mean, with respect to any executive employee of the Corporation, an employment agreement between the Corporation and such employee which provides that the employee shall be eligible to receive annual bonuses under this Plan. "Executive" shall mean an executive employee of the Corporation with whom the Corporation has entered into an Employment Agreement. "Fiscal Year" shall mean the fiscal year of the Corporation ending on August 3, 2002, and each subsequent fiscal year of the Corporation. "Maximum R.O.E. Target" shall mean, for any Fiscal Year, the Return on Equity that must be achieved or exceeded in order for the Performance Percentage for the year to equal 100%, as determined by the Committee prior to the first day of such year or within such period of time thereafter as may be permitted under the regulations issued under section 162(m) of the Code. "Minimum R.O.E. Target" shall mean, for any Fiscal Year, the Return on Equity that must be exceeded in order for any Bonus to be paid to any Executive for the year, as determined by the Committee prior to the first day of such year or within such period of time thereafter as may be permitted under the regulations issued under section 162(m) of the Code. "Net Earnings" shall mean, for any Fiscal Year, the after-tax consolidated net earnings of the Corporation and its subsidiaries as certified by the Corporation's independent accountants for inclusion in the annual report to shareholders ("Annual Report"), adjusted so as to eliminate the effects of any decreases in or charges to earnings for (a) the effect of foreign currency exchange rates, (b) any acquisitions, divestitures, discontinuance of business operations, restructuring or any other special charges, (c) the cumulative effect of any accounting changes, and (d) any "extraordinary items" as determined under generally accepted accounting principles, to the extent such decreases or charges referred to in clauses (a) through (d) are separately disclosed in the Corporation's Annual Report for the year. 11 "Plan" shall mean the Pall Corporation Executive Incentive Bonus Plan, as set forth herein and as amended from time to time. "Return on Equity" shall mean, for any Fiscal Year, the percentage determined by dividing the Net Earnings for the year by the Average Equity for the year. "Target Bonus Percentage" shall mean, with respect to any Executive, the target bonus percentage specified for such Executive in his or her Employment Agreement. 3. Determination of Bonus Amounts For each Fiscal Year falling in whole or in part within an Executive's Term of Employment, as defined in his or her Employment Agreement, the Executive shall be entitled to receive a Bonus in an amount determined in accordance with the provisions of this Section 3, subject, however, to the provisions of Section 4. (a) The amount of the Bonus payable to an Executive for each such Fiscal Year shall be equal to (i) the Target Bonus Percentage of the Executive's Base Salary for such year, multiplied by (ii) the Performance Percentage for such year, as determined under (b) below. (b) The Performance Percentage for any Fiscal Year shall be determined in accordance with he following provisions: (i) If the Return on Equity equals or exceeds the Maximum R.O.E. Target for the year, the Performance Percentage for the year shall be 100%. (ii) If the Return on Equity is less than the Maximum R.O.E. Target for the year but exceeds the Minimum R.O.E. Target for the year, the Performance Percentage for the year shall be equal to the quotient resulting from dividing (A) the excess of the Return on Equity for the year over the Minimum R.O.E. Target for the year, by (B) the excess of the Maximum R.O.E. Target for the year over the Minimum R.O.E. Target for the year. (iii) If the Return on Equity equals or is less than the Minimum R.O.E. Target for the year, the Performance Percentage for the year shall be zero, and no Bonus shall be payable under the Plan for such year to any Executive. 12 (c) If an Executive's Term of Employment commences after the start of a Fiscal Year, or ends prior to the close of a Fiscal Year, the amount of the Bonus payable to the Executive for the Fiscal Year in which the Executive's Term of Employment commences, or for the Fiscal Year in which the Executive's Term of Employment ends, as determined in accordance with the other applicable provisions of the Plan, shall be prorated on the basis of the number of days of such Fiscal Year that fall within the Executive's Term of Employment; provided, however, that (i) if an Executive's Term of Employment ends within 5 days prior to the close of a Fiscal Year, there shall be no proration and the Executive shall be entitled to receive the entire amount of the Bonus payable to the Executive for such year, as determined in accordance with such other provisions, and (ii) if the Executive's Term of Employment ends within 5 days following the start of a Fiscal Year, the Executive shall not be entitled to receive any Bonus with respect to such Fiscal Year. 4. Adjustment of and Limitation on Bonus Amounts The amount of the Bonus otherwise payable to an Executive for any Fiscal Year in accordance with Section 3 shall be subject to the following adjustments and limitation: (a) The Committee may, in its discretion, reduce the amount of the Bonus otherwise payable to any Executive in accordance with Section 3, (i) to reflect any decreases in or charges to earnings that were not taken into account in determining Net Earnings for the year pursuant to clause (a), (b), (c) or (d) contained in the definition of such term in Section 2, (ii) to reflect any credits to earnings for extraordinary items of income or gain that were taken into account in determining Net Earnings for the year, (iii) to reflect the Committee's evaluation of the Executive's individual performance, or (iv) to reflect any other events, circumstances or factors which the Committee believes to be appropriate in determining the amount of the Bonus to be paid to the Executive for the year. (b) The Committee may, in its discretion, increase the amount of the Bonus otherwise payable to any Executive who is not a Covered Executive, as determined under Section 3, to reflect the Committee's evaluation of the Executive's individual performance, or to reflect such other circumstances or factors as the Committee believes to be appropriate in determining the amount of the Bonus to be paid to the Executive for the year. The Committee shall not have any discretion to increase the amount of the Bonus payable to any Covered Executive for the year, as determined under Section 3. (c) Notwithstanding any other provision herein to the contrary, the amount of the Bonus otherwise payable to any Executive for any Fiscal Year shall not exceed the lesser of (i) $1.0 million and (ii) 100% of the Executive's Base Salary for the year. 5. Payment of Bonuses The Bonus payable to an Executive for any Fiscal Year shall be paid in accordance with the following provisions: (a) Except as otherwise provided in (b) or (c) below, (i) if the Executive is not a Covered Executive for such year, 50% of the estimated amount of the Executive's Bonus shall be paid to the Executive at such date in August next following the close of such year as the Committee in its discretion shall determine, and the remaining amount of the Executive's Bonus shall be paid to the Executive by no later than January 15 next following the close of such year; 13 (ii) if the Executive is a Covered Executive for such year, 50% of the amount of the Executive's Bonus shall be paid to the Executive as soon as practicable after the Committee has certified in writing that all conditions for the payment of such Bonus to the Executive for such year have been satisfied, and the remaining amount of the Executive's Bonus shall be paid to the Executive by no later than January 15 next following the close of such year; (iii) each amount payable to an Executive under (i) and (ii) above, reduced by the amount of all federal, state and local taxes required by law to be withheld therefrom, shall be paid to the Executive in the form of a single lump sum cash payment. (b) To the extent that an Executive has elected under the applicable provisions of the Pall Corporation Management Stock Purchase Plan (the "MSPP") to have any part of the Bonus payable to the Executive for any Fiscal Year paid in the form of Restricted Units to be credited to the Executive's account under the MSPP, no cash payments shall be made to the Executive pursuant to (a) above with respect to the part of the Executive Bonus that is subject to such election; and the obligation of the Corporation under this Plan with respect to payment of such part of the Executive's Bonus shall be fully discharged upon the crediting of Restricted Units to the Executive's account under the MSPP in accordance with the applicable provisions of such Plan. (c) To the extent that an Executive has elected under the applicable provisions of the Pall Corporation Profit-Sharing Plan (the "Profit-Sharing Plan") to have any part of the Bonus payable to the Executive for any Fiscal Year reduced, and to have an amount equal to such part of the Executive's Bonus contributed to the Profit-Sharing Plan as a 401(k) Contribution on the Executive's behalf, an amount equal to such part of the Executive's Bonus shall be contributed to the Profit-Sharing Plan on behalf of the Executive; and thereupon, the obligation of the Corporation under this Plan with respect to payment of such part of the Executive's Bonus shall be fully discharged. However, no such contribution shall be made to the extent it would cause any limitation applicable under the 401(k) Plan to be exceeded. 6. Change in Control Notwithstanding any other provision in the Plan to the contrary (but subject to the "provided, however" clause contained in the definition of "Change in Control" in Section 2), upon the occurrence of a Change in Control, the following provisions shall apply. (a) The amount of the Bonus payable to any Executive for the Fiscal Year in which a Change in Control occurs shall be at least equal to the Target Bonus Percentage of the Executive's Base Salary for such year or, in the case of any Executive whose Term of Employment commences after the start of such year or ends prior to the close of such year, a pro rata portion thereof determined on the basis of the number of days of such Fiscal Year that fall within the Executive's Term of Employment. 14 (b) Each Executive whose Term of Employment has not ended prior to the occurrence of a Change in Control shall be entitled to receive a Bonus for each Contract Year (as defined in the Executive's Employment Agreement) that falls in whole or in part within the Executive's Term of Employment and that ends after the Fiscal Year in which the Change in Control occurs. The amount of the Bonus payable to the Executive for each such Contract Year shall be at least equal to the Target Bonus Percentage of the Executive's Base Salary for such Contract Year or, in the case of any Executive whose Term of Employment ends after the start of such Contract Year but prior to the close of such year, a pro rata portion thereof determined on the basis of the number of days of such Contract Year that fall within the Executive's Term of Employment. (c) The entire amount of the Bonus payable to an Executive for any Fiscal Year or Contract Year pursuant to (a) or (b) above, reduced by the amount of all federal, state and local taxes required to be withheld therefrom, shall be paid to the Executive in a single cash lump sum as soon as practicable after the close of such Fiscal Year or Contract Year. 7. Rights of Executives An Executive's rights and interests under the Plan shall be subject to the following provisions: (a) An Executive's rights to payments under the Plan shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment, or garnishment by creditors of the Executive. (b) Neither the Plan nor any action taken hereunder shall be construed as giving any Executive any right to be retained in the employment of the Corporation or any of its subsidiaries. 8. Administration The Plan shall be administered by the Committee. A majority of the members of the Committee shall constitute a quorum. The Committee may act at a meeting, including a telephone meeting, by action of a majority of the members present, or without a meeting by unanimous written consent. In addition to the responsibilities and powers assigned to the Committee elsewhere in the Plan, the Committee shall have the authority, in its discretion, to establish from time to time guidelines or regulations for the administration of the Plan, interpret the Plan, and make all determinations considered necessary or advisable for the administration of the Plan. The Committee may delegate any ministerial or nondiscretionary function pertaining to the administration of the Plan to any one or more officers of the Corporation. All decisions, actions or interpretations of the Committee under the Plan shall be final, conclusive and binding upon all parties. Notwithstanding the foregoing, any determination made by the Committee after the occurrence of a Change in Control that denies in whole or in part any claim made by any individual for benefits under the Plan shall be subject to judicial review, under a "de novo", rather than a deferential standard. 15 9. Amendment or Termination The Board of Directors may, with prospective or retroactive effect, amend, suspend or terminate the Plan or any portion thereof at any time; provided, however, that (a) no amendment, suspension or termination of the Plan shall adversely affect the rights of any Executive with respect to any Bonus that has become payable to the Executive under the Plan, without his or her written consent, and (b) following a Change in Control, no amendment to Section 6, and no termination of the Plan, shall be effective if such amendment or termination adversely affects the rights of any Executive under the Plan. 10. Successor Corporation The obligations of the Corporation under the Plan shall be binding upon any successor corporation or organization resulting from the merger, consolidation or other reorganization of the Corporation, or upon any successor corporation or organization succeeding to substantially all of the assets and business of the Corporation. The Corporation agrees that it will make appropriate provision for the preservation of Executives' rights under the Plan in any agreement or plan which it may enter into or adopt to effect any such merger, consolidation, reorganization or transfer of assets. 11. Governing Law The Plan shall be governed by and construed in accordance with the laws of the State of New York. 12. Effective Date The Plan was adopted effective as of July 17, 2001 by the Board of Directors, acting by the Committee, subject, however, to approval by the shareholders of the Corporation by a majority of the votes cast in person or by proxy at the 2001 annual meeting of the Corporation's shareholders, including any adjournment thereof. [The Plan was approved by shareholders at the annual meeting on November 14, 2001.] 16 EX-10.9 12 b316968ex_10-9.txt EMPLOYMENT AGREEMENT -- JOHN MILLER [Senior Vice President Single Bonus] EXHIBIT 10.9 EMPLOYMENT AGREEMENT dated November 15, 2001 between PALL CORPORATION, a New York corporation (the "Company"), and John Miller ("Executive"). WHEREAS, the parties hereto are parties to an Employment Agreement dated February 1, 1992, amended July 19, 1993 (the "Existing Agreement"), and WHEREAS, in light of the approval by the shareholders of the Company on November 14, 2001 of the Pall Corporation Executive Incentive Bonus Plan, the parties desire to terminate the Existing Agreement and simultaneously replace it with this Agreement, effective August 1, 2001, NOW, THEREFORE, in consideration of the mutual agreements hereinafter set forth, the parties hereto agree as follows: ss.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 ss.2, for a term (hereinafter called the "Term of Employment") which began August 1, 2001 (the "Term Commencement Date") and ending, unless sooner terminated under ss.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. ss.2. Duties 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 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. If 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 the Company from any of its obligations under this Agreement except to the extent of payments actually made to Executive by a subsidiary. 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. ss.3. Compensation During Term of Employment (a) Base Salary. With respect to the period beginning on the Term Commencement Date and ending on July 31, 2002, the Company shall pay Executive a Base Salary (in addition to the compensation provided for elsewhere in this Agreement) at the rate of $252,668 per annum (hereinafter called the "Original Base Salary"). With respect to each Contract Year beginning with the Contract Year which starts August 1, 2002, the Company shall pay Executive a Base Salary at such rate as the Board of Directors may determine but not less than the Original Base Salary adjusted 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, 2002, the minimum compensation payable to Executive under this ss.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 2001. 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 N. J. - Long Island, NY-NJ-CT-PA". To illustrate the operation of the foregoing provisions of this ss.3(a): Executive's Base Salary for the Contract Year August 1, 2002 through July 31, 2003 shall be not less than the Original Base Salary adjusted by the percentage increase (or decrease) of the Consumer Price Index for June 2002 over (or below) said Index for June 2001. 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 2001 as the base except as provided in the immediately following paragraph hereof and (ii) applying the percentage increase (or decrease) in the Consumer Price Index since said base month to the Original Base Salary to determine the Minimum Base Salary. The Base Salary shall be paid in such periodic installments as the Company may determine but not less often than monthly. -2- If with respect to any Contract Year (including the Contract Year beginning August 1, 2002) 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 of Directors fixes a Base Salary for the Contract Year beginning August 1, 2002 which is higher than the Minimum Base Salary, then June 2002 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. As used herein, the term "Bonus Plan" means the Pall Corporation Executive Incentive Bonus Plan adopted by the Compensation Committee of the Board of Directors of the Company on July 17, 2001 and approved by shareholders at the annual meeting of shareholders on November 14, 2001, a copy of which is annexed hereto and incorporated herein by reference. Words and terms used herein with initial capital letters and not defined herein are used herein as defined in the Bonus Plan. 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 August 3, 2002: (i) if Executive is a member of the Operating Committee of the Company, Executive shall be eligible to receive a Bonus pursuant to and in accordance with the terms of the Bonus Plan; or (ii) if Executive is not a member of the Operating Committee, Executive shall be entitled to receive a Bonus pursuant to this Agreement in an amount determined in accordance with and subject to all of the terms of the Bonus Plan. For purposes of determining the amount of the Bonus payable to Executive for any Fiscal Year as provided in this ss.3(b) (the "Plan Bonus"), Executive's Target Bonus Percentage shall be 70% of his Base Salary for such Fiscal Year. -3- (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), at such time and on such terms and conditions as each such plan provides. (d) Vacations. Executive shall be entitled each year to a vacation or vacations in accordance with the policies of the Company as determined by the Board or by an authorized senior officer of the Company from time to time. The Company shall not pay Executive any additional compensation for any vacation time not used by Executive. ss.4. Termination by Reason of Disability, Death, Retirement or Change in 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 any Plan Bonus or pro rata portion thereof that Executive is entitled to receive in accordance with ss.3(b) hereof and (ii) for each month in 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 of an amount equal to 1/12th of 85% of the annual rate of Base Salary in effect for Executive immediately prior to the date on which Executive's death or termination for disability occurs (such 85% being comprised of one-half of such Base Salary and one-half of Executive's Target Bonus Percentage set forth in ss.3 (b) hereof). -4- (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 the latter 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 ss.4(b) 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, (i) Executive's Base Salary prorated to the date on which the Term of Employment ends and (ii) any Plan Bonus or pro rata portion thereof that Executive is entitled to receive in accordance with ss.3(b) hereof. (iii) Anything hereinabove to the contrary notwithstanding, if any provision of this ss.4(b) 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 in Control. In the event of a Change in Control (as defined in the Bonus Plan), Executive shall have the right to terminate the Term of Employment, by notice to the Company given at any time after such Change in 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. ss.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 ss.1 or ss.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 ss.1 or ss.4 hereof or terminates under ss.4 by reason of Executive's 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 ss.1 following a Change in Control (as defined in the Bonus Plan), the foregoing covenant not to compete shall not apply. -5- ss.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. ss.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. ss.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 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. -6- ss.9. Mergers and Consolidations; Assignability In the event that the Company, or any entity resulting from any merger or consolidation referred to in this ss.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 ss.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. ss.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. ss.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. ss.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 any waiver, change, modification, extension or discharge is sought. -7- ss.13. Notices All notices given hereunder shall be in writing and shall be sent by registered or certified mail or overnight delivery service such as Federal Express or delivered by hand, and, if intended for the Company, shall be addressed to it (if sent by mail or overnight delivery service) 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 or overnight delivery service) 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 on which it is mailed or on which it is received by the overnight delivery service or, if delivered personally, on the date so delivered. ss.14. Termination of Existing Agreement. The Existing Agreement is hereby terminated and replaced and superseded by this Agreement, effective August 1, 2001. All payments, of Base Salary or otherwise, made by the Company under the Existing Agreement with respect to any period commencing on or after August 1, 2001 shall be credited against the corresponding payment obligations of the Company under this Agreement. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. PALL CORPORATION By: /s/ Jeremy Hayward-Surry ---------------------------------- Jeremy Hayward-Surry President EXECUTIVE /s/ John Miller ---------------------------------- John Miller -8- PALL CORPORATION EXECUTIVE INCENTIVE BONUS PLAN ----- 1. Purpose This document sets forth the Pall Corporation Executive Incentive Bonus Plan as adopted effective July 17, 2001. The purpose of the Plan is to encourage greater focus on performance among the key executives of the Corporation by relating a significant portion of their total compensation to the achievement of annual financial objectives. 2. Certain Definitions As used herein with initial capital letters, the following terms shall have the following meanings: "Average Equity" shall mean, for any Fiscal Year, the average of stockholders' equity as shown on the fiscal year-end consolidated balance sheet of the Corporation and its subsidiaries as of the end of such Fiscal Year and as of the end of the immediately preceding Fiscal Year except that the amounts shown on said balance sheets as "Accumulated other comprehensive" income or loss, as the case may be, shall be disregarded. "Base Salary" shall mean, with respect to any Executive and for any Fiscal Year, the annual rate of base salary in effect for the Executive as of the first day of such year or, if later, as of the first day of the Executive's Term of Employment, as determined under the Executive's Employment Agreement. "Board of Directors" shall mean the Board of Directors of the Corporation. "Bonus" shall mean the bonus payable to an Executive under this Plan for any Fiscal Year. "CEO" shall mean the Chief Executive Officer of the Corporation. "Change in Control" means the occurrence of any of the following: (a) the "Distribution Date" as defined in Section 3 of the Rights Agreement dated as of November 17, 1989 between the Corporation and United States Trust Company of New York as Rights Agent, as amended by Amendment No. 1 thereto dated April 20, 1999, and as the same may have been further amended or extended to the time in question or in any successor agreement (the "Rights Agreement"); or (b) any event described in Section 11(a)(ii)(B) of the Rights Agreement; or (c) any event described in Section 13 of the Rights Agreement; or (d) the date on which the number of duly elected and qualified directors of the Corporation who were not either elected by the Board of Directors or nominated by the Board of Directors or its Nominating Committee for election by the shareholders shall equal or exceed one-third of the total number of directors of the Corporation as fixed by its by-laws; provided, however, that no Change in Control shall be deemed to have occurred, and no rights arising upon a Change in Control as provided in Section 6 shall exist, to the extent that the Board of Directors so determines by resolution adopted prior to the Change in Control. "Code" shall mean the Internal Revenue Code of 1986, as amended. "Committee" shall mean the Compensation Committee of the Board of Directors. "Corporation" shall mean Pall Corporation. "Covered Executive" shall mean, with respect to any Fiscal Year, each individual who is a "Covered Employee" of the Corporation for such year for the purpose of section 162(m) of the Code. "Employment Agreement" shall mean, with respect to any executive employee of the Corporation, an employment agreement between the Corporation and such employee which provides that the employee shall be eligible to receive annual bonuses under this Plan. "Executive" shall mean an executive employee of the Corporation with whom the Corporation has entered into an Employment Agreement. "Fiscal Year" shall mean the fiscal year of the Corporation ending on August 3, 2002, and each subsequent fiscal year of the Corporation. "Maximum R.O.E. Target" shall mean, for any Fiscal Year, the Return on Equity that must be achieved or exceeded in order for the Performance Percentage for the year to equal 100%, as determined by the Committee prior to the first day of such year or within such period of time thereafter as may be permitted under the regulations issued under section 162(m) of the Code. "Minimum R.O.E. Target" shall mean, for any Fiscal Year, the Return on Equity that must be exceeded in order for any Bonus to be paid to any Executive for the year, as determined by the Committee prior to the first day of such year or within such period of time thereafter as may be permitted under the regulations issued under section 162(m) of the Code. "Net Earnings" shall mean, for any Fiscal Year, the after-tax consolidated net earnings of the Corporation and its subsidiaries as certified by the Corporation's independent accountants for inclusion in the annual report to shareholders ("Annual Report"), adjusted so as to eliminate the effects of any decreases in or charges to earnings for (a) the effect of foreign currency exchange rates, (b) any acquisitions, divestitures, discontinuance of business operations, restructuring or any other special charges, (c) the cumulative effect of any accounting changes, and (d) any "extraordinary items" as determined under generally accepted accounting principles, to the extent such decreases or charges referred to in clauses (a) through (d) are separately disclosed in the Corporation's Annual Report for the year. 2 "Plan" shall mean the Pall Corporation Executive Incentive Bonus Plan, as set forth herein and as amended from time to time. "Return on Equity" shall mean, for any Fiscal Year, the percentage determined by dividing the Net Earnings for the year by the Average Equity for the year. "Target Bonus Percentage" shall mean, with respect to any Executive, the target bonus percentage specified for such Executive in his or her Employment Agreement. 3. Determination of Bonus Amounts For each Fiscal Year falling in whole or in part within an Executive's Term of Employment, as defined in his or her Employment Agreement, the Executive shall be entitled to receive a Bonus in an amount determined in accordance with the provisions of this Section 3, subject, however, to the provisions of Section 4. (a) The amount of the Bonus payable to an Executive for each such Fiscal Year shall be equal to (i) the Target Bonus Percentage of the Executive's Base Salary for such year, multiplied by (ii) the Performance Percentage for such year, as determined under (b) below. (b) The Performance Percentage for any Fiscal Year shall be determined in accordance with he following provisions: (i) If the Return on Equity equals or exceeds the Maximum R.O.E. Target for the year, the Performance Percentage for the year shall be 100%. (ii) If the Return on Equity is less than the Maximum R.O.E. Target for the year but exceeds the Minimum R.O.E. Target for the year, the Performance Percentage for the year shall be equal to the quotient resulting from dividing (A) the excess of the Return on Equity for the year over the Minimum R.O.E. Target for the year, by (B) the excess of the Maximum R.O.E. Target for the year over the Minimum R.O.E. Target for the year. (iii) If the Return on Equity equals or is less than the Minimum R.O.E. Target for the year, the Performance Percentage for the year shall be zero, and no Bonus shall be payable under the Plan for such year to any Executive. 3 (c) If an Executive's Term of Employment commences after the start of a Fiscal Year, or ends prior to the close of a Fiscal Year, the amount of the Bonus payable to the Executive for the Fiscal Year in which the Executive's Term of Employment commences, or for the Fiscal Year in which the Executive's Term of Employment ends, as determined in accordance with the other applicable provisions of the Plan, shall be prorated on the basis of the number of days of such Fiscal Year that fall within the Executive's Term of Employment; provided, however, that (i) if an Executive's Term of Employment ends within 5 days prior to the close of a Fiscal Year, there shall be no proration and the Executive shall be entitled to receive the entire amount of the Bonus payable to the Executive for such year, as determined in accordance with such other provisions, and (ii) if the Executive's Term of Employment ends within 5 days following the start of a Fiscal Year, the Executive shall not be entitled to receive any Bonus with respect to such Fiscal Year. 4. Adjustment of and Limitation on Bonus Amounts The amount of the Bonus otherwise payable to an Executive for any Fiscal Year in accordance with Section 3 shall be subject to the following adjustments and limitation: (a) The Committee may, in its discretion, reduce the amount of the Bonus otherwise payable to any Executive in accordance with Section 3, (i) to reflect any decreases in or charges to earnings that were not taken into account in determining Net Earnings for the year pursuant to clause (a), (b), (c) or (d) contained in the definition of such term in Section 2, (ii) to reflect any credits to earnings for extraordinary items of income or gain that were taken into account in determining Net Earnings for the year, (iii) to reflect the Committee's evaluation of the Executive's individual performance, or (iv) to reflect any other events, circumstances or factors which the Committee believes to be appropriate in determining the amount of the Bonus to be paid to the Executive for the year. (b) The Committee may, in its discretion, increase the amount of the Bonus otherwise payable to any Executive who is not a Covered Executive, as determined under Section 3, to reflect the Committee's evaluation of the Executive's individual performance, or to reflect such other circumstances or factors as the Committee believes to be appropriate in determining the amount of the Bonus to be paid to the Executive for the year. The Committee shall not have any discretion to increase the amount of the Bonus payable to any Covered Executive for the year, as determined under Section 3. (c) Notwithstanding any other provision herein to the contrary, the amount of the Bonus otherwise payable to any Executive for any Fiscal Year shall not exceed the lesser of (i) $1.0 million and (ii) 100% of the Executive's Base Salary for the year. 5. Payment of Bonuses The Bonus payable to an Executive for any Fiscal Year shall be paid in accordance with the following provisions: (a) Except as otherwise provided in (b) or (c) below, (i) if the Executive is not a Covered Executive for such year, 50% of the estimated amount of the Executive's Bonus shall be paid to the Executive at such date in August next following the close of such year as the Committee in its discretion shall determine, and the remaining amount of the Executive's Bonus shall be paid to the Executive by no later than January 15 next following the close of such year; 4 (ii) if the Executive is a Covered Executive for such year, 50% of the amount of the Executive's Bonus shall be paid to the Executive as soon as practicable after the Committee has certified in writing that all conditions for the payment of such Bonus to the Executive for such year have been satisfied, and the remaining amount of the Executive's Bonus shall be paid to the Executive by no later than January 15 next following the close of such year; (iii) each amount payable to an Executive under (i) and (ii) above, reduced by the amount of all federal, state and local taxes required by law to be withheld therefrom, shall be paid to the Executive in the form of a single lump sum cash payment. (b) To the extent that an Executive has elected under the applicable provisions of the Pall Corporation Management Stock Purchase Plan (the "MSPP") to have any part of the Bonus payable to the Executive for any Fiscal Year paid in the form of Restricted Units to be credited to the Executive's account under the MSPP, no cash payments shall be made to the Executive pursuant to (a) above with respect to the part of the Executive Bonus that is subject to such election; and the obligation of the Corporation under this Plan with respect to payment of such part of the Executive's Bonus shall be fully discharged upon the crediting of Restricted Units to the Executive's account under the MSPP in accordance with the applicable provisions of such Plan. (c) To the extent that an Executive has elected under the applicable provisions of the Pall Corporation Profit-Sharing Plan (the "Profit-Sharing Plan") to have any part of the Bonus payable to the Executive for any Fiscal Year reduced, and to have an amount equal to such part of the Executive's Bonus contributed to the Profit-Sharing Plan as a 401(k) Contribution on the Executive's behalf, an amount equal to such part of the Executive's Bonus shall be contributed to the Profit-Sharing Plan on behalf of the Executive; and thereupon, the obligation of the Corporation under this Plan with respect to payment of such part of the Executive's Bonus shall be fully discharged. However, no such contribution shall be made to the extent it would cause any limitation applicable under the 401(k) Plan to be exceeded. 6. Change in Control Notwithstanding any other provision in the Plan to the contrary (but subject to the "provided, however" clause contained in the definition of "Change in Control" in Section 2), upon the occurrence of a Change in Control, the following provisions shall apply. (a) The amount of the Bonus payable to any Executive for the Fiscal Year in which a Change in Control occurs shall be at least equal to the Target Bonus Percentage of the Executive's Base Salary for such year or, in the case of any Executive whose Term of Employment commences after the start of such year or ends prior to the close of such year, a pro rata portion thereof determined on the basis of the number of days of such Fiscal Year that fall within the Executive's Term of Employment. 5 (b) Each Executive whose Term of Employment has not ended prior to the occurrence of a Change in Control shall be entitled to receive a Bonus for each Contract Year (as defined in the Executive's Employment Agreement) that falls in whole or in part within the Executive's Term of Employment and that ends after the Fiscal Year in which the Change in Control occurs. The amount of the Bonus payable to the Executive for each such Contract Year shall be at least equal to the Target Bonus Percentage of the Executive's Base Salary for such Contract Year or, in the case of any Executive whose Term of Employment ends after the start of such Contract Year but prior to the close of such year, a pro rata portion thereof determined on the basis of the number of days of such Contract Year that fall within the Executive's Term of Employment. (c) The entire amount of the Bonus payable to an Executive for any Fiscal Year or Contract Year pursuant to (a) or (b) above, reduced by the amount of all federal, state and local taxes required to be withheld therefrom, shall be paid to the Executive in a single cash lump sum as soon as practicable after the close of such Fiscal Year or Contract Year. 7. Rights of Executives An Executive's rights and interests under the Plan shall be subject to the following provisions: (a) An Executive's rights to payments under the Plan shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment, or garnishment by creditors of the Executive. (b) Neither the Plan nor any action taken hereunder shall be construed as giving any Executive any right to be retained in the employment of the Corporation or any of its subsidiaries. 8. Administration The Plan shall be administered by the Committee. A majority of the members of the Committee shall constitute a quorum. The Committee may act at a meeting, including a telephone meeting, by action of a majority of the members present, or without a meeting by unanimous written consent. In addition to the responsibilities and powers assigned to the Committee elsewhere in the Plan, the Committee shall have the authority, in its discretion, to establish from time to time guidelines or regulations for the administration of the Plan, interpret the Plan, and make all determinations considered necessary or advisable for the administration of the Plan. The Committee may delegate any ministerial or nondiscretionary function pertaining to the administration of the Plan to any one or more officers of the Corporation. All decisions, actions or interpretations of the Committee under the Plan shall be final, conclusive and binding upon all parties. Notwithstanding the foregoing, any determination made by the Committee after the occurrence of a Change in Control that denies in whole or in part any claim made by any individual for benefits under the Plan shall be subject to judicial review, under a "de novo", rather than a deferential standard. 6 9. Amendment or Termination The Board of Directors may, with prospective or retroactive effect, amend, suspend or terminate the Plan or any portion thereof at any time; provided, however, that (a) no amendment, suspension or termination of the Plan shall adversely affect the rights of any Executive with respect to any Bonus that has become payable to the Executive under the Plan, without his or her written consent, and (b) following a Change in Control, no amendment to Section 6, and no termination of the Plan, shall be effective if such amendment or termination adversely affects the rights of any Executive under the Plan. 10. Successor Corporation The obligations of the Corporation under the Plan shall be binding upon any successor corporation or organization resulting from the merger, consolidation or other reorganization of the Corporation, or upon any successor corporation or organization succeeding to substantially all of the assets and business of the Corporation. The Corporation agrees that it will make appropriate provision for the preservation of Executives' rights under the Plan in any agreement or plan which it may enter into or adopt to effect any such merger, consolidation, reorganization or transfer of assets. 11. Governing Law The Plan shall be governed by and construed in accordance with the laws of the State of New York. 12. Effective Date The Plan was adopted effective as of July 17, 2001 by the Board of Directors, acting by the Committee, subject, however, to approval by the shareholders of the Corporation by a majority of the votes cast in person or by proxy at the 2001 annual meeting of the Corporation's shareholders, including any adjournment thereof. [The Plan was approved by shareholders at the annual meeting on November 14, 2001.] 7 EX-10.10 13 b316968ex_10-10.txt EMPLOYMENT AGREEMENT -- REED SARVER EXHIBIT 10.10 [Senior Vice President Split Bonus, 08/01] EMPLOYMENT AGREEMENT dated November 15, 2001 between PALL CORPORATION, a New York corporation (the "Company") and Reed Sarver ("Executive"). WHEREAS, the parties hereto are parties to an employment agreement dated August 1, 2001 (the "Existing Agreement"), and WHEREAS, in light of the approval by the shareholders of the Company on November 14, 2001 of the Pall Corporation Executive Incentive Bonus Plan, the parties desire to terminate the Existing Agreement and simultaneously replace it with this Agreement, effective August 1, 2001, 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 inss.2, for a term (hereinafter called the "Term of Employment") which began August 1, 2001 (the "Term Commencement Date") and ending, unless sooner terminated underss.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 (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 Chief Executive Officer of the Company shall direct except that Executive shall not be required to hold any office or position or to perform any duties or assignment inconsistent with his experience and qualifications. (b) If the 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 the Company from any of its obligations under this Agreement except to the extent of payments actually made to Executive by a subsidiary. 2 (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 on July 31, 2002, the Company shall pay Executive a Base Salary (in addition to the compensation provided for elsewhere in this Agreement) at the rate of $150,020 per annum (hereinafter called the "Original Base Salary"). With respect to each Contract Year beginning with the Contract Year which starts August 1, 2002, the Company shall pay Executive a Base Salary at such rate as the Board of Directors may determine but not less than the Original Base Salary adjusted 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, 2002, the minimum compensation payable to Executive under thisss.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 2001. 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 N. J. - Long Island, NY-NJ-CT-PA". To illustrate the operation of the foregoing provisions of thisss.3(a): Executive's Base Salary for the Contract Year August 1, 2002 through July 31, 2003 shall be not less than the Original Base Salary adjusted by the percentage increase (or decrease) of the Consumer Price Index for June 2002 over (or below) said Index for June 2001. 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 2001 as the base except as provided in the immediately following paragraph hereof and (ii) applying the percentage increase (or decrease) in the Consumer Price Index since said base month to the Original Base Salary to determine the Minimum Base Salary. The Base Salary shall be paid in such periodic installments as the Company may determine but not less often than monthly. 2 If with respect to any Contract Year (including the Contract Year beginning August 1, 2002) the Board of Directors fixes the Base Salary at an amount higher than the Minimum Base Salary, then (unless the order fixing such higher Base Salary provides otherwise), for the purpose of determining the Minimum Base Salary for subsequent Contract Years: (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 of Directors fixes a Base Salary for the Contract Year beginning August 1, 2002 which is higher than the Minimum Base Salary, then June 2002 would become the base month for the purposes of making the CPI adjustment to determine the Minimum Base Salary for subsequent Contract Years). (b) Bonus Compensation. (i) Plan Bonus. As used herein, the term "Bonus Plan" means the Pall Corporation Executive Incentive Bonus Plan adopted by the Compensation Committee of the Board of Directors of the Company on July 17, 2001 and approved by shareholders at the annual meeting of shareholders on November 14, 2001, a copy of which is annexed hereto and incorporated herein by reference. Words and terms used herein with initial capital letters and not defined herein are used herein as defined in the Bonus Plan. 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 August 3, 2002: 3 o if Executive is a member of the Operating Committee of the Company, Executive shall be eligible to receive a Bonus pursuant to and in accordance with the terms of the Bonus Plan; or o if Executive is not a member of the Operating Committee, Executive shall be entitled to receive a Bonus pursuant to this Agreement in an amount determined in accordance with and subject to all of the terms of the Bonus Plan. For purposes of determining the amount of the Bonus payable to Executive for any Fiscal Year as provided in this ss.3(b)(i) (the "Plan Bonus"), Executive's Target Bonus Percentage shall be 28% of his Base Salary for such Fiscal Year. (ii) Business Segment Bonus. Inasmuch as Executive's services for the Company relate primarily to the operations of a subsidiary, a division or other segment of the overall operations of the Company and its subsidiaries (a "Business Segment"), Executive shall be considered for additional bonus compensation for each Fiscal Year based on the results of operations of such Business Segment for such Fiscal Year. The amount of such additional bonus compensation, if any, shall be determined by the Chief Executive Officer in his sole discretion but in no event shall such additional bonus compensation exceed 42% of Executive's Base Salary. (iii) Payment of Bonus Compensation. Executive's Bonus Compensation (which term as used herein includes both the Plan Bonus and the Business Segment Bonus, if any) shall be paid in accordance with ss.5 of the Bonus Plan. With respect to any Fiscal Year which falls in part but not in whole within the Term of Employment, the pro rata portion of the Bonus Compensation to which Executive is entitled under this ss.3(b) shall be determined in accordance with ss.3(c) of the Bonus Plan. (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. 4 (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 in 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 each month in 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 of an amount equal to 1/12th of 64% of the annual rate of Base Salary in effect for Executive immediately prior to the date on which Executive's death or termination for disability occurs (such 64% being comprised of one-half of such Base Salary and one-half of Executive's Target Bonus Percentage set forth inss.3 (b) hereof). 5 (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 the latter 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 thisss.4(b) 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 thisss.4(b) 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 in Control. In event of a Change in Control (as defined in the Bonus Plan), Executive shall have the right to terminate the Term of Employment, by notice to the Company given at any time after such Change in 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. 6 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 ss.1 or ss.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 ss.1 or ss.4 hereof or terminates under ss.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 ss.1 following a Change in Control (as defined in the Bonus Plan), 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, 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 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. 7 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 ss.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 ss.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 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. 8 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 Existing Agreement The Existing Agreement is hereby terminated and replaced and superseded by this Agreement, effective August 1, 2001. All payments, of Base Salary or otherwise, made by the Company under the Existing Agreement with respect to any period commencing on or after August 1, 2001 shall be credited against the corresponding payment obligations of the Company under this Agreement. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. PALL CORPORATION By: /s/ Jeremy Hayward-Surry ------------------------------ Jeremy Hayward-Surry President EXECUTIVE /s/ Reed Sarver ------------------------------ Reed Sarver 9 PALL CORPORATION EXECUTIVE INCENTIVE BONUS PLAN ----- 1. Purpose This document sets forth the Pall Corporation Executive Incentive Bonus Plan as adopted effective July 17, 2001. The purpose of the Plan is to encourage greater focus on performance among the key executives of the Corporation by relating a significant portion of their total compensation to the achievement of annual financial objectives. 2. Certain Definitions As used herein with initial capital letters, the following terms shall have the following meanings: "Average Equity" shall mean, for any Fiscal Year, the average of stockholders' equity as shown on the fiscal year-end consolidated balance sheet of the Corporation and its subsidiaries as of the end of such Fiscal Year and as of the end of the immediately preceding Fiscal Year except that the amounts shown on said balance sheets as "Accumulated other comprehensive" income or loss, as the case may be, shall be disregarded. "Base Salary" shall mean, with respect to any Executive and for any Fiscal Year, the annual rate of base salary in effect for the Executive as of the first day of such year or, if later, as of the first day of the Executive's Term of Employment, as determined under the Executive's Employment Agreement. "Board of Directors" shall mean the Board of Directors of the Corporation. "Bonus" shall mean the bonus payable to an Executive under this Plan for any Fiscal Year. "CEO" shall mean the Chief Executive Officer of the Corporation. "Change in Control" means the occurrence of any of the following: (a) the "Distribution Date" as defined in Section 3 of the Rights Agreement dated as of November 17, 1989 between the Corporation and United States Trust Company of New York as Rights Agent, as amended by Amendment No. 1 thereto dated April 20, 1999, and as the same may have been further amended or extended to the time in question or in any successor agreement (the "Rights Agreement"); or (b) any event described in Section 11(a)(ii)(B) of the Rights Agreement; or (c) any event described in Section 13 of the Rights Agreement; or (d) the date on which the number of duly elected and qualified directors of the Corporation who were not either elected by the Board of Directors or nominated by the Board of Directors or its Nominating Committee for election by the shareholders shall equal or exceed one-third of the total number of directors of the Corporation as fixed by its by-laws; provided, however, that no Change in Control shall be deemed to have occurred, and no rights arising upon a Change in Control as provided in Section 6 shall exist, to the extent that the Board of Directors so determines by resolution adopted prior to the Change in Control. "Code" shall mean the Internal Revenue Code of 1986, as amended. "Committee" shall mean the Compensation Committee of the Board of Directors. "Corporation" shall mean Pall Corporation. "Covered Executive" shall mean, with respect to any Fiscal Year, each individual who is a "Covered Employee" of the Corporation for such year for the purpose of section 162(m) of the Code. "Employment Agreement" shall mean, with respect to any executive employee of the Corporation, an employment agreement between the Corporation and such employee which provides that the employee shall be eligible to receive annual bonuses under this Plan. "Executive" shall mean an executive employee of the Corporation with whom the Corporation has entered into an Employment Agreement. "Fiscal Year" shall mean the fiscal year of the Corporation ending on August 3, 2002, and each subsequent fiscal year of the Corporation. "Maximum R.O.E. Target" shall mean, for any Fiscal Year, the Return on Equity that must be achieved or exceeded in order for the Performance Percentage for the year to equal 100%, as determined by the Committee prior to the first day of such year or within such period of time thereafter as may be permitted under the regulations issued under section 162(m) of the Code. "Minimum R.O.E. Target" shall mean, for any Fiscal Year, the Return on Equity that must be exceeded in order for any Bonus to be paid to any Executive for the year, as determined by the Committee prior to the first day of such year or within such period of time thereafter as may be permitted under the regulations issued under section 162(m) of the Code. "Net Earnings" shall mean, for any Fiscal Year, the after-tax consolidated net earnings of the Corporation and its subsidiaries as certified by the Corporation's independent accountants for inclusion in the annual report to shareholders ("Annual Report"), adjusted so as to eliminate the effects of any decreases in or charges to earnings for (a) the effect of foreign currency exchange rates, (b) any acquisitions, divestitures, discontinuance of business operations, restructuring or any other special charges, (c) the cumulative effect of any accounting changes, and (d) any "extraordinary items" as determined under generally accepted accounting principles, to the extent such decreases or charges referred to in clauses (a) through (d) are separately disclosed in the Corporation's Annual Report for the year. 2 "Plan" shall mean the Pall Corporation Executive Incentive Bonus Plan, as set forth herein and as amended from time to time. "Return on Equity" shall mean, for any Fiscal Year, the percentage determined by dividing the Net Earnings for the year by the Average Equity for the year. "Target Bonus Percentage" shall mean, with respect to any Executive, the target bonus percentage specified for such Executive in his or her Employment Agreement. 3. Determination of Bonus Amounts For each Fiscal Year falling in whole or in part within an Executive's Term of Employment, as defined in his or her Employment Agreement, the Executive shall be entitled to receive a Bonus in an amount determined in accordance with the provisions of this Section 3, subject, however, to the provisions of Section 4. (a) The amount of the Bonus payable to an Executive for each such Fiscal Year shall be equal to (i) the Target Bonus Percentage of the Executive's Base Salary for such year, multiplied by (ii) the Performance Percentage for such year, as determined under (b) below. (b) The Performance Percentage for any Fiscal Year shall be determined in accordance with he following provisions: (i) If the Return on Equity equals or exceeds the Maximum R.O.E. Target for the year, the Performance Percentage for the year shall be 100%. (ii) If the Return on Equity is less than the Maximum R.O.E. Target for the year but exceeds the Minimum R.O.E. Target for the year, the Performance Percentage for the year shall be equal to the quotient resulting from dividing (A) the excess of the Return on Equity for the year over the Minimum R.O.E. Target for the year, by (B) the excess of the Maximum R.O.E. Target for the year over the Minimum R.O.E. Target for the year. (iii) If the Return on Equity equals or is less than the Minimum R.O.E. Target for the year, the Performance Percentage for the year shall be zero, and no Bonus shall be payable under the Plan for such year to any Executive. 3 (c) If an Executive's Term of Employment commences after the start of a Fiscal Year, or ends prior to the close of a Fiscal Year, the amount of the Bonus payable to the Executive for the Fiscal Year in which the Executive's Term of Employment commences, or for the Fiscal Year in which the Executive's Term of Employment ends, as determined in accordance with the other applicable provisions of the Plan, shall be prorated on the basis of the number of days of such Fiscal Year that fall within the Executive's Term of Employment; provided, however, that (i) if an Executive's Term of Employment ends within 5 days prior to the close of a Fiscal Year, there shall be no proration and the Executive shall be entitled to receive the entire amount of the Bonus payable to the Executive for such year, as determined in accordance with such other provisions, and (ii) if the Executive's Term of Employment ends within 5 days following the start of a Fiscal Year, the Executive shall not be entitled to receive any Bonus with respect to such Fiscal Year. 4. Adjustment of and Limitation on Bonus Amounts The amount of the Bonus otherwise payable to an Executive for any Fiscal Year in accordance with Section 3 shall be subject to the following adjustments and limitation: (a) The Committee may, in its discretion, reduce the amount of the Bonus otherwise payable to any Executive in accordance with Section 3, (i) to reflect any decreases in or charges to earnings that were not taken into account in determining Net Earnings for the year pursuant to clause (a), (b), (c) or (d) contained in the definition of such term in Section 2, (ii) to reflect any credits to earnings for extraordinary items of income or gain that were taken into account in determining Net Earnings for the year, (iii) to reflect the Committee's evaluation of the Executive's individual performance, or (iv) to reflect any other events, circumstances or factors which the Committee believes to be appropriate in determining the amount of the Bonus to be paid to the Executive for the year. (b) The Committee may, in its discretion, increase the amount of the Bonus otherwise payable to any Executive who is not a Covered Executive, as determined under Section 3, to reflect the Committee's evaluation of the Executive's individual performance, or to reflect such other circumstances or factors as the Committee believes to be appropriate in determining the amount of the Bonus to be paid to the Executive for the year. The Committee shall not have any discretion to increase the amount of the Bonus payable to any Covered Executive for the year, as determined under Section 3. (c) Notwithstanding any other provision herein to the contrary, the amount of the Bonus otherwise payable to any Executive for any Fiscal Year shall not exceed the lesser of (i) $1.0 million and (ii) 100% of the Executive's Base Salary for the year. 5. Payment of Bonuses The Bonus payable to an Executive for any Fiscal Year shall be paid in accordance with the following provisions: (a) Except as otherwise provided in (b) or (c) below, (i) if the Executive is not a Covered Executive for such year, 50% of the estimated amount of the Executive's Bonus shall be paid to the Executive at such date in August next following the close of such year as the Committee in its discretion shall determine, and the remaining amount of the Executive's Bonus shall be paid to the Executive by no later than January 15 next following the close of such year; 4 (ii) if the Executive is a Covered Executive for such year, 50% of the amount of the Executive's Bonus shall be paid to the Executive as soon as practicable after the Committee has certified in writing that all conditions for the payment of such Bonus to the Executive for such year have been satisfied, and the remaining amount of the Executive's Bonus shall be paid to the Executive by no later than January 15 next following the close of such year; (iii) each amount payable to an Executive under (i) and (ii) above, reduced by the amount of all federal, state and local taxes required by law to be withheld therefrom, shall be paid to the Executive in the form of a single lump sum cash payment. (b) To the extent that an Executive has elected under the applicable provisions of the Pall Corporation Management Stock Purchase Plan (the "MSPP") to have any part of the Bonus payable to the Executive for any Fiscal Year paid in the form of Restricted Units to be credited to the Executive's account under the MSPP, no cash payments shall be made to the Executive pursuant to (a) above with respect to the part of the Executive Bonus that is subject to such election; and the obligation of the Corporation under this Plan with respect to payment of such part of the Executive's Bonus shall be fully discharged upon the crediting of Restricted Units to the Executive's account under the MSPP in accordance with the applicable provisions of such Plan. (c) To the extent that an Executive has elected under the applicable provisions of the Pall Corporation Profit-Sharing Plan (the "Profit-Sharing Plan") to have any part of the Bonus payable to the Executive for any Fiscal Year reduced, and to have an amount equal to such part of the Executive's Bonus contributed to the Profit-Sharing Plan as a 401(k) Contribution on the Executive's behalf, an amount equal to such part of the Executive's Bonus shall be contributed to the Profit-Sharing Plan on behalf of the Executive; and thereupon, the obligation of the Corporation under this Plan with respect to payment of such part of the Executive's Bonus shall be fully discharged. However, no such contribution shall be made to the extent it would cause any limitation applicable under the 401(k) Plan to be exceeded. 6. Change in Control Notwithstanding any other provision in the Plan to the contrary (but subject to the "provided, however" clause contained in the definition of "Change in Control" in Section 2), upon the occurrence of a Change in Control, the following provisions shall apply. (a) The amount of the Bonus payable to any Executive for the Fiscal Year in which a Change in Control occurs shall be at least equal to the Target Bonus Percentage of the Executive's Base Salary for such year or, in the case of any Executive whose Term of Employment commences after the start of such year or ends prior to the close of such year, a pro rata portion thereof determined on the basis of the number of days of such Fiscal Year that fall within the Executive's Term of Employment. 5 (b) Each Executive whose Term of Employment has not ended prior to the occurrence of a Change in Control shall be entitled to receive a Bonus for each Contract Year (as defined in the Executive's Employment Agreement) that falls in whole or in part within the Executive's Term of Employment and that ends after the Fiscal Year in which the Change in Control occurs. The amount of the Bonus payable to the Executive for each such Contract Year shall be at least equal to the Target Bonus Percentage of the Executive's Base Salary for such Contract Year or, in the case of any Executive whose Term of Employment ends after the start of such Contract Year but prior to the close of such year, a pro rata portion thereof determined on the basis of the number of days of such Contract Year that fall within the Executive's Term of Employment. (c) The entire amount of the Bonus payable to an Executive for any Fiscal Year or Contract Year pursuant to (a) or (b) above, reduced by the amount of all federal, state and local taxes required to be withheld therefrom, shall be paid to the Executive in a single cash lump sum as soon as practicable after the close of such Fiscal Year or Contract Year. 7. Rights of Executives An Executive's rights and interests under the Plan shall be subject to the following provisions: (a) An Executive's rights to payments under the Plan shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment, or garnishment by creditors of the Executive. (b) Neither the Plan nor any action taken hereunder shall be construed as giving any Executive any right to be retained in the employment of the Corporation or any of its subsidiaries. 8. Administration The Plan shall be administered by the Committee. A majority of the members of the Committee shall constitute a quorum. The Committee may act at a meeting, including a telephone meeting, by action of a majority of the members present, or without a meeting by unanimous written consent. In addition to the responsibilities and powers assigned to the Committee elsewhere in the Plan, the Committee shall have the authority, in its discretion, to establish from time to time guidelines or regulations for the administration of the Plan, interpret the Plan, and make all determinations considered necessary or advisable for the administration of the Plan. The Committee may delegate any ministerial or nondiscretionary function pertaining to the administration of the Plan to any one or more officers of the Corporation. All decisions, actions or interpretations of the Committee under the Plan shall be final, conclusive and binding upon all parties. Notwithstanding the foregoing, any determination made by the Committee after the occurrence of a Change in Control that denies in whole or in part any claim made by any individual for benefits under the Plan shall be subject to judicial review, under a "de novo", rather than a deferential standard. 6 9. Amendment or Termination The Board of Directors may, with prospective or retroactive effect, amend, suspend or terminate the Plan or any portion thereof at any time; provided, however, that (a) no amendment, suspension or termination of the Plan shall adversely affect the rights of any Executive with respect to any Bonus that has become payable to the Executive under the Plan, without his or her written consent, and (b) following a Change in Control, no amendment to Section 6, and no termination of the Plan, shall be effective if such amendment or termination adversely affects the rights of any Executive under the Plan. 10. Successor Corporation The obligations of the Corporation under the Plan shall be binding upon any successor corporation or organization resulting from the merger, consolidation or other reorganization of the Corporation, or upon any successor corporation or organization succeeding to substantially all of the assets and business of the Corporation. The Corporation agrees that it will make appropriate provision for the preservation of Executives' rights under the Plan in any agreement or plan which it may enter into or adopt to effect any such merger, consolidation, reorganization or transfer of assets. 11. Governing Law The Plan shall be governed by and construed in accordance with the laws of the State of New York. 12. Effective Date The Plan was adopted effective as of July 17, 2001 by the Board of Directors, acting by the Committee, subject, however, to approval by the shareholders of the Corporation by a majority of the votes cast in person or by proxy at the 2001 annual meeting of the Corporation's shareholders, including any adjournment thereof. [The Plan was approved by shareholders at the annual meeting on November 14, 2001.] 7 EX-10.11 14 b316968ex_10-11.txt EMPLOYEE STOCK PURCHASE PLAN EXHIBIT 10.11 PALL CORPORATION EMPLOYEE STOCK PURCHASE PLAN 1. Purpose. The purpose of the Pall Corporation Employee Stock Purchase Plan (the "Plan") is to offer certain Employees of Pall Corporation (the "Company") and Affiliated Companies an incentive to invest in common shares, par value $.10 per share (each, a "Share") of the Company, by permitting eligible Employees to purchase Shares at below-market prices. The Plan is intended to qualify as an "employee stock purchase plan" within the meaning of Section 423 of the Internal Revenue Code of 1986, as amended (the "Code"). The stock purchase plan of the same name maintained by the Company prior to November 1, 1999 (the "Prior Plan") is hereby amended and superseded by this Plan. In the event that the Plan is adopted by any non-U.S. Affiliated Company and is subject to the laws of another country, a separate document may be prepared for such company reflecting the specific requirements of applicable law, and such document, and not this document, shall determine all rights of all Employees of such company. 2. Definitions. Capitalized terms used in this Plan shall have the following meanings unless defined elsewhere herein. "Affiliated Company" means, at the time of the granting of an option under the Plan, any corporation of which not less than 80% of the voting shares are held by the Company or a subsidiary within the meaning of Section 424 of the Code (except that 80% stock ownership shall be substituted for 50% stock ownership in such definition), whether or not such corporation now exists or is hereafter organized or acquired by the Company or a subsidiary. "Board of Directors" means the Board of Directors of Pall Corporation. "Change in Control" means the occurrence of any of the following: (a) the "Distribution Date" as defined in Section 3 of the Rights Agreement dated as of November 17, 1989 between the Company and United States Trust Company of New York, as Rights Agent as the same may have been amended or extended to the time in question or in any successor agreement (the "Rights Agreement"); or (b) any event described in Section 11(a)(ii)(B) of the Rights Agreement; or (c) any event described in Section 13 of the Rights Agreement; or (d) the date on which the number of duly elected and qualified directors of the Company who were not either elected by the Board of Directors or nominated by the Board of Directors or its Nominating Committee for election by the shareholders shall equal or exceed one-third of the total number of directors of the Company as fixed by its by-laws; -1- provided, however, that no Change in Control shall be deemed to have occurred, and no rights arising upon a Change in Control as provided in Section 16(c) shall exist, to the extent that the Board of Directors so determines by resolution adopted prior to the Change in Control. Any such resolution may be rescinded or countermanded by the Board of Directors at any time with or without retroactive effect. "Committee" means the group of individuals appointed by the Board of Directors of the Company to administer the Plan. "Compensation" means, for any pay period, the gross base salary payable for such period. Compensation shall not include overtime, incentive compensation, incentive payments or bonuses, shift differentials, expense reimbursements, long-term disability and workers' compensation payments, lump-sum payments due to death, termination of employment or layoff, non-taxable fringe benefits, payments or discounts under any stock purchase or option plan, or any other extraordinary compensation or other payments to an Employee. "Employee" means a common law employee of an Employer whose customary employment is at least twenty (20) hours per week. Any person who is not initially recognized by an Employer as a common law employee, but who is subsequently determined to be an Employee by the proper authority, shall be an Employee for purposes of participation in the Plan after such determination. "Employer" means the Company and any Affiliated Company that adopts the Plan with the prior written approval of the Committee. "Exercise Date" means the last Trading Day of each Offering Period. "Fair Market Value" means the value of a Share on a given date, determined based on the mean of the highest and lowest sale prices for a Share on such date, as reported on the New York Stock Exchange or, if the Shares are not traded on the New York Stock Exchange on such date, the exchange on which the Shares are listed ("Exchange"), or if the Exchange is not open for trading on such date, on the nearest preceding date on which the Exchange is open for trading. "Participant" means any individual who is eligible to participate in the Plan as provided in Section 4 and enrolls in the Plan in the manner set forth in Section 5. "Offering Period" means each six consecutive calendar month period during which an option to purchase Shares is granted and may be exercised. "Purchase Price" means an amount equal to 85% of the lower of the Fair Market Value of a Share on the first Trading Day of an Offering Period or on the Exercise Date, but in no event less than the par value of a Share. "Stock Account" means the account established pursuant to Section 8 for a Participant with such investment service provider as the Committee shall select in its discretion. -2- "Trading Day" means any day on which the Exchange is open for trading. 3. Offering Periods. The Plan shall be implemented by consecutive Offering Periods, with the first Offering Period commencing on November 1, 1999 and ending on April 30, 2000, and each subsequent Offering Period thereafter, continuing until the Plan is terminated in accordance with Sections 17 or 20 hereof. 4. Eligibility. (a) Eligible Employees. Each Employee of an Employer shall be eligible to participate in the Plan on the earlier of the November 1st or May 1st coincident with or next following his or her completion of two (2) consecutive years of employment with an Employer; provided, however, that each Employee who, as of August 1, 1999 has completed six (6) consecutive months of employment with an Employer and each Employee who immediately prior to November 1, 1999 was a participant in the Prior Plan shall be eligible to participate in the Plan effective November 1, 1999. Notwithstanding the preceding sentence, no Employee of any Employer shall be eligible to participate in the Plan if that Employee (i) is a "highly compensated employee", as defined in Section 414(q) of the Code, who is eligible to participate in the Management Stock Purchase Plan, or (ii) has received a hardship distribution from the Pall Corporation Profit-Sharing Plan within the preceding twelve (12) months. (b) Leave of Absence. Each Participant who is on medical leave, family leave, military leave or any other leave of absence approved by an Employer shall be permitted to participate in the Plan as provided in this paragraph (b). A Participant who is on an unpaid leave of absence shall have payroll deductions suspended at the commencement of such unpaid leave, but shall participate in the exercise of options under Section 7 to the extent of amounts credited to his or her account as of the next following Exercise Date. Upon such Participant's return from unpaid leave of absence during the same Offering Period in which such leave began, his or her payroll deductions shall automatically recommence at the same rate as in effect prior to such leave. A Participant who is on a paid leave of absence may elect, by notifying the Committee in the manner prescribed by the Committee, to suspend his or her payroll deductions at any time during such paid leave, but shall participate in the exercise of options under Section 7 to the extent of the amount credited to his or her account as of the next following Exercise Date. Upon such Participant's return from paid leave of absence, he or she may elect to recommence payroll deductions as provided in Section 5(d). (c) Termination of Eligibility. If a Participant ceases to be eligible to participate in the Plan for any reason on or before an Exercise Date, the Participant's payroll deductions shall cease as of the effective date of such termination of eligibility, as determined by the Committee. All payroll deductions credited to the Participant's account as of the effective date of his or her termination of eligibility, shall be distributed to the Participant as soon as practicable thereafter. -3- 5. Enrollment and Payroll Deductions. (a) Enrollment. Any Employee who satisfies the eligibility requirements of Section 4(a) shall participate by enrolling in the Plan and authorizing payroll deductions in the manner prescribed by the Committee not later than fifteen (15) days prior to the commencement of any Offering Period. An eligible Employee who has elected to enroll in the Plan for an Offering Period and whose payroll deductions have not ceased during the Offering Period as provided in Section 5(d) shall automatically continue to participate in the Plan in each successive Offering Period with the same terms applicable. (b) Amount. At the time a Participant enrolls in the Plan, the Participant shall elect to have payroll deductions made on each pay day during each Offering Period equal to an amount not to exceed the Compensation which the Participant received on each such pay day; provided, however, that in the case of the Offering Period beginning on November 1, 1999, no Participant shall be permitted to make payroll deductions during the first two months thereof that, in the aggregate, exceed Four Thousand, Two Hundred Dollars ($4,200). All payroll deductions shall be withheld in whole units of currency only. All payroll deductions shall be credited to a bookkeeping account maintained by the Company for each Participant under the Plan. No interest will be paid on any amounts credited to any account. A Participant may not make any additional payments into such account. (c) Payroll Deductions. Payroll deductions shall commence with the first practicable payroll period of the Offering Period following the Participant's enrollment in the Plan and shall end in the last practicable payroll period of the Offering Period during which the Participant is enrolled in the Plan, or, if earlier (i) after the Participant notifies the Committee of his or her suspension of payroll deductions pursuant to Section 5(d), (ii) when the Participant ceases to participate in the Plan for any of the reasons stated in Sections 4(b), 4(c) or Section 11, or (iii) the first practicable payroll period after the Participant receives a hardship distribution from the Pall Corporation Profit-Sharing Plan. (d) Adjustments to Payroll Deductions. A Participant may decrease the amount of payroll deductions or suspend all future payroll deductions during an Offering Period by notifying the Committee in the manner prescribed by the Committee. In the event a Participant suspends all payroll deductions, the Participant shall not be entitled to begin payroll deductions until the commencement of a subsequent Offering Period, except as provided below in the case of certain leaves of absence. The Committee may, in its discretion, limit the number of payroll deduction rate changes and prescribe the effective dates thereof during any Offering Period. -4- In the event that a Participant reduces or suspends payroll deductions during a paid leave of absence, such Participant, upon his or her return from such leave during the same Offering Period in which such leave began, may elect to recommence or increase payroll deductions by notifying the Committee in the manner prescribed by the Committee. Notwithstanding other provisions of the Plan, to the extent necessary to comply with Section 6(b), the Company may decrease a Participant's payroll deductions or suspend same at any time during an Offering Period. 6. Options. (a) Grant of Option. On the first day of each Offering Period, each Participant shall be granted an option to purchase, exercisable on each Exercise Date, that number of Shares determined by dividing the aggregate amount credited to the Participant's account as of such Exercise Date, by the Purchase Price; provided however, that such purchase shall be subject to the limitations set forth in Sections 6(b) and 14. (b) Limitation on Option Grant. Notwithstanding any other provisions of the Plan, no Participant shall be granted an option under the Plan if immediately after the grant, (i) such Participant (or any other person whose stock would be attributed to such Participant pursuant to Section 424(d) of the Code) would own capital stock of the Company and/or hold outstanding options to purchase any class of capital stock possessing five percent (5%) or more of the total combined voting power or value of all classes of the capital stock of the Company or any Affiliated Company thereof, or (ii) such Participant's rights to purchase capital stock under all Section 423 employee stock purchase plans of the Company and Affiliated Companies would accrue at a rate which exceeds Twenty-Five Thousand Dollars ($25,000) of Fair Market Value of such capital stock (determined at the time such option is granted) for each calendar year in which such option is outstanding at any time. In the event that a Participant's account is maintained in a unit of currency other than U.S. dollars, for purposes of determining whether the limitation in the preceding sentence is exceeded, the unit of currency in which such Participant's account is maintained shall be notionally exchanged for U.S. dollars at a rate equal to the exchange rate of such currency and U.S. dollars at the close of the first day of the Offering Period. 7. Exercise of Option. As soon as administratively practicable after each Exercise Date, each Participant's option to purchase Shares under the Plan shall be exercised automatically, and the maximum number of whole or fractional Shares subject to such option shall be purchased for the Participant at the Purchase Price, with the aggregate amount credited to the Participant's account, unless the Participant has terminated participation as provided in Section 4(c) or employment as provided in Section 11. In the event that a Participant's account is maintained in a unit of currency other than U.S. dollars, prior to the exercise of any option, such currency will be exchanged for U.S. dollars at a rate equal to the exchange rate of such currency and U.S. dollars at the close of the Exercise Date as of which such options are exercised. 8. Participant Stock Accounts. -5- (a) Establishment of Stock Account. A Stock Account shall be maintained for each Participant. Shares purchased for the Stock Account of each Participant shall be credited thereto as of the close of business on the Exercise Date. All brokerage commissions attributable to the exercise of options under the Plan shall be paid by the Company or an Affiliated Company. (b) Statement. As soon as practicable following each Offering Period, a statement of Stock Account shall be sent to each Participant, setting forth the amount of payroll deductions accumulated during the Offering Period, the Purchase Price, the number of Shares purchased and the amount of any cash remaining credited to the Participant's Stock Account. (c) Participant Shares. Shares purchased for each Participant shall be held in the Participant's Stock Account. A Participant may request that a certificate be issued in the Participant's name or the name of the Participant and his or her spouse for all or a portion of the whole Shares credited to the Participant's Stock Account. A Participant may sell such Shares at any time thereafter, subject to compliance with any applicable federal or state securities laws. Each Participant agrees, by enrolling in the Plan, to notify the Committee of any sale or other disposition of Shares held by the Participant under the Plan which occurs within eighteen (18) months from the Exercise Date, indicating the number of such Shares disposed of. The Committee shall be entitled to presume that a Participant has disposed of any Shares for which the Participant has requested a certificate. All certificates for Shares delivered under the Plan shall be subject to such stock transfer orders and other restrictions as the Company may deem advisable under all applicable laws, rules, and regulations, and the Company may cause a legend or legends to be put on any such certificates to make appropriate references to such restrictions. In the event that a Participant requests a withdrawal of all amounts credited to his Stock Account, any fractional Shares then held in the Participant's Stock Account will be converted to an equivalent unit of currency and such amount shall be distributed to the Participant in cash along with the requested Shares. (d) Voting Rights; Dividends. A Participant shall have all ownership rights with respect to the Shares credited to the Participant's Stock Account, including the right to direct the vote of such Shares. Any dividends or distributions which may be declared thereon by the Board of Directors will be reinvested in additional Shares for the Participant, unless otherwise provided under the terms of the participant's Stock Account. Such additional shares shall be purchased on the open market as soon as practicable after the dividend payment is received. 9. Taxes. The Company or Affiliated Company may, but shall not be obligated to, withhold from the Participant's compensation the amount necessary for the Company or Affiliated Company to meet applicable withholding obligations, including any withholding required to make available to the Affiliated Company any tax deductions or benefits attributable to any sale or early disposition of Shares by the Participant. 10. Hardship Distributions. In the event that during an Offering Period a Participant experiences a "hardship" as defined in the Pall Corporation Profit-Sharing Plan, the Participant may file a written request with the Committee for a refund of all amounts then credited to his account. If the Committee determines in its discretion that the Participant meets the requirements of a "hardship," it shall cause the Participant's account to be paid to the Participant as soon as practicable after such determination, without regard to whether a distribution is made on account of such hardship from the Pall Corporation Profit-Sharing Plan. -6- 11. Termination of Plan Participation. (a) Termination of Participation. A Participant may terminate participation in the Plan by notifying the Committee thereof in the manner prescribed by the Committee. Following the effective date of such notice, the Participant's payroll deductions shall cease with the next practicable payroll period. The Participant shall participate in the exercise of options under Section 7 to the extent of amounts credited to his or her account as of the cessation of his or her payroll deductions. (b) Renewal of Participation. If a Participant terminates participation in the Plan, the Participant must re-enroll in the Plan as provided in Section 5(a) to renew participation. (c) Termination of Employment. As soon as practicable following a Participant's termination of employment for any reason, including retirement, a Participant or the Participant's beneficiary shall receive cash equal to the amount credited to the Participant's account during the Offering Period in which occurs the Participant's termination and all options granted under Section 6(a) in connection with such Offering Period shall be canceled. 12. Transfer. A Participant may not assign, transfer, pledge or otherwise dispose of (other than by will, the laws of descent and distribution) any payroll deductions credited to the account of the Participant or any right to exercise an option or receive Shares under the Plan. Any such assignment, transfer, pledge or other disposition shall be without effect. Each option is exercisable during the lifetime of the Participant only by such Participant. 13. Participant Beneficiaries. (a) Designation. A Participant may file with the Committee, a written designation of a beneficiary who is entitled to receive any accumulated payroll deductions, if any, held for the Participant under the Plan, in the event of the Participant's death; provided, however, that the disposition of a Participant's Stock Account upon his or her death shall be provided under the terms of such Stock Account. (b) Failure of Designation. If a Participant dies without a valid beneficiary designation on file with the Committee, or if no designated beneficiary survives the Participant, the following automatic beneficiaries surviving the Participant shall be entitled to receive any accumulated payroll deductions, if any, held for the Participant under the Plan: (i) Participant's surviving spouse, or (ii) if the Participant is not married, the Participant's estate. -7- 14. Shares. The maximum number of Shares that may be acquired by any Participant in any Offering Period is 1,500. The maximum number of Shares that may be purchased by all Participants under the Plan is 1,000,000, subject to adjustment upon changes in the capitalization of the Company as set forth in Section 16. Shares credited to for Participants' Stock Accounts may, at the Committee's discretion, be purchased in the open market (on an exchange or in negotiated transactions), or may be previously acquired treasury Shares, authorized and unissued Shares, or any combination of Shares purchased in the open market, previously acquired treasury Shares or authorized and unissued Shares. If, on a given Exercise Date, the number of Shares with respect to which options are to be exercised exceeds the number of Shares then available under the Plan, the Committee shall make a pro rata allocation of the Shares remaining available for purchase in as uniform a manner as shall be practicable and as it shall determine to be equitable. 15. Administration. The Plan shall be administered by the Committee, which shall have full and exclusive discretionary authority to construe, interpret and apply the terms of the Plan, to determine eligibility and to adjudicate all disputed claims filed under the Plan. The Committee may change the frequency of payroll deductions, limit the frequency or number of changes in the amount of payroll deductions to be made during an Offering Period, permit payroll withholding in excess of the amount designated by a Participant in order to adjust for delays or mistakes in the Company's processing of properly completed withholding elections, establish reasonable waiting and adjustment periods and/or accounting and crediting procedures to ensure that amounts applied toward the purchase of Shares for each Participant properly correspond with the Participant's payroll deductions, and establish such other limitations or procedures as the Committee determines in its sole discretion are advisable and consistent with the Plan. The Plan is intended to qualify as an "employee stock purchase plan" within the meaning of Section 423 of the Code. Each Participant shall have the same rights and privileges as afforded by Section 423 of the Code. Accordingly, the provisions of the Plan shall be construed so as to extend and limit participation in a manner consistent with the requirements of that section of the Code. Every finding, decision and determination made by the Committee shall, to the fullest extent permitted by law, be final and binding upon all parties. 16. Adjustments Upon Changes in Capitalization, Dissolution, Liquidation, Change in Control. (a) Changes in Capitalization. Subject to any required action by the shareholders of the Company, the number of Shares covered by each option under the Plan which has not yet been exercised and the number of Shares which have been authorized for issuance under the Plan but not yet placed under option, the maximum number of Shares each Participant may purchase per Offering Period (pursuant to Section 6) as well as the Purchase Price, shall be proportionately adjusted for any increase or decrease in the number of issued Shares resulting form a stock split, reverse stock split, stock dividend, combination or reclassification of the Shares, or any other increase or decrease in the number of Shares effected without receipt of consideration by the Company. Such adjustment shall be made by the Committee, whose determination in that respect shall be final, binding and conclusive. -8- (b) Dissolution or Liquidation. In the event of the proposed dissolution or liquidation of the Company, any Offering Period then in progress shall be shortened by setting a new Exercise Date (the "New Exercise Date"), and any Offering Period then in progress shall end on the New Exercise Date. The New Exercise Date shall be established by the Committee, and shall be before the date of the Company's proposed dissolution or liquidation. The Committee shall notify each Participant in writing, at least ten (10) business days prior to the New Exercise Date, that the Exercise Date for the Participant's option has been changed to the New Exercise Date and that the Participant's option shall be exercised automatically on the New Exercise Date in accordance with Section 7. (c) Change in Control. In the event of a Change in Control of the Company, any Offering Period then in progress shall be shortened by setting a new Exercise Date (the "Change of Control Exercise Date") and any Offering Period then in progress shall end on the Change of Control Exercise Date. The Change of Control Exercise Date shall be established by the Committee and shall be before the date of the Company's proposed sale or merger. The Committee shall notify each Participant in writing, at least ten (10) business days prior to the Change of Control Exercise Date, that the Exercise Date for the Participant's option has been changed to the Change of Control Exercise Date and that the Participant's option shall be exercised automatically on the Change of Control Exercise Date in accordance with Section 7. 17. Amendment or Termination. The Board of Directors may at any time and for any reason terminate or amend the Plan, and/or delegate authority for any amendments to the Committee. Except as provided in Section 16, no such termination or amendment shall affect options previously granted or adversely affect the rights of any Participant with respect thereto. Without shareholder consent and without regard to whether any Participant rights may have been considered to have been "adversely affected," the Plan may be amended to change the Offering Periods, increase the Purchase Price or change the maximum amount of payroll deductions permitted. To the extent necessary to comply with Section 423 of the Code (or any successor rule or provision or any other applicable law, regulation or stock exchange rule), the Company shall obtain shareholder approval of any amendment to the Plan in such a manner and to such a degree as required. 18. Notices. All notices or other communications by a Participant to the Company under or in connection with the Plan shall be deemed to have been duly given when received in the form specified by the Committee at the location, or by the person, designated by the Committee for the receipt thereof. 19. Conditions Upon Issuance of Shares. Shares shall not be issued with respect to an option unless the exercise of such option and the issuance and delivery of Shares pursuant thereto shall comply with all applicable provisions of law, domestic or foreign, including, without limitation, the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, the rules and regulations promulgated thereunder, and the requirements of any stock exchange upon which the Shares may then be listed. -9- As a condition to the exercise of an option, the Company may require a Participant to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required by any of the aforementioned applicable provisions of law. 20. Term. The Plan shall be effective upon its adoption by the Board of Directors subject to the approval by the shareholders of the Company which approval must occur within the 12-month period after the Plan is adopted by the Board of Directors. It shall continue in effect indefinitely thereafter until the maximum number of Shares available for sale under the Plan (as provided in Section 14 hereof) has been purchased, unless terminated pursuant to Section 17 hereof. In the event that the shareholders of the Company do not approve the Plan, all payroll deductions that have accumulated in Participants' accounts shall be refunded to Participants as soon as possible following the shareholder's action. 21. Use of Funds. Payroll deductions credited to a Participant's account shall remain the general assets of the Company or an Affiliated Company and shall not be held in trust or required to be segregated in any manner. 22. No Right to Continued Employment. Nothing in the Plan or in any option shall confer on any Participant any right to continue in the employ of the Company or any Affiliated Company. -10- -----END PRIVACY-ENHANCED MESSAGE-----