UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Soliciting Material Pursuant to
[_] Confidential, For Use of the SS.240.14a-11(c) or SS.240.14a-12
Commission Only (as permitted
by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
DONALDSON COMPANY, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
________________________________________________________________________________
2) Aggregate number of securities to which transaction applies:
________________________________________________________________________________
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
________________________________________________________________________________
4) Proposed maximum aggregate value of transaction:
________________________________________________________________________________
5) Total fee paid:
________________________________________________________________________________
[_] Fee paid previously with preliminary materials:
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
1) Amount previously paid:
________________________________________________________________________________
2) Form, Schedule or Registration Statement No.:
________________________________________________________________________________
3) Filing Party:
________________________________________________________________________________
4) Date Filed:
________________________________________________________________________________
[LOGO](TM)
DONALDSON(R)TM
Donaldson(R)
DONALDSON COMPANY, INC.
1400 WEST 94TH STREET
MINNEAPOLIS, MINNESOTA 55431-2370
www.Donaldson.com
NOTICE OF 20012002 ANNUAL MEETING OF STOCKHOLDERS
TIME: Friday, November 16, 2001 at 10:00 a.m. (CDT)(CST) on Friday, November 15, 2002
PLACE: Donaldson Company, Inc. Corporate Offices, 1400 West 94th
Street, Minneapolis, Minnesota.
ITEMS OF BUSINESS: (1) ElectTo elect three directors;
(2) RatifyTo ratify appointment of Arthur AndersenPricewaterhouseCoopers LLP
as Donaldson Company's independent auditors; and
(3) Adopt Donaldson Company, Inc. 2001 Master Stock
Incentive Plan; andTo act on any other business that properly comes
before the meeting.
RECORD DATE: You canmay vote if you are a stockholder of record at the
close of business on September 21, 2001. A list of stockholders entitled to
vote at the Annual Meeting will be available for
inspection at the offices of the Company, 1400 West 94th
Street, Minneapolis, Minnesota.20, 2002.
PROXY VOTING: It is important that your shares be represented
and voted at the Annual Meeting. Please follow the
instructions provided with your proxy card and promptly
vote your proxy by telephone, internet telephone or by signing and
returning the enclosed proxy card. Your support is
appreciated and you are cordially invited to attend the
Annual Meeting.
PLEASE PROMPTLY VOTE YOUR PROXY TO SAVE THE
COMPANY THE EXPENSE OF ADDITIONAL SOLICITATION
By Order of the Board of
Directors
/s/ Norman C. Linnell
Norman C. Linnell
SECRETARY
Dated: October 12, 20018, 2002
TABLE OF CONTENTS
PAGE
---------
Proxy Statement ........................................................ 1
Proposals You are Asked to Vote on .................................... 1
Solicitation of Proxies ............................................... 2General Information about the Annual Meeting and Voting Securities .................................................................... 2
Security Ownership ..................................................... 34
Election of Directors .................................................. 46
Nominees for Election ................................................. 57
Directors Continuing in Office ........................................ 57
Director Compensation ................................................. 68
Audit Committee Report and AppointmentRatification of Auditors ..................... 7
Adopt the 2001 Master Stock Incentive Plan ............................. 8.................... 9
Total Return to Shareholders ........................................... 1211
Executive Compensation ................................................. 1312
Human Resources Committee Report on Executive Compensation ............. 1615
Pension Benefits ....................................................... 1817
Compliance with Section 16(a) of the Securities Exchange Act of 1934 ... 1918
Change-in-Control Arrangements ......................................... 19
2002 Stockholder Proposals ............................................. 19
Other Matters .......................................................... 1918
Appendix A .............................................................Audit Committee Charter ..................................... A-1
i
DONALDSON COMPANY, INC.
1400 WEST 94TH STREET
MINNEAPOLIS, MINNESOTA 55431
-----------------------------------------------------
PROXY STATEMENT
MAILING DATEDATE: OCTOBER 12, 2001
-----------------------------8, 2002
------------------------
PROPOSALS YOU ARE ASKED TO VOTE ON
ITEM NO. 1
- ----------
ELECTION OF DIRECTORS
Three current directors, Paul Burke, Ken MelroseF. Guillaume Bastiaens, Janet Dolan and Steve Sanger,Jeffrey
Noddle, are recommended for election to the Board of Directors at the annual
meeting. Detailed information on the nominees is provided on page 5.7. Directors
are elected for a three-year term so that approximately one-third are elected at
each annual meeting of stockholders.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR EACH DIRECTOR
NOMINEE.
ITEM NO. 2
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RATIFICATION OF THE APPOINTMENT OF INDEPENDENT AUDITORS
The Audit Committee ofand the Board of Directors recommends to the Board of
Directors and the Board appoints the independent public accountants to audit the
Company's books, subject to ratification by the stockholders. The Audit
Committee recommends and the Board hashave selected
Arthur AndersenPricewaterhouseCoopers LLP ("PWC") to audit the Company's consolidated financial
statements for fiscal year 2002.2003, subject to ratification by the stockholders.
INDEPENDENT AUDITORS FEES
The aggregate fees billed to the Company for fiscal year 20012002 by Arthur
Andersen LLP,PWC, the
Company's independent public accountants, are as follows:
IN THOUSANDS
------------
* Audit Fees ............................................ $600,000(includes statutory audits) ................. $ 533,000
* Financial Information Systems Design and
Implementation Fees .................................. $107,000................................... $ 0
* All Other Fees for non-audit services (including tax).. $118,000(relating primarily to tax planning)..... $1,015,686
The Audit Committee has considered whether performance of services other
than audit services is compatible with maintaining the independence of Arthur
Andersen LLP.PWC.
Representatives of Arthur AndersenPWC will attend the annual meeting, where they will have the
opportunity to make a statement and to answer questions.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE RATIFICATION
OF THE APPOINTMENT OF ARTHUR ANDERSENPRICEWATERHOUSECOOPERS LLP AS INDEPENDENT AUDITORS FOR
FISCAL YEAR 2002.
ITEM NO. 3
----------
ADOPTION OF THE DONALDSON COMPANY, INC. MASTER STOCK INCENTIVE PLAN
The Donaldson Company, Inc. 2001 Master Stock Incentive Plan is presented
to the stockholders for their approval.
The purpose of the 2001 Master Stock Incentive Plan is to replace the 1991
Master Stock Compensation Plan which expires on December 31, 2001. The new plan
is designed to enhance the long-term profitability of the Company and increase
shareholder value by aligning the interests of employees, management and
non-employee directors with the interests of our shareholders. More detail on
the new plan can be found on page 8.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE ADOPTION OF
THE DONALDSON COMPANY, INC. 2001 MASTER STOCK INCENTIVE PLAN.2003.
1
SOLICITATION OF PROXIES
The enclosed proxy is solicited by the Board of Directors ofGENERAL INFORMATION ABOUT THE ANNUAL MEETING AND VOTING
Q: WHY DID I RECEIVE THIS PROXY STATEMENT?
A: Because you are a Donaldson Company, Inc. (the "Company") for use at the Annual Meeting of Stockholders to
be held on November 16, 2001, and at any adjournments thereof. The person
signing a proxy may revoke it any time before it is exercised. Each valid proxy
received prior to the meeting will be voted according to the stockholder's
directions. If no direction is given, such proxies will be voted in favor of (1)
the nominees for directors identified herein, (2) ratifying the auditors named
herein, and (3) approving the Donaldson Company, Inc. 2001 Master Stock
Incentive Plan.
The Company will pay for the cost of this solicitation of proxies. In
addition to solicitation of proxies by the use of the mails, there may be
incidental personal solicitations by telephone, special communications or in
person, by officers, directors and regular employees of the Company who will not
receive additional compensation. The Company will reimburse banks, brokerage
firms and other nominees, custodians and fiduciaries for reasonable expenses
incurred by them in sending proxy materials and annual reports to the beneficial
owners of stock. The Company has engaged Morrow & Co., Inc. to assist in proxy
solicitation for an estimated fee of $7,500 plus out-of-pocket expenses. This
proxy statement and the accompanying proxy are first being mailed to
stockholders on or about October 12, 2001. The 2001 Annual Report to
Stockholders for the fiscal year ended July 31, 2001 is being mailed with this
Proxy Statement.
VOTING SECURITIES
Stockholders of recordstockholder as of the close of business on the
record date of September 21, 2001
will be20, 2002. Only stockholders of record are entitled
to vote at the annual meeting and the Board of Directors is soliciting your
proxy to vote at the meeting. The Company then had approximately
44,097,32843,897,537 shares of Common Stockcommon
stock outstanding eachas of whichclose of business on the record date. Each share
entitles its holder to one vote.
RepresentationThis Proxy Statement summarizes the information you need to know to vote.
We first mailed the Proxy Statement and proxy card to stockholders on or
about October 8, 2002.
Q: WHAT AM I VOTING ON AND WHAT DOES THE BOARD RECOMMEND?
A: 1. The election of directors; and
2. The ratification of the appointment of our independent auditors for
fiscal year 2003.
THE BOARD RECOMMENDS A VOTE FOR EACH OF THE NOMINEES TO THE BOARD OF
DIRECTORS AND FOR THE RATIFICATION OF PRICEWATERHOUSECOOPERS LLP AS
INDEPENDENT AUDITORS FOR FISCAL YEAR 2003.
Q: HOW DO I VOTE IF I AM A STOCKHOLDER OF RECORD?
A: If you are a stockholder of record you may vote using any ONE of the
methods set forth on your enclosed proxy card:
1. VOTE BY PHONE TOLL FREE 1-800-240-6326 QUICK *** EASY *** IMMEDIATE
2. VOTE BY INTERNET -- http://www.eproxy.com/dci/
3. VOTE BY PROMPTLY MAILING YOUR PROXY CARD -- COMPLETE AND SIGN
4. VOTE BY CASTING YOUR VOTE IN PERSON AT THE MEETING
If you participate in the Donaldson Dividend Reinvestment Program open to
all stockholders and administered by the transfer agent, your shares in
that program have been added to your other holdings and included on your
proxy card.
If you participate in the Donaldson Employee Stock Purchase Program
administered by the transfer agent, your shares in that program have been
added to your other holdings and included on your proxy card.
Q: HOW DO I VOTE IF I HOLD STOCK THROUGH A DONALDSON EMPLOYEE BENEFIT PLAN?
A: We have added the shares of common stock held by participants in
Donaldson's employee benefit plans to the participants other holdings shown
on their proxy cards. Donaldson's employee benefit plans are the Employee
Stock Ownership Plan, the PAYSOP, and the Donaldson Company, Inc.
Retirement Savings Plan (the 401(k) plan).
If you hold stock through Donaldson's employee benefit plans, voting your
proxy using one of methods 1-3 above also serves as voting instructions to
the plan trustee, Fidelity Management Trust Company ("Fidelity"). Fidelity
will vote your employee benefit plan shares as directed by you provided
that your proxy vote is RECEIVED BY NOVEMBER 13, 2002.
Fidelity also will vote the shares allocated to individual participant
accounts, for which it has not received instructions, as well as shares not
so allocated in the same proportion as the directed shares are voted.
Q: HOW DO I VOTE IF MY SHARES ARE HELD IN A BROKERAGE ACCOUNT IN MY BROKER'S
NAME (I.E., STREET NAME)?
A: If your shares are held in a brokerage account in your broker's name
(street name), you should follow the voting directions provided by your
broker or nominee. If you do so, your broker or nominee will vote your
shares as you have directed.
2
Q: WHAT DOES IT MEAN IF I RECEIVE MORE THAN ONE PROXY CARD?
A: It means that you have multiple accounts with banks or stockbrokers or with
the transfer agent. PLEASE VOTE ALL OF YOUR SHARES.
Q: WHAT IF I CHANGE MY MIND AFTER I VOTE MY SHARES?
A: You can revoke your proxy at any time before it is voted at the meeting by:
1. Sending written notice of revocation to the Company Secretary
2. Submitting a majority of the outstanding
shares is required for a quorum.
If an executedproperly signed proxy card is returnedwith a later date
3. Voting by telephone or internet at a proxy is voted bytime following your prior
telephone or internet vote; or
telephone, and4. Voting in person at the stockholder has abstained from voting on any matter or, in
the case ofannual meeting.
Q: HOW ARE THE VOTES COUNTED?
A: For the election of directors, has withheld authority toyou may 1) vote with
respect to any orfor all of the nominees, 2)
withhold your vote from all of the shares representednominees or 3) withhold your vote from a
specifically designated nominee. For the ratification of the appointment of
the independent auditors, you may vote (or abstain) by such proxychoosing For,
Against or Abstain.
If you abstain from the ratification of the auditors, your shares will be
consideredcounted as present at the meeting for the purposes of determining a quorum,
and for purposes of calculatingthey will be treated as shares not voted on the vote, but will not be considered to have been
voted in favor of such matter or, in the case of the election of directors, in
favor of such nominee or nominees.specific proposal.
If an executed proxy is returned by a broker
holdingyou hold shares in street name which indicates thatand do not provide voting instructions to
your broker, your broker will not vote your shares on any proposal where
the broker does not have discretionary authority as to certain shares to vote on one or more matters,vote. In such a
situation, the shares will be considered present at the meeting for
purposes of determining a quorum, but will not be considered to be
represented at the meeting for purposes of calculating the vote with
respect to such matter. Sharesthe matter requiring discretionary authority. New York Stock
Exchange Rules permit brokers discretionary authority to vote on both items
1 and 2, if they do not receive instructions from the street name holder of
Common Stock creditedthe shares. As a result, if you do not vote your street name shares, your
broker has authority to vote on your behalf.
The Company uses an independent inspector of elections, Wells Fargo Bank
Minnesota, which tabulates the accountsvotes received.
Q: WHAT IF I DO NOT SPECIFY HOW I WANT MY SHARES VOTED?
A. If you do not specify on your returned proxy card or through the telephone
or internet prompts how you want to vote your shares, they will be voted
FOR the election of participantsall director nominees and FOR the ratification of the
appointment of the independent auditors.
Q: HOW MANY SHARES MUST BE PRESENT TO HOLD THE MEETING?
A: A quorum must be present for the meeting to be valid. This means that at
least a majority of the shares outstanding as of the record date must be
present. We will count you as present if you:
1. Have properly voted your proxy by telephone, internet or mailing of
the proxy card; or
2. Are present and vote in person at the meeting.
Q: HOW MANY VOTES ARE NEEDED TO APPROVE EACH ITEM?
A: The vote of a plurality of the shares of common stock present or
represented and entitled to vote at the meeting is required for election as
a director. This means that, since shareholders will be electing 3
directors, the 3 nominees receiving the most votes will be elected.
Ratification of the appointment of the independent auditors requires the
affirmative vote of a majority of shares entitled to vote and represented
at the meeting in person or by proxy.
Q: HOW WILL VOTING ON ANY OTHER BUSINESS BE CONDUCTED?
A: We do not know of any business to be considered at the 2002 Annual Meeting
of Stockholders other than the proposals described in this Proxy Statement.
If any other business is presented at the annual meeting, the persons named
in the automatic
Dividend Reinvestment Programform of the Company have been added to the
participants' other holdings and included in the enclosed proxy.
Shares of Common Stock credited to the accounts of participants in the
Company's employee benefit plans are listed separately on the enclosed proxy card. As a participant in the Employee Stock Ownership Plan (ESOP), the PAYSOP,
and the Donaldson Company, Inc. Retirement Savings Plan (401(k) Plan), you have
the right to direct the plan trustee, Fidelity Management Trust Company
("Fidelity"), and tell it howintend to vote the shares credited to your accounts.
Voting your proxy servesrepresented by such proxies
in accordance with their best judgment.
3
Q: WHO MAY ATTEND THE MEETING?
A: All Donaldson stockholders of record as of the close of business on
September 20, 2002 may attend.
Q: WHERE DO I FIND THE VOTING RESULTS OF THE MEETING?
A: We will publish the voting instructionsresults in our Form 10-Q for the second quarter
of fiscal 2003, which we will file with the Securities and Exchange
Commission.
Q: HOW DO I SUBMIT A STOCKHOLDER PROPOSAL?
A: If you wish to include a proposal in the Company's Proxy Statement for its
2003 annual meeting of stockholders, you must submit the proposal in
writing so that it is received no later than June 10, 2003. Please send
your proposal to the plan trustee. This
means that FidelityCompany Secretary, Donaldson Company, Inc., P.O. Box
1299, Minneapolis, MN 55440-1299.
Under our bylaws, if you wish to nominate a director or bring other
business before the stockholders at our 2003 annual meeting without having
your proposal included in our Proxy Statement:
> You must notify the Company Secretary of Donaldson Company, Inc. in
writing between July 18, 2003 and August 17, 2003.
> Your notice must contain the specific information required in our
bylaws. If you would like a copy of our bylaws, we will votesend you one
without charge. Please write to the shares creditedCompany Secretary at the address
shown above.
Q: WHO PAYS FOR THE COST OF PROXY PREPARATION AND SOLICITATION?
A: Donaldson pays for the cost of proxy preparation and solicitation,
including the reasonable charges and expenses of brokerage firms, banks or
other nominees for forwarding proxy materials to your account as directed by
you provided that your proxy vote is received by November 13, 2001. Fidelity
will vote the allocated shares for which it has not received voting
instructions, as well as shares not allocatedstreet name holders. We
have retained Morrow & Co., to individual participant
accounts,assist in the same proportion assolicitation of proxies for
the directed sharesannual meeting for a fee of approximately $5,000, plus associated costs
and expenses. We are voted.
2
soliciting proxies primarily by mail. In addition, our
directors, officers and regular employees may solicit proxies by telephone
or facsimile or personally. These individuals will receive no additional
compensation for their services other than their regular salaries.
SECURITY OWNERSHIP
Set forth below is information regarding persons known by the Company to
own beneficially more than 5% of the outstanding Common Stock of the Company
based on the number of shares of Common Stock outstanding on September 21, 2001:20, 2002:
NAME AND ADDRESS AMOUNT AND NATURE PERCENT
OF BENEFICIAL OWNER (1)OWNER(1) OF BENEFICIAL OWNERSHIP OF CLASS
--------------------------------------------- ----------------------- --------
Pioneer Investment Management, Inc. .... 3,889,600(2) 8.8%
60 State Street
19th Floor
Boston, MA 02109
Capital Group International, Inc. ...... 2,245,400(3) 5.1%
11100 Santa Monica Blvd.
Los Angeles, CA 90025None. See footnote (1)
- ------------------
(1) Fidelity Management Trust Company, as the trustee of the Company's
Retirement Savings Plan -- 401(k) Profit Sharing and ESOP/PAYSOP Plan, held
5,734,5175,331,880 shares, or 13.0%12.1%, of the Company's common stock as of September
21, 2001.20, 2002. Fidelity disclaims beneficial ownership of the shares claiming
that it holds the shares solely for the benefit of the employee
participants, and that it does not have the power to vote or dispose of
those shares except as directed by the employee participants.
(2) Pioneer Investment Management, Inc. is a registered investment adviser with
sole voting power with respect to all 3,889,000 shares and sole investment
power with respect to all 3,889,600 shares. Information is based solelyThe table on a Schedule 13G filed with the Securities and Exchange Commission by Pioneer
Investment Management, Inc. with respect to shares held as of December 31,
2000.
(3) Capital Group International, Inc. is the parent holding company of a group
of investment management companies that hold sole voting power over
1,674,400 shares and sole investment power over 2,245,400 shares.
Information is based solely on a Schedule 13G filed with the Securities and
Exchange Commission by Capital Group International, Inc. with respect to
shares held as of December 29, 2000.
The following table sets forthpage 5 shows information as of September 30, 2001, regarding the beneficial ownership of
the Company's Common Stockcommon stock and information concerning deferred restricted stock
units, deferred share units under stock option exercises and phantom stock
units, as of September 30, 2002, by each director, each of the Named Officers
(as identified on page 13)12) and all executive officers and directors of the
Company as a group. The definition of beneficial ownership includes shares over
which a person has sole or shared voting power, or sole or shared power to
invest or dispose of the shares, whether or not a person has any economic
interest in the shares, and also includes shares subject to options exercisable
within 60 days of September 30, 2002. Except as otherwise indicated, the named
beneficial owner has sole voting and investment power with respect to the shares
held by such beneficial owner.
4
TOTALAMOUNT AND
NATURE OF
BENEFICIAL
OWNERSHIP PERCENT OF DEFERRED
OF COMMON COMMON STOCK EXERCISABLE
NAME OF INDIVIDUAL OR GROUPBENEFICIAL OWNER SHARES (1)(2) OF CLASS(3) SHARES(3) UNITS(3) OPTIONS
(1)
--------------------------- ------------------------------------- ---------------- ---------- -------- -----------
William G. Van Dyke .................. 922,394(3) 2.1 529,940
Nickolas Priadka ..................... 258,503(4) * 127,946................. 830,124(4) 1.9 406,128 470,596
James R. Giertz ...................... 265,333..................... 283,254 * 186,54329,170 211,043
William M. Cook ...................... 241,895..................... 266,854 * 170,26319,301 187,097
Nickolas Priadka .................... 233,103(5) * 88,445 104,975
Lowell F. Schwab ..................... 204,667.................... 222,416 * 140,54710,841 148,392
Kendrick B. Melrose ................. 66,792(6) * 38,400
S. Walter Richey ..................... 64,071(5)(6).................... 60,679(6)(7) * 34,800
Kendrick B. Melrose .................. 62,115(6) * 34,800-- 31,256
Stephen W. Sanger .................... 54,915(6)................... 55,657(6) * 30,800-- 30,400
Jack W. Eugster ...................... 45,377(6)..................... 49,778(6) * 26,800-- 30,400
F. Guillaume Bastiaens ............... 29,565(6).............. 33,398(6) * 22,800-- 26,400
Paul B. Burke ........................ 27,669(6)....................... 32,239(6) * 18,800-- 22,400
Janet M. Dolan ....................... 26,493(6)...................... 31,148(6) * 18,800-- 22,400
John F. Grundhofer ................... 21,855(6)(7).................. 24,419(6)(8) * 14,800-- 16,730
Jeffrey Noddle ....................... 5,837(6)...................... 10,405(6) * -- 7,200
Paul D. Miller ...................... 4,594(6) -- 3,600
Directors and Officers as a Group .... 2,474,351... 2,473,958 5.6 1 ,567,787605,286 1,535,082
- ------------------
* Less than 1%
(1) Includes restricted shares, deferred share unitsshares for non-employee directors held in trust
and the shares underlying options exercisable within 60 days, as listed
under the Exercisable Options column.
3
(2) Includes the following shares held in the ESOP trust: Mr. Van Dyke, 27,70727,929
shares; Mr. Priadka, 21,24621,459 shares; Mr. Giertz, 3,9654,193 shares; Mr. Cook,
17,65217,921 shares; Mr. Schwab, 12,41812,651 shares. Voting of shares held in the ESOP
Trust is passed through to the participants. Also includes the following
shares held in the 401K Plan trust: Mr. Van Dyke, 0 shares; Mr. Priadka, 0
shares; Mr. Giertz, 4,230 shares; Mr. Cook, 2,5502,594 shares; Mr. Schwab, 6,4546,525
shares. Voting of shares held in the 401K Plan Trust is passed through to
the participants. Also includes the following shares held in the Deferred
Compensation and 401K Excess Plan trust: Mr. Van Dyke, 7,6868,939 shares; Mr.
Priadka, 1,4391,631 shares; Mr. Giertz, 1,7632,177 shares; Mr. Cook, 1,7082,009 shares;
Mr. Schwab, 1,5301,773 shares. Voting of shares held in the Deferred
Compensation and 401K Excess Plan trust is passed through to the
participants.
(3) The deferred stock units listed under the third column "Deferred Stock
Units" are not included in the beneficial ownership totals or in the
percent of ownership (columns 1 and 2) because there are not yet any issued
shares and there is no voting or investment power. The column "Deferred
Stock Units" includes phantom stock units allocated to employees earning in
excess of the limits established by the Internal Revenue Code for the
qualified Employee Stock Ownership Plan that distributed shares in trust
for employees during the period from 1987 to 1996. ESOP phantom stock units
are held by the named executive officers in the following amounts: Van
Dyke, 31,202; Cook, 2,560; Schwab, 3,078; Priadka, 3,873; and Giertz,
4,257, all directors and officers as a group, 48,116.
The Deferred Stock Units column also includes deferred restricted stock
units under the Deferred Compensation and 401(k) plan. Deferred restricted
stock units are held by the named executive officers in the following
amounts: Giertz, 24,913; all directors and officers as a group, 24,913.
The Deferred Stock Units column also includes deferred stock units under
the Deferred Compensation and 401(k) plan for exercises of stock options
where the executive has previously elected to defer the receipt of the
underlying shares. Deferred stock option gain units are held by the named
executive officers in the following amounts: Van Dyke, 327,136; Cook,
2,551; Priadka, 74,013; all directors and officers as a group, 441,513.
The Deferred Stock Units column also includes deferred stock units under
the Deferred Compensation and 401(k) plan for deferral of shares awarded
under the long-term compensation plan under the 1991 Master Stock
Compensation Plan, where the executive has previously elected to defer the
receipt of the
5
underlying shares. Deferred stock units are held by the named executive
officers in the following amounts: Van Dyke, 47,790; Cook, 14,190; Priadka,
10,559; Schwab, 7,763; and all directors and officers as a group, 90,744.
(4) Includes 262,862250,146 shares held in a family trust of which Mr. Van Dyke is a
trustee and a beneficiary, as to which he shares voting and investment
power, and 61,636 shares held in a family trust of which Mr. Van Dyke is a
trustee, as to which he shares voting and investment power; and 13,00016,200
shares underlying options gifted to immediate family members.
(4)(5) Includes 24,358 shares held in a trust of which Mr. Priadka is a trustee
and has shared voting and investment power.
(5) Includes 7,579 shares held by spouse.
(6) Includes the following shares held in the nonemployeenon-employee director's deferred
stock account trust: Mr. Richey, 8,1719,320 shares; Mr. Melrose, 7,9869,063 shares;
Mr. Sanger, 7,8208,962 shares; Mr. Eugster, 6,1526,953 shares; Mr. Bastiaens, 2,1102,343
shares; Mr. Burke 4,5675,537 shares; Ms. Dolan, 4,9345,989 shares; Mr. Grundhofer,
4,1355,099 shares; Mr. Noddle, 2,205 shares; and Mr. Noddle, 1,237Miller, 794 shares. Voting
of shares held in the deferred stock account trust is passed through to the
participants.
(7) Includes 6,579 shares held by spouse.
(8) Includes 2,000 shares held in a trust of which Mr. Grundhofer is a trustee
and has shared voting and investment power.
ELECTION OF DIRECTORS
The Bylaws of the Company provide that the Board of Directors shall consist
of not less than three nor more than 15 directors and that the number of
directors may be fixed from time to time by the affirmative vote of a majority
of the directors. The Board of Directors has fixed the number of directors
constituting the entire Board at ten.11. Vacancies and newly created directorships
resulting from an increase in the number of directors may be filled by a
majority of the directors then in office and the directors so chosen will hold
office until the next election of the class for which such directors shall have
been chosen and until their successors are elected and qualified. Directors are
elected for a term of three years with positions staggered so that approximately
one-third of the directors are elected at each annual meeting of the
stockholders. The terms of Paul B. Burke, Kendrick B. MelroseF. Guillaume Bastiaens, Janet M. Dolan and Stephen W.
SangerJeffrey
Noddle expire at the annual meeting. Mr. BurkeBastiaens was elected byto the Board in
1996,
Mr. Melrose1995, Ms. Dolan in 19911996 and Mr. SangerNoddle in 1992.2000. It is intended that proxies
received will be voted, unless authority is withheld, FOR the election of the
nominees, presented on Page 4, namely Paul B. Burke, Kendrick B. MelroseF. Guillaume Bastiaens, Janet M. Dolan and Stephen W.
Sanger.Jeffrey Noddle. The
three director nominees receiving the highest number of votes will be elected to
fill the seats on the Board. The term of S. Walter Richey also expires at the
2002 annual meeting. Mr. Richey has advised the Board of his intention to retire
and not to serve another term. The Board, upon the recommendation of the
Corporate Governance Committee, has approved reducing the number of directors
from 11 to 10 and eliminating the director position held by Mr. Richey effective
upon his retirement.
The Board of Directors meets on a regularly scheduled basis. During the
past fiscal year, the Board held six meetings. Each director attended at least
75% of the aggregate of the Board meetings and meetings of Board committees on
which each served, with the exception of John F. Grundhofer who attended 67%.Admiral Miller. Admiral Miller missed
only one meeting date, on which there was held both a Board and a Corporate
Governance Committee meeting.
The Board of Directors has assigned certain responsibilities to standing
committees. The Audit Committee is composed of directors F. Guillaume Bastiaens,
Janet M. Dolan, Kendrick B. Melrose, Jeffrey Noddle, S. Walter Richey (Chair)
and Stephen W. Sanger, all of whom are independent non-employee directors. The
Audit Committee held threefour meetings during the past fiscal year. The
responsibilities of the Audit Committee are described in the Audit Committee
Report to this Proxy Statement and are set forth in its Charter, which is
reviewed and amended periodically, as appropriate. A copy of the revised Audit
Committee Charter may be found in Appendix A to this Proxy Statement.
The Human Resources Committee is composed of directors Paul B. Burke, Jack
W. Eugster, John F. Grundhofer, Kendrick B. Melrose, Jeffrey Noddle, and
Stephen W. Sanger (Chair), all of whom are independent non-employee directors.
This Committee held two meetings during the past fiscal year. The functions of
this committee include review and approval of compensation arrangements for the
chief executive officer and 4
senior management and administration of the
Company's stock compensation plans. The Report of the Human Resources Committee
on Executive Compensation follows in this Proxy Statement.
6
The Corporate Governance Committee is composed of directors F. Guillaume
Bastiaens, Paul B. Burke, Janet M. Dolan, Jack W. Eugster (Chair), John F.
Grundhofer, Paul D. Miller and S. Walter Richey, all of whom are independent
non-employee directors. This Committee held one meeting during the past fiscal
year. The Committee's duties are to reviewinclude oversight of the organization and
evaluation of the Board and its committees, to propose to the Board a slate of
directors for election by the stockholders at each Annual Meeting, to propose
candidates to fill vacancies on the Board, to review and approvalrecommend director
compensation, and recommending to the Board a set of director compensation.corporate governance
principles. The Committee will consider nominees for director recommended by
stockholders. Recommendations should be addressed to the Secretary, Donaldson
Company, Inc., P.O. Box 1299, Minneapolis, MN 55440. Any proposal by a
stockholder for the nomination of a candidate for director at the annual meeting
for the election of directors is required by the Company's Bylaws to be
submitted in writing to the Secretary and received at the principal executive
offices of the Company not less than 90 days nor more than 120 days prior to the
anniversary date of the immediately preceding annual meeting.
The Board of Directors has no reason to believe that any nominees will be
unavailable or unable to serve, but in the event any nominee is not a candidate
at the meeting, the persons named in the enclosed proxy intend to vote in favor
of the remaining nominees and such other person, if any, as they may determine.
The table below and on the following page sets forth additional information
with respect to each nominee for election as a director and each other person
whose term of office as a director will continue after the meeting. S. Walter
Richey, who has served as a director since 1991, is retiring and will not serve
another term.
NOMINEES FOR ELECTION
NAME PRINCIPAL OCCUPATION AND BUSINESS EXPERIENCE
- ---- --------------------------------------------------------------------------
TERMS EXPIRING IN 2001:
Paul B. Burke Chairman and Chief Executive Officer of BMC Industries, Inc. (manufacturer
Age - 45 of precision imaged and optical products).
Director since 1996
Kendrick B. Melrose Chairman and Chief Executive Officer of The Toro Company (manufacturer
Age - 61 of outdoor maintenance products). Also, a director of SurModics, Inc.
Director since 1991
Stephen W. Sanger Chairman and Chief Executive Officer of General Mills, Inc. (consumer
Age - 55 products and services). Also, a director of Target Corporation.
Director since 1992
DIRECTORS CONTINUING IN OFFICE
NAME PRINCIPAL OCCUPATION AND BUSINESS EXPERIENCE
---- -----------------------------------------------------------------------------------------------------------------------------------------------------
TERMS EXPIRING IN 2002:
F. Guillaume Bastiaens Vice Chairman (1998) of Cargill, Inc. Previously, Executive Vice President
Age - 5859 and President, Food Sector of Cargill, Inc. (Agribusiness).
Director since 1995
Janet M. Dolan Chief Executive Officer (1999) and President (1998) of Tennant Company.
Age - 52 Previously, Chief Operating Officer (1998) and Executive Vice President
of
Director since 1996 (1996) of Tennant Company (manufacturer of floor maintenance equipment
and coating products). Also, a director of The St. Paul Companies.Companies, Inc. and
a member of the NYSE Listed Company Advisory Committee.
Jeffrey Noddle Chief Executive Officer (2001) and President (2000) of SUPERVALU INC.
Age - 5556 Previously, Chief Operating Officer (2000) and Corporate Executive Vice
Director since 2000 President; President and Chief Operating Officer of Distribution-- Wholesale Food
Companies (1995) of SUPERVALU INC. (food retailer and distributor).
Also, a director of SUPERVALU INC. and General Cable Corporation.
5
DIRECTORS CONTINUING IN OFFICE
NAME PRINCIPAL OCCUPATION AND BUSINESS EXPERIENCE
- ---- -----------------------------------------------------------------------------------------------------------------------------------------------------
S. Walter Richey Retired Chairman, President and Chief Executive Officer of Meritex, Inc.
Age - 65 (real estate management, development and warehousing). Mr. Richey was
Director since 1991 with Meritex (and its predecessor company) from 1973 until 1998. Also, a
director of U.S. Bancorp and a member of the Board of Overseers of the
Curtis L. Carlson School of Management at the University of Minnesota.
FOR A TERMTERMS EXPIRING IN 2003:
Jack W. Eugster Non-Executive Chairman (2001) of ShopKo Stores, Inc. (specialty discount
Age - 5657 retailer). Previously, Chairman, Chief Executive Officer and President of
Director since 1993 The Musicland Group, Inc. Mr. Eugster was with Musicland from 19801986 until his retirement in 2001. Also, a
director of Best Buy Co., Inc. and a member of the Board of
Overseers of the Curtis L. Carlson School of Management at the University
of Minnesota.
John F. Grundhofer Chairman (1999) of U.S. Bancorp (1999); Previously, Chief Executive Officer of
Age - 62 U.S. Bancorp (financial services).; Previously, Chief
Age - 63 Executive Officer (1990-2001) and Chairman (1990-1997) of U.S. Bancorp.
Director since 1997 Also, a director of Minnesota Life Insurance Company.
7
NAME PRINCIPAL OCCUPATION AND BUSINESS EXPERIENCE
- ---- ---------------------------------------------------------------------------
Admiral Paul David Miller Chairman and Chief Executive Officer (1999) of ATK (Alliant Techsystems
Age 60 Inc.), (aerospace and defense company). Previously, President (1994-1999)
Director since 1997 Insurance Company.2001 of Sperry Marine, Inc. and Vice President (1997-1999) of Litton Marine
Systems. Prior to his retirement from the U.S. Navy following a 30-year
career, Admiral Miller served as Commander-in-Chief, U.S. Atlantic
Command and NATO Supreme Allied Commander-Atlantic. Also, a director
of SunTrust Bank (mid-Atlantic) and Teledyne Technologies, Inc.
William G. Van Dyke Chairman, Chief Executive Officer and President of the Company. Also,Company since
Age - 5657 1996. Also, a director of Graco, Inc.
Director since 1994
TERMS EXPIRING IN 2004:
Paul B. Burke Retired Chairman and Chief Executive Officer of BMC Industries, Inc.
Age - 46 (manufacturer of precision imaged and optical products). Mr. Burke was
Director since 1996 with BMC from 1983 until 2002.
Kendrick B. Melrose Chairman and Chief Executive Officer of The Toro Company (manufacturer
Age - 62 of outdoor maintenance products) since 1987. Also, a director of SurModics,
Director since 1991 Inc.
Stephen W. Sanger Chairman and Chief Executive Officer of General Mills, Inc. (consumer
Age - 56 products and services) since 1995. Also, a director of Target Corporation.
Director since 1992
DIRECTOR COMPENSATION
Directors who are not employees receive a retainer fee of $26,000 annually
and are paid $1,000 for each Board or Committee meeting attended. Committee
Chairs receive an additional annual retainer of $2,500. Pursuant to the
Company's Compensation Plan for Non-Employee Directors, any non-employee
director may elect, prior to each year of their term, to defer all or part of
his or her director compensation received during the upcoming year. Each
participating director is entitled to a Company credit on the balance in his or
her deferral account at the ten-year Treasury Bond rate plus 2%. The deferral
election must also specify the manner for distribution of the deferral balance.
The 1991 Master Stock Compensation Plan, as amended (the "Plan"), provides
for non-employeeNon-employee directors to beare credited with shares to a deferred stock account
in lieu of 30% of the annual retainer for services as a Director to be rendered
in the following service year. The Plan also allows a directorDirectors are allowed to elect to receive a
credit of shares to a deferred stock account in lieu of all or part of the
remaining retainer and meeting fees. The directors also receive a credit for
dividend reinvestment shares. The Company contributes an amount equal to the
deferred stock accounts to a trust and the trust purchases shares of Donaldson
Common Stock. Each director is entitled to direct the trustee to vote all shares
allocated to the director's account in the trust. The Common Stock will be
distributed to each director following the director's retirement from the Board
pursuant to the director's deferral payment election. The trust assets remain
subject to the claims of the Company's creditors. The trust becomes irrevocable
in the event of a "Change in Control" as defined under the 1991 Master Stock
Compensation Plan.
The Company's Non-Qualified Stock Option Program for Non-employee Directors
provides for the automatic grant of a non-qualified stock option for 3,600
shares of Common Stock to each non-employee Director of the Company who is a
member of the Board on December 1 each year. The exercise price of such options
is the closing price of Common Stock in consolidated trading on the first
business day of December in the respective year. The options awarded in the
years prior to and after December 1, 1998 are fully vested and have a term of
ten years. The options awarded on December 1, 1998 vest annually beginning on
the first anniversary in three equal installments and have a term of ten years.
The option award was modified beginning in 1998 to include a "reload option"
granted at the time of exercise of the original option for the number of shares
equal to the shares used in payment of the purchase price. The one-time reload
option feature is similar to that included in the option grants to officers.
Shares credited to deferred stock accounts to non-employee directors under
the 1991 Master Stock Compensation Plan in
fiscal 2001,2002, were as follows: Bastiaens, 339234 shares, Burke, 1,365970 shares, Dolan,
1,4491,055 shares, Eugster, 1,116802 shares, Grundhofer, 1,272963 shares, Melrose, 1,5461,078
shares, Miller, 792 shares, Noddle, 1,234966 shares, Richey, 1,5891,150 shares, and
Sanger, 1,6041,142 shares.
68
AUDIT COMMITTEE REPORT AND APPOINTMENT OF AUDITORS
AUDIT COMMITTEE REPORT
The Audit Committee of the Board of Directors, consisting of six,
independent, non-employee directors, assists the board in carrying out its
oversight responsibilities for the Company's financial reporting process, audit
process and internal controls. The Audit Committee formally met threefour times
during the past fiscal year and performed its responsibilities under the Audit
Committee Charter.year. The Audit Committee reviewsreviewed and recommendsrecommended to the
Board of Directors (i) that the audited financial statements be included in the
Company's Annual Report on Form 10-K; and (ii) the selection of the independent
public accountants to audit the books and records of the Company.
The Audit Committee has also discussed with Arthur AndersenPricewaterhouseCoopers LLP, the
Company's independent auditors, matters relating to the auditors' judgments
about the quality, as well as the acceptability, of the Company's accounting
principles, as applied in its financial reporting as required by Statement of
Auditing Standards No. 61, Communications with Audit Committees. In addition,
the Audit Committee has discussed with Arthur AndersenPWC their independence from management
and the Company, as well as the matters in the written disclosures received from
Arthur AndersenPWC and required by Independence Standards Board Standard No. 1, Independence
Discussions with Audit Committees. The Committee also reviewed and considered
the compatibility of PWC's performance of non-audit services with the
maintenance of PWC's independence as the Company's independent auditor.
Based on the review and discussions with management and the independent
auditors, the Audit Committee recommended to the Board of Directors that the
audited financial statements be included in the Company's Annual Report on Form
10-K for the fiscal year ending July 31, 20012002 for filing with the Securities and
Exchange Commission. The Audit Committee also approved and recommended to the
Board of Directors that Arthur AndersenPricewaterhouseCoopers LLP be appointed as the Company's
independent auditors for the fiscal year ending July 31, 2002.2003.
Audit Committee
S. Walter Richey, Chair Kendrick B. Melrose
F. Guillaume Bastiaens Jeffrey Noddle
Janet M. Dolan Stephen W. Sanger
RATIFICATION OF APPOINTMENT OF AUDITORS
On March 17, 2000,April 18, 2002, the board of directors (the "Board") of the Company, determined not to re-engage its independent
auditors, Ernst & Young LLP ("E&Y") and appointed Arthur Andersen LLP as its new
independent auditors, effective immediately. This determination followed the
Company's decision to seek proposals from independent accounting firms,
including E&Y, with respect to the engagement of independent accountants to
audit the Company's financial statements for the fiscal year ending July 31,
2000. The decision not to re-engage E&Y and to retain Arthur Andersen was
approved by the Company's Board of Directors uponat
the recommendation of its Audit Committee.
Theaudit committee, dismissed Arthur Andersen LLP
("Andersen") as the Company's independent public accountants and engaged
PricewaterhouseCoopers LLP ("PWC") to serve as the Company's independent public
accountants for fiscal year 2002.
Andersen's reports of E&Y on the Company's consolidated financial statements for
each of the Company for its
fiscal years ended July 31, 19992001 and July 31, 19982000 did not contain anyan adverse
opinion or disclaimer of opinion, andnor were notthey qualified or modified as to
uncertainty, audit scope or accounting principles.
During the Company's two most
recent fiscal years prior to March 17,ended July 31, 2001 and 2000 and the subsequent interim period
through March 17, 2000,April 18, 2002,
there were no disagreements between the Company and E&Ywith Andersen on any matter of accounting principles
or practices, financial statement disclosure, or auditing scope or procedure,
which, if not resolved to theAndersen's satisfaction, of E&Y, would have caused E&Ythem to
make reference to the subject matter of the disagreementdisagreements in connection with
its reports.
The Company did not, duringtheir report on the Company's two most recent fiscal years
prior to March 17, 2000 or the subsequent interim period through March 17, 2000,
consult with Arthur Andersen on items which concerned the subject matterconsolidated financial statements for such years;
and there were no "reportable events," as such term is defined in Item
304(a)(1)(v) of a
disagreement or reportable event with E&Y (as described in Regulation S-K Item
304(a)(2)).S-K.
The Company reported the dismissal and change in accountantsindependent auditor on
Form 8-K on March 21,
2000.April 24, 2002. The Form 8-K contained a letter from E&Y,Andersen dated
April 18, 2002 and addressed to the Securities and Exchange Commission, stating
that it agreedits agreement with the comments relating to E&Ystatements contained in such disclosures.
During the second paragraph above,years ended July 31, 2001 and was not in a position to agree or disagree with2000 and through the comments in the remainderdate of the
above statements.Board's decision to engage PWC, the Company did not consult PWC with respect to
the application of accounting principles to a
9
specified transaction, either completed or proposed, or the type of audit
opinion that might be rendered on the Company's consolidated financial
statements, or any other matters or reportable events as set forth in Items
304(a)(2)(i) and (ii) of Regulation S-K.
Upon recommendation of its Audit Committee, the Board of Directors has
appointed Arthur AndersenPricewaterhouseCoopers LLP as independent public accountants to audit
the books and accounts of the Company for the fiscal year 7
ending July 31, 2002,2003,
such appointment to continue at the pleasure of the Board of Directors and
subject to ratification by the stockholders. Arthur Andersen
LLPPWC has audited the books and
accounts of the Company since 2000.2002. Representatives of Arthur Andersen LLPPWC are expected to be
present at the meeting with the opportunity to make a statement and to respond
to appropriate questions. In the event this appointment is not ratified, the
Board of Directors will reconsider its selection. Ratification of the selection
will require the affirmative vote of a majority of the shares of Common Stock of
the Company entitled to vote and represented at the meeting in person or by
proxy.
The Board of Directors recommends that stockholders vote FOR ratification
of the appointment of Arthur AndersenPricewaterhouseCoopers LLP as independent auditors for the
fiscal year ending July 31, 2002.
ADOPT THE 2001 MASTER STOCK INCENTIVE PLAN
The Board2003.
AUDIT COMMITTEE CHARTER
On September 20, 2002, the Audit Committee adopted a new Audit Committee
Charter, a copy of Directors has approved and recommends to the shareholders the
adoption of the 2001 Master Stock Incentive Plan (the "2001 Incentive Plan"), which is designed to enhance the long-term profitability of the Company and
increase shareholder value by increasing the proprietary interest of those
individuals who are key to the growth and success of the Company. The Company
believes that the 2001 Plan will effectively align the interests of the
employees, management and non-employee directors with the interest of the
Company's stockholders.
The 2001 Incentive Plan is designed to replace the 1991 Master Stock
Compensation Plan which expires at the end of its ten year term on December 31,
2001. The 1991 Plan limited the number of shares that could be awarded in any
calendar year to 1.5% of the outstanding shares of the Company's common stock,
common stock equivalents and treasury shares, so that the maximum amount that
could be issued over the ten year life of the plan was 15% of the shares. In
practice, the Company carefully managed the plan under its executive
compensation program and compensation philosophy and the actual number of awards
was substantially below the 15% limitation over the life of the 1991 plan.
The 2001 Incentive Plan retains the best features of the 1991 Plan which
has worked very effectively for the Company, including this same 1.5% limitation
feature, and adds new restrictions to provide for the most effective use of the
awards. The 2001 Incentive Plan adds a restriction that no more than 600,000
shares of common stock may be issuedincluded as restricted stock or restricted stock
units over the life of the plan. The 2001 Incentive Plan also prohibits the
repricing of any option grant. The 2001 Incentive Plan retains the 500,000 share
limitation for awards to any individual participant in a calendar year, the
value of which award or awards is based solely on an increase in the value of
shares after the date of grant of such award or awards.
SUMMARY OF INCENTIVE PLAN
The Incentive Plan permits the granting of (a) stock options, including
"incentive stock options" meeting the requirements of Section 422 of the
Internal Revenue Code of 1986, as amended (the "CODE") ("INCENTIVE STOCK
OPTIONS") and stock options that do not meet such requirements ("NON-QUALIFIED
STOCK OPTIONS"), (b) stock appreciation rights, (c) restricted stock and
restricted stock units, (d) performance awards, (e) dividend equivalents and (f)
other stock based awards. The Incentive Plan is administered by the Human
Resources Committee of the Company's Board of Directors (the "COMMITTEE"). The
Committee has the authority to establish rules for the administration of the
Incentive Plan; to select the persons to whom awards are granted; to determine
the types of awards to be granted and the number of shares of Common Stock
covered by such awards; and to set the terms and conditions of such awards. The
Committee may also determine whether the payment of any amounts received under
any award shall or may be deferred either automatically or at the election of
the holder thereof or the Committee. Determinations and interpretations with
respect to the Incentive Plan are in the sole discretion of the Committee, whose
determinations and interpretations are binding on all interested parties. The
Committee may delegate to one or more officers the right to grant awards with
respect to individuals who are not subject to Section 16(b) of the Securities
Exchange Act of 1934, as amended. Awards are granted for no cash consideration
or for such cash or other consideration as may be determined by the Committee or
required by applicable law. Awards may provide that upon the grant or exercise
thereof the holder will receive shares of Common Stock, cash or any combination
thereof, as the Committee shall determine.
The Incentive Plan will have a term beginning on the effective date of the
Incentive Plan and ending on December 31, 2011, and no awards may be made after
such date. However, unless otherwise expressly
8
provided in the Incentive Plan or an applicable award agreement, any award
granted may extend beyond the termination date of the Incentive Plan.
The aggregate number of shares of Common Stock that may be issued under all
awards under the Incentive plan in any calendar year may not exceed 1.5% of the
sum of the Company's outstanding shares of Common Stock, the outstanding share
equivalents, as determined by the Company in the calculation of earnings per
share on a fully diluted basis, and shares held in the treasury of the Company,
as reported in the Company's Annual Report on Form 10-K for the most recent
fiscal year that ends during such calendar year. However, any shares with
respect to which awards may be issued, but are not issued, under the Incentive
Plan in any calendar year will be carried forward and be available to be covered
by awards issued in any subsequent calendar year in which awards may be issued
under the Incentive Plan.
No participant may be granted any award or awards under the Incentive Plan,
the value of which award or awards is based solely on an increase in the value
of shares after the date of grant of such award or awards, for more than 500,000
shares, in the aggregate, in any one calendar year. The 2001 Incentive Plan also
limits the shares that can be issued for incentive stock options to 2,000,000
for the life of the plan.
The exercise price per share under any stock option or the grant price of
any SAR cannot be less than 100% of the fair market value of the Company's
Common Stock on the date of the grant of such option or SAR. Options may be
exercised by payment in full of the exercise price, either in cash or, at the
discretion of the Committee, in whole or in part by the tendering of shares of
Common Stock or other consideration having a fair market value on the date the
option is exercised equal to the exercise price. Determinations of fair market
value under the Incentive Plan are made in accordance with methods and
procedures established by the Committee.
The Committee may also grant reload options, which would provide for a new
option to be granted to a participant when the participant pays the exercise
price of a previously granted stock option, and/or the applicable income tax
amount payable upon exercise, in shares of Common Stock. Reload options may be
granted with respect to stock options previously granted under the Incentive
Plan or any other stock option plan of the Company or may be granted in
connection with any stock option granted under the Incentive Plan or any other
stock option plan of the Company at the time of grant. Reload options will have
a per share exercise price equal to the fair market value of one share of Common
Stock on the date of grant of the new stock option. Any reload option will be
subject to availability of sufficient shares for grant under the Incentive Plan.
Shares surrendered as part or all of the exercise price of the stock option to
which it relates that have been owned by the optionee less than six months will
not be counted for purposes of determining the number of shares of Common Stock
that may be purchased pursuant to a reload option.
The holder of an SAR is entitled to receive the excess of the fair market
value (calculated as of the exercise date or, if the Committee shall so
determine, as of any time during a specified period before or after the exercise
date) of a specified number of shares over the grant price of the SAR.
The holder of restricted stock may have all of the rights of a stockholder
of the Company, including the right to vote the shares subject to the restricted
stock award and to receive any dividends with respect thereto, or such rights
may be restricted. Holders of restricted stock units have the right, subject to
any restrictions imposed by the Committee, to receive shares of Common Stock (or
a cash payment equal to the fair market value of such shares) at some future
date. Upon termination of the holder's employment during the restriction period,
restricted stock and restricted stock units shall be forfeited, unless the
Committee determines otherwise.
Performance awards provide the holder thereof the right to receive payment,
in whole or in part, upon the achievement of such performance goals during such
performance periods as the Committee shall establish. A performance award
granted under the Incentive Plan may be denominated or payable in cash, shares
of Common Stock or restricted stock, other securities, other awards or other
property. Dividend equivalents entitle the holder thereof to receive payments
(in cash, shares of Common Stock, other securities, other awards or other
property, as determined by the Committee) equivalent to the amount of cash
dividends with respect to a specified number of shares.
No award granted under the Incentive Plan may be assigned, transferred,
pledged or otherwise encumbered by the individual to whom it is granted,
otherwise than by will, by designation of a beneficiary, or by laws of descent
and distribution and except that awards other than Incentive Stock Options may
be transferred by a plan participant as specifically provided in an award
agreement or amendment thereto
9
pursuant to terms determined by the Committee. Each award is exercisable, during
such participant's lifetime, only by such participant or such participant's
permitted transferees, or, if permissible under applicable law, by such
participant's guardian or legal representative.
If any shares of Common Stock subject to any award or to which an award
relates are not purchased or are forfeited, or if any such award terminates
without the delivery of shares or other consideration, the shares previously
used for such awards become available for future awards under the Incentive
Plan. In addition, any shares of Common Stock that are used by a plan
participant as full or partial payment to the Company of the purchase price
relating to an award, or in connection with the satisfaction of tax obligations
relating to an award, are available for granting future awards other than
Incentive Stock Options under the Incentive Plan.
If any dividend or other distribution, recapitalization, stock split,
reverse stock split, reorganization, merger, consolidation, split-up, spin-off,
combination, repurchase, or exchange of shares of Common Stock or other
securities of the Company, issuance of warrants or other rights to purchase
shares of Common Stock or other securities of the Company, or other similar
corporate transaction or event affects the shares of Common Stock so that an
adjustment is appropriate in order to prevent dilution or enlargement of the
benefits or potential benefits intended to be made available under the Incentive
Plan, the Committee may, in such manner as it deems equitable, adjust (a) the
number and type of shares (or other securities or property) which thereafter may
be made the subject of awards, (b) the number and type of shares (or other
securities or property) subject to outstanding awards, and (c) the purchase or
exercise price with respect to any award. The Committee may correct any defect,
supply any omission, or reconcile any inconsistency in the Incentive Plan or any
award agreement in the manner and to the extent it shall deem desirable to carry
the Incentive Plan into effect.
The Board of Directors may amend, alter or discontinue the Incentive Plan
at any time, provided that stockholder approval must be obtained for any change
that, absent such stockholder approval, (i) would violate the rules or
regulations of the New York Stock Exchange or any other securities exchange
applicable to the Company, or (ii) would cause the Company to be unable, under
the Code, to grant Incentive Stock Options under the Incentive Plan.
FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the principal United States federal income
tax consequences generally applicable to awards under the Incentive Plan. The
grant of an option or SAR is not expected to result in any taxable income for
the recipient. The holder of an Incentive Stock Option generally will have no
taxable income upon exercising the Incentive Stock Option (except that a
liability may arise pursuant to the alternative minimum tax), and the Company
will not be entitled to a tax deduction when an Incentive Stock Option is
exercised. Upon exercising a Nonqualified Stock Option, the optionee must
recognize ordinary income equal to the excess of the fair market value of the
shares of Common Stock acquired on the date of exercise over the exercise price,
and the Company will be entitled at that time to a tax deduction for the same
amount. Upon exercising an SAR, the amount of any cash received and the fair
market value on the exercise date of any shares of Common Stock received are
taxable to the recipient as ordinary income and deductible by the Company. The
tax consequence to an optionee upon a disposition of shares acquired through the
exercise of an option will depend on how long the shares have been held and upon
whether such shares were acquired by exercising an Incentive Stock Option or by
exercising a Nonqualified Stock Option or SAR. Generally, there will be no tax
consequence to the Company in connection with disposition of shares acquired
under an option, except that the Company may be entitled to a tax deduction in
the case of a disposition of shares acquired under an Incentive Stock Option
before the applicable Incentive Stock Option holding periods set forth in the
Code have been satisfied.
With respect to other awards granted under the Incentive Plan that are
payable either in cash or shares of Common Stock that are either transferable or
not subject to substantial risk of forfeiture, the holder of such an award must
recognize ordinary income equal to the excess of (a) the cash or the fair market
value of the shares of Common Stock received (determined as of the date of such
receipt) over (b) the amount (if any) paid for such shares of Common Stock by
the holder of the award, and the Company will be entitled at that time to a
deduction for the same amount. With respect to an award that is payable in
shares of Common Stock that are restricted as to transferability and subject to
substantial risk of forfeiture, unless a special election is made pursuant to
the Code, the holder of the award must recognize ordinary income equal to the
excess of (i) the fair market value of the shares of Common Stock received
(determined as of the first time the sharesAppendix A.
10
become transferable or not subject to substantial risk of forfeiture, whichever
occurs earlier) over (ii) the amount (if any) paid for such shares of Common
Stock by the holder, and the Company will be entitled at that time to a tax
deduction for the same amount.
Special rules may apply in the case of individuals subject to Section 16 of
the Exchange Act. In particular, unless a special election is made pursuant to
the Code, shares received pursuant to the exercise of a stock option or SAR may
be treated as restricted as to transferability and subject to a substantial risk
of forfeiture for a period of up to six months after the date of exercise.
Accordingly, the amount of any ordinary income recognized, and the amount of the
Company's tax deduction, are determined as of the end of such period.
Under the Incentive Plan, the Committee may permit participants receiving
or exercising awards, subject to the discretion of the Committee and upon such
terms and conditions as it may impose, to surrender shares of Common Stock
(either shares received upon the receipt or exercise of the award or shares
previously owned by the optionee) to the Company to satisfy federal and state
tax obligations.
The affirmative vote of a majority of the shares represented at the meeting
will be required to approve the 2001 Master Stock Incentive Plan.
The Board of Directors recommends a vote FOR approval of the Company's 2001
Master Stock Incentive Plan.
11
TOTAL RETURN TO SHAREHOLDERS
The following graphs compare the cumulative total stockholder return on the
Company's Common Stock for the last five fiscal years and twelvethirteen fiscal years
with the cumulative total return of the Standard & Poor's 500 Stock Index and
the Standard & Poor's Index of Manufacturing Companies -- Diversified.Industrial Machinery Companies. The graph and
table assume the investment of $100 in each of Donaldson's common stock and the
specified indexes at the beginning of the applicable period, and assume the
reinvestment of all dividends. The second graph shows the total return over the
Company's twelve-yearthirteen-year period of consecutive double-digit increases in earnings
per share.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
[PLOT POINTS CHART]
FISCAL YEARS ENDED JULY 31GRAPH]
1996
1997 1998 1999 2000 2001 ------- ------- ------- ------- ------- -------2002
------------ ----------- ------------ ----------- ------------ ------------
Donaldson .................................................. $100.00 $167.28 $153.69 $207.81 $162.65 $264.17Co., Inc. ........... $ 100.00 $ 91.88 $ 124.23 $ 97.23 $ 157.92 $ 173.38
S&P 500 ........................................................................... 100.00 152.14 181.48 218.14 237.56 203.52
Manufacturing - Diversified ................................119.28 143.38 156.25 133.86 102.23
Industrial Machinery .......... 100.00 156.37 153.89 215.07 207.38 233.7198.41 137.54 132.62 149.46 148.04
COMPARISON OF TWELVETHIRTEEN YEAR CUMULATIVE TOTAL RETURN
[PLOT POINTS CHART]GRAPH]
FISCAL YEARS ENDED JULY 31
1989 1990 1991 1992 1993 1994 1995
1996 1997 1998 1999 2000 2001
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- --------------------- ------------ ------------ ------------ ------------ ------------ ------------
Donaldson ......... $ 100.00 $ 181.27 $ 209.84 $ 274.83 $ 341.31 $ 455.78 $ 503.41
S&P 500 ........... 100.00 106.50 120.09 135.45 147.27 154.87 195.31
Industrial
Machinery ........ 100.00 109.34 115.50 120.57 139.40 162.16 222.19
1996 1997 1998 1999 2000 2001 2002
------------ ------------ ------------ ------------ ------------ -------------- --------------
Donaldson ...... $100.00 $181.27 $209.84 $274.83 $341.31 $455.78 $503.41 $468.77 $784.18 $720.48 $974.17 $762.48 $1,238.00......... $ 468.77 $ 784.18 $ 720.48 $ 974.17 $ 762.48 $ 1,238.30 $ 1,359.60
S&P 500 ........ 100.00 106.50 120.09 135.45 147.27 154.87 195.31........... 227.67 346.38 413.18 496.65 540.86 463.35
Manufacturing -
Diversified ... 100.00 109.34 115.50 120.57 139.40 162.16 222.19541.25 463.69 354.12
Industrial
Machinery ........ 262.92 411.14 404.61 565.47 545.25 614.48 608.64
1211
EXECUTIVE COMPENSATION
The following table includes information for each person who was, at the
end of fiscal 2001,2002, the Chief Executive Officer or one of the other four most-highlymost
highly compensated executive officers of the Company (the "Named Officers") on
the basis of total annual salary and bonus for the last completed fiscal year.
The table includes compensation information for each of the last three fiscal
years.
SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION
----------------------------------------------------------------------------------
ANNUAL COMPENSATION (1)COMPENSATION(1) AWARDS PAYOUTS
----------------------- ------------------------- ------------------------------------ --------------------------- --------------
SECURITIES
RESTRICTED UNDERLYING
STOCK STOCK ALL OTHER
FISCAL AWARD(S) OPTIONS/SARsSARS LTIP PAYOUTS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) ($)(2) (SHARES)(3) ($)(4) ($)(5)
--------------------------- ------ ---------- --------- ----------- -------------------------------- -------- ------------ ----------- ------------ -------------------------- -------------- -------------
WILLIAM G. VAN DYKE ............ 2002 656,962 581,875 0 85,000 487,867 38,811
Chairman, Chief 2001 632,885 452,200 0 159,096 385,368 52,292
Chairman, ChiefExecutive Officer and 2000 593,846 738,000 0 70,500 394,060 49,800
Executive Officer and 1999 539,615 678,000 0 78,000 0 33,425
President
JAMES R. GIERTZ ................ 2001 270,881 204,040 0 97,041 144,506 18,660
Senior Vice President, 2000 259,539 208,075 0 46,374 131,100 15,156
Commercial and Industrial 1999 239,962 172,050 0 35,304 0 10,755
WILLIAM M. COOK ................ 2001 250,885 154,4392002 284,616 175,680 0 21,500 292,379 18,62725,603 346,809 16,527
Senior Vice President, 2001 250,885 154,444 0 21,500 292,380 18,627
International and Chief 2000 228,077 227,095 249,219 21,500 155,320 14,943
International and Chief 1999 213,654 203,374 0 26,000 0 11,515
Financial Officer
LOWELL F. SCHWAB ............... 2001 246,462 113,6432002 269,615 166,530 0 43,377 123,205 18,36438,040 176,744 14,664
Senior Vice President, 2001 246,462 113,649 0 43,377 123,206 18,364
Operations 2000 222,846 188,474 179,438 21,000 119,300 12,606
Operations 1999 200,962 132,304 0 24,000 0 10,363
NICKOLAS PRIADKA ............... 2002 264,538 169,915 0 60,347 82,875 10,582
Senior Vice President, 2001 249,616 63,250 0 89,812 68,241 15,218
Senior Vice President,OEM Engine Systems 2000 239,077 142,070 0 22,500 113,500 12,448
OEM Engine Systems 1999 224,654 121,786and Parts
JAMES R. GIERTZ ................ 2002 277,615 139,910 0 27,00024,500 178,259 19,266
Senior Vice President, 2001 270,881 204,034 0 10,58697,041 144,506 18,660
Commercial and PartsIndustrial 2000 259,539 208,075 0 46,374 131,100 15,156
- ------------------
(1) Includes any portion of salary and bonus deferred under the Deferred
Compensation and 401(K) Excess Plan. In fiscal 2001, Mr. Cook and Mr.
Priadka elected to participate in the stock option bonus replacement
program and received option grants in fiscal 2002 in lieu of all or a
portion of their fiscal 2001 cash bonus. Mr. Cook received an option grant
for 4,103 shares with an exercise price of $30.11 in lieu of receiving 20%
of his bonus and Mr. Priadka received an option grant for 8,403 shares with
an exercise price of $30.11 in lieu of receiving 100% of his bonus.
(2) Amounts in the Restricted Stock Award column represent the dollar value of
grants of restricted stock under the Company's 1991 Master Stock
Compensation Plan. Regular dividends are paid on the restricted shares. At
the end of fiscal 2001,2002, the number and value of the aggregate restricted
stockholdings for the Named Officers were: William G. Van Dyke, 0, $0;
James R. Giertz, 0, $0; William M. Cook, 12,500, $385,750;$398,750; Lowell F.
Schwab, 9,000, $277,740;$287,100; and Nickolas Priadka, 0, $0. Mr. Giertz
surrendered 25,000 shares of restricted stock in 2001 and received 24,637.5
deferred restricted share units. The valuebalance of Mr. Giertz's deferred
restricted share units at the end of fiscal 20012002, including dividend
equivalent rights earned, was $760,313. Restricted24,856 shares valued at $792,908. No
restricted stock awards totalling an
additional 5,000 shares were made to the Non-ExecutiveExecutive Officer Employees as
a Group in
fiscal 2001.2002.
(3) The stock option grants include both new fiscal 20012002 annual grants and
previously awarded reload grants resulting from the exercise of option
awards granted in prior years. See the Stock Option chart on page 14,
showing that reloads comprised the majority of total grants.
13
(4) Earned under the Company's 1991 Master Stock Compensation Plan during the
three-year period ending in the fiscal year in which the payout is listed.
Payout is made in the form of the Company's common stock and delivered or
deferred into the deferred compensation plan during the following fiscal
year.
12
(5) Amounts in this column represent the dollar value of share allocations (i)
under the Company's match for bonus and salary under the Company's ESOP and
401k benefit plans; and (ii) under the Company's match for deferred bonus
and salary and salary in excess of the limits established by Section 415 of
the Internal Revenue Code contributed by the Company to an unqualified
supplemental plan. The amounts for fiscal 2001 are:
SALARY DEFERRED SALARY
NAME AND BONUS MATCH AND BONUS MATCH EXCESS MATCH
---- --------------- --------------- ----------------------------------------------- ----------------- ----------------- -------------
William G. Van Dyke ......... $4,390 $30,741 $17,161$2,444 $18,088 $18,279
William M. Cook ............. 9,010 4,511 3,006
Lowell F. Schwab ............ 7,333 0 7,331
Nickolas Priadka ............ 7,223 1,046 2,313
James R. Giertz ............. 8,4256,985 0 10,235
William M. Cook ............. 6,561 5,788 6,278
Lowell F. Schwab ............ 7,650 0 10,714
Nickolas Priadka ............ 7,295 1,742 6,18112,281
OPTION/SARsSARS GRANTED IN LAST FISCAL YEAR
INDIVIDUAL GRANTS (1)
------------------------------------------- POTENTIAL REALIZABLE VALUE ATGRANTS(1)
---------------------------------------------
NUMBER OF % OF TOTAL POTENTIAL REALIZABLE VALUE AT
SECURITIES OPTIONS/SARS ASSUMED ANNUAL RATES OF STOCK
SECURITIES OPTIONS/SARsUNDERLYING GRANTED TO EXERCISE PRICE APPRECIATION FOR OPTION TERM (3)
UNDERLYING GRANTED TO EXERCISE --------------------------------------TERM(3)
OPTIONS/SARsSARS EMPLOYEES OR BASE EXPIRATION ----------------------------------
NAME GRANTED (2)GRANTED(2) IN FISCAL YEAR PRICE/SH ($) DATE 0% ($) 5% ($) 10% ($)
----- -------------------------- -------------- --------------- -------------- ----------- -------- ----------- ------------ -------------- ------------ ---------- ---------- ----------- -------------
WILLIAM G. VAN DYKE 85,000 10.3 25.8114.3 36.38 12/12/1003/11 0 1,379,834 3,496,771
45,742(4) 5.5 28.00 12/05/06 0 433,912 983,876
28,354(4) 3.4 28.00 12/21/05 0 220,827 488,352
JAMES R. GIERTZ 25,744(4) 3.1 25.63 12/03/08 0 314,559 753,214
25,372(4) 3.1 30.04 12/19/07 0 288,016 663,448
24,500 3.0 25.81 12/12/10 0 397,717 1,007,893
14,118(4) 1.7 30.04 12/06/09 0 219,219 533,016
7,307(4) 0.9 31.35 12/06/09 0 116,548 282,5101,944,731 4,928,330
WILLIAM M. COOK 21,500 2.6 25.813.6 36.38 12/12/1003/11 0 349,017 884,477491,903 1,246,578
4,103 0.7 30.11 08/06/11 0 77,694 196,893
LOWELL F. SCHWAB 21,000 3.5 36.38 12/03/11 0 480,463 1,217,587
17,040(4) 2.9 37.10 12/05/06 0 174,769 386,221
NICHOLAS PRIADKA 22,500 3.8 36.38 12/03/11 0 514,782 1,304,558
15,191(4) 2.5 25.8139.30 12/12/10 0 340,900 863,908
10,436(4) 1.3 28.00319,050 780,882
14,253(4) 2.4 38.84 12/21/0506/09 0 81,278 179,743
9,916(4) 1.2 28.63261,584 625,354
8,403 1.4 30.11 08/06/11 0 159,119 403,240
JAMES R. GIERTZ 24,500 4.1 36.38 12/15/0403/11 0 59,837 128,598
1,350(4) 0.2 25.38 12/14/03 0 5,439 11,428
675(4) 0.1 25.38 07/26/03 0 2,346 4,880
NICHOLAS PRIADKA 22,951(4) 2.8 32.11 12/19/07 0 273,051 627,120
22,500 2.7 25.81 12/12/10 0 365,250 925,616
21,677(4) 2.6 28.30 12/03/08 0 281,474 669,359
14,840(4) 1.8 24.75 12/05/06 0 125,154 284,007
7,844(4) 1.0 23.19 12/21/05 0 51,620 114,423560,540 1,420,519
ALL EXECUTIVE OFFICERS AS
A GROUP 491,079 59.3289,293 49.0
ALL NON-EXECUTIVE OFFICER
EMPLOYEES AS A GROUP 337,536 40.7306,745 51.0
- ------------------
(1) No stock appreciation rights ("SARs") have been granted. Total shares used
to calculate the total options percentages do not include options granted
to the Board of Directors of 37,930.
(2) All officer grants (other than as noted in footnote (4)) during the period
were non-qualified stock options granted at the market value on date of
grant for a term of ten years, vesting immediately and were granted with
the right to use shares in lieu of the exercise price and to satisfy any
tax withholding obligations.
14
(3) These amounts represent certain assumed rates of appreciation over the full
term of the option. The value ultimately realized, if any, will depend on
the amount by which the market price of the Company's stock exceeds the
exercise price on date of sale.
(4) These grants were made to officers who exercised an option during fiscal
20012002 and made payment of the purchase price using shares of previously
owned Company stock. This restoration or "reload" grant is for the number
of shares equal to the shares used in payment of the purchase price or
withheld for tax withholding. The option price is equal to the market value
of the Company's stock on the date of exercise and will expire on the same
date as the original option which was exercised. These options, which are
the result of such a restoration, do not contain the reload feature.
13
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION/SAR VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS/SARsSARS
OPTIONS/SARsSARS AT FISCAL YEAR-END(2) AT FISCAL YEAR-END (2)YEAR-END(2)(3)
------------------------------- ------------------------------
SHARES VALUE ---------------------------------- --------------------------------
ACQUIRED ON REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
NAME EXERCISE (1) ($) (SHARES) (SHARES) ($) ($)
---- ------------ ----------- --------------------- -------------- ----------- ------------- --------------- ----------------- --------------- ---------------------------- --------------
WILLIAM G. VAN DYKE 317,812 5,001,672 529,940144,344 4,173,139 470,596 0 5,242,7583,077,187 0
WILLIAM M. COOK 4,666 136,606 187,097 0 2,009,225 0
LOWELL F. SCHWAB 30,195 643,887 148,392 0 894,563 0
NICKOLAS PRIADKA 74,915 1,234,177 104,975 0 93,079 0
JAMES R. GIERTZ 82,500 560,055 186,543 0 1,166,361 0 WILLIAM M. COOK 3,788 39,547 166,160211,043 0 1,914,567 0
LOWELL F. SCHWAB 31,938 524,536 140,547 0 1,208,010 0
NICKOLAS PRIADKA 132,400 1,378,182 119,543 0 569,7181,356,786 0
- ------------------
(1) The number of shares shown in this column is larger than the number of
shares actually acquired on exercise. The actual number of shares received
is reduced by the number of shares delivered in payment of the exercise
price and shares withheld to cover withholding taxes.
(2) No SARs were exercised in fiscal 2001.2002.
(3) This value is based on the difference between the exercise price of such
options and the closing price of Company Common Stock as of fiscal year-end
2001.2002.
LONG-TERM INCENTIVE PLANS -- AWARDS IN LAST FISCAL YEAR
ESTIMATED FUTURE PAYOUTS
NUMBER OF PERFORMANCE UNDER NON-STOCK
SHARES, UNITS OR OTHER PERIOD PRICE-BASED PLAN
OR OTHER UNTIL MATURATION --------------------------------------------------------------------
NAME RIGHTS (1)RIGHTS(1) OR PAYOUT THRESHOLD TARGET MAXIMUM
---- ------------- ---------------- ---------- --------------------- --------------- ------------------ ----------- -------- ---------------
WILLIAM G. VAN DYKE 16,55017,700 8/1/0001 - 7/31/03 4,138 16,550 45,513
JAMES R. GIERTZ 6,000 8/1/00 - 7/31/03 1,500 6,000 16,50004 4,425 17,700 48,675
WILLIAM M. COOK 5,2505,500 8/1/0001 - 7/31/03 1,313 5,250 14,43804 1,375 5,500 15,125
LOWELL F. SCHWAB 5,200 8/1/0001 - 7/31/0304 1,300 5,200 14,300
NICKOLAS PRIADKA 5,5005,000 8/1/0001 - 7/31/03 1,375 5,500 15,12504 1,250 5,000 13,750
JAMES R. GIERTZ 5,400 8/1/01 - 7/31/04 1,350 5,400 14,850
- ------------------
(1) Awards are of Performance Shares of the Company's common stock. Awards are
earned only if the Company achieves the minimum Performance Objectives and
the Award Value will be based on a weighting of compound corporate net
sales growth and after-tax return on investment over the three year period.
The amounts shown in the table under the headings "Threshold", "Target" and
"Maximum" are amounts awarded at 25%, 100% and 275% of the targeted award.
The award may also be adjusted upward by 25% for consistency if earnings per share increase
in each of the three years in the period by at least 5%.
1514
HUMAN RESOURCES COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Human Resources Committee of the Board of Directors, consisting of six
independent, non-employee directors ("the Committee"), is responsible for
establishing the compensation programs for the Company's key executives. The
Company's executive compensation program comprises base salary, annual incentive
and long-term incentive compensation. The objectives of the Company's executive
compensation program are to:
* emphasize a pay-for-performance philosophy by placing significant
portions of pay at risk and requiring outstanding results for payment
at the threshold level;
* attract and retain the best executives available in our industry and
have their compensation levels keyed to a peer group of companies;
* motivate and reward executives responsible for attaining the financial
and strategic objectives essential to the Company's long-term success
focusing on earnings per share growth and continued growth in
shareholder value; and
* align the interests of executives with those of the Company's
stockholders by providing a significant portion of compensation in the
form of Company common stock. Common stock ownership objectives have
been established for all executive officers ranging from five to ten
times base salary.
BASE SALARIES. Base salaries for all executives are reviewed annually based
on performance and market conditions. A performance appraisal is required for
all executives of the Company. The Committee approves and/or determines the
annual base salary increases for all senior executivesexecutive officers based on
performance of the executive and external market data. The Company's objective
is that base salaries should approximate the mid-point (average) of senior
executives of manufacturing companies of similar size in the United States. The
Company uses surveys by national consultants for external market data.
ANNUAL CASH INCENTIVE. Executive officers are eligible for target awards
under the annual incentive program that range up to 70% of base salary. The size
of the target award is determined by the executive officer's position and
competitive data for similar positions at the peer and cross-industry companies
as presented in the same nationally recognized surveys as are used for the base
salary. The Company sets aggressive performance goals and, in keeping with the
strong performance-based philosophy, the resulting awards decrease or increase
substantially if actual Company performance fails to meet or exceeds targeted
levels. Payments can range from 0% to 200% of the target awards. The CEO has
100% of his annual cash incentive opportunity linked to achieving record
earnings per share (EPS). The remaining Named Officers have 50% of their
opportunity linked to achieving record EPS and 50% linked to achieving sales,
net operating profit and return on investment targets for their respective
business unit responsibilities.
Consequently, executive officers must obtain record EPS, thereby increasing
shareholder value, to receive a competitive annual cash incentive.
LONG-TERM INCENTIVE STOCK COMPENSATION AWARDS AND STOCK OPTION GRANTS.
There was a payout under the Long Term Compensation Plan in 2001 following a
payout in 2000 and no payout in 1999. The volatility in the Long Term
Compensation Plan Award payouts for the three years2002 as shown in the
summary compensation table ison page 12. The Long Term Compensation Plan and its
targets and award payouts are consistent with the at risk nature of the payouts and the pay for
performance compensation philosophy. The Long Term Compensation Plan Award is
based on three-year compounded growth in net sales and an after-tax return on
investment that exceeds the Company's weighted average cost of capital. Under
this program, the Committee selected eligible executives and established an
incentive opportunity as a percentage of base salary. In order for a participant
to receive a payout, minimum performance must be attained. The Committee
occasionally grants restricted stock with a fixed restriction period, usually
five years, to ensure retention of key executives. The Committee also believes
that significant stock option grants encourage the key executives to own and
hold Donaldson stock and tie their long-term economic interests directly to
those of the stockholders. Stock options are typically granted annually. In
determining the number of shares covered by such options, the Committee takes
into account position levels, base salary, and other factors relevant to
individual performance but does not consider the amount and terms of options and
restricted stock already held by the executive.
Targets for the incentive portion of compensation are tied to financial
performance in the sixtieth to sixty-fifth percentile of the peer group.
1615
STOCK OPTION BONUS REPLACEMENT PROGRAM. To encourage stock ownership by
executives, the Company adopted in fiscal 2000 a program that allows executives
to elect to receive stock options under the 1991 Master Stock Compensation Plan
and going forward under the 2001 Master Stock Incentive Plan in lieu of some or
all of the cash compensation earned under the annual cash bonus incentive
program. Currently under the program, participants receive an option to acquire
$4 of stock at market value for every $1 of compensation exchanged. In fiscal
2001, three2002, no executives participated in the program.
STOCK OWNERSHIP. Ownership of Donaldson stock is expected of Donaldson
executives. The Committee believes that linking a significant portion of the
executive's current and potential net worth to the Company's success, as
reflected in the stock price, gives the executive a stake similar to the
stockholders. The Committee has established stock ownership guidelines for the
Named Officers and certain other executive officers, which encourage retention
of shares. The guidelines range from five to ten times base salary and, in
addition, require officers to retain one-half of the difference between their
initial target ownership and their potential ownership. The goal of the Chief
Executive Officer is ten times annual base salary. Mr. Van Dyke currently
exceeds this ownership goal.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER. Mr. Van Dyke's fiscal 20012002
base salary and incentive award opportunity were determined by the Committee in
accordance with the methodology described above. The Committee considered Mr.
Van Dyke's performance against pre-established objectives and met both in
private and with Mr. Van Dyke in completing his performance appraisal.
BASE SALARY. Mr. Van Dyke's base salary for fiscal 20012002 was $632,885,$656,962,
which is approximately at the market mid-point for manufacturing companies
of similar size.
ANNUAL BONUS. Mr. Van Dyke's bonus award for fiscal 20012002 was $452,200.$581,875.
This annual bonus was earned under the annual incentive program based on
earning per share growth from $1.51$1.66 to $1.66,$1.90, up more than 10% over the
previous record earned in fiscal 2000.2001.
STOCK OPTIONS. Mr. Van Dyke received annual option grants in December
20002001 of options to purchase 85,000 shares of stock.
LONG-TERM INCENTIVE PLAN PAYOUT. Mr. Van Dyke received a payout of
14,31013,975 shares of stock under the Long-Term Incentive Plan in 20012002 based on
the Company's achieving the performance objectives for three year
compounded growth in net sales and after-tax return on investment.
POLICY ON QUALIFYING COMPENSATION. The Company's policy is to preserve the
tax deduction for compensation paid to its Chief Executive Officer and other
senior executive officers. In accordance with this policy, in November 1994, the
stockholders approved the material terms of the performance goals for payment of
the cash bonus under the Company's Annual Cash Bonus Plan for Designated
Executives. The 1991 Master Stock Compensation Plan and the 2001 Master Stock
Incentive Plan were approved by shareholders in 1991 and 2001 respectively and
limit the number of shares that can be granted in any one year to any one
individual to further the policy of preserving the tax deduction for
compensation paid to executives.
CONCLUSION. The executive officer compensation program administered by the
Committee provides incentives to attain strong financial performance and an
alignment with stockholder interests. The Committee believes that the Company's
compensation program focuses the efforts of Company executives on the continued
achievement of growth and profitability for the benefit of the Company's
stockholders.
Human Resources Committee
Stephen W. Sanger, Chair
Paul B. Burke
Jack W. Eugster
John F. Grundhofer
Kendrick B. Melrose
Jeffrey Noddle
1716
PENSION BENEFITS
The Company maintains the Donaldson Company, Inc. Salaried Employees'
Pension Plan (the "Retirement Plan"), a defined benefit pension plan that
provides retirement benefits to eligible employees through a cash balance plan
structure. The Company also maintains the Donaldson Company, Inc. Excess
Retirement Plan (the "Excess Retirement Plan"). The Excess Retirement Plan is an
unfunded, non-qualified deferred compensation arrangement that primarily
provides retirement benefits that cannot be paid under the Retirement Plan
because of the limitations imposed by the Code on qualified plans in regards to
compensation and benefits.
Participants in the Retirement and Excess Retirement Plans accumulate
benefits in a hypothetical account balance through interest credits, and company
credits that vary with age, service and pay. At retirement or termination of
employment, the vested account balance is payable to the participant in the form
of an immediate or deferred lump sum, or an actuarially equivalent annuity.
Under the cash balance benefit structure, account balances receive an
Interest Credit annually. The Interest Credit is defined as the current plan
year's Interest Crediting Rate times the account balance as of the beginning of
the plan year. The Interest Crediting Rate for a particular plan year is the
greater of the average secondary market discount rateyield on one-year U.S. Treasury BillsConstant Maturities during the
month of June preceding the plan year, plus one percent, and 4.83%. The Interest
Crediting Rate is 4.83% for the 20012002 plan year.
Company Credits are credited to the account balances at the end of each
plan year. The participant's Company Credit Percentages are based on the
participant's years of age and service with the Company and its affiliates as of
the end of each plan year. As of August 1, 2001,2002, the sum of years of age plus
service for Messrs. Van Dyke, Giertz, Cook, Schwab, Priadka and PriadkaGiertz were 84, 51, 68,
7386, 53, 70,
75 and 86,88, respectively. The participant's Base Company Credit is equal to the
Base Company Credit Percentage times total covered compensation during the plan
year ("Pensionable Earnings"). The participant's Excess Company Credit is equal
to the Excess Company Credit Percentage times Pensionable Earnings in excess of
the Social Security taxable wage base. The following table displays the Company
Credit Percentages for the sum of years of age and service shown:
COMPANY CREDIT
PERCENTAGES
------------------------------------------
SUM OF YEARS OF AGE PLUS SERVICE BASE EXCESS
-------------------------------- ------------ ------------------ ---------
Less than 40 3.0% 3.0%
40 --- 49 4.0 4.0
50 --- 59 5.0 5.0
60 --- 69 6.5 5.0
70 or more 8.5 5.0
Special Career Credits are credited at the end of the plan year to the
account balances of participants who were born prior to August 1, 1957 and
continuously employed since August 1, 1992. The Special Career Credits are equal
to 3.0% of the participant's Pensionable Earnings and will continue through the
end of the 2006 plan year, or if earlier, through the plan year in which the
participant attains 35 years of benefit service. Messrs. Van Dyke, Cook, Schwab
and Priadka are all currently eligible to receive Special Career Credits.
The individuals named in the Summary Compensation Table are also eligible
for retirement benefits under the Donaldson Company, Inc. Supplemental Executive
Retirement Plan (the "SERP"). The SERP assures participants a lump sum
retirement benefit from all company funded retirement programs equal to six
times their average compensation (three highest consecutive years) upon reaching
age 62 with 20 years of service. This target benefit is reduced by 2% for each
year the participant's retirement precedes age 62, and it is also reduced on a
prorated basis for less than 20 years of service. In determining whether the
SERP must supplement the other company funded retirement programs, the Company
will consider the lump sum benefits described in the previous paragraph and
footnote (4)(X) to the Summary Compensation Table, as well as, any vested pension
benefits available from prior employers, if any.
The projections below set forth the estimated annual benefit payable to
each of the individuals named in the Summary Compensation Table as a single
life annuity, beginning at age 65, under the Retirement and Excess Retirement
Plans: Mr. Van Dyke, $514,068;$502,955; Mr. Cook, $248,621; Mr. Schwab, $162,811; Mr.
Priadka, $173,533; and Mr. Giertz, $246,661; Mr. Cook, $251,156; Mr.
Schwab, $162,050; and Mr. Priadka, $174,486.$208,837. No additional benefits are
expected to be required from the SERP for any of these participants. These
projections are based on the following assumptions: (1) employment until age
1865;
17
65; (2) no future increase in pensionable earnings after the 2000 plan year;earnings; (3) interest credits at the
actual rate of 4.83% during the 20012002 plan year, and
6.00% thereafter; and (4)
conversion to a single life annuity at normal retirement age based on a discount
rate of 6.00% and the Unisex 1983 Group Annuity Mortality Table.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers to file initial reports of ownership and
reports of changes in ownership with the SEC and the New York Stock Exchange. To
the Company's knowledge, based on a review of copies of such forms and
written
representations furnished to the Company during fiscal 2001,2002, all Section 16(a)
filing requirements applicable to the Company's directors and executive officers
were satisfied.
CHANGE-IN-CONTROL ARRANGEMENTS
Each of the Named Officers has a severance agreement with the Company
designed to retain the executive and provide for continuity of management in the
event of an actual or threatened change of control in the Company (as defined in
the agreements). The agreements provide that in the event of a change of
control, each key employee would have specific rights and receive certain
benefits if, within three years after a change in control, the employee is
terminated without cause or the employee terminates voluntarily under
"constructive involuntary" circumstances as defined in the agreement. In such
circumstance the employee will receive a severance payment equal to three times
the employee's annual average compensation calculated over the five years
preceding such termination as well as continued health, disability and life
insurance for three years after termination. The 1980 and 1991 Master Stock
Compensation Plans,awards issued under the stock
compensation plans, the supplementary retirement benefit plan and the deferred
compensation arrangements also provide for immediate vesting or payment in the
event of termination under circumstances of a change in control.
2002 STOCKHOLDER PROPOSALS
Any stockholder wishing to include a proposal in the Company's Proxy
Statement for its 2002 annual meeting of stockholders must submit such proposal
for consideration in writing to the Secretary of the Company at the address
indicated on the first page of this Proxy Statement no later than June 14, 2002.
Under the Company's Bylaws, a shareholder proposal not included in the Company's
Proxy Statement for its 2002 annual meeting of stockholders is untimely and may
not be presented in any manner at the 2002 annual meeting of stockholders unless
the stockholder wishing to make such proposal follows certain specified notice
procedures set forth in the Company's Bylaws, including delivering notice of
such proposal in writing to the Secretary of the Company at the address
indicated on the first page of this Proxy Statement no earlier than July 19,
2002 and no later than August 16, 2002.
OTHER MATTERS
The Company is not aware of any matter, other than as stated above, which
will or may properly be presented for action at the meeting. If any other
matters properly come before the meeting, it is the intention of the persons
named in the enclosed form of proxy to vote the shares represented by such
proxies in accordance with their best judgment.
STOCKHOLDERS WHO WISH TO OBTAIN A COPY OF THE COMPANY'S ANNUAL REPORT ON
FORM 10-K, FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, FOR THE FISCAL
YEAR ENDED JULY 31, 2001,2002, MAY DO SO WITHOUT CHARGE BY WRITING TO CORPORATECOMPANY
SECRETARY, DONALDSON COMPANY, INC., MS 101, P.O. BOX 1299, MINNEAPOLIS, MN
55440-1299.
By Order of the Board of Directors
/s/ Norman C. Linnell
Norman C. Linnell
SECRETARY
October 12, 2001
19
(This page has been left blank intentionally.)8, 2002
18
APPENDIX A
DONALDSON COMPANY, INC.
2001 MASTER STOCK INCENTIVE PLAN
SECTION 1. PURPOSEAUDIT COMMITTEE CHARTER
MISSION STATEMENT
The purpose of the Plan is to promote the interests of the Company and its
stockholders by aiding the Company in attracting and retaining employees,
officers, consultants, independent contractors and non-employee directors
capable of assuring the future success of the Company, to offer such persons
incentives to put forth maximum efforts for the success of the Company's
business and to afford such persons an opportunity to acquire a proprietary
interest in the Company, thereby aligning the interests of such persons with the
Company's stockholders.
SECTION 2. DEFINITIONS
As used in the Plan, the following terms shall have the meanings set forth
below:
(a) "Affiliate" shall mean (i) any entity that, directly or indirectly
through one or more intermediaries, is controlled by the Company and
(ii) any entity in which the Company has a significant equity
interest, in each case as determined by the Committee.
(b) "Award" shall mean any Option, Stock Appreciation Right, Restricted
Stock, Performance Award, Dividend Equivalent or Other Stock-Based
Award granted under the Plan.
(c) "Award Agreement" shall mean any written agreement, contract or other
instrument or document evidencing any Award granted under the Plan.
(d) "Board" shall meanAudit Committee will assist the Board of Directors in fulfilling its
oversight of (1) the integrity of the Company.
(e) "Code" shall meanCompany's financial statements, (2) the
Internal Revenue CodeCompany's compliance with legal and regulatory requirements, (3) the independent
auditor's qualifications and independence, and (4) the performance of 1986, as amended from
time to time,the
Company's internal audit function and any regulations promulgated thereunder.
(f) "Committee" shall mean a committee of Directors designated byindependent auditors; and will prepare the
Board to administerreport that SEC rules require be included in the Plan.Company's annual proxy
statement. The Committee shallalso will carry out its duties and responsibilities to
retain and terminate the Company's independent auditors and to conduct an annual
performance evaluation of the Audit Committee.
While the Audit Committee has the oversight responsibilities and powers set
forth in this charter, the Committee does not itself prepare financial
statements or perform audits, and its members are not auditors or certifiers of
the Company's financial statements. This is the responsibility of management and
the Company's independent auditor.
ORGANIZATION
The Committee will be comprised of notorganized consistent with the following significant
parameters:
SIZE OF THE COMMITTEE: The Committee will have no less than such number of Directors as shallthree
members.
QUALIFICATIONS: Committee members must be required to permit
Awards granted undernon-employee directors who meet
the Plan to qualify under Rule 16b-3,independence and each
memberexperience requirements of the Committee shall be a "Non-Employee Director" within the
meaning of Rule 16b-3Securities and an "outside director" within the meaning of
Section 162(m) of the Code. The Company expects to have the Plan
administered in accordance with the requirements for the award of
"qualified performance-based compensation" within the meaning of
Section 162(m) of the Code.
(g) "Company" shall mean Donaldson Company, Inc., a Delaware corporation,
and any successor corporation.
(h) "Director" shall mean a member of the Board.
(i) "Dividend Equivalent" shall mean any right granted under Section 6(e)
of the Plan.
(j) "Eligible Person" shall mean any employee, officer, Director
(including any Non-Employee Director), consultant or independent
contractor providing services to the Company or any Affiliate who the
Committee determines to be an Eligible Person.
(k) "Exchange Act" shall mean the Securities Exchange
Act of 1934, as
amended.
(l) "Fair Market Value" shall mean, with respect to any property
(including, without limitation, any Shares or other securities), the
fair market value of such property determined by such methods or
procedures as shall be established from time to time by the Committee.
Notwithstanding the foregoing, unless otherwise determined by the
Committee, the Fair Market Value of a Share as of a given date shall
be, if the Shares are then traded onCommission, the New York Stock Exchange and applicable law.
FREQUENCY OF MEETINGS: The Committee will have no less than four regularly
scheduled meetings each fiscal year. In addition, the closing priceCommittee will meet at
other times if deemed necessary to discharge completely its duties and
responsibilities as outlined in this charter.
APPOINTMENT OF MEMBERS AND CHAIRPERSON: Each Committee member and the
Chairperson will be recommended by the Corporate Governance Committee and shall
be elected by vote of the Board of Directors to serve a term of one Share as reported onyear.
Committee members and the New York Stock Exchange
on such date or, ifChairperson may serve successive one-year terms
without limitation.
OVERSIGHT
INTERNAL CONTROLS AND DISCLOSURE CONTROLS:
1. Review the New York Stock Exchange is not open for
trading on such date, on the most recent preceding date when the New
York Stock Exchange is open for trading.
(m) "Incentive Stock Option" shall mean an option granted under Section
6(a)appointment, performance and replacement of the Plan that is intendedsenior
internal audit executive.
2. Review the internal auditor's reports and findings on internal audit
activities and the major issues as to meet the requirements of Section
422adequacy of the Code or any successor provision.
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(n) "Limitation Amount" shall mean,Company's
internal controls.
3. Review the Company's disclosure controls and procedures for its
filings with the Securities and Exchange Commission.
FINANCIAL REPORTING:
1. Review the Company's policies with respect to risk assessment and risk
management.
2. Review major issues regarding accounting principles and financial
statement presentations, including any Plan Year, onesignificant change in the
Company's selection or application of accounting principles.
3. Review analyses prepared by management and/or the independent auditor
setting forth the Company's critical accounting policies and
one-half (1.50) percentestimates, and significant financial reporting issues and judgments
made in connection with the preparation of the Outstanding Shares.
(o) "Non-Employee Director" shall mean any Director who is not also an
employeefinancial statements,
including analyses of the Company.
(p) "Non-Qualified Stock Option" shall mean an option grantedeffects of alternative GAAP methods on the
financial statements.
4. Review the effect on the financial statements of regulatory and
accounting initiatives and off-balance sheet structures.
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5. Review the annual financial statements, including the Company's
disclosures under Section 6(a)"Management's Discussion and Analysis of Financial
Condition and Results of Operations," with management and the
Planindependent auditors prior to the filing or release of such financial
statements, including confirmation that is not intendedthe Committee (i) discussed
with the external auditors the matters requiring discussion by
Statement on Auditing Standards No. 61, and (ii) received the written
report from the external auditors required by Independence Standards
Board Statement No. 1. Based on these reviews and discussions,
recommend to the Board of Directors that the audited financial
statements be an Incentive Stock
Option.
(q) "Option" shall mean an Incentive Stock Option or a Non-Qualified Stock
Option.
(r) "Other Stock-Based Award" shall mean any right granted under Section
6(f) of the Plan.
(s) "Outstanding Shares" shall mean, with respect to any Plan Year, the
sum of the outstanding Shares, the outstanding Share equivalents (as
determined by the Company in the calculation of earnings per share on
a fully diluted basis) and Shares held in the treasury of the Company,
as reportedincluded in the Annual Report on Form 10-K of the Company, as filed with
the SecuritiesSEC.
6. Review and Exchange Commission,approve the process for reviewing and discussing with
management and the most recent
fiscal year that ends during such Plan Year.
(t) "Participant" shall mean an Eligible Person designated to be granted
an Awardindependent auditors the quarterly financial
statements, including the Company's disclosures under the Plan.
(u) "Performance Award" shall mean any right granted under Section 6(d)"Management's
Discussion and Analysis of the Plan.
(v) "Person" shall mean any individual, corporation, partnership,
association or trust.
(w) "Plan" shall mean the Donaldson Company, Inc. 2001 Master Stock
Incentive Plan, as amended from time to time, the provisionsFinancial Condition and Results of
which
are set forth herein.
(x) "Plan Year" shall mean a consecutive 12-month period ending on
December 31 of each year.
(y) "Reload Option" shall mean any Option granted under Section 6(a)(iv)
of the Plan.
(z) "Restricted Stock" shall mean any Shares granted under Section 6(c) of
the Plan.
(aa) "Restricted Stock Unit" shall mean any unit granted under Section 6(c)
of the Plan evidencing the right to receive a Share (or a cash payment
equal to the Fair Market Value of a Share) at some future date.
(bb) "Rule 16b-3" shall mean Rule 16b-3 promulgated by the Securities and
Exchange Commission under the Securities Exchange Act, or any
successor rule or regulation.
(cc) "Share" or "Shares" shall mean shares of common stock, $5.00 par value
per share, of the Company or such other securities or property as may
become subject to Awards pursuant to an adjustment made under Section
4(c) of the Plan.
(dd) "Stock Appreciation Right" shall mean any right granted under Section
6(b) of the Plan.
SECTION 3. ADMINISTRATION
(a) POWER AND AUTHORITY OF THE COMMITTEE. The Plan shall be administered
by the Committee. Subject to the express provisions of the Plan and to
applicable law,Operations," either through the Committee shall have full poweras a whole or through the
Chairperson.
COMPLIANCE WITH LAWS, REGULATIONS AND COMPANY POLICIES:
1. Review the Company's compliance system (including, but not limited to,
a code of ethics for senior financial officers).
2. Review the Committee's charter on an annual basis and authority to:
(i) designate Participants; (ii) determine the type or types of Awardsrecommend any
proposed changes to be granted to each Participant under the Plan; (iii) determine the
number of Shares to be covered by (or with respect to which payments,
rights or other matters are to be calculated in connection with) each
Award; (iv) determine the terms and conditions of any Award or Award
Agreement; (v) amend the terms and conditions of any Award or Award
Agreement and accelerate the exercisability of Options or the lapse of
restrictions relating to Restricted Stock, Restricted Stock Units or
other Awards; (vi) determine whether, to what extent and under what
circumstances Awards may be exercised in cash, Shares, other
securities, other Awards or other property, or canceled, forfeited or
suspended; (vii) determine whether, to what extent and under what
circumstances cash, Shares, promissory notes, other securities, other
Awards, other property and other amounts payable with respect to an
Award under the Plan shall be deferred either automatically or at the
election of the holder thereof or the Committee; (viii) interpret and
administer the Plan and any instrument or agreement, including an
Award Agreement, relating to the Plan; (ix) establish, amend, suspend
or waive such rules and regulations and appoint such agents as it
shall deem appropriate for the proper administration of the Plan; (x)
establish any special rules for Eligible Persons, former employees, or
Participants located in any particular country other than the United
States, which such rules shall be
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set forth in Appendices to the Plan and shall be deemed incorporated
into and form part of the Plan; and (xi) make any other determination
and take any other action that the Committee deems necessary or
desirable for the administration of the Plan. Unless otherwise
expressly provided in the Plan, all designations, determinations,
interpretations and other decisions under or with respect to the Plan
or any Award shall be within the sole discretion of the Committee, may
be made at any time and shall be final, conclusive and binding upon
any Participant, any holder or beneficiary of any Award and any
employee of the Company or any Affiliate.
(b) DELEGATION. The Committee may delegate to one or more officers of the
Company or any Affiliate or a committee of such officers, but only to
the extent such officer or officers are also members of the Board of Directors of the Company, the authority, subject to such terms and
limitations as the Committee shallfor approval.
3. Affirmatively determine to grant Awards to
Eligible Persons who are not officers or directors of the Company for
purposes of Section 16 of the Exchange Act. The Committee shall not
delegate its powers and duties under the Plan (i) with regard to
officers or directors of the Company or any Affiliate who are subject
to Section 16 of the Exchange Act or (ii) in such a manner as would
cause the Plan not to comply with the requirements of Section 162(m)
of the Code.
(c) POWER AND AUTHORITY OF THE BOARD OF DIRECTORS. Notwithstanding
anything to the contrary contained herein, the Board may, at any time
and from time to time, without any further action of the Committee,
exercise the powers and duties of the Committee under the Plan.
SECTION 4. SHARES AVAILABLE FOR AWARDS
(a) SHARES AVAILABLE. Subject to adjustment as provided in Section 4(c) of
the Plan, the aggregate number of Shares that may be issued under all
Awards under the Plan in any Plan Year shall not exceed the Limitation
Amount; PROVIDED THAT, any Shares with respect to which Awards may be
issued, but are not issued, under the Plan in any Plan Year shall be
carried forward and shall be available to be covered by Awards issued
in any subsequent Plan Year in which Awards may be issued under the
Plan. Shares to be issued under the Plan may be either authorized but
unissued Shares or Shares acquired in the open market or otherwise.
Any Shares that are used by a Participant as full or partial payment
to the Company of the purchase price relating to an Award, or in
connection with the satisfaction of tax obligations relating to an
Award, shall again be available for granting Awards (other than
Incentive Stock Options) under the Plan. In addition, if any Shares
covered by an Award or to which an Award relates are not purchased or
are forfeited, or if an Award otherwise terminates without delivery of
any Shares, then the number of Shares counted against the aggregate
number of Shares available under the Plan with respect to such Award,
to the extent of any such forfeiture or termination, shall again be
available for granting Awards under the Plan.
(b) ACCOUNTING FOR AWARDS. For purposes of this Section 4, if an Award
entitles the holder thereof to receive or purchase Shares, the number
of Shares covered by such Award or to which such Award relates shall
be counted on the date of grant of such Award against the aggregate
number of Shares available for granting Awards under the Plan.
(c) ADJUSTMENTS. In the event that the Committee members are independent as
required by the "Qualifications" section of this charter.
RELATIONSHIP WITH INDEPENDENT AUDITOR:
1. The Committee has the ultimate authority and responsibility to select
and evaluate the independent auditor, approve all audit engagement
terms and fees to be paid to such firm, and terminate such firm when
circumstances warrant, and the independent auditor shall determine thatbe
accountable to and report to the Committee.
2. Evaluate the independent auditor's qualifications, performance and
independence on an ongoing basis, but no less frequently than once per
year.
3. Review and approve the scope of the external audit to be performed
each fiscal year.
4. Set policies and procedures for, and, as appropriate, approve the
engagement of, the independent auditor for any dividendnon-audit service (to
the extent such service is not prohibited) and the fee for such
service, and consider whether the independent auditor's performance of
any non-audit services is compatible with its independence.
5. Review with the independent auditor any audit problems or other distribution (whetherdifficulties
the independent auditor may have encountered in the form of cash, Shares,
other securities or other property), recapitalization, stock split,
reverse stock split, reorganization, merger, consolidation, split-up,
spin-off, combination, repurchase or exchange of Shares or other
securitiescourse of the
Company, issuance of warrants or other rights to
purchase Shares or other securities of the Company or other similar
corporate transaction or event affects the Shares such that an
adjustment is determinedaudit work and any management letter provided by the Committee to be appropriate in order
to prevent dilution or enlargement of the benefits or potential
benefits intended to be made available under the Plan, then the
Committee shall, in such manner as it may deem equitable, adjustindependent
auditor, and management's response (including any
or all of (i) the number and type of Shares (or other securities or
other property) that thereafter may be made the subject of Awards,
(ii) the number and type of Shares (or other securities or other
property) subject to outstanding Awards and (iii) the purchase or
exercise price with respect to any Award; provided, however, that the
number of Shares covered by any Award or to which such Award relates
shall always be a whole number.
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(d) AWARD LIMITATIONS UNDER THE PLAN. No Eligible Person may be granted
any Award or Awards under the Plan, the value of which Award or Awards
is based solely on an increase in the value of the Shares after the
date of grant of such Award or Awards, for more than 500,000 Shares
(subject to adjustment as provided for in Section 4(c) of the Plan),
in the aggregate in any calendar year, beginning with the calendar
year commencing on January 1, 2001. The foregoing annual limitation
specifically includes the grant of any Award or Awards representing
"qualified performance-based compensation" within the meaning of
Section 162(m) of the Code. Notwithstanding anything to the contrary
in this Section 4, but subject at all times to the annual Limitation
Amount, the number of Shares available for (i) granting Incentive
Stock Options under the Plan in the aggregate shall not exceed
2,000,000, and (ii) Restricted Stock, and Restricted Stock Units under
the Plan, shall not exceed 600,000, subject to adjustment as provided
in as provided in Section 4(c) of the Plan and subject to the
provisions of Section 422 or 424 of the Code or any successor
provision.
SECTION 5. ELIGIBILITY
Any Eligible Person shall be eligible to be designated a Participant. In
determining which Eligible Persons shall receive an Award and the terms of any
Award, the Committee may take into account the nature of the services rendered
by the respective Eligible Persons, their present and potential contributions to
the success of the Company or such other factors as the Committee, in its
discretion, shall deem relevant. Notwithstanding the foregoing, an Incentive
Stock Option may only be granted to full or part-time employees (which term as
used herein includes, without limitation, officers and Directors who are also
employees), and an Incentive Stock Option shall not be granted to an employee of
an Affiliate unless such Affiliate is also a "subsidiary corporation" of the
Company within the meaning of Section 424(f) of the Code or any successor
provision.
SECTION 6. AWARDS
(a) OPTIONS. The Committee is hereby authorized to grant Options to
Participants with the following terms and conditions and with such
additional terms and conditions not inconsistent with the provisions
of the Plan as the Committee shall determine:
(i) EXERCISE PRICE. The purchase price per Share purchasable under
an Option shall be determined by the Committee; PROVIDED,
HOWEVER, that such purchase price shall not be less than 100% of
the Fair Market Value of a Share on the date of grant of such
Option.
(ii) OPTION TERM. The term of each Option shall be fixed by the
Committee, but, with respect to any Incentive Stock Option,
shall in no event exceed 10 years from the date on which such
Incentive Stock Option is granted.
(iii) TIME AND METHOD OF EXERCISE. The Committee shall determine the
time or times at which an Option may be exercised in whole or in
part and the method or methods by which, and the form or forms
(including, without limitation, cash, Shares, promissory notes,
other securities, other Awards or other property, or any
combination thereof, having a Fair Market Value on the exercise
date equal to the relevant exercise price) in which, payment of
the exercise price with respect thereto may be made or deemed to
have been made.
(iv) RELOAD OPTIONS. The Committee may grant Reload Options,
separately or together with another Option, pursuant to which,
subject to the terms and conditions established by the
Committee, the Participant would be granted a new Option when
the payment of the exercise price of a previously granted option
is made by the delivery of Shares owned by the Participant
pursuant to Section 6(a)(iii) hereof or the relevant provisions
of another plan of the Company, and/or when Shares are tendered
or withheld as payment of the amount to be withheld under
applicable income tax laws in connection with the exercise of an
Option, which new Option would be an Option to purchase the
number of Shares not exceeding the sum of (A) the number of
Shares so provided as consideration upon the exercise of the
previously granted option to which such Reload Option relates
and (B) the number of Shares, if any, tendered or withheld as
payment of the amount to be withheld under applicable tax laws
in connection with the exercise of the option to which such
Reload Option relates pursuant to the relevant provisions of the
plan or agreement relating to such option. Reload Options may
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be granted with respect to Options previously granted under the
Plan or any other stock option plan of the Company or may be
granted in connection with any Option granted under the Plan or
any other stock option plan of the Company at the time of such
grant. Such Reload Options shall have a per share exercise price
equal to the Fair Market Value of one Share as of the date of
grant of the new Option. Any Reload Option shall be subject to
availability of sufficient Shares for grant under the Plan.
Shares surrendered as part or all of the exercise price of the
Option to which it relates that have been owned by the optionee
less than six months will not be counted for purposes of
determining the number of Shares that may be purchased pursuant
to a Reload Option.
(b) STOCK APPRECIATION RIGHTS. The Committee is hereby authorized to grant
Stock Appreciation Rights to Participants subject to the terms of the
Plan and any applicable Award Agreement. A Stock Appreciation Right
granted under the Plan shall confer on the holder thereof a right to
receive upon exercise thereof the excess of (i) the Fair Market Value
of one Share on the date of exercise (or, if the Committee shall so
determine, at any time during a specified period before or after the
date of exercise) over (ii) the grant price of the Stock Appreciation
Right as specified by the Committee, which price shall not be less
than 100% of the Fair Market Value of one Share on the date of grant
of the Stock Appreciation Right. Subject to the terms of the Plan and
any applicable Award Agreement, the grant price, term, methods of
exercise, dates of exercise, methods of settlement and any other terms
and conditions of any Stock Appreciation Right shall be as determined
by the Committee. The Committee may impose such conditions or restrictions on the
exercisescope of the independent auditor's activities or on access to
requested information and any Stock Appreciation Right as it may
deem appropriate.
(c) RESTRICTED STOCK AND RESTRICTED STOCK UNITS. The Committee is hereby
authorizedsignificant disagreements with
management).
6. At least annually, obtain and review a report by the independent
auditor describing:
* the independent auditor's internal quality-control procedures;
* any material issues raised by the most recent internal
quality-control review, or peer review, of the independent
auditor's firm, or by any inquiry or investigation by
governmental or professional authorities, within the preceding
five years, respecting one or more independent audits carried out
by the firm, and any steps taken to grant Restricted Stock and Restricted Stock Units to
Participants with the following terms and conditions anddeal with such additional termsissues; and
conditions not inconsistent with(to assess the provisionsauditor's independence)
* all relationships between the independent auditor and the
Company.
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OTHER RESPONSIBILITIES:
1. Set clear hiring policies for employees or former employees of the
Plan asindependent auditor.
2. Review procedures for the Committee shall determine:
(i) RESTRICTIONS. Sharesreceipt, retention and treatment of
Restricted Stock and Restricted Stock
Units shall be subject to such restrictions as the Committee may
impose (including, without limitation, a waiver by the
Participant of the right to vote or to receive any dividend or
other right or property with respect thereto), which
restrictions may lapse separately or in combination at such time
or times, in such installments or otherwise as the Committee may
deem appropriate.
(ii) STOCK CERTIFICATES. Any Restricted Stock granted under the Plan
shall be evidenced by issuance of a stock certificate or
certificates, which certificate or certificates shall be heldcomplaints received by the Company until the applicable restrictions lapseregarding accounting, internal
controls or are
waived, or the Shares are forfeited. Such certificate or
certificates shall be registered in the name of the Participant
who has been granted such Shares and shall bear an appropriate
legend referring to the terms, conditions and restrictions
applicable to such Restricted Stock. Stock certificates
registered in the name of a Participant with respect to grants
of Restricted Stock shall be delivered to such Participant
promptly after the applicable restrictions lapse or are waived.
In the case of Restricted Stock Units, no Shares shall be issued
at the time such Awards are granted. Upon the lapse or waiver of
restrictionsauditing matters, and the restricted period relating to Restricted
Stock Units evidencing the right to receive Shares, Shares shall
be issued to,confidential, anonymous
submissions by employees of concerns regarding questionable accounting
or auditing matters.
3. Meet separately, periodically, with management, with internal auditors
and certificates representing such Shares shall be
registered in the name of, and delivered to, the holder of the
Restricted Stock Units.
(iii) FORFEITURE. Except as otherwise determined by the Committee,
upon termination of employment (as determined under criteria
established by the Committee) during the applicable restriction
period, all Shares of Restricted Stock and Restricted Stock
Units subject to restriction at such time shall be forfeited and
reacquired by the Company; PROVIDED, HOWEVER, that the Committee
may, when it finds that a waiver would be in the best interest
of the Company, waive in whole or in part any or all remaining
restrictions with respect to Shares of Restricted Stock or
Restricted Stock Units.
(d) PERFORMANCE AWARDS. The Committee is hereby authorized to grant
Performance Awards to Participants subject to the terms of the Plan
and any applicable Award Agreement. A Performance
A-5
Award granted under the Plan (i) may be denominated or payable in
cash, Shares (including, without limitation, Restricted Stock), other
securities, other Awards or other property and (ii) shall confer on
the holder thereof the right to receive payments, in whole or in part,
upon the achievement of such performance goals during such performance
periods as the Committee shall establish. Subject to the terms of the
Plan and any applicable Award Agreement, the performance goals to be
achieved during any performance period, the length of any performance
period, the amount of any Performance Award granted, the amount of any
payment or transfer to be made pursuant to any Performance Award and
any other terms and conditions of any Performance Award shall be
determined by the Committee.
(e) DIVIDEND EQUIVALENTS. The Committee is hereby authorized to grant
Dividend Equivalents to Eligible Persons under which the Participant
shall be entitled to receive payments (in cash, Shares, other
securities, other Awards or other property as determined in the
discretion of the Committee) equivalent to the amount of cash
dividends paid by the Company to holders of Shares with respect to a
number of Shares determined by the Committee. Subject to the terms of
the Plan and any applicable Award Agreement, such Dividend Equivalents
may have such terms and conditions as the Committee shall determine.
(f) OTHER STOCK-BASED AWARDS. The Committee is hereby authorized to grant
to Participants subject to the terms of the Plan and any applicable
Award Agreement, such other Awards that are denominated or payable in,
valued in whole or in part by reference to, or otherwise based on or
related to, Shares (including, without limitation, securities
convertible into Shares), as are deemed by the Committee to be
consistent with the purpose of the Plan. Shares or other securities
delivered pursuant to a purchase right grantedindependent auditor in executive sessions.
4. Discuss generally with management earnings press releases and
financial information and earnings guidance provided through public
disclosures under this Section 6(f)
shall be purchased for such consideration, which may be paid by such
method or methods and in such form or forms (including, without
limitation, cash, Shares, promissory notes, other securities, other
Awards or other property or any combination thereof), as the Committee
shall determine, the value of which consideration, as established by
the Committee, shall not be less than 100% of the Fair Market Value of
such Shares or other securities as of the date such purchase right is
granted.
(g) GENERAL
(i) CONSIDERATION FOR AWARDS. Awards shall be granted for no cash
consideration or for any cash or other consideration as may be
determined by the Committee or required by applicable law.
(ii) AWARDS MAY BE GRANTED SEPARATELY OR TOGETHER. Awards may, in the
discretion of the Committee, be granted either alone or in
addition to, in tandem with or in substitution for any other
Award or any award granted under any plan of the Company or any
Affiliate other than the Plan. Awards granted in addition to or
in tandem with other Awards or in addition to or in tandem with
awards granted under any such other plan of the Company or any
Affiliate may be granted either at the same time as or at a
different time from the grant of such other Awards or awards.
(iii) FORMS OF PAYMENT UNDER AWARDS. Subject to the terms of the Plan
and of any applicable Award Agreement, payments or transfers to
be made by the Company or an Affiliate upon the grant, exercise
or payment of an Award may be made in such form or forms as the
Committee shall determine (including, without limitation, cash,
Shares, promissory notes, other securities, other Awards or
other property or any combination thereof), and may be made in a
single payment or transfer, in installments or on a deferred
basis, in each case in accordance with rules and procedures
established by the Committee. Such rules and procedures may
include, without limitation, provisions for the payment or
crediting of reasonable interest on installment or deferred
payments or the grant or crediting of Dividend Equivalents with
respect to installment or deferred payments.
(iv) LIMITS ON TRANSFER OF AWARDS. No Award and no right under any
such Award shall be transferable by a Participant otherwise than
by will or by the laws of descent and distribution; PROVIDED,
HOWEVER, that, if so determined by the Committee, a Participant
may, in the manner established by the Committee, designate a
beneficiary or beneficiaries to exercise the rights of the
Participant and receive any property distributable with respect
to any Award upon the
A-6
death of the Participant; and provided, further, that, except in
the case of an Incentive Stock Option, Awards may be
transferable as specifically provided in any applicable Award
Agreement or amendment thereto pursuant to terms determined by
the Committee. Except as otherwise provided in any applicable
Award Agreement or amendment thereto (other than an Award
Agreement relating to an Incentive Stock Option), pursuant to
terms determined by the Committee, each Award or right under any
Award shall be exercisable during the Participant's lifetime
only by the Participant or, if permissible under applicable law,
by the Participant's guardian or legal representative. Except as
otherwise provided in any applicable Award Agreement or
amendment thereto (other than an Award Agreement relating to an
Incentive Stock Option), no Award or right under any such Award
may be pledged, alienated, attached or otherwise encumbered, and
any purported pledge, alienation, attachment or encumbrance
thereof shall be void and unenforceable against the Company or
any Affiliate.
(v) TERM OF AWARDS. The term of each Award shall be for such period
as may be determined by the Committee; PROVIDED, HOWEVER, that
in the case of an Incentive Stock Option, such Option shall not
be exercisable after the expiration of 10 years from the date
such Option is granted.
(vi) RESTRICTIONS; SECURITIES EXCHANGE LISTING. All Shares or other
securities delivered under the Plan pursuant to any Award or the
exercise thereof shall be subject to such restrictions as the
Committee may deem advisable under the Plan, applicable federal
or state securities laws and regulatory requirements, and the
Committee may cause appropriate entries to be made or legends to
be affixed to reflect such restrictions. If any securities of
the Company are traded on a securities exchange, the Company
shall not be required to deliver any Shares or other securities
covered by an Award unless and until such Shares or other
securities have been admitted for trading on such securities
exchange.
SECTION 7. AMENDMENT AND TERMINATION; CORRECTIONS
(a) AMENDMENTS TO THE PLAN. The Board may amend, alter, suspend,
discontinue or terminate the Plan at any time; PROVIDED, HOWEVER,
that, notwithstanding any other provision of the Plan or any Award
Agreement, without the approval of the stockholders of the Company, no
such amendment, alteration, suspension, discontinuation or termination
shall be made that, absent such approval:
(i) would violate the rules or regulations of the New York Stock Exchange or any other securities exchange that arerequirements and
applicable to
the Company; or
(ii) would cause the Company to be unable, under the Code, to grant
Incentive Stock Options under the Plan.
(b) AMENDMENTS TO AWARDS. Except as otherwise explicitly provided herein,law.
5. Prepare the Committee may waive any conditions of or rightsreport for inclusion in the Company's annual
proxy statement.
6. Conduct an annual performance evaluation of the Company
under any outstanding Award, prospectivelyCommittee.
7. As appropriate, obtain advice and assistance from outside legal,
accounting or retroactively. Except as
otherwise provided herein or in the Award Agreement,other advisors. In this regard, the Committee may
not amend, alter, suspend, discontinuewill have
authority to:
* conduct or terminateauthorize investigations into any outstanding
Award, prospectively or retroactively, if such action would adversely
affect the rightsmatters within its
scope of the holder of such Award, without the consent of
the Participant or holder or beneficiary thereof.
(c) PROHIBITION ON OPTION REPRICING. Except as provided in Section 4(c)
hereof, no Option may be amended to reduce its initial exercise price
and no Option shall be canceled and replaced with an Option or Options
having a lower exercise price, without the approval of the
stockholders of the Company.
(d) CORRECTION OF DEFECTS, OMISSIONS AND INCONSISTENCIES. The Committee
may correct any defect, supply any omission or reconcile any
inconsistency in the Plan or any Award in the manner and to the extent
it shall deem desirable to carry the Plan into effect.
SECTION 8. TAX WITHHOLDING
(a) Participants are responsibleresponsibilities;
* engage outside auditors for the payment of all income taxes,
employment, social insurance, welfarespecial audits, reviews and other
taxes under applicable
law relatingprocedures;
* retain special counsel and other experts and consultants to
any amounts deemed under the laws of the country of
their residency or of the organization of the participating Affiliate
which employs them to constitute income arising out of participation
in the Plan. In order to comply with all applicable
A-7
national, federal, state or local income tax laws or regulations, the
Company may take such action as it deems appropriate to ensure that
all applicable national, federal, state or local payroll, withholding,
income or other taxes, which are the sole and absolute responsibility
of a Participant, are withheld or collected from such Participant,
and, by accepting an Award pursuant to the terms of this Plan and an
Award Agreement, each Participant hereby authorizes the Company or the
relevant participating Affiliate to make the appropriate withholding
from the Participant's compensation. In order to assist a Participant
in paying all or a portion of the national, federal, state and local
taxes to be withheld or collected upon exercise or receipt of (or the
lapse of restrictions relating to) an Award, the Committee, in its
discretion and subject to such additional terms and conditions as it
may adopt, may permit the Participant to satisfy such tax obligation
by (i) electing to have the Company withhold a portion of the Shares
otherwise to be delivered upon exercise or receipt of (or the lapse of
restrictions relating to) such Award with a Fair Market Value equal to
the amount of such taxes or (ii) delivering to the Company Shares
other than Shares issuable upon exercise or receipt of (or the lapse
of restrictions relating to) such Award with a Fair Market Value equal
to the amount of such taxes. The election, if any, must be made on or
before the date that the amount of tax to be withheld is determined.
SECTION 9. GENERAL PROVISIONS
(a) NO RIGHTS TO AWARDS. No Eligible Person, Participant or other Person
shall have any claim to be granted any Award under the Plan, and there
is no obligation for uniformity of treatment of Eligible Persons,
Participants or holders or beneficiaries of Awards under the Plan. The
terms and conditions of Awards need not be the same with respect to
any Participant or with respect to different Participants.
(b) AWARD AGREEMENTS. No Participant will have rights under an Award
granted to such Participant unless and until an Award Agreement shall
have been duly executed on behalf of the Company and, if requested by
the Company, signed by the Participant.
(c) PLAN PROVISIONS CONTROL. In the event that any provision of an Award
Agreement conflicts with or is inconsistent in any respect with the
terms of the Plan as set forth herein or subsequently amended, the
terms of the Plan shall control.
(c) NO RIGHTS OF SHAREHOLDERS. Except with respect to Shares of Restricted
Stock as to which the Participant has been granted the right to vote,
neither a Participant nor the Participant's legal representative shall
be, or have any of the rights and privileges of, a stockholder of the
Company with respect to any Shares issuable to such Participant upon
the exercise or payment of any Award, in whole or in part, unless and
until such Shares have been issued in the name of such Participant or
such Participant's legal representative without restriction thereto.
(d) NO LIMIT ON OTHER COMPENSATION ARRANGEMENTS. Nothing contained in the
Plan shall prevent the Company or any Affiliate from adopting or
continuing in effect other or additional compensation arrangements,
and such arrangements may be either generally applicable or applicable
only in specific cases.
(e) NO RIGHT TO EMPLOYMENT. The grant of an Award shall not be construed
as giving a Participant the right to be retained in the employ of the
Company or any Affiliate, nor will it affect in any way the right of
the Company or an Affiliate to terminate such employment at any time,
with or without cause. In addition, the Company or an Affiliate may at
any time dismiss a Participant from employment free from any liability
or any claim under the Plan or any Award, unless otherwise expressly
provided in the Plan or in any Award Agreement. Nothing in this Plan
shall confer on any person any legal or equitable right against the
Company or any Affiliate, directly or indirectly, or give rise to any
cause of action at law or in equity against the Company or an
Affiliate. The Awards granted hereunder shall not form any part of the
wages or salary of any Eligible Person for purposes of severance pay
or termination indemnities, irrespective of the reason for termination
of employment. Under no circumstances shall any person ceasing to be
an employee of the Company or any Affiliate be entitled to any
compensation for any loss of any right or benefit under the Plan which
such employee might otherwise have enjoyed but for termination of
employment, whether such compensation is claimed by way of damages for
wrongful or unfair dismissal, breach of contract or
A-8
otherwise. By participating in the Plan, each Participant shall be
deemed to have accepted all the conditions of the Plan and the terms
and conditions of any rules and regulations adopted byadvise the Committee and shall be fully bound thereby.
(f) GOVERNING LAW. The validity, construction and effectmeet with any representative of the
Plan or
any Award,Company; and
any rules* approve the fees and regulations relatingother retention terms for such parties.
8. Report regularly to the Plan or any
Award, shall be determined in accordance with the internal laws, and
not the law of conflicts, of the State of Delaware.
(g) SEVERABILITY. If any provision of the Plan or any Award is or becomes
or is deemed to be invalid, illegal or unenforceable in any
jurisdiction or would disqualify the Plan or any Award under any law
deemed applicable by the Committee, such provision shall be construed
or deemed amended to conform to applicable laws, or if it cannot be so
construed or deemed amended without, in the determination of the
Committee, materially altering the purpose or intent of the Plan or
the Award, such provision shall be stricken as to such jurisdiction or
Award, and the remainder of the Plan or any such Award shall remain in
full force and effect.
(h) NO TRUST OR FUND CREATED. Neither the Plan nor any Award shall create
or be construed to create a trust or separate fund of any kind or a
fiduciary relationship between the Company or any Affiliate and a
Participant or any other Person. To the extent that any Person
acquires a right to receive payments from the Company or any Affiliate
pursuant to an Award, such right shall be no greater than the right of
any unsecured general creditor of the Company or any Affiliate.
(i) OTHER BENEFITS. No compensation or benefit awarded to or realized by
any Participant under the Plan shall be included for the purpose of
computing such Participant's compensation under any compensation-based
retirement, disability, or similar plan of the Company unless required
by law or otherwise provided by such other plan.
(j) NO FRACTIONAL SHARES. No fractional Shares shall be issued or
delivered pursuant to the Plan or any Award, and the Committee shall
determine whether cash shall be paid in lieu of any fractional Shares
or whether such fractional Shares or any rights thereto shall be
canceled, terminated or otherwise eliminated.
(k) HEADINGS. Headings are given to the Sections and subsections of the
Plan solely as a convenience to facilitate reference. Such headings
shall not be deemed in any way material or relevant to the
construction or interpretation of the Plan or any provision thereof.
SECTION 10. EFFECTIVE DATE OF THE PLAN
The Plan shall be effective as of the date of its approval by the
stockholders of the Company.
SECTION 11. TERM OF THE PLAN
Awards shall only be granted under the Plan during the period beginning on
the effective date of the Plan and ending on December 31, 2011, unless the Plan
is terminated earlier pursuant to Section 7(a) of the Plan. However, unless
otherwise expressly provided in the Plan or in an applicable Award Agreement,
any Award theretofore granted may extend beyond the end of such 10-year period,
and the authority of the Committee provided for hereunder with respect to the
Plan and any Awards, and the authority of the Board of Directors regarding the
significant items of the Company
to amend the Plan, shall extend beyond the termination of the Plan.
A-9discussion at each Committee meeting.
A-3
Donaldson Company, Inc. Annual Meeting of Stockholders
Friday, November 16, 2001,15, 2002, at 10:00 a.m.
Held at the Corporate Offices of
Donaldson Company, Inc.
1400 West 94th Street
Minneapolis, Minnesota
[LOGO](TM)
DONALDSON(R)TM
Donaldson(R)
DONALDSON COMPANY, INC.
ANNUAL MEETING OF STOCKHOLDERS
NOVEMBER 16, 200115, 2002
10:00 A.M., CENTRAL TIME
DONALDSON COMPANY, INC.
1400 WEST 94TH STREET
MINNEAPOLIS, MINNESOTA
- --------------------------------------------------------------------------------
[LOGO](TM)
DONALDSON(R)TM
Donaldson(R) DONALDSON COMPANY, INC. PROXY
- --------------------------------------------------------------------------------
The undersigned appoints WILLIAM G. VAN DYKE, WILLIAM M. COOK and NORMAN C.
LINNELL, and each of them, as Proxies, each with the power to appoint his
substitute, to represent and vote, as designated on the reverse side, all
shares of the undersigned at the 20012002 Annual Meeting of Stockholders of
Donaldson Company, Inc. at Donaldson Company, Inc., 1400 West 94th Street,
Minneapolis, Minnesota, at 10:00 a.m., Central Time, on Friday, November 16, 2001,15,
2002, and at any adjournment thereof.
In their discretion, the Proxies are authorized to vote upon such other business
as may properly come before the Meeting or any adjournment thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION
IS GIVEN, WILL BE VOTED FOR EACH PROPOSAL. THIS PROXY IS SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS, DONALDSON COMPANY, INC.
--------------------------------------------------------------------------------
SIGN-UP TODAY TO VIEW FUTURE PROXY STATEMENTS AND ANNUAL REPORTS VIA THE
INTERNET, INSTEAD OF RECEIVING THEM BY MAIL. TO REGISTER, FOLLOW INSTRUCTIONS
FOR INTERNET VOTING OR REGISTER YOUR CONSENT DIRECTLY BY GOING TO
http://www.econsent.com/dci/.
--------------------------------------------------------------------------------
(CONTINUED, AND TO BE SIGNED AND DATED ON OTHER SIDE)
---------------------____________________
| COMPANY # |
| CONTROL # ---------------------|
|____________________|
THERE ARE THREE WAYS TO VOTE YOUR PROXY
YOUR TELEPHONE OR INTERNET VOTE AUTHORIZES THE NAMED PROXIES TO VOTE YOUR SHARES
IN THE SAME MANNER AS IF YOU MARKED, SIGNED AND RETURNED YOUR PROXY CARD.
VOTE BY PHONE -- TOLL FREE -- 1-800-240-6326 -- QUICK ***--- EASY ***--- IMMEDIATE
* Use any touch-tone telephone to vote your proxy 24 hours a day, 7 days a
week, until 12:11:00 p.m. (ET)a.m. (CT) on November 15, 2001.14, 2002.
* You will be prompted to enter your 3-digit Company Number and your 7-digit
Control Number which are located above.
* Follow the simple instructions the voice provides you.
VOTE BY INTERNET -- http://www.eproxy.com/dci/ -- QUICK ***--- EASY ***--- IMMEDIATE
* Use the Internet to vote your proxy 24 hours a day, 7 days a week, until
12:00 p.m. (CT) on November 15, 2001.14, 2002.
* You will be prompted to enter your 3-digit Company Number and your 7-digit
Control Number which are located above to obtain your records and create an
electronic ballot.
VOTE BY MAIL
Mark, sign and date your proxy card and return it in the postage-paid envelope
we've provided or return it to Donaldson Company, Inc., c/o Shareowner
Services(SM), P.O. Box 64873, St. Paul, MN 55164-0873.
IF YOU VOTE BY PHONE OR INTERNET, PLEASE DO NOT MAIL YOUR PROXY CARD
PLEASE DETACH HERE
THE BOARD OF DIRECTORS RECOMMENDS VOTES FOR:
1. Election of directors: 01 PAUL B. BURKE 03 STEPHEN W. SANGER
02 KENDRICK B. MELROSE
[ ] Vote FOR [ ] Vote WITHHELD
all nominees from all nominees
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY NOMINEE(S),
WRITE THE NUMBER(S) OF THE NOMINEE(S) IN THE BOX TO THE RIGHT.
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2. Ratify appointment of Arthur Andersen LLP as independent auditors.
[ ]For [ ] Against [ ] Abstain
3. Approval of 2001 Master Stock Incentive Plan.
[ ]For [ ] Against [ ] Abstain
Address Change? Mark Box [ ]
Indicate changes below: Date____________________________
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| |
| |
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THE BOARD OF DIRECTORS RECOMMENDS VOTES FOR:
1. Election of directors: 01 F. GUILLAUME BASTIAENS 03 JEFFREY NODDLE [ ] Vote FOR [ ] Vote WITHHELD
02 JANET M. DOLAN all nominees from all nominees
____________________________________________
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY NOMINEE(S), | |
WRITE THE NUMBER(S) OF THE NOMINEE(S) IN THE BOX TO THE RIGHT. |____________________________________________|
2. Ratify appointment of PricewaterhouseCoopers LLP as
independent auditors. [ ] For [ ] Against [ ] Abstain
Address Change? Mark Box [ ]
Indicate changes below:
Date _______________________________
___________________________________________
| |
| |
|___________________________________________|
PLEASE DATE AND SIGN ABOVE exactly as name
appears, indicating, if appropriate, official
position or representative capacity. If stock
is held in joint tenancy, each joint owner
should sign.