[DONALDSON LETTERHEAD]
October 12, 2000
VIA EDGAR
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C. 20549
RE: Donaldson Company, Inc.
2000 Definitive Proxy Materials
Commission File Number 1-7891
Ladies and Gentlemen:
On behalf of Donaldson Company, Inc. (the "Company"), pursuant to Rule 14a-6(b)
of the Securities Exchange Act of 1934, as amended, there is transmitted
herewith for filing via EDGAR the Company's definitive Proxy Statement, Form of
Proxy and Notice of Annual Meeting of Stockholders.
Please call me, at (952) 887-3631, with any questions regarding this matter.
Thank you.
Very truly yours,
/s/Norman C. Linnell
- --------------------
Norman C. Linnell
Secretary
NCL:am
Enclosures
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTIONProxy Statement Pursuant to Section 14(a) OF THE
SECURITIES EXCHANGE ACT OFof the
Securities Exchange Act of 1934 (AMENDMENT NO.(Amendment No. )
Filed by the registrantRegistrant [X]
Filed by a partyParty other than the registrant [ ]Registrant [_]
Check the appropriate box:
[ ][_] Preliminary proxy statement
[X] Definitive proxy statement
[ ] Definitive additional materials
[ ]Proxy Statement [_] Soliciting material pursuantMaterial Pursuant to
Rule 14a-11(c) or Rule 14a-12
[ ][_] Confidential, forFor 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 inIn Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other thanOther Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
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(1)1) Title of each class of securities to which transaction applies:
(2)________________________________________________________________________________
2) Aggregate number of securities to which transactionstransaction applies:
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3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11. (Set0-11 (set forth the amount on which the filing fee is
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(4)determined):
________________________________________________________________________________
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(1)1) Amount previously paid:
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[DONALDSON LOGO][LOGO](TM)
DONALDSON(R)
DONALDSON COMPANY, INC.
1400 WEST 94TH STREET
MINNEAPOLIS, MINNESOTA 55431-2370
NOTICE OF 2000 ANNUAL MEETING OF STOCKHOLDERS
TIME: 10:00 a.m., central time, Friday, November 19, 199917, 2000
PLACE: The Conference Center at Atrium Center, 3105 E. 80th
Street, Bloomington, Minnesota.
ITEMS OF BUSINESS: (1) Election of three directors;
BUSINESS:
(2) Ratification of appointment of Ernst & YoungArthur Andersen LLP as
Donaldson Company's independent auditors of the Company;auditors; and
any other business that properly comes before the meeting.
RECORD DATE: StockholdersYou can vote if you are a stockholder of record at the close of business on
September 24, 1999 are22, 2000. A list of stockholders entitled to notice of and to
vote at the meeting
or any adjournment. A list of such stockholdersAnnual Meeting will be available prior to the meetingfor
inspection at the officeoffices of the Company, 1400 West 94th
Street, Minneapolis, Minnesota for examinationMinnesota.
PROXY VOTING: It is important that your shares be represented and voted
at the Annual Meeting. Please vote your proxy promptly by
any such stockholder for any purpose germanetelephone or by completing the proxy card and returning it
promptly in the envelope provided. All shareholders are
cordially invited to attend the meeting.Annual Meeting.
PROMPTLY VOTING YOUR PROXY WILL ASSURE YOUR
REPRESENTATION AT THE ANNUAL MEETING
By Order of the Board of Directors
Norman C. Linnell
SECRETARY
Dated: October 12, 2000
TABLE OF CONTENTS
PAGE
----
Proxy Statement .......................................................... 1
Solicitation of Proxies ................................................. 1
Voting Securities ....................................................... 1
Security Ownership ....................................................... 2
Election of Directors .................................................... 3
Nominees for Election ................................................... 4
Directors Continuing in Office .......................................... 4
Director Compensation ................................................... 4
Audit Committee Report ................................................... 5
Independent Auditors ..................................................... 6
Executive Compensation ................................................... 7
Human Resources Committee Report on Executive Compensation ............... 10
Performance Graphs ....................................................... 11
Pension Benefits ......................................................... 13
1999
- --------------------------------------------------------------------------------
IMPORTANT
STOCKHOLDERS ARE ENCOURAGED TO VOTE THEIR PROXY BY TELEPHONE AS DESCRIBED IN
THE ENCLOSED TELEPHONE VOTING INSTRUCTIONS OR DATE, SIGN AND RETURN THE
ENCLOSED PROXY IN THE ENCLOSED ENVELOPE, TO WHICH NO POSTAGE NEED BE AFFIXED
IF MAILED IN THE UNITED STATES.
- --------------------------------------------------------------------------------Compliance with Section 16(a) of the Securities Exchange Act of 1934 ..... 14
Change-in-Control Arrangements ........................................... 14
2001 Stockholder Proposals ............................................... 14
Other Matters ............................................................ 14
Appendix A ............................................................... A-1
i
DONALDSON COMPANY, INC.
1400 WEST 94TH STREET
MINNEAPOLIS, MINNESOTA 55431
-----------------------------
PROXY STATEMENT
MAILING DATE OCTOBER 13, 199912, 2000
-----------------------------
SOLICITATION OF PROXIES
The enclosed proxy is solicited by and on behalf of the Board of Directors of Donaldson
Company, Inc. (the "Company") for use at the Annual Meeting of Stockholders to
be held on November 19, 1999,17, 2000, 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, and (2) ratifying the auditors
named herein.
The Company will pay for the cost of this solicitation of proxies will be borne by the Company.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 therefor. 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 $5,000 plus out-of-pocket
expenses. This proxy statement and the accompanying proxy are first being mailed
to stockholders on or about October 13, 1999.12, 2000. The 2000 Annual Report to
Shareholders for the fiscal year ended July 31, 2000 is being mailed with this
Proxy Statement.
VOTING SECURITIES
Stockholders of record as of the close of business on September 24, 199922, 2000
will be entitled to vote at the meeting. The Company then had approximately
46,032,23044,681,913 shares of Common Stock outstanding, each of which entitles its holder
to one vote. Representation at the meeting of a majority of the outstanding
shares is required for a quorum.
If an executed proxy card is returned or a proxy is voted by telephone, and
the stockholder has abstained from voting on any matter or, in the case of the
election of directors has withheld authority to vote with respect to any or all
of the nominees, the shares represented by such proxy will be considered present
at the meeting for purposes of determining a quorum and for purposes of
calculating 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. If an executed proxy is returned by a broker holding shares
in street name which indicates that the broker does not have discretionary
authority as to certain shares to vote on one or more matters, such 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.
Shares of Common Stock credited to the accounts of participants in the
Automaticautomatic Dividend Reinvestment Program of the Company have been added to the
participants' other holdings and included in the enclosed proxy. Participants in
the Company's employee benefit plans are entitled to instruct the plan trustee
as to how to vote all shares of Donaldson Common Stock allocated to their
accounts under the plans as of the record date, and will receive a separate
voting instruction card for directing the plan trustee to vote such shares.
1
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 24, 1999:
NAME AND ADDRESS AMOUNT AND NATURE PERCENT
OF BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP OF CLASS
------------------- ----------------------- --------
Donaldson Company, Inc.
Employee Stock Ownership Plan ............ 5,391,741(1) 11.7%
c/o Fidelity Management Trust Company
82 Devonshire Street
Boston, MA 02109
Pioneering Management Corporation ........ 4,890,000(2) 10.6%22, 2000:
NAME AND ADDRESS AMOUNT AND NATURE PERCENT
OF BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP OF CLASS
------------------- ----------------------- --------
Donaldson Company, Inc.
Employee Stock Ownership Plan ........... 5,202,758(1) 11.6%
c/o Fidelity Management Trust Company
82 Devonshire Street
Boston, MA 02109
Pioneering Management Corporation ....... 4,890,000(2) 10.9%
60 State Street
Boston, MA 02109
- ---------------------------------------
(1) These shares are held in trust for the benefit of participants in the
Company's ESOP for which Fidelity Management Trust Company is the trustee
and claims no voting or investment power over the indicated shares.
(2) Pioneering Management Corporation is a registered investment adviser with
sole voting power with respect to all 4,890,000 shares and shared
investment power with respect to all 4,890,000 shares. Information is based
solely on a Schedule 13G filed with the Securities and Exchange Commission
by Pioneering Management Corporation with respect to shares held as of
December 31, 1998.
The following table sets forth information as of July 31, 1999,September 30, 2000, regarding
the beneficial ownership of the Company's Common Stock by each director, each of
the Named Officers (as hereinafter defined) and all executive officers and
directors of the Company as a group. Except as otherwise indicated, the named
beneficial owner has sole voting and investment power with respect to the shares
held by such beneficial owner.
TOTAL PERCENT EXERCISABLE
NAME OF INDIVIDUAL OR GROUP SHARES (1) OF CLASS OPTIONS (1)
--------------------------- ---------- -------- ------------
William G. Van Dyke ................... 959,789(2) 2.1 550,406
Nickolas Priadka ...................... 254,732(3) * 124,881
James R. Giertz ....................... 210,178 * 125,628
William M. Cook ....................... 159,230 * 104,615
Lowell F. Schwab ...................... 134,878 * 88,458
S. Walter Richey ...................... 51,057 * 25,200
Kendrick B. Melrose ................... 49,539 * 25,200
Stephen W. Sanger ..................... 43,282 * 25,200
Jack W. Eugster ....................... 37,535 * 21,200
F. Guillaume Bastiaens ................ 19,330 * 13,200
Paul B. Burke ......................... 15,408 * 9,200
Janet M. Dolan ........................ 14,182 * 9,200
John Grundhofer ....................... 9,648 * 5,200
Directors and Officers as a Group ..... 2,495,402 5.4 1,257,945
TOTAL PERCENT EXERCISABLE
NAME OF INDIVIDUAL OR GROUP SHARES (1)(2) OF CLASS OPTIONS (1)
--------------------------- ------------- -------- -----------
William G. Van Dyke ................. 1,099,978(3) 2.5 662,656
Nickolas Priadka .................... 292,452(4) * 157,131
James R. Giertz ..................... 262,012 * 162,336
William M. Cook ..................... 204,506 * 139,782
Lowell F. Schwab .................... 172,832 * 121,108
S. Walter Richey .................... 58,499(5) * 30,000
Kendrick B. Melrose ................. 56,947 * 30,000
Stephen W. Sanger ................... 50,890 * 30,000
Jack W. Eugster ..................... 44,644 * 26,000
F. Guillaume Bastiaens .............. 25,620 * 18,000
Paul B. Burke ....................... 22,691 * 14,000
Janet M. Dolan ...................... 21,430 * 14,000
John F. Grundhofer .................. 14,972 * 10,000
Directors and Officers as a Group ... 2,591,885 5.7 1,638,038
- ----------------------------------------
* Less than 1%
(1) Includes restricted shares shares held in trust and the shares underlying options exercisable
within 60 days, as listed under the Exercisable Options column.
(2) Includes 65,936the following shares held byin the ESOP trust: Mr. Van Dyke, 27,438
shares; Mr. Priadka, 20,859 shares; Mr. Giertz, 3,744 shares; Mr. Cook,
17,258 shares; Mr. Schwab, 11,953 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, 3,930 shares; Mr. Cook, 2,452 shares; Mr.
Schwab, 6,286 shares. Voting of shares held in the 401K Plan Trust is
passed through to
2
the participants. Also includes the following shares held in the deferred
compensation and 401K Excess Plan trust: Mr. Van Dyke, 5,425 shares; Mr.
Piadka, 1,015 shares; Mr. Giertz, 1,012 shares; Mr. Cook, 1,119 shares; Mr.
Schwab, 852 shares. Voting of shares held in the Deferred Compensation and
401K Excess Plan trust is passed through to the participants.
(3) Includes 262, 862 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 9,000
shares underlying options gifted to immediate family members.
(3)(4) Includes 24,358 shares held in a trust of which Mr. Priadka is a trustee
and has shared voting and investment power.
2
(5) Includes 7,494 shares held by spouse.
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 nine. 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 Jack W. Eugster, John F. Guillaume Bastiaens, Janet M. DolanGrundhofer and S. Walter
RicheyWilliam G.
Van Dyke expire at the annual meeting. Mr. BastiaensEugster was elected by the Board in
1995, Ms. Dolan1993, Mr. Grundhofer in 19961997 and Mr. RicheyVan Dyke in 1991.1994. It is intended that
proxies received will be voted, unless authority is withheld, FOR the election
of the nominees presented on Page 4, namely Jack W. Eugster, John F. Guillaume Bastiaens, Janet M. DolanGrundhofer
and S. Walter Richey.William G. Van Dyke. The director nominees receiving the highest number of
votes will be elected to fill the seats on the Board.
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.served, with the exception of F. Guillaume Bastiaens who attended
70%.
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, S. Walter Richey (Chair) and Stephen W.
Sanger, all of whom are non-employee directors. The Audit Committee held three
meetings during the past fiscal year. FunctionsThe responsibilities of the Audit
Committee are described in the Audit Committee Charter adopted by the Board of Directors on
September 24, 1999 and set forth in Exhibit A.its Charter, which is reviewed and amended
periodically, as appropriate. The Charter is attached as Appendix A to this
Proxy Statement. The Audit Committee satisfied its obligations under the Charter
this charter in the past year.
The Human Resources Committee is composed of directors Paul B. Burke, Jack
W. Eugster, John F. Grundhofer, Kendrick B. Melrose and Stephen W. Sanger
(Chair), all of whom are non-employee directors. This Committee held two
meetings during the past fiscal year. The functions of this committee include
review of management development, approval of compensation arrangements for
senior management and administration of the Company's stock compensation plans.
The Corporate Governance Committee on Directors' Affairs is composed of directors Paul B. Burke,
Janet M. Dolan, Jack W. Eugster (Chair), John F. Grundhofer and S. Walter
Richey, all of whom are non-employee directors. This Committee did not meetheld one meeting
formally during the past fiscal year. The Committee's duties are to review the
organization of the Board and its committees, propose to the Board a slate of
directors for election by the stockholders at each Annual Meeting, propose
candidates to fill vacancies on the Board and approval of director compensation.
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.
3
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 of such other person, if any, as they may
determine.
3
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.
NOMINEES FOR ELECTION
NAME PRINCIPAL OCCUPATION AND BUSINESS EXPERIENCE
- ---- -----------------------------------------------------------------------------
FOR A TERM EXPIRING IN 2002:
F. Guillaume Bastiaens ViceNAME PRINCIPAL OCCUPATION AND BUSINESS EXPERIENCE
- ---- --------------------------------------------------
FOR A TERM EXPIRING IN 2003:
Jack W. Eugster Chairman, of Cargill, Inc. (1997) and President, Food Sector of Cargill,
Age - 56 Inc. (Agribusiness). Previously, Executive Vice President of Cargill, Inc.
Director Since 1995
Janet M. Dolan Chief Executive Officer (1999) and President (1998). Previously Chief
Age - 50 Operating Officer (1998) and Executive Vice President of Tennant Company
Director Since 1996 (manufacturer of floor maintenance equipment and coating products). Also,
a director of William Mitchell College of Law.
S. Walter Richey Retired Chairman, President and Chief Executive Officer of Meritex, Inc.
Age - 63 and its predecessor corporation Space Center Company (owns and manages
Director Since 1991 business properties and distribution centers). 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.
DIRECTORS CONTINUING IN OFFICE
FOR A TERM EXPIRING IN 2001:
Paul B. Burke Chairman (1995), President and Chief Executive Officer of
Age - 55 The Musicland Group, Inc. (retail consumer
Director since 1993 products). Also, a director of Shopko Stores, Inc.
John F. Grundhofer Chairman (1999), and Chief Executive Officer of
Age - 61 U.S. Bancorp (financial services). Also, a
Director since 1997 director of Minnesota Life Insurance Company.
William G. Van Dyke Chairman and Chief Executive Officer (1996) and
Age - 55 President (1994) of the Company. Also, a director
Director since 1994 of Graco Inc.
DIRECTORS CONTINUING IN OFFICE
NAME PRINCIPAL OCCUPATION AND BUSINESS EXPERIENCE
- ---- --------------------------------------------------
TERMS EXPIRING IN 2002:
F. Guillaume Bastiaens Vice Chairman of Cargill, Inc. (1997) and
Age - 57 President, Food Sector of Cargill, Inc.
Director Since 1995 (Agribusiness). Previously, Executive Vice
President of Cargill, Inc.
Janet M. Dolan Chief Executive Officer (1999) and President
Age - 51 (1998). Previously Chief Operating Officer (1998)
Director Since 1996 and Executive Vice President of Tennant Company
(manufacturer of floor maintenance equipment and
coating products). Also, a director of William
Mitchell College of Law.
S. Walter Richey Retired Chairman, President and Chief Executive
Age - 64 Officer of Meritex, Inc. (real estate management,
Director Since 1991 development and warehousing). Mr. Richey was 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.
TERMS EXPIRING IN 2001:
Paul B. Burke Chairman, President and Chief Executive Officer of
Age - 44 BMC Industries,
Age - 43 Inc. (manufacturer of precision
Director Since 1996 imaged and optical products).
Director Since 1996
Kendrick B. Melrose Chairman and Chief Executive Officer of The Toro
Age - 60 Company (manufacturer
Age - 59 of outdoor maintenance products). Also, a director of Jostens, Inc., SurModics,
Director since 1991 products). Also, a director of SurModics, Inc. and
The Valspar Corporation.
Stephen W. Sanger Chairman and Chief Executive Officer of General
Age - 54 Mills, Inc. (consumer products and services). Also
Director since 1992 a director of Target Corporation.
Stephen W. Sanger Chairman and Chief Executive Officer of General Mills, Inc. (1995) (consumer
Age - 53 products and services). Previously, an executive officer of various groups
Director since 1992 and divisions of General Mills, Inc. Also, a director of The Dayton Hudson
Corporation.
FOR A TERM EXPIRING IN 2000:
Jack W. Eugster Chairman, President and Chief Executive Officer of The Musicland Group,
Age - 54 Inc. (retail consumer products). Also, a director of Damark International,
Director since 1993 Inc., Jostens, Inc., MidAmerican Energy Company and Shopko Stores, Inc.
William G. Van Dyke Chairman and Chief Executive Officer (1996) and President (1994) of the
Age - 54 Company. Previously, Executive Vice President. Also, a director of Graco
Director since 1994 Inc.
John F. Grundhofer Chairman, and Chief Executive Officer of U.S. Bancorp (financial services).
Age - 60 Also, a director of Minnesota Mutual Life Insurance Company and Irvine
Director since 1997 Apartment Communities, Inc.
4
DIRECTOR COMPENSATION
Directors who are not employees receive a retainer fee of $20,000$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
4
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-employee directors to be 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 director 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 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 1999,2000, were as follows:
Bastiaens, 556290 shares, Burke, 1,4101,283 shares, Dolan, 1,3721,248 shares, Eugster, 1,1191,109
shares, Grundhofer, 1,2191,324 shares, Melrose, 1,2011,408 shares, Richey, 1,6111,438 shares,
and Sanger, 1,6961,608 shares.
AUDIT COMMITTEE REPORT
The Audit Committee of the Board of Directors, consisting of five,
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 responsibilities of the Audit Committee are
set forth in the Audit Committee Charter attached as Appendix A to this Proxy
Statement. The Audit Committee reviews and recommends 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 (i) reviewed and discussed the Company's audited
financial statements for the fiscal year ending July 31, 2000 with the Company's
management and with the Company's independent auditors; (ii) discussed with the
Company's independent auditors the matters required to be discussed by SAS 61
(Codification for Statements on Auditing Standards); and (iii) received and
discussed the written disclosures and the letter from the Company's independent
accountants required by Independence Standards Board Statement No. 1
(Independence discussions with Audit Committees). Based on the review and
discussions with management and the independent auditors, the 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, 2000 for filing with the SEC.
Audit Committee
S. Walter Richey, Chair Kendrick B. Melrose
F. Guillaume Bastiaens Stephen W. Sanger
Janet M. Dolan
5
INDEPENDENT AUDITORS
On March 17, 2000, 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 upon the recommendation of its
Audit Committee.
The reports of E&Y on the financial statements of the Company for its
fiscal years ended July 31, 1999 and July 31, 1998 did not contain any adverse
opinion or disclaimer of opinion and were not qualified or modified as to
uncertainty, audit scope or accounting principles. During the Company's two most
recent fiscal years and the subsequent interim period through March 17, 2000,
there were no disagreements between the Company and E&Y on any matter of
accounting principles or practices, financial statement disclosure or auditing
scope or procedure which, if not resolved to the satisfaction of E&Y, would have
caused E&Y to make reference to the subject matter of the disagreement in
connection with its reports.
The Company did not, during the Company's two most recent fiscal years or
the subsequent interim period through March 17, 2000, consult with Arthur
Andersen on items which concerned the subject matter of a disagreement or
reportable event with E&Y (as described in Regulation S-K Item 304(a)(2)).
The Company reported the change in accountants on Form 8-K on March 21,
2000. The Form 8-K contained a letter from E&Y, addressed to the Securities and
Exchange Commission stating that it agreed with the comments relating to E&Y in
the second paragraph above, and was not in a position to agree or disagree with
the comments in the remainder of the above statements.
Upon recommendation of its Audit Committee, the Board of Directors has
appointed Ernst & YoungArthur Andersen LLP as independent public accountants to audit the
books and accounts of the Company for the fiscal year ending July 31, 2000,2001, such
appointment to continue at the pleasure of the Board of Directors and subject to
ratification by the stockholders. Ernst & YoungArthur Andersen LLP has audited the books and
accounts of the Company since 1951.2000. Representatives of Ernst & YoungArthur Andersen LLP 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 appoint other independent auditors forreconsider its selection. Ratification of
the subsequent
fiscal year.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 Ernst & YoungArthur Andersen LLP as independent auditors for the fiscal
year ending July 31, 2000.2001.
6
EXECUTIVE COMPENSATION
The following table sets forth as to each person who was at the end of
fiscal 1999,2000, the Chief Executive Officer and the other four most-highly
compensated executive officers of the Company information concerning the cash
and noncash compensation for services rendered to the Company for each of the
last three fiscal years (the "Named Officers").
SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION
----------------------------------------------------------------------------------
ANNUAL COMPENSATION (1) AWARDS PAYOUTS
------------------------ --------------------------- ------------------------------------- ------------------------- ------------
SECURITIES
RESTRICTED UNDERLYING
RESTRICTED
STOCK STOCK OPTIONS/SARS ALL OTHER
FISCAL AWARD(S) (SHARES)OPTIONS/SARs LTIP PAYOUTS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) ($) (5) (2) (SHARES) ($) (3) ($) (4)
- ----------------------------- ----------------------------------- ------ ---------- --------- ---------- ------------ ----------- ------------ -------------- -------------- -------------------------
WILLIAM G. VAN DYKE ..................... 2000 593,846 738,000 0 70,500 358,135 49,800
Chairman, Chief 1999 539,615 678,000 0 78,000 0 29,208
Chairman, Chief33,425
Executive Officer and 1998 483,846 606,000 0 78,000 301,219 27,373
Executive Officer32,756
President
JAMES R. GIERTZ ................ 2000 259,539 208,075 0 46,374 127,220 15,156
Senior Vice President, 1999 239,962 172,050 0 35,304 0 10,755
Commercial and 1997 450,000 540,000Industrial 1998 219,769 134,451 0 131,704 586,253 173,520
President57,964 137,324 12,213
WILLIAM M. COOK ............................. 2000 228,077 227,095 249,219 21,500 145,981 14,943
Senior Vice President, 1999 213,654 203,379203,374 0 26,000 0 6,947
Senior Vice President,11,515
Industrial 1998 196,539 172,126 0 26,000 55,377 3,796
Commercial and Industrial 1997 178,154 85,260 0 43,484 101,772 46,214
JAMES R. GIERTZ ............. 1999 239,962 158,621 0 35,304 0 6,2199,097
LOWELL F. SCHWAB ............... 2000 222,846 188,474 179,438 21,000 112,015 12,606
Senior Vice President, and1999 200,962 132,304 0 24,000 0 10,363
Operations 1998 219,769 134,451183,462 151,782 0 57,964 137,324 6,672
Chief Financial Officer 1997 199,808 151,639 0 61,360 854,911 61,58224,000 93,020 10,496
NICKOLAS PRIADKA ........................... 2000 239,077 142,070 0 22,500 115,228 12,448
Senior Vice President, 1999 224,654 121,795121,786 0 27,000 0 5,985
Senior Vice President,10,586
OEM Engine Systems and 1998 207,154 140,697 0 42,631 110,124 5,803
OEM Engine Systems and 1997 187,808 133,739 0 61,400 207,984 56,34010,842
Parts
LOWELL F. SCHWAB ............ 1999 200,962 129,204 0 24,000 0 5,782
Senior Vice President, 1998 183,462 151,782 0 24,000 93,020 5,477
Operations 1997 168,450 152,491 0 26,474 537,361 56,243
- --------------------------------------
(1) Includes any portion deferred under the ManagementDeferred Compensation and 401(K)
Excess Plan.
(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. (2) Shares adjustedRegular dividends are paid on the restricted shares. At
the end of fiscal 2000, the number and value of the aggregate restricted
stockholdings for the Named Officers were: William G. Van Dyke, 0, $0;
James R. Giertz, 25,000, $478,125; Nickolas Priadka, 0, $0; Lowell F.
Schwab, 9,000, $172,125; and William M. Cook, 12,500, $239,063. Restricted
stock splits.awards totalling an additional 20,000 were made to the Executive
Officers as a group and no other awards were made to the Non-Executive
Officer Employees as a Group.
(3) 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
during the following fiscal year.
7
(4) Amounts in this column for 1999 and 1998 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
6
(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 19992000 are:
SALARY DEFERRED SALARY
NAME AND BONUS MATCH AND BONUS MATCH EXCESS MATCH
----------------------------- ----------------- ----------------- ----------------- --------------- --------------- ------------
William G. Van Dyke ......... $4,217 $ 0 $29,208$3,220 $17,818 $28,762
William M. Cook ............. 4,568 984 5,9633,867 6,141 4,935
James R. Giertz ............. 4,5364,292 0 6,21910,864
Nickolas Priadka ............ 4,601 1,513 4,4724,413 1,922 6,113
Lowell F. Schwab ............ 4,5814,800 0 5,7827,806
1997 amounts represent the dollar value of share allocations under the
Company's ESOP and benefits in excess of the limits established by Section
415 of the Internal Revenue Code contributed by the Company to an
unqualified supplemental plan.
(5) 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 1999, the number and value of the aggregate restricted
stockholdings for the Named Officers were: William G. Van Dyke, 0, $0; James
R. Giertz, 25,000, $620,313; Nickolas Priadka, 8,400, $208,425; Lowell F.
Schwab, 8,400, $208,425; and William M. Cook, 0, $0. No restricted stock
awards were made to Executive Officers as a group and Non-Executive Officer
Employees as a Group.
OPTION/SARSSARs GRANTED IN LAST FISCAL YEAR
INDIVIDUAL GRANTS (1)
--------------------------------------------- POTENTIAL REALIZABLE VALUE AT--------------------------------------------
NUMBER OF % OF TOTAL ANNUAL RATPOTENTIAL REALIZABLE VALUE AT
SECURITIES OPTIONS/SARSSARs ASSUMED PRECIATIONESANNUAL RATES OF STOCK
UNDERLYING GRANTED TO EXERCISE PRICE APAPPRECIATION FOR OPTION TERM (3)
FOR OPTION
OPTIONS/SARSSARs EMPLOYEES OR BASE EXPIRATION --------------------------------------------------------------------
NAME GRANTED (2) IN FISCAL YEAR PRICE/SH ($) DATE 0% ($) 5% ($) 10% ($)
- ------------------------------ ------------ -------------- --------------- -------------------------- ---------- ----------- ------------------- --------- ----------
WILLIAM G. VAN DYKE 73,400 15.7 20.0070,500 15.4 23.00 12/03/0806/09 0 924,384 2,343,245
4,600 1.0 20.751,021,042 2,588,264
JAMES R. GIERTZ 24,500 5.3 23.00 12/31/0806/09 0 60,104 152,359354,830 899,468
16,115(4) 3.5 24.25 12/05/06 0 157,483 366,405
5,759(4) 1.3 24.25 12/21/05 0 47,405 107,517
WILLIAM M. COOK 26,000 5.6 20.0021,500 4.7 23.00 12/03/0806/09 0 327,439 830,032
JAMES R. GIERTZ 29,000 6.2 20.00 12/03/08 0 365,220 925,805
6,304(4) 1.4 19.00 12/21/05 0 48,186 112,081
NICKOLAS PRIADKA 25,500 5.5 20.00 12/03/08 0 321,142 814,070
1,500 .3 20.75 12/31/08 0 19,599 49,682311,381 789,329
LOWELL F. SCHWAB 24,000 5.1 20.0021,000 4.6 23.00 12/03/0806/09 0 302,251 766,184304,140 770,972
NICKOLAS PRIADKA 22,500 4.9 23.00 12/06/09 0 325,864 826,042
ALL EXECUTIVE OFFICERS
AS A GROUP 221,349 47.5204,686 44.6
ALL NON-EXECUTIVE OFFICER
EMPLOYEES AS A GROUP 245,000 52.5254,600 55.4
- ---------------------------------------
(1) No stock appreciation rights ("SARs") have been granted.
(2) All grants (other than as noted in footnote(4)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.
(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.
7
(4) These grants were made to individuals who exercised an option during fiscal
19992000 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.
8
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION/SAR VALUES
NUMBER OF SECURITIES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS/SARSSARs
OPTIONS/SARs AT FISCAL YEAR-END IN-THE-MONEY OPTIONS/SARS (2) AT FISCAL YEAR-END (2)(3)
SHARES VALUE ------------------------------------------------------------------ ------------------------------
ACQUIRED ON REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
NAME EXERCISE (1) ($) (SHARES) (SHARES) ($) ($)
- ---- -------------- ----------------------- -------- --------------- ----------------- ------------- --------------- ------------- --------------
WILLIAM G. VAN DYKE 76,080(4) 1,001,490 550,406 67,750 6,155,944 306,3910 0 662,656 26,000 3,296,147 0
JAMES R. GIERTZ 26,983 245,508 162,336 9,666 47,775 0
WILLIAM M. COOK 2,402(4) 14,862 104,615 22,333 839,865 99,020
JAMES R. GIERTZ 7,650 50,681 125,628 26,983 647,751 136,230
NICKOLAS PRIADKA 51,780(4) 794,872 124,881 23,150 959,224 102,3030 0 139,782 8,666 332,243 0
LOWELL F. SCHWAB 0 0 88,458 19,650 755,220 79,397121,108 8,000 326,252 0
NICKOLAS PRIADKA 0 0 157,131 9,000 393,787 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 1999.2000.
(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
1999.
(4) The officers elected under the Deferred Stock Option Gain Plan to defer
receipt of the shares to be acquired upon exercise. The officers receive a
credit of shares to a deferred stock account and also receive a credit for
dividend reinvestment shares.2000.
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) OR PAYOUT THRESHOLD TARGET MAXIMUM
- ---- ---------------------------- ------------------ ----------- -------- -----------------
WILLIAM G. VAN DYKE 14,40015,600 8/1/9899 - 7/31/01 7,200 14,400 39,60002 3,900 15,600 42,900
JAMES R. GIERTZ 5,700 8/1/99 - 7/31/02 1,425 5,700 15,675
WILLIAM M. COOK 4,9005,100 8/1/9899 - 7/31/01 2,450 4,900 13,475
JAMES R. GIERTZ 5,400 8/1/98 - 7/31/01 2,700 5,400 14,850
NICKOLAS PRIADKA 5,100 8/1/98 - 7/31/01 2,55002 1,275 5,100 14,025
LOWELL F. SCHWAB 4,5004,800 8/1/9899 - 7/31/01 2,250 4,500 12,37502 1,200 4,800 13,200
NICKOLAS PRIADKA 5,300 8/1/99 - 7/31/02 1,325 5,300 14,575
- ---------------------------------------
(1) Awards are of Performance Units, each of which represents the right to
receive one shareShares 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 50%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%.
89
HUMAN RESOURCES COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Human Resources Committee of the Board of Directors, consisting of five
independent, non-employee directors ("the Committee"), is responsible for
establishing the compensation programs for the Company's executive officers. The
objectives of the Company's executive compensation program are to:
o* emphasize a pay-for-performance philosophy by placing significant
portions of pay at risk and requiring outstanding results for payment
at the threshold level;
o* attract and retain the best executives available in our industry and
have their compensation levels keyed to a peer group of companies;
o* 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
stockholder value; and
o* 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 executives based on performance of
the executive and external market data. OurThe 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
nationally known consultant surveys for external market data.
ANNUAL CASH INCENTIVE. Executive officers are eligible for target awards
under the annual incentive program that range up to 60% 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. Executive
officers have up to 100% of their annual cash incentive opportunity linked to
achieving record Earnings Per Share (EPS).
Consequently, executive officers must obtain record EPS, thereby increasing
stockholder value, to receive a competitive annual cash incentive.
LONG-TERM INCENTIVE COMPENSATION.STOCK COMPENSATION AND STOCK OPTION GRANTS. There was noa
payout under the long-term incentive plan in 1999 based on the Company's failure to achieve the minimum
performance objectives for net sales growth.2000 following after no payout in
1999. The volatility in the long-term incentive plan payouts for the three years
shown in the summary compensation table is consistent with the at risk nature of
the payouts and the pay for performance philosophy. The Long-Term Performance
Award program 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 insureensure retention of key executives. The Committee also
believes that significant stock option grants encourage the executive officers
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.
STOCK OPTION BONUS REPLACEMENT PROGRAM. To encourage stock ownership by
executives, The Company adopted in fiscal 2000 a program which allows executives
to elect to receive stock options under the 1991 Master Stock Compensation Plan
in lieu of some or all of the cash compensation earned under the annual
10
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.
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 9
has established stock ownership guidelines for the
Named Officers and certain other executive officers, which encourage retention
of shares obtained through the exercise of options. The guidelines range from
five to ten times base salary.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 19992000
base salary and incentive award were determined by the Committee in accordance
with the methodology described above.
BASE SALARY. Mr. Van Dyke's base salary for calendar 19992000 was
$565,000,$615,000, which is belowapproximately at the market mid-point for manufacturing
companies of similar size.
ANNUAL BONUS. Mr. Van Dyke's bonus award for fiscal 19992000 was $678,000.$738,000.
This annual bonus was earned under the annual incentive program based on
earning per share growth of $1.31,$1.51, up 15% over the previous record earned
in fiscal 1998.1999.
STOCK OPTIONS. Mr. Van Dyke received annual option grants in December
19981999 of options to purchase 78,00070,500 shares of stock.
LONG-TERM INCENTIVE PLAN PAYOUT. Mr. Van Dyke received noa payout of
18,726 shares of stock under the Long-Term Incentive Plan in 19992000 based on
the Company's failure to achieveachieving the minimum performance objectives for three year
compounded growth in net sales growth.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 has been amended to 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 incentive 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 executive officers on the
continued achievement of growth and profitability for the benefit of the
Company's stockholders.
SUBMITTED BY THE HUMAN RESOURCES COMMITTEE OF THE BOARD OF DIRECTORSHuman Resources Committee
Stephen W. Sanger, Chair
Paul B. Burke
Jack W. Eugster
John F. Grundhofer
Kendrick B. Melrose
PERFORMANCE GRAPHS
The following graphs compare the cumulative total stockholder return on the
Company's Common Stock for the last five fiscal years and nineeleven fiscal years
with the cumulative total return of the Standard & Poor's 500 Stock Index and
the Standard & Poor's Index of Manufacturing Companies. The first graph assumes
the investment of $100 in the Company's Common Stock and each of the indexes at
the market close on fiscal year-end 19941995 and the reinvestment of all dividends.
The second graph assumes the investment of $100 in the Company's Common Stock
and each of the indexes at the market close on fiscal year-end 1989 and the
reinvestment of all dividends. The Company believes the second graph is useful
in showing the cumulative total stockholder return over the ten-yeareleven-year period
of consecutive double-digit increases in earnings per share.
1011
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
[PLOT POINTS CHART]
FISCAL YEARS ENDED JULY 31
1994 1995 1996 1997 1998 1999 2000
------------ ----------------------- ------------ ------------ ------------ ------------
Donaldson .................. $ 100.00 $ 110.4593.12 $ 102.86155.79 $ 172.07143.12 $ 158.09193.52 $ 213.75151.47
S&P 500 .................... 100.00 126.11 147.00 223.65 266.78 320.68116.56 177.33 211.52 254.27 277.08
S&P Manufacturing .......... 100.00 137.02 162.12 253.52 249.49 348.68118.33 185.03 182.09 254.49 245.39
COMPARISON OF TENELEVEN YEAR CUMULATIVE TOTAL RETURN
[PLOT POINTS CHART]
FISCAL YEARS ENDED JULY 31
1989 1990 1991 1992 1993
------------ ------------ ------------ ------------ ------------
Donaldson .............................. $ 100.00 $ 181.27 $ 209.85 $ 274.83274.82 $ 341.32341.31
S&P 500 .................................. 100.00 106.50 120.09 135.45 147.27120.11 135.47 147.29
S&P Manufacturing .............. 100.00 109.34 115.50 120.57 139.40
[WIDE TABLE CONTINUED]
115.49 120.56 136.82
1994 1995 1996 1997 1998 1999 2000
------------ ------------ ------------ ------------ ------------ ------------ ------------
Donaldson .............................. $ 455.79455.76 $ 503.42503.39 $ 468.79 $ 784.24784.23 $ 720.48720.47 $ 974.16 $ 762.52
S&P 500 .............. 154.87 195.31 227.67 346.38 413.16 496.62.................... 154.90 195.23 227.56 346.21 412.95 496.40 540.93
S&P Manufacturing .... 162.16 222.19 262.92 411.13 404.60 565.45.......... 159.16 218.07 258.04 403.50 397.10 554.97 535.12
1112
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 benefitplan
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 Planand Excess Retirement Plans accumulate
benefits in a hypothetical account balance through annual interest credits, and paycompany
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 equal
to the average auctioned yield of one-year U.S. Treasury Bills during the month
of June preceding the plan year, plus one percent. The Interest Crediting Rate
is 5.89%7.00% for the 19992000 plan year.
Additionally, PayCompany Credits are credited to the account balancebalances at the end of each
plan year. The participant's PayCompany Credit Percentages are determined bybased 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, 2000, the sum of years of age plus
service for Messrs. Van Dyke, Cook, Giertz, Priadka and Schwab were 82, 66, 49,
84 and 71, respectively. The participant's Base PayCompany Credit is equal to the
Base PayCompany Credit Percentage times total covered compensation during the plan
year ("Pensionable Earnings"). The participant's Excess PayCompany Credit is equal
to the Excess PayCompany Credit Percentage times Pensionable Earnings in excess of
the Social Security taxable wage base. The following table displays the PayCompany
Credit Percentages for the sum of years of age and service shown:
PAY CREDIT PERCENTAGES
----------------------
SUM OF YEARS OF AGE PLUS SERVICE BASE EXCESS
---------------------------------- --------- ---------
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
AsSpecial Career Credits are credited at the end of the plan year to the
account balances of participants who were born prior to August 1, 1999,1957 and
continuously employed since August 1, 1992. The Special Career Credits are equal
to 3.0% of the sumparticipant's pensionable earnings and will continue through the
end of the 2007 plan year, or if earlier, through the plan year in which the
participant attains 35 years of age plus service forbenefit service. Messrs. Van Dyke, Giertz,Cook, Priadka
and Schwab and Cook were 80, 47, 82, 69 and 64, respectively.
The individuals named in the Summary Compensation Table are alsoall currently eligible for retirement benefits under 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 payable under the Retirement Plan because of
the maximum limitations imposed on qualified plans by the Code. 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 at age 65 under
the Retirement and Excess Retirement Plans: Mr. Van Dyke, $532,397; Mr. Giertz,
$229,047; Mr. Priadka, $180,098; Mr. Schwab, $151,815; and Mr. Cook, $255,075.
These projections are based on the following assumptions: (1) employment until
age 65; (2) no increase in pensionable earnings after the 1998 plan year; (3)
interest credits at the actual rate of 5.89% during the 1999 plan year, and
6.00% thereafter; and (4) conversion to a single life annuity at normal
retirement age is based on an interest rate of 6.00% and the Unisex 1983 Group
Annuity Mortality table.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 has been designed to assureassures 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. However, this retirementThis target benefit is
prorated for retirements with less than 20 years of service and further reduced by 2% for each
year the participant's retirement precedes age 62.62, 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, to reach this benefit target, the Company
will consider the lump sum value of the benefits described in the previous paragraph and
footnote (5)(4) to the Summary Compensation Table, as well as, any vested pension
benefits payableavailable from prior employers, if any.
AssumingThe projections below set forth the SERP remains unchanged and employment continuesestimated annual benefit payable to
each of the individuals named in the Summary Compensation Table as a single
life annuity, beginning at age 65, at current
compensation levels, nounder the Retirement and Excess Retirement
Plans: Mr. Van Dyke, $546,732; Mr. Cook, $261,504; Mr. Giertz, $221,304; Mr.
Priadka, $184,032; and Mr. Schwab, $158,592. No additional benefits are
expected to be required from the SERP for any of these participants. These
projections are based on the participants.
12following assumptions: (1) employment until
13
age 65; (2) no increase in pensionable earnings after the 1999 plan year; (3)
interest credits at the actual rate of 7.00% during the 2000 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 1999,2000, 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, the supplementary retirement benefit plan and deferred
compensation arrangements also provide for immediate vesting or payment in the
event of termination under circumstances of a change in control.
20002001 STOCKHOLDER PROPOSALS
Any stockholder wishing to include a proposal in the Company's Proxy
Statement for its 20002001 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 16, 2000.13, 2001.
Under the Company's Bylaws, a shareholder proposal not included in the Company's
Proxy Statement for its 20002001 annual meeting of stockholders is untimely and may
not be presented in any manner at the 20002001 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 21,
200020,
2001 and no later than August 20, 2000.19, 2001.
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.
Shareholders 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, 2000, may do so without charge by writing to Shareholder
Services, Donaldson Company, Inc., MS 101, P.O. Box 1299, Minneapolis, MN 55440.
By Order of the Board of Directors
/s/ NormacNorman C. Linnell
Norman C. Linnell
SECRETARY
October 13, 1999
1312, 2000
14
EXHIBITAPPENDIX A
AUDIT COMMITTEE CHARTER
MISSION STATEMENT
The audit committee will assist the board of directors in fulfilling its
oversight responsibilities. The audit committee will review the financial
reporting process, the system of internal control, the audit process and the
company's process for monitoring compliance with laws, regulations and the
company's code of conduct. In performing its duties, the committee will maintain
effective working relationships with the board of directors, management, and the
internal and external auditors.
ORGANIZATION
The audit committee will be organized consistent with the following
significant parameters:
SIZE OF THE COMMITTEE: The audit committee will have no less than three
and no more than six6 members.
QUALIFICATIONS: Committee members must be "Independent Directors" of the
company.company (Members of the audit committee will be considered independent if they
have no relationship to the corporationcompany that may interfere with the exercise of
their independence from management and the corporation.)company as required under the listing
requirements). In addition, each committee member must be "Financially Literate"
or must achieve this status through training within six months of being
appointed to the committee (for these purposes, "Financial"Financially Literacy" is the
ability to read and understand fundamental financial statements, including the
balance sheet, income statement and cash flow statement).
FREQUENCY OF MEETINGS: The committee will have three regularly scheduled
meetings each fiscal year, in September, November and May. In addition, the
committee will meet at other times if deemed necessary to completely discharge
its duties and responsibilities as outlined in this charter.
APPOINTMENT OF MEMBERS AND CHAIRPERSON: Each committee member will be
selected by the ChairmanChair of the Boardboard of Directorsdirectors and will serve a term of one
year. Committee members can serve successive one-year terms without limitation.
The ChairpersonChair of the Audit Committeeaudit committee will be selected by the ChairmanChair of the Board of
Directors and will serve in that capacity for one year. The ChairpersonChair must have
academic training in accounting or current or past experience in positions of
senior financial management (for example, currently or previously held the
position of Chief Financial Officer, Chief Executive Officer or ChairmanChair of a
corporation). The ChairpersonChair can serve successive terms in this capacity without
limitation.
ROLES AND RESPONSIBILITIES
A broad outline of the roles and responsibilities of the audit committee is
presented below.
INTERNAL CONTROL:
1. Evaluate whether senior management has established and appropriately
reinforced the importance of internal control within the organization,organization.
2. Evaluate the scope, effectiveness and significant findings of the
self-audit process for North American operations,operations.
3. Review the internal auditor's report on the results of the annual
self
audit survey,self-audit survey.
4. Review the internal auditor's report on recent internal audit
activities and significant findings for the company's international
operations,operations.
5. Evaluate whether recommendations for improved internal control
identified through the internal audit process are effectively
implementedimplement by management.
FINANCIAL REPORTING:
1. Annually review the significant risks the company is exposed to and
evaluate management's plan to manage these uncertainties
2. Review and evaluate management's interpretation and implementation of
mandated changes to accounting and reporting requirements,requirements.
A-1
3. Review the annual financial statements for accuracy and completeness,
4. Evaluate the accounting treatment of unusual or non-recurringnon-reoccurring
transactions such as restructuring charges and acquisitions,
5.acquisitions.
4. Evaluate significant income statement and balance sheet items which
require management judgement,
6.judgment
5. Review and approvediscuss the 10K,annual financial statements with management and
the external auditors, including confirmation that the Management Discussionaudit committee
(i) discussed with the external auditors the matters requiring
discussion by Statement on auditing standards No. 61, (ii) confirm the
audit committee received the written report from the external auditors
required by Independence Standards Board Statement No. 1. Based on
these reviews and Analysis (MD&A), before public release,discussions, recommend to the board of directors
that the audited financial statements be included in the Annual Report
on Form 10-K filed with the SEC.
6. Positively affirm whether audit committee members are independent and
disclose any required information about any audit committee members
who are not independent.
7. Review and approve the process for preparing interim, unaudited
(quarterly) financial statements.
COMPLIANCE WITH LAWS, REGULATIONS AND COMPANY POLICIES:
1. Review the effectiveness of the system for monitoring compliance with
laws and regulations,regulations.
2. Review the significant findings from the annual self audit survey of
compliance matters
3. Ensure that the company's compliance manual, code of conduct and
corporate policy statements are kept up to date and are accessible to
and usable by the entire organization.
4. Review and approve the charter on an annual basis.
RELATIONSHIP WITH EXTERNAL AUDITOR:
1. Recommend theThe external auditor appointmentis ultimately accountable to the Boardboard of
Directors,directors and audit committee of the company. The audit committee and
the board of directors have the ultimate authority and responsibility
to select, evaluate and, where appropriate, replace the outside
auditor.
2. The audit committee will obtain, no less than annually, from the
auditor a written statement delineating all relationships between the
auditor and the company.
3. The audit committee will engage in a dialogue with the outside auditor
with respect to any disclosed relationships or services that may
impact the objectivity and independence of the outside auditor and for
recommending that the board of directors take appropriate action in
response to the outside auditor's report to satisfy itself of the
outside auditors' independence.
4. Review and approve the scope of the external audit to be performed
each fiscal year,
3. Confirm the independence of the external auditor,
4. Meet with the external auditors to review the accuracy, completeness and
overall quality of the annual financial statements.year.
REPORTING REQUIREMENTS
The audit committee Chairpersonchairperson will update the full Boardboard of Directorsdirectors
regarding the significant items of discussion at each committee meeting.
Additional reports on matters of special interest will be submitted to the Boardboard
of Directorsdirectors as appropriate. In addition to Boardboard of Directordirector communication, the
following information will be reported to the shareholders in the annual proxy
statement: (1) confirmationconfirm that the company has a formal documented audit committee
charter, (2) confirmationconfirm that the audit committee satisfied its obligations under
the charter in the prior year, (3) disclose the full text of the audit committee
charter at least once every three years and after any significant modification
is approved by the board of directors.
APPROVAL OF CHARTER
This audit committee charter was reviewed and adopted by the audit
committee of Donaldson Company, Inc. on September 22, 2000 and approved by the
Board of Directors.Directors of Donaldson Company at its meeting on September 22, 2000.
A-2
LOCATION OF DONALDSON COMPANY, INC. ANNUAL MEETING OF SHAREHOLDERS
[MAP GRAPHIC]
Donaldson Company, Inc. Annual Meeting of Shareholders
Friday, November 17, 2000, at 10:00 a.m.
The Conference Center at Atrium Center
3105 E. 80th Street
Bloomington, Minnesota
[LOGO](TM)
DONALDSON(R)
DONALDSON COMPANY, INC.
ANNUAL MEETING OF STOCKHOLDERS
NOVEMBER 19, 199917, 2000
10:00 A.M., CENTRAL TIME
THE CONFERENCE CENTER AT ATRIUM CENTER
3105 E. 80TH STREET
BLOOMINGTON, MINNESOTA
- --------------------------------------------------------------------------------
[DONALDSON LOGO][LOGO](TM)
DONALDSON(R) DONALDSON COMPANY, INC. PROXY
- --------------------------------------------------------------------------------
The undersigned appoints WILLIAM G. VAN DYKE and NORMAN C. LINNELL, and each of
them, as Proxies, each with the power to appoint his substitute, to represent
and vote, as designated below,on the reverse side, all shares of the undersigned at
the 19992000 Annual Meeting of Stockholders of Donaldson Company, Inc. at The
Conference Center at Atrium Center, 3105 E. 80th Street, Bloomington, Minnesota,
at 10:00 a.m., Central Time, on Friday, November 19, 1999,17, 2000, 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.
(CONTINUED, AND TO BE SIGNED AND DATED ON OTHER SIDE)
------------------------------------------------------
COMPANY #
CONTROL #
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VOTE BY TELEPHONE
QUICK ---*** EASY ---*** IMMEDIATE
CALL TOLL FREE ---*** ON A TOUCH TONE TELEPHONE
1-800-240-6326 -- ANYTIME
Your telephone vote authorizes the named proxies to vote your shares in the
same manner as if you marked, dated, signed and returned your proxy card. The
deadline for telephone voting is noon (ET), November 18, 1999.16, 2000.
AUTOMATED TELEPHONE VOTING INSTRUCTIONS
1. Using a TOUCH-TONE telephone, dial 1-800-240-6326. Please make sure you
stay on the line until you receive a confirmation of your vote.
2. When prompted, enter the 3-digit Company Number located in the box on the
upper right hand corner of the proxy card.
3. When prompted, enter your 7-digit numeric Control Number that follows the
Company Number.
OPTION #1: To vote as the Board of Directors recommends on ALL proposals:
Press "1" When asked, please confirm your vote by pressing 1 --
THANK YOU FOR VOTING.
OPTION #2: If you choose to vote on each proposal separately: Press "0"
You will hear these instructions:
Proposal 1: To vote FOR ALL nominees, press "1"; to WITHHOLD
FOR ALL nominees, press "9"; to WITHHOLD FOR AN
INDIVIDUAL nominee, press "0" and listen to the
instructions.
Proposal 2: To vote FOR, press "1"; AGAINST, press "9";
ABSTAIN, press "0"
When asked, please confirm your vote by pressing "1" -- THANK YOU FOR VOTING.
IF YOU VOTE BY TELEPHONE, DO NOT MAIL BACK YOUR PROXY
[ARROW] PLEASE DETACH HERE
- ------- -------[ARROW]
THE BOARD OF DIRECTORS RECOMMENDS VOTES FOR:
1. Election of directors: 01 F. GUILLAUME BASTIAENSJACK W. EUGSTER 03 S. WALTER RICHEYWILLIAM G. VAN DYKE [ ] Vote FOR [ ] Vote WITHHELD
02 JANET M. DOLANJOHN F. GRUNDHOFER 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 Ernst & YoungArthur Andersen 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.
- ------- -------
[LOGO] DONALDSON(R)
DONALDSON COMPANY, INC.
ANNUAL MEETING -- NOVEMBER 19, 1999
The undersigned appoints WILLIAM G. VAN DYKE and NORMAN C. LINNELL, and each of
them, as Proxies, each with the power to appoint his substitute, to represent
and vote, as designated below, all shares of the undersigned at the 1999 Annual
Meeting of Stockholders of Donaldson Company, Inc. at The Conference Center at
Atrium Center, 3105 E. 80th Street, Bloomington, Minnesota, at 10:00 a.m.,
Central Time, on Friday, November 19, 1999, 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.
(CONTINUED, AND TO BE SIGNED AND DATED ON OTHER SIDE)
THE BOARD OF DIRECTORS RECOMMENDS VOTES FOR:
1. ELECTION OF DIRECTORS.
Nominees: (01) F. GUILLAUME BASTIAENS, (02) JANET M. DOLAN,
(03) S. WALTER RICHEY
[ ] VOTE FOR all nominees [ ] WITHHOLD VOTE from all nominees
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 Ernst & Young LLP
as independent auditors. [ ] For [ ] Against [ ] Abstain
Date _________________________, 1999
__________________________________
| |
| |
|__________________________________|______________________________
___________________________________________
| |
| |
|___________________________________________|
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.