SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
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
[X] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
DONALDWON COMPANY, INC.
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
[X] $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2).
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[ ] 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 transactions applies:
(3) Per unit price or other underlying value of transaction computed pursuant
to exchange Act Rule 0-11:1
(4) Proposed maximum aggregate value of transaction:
[ ] 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:
1 Set forth the amount on which the filing fee is calculated and state how it
was determined.
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[LOGO]
DONALDSON COMPANY, INC.
NOTICE OF
ANNUAL MEETING OF SHAREHOLDERS
TIME: 10:00 a.m., central time, Friday, November 17, 1995
PLACE: Lutheran Brotherhood Auditorium, 625 Fourth Avenue South,
Minneapolis, Minnesota.
ITEMS OF (1) Election of directors;
BUSINESS: (2) Ratification of Ernst & Young LLP as independent auditors of
the Company; and any other business that properly comes before
the meeting.
RECORD DATE: Shareholders of record at the close of business on September 29,
1995 are entitled to notice of and to vote at the meeting or any
adjournment. A list of such shareholders will be available prior
to the meeting at the office of the Company, 1400 West 94th
Street, Minneapolis, Minnesota for examination by any such
shareholder for any purpose germane to the meeting.
By Order of the Board of Directors
Raymond F. Vodovnik
Secretary
Dated: October 16, 1995
IMPORTANT
YOU CAN HELP US PREPARE FOR THE MEETING AND ELIMINATE EXTRA EXPENSE -- WHETHER
YOU HAVE A FEW SHARES OR MANY -- IF YOU WILL COMPLETE AND RETURN THE ENCLOSED
PROXY PROMPTLY. YOUR PROMPT REPLY WILL ELIMINATE EXTRA EXPENSE IN SOLICITING
YOUR PROXY.
- --------------------------------------------------------------------------------
DONALDSON COMPANY, INC.
1400 WEST 94TH STREET
MINNEAPOLIS, MINNESOTA 55431
PROXY STATEMENT
MAILING DATE OCTOBER 16, 1995
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
Shareholders to be held on November 17, 1995. 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 shareholder's directions.
The cost of this solicitation of proxies will be borne by the Company. In
addition to solicitation of proxies by the use of the mails, there may be
incidental personal solicitations by officers, directors and regular
employees of the Company who will not receive additional compensation
therefor. The Company will also request brokerage houses, nominees,
custodians and fiduciaries to forward soliciting material to the beneficial
owners of stock and will reimburse such persons for their expenses so
incurred.
VOTING SECURITIES
Shareholders of record as of the close of business on September 29, 1995 will
be entitled to vote at the meeting. The Company then had 25,954,964 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. Votes that are withheld and broker non-votes will be
counted as represented at the meeting for purposes of determining whether a
quorum exists. However, such votes will be treated as shares not voted for
purposes of determining the number of shares voted for or against any nominee
for director or any proposal. The affirmative vote of a majority of the
shares represented at the meeting and voting on the issue will be necessary
for election of the directors.
Shares of Common Stock credited to the accounts of participants in the
Automatic 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 on how to vote all shares of Donaldson Common Stock allocated to
their accounts under the plans and will receive a separate voting instruction
card for voting such shares. Shares for which the trustee receives no voting
instructions from participants, including unallocated shares held in the
employee stock ownership plan ("ESOP"), will be voted by the trustee in the
same proportion as shares for which instructions are received.
SECURITY OWNERSHIP
Set forth below is information regarding persons known by the Company to own
beneficially (as defined by the SEC for proxy statement purposes) more than
5% of the outstanding Common Stock of the Company:
NAME AND ADDRESS AMOUNT AND NATURE PERCENT
OF BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP OF CLASS
Donaldson Company, Inc.
Employee Stock Ownership Plan 3,271,178(1) 12.6%
c/o Fidelity Management Trust Company
82 Devonshire Street
Boston, MA 02109
Mario J. Gabelli 1,450,000(2) 5.6%
655 Third Avenue
New York, NY 11017
First Bank System, Inc 1,435,841(3) 5.5%
601 Second Avenue South
Minneapolis, MN 55402
(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. (See
also discussion above on voting rights under employee benefit plans.)
(2) Mario J. Gabelli directly or indirectly controls various entities which are
primarily investment advisors and which generally have sole investment and
voting power as to the shares owned by the individual entity.
(3) First Bank System, Inc. is a holding company for one or more subsidiary
banks which have sole voting power with respect to 514,197 shares; shared
voting power with respect to 516,711 shares; sole investment power with
respect to 478,581 shares and shared investment power with respect to
932,056.
The following table sets forth information regarding the beneficial ownership
of the Company's Common Stock by each director, each of the Named Officers
and all executive officers and directors of the Company as a group.
TOTAL PERCENT EXERCISABLE
NAME OF INDIVIDUAL OR GROUP SHARES (1) OF CLASS OPTIONS
William A. Hodder 1,266,921 4.7 456,022
William G. Van Dyke 419,513 1.6 242,004
Richard M. Negri 206,011 * 87,112
Erland D. Anderson 196,342 * 82,470
James R. Giertz 17,078 * 15,000
C. Angus Wurtele. 14,799 * 6,000
Kendrick B. Melrose 14,325 * 6,000
S. Walter Richey 13,865 * 6,000
Stephen W. Sanger 9,974 * 6,000
Jack W. Eugster 8,407 * 4,000
Michael R. Bonsignore 6,946 * 6,000
A. Gary Ames 6,257 * 4,000
F. Guillaume Bastiaens 100 * -0-
Directors and Officers as a Group 2,518,549 9.3 1,130,316
* Less than 1%
(1) Includes restricted shares, shares owned by related household members or
held in trust (including the ESOP allocation for years prior to F'95) and
shares which the directors and officers have a present right to acquire
pursuant to the Company's stock option plans as listed under the
Exercisable Options column.
ELECTION OF DIRECTORS
The Board of Directors is composed of ten members. 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
shareholders. It is intended that proxies received will be voted, unless
authority is withheld, for the election of the nominees presented on Page 3,
namely Messrs. Hodder, Melrose and Sanger.
The Board of Directors meets on a regularly scheduled basis. During the past
fiscal year the Board held six meetings. Except for Mr. Ames, each director
attended at least 75% of the aggregate of the Board meetings and meetings of
Board committees on which each served.
The Board of Directors has assigned certain responsibilities to committees.
The Audit Committee composed of directors A.Gary Ames, Jack W. Eugster,
Kendrick B. Melrose, S. Walter Richey and Stephen W. Sanger (Chairman), all
non-employee directors, held two meetings during the past fiscal year.
Briefly stated, functions of the Audit Committee include: recommending to the
Board of Directors independent public auditors for the Company, reviewing the
scope and results of the auditors' examination, and reviewing the internal
audit program, adequacy of internal controls, and adherence to applicable
legal, ethical and regulatory requirements.
The Human Resources Committee, composed of directors Michael R. Bonsignore,
Jack W. Eugster, Kendrick B. Melrose, Stephen W. Sanger, and C. Angus Wurtele
(Chairman), held one meeting 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 Committee on Directors' Affairs, composed of directors A. Gary Ames,
Michael R. Bonsignore (Chairman), S. Walter Richey, and C. Angus Wurtele,
held one meeting during the past fiscal year. The committee's duties are to
review the organization of the Board and its committees, remuneration
arrangements for the directors, propose to the Board a slate of directors for
election by the shareholders at each Annual Meeting and propose candidates to
fill vacancies on the Board. The Committee will consider nominees for
director recommended by shareholders. Recommendations should be addressed to
the Secretary, Donaldson Company, Inc., P.O. Box 1299, Minneapolis, MN 55440.
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.
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
<TABLE>
<CAPTION>
NAME PRINCIPAL OCCUPATION AND BUSINESS EXPERIENCE
<S> <C>
FOR A TERM EXPIRING IN 1998:
William A. Hodder Chairman and Chief Executive Officer of the Company. Also a director of Norwest
Age - 64 Corporation, Tennant Company, ReliaStar Financial Corp., Musicland Stores Corp. and
Director since 1969 Supervalu Inc.
Kendrick B. Melrose Chairman and Chief Executive Officer of The Toro Company (manufacturer of outdoor
Age - 55 maintenance products). Also a director of The Toro Company and The Valspar Corporation.
Director since 1991
Stephen W. Sanger Chairman and Chief Executive Officer of General Mills, Inc. (1995) (consumer products
Age - 49 and services). Previously an executive officer of various groups and divisions of
Director since 1992 General Mills, Inc. Also a director of General Mills, Inc.
</TABLE>
DIRECTORS CONTINUING IN OFFICE
<TABLE>
<CAPTION>
NAME PRINCIPAL OCCUPATION AND BUSINESS EXPERIENCE
<S> <C>
TERMS EXPIRING IN 1996:
A. Gary Ames President and Chief Executive Officer of U.S. West International (1995). Previously
Age - 51 President and Chief Executive Officer of U.S. West Communications. Also a director
Director since 1993 of Albertson's, Inc. and Tektronix, Inc.
S. Walter Richey President and Chief Executive Officer of Meritex, Inc. and its predecessor corporation
Age - 59 Space Center Company (owns and manages business properties and distribution centers).
Director since 1991 Also a director of Meritex, Inc., First Bank Systems, Inc. and BMC Industries, Inc.
F. Guillaume Bastiaens Executive Vice President (1995) and President, Food Sector and Chief Technology
Age - 52 Officer of Cargill, Incorporated (Agribusiness). Also a director of Cargill,
Elected a Director Incorporated
effective September 1, 1995
TERMS EXPIRING IN 1997:
Michael R. Bonsignore Chief Executive Officer and Chairman of Honeywell Inc. (1993) (manufacturer of
Age - 54 electronic controls). Previously Executive Vice President and Chief Operating Officer
Director since 1988 of Honeywell Inc. Also a director of Honeywell Inc., Cargill, Incorporated and The
St. Paul Companies, Inc.
Jack W. Eugster Chairman, President and Chief Executive Officer of Musicland Stores Corp. (retail
Age - 50 consumer products). Also a director of Musicland Stores Corp., Damark, Inc., Midwest
Director since 1993 Resources Company, and Shopko Stores, Inc.
William G. Van Dyke President and Chief Operating Officer of the Company. (1994) Previously Executive
Age - 50 Vice President (1992) and Vice President -- Industrial Group of the Company. Also
Director since 1994 a director of Graco Inc.
C. Angus Wurtele Chairman of the Board and Chief Executive Officer of The Valspar Corporation (paint
Age - 61 products). Also director of The Valspar Corporation, Bemis Co. Inc., and General
Director since 1981 Mills, Inc.
</TABLE>
DIRECTOR COMPENSATION
Directors who are not employees receive a retainer fee of $18,000 annually
and are paid $1,000 for each Board or Committee meeting attended. Committee
Chairmen 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 his term, to defer all or part of
his director compensation received during the year. Each participating
director is entitled to a company credit on the balance in his deferral
account at the same rate as the company credit under the Fixed Income Fund of
the Salaried Employees' Retirement Savings Plan. The deferral election must
also specify the manner for distribution of the deferral balance.
The 1991 Master Compensation Plan, as amended, provides for the issuance of
restricted shares in lieu of 30% of the annual retainer for services as a
Director to be rendered in the following service year and allows an election
to receive restricted shares in lieu of all or part of the remaining retainer
and meeting fees. Transfer of the shares is restricted until the earliest of
retirement, disability, termination of service (with consent of the Board),
death or a change in control of the Company.
The Company also has a nonqualified pension plan for non-employee directors
which provides for an annual retirement benefit for directors, who have
served at least five years, in an amount equal to the final annual retainer
fee received for services as a director. Such annual benefit is payable in a
lump sum or, at the election of the director, over a maximum fifteen year
period or such shorter period as is equal to the number of years of service
on the Board and provides for a benefit in the event of death.
The Company's Non-Qualified Stock Option Program for Non-employee Directors
provides for the automatic grant of a non-qualified stock option for 2,000
shares of Common Stock to each non-employee Director of the Company who is a
member of the Board between the dates of December 1 and December 22 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 are exercisable on and after December 22 of the
respective year and have a term of ten years.
EXECUTIVE COMPENSATION
The following table sets forth as to each person who was at the end of fiscal
1995, the Chief Executive Officer and the other four most-highly compensated
executive officers of the Company information concerning compensation for
services rendered to the Company for each of the last three fiscal years (the
"Named Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
ANNUAL COMPENSATION (1) (2)
AWARDS PAYOUTS
STOCK
OPTIONS ALL OTHER
NAME AND PRINCIPAL FISCAL (SHARES) LTIP PAYOUTS COMPENSATION
POSITION YEAR SALARY ($) BONUS ($) (3) ($) (4) ($) (5)
<S> <C> <C> <C> <C> <C> <C>
WILLIAM A. HODDER 1995 518,269 660,000 120,722 477,125 162,044
Chairman and Chief 1994 464,423 488,205 88,608 0 121,723
Executive Officer 1993 428,846 216,270 299,092 0 64,412
WILLIAM G. VAN DYKE 1995 340,692 420,000 30,000 136,938 105,227
President and Chief 1994 275,000 232,690 48,058 0 63,988
Operating Officer 1993 251,154 134,940 152,046 0 38,538
JAMES R. GIERTZ 1995 174,615 165,870 25,000 0 0
Vice President and 1994 0 0 0 0 0
Chief Financial Officer 1993 0 0 0 0 0
RICHARD M. NEGRI 1995 150,039 112,792 11,600 92,948 36,272
Vice President 1994 143,461 89,878 21,722 0 28,474
Manufacturing 1993 137,038 46,592 33,840 0 18,333
ERLAND D. ANDERSON 1995 152,462 99,982 31,736 94,163 34,805
Vice President 1994 146,038 80,259 11,600 0 29,367
Corporate Technology 1993 138,615 41,350 33,834 0 17,968
</TABLE>
(1) Includes any portion deferred under the Management Compensation Plan.
(2) As of July 31, 1995 Mr. Van Dyke held an aggregate of 16,200 shares of
restricted stock valued at $429,300. Dividends are paid on all of the
reported restricted stock at the same rate as paid on the Company's common
stock.
(3) Shares adjusted for stock splits.
(4) Earned during the three-year period ending July 31, 1995. Payout is in the
Company's common stock and delivered during fiscal 1996.
(5) Amounts in this column 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 ("IRC") contributed by the
Company to an unqualified supplemental plan. The amounts for fiscal 1995
are:
<TABLE>
<CAPTION>
NAME ESOP ESOP (SUPL.)
<S> <C> <C>
William A. Hodder $20,750 $141,294
William G. Van Dyke 20,750 84,477
Richard M. Negri 20,750 15,522
Erland D. Anderson 20,750 14,055
</TABLE>
OPTIONS GRANTED IN FISCAL 1995
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE GAIN AT
ASSUMED ANNUAL RATES OF STOCK
INDIVIDUAL GRANTS (1) PRICE APPRECIATION (3)
% OF TOTAL
OPTIONS OPTIONS EXERCISE
GRANTED GRANTED TO OR BASE EXPIRATION
NAME (SHARES) (2) EMPLOYEES PRICE ($) DATE 0% ($) 5% ($) 10% ($)
<S> <C> <C> <C> <C> <C> <C> <C>
WILLIAM A. HODDER 80,000 (4) 26.0 22.375 12/15/04 0 1,127,144 2,857,226
40,722 (5) 13.2 28.000 12/14/03 0 580,119 1,406,189
WILLIAM G. VAN DYKE 30,000 (4) 9.8 22.375 12/15/04 0 422,679 1,071,460
JAMES R. GIERTZ 15,000 (6) 4.9 26.000 09/08/04 0 245,579 622,524
10,000 (4) 3.2 22.375 12/15/04 0 140,893 357,153
RICHARD M. NEGRI 11,600 (4) 3.8 22.375 12/15/04 0 163,436 414,298
ERLAND D. ANDERSON 11,600 (4) 3.8 22.375 12/15/04 0 163,436 414,298
9,759 (5) 3.2 25.875 12/21/02 0 126,250 305,004
10,377 (5) 3.4 25.875 12/14/03 0 153,970 382,359
ALL SHAREHOLDERS (7) N/A N/A 26.500 07/19/04 0 415,631,278 1,041,889,634
STOCK PRICE (7) N/A N/A N/A N/A N/A 42.373 66.289
</TABLE>
(1) No stock appreciation rights ("SARs") have been granted.
(2) All grants (other than as noted in footnote (6)) during the period were
non-qualified stock options granted at the market value on date of grant,
exercisable within 30 days of the date of grant, 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 that the market price of the Company's stock exceeds the
exercise price on date of sale.
(4) Annual grant of a non-qualified stock option. These options include a
reload feature in the event they are exercised while the executive is an
employee and the market price exceeds the exercise price by 25%.
(5) These grants were made to individuals who exercised an option during fiscal
1995 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.
(6) This grant was made to Mr. Giertz as an employment incentive and includes a
reload and a three year vesting schedule.
(7) This value was calculated using the market price of Donaldson stock on, and
outstanding shares as of, July 31, 1995 and applying the assumed
appreciation over the weighted average option term of 9.6 years for all
options granted in fiscal 1995. In total, 27 key employees were granted
options for 307,799 shares at a weighted average exercise price of $23.762.
AGGREGATED OPTION EXERCISES IN FISCAL 1995 AND YEAR END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT 7/31/95 7/31/95 (2)
SHARES VALUE
ACQUIRED ON REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
NAME EXERCISE (1) ($) (SHARES) (SHARES) ($) ($)
<S> <C> <C> <C> <C> <C> <C>
WILLIAM A. HODDER 63,700 494,681 456,022 0 3,038,823 0
WILLIAM G. VAN DYKE 0 N/A 242,004 0 1,835,169 0
JAMES R. GIERTZ 0 N/A 10,000 15,000 41,250 7,500
RICHARD M. NEGRI 0 N/A 87,112 0 712,671 0
ERLAND D. ANDERSON 23,200 150,800 82,470 0 589,516 0
</TABLE>
(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. Share ownership
objectives for executive officers encourages retention of shares acquired
through option exercise.
(2) This value is based on the difference between the exercise price of such
options and the closing price of Donaldson stock as of July 31, 1995.
LONG-TERM INCENTIVE PLANS -- AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
NUMBER OF
SHARES, PERFORMANCE ESTIMATED FUTURE PAYOUTS
UNITS OR OTHER PERIOD UNDER NON-STOCK
OR OTHER UNTIL MATURATION PRICE-BASED PLAN
NAME RIGHTS (1) OR PAYOUT THRESHOLD TARGET MAXIMUM
<S> <C> <C> <C> <C> <C>
WILLIAM A. HODDER 10,500 8/1/94 - 7/31/97 5,250 10,500 15,750
WILLIAM G. VAN DYKE 7,200 8/1/94 - 7/31/97 3,600 7,200 10,800
JAMES R. GIERTZ (2) 3,500 8/1/94 - 7/31/97 5,250 10,500 15,750
RICHARD M. NEGRI 2,200 8/1/94 - 7/31/97 1,100 2,200 3,300
ERLAND D. ANDERSON 2,300 8/1/94 - 7/31/97 1,150 2,300 3,450
</TABLE>
(1) Awards are of Performance Units, each of which represents the right to
receive one share 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 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%, 100% and 150% 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 year period by at least 5%.
(2) To compensate new participants for the first two years of the plan which
have no payout, the Award for such new participant's first cycle is
increased by 200%. The amounts shown for Mr. Giertz reflect the 200%
increase since the performance period presented is his first cycle.
HUMAN RESOURCES COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Human Resources Committee of the Board of Directors, consisting of five
independent outside 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:
* attract and retain the best executives available in our industry;
* motivate and reward executives responsible for attaining the financial
and strategic objectives essential to the Company's long-term success
and continued growth in shareholder value;
* promote a pay-for-performance philosophy by placing significant
portions of pay at risk and requiring outstanding results for payment
at the threshold level;
* obtain an appropriate balance between short-term and long-term results
based on the executive's influence and impact;
* align the interests of executives with those of the Company's
shareholders 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 six 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. Our 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 ranging from 30% 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 exceed targeted levels. Payments can
range from 0% to 200% of the target awards. Executive officers have from 80%
to 100% of their annual cash incentive opportunity linked to Company
performance as measured by Earnings Per Share (EPS).
Consequently, executive officers must obtain record EPS, thereby increasing
shareholder value, to receive a competitive annual cash incentive.
LONG-TERM INCENTIVE COMPENSATION. The Long-Term Performance Award program is
based on three-year compounded growth in sales at an after tax Return on
Investment that exceeds the Company's weighted 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. Payout
for the 1993-1995 cycle is listed in the Compensation Table. The Committee
occasionally grants restricted stock with a fixed restriction period usually
five years, to insure 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 shareholders. 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.
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
shareholders. The Committee 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
six to ten times base salary. The goal of the Chief Executive Officer is ten
times annual base salary. Mr. Hodder currently exceeds this ownership goal.
Shares of stock received on exercise of all options during the fiscal year by
the Named Officers of the Company were retained and therefore are subject to
market risk.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER. Mr. Hodder's fiscal 1995 base
salary and incentive award were determined by the Committee in accordance
with the methodology described above.
BASE SALARY. Mr. Hodder's base salary for fiscal 1995 was $518,269
which approximates the market mid-point for manufacturing companies of
similar size.
ANNUAL BONUS. Mr. Hodder's cash incentive award for fiscal 1995 was
$660,000. This amount was based on EPS growth of 23.9% over the previous
record of $1.17 earned in fiscal 1994.
STOCK OPTIONS. Due to his planned retirement, Mr. Hodder will not
receive the normal grant during fiscal 1996, to compensate for this
practice a larger than normal grant was received during fiscal 1995. In
addition he received one restoration option.
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 shareholders 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.
CONCLUSION. The executive officer compensation program administered by the
Committee provides incentive to attain strong financial performance and an
alignment with shareholder 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 shareholders.
SUBMITTED BY THE HUMAN RESOURCES COMMITTEE OF THE BOARD OF DIRECTORS
C. Angus Wurtele, Chairman
Michael R. Bonsignore Jack W. Eugster
Kendrick B. Melrose Stephen W. Sanger
PERFORMANCE GRAPH
The following graph compares the cumulative total shareholder return on the
Company's stock for the last five 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 graph assumes the investment of $100 in
the Company's common stock and each of the indexes at the market close on
July 31, 1990 and the reinvestment of all dividends.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
[GRAPH]
FISCAL YEARS ENDED JULY 31
<TABLE>
<CAPTION>
1990 1991 1992 1993 1994 1995
<S> <C> <C> <C> <C> <C> <C>
DONALDSON $100 $115 $151 $188 $251 $277
S&P 500 100 112 127 138 145 183
S&P MANUFACTURING 100 105 110 125 145 199
</TABLE>
PENSION PLAN TABLE
<TABLE>
<CAPTION>
ANNUAL BENEFITS FOR YEARS OF SERVICE SHOWN
FINAL AVERAGE COMPENSATION 10 YEARS 15 YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS
<S> <C> <C> <C> <C> <C> <C>
$ 200,000 $ 30,000 $ 45,000 $ 60,000 $ 75,000 $ 90,000 $ 95,000
400,000 60,000 90,000 120,000 150,000 180,000 190,000
600,000 90,000 135,000 180,000 225,000 270,000 285,000
800,000 120,000 180,000 240,000 300,000 360,000 380,000
1,000,000 150,000 225,000 300,000 375,000 450,000 475,000
1,200,000 180,000 270,000 360,000 450,000 540,000 570,000
</TABLE>
The executive officers are eligible for the Company's non-contributory Salaried
Employees' Pension Plan which provides benefits based on length of service and
final average compensation, defined as the five highest consecutive years of the
last ten years of service. The amounts shown are for retirement at age 65 and
are reduced by varying amounts (not exceeding one-half) of the annual social
security benefit. Covered compensation for the named executive officers consists
of the amounts shown under "Annual Compensation" in the Summary Compensation
Table. As of July 31, 1995 Messrs. Hodder, Van Dyke, Giertz, Negri and Anderson
had benefit service of 20, 21, 0, 35 and 30 years respectively. The table does
not reflect the limitations imposed by the Internal Revenue Code (the "Code").
The Board of Directors established an Excess Benefit Plan which provides for
supplemental payments to be made to certain executives on retirement so that
they will receive, in the aggregate, the benefits they would be entitled to
receive if such Code limitations did not apply.
At July 31, 1995 the Company had a supplementary retirement benefit agreement
with Mr. Hodder providing for fifteen annual payments, after retirement at
age 65, to him or his beneficiaries. The size of the annual payment is based
on his termination or retirement date and upon the highest annual
compensation earned by him from the Company prior to such date if the Company
has not previously set a maximum level. The agreement provides for benefits
in the event of death prior to retirement and there is progressive vesting of
other benefits. Assuming the agreement is unchanged and employment until
normal retirement age, based on current compensation, annual payments under
the agreement would be $152,617.
The Company has a supplementary retirement benefit plan which is intended to
assure that Messrs. Hodder, and Van Dyke will receive at least 60% of their
average (five highest years) compensation upon retirement at age 65 with 2%
reduction for each year in the event of early retirement after age 55. In
determining whether the plan must supplement other retirement benefits to
reach such level, the Company will consider the benefits described in the
previous paragraph, the Pension Plan Table and footnote (5) to the Summary
Compensation Table as well as 50% of primary Social Security and vested
pension benefits from prior employers, if any. Assuming the plan is unchanged
and employment until age 65, based on current compensation and payment levels
from other plans, no payments would be made under the plan.
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.
Based on a review of copies of such forms and written representations from
the directors and executive officers, the Company notes that William G. Van
Dyke, a Company officer, inadvertently failed to report a sale which occurred
on March 31, 1995. This information was reported on Form 4 for April 1995
following discovery of the error.
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 agreements and
deferred income arrangements also provide for immediate vesting or payment in
the event of termination under circumstances of a change in control.
INDEPENDENT AUDITORS
Upon recommendation of its Audit Committee, the Board of Directors has
appointed Ernst & Young LLP as independent public accountants to audit the
books and accounts of the Company for the fiscal year ending July 31, 1996,
such appointment to continue at the pleasure of the Board of Directors and
subject to ratification by the shareholders. Ernst & Young LLP has audited
the books and accounts of the Company since 1951. Representatives of Ernst &
Young 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 will appoint other independent
auditors for the subsequent fiscal year.
The Board of Directors recommends that shareholders vote for ratification of
the appointment of Ernst & Young LLP as independent auditors for the fiscal
year ending July 31, 1996.
SHAREHOLDER PROPOSALS
The last day the Company will receive for its consideration any proposals
from shareholders for the 1996 Annual Meeting of Shareholders is June 18,
1996. Proposals should be sent to the attention of the Secretary.
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.
By Order of the Board of Directors
Raymond F. Vodovnik
Secretary
October 16, 1995
- --------------------------------------------------------------------------------
[LOGO]
DONALDSON COMPANY, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints William A. Hodder and Raymond F. Vodovnik, and
each of them, as proxies, with full power to appoint a substitute, to vote all
shares the undersigned is entitled to vote at the Annual Meeting of Shareholders
of Donaldson Company, Inc. to be held on November 17, 1995, and all adjournments
thereof, to vote as designated on the matters referred to on the reverse side
hereof and, in their discretion, on any other matters properly coming before
said meeting.
Dated: __________________, 1995
_______________________________
_______________________________
Signatures
(Please sign as name(s) appear
on this proxy. If joint
account, each joint owner
should sign. When signing as
attorney, executor,
administrator, trustee,
guardian or corporate official,
give your full title as such.)
(Continued from and to be signed on the reverse side)
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED BELOW.
IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR PROPOSALS 1 AND 2.
1. ELECTION OF DIRECTORS. Nominees: W.A. Hodder, K.B. Melrose, S.W. Sanger
[ ] VOTE FOR all nominees listed above; except
vote withheld from following nominees (if any):
[ ] WITHHOLD VOTE from all nominees.
2. RATIFY APPOINTMENT OF AUDITORS: [ ] FOR [ ] AGAINST [ ] ABSTAIN
3. IN THEIR DISCRETION upon other matters as may come before the meeting.
PLEASE MARK, SIGN, DATE AND RETURN THIS
PROXY PROMPTLY USING THE ENCLOSED ENVELOPE
