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
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
DONALDSON COMPANY, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transactions applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11. (Set forth the amount on which the
filing fee is calculated and state how it was determined.)
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing party:
(4) Date filed:
<PAGE>
[LOGO]
DONALDSON COMPANY, INC.
NOTICE OF
ANNUAL MEETING OF STOCKHOLDERS
TIME: 10:00 a.m., central time, Friday, November 21, 1997
PLACE: The Conference Center at Atrium Center, 3105 E. 80th Street,
Bloomington, Minnesota.
ITEMS OF (1) Election of two directors;
BUSINESS:
(2) Amendment of the Company's Certificate of Incorporation to
increase the number of authorized shares of Company
Common Stock from 40,000,000 to 80,000,000;
(3) Ratification of Ernst & Young LLP as independent auditors
of the Company; and
any other business that properly comes before the meeting.
RECORD DATE: Stockholders of record at the close of business on September
26, 1997 are entitled to notice of and to vote at the meeting
or any adjournment. A list of such stockholders will be
available prior to the meeting at the office of the Company,
1400 West 94th Street, Minneapolis, Minnesota for examination
by any such stockholder for any purpose germane to the meeting.
By Order of the Board of Directors
Norman C. Linnell
SECRETARY
Dated: October 14, 1997
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.
<PAGE>
DONALDSON COMPANY, INC.
1400 WEST 94TH STREET
MINNEAPOLIS, MINNESOTA 55431
------------------------
PROXY STATEMENT
MAILING DATE OCTOBER 14, 1997
------------------------
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 21, 1997, and at any adjournments thereof.
The person signing a proxy may revoke it any time before it is exercised. Each
valid proxy received prior to the meeting will be voted according to the
stockholder's directions. If no direction is given, such proxies will be voted
in favor of (1) the nominees for directors identified herein, (2) approving the
amendment to the Company's Certificate of Incorporation described herein, and
(3) approving the auditors named herein.
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 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 14, 1997.
VOTING SECURITIES
Stockholders of record as of the close of business on September 26, 1997
will be entitled to vote at the meeting. The Company then had approximately
24,732,385 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 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
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 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 voting such shares. Shares for which the
trustee receives no voting instructions from participants, including
unallocated shares held in the Company's employee stock ownership plan
("ESOP"), will be voted by the trustee in the same proportion as shares for
which instructions are received.
<PAGE>
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 26,
1997:
NAME AND ADDRESS AMOUNT AND NATURE PERCENT
OF BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP OF CLASS
- ------------------- ----------------------- --------
Donaldson Company, Inc.
Employee Stock Ownership Plan................ 3,595,409(1) 14.5%
c/o Fidelity Management Trust Company
82 Devonshire Street
Boston, MA 02109
Pioneering Management Corporation............ 2,511,900(2) 10.1%
60 State Street
Boston, MA 02109
U.S. Bancorp................................. 1,332,547(3) 5.3%
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.
(2) Pioneering Management Corporation is a registered investment adviser with
sole voting power with respect to all 2,511,900 shares and shared
investment power with respect to all 2,511,900 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, 1996.
(3) U.S. Bancorp is a holding company for one or more subsidiary banks which
have sole voting power with respect to 619,616 shares; shared voting power
with respect to 412,050 shares; sole investment power with respect to
537,292 shares and shared investment power with respect to 1,332,547
shares. Information is based solely on a Schedule 13G filed with the
Securities and Exchange Commission by U.S. Bancorp with respect to shares
held as of December 31, 1996.
<PAGE>
The following table sets forth information 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................ 415,853 1.7 236,493
Nickolas Priadka................... 111,127 * 54,265
Thomas A. Windfeldt................ 81,182 * 41,177
James R. Giertz.................... 45,657 * 20,665
Lowell F. Schwab................... 24,734 * 12,079
C. Angus Wurtele................... 20,625 * 10,000
Kendrick B. Melrose................ 19,957 * 10,000
S. Walter Richey................... 19,741 * 10,000
Stephen W. Sanger.................. 16,088 * 10,000
Jack W. Eugster.................... 13,678 * 8,000
Michael R. Bonsignore.............. 11,094 * 10,000
F. Guillaume Bastiaens............. 5,760 * 4,000
Paul B. Burke...................... 3,677 * 2,000
Janet M. Dolan..................... 2,815 * 2,000
Directors and Officers as a Group.. 837,169 3.4 450,354
- ------------------
* Less than 1%
(1) Includes restricted shares, shares held in trust (including the ESOP
allocation for years prior to fiscal year 1997) and the shares underlying
options exercisable within 60 days, as listed under the Exercisable Options
column. The total shares for Mr. Van Dyke includes 4,128 shares held by Mr.
Van Dyke's wife. The total shares for Mr. Windfeldt includes 1,800 shares
held by Mr. Windfeldt's children.
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. At its meeting of September 19, 1997, the Board of
Directors fixed the number of directors constituting the entire Board at eight.
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 Michael R.
Bonsignore, Jack W. Eugster, William G. Van Dyke and C. Angus Wurtele expire at
the annual meeting. Mr. Wurtele, having served five consecutive terms on the
Company's Board of Directors and having reached the limit of Board service for
non-employee directors in accordance with the Company's By-Laws, will be
retiring effective upon the conclusion of the Company's 1997 Annual Meeting. In
addition, Mr. Bonsignore, who was elected a director at the 1988 annual
meeting, has informed the Company that he has decided not to stand for
re-election for another term, and will be retiring from the Company's Board of
Directors effective upon conclusion of the 1997 Annual Meeting. Mr. Eugster was
elected by the Board effective March 1, 1993 and Mr. Van Dyke was elected by
the Board effective August 1, 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 and William G. Van Dyke. The
election of each nominee requires the affirmative vote of the holders of a
plurality of the shares cast in the election of directors.
The Board of Directors meets on a regularly scheduled basis. During the
past fiscal year, the Board held six meetings. Each director other than Messrs.
Bonsignore and Wurtele, who each attended 67%, attended at least 75% of the
aggregate of the Board meetings and meetings of Board committees on which each
served.
<PAGE>
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 (Chairperson)
and Stephen W. Sanger, all of whom are non-employee directors. The Audit
Committee held two meetings during the past fiscal year. 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 is composed of directors Michael R.
Bonsignore, Paul B. Burke, Jack W. Eugster, Kendrick B. Melrose, Stephen W.
Sanger (Chairperson), and C. Angus Wurtele, 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 the directors and
administration of the Company's stock compensation plans.
The Committee on Directors' Affairs is composed of directors Michael R.
Bonsignore, Paul B. Burke, Janet M. Dolan, Jack W. Eugster (Chairperson), S.
Walter Richey, and C. Angus Wurtele, all of whom are non-employee directors.
This Committee 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 stockholders at each Annual Meeting and propose
candidates to fill vacancies on the Board. 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 60 days nor more
than 90 days prior to the date of the annual meeting.
The Board of Directors has no reason to believe that any nominees will be
unavailable or unable to serve, but in the event any nominee is not a candidate
at the meeting, the persons named in the enclosed proxy intend to vote in favor
of the remaining nominees and 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 2000:
Jack W. Eugster Chairman, President and Chief Executive Officer of The Musicland Group,
Age - 52 Inc. (retail consumer products). Also, a director of Damark, Inc., Jostens,
Director since 1993 Inc., MidAmerican Energy Company and Shopko Stores, Inc.
William G. Van Dyke Chairman and Chief Executive Officer(1996) and President (1994) of the
Age - 52 Company. Previously, Executive Vice President(1992). Also, a director of
Director since 1994 Graco Inc.
</TABLE>
<PAGE>
DIRECTORS CONTINUING IN OFFICE
<TABLE>
<CAPTION>
NAME PRINCIPAL OCCUPATION AND BUSINESS EXPERIENCE
- ---- ---------------------------------------------------------------------------
<S> <C>
TERMS EXPIRING IN 1999:
F. Guillaume Bastiaens Executive Vice President (1995) and President, Food Sector of Cargill, Inc.
Age - 54 (Agribusiness). Also, a director of Cargill, Inc.
Director Since 1995
Janet M. Dolan Executive Vice President (1996) of Tennant Company (manufacturer of
Age - 48 floor maintenance equipment and coating products). Previously Sr. Vice
Director Since 1996 President, Secretary and General Counsel of Tennant Company. Also, a
director of William Mitchell College of Law.
S. Walter Richey Chairman, Chief Executive Officer and President of Meritex, Inc. and its
Age - 61 predecessor corporation Space Center Company (owns and manages business
Director Since 1991 properties and distribution centers). Also, a director of U.S. Bancorp.
TERMS EXPIRING IN 1998:
Paul B. Burke Chairman (1995), Chief Executive Officer and President of BMC Industries,
Age - 41 Inc. (manufacturer of precision imaged and optical products). Also, a
Director Since 1996 director of Apogee Enterprises, Inc.
Kendrick B. Melrose Chairman and Chief Executive Officer of The Toro Company (manufacturer
Age - 57 of outdoor maintenance products). Also, a director of BSI Corporation,
Director since 1991 Jostens, Inc. and The Valspar Corporation.
Stephen W. Sanger Chairman and Chief Executive Officer of General Mills, Inc. (1995) (consumer
Age - 51 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.
</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 their term, to defer all or part of
their director compensation received during the year. Each participating
director is entitled to a Company credit on the balance in their 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 Compensation Plan, as amended, provides for the issuance
of restricted shares to non-employee directors 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
15-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.
<PAGE>
AMENDMENT TO CERTIFICATE OF INCORPORATION
TO INCREASE AUTHORIZED COMMON STOCK
The Company's Board of Directors has determined that Article Fourth of the
Company's Articles of Incorporation should be amended and has voted to submit
an amendment to the Company's stockholders for adoption. The proposed amendment
to Article Fourth would increase the number of authorized shares of Common
Stock, par value $5.00, from 40,000,000 to 80,000,000, and the total number of
shares of stock which the Company has the authority to issue from 41,000,000 to
81,000,000.
As of September 26, 1997, there were 24,732,385 shares of Common Stock
outstanding, and 1,595,886 shares reserved for future issuance pursuant to the
1991 Master Stock Compensation Plan. As of September 26, 1997, there were no
shares of any class of Preferred Stock outstanding.
The additional shares of Common Stock for which authorization is sought
would be a part of the existing class of Common Stock and, if and when issued,
would have the same rights and privileges as the shares of Common Stock
presently outstanding. Such additional shares would not (and the shares of
Common Stock presently outstanding do not) entitle the holders thereof to
preemptive or cumulative voting rights.
PURPOSES AND EFFECTS OF THE AMENDMENT
The Board of Directors believes that additional authorized shares of
Common Stock will enable the Company to take timely advantage of market
conditions and the availability of favorable financing and acquisition
opportunities without the delay and expense associated with convening a special
stockholders' meeting (unless otherwise required by the rules of any stock
exchange on which the Company's Common Stock may then be listed). The shares of
Common Stock could be used for issuing stock dividends (including stock splits
issued in the form of stock dividends), the grant of stock options, acquisition
by the Company of businesses or properties, equity financing and other general
corporate purposes.
Unless required by law or by the rules of any stock exchange on which the
Company's Common Stock may in the future be listed, no further authorized vote
by the stockholders will be sought for any issuance of shares of Common Stock.
Under existing New York Stock Exchange, Inc. regulations, approval by a
majority of the holders of Common Stock would nevertheless be required in
connection with any transaction or series of related transactions that would
result in the original issuance of additional shares of Common Stock, other
than in a public offering for cash, (a) if such additional shares of Common
Stock (including securities convertible into or exercisable for Common Stock)
has, or will have upon issuance, voting power equal to or in excess of 20
percent of the voting power outstanding before the issuance of the Common
Stock; (b) if the number of such additional shares of Common Stock is or will
be equal to or in excess of 20 percent of the number of shares of Common Stock
outstanding before the issuance of such additional shares, or (c) if the
issuance would result in a change in control of the Company.
The increase in authorized but unissued shares of Common Stock is designed
to enable the Company to issue stock dividends, grant stock options under the
Company's 1991 Master Stock Compensation Plan, to consider potential
acquisitions and to use for general corporate purposes, and the Company has no
present intention to use the additional shares for any purpose other than these
routine corporate purposes. The increase in the authorized but unissued shares
of Common Stock, however, could make a change in control of the Company more
difficult to achieve. Under certain circumstances, such shares of Common Stock
could be used to create voting impediments to frustrate persons seeking to
effect a takeover or otherwise gain control of the Company. Such shares could
be sold privately to purchasers who might side with the Board of Directors in
opposing a takeover bid that the board determines is not in the best interests
of the Company and its stockholders.
The amendment also may have the effect of discouraging an attempt by
another person or entity, through acquisition of a substantial number of shares
of Common Stock, to acquire control of the Company with a view to effecting a
merger, sale of assets or a similar transaction, since the issuance of new
shares could be used to dilute the stock ownership of such person or entity.
The Company's Certificate of Incorporation currently requires the
affirmative vote of at least 75% of the outstanding shares to be voted in order
to approve certain business combinations involving the Company and an
interested stockholder of the Company. Although the Board of Directors
presently has no intention of doing so, shares of authorized but unissued
Common Stock could be issued to a holder who would thereby
<PAGE>
have sufficient voting power to assure that any such business combination or
amendment to the Restated Certificate of Incorporation would not receive the
75% stockholder vote required for approval thereof. The issuance of additional
shares of Common Stock may be used to discourage takeovers that are not
approved by the Board but in which stockholders may receive a substantial
premium above market value for some or all of their shares at the time a tender
offer is made. Thus, stockholders who may wish to participate in such a tender
offer may be restricted in their opportunity to do so. In addition, because the
proposed amendment may enable the Company to discourage tender offers, the
amendment may make removal of the Board of Directors or management more
difficult. To the extent that the adoption of the proposed amendment renders
less likely a merger or other transaction opposed by the Company's incumbent
Board of Directors, the effect of such adoption may be to assist the Board of
Directors and management in retaining their current positions.
BOARD RECOMMENDATION
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSAL TO AMEND THE
COMPANY'S CERTIFICATE OF INCORPORATION TO INCREASE THE NUMBER OF AUTHORIZED
SHARES OF COMMON STOCK. The affirmative vote of a majority of the shares of the
Company's Common Stock present and entitled to vote at the 1997 Annual Meeting
is necessary to approve this Proposal. Proxies will be voted in favor of this
Proposal unless otherwise specified.
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, 1998,
such appointment to continue at the pleasure of the Board of Directors and
subject to ratification by the stockholders. 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 stockholders vote FOR ratification
of the appointment of Ernst & Young LLP as independent auditors for the fiscal
year ending July 31, 1998.
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth as to each person who was at the end of
fiscal 1997, 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
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
----------------------------------------------
ANNUAL COMPENSATION (1) AWARDS PAYOUTS
----------------------- ----------------------------- ------------
SECURITIES
UNDERLYING
RESTRICTED STOCK
STOCK OPTIONS/SARS ALL OTHER
FISCAL SALARY BONUS AWARD(S) (SHARES) LTIP PAYOUTS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) (2) ($) (3) ($) (4)
- ------------------------------ ------ ------- ------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
WILLIAM G. VAN DYKE........... 1997 450,000 540,000 0 65,852 525,586 173,520
Chairman, Chief............. 1996 385,000 462,000 0 54,362 190,125 121,960
Executive Officer and....... 1995 340,692 420,000 0 30,000 136,938 105,227
President...................
JAMES R. GIERTZ............... 1997 199,808 151,639 0 30,680 766,480 61,582
Senior Vice President and... 1996 220,000 181,229 315,625(5) 15,300 0 50,434
Chief Financial Officer..... 1995 174,615 165,870 0 25,000 0 0
NICKOLAS PRIADKA.............. 1997 187,808 133,739 0 30,700 186,462 56,340
Senior Vice President,...... 1996 169,117 108,165 0 10,300 129,050 37,174
OE Engine................... 1995 149,616 97,771 108,675(5) 10,000 92,340 34,159
LOWELL F. SCHWAB.............. 1997 168,450 152,491 0 13,237 481,787 56,243
Senior Vice President,...... 1996 148,808 88,911 0 8,148 0 32,546
Operations.................. 1995 128,340 81,400 108,675(5) 7,200 0 29,018
THOMAS A. WINDFELDT........... 1997 157,385 115,810 0 11,930 145,996 47,865
Vice President, Controller.. 1996 146,346 92,903 0 11,919 98,438 31,768
and Treasurer............... 1995 131,615 86,742 0 6,660 82,013 30,672
</TABLE>
- ------------------
(1) Includes any portion deferred under the Management Compensation Plan.
(2) Shares adjusted for stock splits.
(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.
(4) 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 contributed by the Company to
an unqualified supplemental plan. The amounts for fiscal 1997 are:
NAME ESOP ESOP (SUPL.)
---- ------- ------------
William G. Van Dyke......... $26,269 $147,251
James R. Giertz............. 26,269 35,313
Nickolas Priadka............ 26,269 30,071
Lowell F. Schwab............ 26,269 29,974
Thomas A. Windfeldt......... 26,269 21,596
(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 1997, the number and value of the aggregate restricted
stockholdings for the Named Officers were: William G. Van Dyke, 0, $0;
James R. Giertz, 12,500, $507,813; Nickolas Priadka, 4,200, $170,625;
Lowell F. Schwab, 4,200, $170,625; and Thomas A. Windfeldt, 0, $0.
<PAGE>
OPTION/SARS GRANTED IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS (1)
----------------------------------------------
NUMBER OF % OF TOTAL POTENTIAL REALIZABLE VALUE AT
SECURITIES OPTIONS/SAR ASSUMED ANNUAL RATES OF STOCK
UNDERLYING GRANTED TO EXERCISE PRICE APPRECIATION FOR OPTION TERM (3)
OPTIONS/SARS EMPLOYEES OR BASE EXPIRATION --------------------------------------
NAME GRANTED (2) IN FISCAL YEAR PRICE/SH ($) DATE 0% ($) 5% ($) 10% ($)
- ---- ------------ -------------- ------------ ---------- --------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
WILLIAM G. VAN DYKE 39,000 13.2 32.500 12/05/06 0 798,132 2,023,203
26,852 (4) 9.1 28.250 12/15/04 0 373,725 900,365
JAMES R. GIERTZ 14,500 4.9 32.500 12/05/06 0 296,741 752,217
7,157 (4) 2.4 32.000 12/15/04 0 110,010 263,784
4,636 (4) 1.6 38.000 09/08/04 0 74,027 173,407
1,235 (4) .4 38.000 12/15/04 0 20,604 48,622
3,152 (4) 1.1 38.000 12/21/05 0 61,381 148,993
NICKOLAS PRIADKA 13,500 4.6 32.500 12/05/06 0 276,276 700,340
8,455 (4) 2.9 29.750 12/14/03 0 103,265 240,978
8,745 (4) 3.0 29.750 12/15/04 0 125,155 300,184
LOWELL F. SCHWAB 12,000 4.1 32.500 12/05/06 0 245,579 622,524
392 (4) .1 32.125 07/26/03 0 4,716 10,850
845 (4) .3 32.125 12/14/03 0 10,865 25,252
THOMAS A. WINDFELDT 6,000 2.0 32.500 12/05/06 0 122,789 311,262
5,930 (4) 2.0 28.000 12/15/04 0 81,803 197,077
</TABLE>
- ------------------
(1) No stock appreciation rights ("SARs") have been granted.
(2) All grants (other than as noted in footnote(4)) during the period were
non-qualified stock options granted at the market value on date of grant
for a term of ten years, vesting in three equal annual installments
beginning 12/05/97, 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) These grants were made to individuals who exercised an option during fiscal
1997 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.
<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
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) ($) ($)
- --------------------- -------------- ---------- ------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
WILLIAM G. VAN DYKE 37,500 291,090 236,493 62,625 4,786,058 691,922
JAMES R. GIERTZ 19,340 222,471 20,665 30,975 151,008 373,103
NICKOLAS PRIADKA 20,000 164,370 54,265 21,225 948,603 232,322
LOWELL F. SCHWAB 1,531 18,573 12,079 17,975 203,246 194,384
THOMAS A. WINDFELDT 6,600 37,125 45,677 10,500 936,111 120,188
</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.
(2) No SARs were exercised in fiscal 1997.
(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
1997.
LONG-TERM INCENTIVE PLANS -- AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
NUMBER OF PERFORMANCE ESTIMATED FUTURE PAYOUTS
SHARES, UNITS OR OTHER PERIOD UNDER NON-STOCK PRICE-BASED PLAN
OR OTHER UNTIL MATURATION --------------------------------
NAME RIGHTS (1) OR PAYOUT THRESHOLD TARGET MAXIMUM
- ---- ------------- ---------------- --------- ------ -------
<S> <C> <C> <C> <C> <C>
WILLIAM G. VAN DYKE 9,200 8/1/96 - 7/31/99 4,600 9,200 25,300
JAMES R. GIERTZ 3,100 8/1/96 - 7/31/99 1,550 3,100 8,525
NICKOLAS PRIADKA 2,900 8/1/96 - 7/31/99 1,450 2,900 7,975
LOWELL F. SCHWAB 2,600 8/1/96 - 7/31/99 1,300 2,600 7,150
THOMAS A. WINDFELDT 2,150 8/1/96 - 7/31/99 1,075 2,150 5,913
</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 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%, 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%.
<PAGE>
HUMAN RESOURCES COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Human Resources Committee of the Board of Directors, consisting of six
independent, non-employee directors ("the Committee"), is responsible for
establishing the compensation programs for the Company's executive officers.
The objectives of the Company's executive compensation program are to:
o attract and retain the best executives available in our industry;
o motivate and reward executives responsible for attaining the financial
and strategic objectives essential to the Company's long-term success
and continued growth in stockholder value;
o promote a pay-for-performance philosophy by placing significant
portions of pay at risk and requiring outstanding results for payment
at the threshold level;
o obtain an appropriate balance between short-term and long-term results
based on the executive's influence and impact; 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. 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 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. The Long-Term Performance Award program
is based on three-year compounded growth in net 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 1995-1997 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 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.
STOCK OWNERSHIP. Ownership of Donaldson stock is expected of Donaldson
executives. The Committee believes that linking a significant portion of the
executive's current and potential net worth to the Company's success, as
reflected in the stock price, gives the executive a stake similar to the
stockholders. The Committee has established stock ownership guidelines for the
Named Officers and certain other executive officers, which encourage retention
of shares obtained through the exercise of options. The guidelines range from
five to ten times base salary. The goal of the Chief Executive Officer is ten
times annual base salary. Mr. Van Dyke currently exceeds this ownership goal.
<PAGE>
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER. Mr. Van Dyke's fiscal 1997
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 fiscal 1997 was $450,000,
which is below the market mid-point for manufacturing companies of similar
size.
ANNUAL BONUS. Mr. Van Dyke's bonus award for fiscal 1997 was $540,000.
This annual bonus was earned under the annual incentive program based on
EPS growth of 18.6% over the previous record of $1.67 earned in fiscal
1996.
STOCK OPTIONS. Mr. Van Dyke received the normal grant during fiscal
1997 of options to purchase 39,000 shares of stock.
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.
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 DIRECTORS
Stephen W. Sanger, Chairperson
Michael R. Bonsignore
Paul B. Burke
Jack W. Eugster
Kendrick B. Melrose
C. Angus Wurtele
<PAGE>
PERFORMANCE GRAPHS
The following graphs compare the cumulative total stockholder return on
the Company's Common Stock for the last five fiscal years and eight 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 1992 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
eight year period of consecutive increases in earnings per share.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
[LINE GRAPH]
FISCAL YEARS ENDED JULY 31
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 1997
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Donaldson................. $100.00 $124.19 $165.86 $183.20 $170.61 $285.40
S&P 500................... 100.00 108.73 114.34 144.19 168.08 255.48
S&P Manufacturing......... 100.00 113.49 132.02 180.89 214.04 334.70
</TABLE>
<PAGE>
COMPARISON OF EIGHT YEAR CUMULATIVE TOTAL RETURN
[LINE GRAPH]
FISCAL YEARS ENDED JULY 31
<TABLE>
<CAPTION>
1989 1990 1991 1992 1993 1994 1995 1996 1997
------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Donaldson................ $100.00 $181.29 $209.95 $275.04 $341.57 $456.16 $503.83 $469.22 $784.91
S&P 500.................. 100.00 106.50 120.09 135.45 147.27 154.87 195.31 227.67 $346.06
S&P Manufacturing........ 100.00 109.37 115.53 120.60 136.87 159.22 218.16 258.15 403.67
</TABLE>
PENSION BENEFITS
The Company maintains the Donaldson Company, Inc. Salaried Employees'
Pension Plan (the "Retirement Plan"), which provides benefits for eligible
employees. Through July 31, 1997 the Retirement Plan was structured as a
traditional, defined benefit plan. Effective August 1, 1997, the Retirement
Plan was amended to provide defined benefits pursuant to a cash balance feature
whereby a participant accumulates a benefit based upon a percentage of current
salary which varies with age, and interest credits, and the present value of
accrued benefits under the Retirement Plan was converted to an initial cash
balance.
Under the cash balance formula, each participant has an account, for
record keeping purposes only, to which credits are allocated each payroll
period based upon the following two percentages: The "Applicable Base
Percentage" of the participant's total compensation in the current pay period
("Pensionable Earnings") and the "Applicable Excess Percentage" of pensionable
earnings in excess of the Social Security taxable wage base. The applicable
percentages are determined by the age and years of service of the participant
with the Company and its affiliates as of the end of each plan year. The
following table shows the Applicable Base and Excess Percentages used to
determined credits at the age and years of service indicated.
APPLICABLE PERCENTAGE
---------------------
SUM OF AGE PLUS YEARS OF 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
As of August 1, 1997 the sum of age plus years of service for Messrs. Van
Dyke, Giertz, Priadka, Schwab and Windfeldt were 76, 43, 78, 65 and 65,
respectively.
<PAGE>
In addition, all balances in the accounts of participants earn a fixed
rate of interest which is credited annually. The interest rate for a particular
plan year is based on the average of the daily one-year U.S. Treasury Note
yields for the previous June plus one percent. For the 1998 fiscal/plan year,
the interest rate if 6.35%.
At retirement or other termination of employment, an amount equal to the
vested balance then credited to the account is payable to the participant in
the form of an immediate or deferred, lump sum or annuity for the entire
benefit under the Plan.
The individuals named in the Summary Compensation Table also are eligible
for benefits under the Donaldson Company Excess Retirement Plan (the "Excess
Retirement Plan"). The Excess Retirement Plan is an unfunded, non-qualified
deferred compensation arrangement that primarily provides benefits that cannot
be payable under a qualified plan like the Retirement Plan because of the
maximum limitations imposed on such 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 Plan and the Excess Retirement Plan. The projections are based on
the following assumptions: (1) employment until age 65 assuming no increase in
pensionable earnings after July 31, 1997; (2) interest credits at the actual
rate of 6.35% for 1998, and an assumed rate of 7% for years thereafter; and (3)
the conversion to a straight life annuity at normal retirement age is based on
an interest rate of 7% and the Unisex 1983 Group Annuity Mortality table: Mr.
Van Dyke, $530,170; Mr. Giertz, $262,280; Mr. Priadka, $188,815; Mr. Schwab,
$148,487; and Mr. Windfeldt, $164,280.
The Company has a supplementary retirement benefit plan which is intended
to assure that Mr. Van Dyke will receive at least 60% of his 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. To the Company's knowledge, based on a review of copies of such forms
and written representations furnished to the Company during fiscal 1997, all
Section 16(a) filing requirements applicable to the Company's directors and
executive officers were satisfied except as follows: Thomas A. Windfeldt, an
executive officer of the Company, donated 135 shares of the Company's Common
Stock in two transactions in October 1996, which gifts should have been timely
reported on a Form 5 and subsequently have been reported on an amended Form 5.
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.
<PAGE>
1998 STOCKHOLDER PROPOSALS
In order for stockholders' proposals for the 1998 annual meeting of
stockholders to be eligible for inclusion in the Company's Proxy Statement,
they must be received in writing by submission to the Secretary of the Company
at its principal office in Minneapolis, Minnesota no later than September 20,
1998 and not prior to August 20, 1998.
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
Norman C. Linnell
SECRETARY
October 14, 1997
<PAGE>
[LOGO]
DONALDSON COMPANY, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints William G. Van Dyke and Norman C. Linnell,
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
Stockholders of Donaldson Company, Inc. to be held on November 21, 1997, 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:_____________________, 1997
_________________________________
_________________________________
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.)
<PAGE>
(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, 2 AND 3.
1. ELECTION OF DIRECTORS. Nominees: J.W. Eugster, W.G. Van Dyke
|_| VOTE FOR all nominees listed above; |_| WITHHOLD VOTE from all nominees.
except vote withheld from following
nominees (if any):
___________________________________________________________________________
2. AMEND CERTIFICATE OF INCORPORATION TO INCREASE AUTHORIZED SHARES OF COMMON
STOCK: |_| FOR |_| AGAINST |_| ABSTAIN
3. RATIFY APPOINTMENT OF AUDITORS: |_| FOR |_| AGAINST |_| ABSTAIN
4. 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
