UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDING January 31, 1998 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE TRANSITION PERIOD FROM ___________ TO _______________.
Commission File Number 1-7891
DONALDSON COMPANY, INC.
------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 41-0222640
------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1400 West 94th Street
Minneapolis, Minnesota 55431
---------------------------------
(Address of principal executive offices)
(Zip Code)
Registrant's telephone number, including area code (612) 887-3131
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
Yes _X_ No___
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, $5 Par Value -- 49,571,511 shares as of February 27, 1998
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
CONDENSED STATEMENTS OF CONSOLIDATED EARNINGS
DONALDSON COMPANY, INC. AND SUBSIDIARIES
(Thousands of Dollars Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
January 31 January 31
--------------------------- ----------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net Sales $ 232,974 $ 196,849 $ 467,041 $ 384,025
Cost of Sales 168,034 138,654 333,711 269,698
------------ ------------ ------------ ------------
Gross Margin 64,940 58,195 133,330 114,327
Operating Expenses 44,979 40,218 91,347 77,389
Other (Income) Expense 17 364 (185) 606
Interest Expense 991 464 1,976 1,073
------------ ------------ ------------ ------------
Earnings Before Income Taxes 18,953 17,149 40,192 35,259
Income Taxes 6,444 6,173 13,665 12,693
------------ ------------ ------------ ------------
Net Earnings $ 12,509 $ 10,976 $ 26,527 $ 22,566
============ ============ ============ ============
Net Earnings Per Share:
Weighted Average Shares
Outstanding During Period 49,593,217 50,183,698 49,528,532 50,312,988
============ ============ ============ ============
Diluted Shares Outstanding 50,697,926 50,917,647 50,594,132 51,047,211
============ ============ ============ ============
Net Earnings Per Share - Basic $ .25 $ .22 $ .54 $ .45
============ ============ ============ ============
Net Earnings Per Share
Assuming Dilution $ .25 $ .22 $ .52 $ .44
============ ============ ============ ============
Dividends Paid Per Share $ .05 $ .04 $ .09 $ .08
============ ============ ============ ============
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
CONDENSED CONSOLIDATED BALANCE SHEETS
DONALDSON COMPANY, INC. AND SUBSIDIARIES
(Thousands of Dollars)
(Unaudited)
<TABLE>
<CAPTION>
January 31, July 31,
1998 1997
---------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ 6,291 $ 14,278
Accounts Receivable, Net 157,716 161,440
Inventories
Materials 42,177 36,178
Work in Process 13,055 11,488
Finished Products 45,190 38,253
---------- ----------
Total Inventories 100,422 85,919
Prepaids and Other Current Assets 10,183 7,181
---------- ----------
TOTAL CURRENT ASSETS 274,612 268,818
Property, Plant and Equipment, at Cost 374,538 354,154
Less Accumulated Depreciation (204,902) (199,559)
---------- ----------
Property, Plant and Equipment, Net 169,636 154,595
Other Assets 29,386 30,981
---------- ----------
TOTAL ASSETS $ 473,634 $ 454,394
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-Term Debt $ 52,091 $ 42,027
Current Maturities of Long-Term Debt 105 647
Trade Accounts Payable 69,053 68,317
Accrued Employee Compensation & Related Taxes 23,616 28,760
Warranty and Customer Support 17,507 16,502
Other Current Liabilities 23,107 20,044
---------- ----------
TOTAL CURRENT LIABILITIES 185,479 176,297
Long-Term Debt 4,108 4,201
Deferred Income Taxes 986 1,442
Other Long-Term Liabilities 27,714 28,589
SHAREHOLDERS' EQUITY
Preferred Stock, $1 par value,
1,000,000 shares authorized, no shares issued -- --
Common Stock, $5 par value, 80,000,000 shares authorized,
49,655,954 and 54,126,814 issued January 31, 1998
and July 31, 1997, respectively 248,280 135,317
Additional Paid-In Capital 823 6,212
Retained Earnings 12,990 167,444
Cumulative Translation Adjustment (4,853) 934
Treasury Stock - 91,561 and 4,674,758 shares, at cost (1,893) (63,312)
Receivable from ESOP -- (2,730)
---------- ----------
TOTAL SHAREHOLDERS' EQUITY 255,347 243,865
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 473,634 $ 454,394
========== ==========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
DONALDSON COMPANY, INC. AND SUBSIDIARIES
(Thousands of Dollars)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
January 31
------------------------
1998 1997
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net Earnings $ 26,527 $ 22,566
Adjustments to Reconcile Net Earnings to
Net Cash Provided by Operating Activities:
Depreciation and Amortization 12,001 10,828
Changes in Operating Assets and Liabilities (14,332) (2,680)
Other (2,972) (89)
--------- ---------
Net Cash Provided by Operating Activities 21,224 30,625
INVESTING ACTIVITIES
Net Expenditures on PP&E (31,274) (20,603)
Dividends & Distributions from Affiliates 1,500 3,037
--------- ---------
Net Cash Used in Investing Activities (29,774) (17,566)
FINANCING ACTIVITIES
Purchase of Treasury Stock (6,149) (8,904)
Net Change in Debt 10,049 (2,262)
Dividends Paid (4,707) (4,281)
Payment Received from ESOP 2,730 --
Other 157 554
--------- ---------
Net Cash Provided by (Used In) Financing Activities 2,080 (14,893)
Effect of Exchange Rate Changes on Cash (1,517) (2,726)
--------- ---------
(Decrease) in Cash and Cash Equivalents (7,987) (4,560)
Cash and Cash Equivalents-Beginning of Year 14,278 30,924
--------- ---------
Cash and Cash Equivalents-End of Period $ 6,291 $ 26,364
========= =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note A - The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting of only normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the six month period
ended January 31, 1998 are not necessarily indicative of the results that may be
expected for the year ended July 31, 1998. For further information, refer to the
consolidated financial statements and footnotes thereto included in Donaldson
Company, Inc. and subsidiaries' annual report on Form 10-K for the year ended
July 31, 1997.
Note B - New Accounting Standards
In February, 1997, the Financial Accounting Standards Board issued SFAS No. 128,
"Earnings Per Share," which was adopted by the Company in the second quarter of
fiscal 1998. Upon adoption of SFAS No. 128, the Company is presenting basic
earnings per share and diluted earnings per share. Basic earnings per share is
computed based on the weighted average number of shares outstanding during the
period. Diluted earnings per share is computed based on the weighted average
number of shares outstanding during the period increased by the effect of
dilutive stock options using the treasury stock method, and shares issuable
under its Performance and Incentive Plans.
The following table presents information necessary to calculate basic and
diluted earnings per common and common equivalent share:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
January 31, January 31,
------------------------- -------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Weighted average shares outstanding-Basic 49,593,217 50,183,698 49,528,532 50,312,988
Dilutive share equivalents 1,104,709 733,949 1,065,600 734,223
----------- ----------- ----------- -----------
Weighted average shares - Diluted 50,697,926 50,917,647 50,594,132 51,047,211
=========== =========== =========== ===========
Net earnings for basic and diluted
earnings per share computation $ 12,509 $ 10,976 $ 26,527 $ 22,566
----------- ----------- ----------- -----------
Basic earnings per share $ .25 $ .22 $ .54 $ .45
=========== =========== =========== ===========
Diluted earnings per share $ .25 $ .22 $ .52 $ .44
=========== =========== =========== ===========
</TABLE>
Earnings per share amounts and share amounts have been restated to reflect the
Company's 2-for-1 stock split on January 13, 1998.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
A. Financial Condition
The Company generated $21.2 million of cash and cash equivalents from operations
during the first six months of fiscal 1998. Operating cash flows decreased 30.7%
from the prior year period primarily due to higher inventory requirements to
support higher sales levels. In addition to the operating cash flow, $1.5
million was received as a return-of-capital from an unconsolidated affiliate.
These cash flows were used primarily to support $31.3 million in capital
additions (a 51.8% increase from the prior year), repurchase $6.1 million of
treasury stock, and pay $4.7 million in dividends during the first six months of
fiscal 1998. Increase in capital expenditures is due to productivity enhancing
projects at various plants in the United States and overseas, capacity expansion
and continuing upgrades to information systems. Expenditures for domestic plants
and distribution centers totaled $17.7 million for the first six months of
fiscal 1998. Expenditures for overseas operations totaled $9.5 million for the
same period.
At the end of the second quarter, the Company held $6.3 million in cash and cash
equivalents. Short-term debt totaled $52.1 million, up from $42.0 million at
July 31, 1997. Long-term debt of $4.1 million at January 31, 1998, represented
1.6% of total long-term capital, down from 1.7% at July 31, 1997.
The Board of Directors on November 21, 1997 declared a 2-for-1 stock split of
its common stock, effected in the form of a 100 percent stock dividend. The
stock split was distributed January 13, 1998, to shareholders of record as of
December 19, 1997.
B. Results of Operations
The Company reported record net earnings for the second quarter ended January
31, 1998 of $12.5 million, up 14.0% from the $11.0 million recorded in the
second quarter last year. Diluted earnings per share were 25 cents, up 13.6%
from prior-year diluted earnings per share of 22 cents as the average number of
shares outstanding decreased 0.4%. Increase in net earnings was primarily due to
higher sales and a reduction in the effective income tax rate offset by slightly
lower margins. Total net sales for the three months ended January 31, 1998 of
$233.0 million were up 18.4% from the same period last year of $196.8 million.
For the six months, net earnings were a record $26.5 million, up 17.6% from
fiscal 1997. Diluted earnings per share were 52 cents, up 18.2% from last year's
diluted earnings per share of 44 cents. Year-to-date sales are up 21.6% to
$467.0 million.
<PAGE>
In general, business conditions remain strong in North America and Europe; Japan
and certain surrounding markets are flat. Specifically, in the first six months
of the year, revenue in local currency terms is up 31.2% in North America and
30.6% in Europe relative to last year; revenue from our Japanese subsidiary was
unchanged relative to last year. Engine products revenues were $155.2 million, a
20.1% increase over second quarter last year and $316.4 million for the six
month period, an increase of 20.3% over prior year. Significant factors
supporting the growth in engine products include growth in replacement part
sales and the addition of $5.0 million in revenue from the Armada Tube Group
acquired in the third quarter of fiscal 1997. Industrial products revenues were
$77.8 million, a 15.0% increase over second quarter last year and $150.7 million
for the six month period, a 24.4% increase over prior year. Significant
contributors to revenue growth in industrial products include an increase in
Torit dust collection sales due to strong market conditions in the United States
and Europe, strong gas turbine growth, and the acquisition of the assets of the
Aercology business in the fourth quarter of fiscal 1997.
The gross margins for the second quarter of fiscal 1998 decreased to 27.9% from
29.6% in the same period last year. The six months figures are 28.5% and 29.8%,
respectively. The decrease was due to product mix changes resulting in lower
profitability in the automotive business and integration cost related to the
Armada Tube acquisition, but was partially offset by higher margins in
industrial products.
Operating expenses during the second quarter of fiscal 1998 were $45.0 million,
19.3% of sales, compared to $40.2 million, 20.4% of sales in the same quarter of
1997. Year-to-date operating expenses as a percentage of sales have decreased
from 20.2% to 19.6%, primarily due to lower reserves for warranty expense and
pension obligations.
Hard order backlogs -- goods scheduled for delivery in 90 days -- of $154.6
million at January 31, 1998, increased 7.8% from the same period last year and
are down slightly in the quarter. Only the gas turbine and high purity markets
have softened against the prior year. All other significant business markets
have increased relative to one year ago and indicate continued revenue growth in
the near term.
The U. S. dollar continues to be strong relative to the currencies of foreign
countries where the Company operates. The strong dollar continues to have a
negative impact on overseas results because foreign exchange denominated
earnings translate into less U. S. dollars. The impact of foreign exchange
translation on net sales was a negative $6.6 million and $12.9 million for the
three and six months ended January 31, 1998.
C. Year 2000 Issues
A task force was formed approximately one year ago to assess the Company's
exposure to the "year 2000" issue -- all computer hardware and software systems
have been evaluated to determine whether date-dependent functions will remain
operable through the year 2000. In summary, the Company has implemented measures
to have all critical business systems year-2000-ready by December 31, 1998.
Several auxiliary or non-critical systems will be modified in 1999. Costs
incurred and expected to be incurred related exclusively to addressing year-2000
<PAGE>
issues at the Company total approximately $5.0 million. Based on the Company's
analysis of the year 2000 issues, it appears that the amount spent to remediate
its year 2000 issues will not have a material effect on the operations or
financial results of the Company.
D. Risk Factors
Except for the historical information contained herein, certain of the matters
discussed in this Form 10-Q are "forward-looking statements" as defined in the
Private Securities Litigation Reform Act of 1995, which involve risks and
uncertainties, including, but not limited to changing economic and political
conditions in the U.S. and in other countries, changes in governmental spending
and budgetary policies, governmental laws and regulations surrounding various
matters such as environmental remediation, contract pricing, and international
trading restrictions, customer product acceptance, and continued access to
capital markets. All forecasts and projections in this Form 10-Q are
"forward-looking statements," and are based on management's current expectations
of the Company's near-term results, based on current information available
pertaining to the Company, including the aforementioned risk factors. Actual
results could differ materially both due to the risk factors mentioned here and
to other factors not so referenced.
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security holders
(a) The Annual meeting of shareholders of Registrant was held on
Novemnger 21, 1997. A total of 24,732,385 shares were
outstanding and entitled to vote at the meeting.
(b) Not Applicable.
(c) Matters Submitted and Voting Results:
(i) Election of Directors:
Name of Nominee Vote Tabulation
For Withheld
--- --------
Jack W. Eugster 21,366,251 230,442
William G. Van Dyke 21,346,464 250,229
(ii) Approved the adoption of the 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 with the
following vote: For - 20,043,851; Against -
1,457,677; Abstaining - 95,165.
(iii) Ratified selection of Ernst & Young LLP as
Registrant's independent public auditors for the
fiscal year ending July 31, 1998 with the following
vote: For - 21,380,591; Against - 49,384; Abstaining
- 166,718.
(d) Not Applicable.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit Index
3-A Certificate of Incorporation of Registrant as
currently in effect
10-E ESOP Restoration Plan (Amended and Restated)
10-Q Deferred Compensation and 401(K) Excess Plan
Note: Exhibits have been furnished only to the Securities and Exchange
Commission. Copies will be furnished to individuals upon request and
payment of $20 representing Registrant's reasonable expense in
furnishing such exhibits.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter ended
January 31, 1998.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DONALDSON COMPANY, INC.
(Registrant)
Date 3/13/98 By /s/James R. Giertz
------------------
James R. Giertz
Vice President -
Chief Financial Officer
Date 3/13/98 By /s/Norman C. Linnell
--------------------
Norman C. Linnell
General Counsel and Secretary
EXHIBIT 3.A
CERTIFICATE OF INCORPORATION
OF
DONALDSON COMPANY, INC.
(AS AMENDED)
---------------------------------------
FIRST. The name of this corporation is "DONALDSON COMPANY, INC."
SECOND. The registered office of the corporation in the State of
Delaware is 4305 Lancaster Pike, City of Wilmington, County of New Castle; and
the name of its registered agent at such address is Corporation Service Company.
(B/D:2/18/83).
THIRD. The nature of the business and the objects and purposes proposed
to be transacted, promoted and carried on are to do any and all of the things
herein mentioned as fully and to the same extent as natural persons might or
could do, viz.:
To manufacture, buy, sell, distribute, market and in any manner deal in
and with, as manufacturer, jobber, distributor, agent, or otherwise, air
cleaners for gas engines, spark-arresting mufflers, breathers, crank-case
ventilating systems, all kinds of automotive and mechanical devices,
accessories, appliances, parts, tools, products and supplies, and all kinds of
products, articles, and things used or useful in connection with automobiles,
tractors, trucks, buses, motorcycles, motor vehicles of any kind, boats,
airplanes, or airships.
To carry on a general manufacturing and jobbing business and any
business incidental thereto or useful in connection therewith.
<PAGE>
To purchase, lease, hire or otherwise acquire real and personal
property, improved and unimproved, of every kind and description and to sell,
dispose of, lease, convey and mortgage said property, or any part thereof; to
acquire, hold, lease, manage, operate, develop, control, build, erect, maintain
for the purpose of said corporation, construct, reconstruct or purchase, either
directly or through ownership of stock in any corporation, any lands, buildings,
offices, stores, warehouses, mills, shops, factories, plants, machinery, rights,
easements, permits, privileges, franchises and licenses, and all other things
which may at any time be necessary or convenient for the purposes of the
corporation; to sell, lease, hire or otherwise dispose of the lands, buildings
or other property of the corporation, or any part thereof.
To purchase or otherwise acquire, hold, use, sell, or in any manner
dispose of and to grant licenses or other rights therein and in any manner deal
with patents, inventions, improvements, processes, formulas, trade-marks,
trade-names, rights and licenses secured under letters patent, copyrights or
otherwise; to enter into any and all license agreements and to pay royalties
thereunder.
To subscribe or cause to be subscribed for, and to purchase and
otherwise acquire, hold, sell, assign, transfer, mortgage, pledge, exchange,
distribute and otherwise dispose of the whole or any part of the shares of the
capital stock, bonds, coupons, mortgages, deeds of trust, debentures,
securities, obligations, evidences of indebtedness, notes, good will, rights,
assets and property of any and every kind or any part thereof of any other
corporation or corporations, association or associations, now or hereafter
existing and whether created by the laws of the State of Delaware, or of any
other State, Territory or Country, and to operate, manage and control such
properties, or any of them, either in the
<PAGE>
name of such other corporation or corporations or in the name of this
corporation, and while owners of any of said shares of capital stock to exercise
all the rights, powers and privileges of ownership of every kind and description
including the right to vote thereon, with power to designate some person for
that purpose from time to time to the same extent as natural persons might or
could do.
To manufacture, purchase, lease or otherwise acquire, hold, own,
repair, mortgage, pledge or otherwise hypothecate, sell, assign and transfer, or
otherwise dispose of, to invest, trade, deal in and deal with goods, wares and
merchandise, and real, personal and mixed property of every class and
description, wherever situate; and in particular lands, buildings, business
concerns and undertakings, book debts and claims, and any interest in real or
personal property, and any claims against such property, or against any person
or company, and to carry on any business, concern or undertaking so acquired.
To acquire the good will, rights and property and to undertake the
whole or any part of the assets and liabilities, of any person, firm,
association or corporation; to pay for the same in cash, the stock of this
company, bonds or otherwise; to hold or in any manner to dispose of the whole or
any part of the property so purchased; to conduct in any lawful manner the whole
or any part of any business so acquired and to exercise all the powers necessary
or convenient in and about the conduct and management of such business.
To borrow money from and to lend money to any other corporation, or any
firm, association, or individual, including corporations in which this
corporation is interested as a stockholder or otherwise.
<PAGE>
To enter into, make and perform contracts of every kind for any lawful
purpose, without limit as to amount, with any person, firm, association or
corporation, town, city, county, state, territory or government.
To draw, make, accept, endorse, discount, execute and issue promissory
notes, drafts, bills of exchange, warrants, debentures and other negotiable or
transferable instruments.
To issue bonds, debentures or obligations and to secure the same by
mortgage, pledge, deed of trust or otherwise.
To purchase, hold and reissue the shares of its capital stock.
To carry on any or all of its operations and business and to promote
its objects within the State of Delaware or elsewhere, without restriction as to
place or amount.
To carry on any other business in connection therewith.
To do all and everything necessary, suitable, convenient or proper for
the accomplishment of any of the purposes, or the attainment of any one or more
of the objects herein enumerated or incidental to the powers herein named, or
which shall at any time appear conducive or expedient for the protection or
benefit of the corporation.
To do any or all of the things herein set forth to the same extent as
natural persons might or could do and in any part of the world, as principals,
agents, contractors, trustees or otherwise, alone or in company with others.
The foregoing clauses shall be construed both as objects and powers,
and it is hereby expressly provided that the foregoing enumeration of specific
powers shall not be held to limit or restrict in any manner the powers of this
corporation, and are in
<PAGE>
furtherance of, and in addition to, and not in limitation of the general powers
conferred by the laws of the State of Delaware.
It is the intention that the purposes, objects and powers specified in
this Article Third and all sub-divisions thereof shall, except as otherwise
expressly provided, in nowise be limited or restricted by reference to or
inference from the terms of any other clause or paragraph of this article, and
that each of the purposes, objects and powers specified in this Article Third
shall be regarded as independent purposes, objects and powers.
FOURTH. The total number of shares of stock of all classes which the
Corporation shall have authority to issue is 81,000,000 divided into 1,000,000
shares of Preferred Stock of the par value of $1.00 each and 80,000,000 shares
of Common Stock of the par value of $5.00 each. (11-18-76; 11-16-78; 11-21-86;
11-20-92; 11-21-97).
The designations and the powers, preferences and rights, and the
qualifications, limitations or restrictions thereof, of each class of stock are
as follows:
The Board of Directors is expressly authorized at any time, and from
time to time, to provide for the issuance of shares of Preferred Stock in one or
more series, with such voting powers, full or limited, or without voting powers
and with such designations, preferences and relative, participating, optional or
other special rights, and qualifications, limitations or restrictions thereof,
as shall be stated and expressed in the resolution or resolutions providing for
the issue thereof adopted by the Board of Directors, subject to the limitations
prescribed by law and in accordance with the provisions hereof, including (but
without limiting the generality thereof) the following:
<PAGE>
(a) The designation of the series and the number of shares to
constitute the series.
(b) The dividend rate of the series, the conditions and dates
upon which such dividends shall be payable, the relation which such dividends
shall bear to the dividends payable on any other class or classes of stock, and
whether such dividends shall be cumulative or non-cumulative.
(c) Whether the shares of the series shall be subject to
redemption by the corporation and, if made subject to such redemption, the
times, prices and other terms and conditions of such redemption.
(d) The terms and amount of any sinking fund provided for the
purchase or redemption of the shares of the series.
(e) Whether or not the shares of the series shall be
convertible into or exchangeable for shares of any other class or classes or of
any other series of any class or classes of stock of the corporation, and, if
provision be made for conversion or exchange, the times, prices, rates,
adjustments and other terms and conditions of such conversion or exchange.
(f) The extent, if any, to which the holders of the shares of
the series shall be entitled to vote with respect to the election of directors
or otherwise.
(g) The restrictions, if any, on the issue or reissue of any
additional Preferred Stock.
(h) The rights of the holders of the shares of the series upon
the dissolution, liquidation, or winding up of the corporation.
<PAGE>
Subject to the prior or equal rights, if any, of the Preferred Stock of
any and all series stated and expressed by the Board of Directors in the
resolution or resolutions providing for the issuance of such Preferred Stock,
the holders of Common Stock shall be entitled (i) to receive dividends when and
as declared by the Board of Directors out of any funds legally available
therefor, (ii) in the event of any dissolution, liquidation or winding up of the
corporation, to receive the remaining assets of the corporation, ratably
according to the number of shares of Common Stock held, and (iii) to one vote
for each share of Common Stock held. No holder of Common Stock shall have any
pre-emptive right to purchase or subscribe for any part of any issue of stock or
of securities of the corporation convertible into stock of any class whatsoever,
whether now or hereafter authorized. (AMENDED 11-13-69)
FIFTH. The minimum amount of capital with which it will commence
business is One Thousand Dollars ($1,000.00).
SIXTH. The name and place of residence of each of the incorporators are
as follows:
NAME RESIDENCE
S. L. MACKEY WILMINGTON, DELAWARE
J. SKRIVAN WILMINGTON, DELAWARE
M. C. PALMATARY WILMINGTON, DELAWARE
SEVENTH. The existence of this corporation is to be perpetual.
EIGHTH. The private property of the stockholders of this corporation
shall not be subject to the payment of corporate debts to any extent whatever.
<PAGE>
NINTH. In furtherance and not in limitation of the powers conferred by
the laws of the State of Delaware, the board of directors is expressly
authorized:
To make, alter, amend and repeal the by-laws;
To set apart out of any of the funds of the corporation
available for dividends a reserve or reserves for any proper purpose and to
alter or abolish any such reserve; to authorize and cause to be executed
mortgages and liens upon the property and franchises of this corporation.
To designate, by resolution passed by a majority of the whole
board, one or more committees, each to consist of two or more directors, which
committees, to the extent provided in such resolution or in the by-laws of the
corporation, shall have and may exercise any or all of the powers of the board
of directors in the management of the business and affairs of this corporation
and have power to authorize the seal of this corporation to be affixed to all
papers which may require it.
From time to time to determine whether and to what extent and
at what times and places and under what conditions and regulations the books and
accounts of this corporation, or any of them other than the stock ledger, shall
be open to the inspection of the stockholders, and no stockholder shall have any
right to inspect any account or book or document of the corporation, except as
conferred by law or authorized by resolution of the directors or of the
stockholders.
To sell, lease or exchange all of its property and assets,
including its good will and its corporate franchises, upon such terms and
conditions and for such consideration, which may be in whole or in part shares
of stock in, and/or other securities of, any other corporation or corporations,
when and as authorized by the affirmative vote
<PAGE>
of the holders of a majority of the stock issued and outstanding having voting
power given at a stockholders' meeting duly called for that purpose. (Amended
11-15-85)
Directors need not be elected by ballot.
TENTH. In the absence of fraud, no contract or transaction between this
corporation and any other association or corporation shall be affected by the
fact that any of the directors or officers of this corporation are interested in
or are directors or officers of such other association or corporation, and any
director or officer of this corporation individually may be a party to, or may
be interested in, any such contract or transaction of this corporation; and no
such contract or transaction of this corporation with any person or persons,
firm, association or corporation shall be affected by the fact that any director
or officer of this corporation is a party to, or interested in, such contract or
transaction, or in any way connected with such person or persons, firm,
association or corporation; and each and every person who may become a director
or officer of this corporation is hereby relieved from any liability that might
otherwise exist from thus contracting with this corporation for the benefit of
himself or any person, firm, association or corporation in which he may be in
any way interested; provided, however, that in any such case the fact of such
interests shall be disclosed to the other directors or stockholders acting upon
or in reference to such contract or transaction.
ELEVENTH. This corporation may in its By-Laws make any other provision
or requirements for the management or conduct of the business of this
corporation, provided
<PAGE>
the same be not inconsistent with the provisions of this certificate or contrary
to the laws of the State of Delaware, or of the United States.
TWELFTH. This corporation reserves the right to amend, alter, change,
add to or repeal any provision contained in this Certificate of Incorporation in
the manner now or hereafter prescribed by statute, and all rights conferred upon
officers, directors, and stockholders herein are granted subject to this
reservation. Any action required or permitted to be taken by the stockholders of
this corporation must be effected at an annual or special meeting of
stockholders and may not be effected by any consent in writing by such
stockholders. (Amended 11-15-85)
MINIMUM PRICE REQUIREMENTS (Approved 11-15-85)
THIRTEENTH. 1. In addition to any affirmative vote required by law or
this Certificate of Incorporation, and except as otherwise expressly provided in
paragraph 2 of this Article Thirteenth:
(a) any merger, consolidation or share exchange of the corporation or
any Subsidiary (as hereinafter defined) with any Interested Stockholder (as
hereinafter defined) or any other corporation (whether or not itself an
Interested Stockholder) which is, or after such merger, consolidation or share
exchange would be, an Affiliate (as hereinafter defined) of an Interested
Stockholder; or
(b) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition (in one transaction or a series of transactions) to or with any
Interested Stockholder or any Affiliate of any Interested Stockholder of any
assets of the corporation or any Subsidiary having an aggregate Fair Market
Value (as hereinafter defined) of $10,000,000 or more; or
<PAGE>
(c) the issuance or transfer by the corporation or any Subsidiary (in
one transaction or a series of transactions) of any securities of the
corporation or any Subsidiary to any Interested Stockholder or any Affiliate of
any Interested Stockholder in exchange for cash, securities or other property
(or a combination thereof) having an aggregate Fair Market Value of $5,000,000
or more; or
(d) the adoption of any plan or proposal for the liquidation or
dissolution of the corporation proposed by or on behalf of an Interested
Stockholder or any Affiliate of any Interested Stockholder; or
(e) any reclassification of securities (including any reverse stock
split), or recapitalization of the corporation, or any merger or consolidation
of the corporation with any of its Subsidiaries or any other transaction
(whether or not with or into or otherwise involving an Interested Stockholder)
which has the effect, directly or indirectly, of increasing the proportionate
share of the outstanding shares of any class of equity or convertible securities
of the corporation or any Subsidiary which is directly or indirectly owned by
any Interested Stockholder or any Affiliate of any Interested Stockholder;
shall require the affirmative vote of the holders of at least 75% of the then
outstanding shares of capital stock of the corporation entitled to vote in the
election of directors (the "Voting Stock"), voting together as a single class
(each share of Voting Stock having the number of votes granted to it pursuant to
Article Fourth of this Certificate of Incorporation). Such affirmative vote
shall be required notwithstanding the fact that no vote may be required, or that
a lesser percentage may be specified, by law or in any agreement with any
national securities exchange or otherwise.
<PAGE>
The term "Business Combination" as used in this Article Thirteenth
shall mean any transaction which is referred to in any one or more of
sub-paragraphs (a) through (e) of this paragraph 1.
2. The provisions of paragraph 1 of this Article Thirteenth shall not
be applicable to any particular Business Combination, and such Business
Combination shall require only such affirmative vote as is required by law and
any other provision of this Certificate of Incorporation, if all of the
conditions specified in either of the following sub-paragraphs (a) or (b) are
met:
(a) The Business Combination shall have been approved by a majority of
the Disinterested Directors (as hereinafter defined).
(b) All of the following conditions shall have been met:
(i) The aggregate amount of cash and the Fair Market Value as
of the date of the consummation of the Business Combination of consideration
other than cash to be received per share by holders of Common Stock in such
Business Combination shall be at least equal to the highest per share price
(including any brokerage commissions, transfer taxes and soliciting dealers'
fees) paid by the Interested Stockholder for any share of Common Stock acquired
by it within the two year period immediately prior to the first public
announcement of the proposal of the Business Combination (the "Announcement
Date") or in the transaction in which it became an Interested Stockholder,
whichever is higher, after giving effect to any appropriate adjustment for stock
dividends, stock splits and similar recapitalizations.
(ii) The aggregate amount of cash and the Fair Market Value as
of the date of the consummation of the Business Combination of consideration
other than cash
<PAGE>
to be received per share by holders of shares of any class of outstanding
Preferred Stock (as hereinafter defined) shall be at least equal to the higher
of (A) the highest per share price (including any brokerage commissions,
transfer taxes and soliciting dealers' fees) paid by the Interested Stockholder
for any shares of such class of Preferred Stock acquired by it (i) within the
two-year period immediately prior to the Announcement Date or (ii) in the
transaction in which it became an Interested Stockholder, whichever is higher;
or (B) the highest preferential amount per share to which the holders of shares
of such class of Preferred Stock would be entitled in the event of any voluntary
or involuntary liquidation, dissolution or winding up of the affairs of the
corporation, regardless of whether the Business Combination to be consummated
constitutes such an event. The provisions of this sub-paragraph (b)(ii) shall be
required to be met with respect to every class of outstanding Preferred Stock,
whether or not the Interested Stockholder has previously acquired any shares of
a particular class of Preferred Stock.
(iii) The consideration to be received by holders of a
particular class of outstanding Voting Stock shall be in cash or in the same
form as the Interested Stockholder has previously paid for shares of such class
of Voting Stock. If the Interested Stockholder has paid for shares of any class
of Voting Stock with varying forms of consideration, the form of consideration
for such class of Voting Stock shall be either cash or the form used to acquire
the largest number of shares of such class of Voting Stock previously acquired
by it.
(iv) A Proxy or information statement describing the proposed
Business Combination and complying with the requirements of the Securities
Exchange Act of 1934 and the rules and regulations thereunder (or any subsequent
provisions replacing
<PAGE>
such Act, rules or regulations) shall be mailed by the Company to public
stockholders of the corporation at least 30 days prior to the consummation of
such Business Combination (whether or not such proxy or information statement is
required to be mailed pursuant to such Act or subsequent provisions).
3. For the purposes of this Article Thirteenth.
(a) "Person" shall mean any individual, firm, corporation or other
entity.
(b) "Interested Stockholder" shall mean any person (other than the
corporation or any Subsidiary) who:
(i) is the beneficial owner (as hereinafter defined) of more
than 10% of the voting power of the outstanding Voting Stock; or
(ii) is an Affiliate of the corporation and at any time within
the two-year period immediately prior to the date in question was the beneficial
owner of 10% or more of the voting power of the then outstanding Voting Stock;
or
(iii) is an assignee of or has otherwise succeeded to any
shares of Voting Stock which were at any time within the two-year period
immediately prior to the date in question beneficially owned by any Interested
Stockholder, if such assignment or succession shall have occurred in the course
of a transaction or series of transactions not involving a public offering
within the meaning of the Securities Act of 1933.
(c) A person shall be a "beneficial owner" of any Voting Stock:
(i) which such person or any of its Affiliates or Associates
beneficially owns, directly or indirectly; or
<PAGE>
(ii) which such person or any of its Affiliates or Associates
has, directly or indirectly, (A) the right to acquire (whether such right is
exercisable immediately or only after the passage of time), pursuant to any
agreement, arrangement or understanding or upon the exercise of conversion
rights, exchange rights, warrants or options, or otherwise, or (B) the right to
vote pursuant to any agreement, arrangement or understanding; or
(iii) which are beneficially owned, directly or indirectly, by
any other person with which such person or any of its Affiliates or Associates
has any agreement, arrangement or understanding for the purpose of acquiring,
holding, voting or disposing of any shares of Voting Stock.
(d) For the purposes of determining whether a person is an Interested
Stockholder pursuant to sub-paragraph (b) of this paragraph 3, the number of
shares of Voting Stock deemed to be outstanding shall include shares deemed
owned through application of sub-paragraph (c) of this paragraph 3 but shall not
include any other shares of Voting Stock which may be issuable pursuant to any
agreement, arrangement or understanding, or upon exercise of conversion rights,
warrants or options, or otherwise.
(e) "Affiliate" or "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under
the Securities Exchange Act of 1934, as in effect on August 13, 1985.
(f) "Subsidiary" means any corporation of which a majority of any class
of equity security is owned, directly or indirectly, by the corporation;
provided, however, that for the purposes of the definition of Interested
Stockholder set forth in sub-paragraph (b) of this paragraph 3, the term
"Subsidiary" shall mean only a corporation of which a
<PAGE>
majority of each class of equity security is owned, directly or indirectly, by
the corporation.
(g) The term "Disinterested Director" means any member of the Board of
Directors of the corporation (the "Board") who is unaffiliated with the
Interested Stockholder and was a member of the Board prior to the time that the
Interested Stockholder became an Interested Stockholder, and any successor of a
Disinterested Director who is unaffiliated with the Interested Stockholder and
is recommended to succeed a Disinterested Director by a majority of
Disinterested Directors then on the Board.
(h) The term "Fair Market Value" means: (i) in the case of stock, the
highest closing sale price during the 30-day period immediately preceding the
date in question of a share of such stock on the Composite Tape for New York
Stock Exchange-Listed Stocks, or, if such stock is not quoted on the Composite
Tape, on the New York Stock Exchange, or, if such stock is not listed on such
Exchange, on the principal United States securities exchange registered under
the Securities Exchange Act of 1934 on which such stock is listed, or, if such
stock is not listed on any such exchange, the highest closing bid quotation with
respect to a share of such stock during the 30-day period preceding the date in
question on the National Association of Securities Dealers, Inc. Automated
Quotations System or any system then in use, or if no such quotations are
available, the fair market value on the date in questions of a share of such
stock as determined by the Board in good faith; and (ii) in the case of property
other than cash or stock, the fair market value of such property on the date in
question as determined in good faith by a majority of Disinterested Directors.
<PAGE>
(j) The term "Preferred Stock' shall mean the Preferred Stock,
Preference Stock and Cumulative Preferred Stock and any other class of preferred
stock which may from time to time be authorized in or by the Certificate of
Incorporation of the Corporation and which by the terms of its issuance is
specifically designated "Preferred Stock" for purposes of this Article
Thirteenth.
(k) In the event of any Business Combination in which the corporation
survives, the phrase "consideration other than cash" as used in sub-paragraphs
(b)(i) and (ii) of paragraph 2 of this Article Thirteenth shall include the
shares of Common Stock and/or the shares of any other class of Voting Stock
retained by the holders of such shares.
4. Nothing contained in this Article Thirteenth shall be construed to
relieve any Interested Stockholder from any fiduciary obligation imposed by law.
5. A majority of the Disinterested Directors shall have the power to
interpret all of the terms and provisions of this Article Thirteenth and to make
any other factual determination as is necessary.
6. Notwithstanding any other provisions of this Certificate of
Incorporation, the By-Laws of the corporation (and notwithstanding the fact that
a lesser percentage may be specified by law, this Certificate of Incorporation
or the By-Laws of the corporation), the affirmative vote of the holders of 75%
or more of the shares of Voting Stock, voting together as a single class, shall
be required to amend or repeal, or adopt any provisions inconsistent with, this
Article Thirteenth; provided, however, that this paragraph 6 shall not apply to,
and such 75% vote shall not be required for, any amendment, repeal or adoption
unanimously recommended by the Board of Directors if all such directors are
<PAGE>
persons who would be eligible to serve as Disinterested Directors within the
meaning of this Article Thirteenth.
FOURTEENTH. No director of the corporation shall be personally liable
to the corporation or its stockholders for monetary damage for breach of
fiduciary duty as a director, except for liability (I) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law, or (iv) for any transaction from which the director derived an
improper personal benefit. (Filed 12-29-86)
WE, THE UNDERSIGNED, being all of the incorporators, for the
purpose of forming a corporation, in pursuance of an Act of the Legislature of
the State of Delaware, entitled "AN ACT PROVIDING A GENERAL CORPORATION LAW,"
(approved March 10, 1899), and the acts amendatory thereof and supplemental
thereto, do make and file this Certificate of Incorporation, hereby declaring
and certifying that the facts herein stated are true and accordingly hereunto
have set our respective hands and seals this twenty-fourth day of December, A.
D. 1936.
In the presence of S. L. MACKEY (SEAL)
JOHN W. GAILEY J. SKRIVAN (SEAL)
M. C. PALMATARY (SEAL)
<PAGE>
STATE OF DELAWARE )
) SS.
COUNTY OF NEW CASTLE )
BE IT REMEMBERED, that on this twenty-fourth day of December,
A. D. 1936, personally appeared before me, the subscriber, a notary public for
the State and County aforesaid, S. L. Mackey, J. Skrivan and M. C. Palmatary,
all the parties to the foregoing certificate of incorporation, known to me
personally to be such, and severally acknowledged the said certificate to be
their act and deed respectively, and that the facts therein stated were truly
set forth.
GIVEN under my hand and seal of office the day and year
aforesaid.
JOHN W. GAILEY
Notary Public.
- --------------------------------------------------------------------------------
John W. Gailey
Notary Public
State of Delaware
Appointed Jan. 17, 1935
Term of office 2 years
- --------------------------------------------------------------------------------
<PAGE>
STATE OF DELAWARE
----------------------------------
OFFICE OF SECRETARY OF STATE
-----------------------------------
I, WALTER DENT SMITH, Secretary of State of the State of
Delaware, DO HEREBY CERTIFY that the above and foregoing is a true and correct
copy of Certificate of Incorporation of the "DONALDSON COMPANY, INC.", as
received and filed in this office the twenty-fourth day of December, A. D. 1936,
at 1 o'clock P. M.
IN TESTIMONY WHEREOF, I have hereunto set my hand and official
seal, at Dover, this twenty-fourth day of December, in the year of our Lord one
thousand nine hundred and thirty-six.
WALTER DENT SMITH,
Secretary of State
*******************************
Secretary's Office
1855 Delaware 1793
*******************************
RECEIVED FOR RECORD this 24th day of December, A. D. 1936.
ALBERT STETSER,
RECORDER.
EXHIBIT 10.E
AMENDED AND RESTATED
ESOP RESTORATION PLAN
1. PURPOSE
The purpose of the Donaldson Company, Inc. ESOP Restoration Plan is to
permit certain key employees of Donaldson Company, Inc., who participate in the
Employee Stock Ownership Plan to receive contributions equal to amounts in
excess of the limitations on contributions imposed by the Internal Revenue Code
of 1986, as amended, on defined contribution plans. Such contributions shall be
based upon the award of Performance Units, the value of which is related to the
appreciation in the value of the common stock of the Company. Accordingly, the
Company hereby adopts the Plan pursuant to the terms and provisions set forth
below.
2. DEFINITIONS
Wherever used herein the following terms shall have the meaning herein
after set forth:
2.1. "Account" means the account maintained by the Company under
the Plan for a Participant that is credited with amounts
contributed under Section 4 of the Plan.
2.2. "Board" means the Board of Directors of the Company.
2.3. "Code" means the Internal Revenue Code of 1986, as amended
from time to time, and any regulations thereunder.
2.4. "Committee" means the Human Resource Committee of the Board.
2.5. "Company" means Donaldson Company, Inc., a Delaware
corporation (the principal sponsor).
2.6. Dividend Equivalents shall have the meaning given to them in
Section 13 herein.
2.7. "ESOP" means the Employee Stock Ownership Plan established
effective June 29, 1987.
2.8. "ESOP Account" means the account established for the
Participant under the ESOP.
2.9. "ESOP Contributions" means the contribution made by the
Company for the benefit of the Participant under and in
accordance with the terms of the ESOP in any Plan Year.
<PAGE>
2.10. "Participant" means a key employee of the Company who is a
participant in the ESOP and to whom or with respect to whom
contributions may be made under the plan, which may be limited
due to compensation in excess of $200,000 and future limits
indexed for inflation by the IRS.
2.11. "Plan" means the ESOP Restoration Plan of the Company.
2.12. "Plan Year" means the twelve consecutive month period ending
on any July 31.
2.13. "Stock" means common stock of the Company.
2.14. "Performance Unit" means a bookkeeping unit used for purposes
of crediting amounts to the Account of a Participant, each
such Performance Unit being equivalent to the fair market
value of a share of Stock.
3. ADMINISTRATION
The Plan shall be administered by the Committee. Subject to
the provisions of the Plan, the Committee shall have exclusive power to
select the key employees to be granted Performance Units, to determine
the number of Performance Units to be granted to each key employee
selected and to determine the time or times when Performance Units will
be granted. The authority granted to the Committee by the preceding
sentence will be exercised based upon recommendations received from the
management of the Company.
The Committee shall have authority to interpret the Plan, to
adopt and revise rules and regulations relating to the Plan, to
determine the conditions subject to which any awards may be made or
payable, and to make any other determinations which it believes
necessary or advisable for the administration of the Plan.
Determinations by the Committee shall be made by majority vote and
shall be final and binding on all parties with respect to all matters
relating to the Plan.
4. GRANTS
Performance Units shall be granted to such Participants as the
Committee shall determine. (See Appendix A for a list of current
Participants.) If any Performance Units awarded under the Plan shall be
forfeited or canceled such Performance Units may again be awarded under
the Plan. Performance Units and fractional Performance Units, as
necessary, shall be granted annually in an amount equal to the
difference between (a) and (b) below:
(a) The ESOP Contribution, inclusive of Dividend
Equivalents, which would have been allocated to the
ESOP Account of the Participant for the Plan Year,
without giving effect to the $200,000 limitation (or
subsequently indexed amount) on compensation imposed
by the Code on the ESOP;
<PAGE>
LESS
(b) The amount of the ESOP Contribution actually
allocated to the ESOP Account of the Participant for
the Plan Year; and based on the Performance Unit
valuation set forth in Section 8 of the Plan. These
grants shall be subject to such terms and conditions,
in addition to the terms and conditions set forth in
the Plan, as the Committee shall determine.
5. PERFORMANCE UNITS
Performance Units granted to a Participant shall be earned and
credited annually to the Account of the Participant in accordance with
completion of each full Fiscal Year. Dividend Equivalents will be
credited quarterly. The Account of a Participant shall be the record of
Performance Units granted to him under the Plan, is solely for
accounting purposes and shall not require a segregation of any Company
assets. Each Performance Unit shall be valued by the Committee, in the
manner provided in Section 8, as of the date of grant thereof. Each
annual grant of Performance Units under the Plan to a Participant and
the value of such Performance Units as of the date of grant shall be
communicated by the Committee in writing to the Participant within
thirty (30) days after the date of grant.
6. MATURITY OF PERFORMANCE UNITS
6.1. Performance Units granted to a Participant shall mature
immediately upon award, but shall be subject to forfeiture
pursuant to the provisions of Section 7.4.
7. PAYMENT FOR PERFORMANCE UNITS
7.1. Upon termination of employment of a Participant with the
Company for any reason (other than as set forth in Section
7.4), the Participant shall be entitled to receive from the
Company an amount equal to the value (as determined by the
Committee pursuant to Section 8) of each Performance Unit in
the Participant's Account as of the date of termination of his
employment with the Company.
7.2. Payment to a Participant of the amount set forth in paragraph
7.1 above for Performance Units shall be made in Stock, and,
either in a lump sum or in annual installments over a period
of not more than fifteen years beginning up to two years after
departure from the Company. The Participant must elect a
manner of payment no later than January 31, 1998. If the
election is not received by the Company on or before such
time, the election will not be effective until the first day
of the following calendar year.
<PAGE>
Notwithstanding the foregoing, a Participant may make a new
election concerning selection of the time and form of payment
authorized pursuant to this Section 7.2 (the "New Election")
in accordance with the following terms and conditions, unless
waived or modified by the Committee:
(a) A New Election shall only be permitted twice and must
be made and become effective as hereinafter provided,
if at all, prior to a Participant's termination of
employment with the Company for any reason
whatsoever;
(b) A New Election shall be effective at the beginning of
the calendar year following the date of the New
Election; and
(c) If any of the events set forth in Section 7.1 of the
Plan occur prior to the effective date of a New
Election with respect to previously credited
allocations, then payments shall be paid hereunder to
or with respect to the Participant according to the
terms of any old or prior elections that were
effective or, if no effective prior election exists,
shall be made in annual installments over a period of
fifteen years beginning up to two years after
departure from the Company.
7.3. Hardship Distributions.
7.3.1. A Participant may receive a hardship distribution
from his or her Account if the Committee determines
that such hardship distribution is for a purpose
described in Section 7.3.2 and the conditions in
Section 7.3.3 have been fulfilled. To receive such a
distribution, the Participant must file a written
hardship distribution application with the Committee
and furnish such documentation as the Committee may
require. In the application, the Participant shall
specify the basis for the distribution and the dollar
amount to be distributed. If such hardship
distribution is approved by the Committee,
distribution shall be made as soon as
administratively feasible following the approval of a
completed application by the Committee and such
hardship distribution shall be made in a lump sum
payment. The amount of each hardship distribution
shall be taken from the portion of the Account
attributable to the earliest enrollment (including
related earnings) first.
7.3.2. Hardship distributions shall be allowed under Section
7.3.1 only if the Participant establishes that the
hardship distribution is to be made on account of an
immediate and heavy financial need of the Participant
for which the Participant does not have other
available resources.
<PAGE>
7.3.3. The amount of the hardship distribution shall not
exceed the amount of the Participant's proven
immediate and heavy financial need. A hardship
distribution shall not be made after the death of the
Participant. The amount of approved hardship
distribution shall not exceed the value of the
Account.
7.4. A Participant or Beneficiary will receive a distribution of
his or her Account if a Change of Control has occurred.
Distribution of the entire Account shall be made within 30
days of the Change of Control. Such distribution shall be made
in a lump sum cash payment.
7.5. Acceleration of Payments.
7.5.1. A Participant or Beneficiary who is receiving
installments may receive an accelerated payment of
his or her entire Account (after reduction for the
forfeiture described in Section 7.4.2). To receive
such an accelerated payment, the Participant or
Beneficiary must file a written payment application
with the Committee. Payment of the accelerated
payment (after reduction for the forfeiture described
in Section 7.4.2) shall be made as soon as
administratively feasible following the approval of a
completed application by the Committee. Such
accelerated payment shall be made in a lump sum
payment. The amount of the accelerated payment shall
be equal to the value of the Account as of such
distribution date (after reduction for the forfeiture
described below).
7.5.2. Upon the approval of an accelerated payment, there
shall be irrevocably forfeited from the Account of
the Participant or Beneficiary an amount equal to six
percent (6%) of the Account.
7.6. If a Participant should die before distribution of the full
amount of his Account has been made to him, any remaining
amounts shall be distributed to the beneficiary and in the
method designated by the Participant in writing delivered to
the Committee prior to his death. If a Participant has not
designated a beneficiary, or method of distribution, or if no
designated beneficiary is living on the date of distribution,
such amounts shall be distributed to those persons entitled to
receive distributions of the Participant's accounts under the
ESOP and in the same method as distribution is made under the
ESOP.
7.7. Notwithstanding any other provision of the Plan, all rights to
any payments hereunder to a Participant will be discontinued
and forfeited, and the Company will have no further obligation
hereunder to such Participant, if any of the following
circumstances occur:
<PAGE>
(a) The Participant is discharged from employment with
the Company for cause;
(b) The Participant engages in competition with the
Company during, or within two years following his
termination of employment with the Company, or
(c) The Participant performs acts of willful malfeasance
or gross negligence in a matter of material
importance to the Company.
7.8. The Committee shall have sole discretion with respect to the
application of the provisions of this Section 7 and such
exercise of discretion shall be conclusive and binding upon
the Participant, and all other persons.
7.9. All payments of Stock under this Plan shall be made using
either shares held in the Treasury of the Company or shares
purchased in the open market by the Company.
8. VALUATION OF PERFORMANCE UNITS
8.1. For all purposes of the Plan, the value of a Performance Unit
on a date of grant pursuant to Section 5 will be an amount
equal to $17.50 per unit (subject to stock splits), until such
time as the Plan changes or is terminated. Any fractional
Performance Units granted shall be valued at a prorated amount
equal to $17.50 multiplied by the fraction of a Performance
Unit represented thereby, until such time as the Plan changes
or is terminated.
8.2. For all purposes of the Plan, the value of Performance Unit
upon termination of employment pursuant to Section 7 will be
an amount equal to the average market value of Company stock
as of the close of business for the ten business days
coincident with and immediately preceding the participant's
termination date (including any allocation to the
participant's account made after termination for services
rendered before termination). Any fractional Performance Units
shall be accounted for by multiplying the portion of a
Performance Unit which they represent by the fair market value
noted above.
9. (INTENTIONALLY OMITTED)
10. CHANGES IN CAPITAL AND CORPORATE STRUCTURE
In the event of any change in the outstanding shares of common
stock of the Company by reason of an issuance of additional shares,
recapitalization, reclassification, reorganization, stock split,
reverse stock split, combination of shares, stock dividend or similar
transaction, the Committee shall proportionately adjust, in an
equitable manner, the number of Performance Units held by Participants
under the Plan. The foregoing
<PAGE>
adjustment shall be made in a manner that will cause the relationship
between the aggregate appreciation in outstanding common stock and
earnings per share of the Company and the increase in value of each
Performance Unit granted hereunder to remain unchanged as a result of
the applicable transaction.
11. NONTRANSFERABILITY
Performance Units granted under the Plan, and any rights and
privileges thereto, may not be transferred, assigned, pledged or
hypothecated in any manner, by operation of law or otherwise, other
than by will or by the laws of descent and distribution, and shall not
be subject to execution, attachment or similar process.
12. WITHHOLDING
The Company shall have the right to deduct from all amounts
paid pursuant to the Plan any taxes required by law to be withheld with
respect to such awards.
13. VOTING AND DIVIDEND RIGHTS
No Participant shall be entitled to any voting rights with
respect to the Performance Units of the Company. Each Participant shall
be entitled to have his Account credited or increased as a result of
any dividends or other distribution with respect to the Stock of the
Company (each such credit being referred to herein as a "Dividend
Equivalent"). Dividend Equivalents shall be equal to a) the value of
the dividends which would have been awarded to a participant had such
participant been the owner of record on the dividend payment dates with
respect thereto of the number of shares of Stock equal to the number of
Performance Units then credited to his Account, divided by b) the fair
market value of the Stock on the actual record date.
14. REORGANIZATION
In the event of a reorganization, merger or consolidation of
the Company with one or more corporations in which the Company is not
the surviving corporation or in the event a change in management shall
have, in the sole opinion of the Committee, occurred, any Plan Year in
progress shall be declared complete and the Performance Units for such
year granted. The balance in each Participant's Account following this
award shall then be paid within 30 days of the Committee's declaration.
15. MISCELLANEOUS PROVISIONS
15.1. No employee or other person shall have any claim or right to
be granted an award under the Plan. Neither the Plan nor any
action taken hereunder shall be construed as giving any
employee any right to be retained in the employ of the
Company.
<PAGE>
15.2. No Participant or other person shall have any interest in any
particular assets of the Company by reason of the right to
receive a benefit under the Plan and any such Participant or
other person shall have only the rights of a general unsecured
creditor of the Company with respect to any rights under the
Plan. The Company shall be entitled, at the discretion of the
Committee, to establish a "rabbi trust" to hold assets of the
Company payable to Participants hereunder for the benefit of
such participants.
15.3. The Plan shall be construed and administered under the laws of
the State of Minnesota.
15.4. If any person entitled to a distribution under the Plan is
deemed by the Company to be incapable of personally receiving
and giving a valid receipt for such payment, then unless and
until claim therefor shall have been made by a duly appointed
guardian or other legal representative of such person, the
Company may provide for such payment or any part thereof to be
made to any other person or institution then contributing
toward or providing for the care and maintenance of such
person. Any such payment shall be a payment for the account of
such person and a complete discharge of any liability of the
Company and the Plan therefor.
15.5. Each Participant shall keep the Company informed of his
current address and the current address of his designated
beneficiary. The Company shall not be obligated to search for
the whereabouts of any person. If the location of a
Participant is not made known to the Company within three (3)
years after the date on which payment of the Participant's
Account may first be made, payment may be made as though the
Participant had died at the end of the three-year period had
elapsed, or, within three years after the actual death of a
Participant, the Company is unable to locate any designated
beneficiary of the Participant, then the Company shall have no
further obligation to pay any benefit hereunder to such
Participant or designated beneficiary and such benefit shall
be irrevocably forfeited.
15.6. Notwithstanding any of the preceding provisions of the Plan,
neither the Company nor any individual acting as employee or
agent of the Company shall be liable to any Participant,
former Participant or other person for any claim, loss,
liability or expense incurred in connection with the Plan.
15.7. Except when otherwise required by the context, any masculine
terminology in this document shall include the feminine, and
any singular terminology shall include the plural.
<PAGE>
16. AMENDMENT OF THE PLAN
The Board may alter or amend the Plan from time to time
without obtaining the approval of the stockholders of the Company. No
amendment to the Plan may alter, impair or reduce the number of
Performance Units granted under the Plan prior to the effective date of
such amendment without the written consent of any affected Participant.
17. EFFECTIVENESS AND TERMS OF PLAN
The effective date of the Plan shall be August 1, 1990. The
Committee may at any time terminate the Plan. No Performance Units
shall be granted pursuant to the Plan after the date of termination of
the Plan, although after such date payments shall be made with respect
to Performance Units granted prior to the date of termination.
EXHIBIT 10.Q
DONALDSON COMPANY, INC.
DEFERRED COMPENSATION AND 401(k) EXCESS PLAN
First Effective December 21, 1997
<PAGE>
DONALDSON COMPANY, INC.
DEFERRED COMPENSATION AND 401(k) EXCESS PLAN
TABLE OF CONTENTS
PAGE
SECTION 1. ESTABLISHMENT AND PURPOSE.......................................1
1.1. Establishment
1.2. Purpose
SECTION 2. DEFINITIONS.....................................................2
2.1. Account
2.2. Affiliate
2.3. Beneficiary
2.4. Board
2.5. Change of Control
2.6. Code
2.7. Committee
2.8. Company
2.9. Company Credit
2.10. Deferral Credit
2.11. Disability
2.12. Effective Date
2.13. Eligible Employee
2.14. ERISA
2.15. ESOP
2.16. Fixed Matching Credit
2.17. 401(k) Plan
2.18. Participant
2.19. Plan
2.20. Plan Year
2.21. Profit Sharing Credit
2.22. Recognized Compensation
2.23. Valuation Date
2.24. Variable Credit
2.25. Vested
2.26. Year of Service
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<PAGE>
SECTION 3. ELIGIBILITY AND PARTICIPATION...................................7
3.1. Eligibility
3.2. Commencement of Participation
3.3. Termination of Participation
3.4. Overriding Exclusion
SECTION 4. DEFERRED COMPENSATION AMOUNTS...................................8
4.1. Salary Deferral Credits
4.2. Bonus Deferral Credits
4.3. Excess Deferral Credits
4.4. Company Credits
4.5. Vesting
SECTION 5. TIME AND MANNER OF PAYMENTS....................................10
5.1. Time of Payment
5.2. Manner of Payment
5.3. Changes in Time and Manner of Payment
5.4. Hardship Distributions
5.4.1. When Available
5.4.2. Purposes
5.4.3. Limitations
5.5. Change in Control Distributions
5.6. Acceleration of Payments
5.6.1. When Available
5.6.2. Forfeiture
5.7. Death Benefit
5.8. Beneficiary Designation
SECTION 6. DEFERRED COMPENSATION ACCOUNT..................................13
6.1. Participant Accounts
6.2. Investment of Accounts
6.3. Assumption of Risk
6.4. Charges Against Accounts
SECTION 7. FUNDING........................................................14
7.1. Funding
7.2. Corporate Obligation
SECTION 8. FORFEITURE OF BENEFITS.........................................15
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<PAGE>
SECTION 9. ADMINISTRATION.................................................16
9.1. Authority
9.2. Liability
9.3. Procedures
9.4. Claim for Benefits
9.5. Claims Procedure
9.5.1. Original Claim
9.5.2. Claims Review Procedure
9.5.3. General Rules
9.6. Payments upon Imposition of Federal or State Taxes
9.7. Legal Fees
9.8. Errors in Computations
SECTION 10. MISCELLANEOUS..................................................19
10.1. Not an Employment Contract
10.2. Nontransferability
10.3. Tax Withholding
10.4. Expenses
10.5. Governing Law
10.6. Amendment and Termination
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<PAGE>
DONALDSON COMPANY, INC.
DEFERRED COMPENSATION AND 401(K) EXCESS PLAN
SECTION 1
ESTABLISHMENT AND PURPOSE
1.1. ESTABLISHMENT. Effective as of December 21, 1997, Donaldson Company, Inc.
hereby establishes an unfunded supplemental deferred compensation plan for a
select group of highly compensated employees known as the "DONALDSON COMPANY,
INC. DEFERRED COMPENSATION AND 401(k) EXCESS PLAN."
1.2. PURPOSE. The purposes of this Plan are to enable the Company to supplement
the benefits for a select group of management or highly compensated employees
under the Donaldson Company, Inc. Retirement Savings Plan which will be reduced
because of the compensation limitation under section 401(a)(17) of the Code; to
provide a means whereby certain amounts payable by the Company to a select group
of management or highly compensated employees may be deferred to some future
period; and to attract and retain certain executive employees of outstanding
competence.
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<PAGE>
SECTION 2
DEFINITIONS
The following words and phrases shall have the following meanings, unless a
different meaning is plainly required by the context. Any masculine terminology
used in the Plan shall also include the feminine gender and the definition of
any terms in the singular shall also include the plural.
2.1. ACCOUNT -- the deferred compensation account established under this Plan
for a Participant pursuant to Section 6.1.
2.2. AFFILIATE -- a business entity which is under "common control" with the
Company or which is a member of an "affiliated service group" that includes the
Company, as those terms are defined in section 414(b), (c) and (m) of the Code.
A business entity shall also be treated as an Affiliate if, and to the extent
that, such treatment is required by regulations under section 414(o) of the
Code. In addition to said required treatment, the Committee may, in its
discretion, designate as an Affiliate any business entity which is not such a
"common control" or "affiliated service group" business entity but which is
otherwise affiliated with the Company, subject to such limitations as the
Committee may impose.
2.3. BENEFICIARY -- any person or entity validly designated by the Participant
in accordance with Section 3 to receive the benefits, if any, payable from the
Participant's Account after the Participant's death. Designated persons or
entities shall not be considered Beneficiaries until the death of the
Participant.
2.4. BOARD -- the Board of Directors of the Company.
2.5. CHANGE OF CONTROL -- a "Change in Control" of Donaldson shall have occurred
if (i) any "person," as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") (other than
Donaldson, any trustee or other fiduciary holding securities under an employee
benefit plan of Donaldson or any corporation owned, directly or indirectly, by
the shareholders of Donaldson in substantially the same proportions as their
ownership of stock of Donaldson), either is or becomes the "beneficial owner"
(as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of Donaldson representing 30% or more of the combined voting power of
Donaldson's then outstanding securities, (ii) during any period of two
consecutive years (not including any period prior to the effective date of this
Plan), individuals who at the beginning of such period constitute the Board of
Directors of Donaldson (the "Board"), and any new director (other than a
director designated by a person who has entered into an agreement with Donaldson
to effect a transaction described in clause (i), (iii) or (iv) of this
subparagraph) whose election by the Board or nomination for election by
Donaldson's shareholders was approved by a vote of at least two-thirds (2/3) of
the directors then still in office who either were directors at the beginning of
the period or whose election or nomination for election was previously so
approved, cease for any reason to constitute at least a majority thereof unless
the approval of the election or
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<PAGE>
nomination for election of such new directors was in connection with an actual
or threatened election or proxy contest, (iii) the shareholders of Donaldson
approve a merger or consolidation of Donaldson with any other corporation, other
than (A) a merger or consolidation which would result in the voting securities
of Donaldson outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or being converted into voting securities of
the surviving entity) more than 80% of the combined voting power of the voting
securities of Donaldson or such surviving entity outstanding immediately after
such merger or consolidation or (B) a merger or consolidation effected to
implement a recapitalization of Donaldson (or similar transaction) in which no
"person" (as hereinabove defined) acquires more than 30% of the combined voting
power of Donaldson's then outstanding securities or (iv) the shareholders of
Donaldson approve a plan of complete liquidation of Donaldson or an agreement
for the sale or disposition by Donaldson of all or substantially all of
Donaldson's assets or any transaction having a similar effect (the date upon
which an event described in clause (i), (ii), (iii) or (iv) of this paragraph
occurs shall be referred to herein as an "Acceleration Date").
2.6. CODE -- the Internal Revenue Code of 1986, including applicable regulations
for the specified section of the Code. Any reference in this Plan Statement to a
section of the Code, including the applicable regulation, shall be considered
also to mean and refer to any subsequent amendment or replacement of that
section or regulation.
2.7. COMMITTEE -- the Human Resources Committee of the Board of Directors of the
Company.
2.8. COMPANY -- Donaldson Company, Inc., or any successor by merger, purchase or
otherwise.
2.9. COMPANY CREDIT -- any amount credited to an Eligible Employee in accordance
with Section 4.4. Company Credits include Fixed Matching Credits, Variable
Credits and Profit Sharing Credits.
2.10. DEFERRAL CREDIT -- any amount credited to an Eligible Employee in
accordance with Sections 4.1, 4.2 or 4.3.
2.11. DISABILITY -- a medically determinable physical or mental impairment
which: (i) renders the individual incapable of performing any substantial
gainful employment, (ii) can be expected to be of long-continued and indefinite
duration or result in death, and (iii) is evidenced by a certification to this
effect by a doctor of medicine approved by the Committee. In lieu of such a
certification, the Committee may accept, as proof of Disability, the official
written determination that the individual will be eligible for disability
benefits under the federal Social Security Act as now enacted or hereinafter
amended (when any waiting period expires). The Committee shall determine the
date on which the Disability shall have occurred if such determination is
necessary.
2.12. EFFECTIVE DATE -- December 21, 1997.
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<PAGE>
2.13. ELIGIBLE EMPLOYEE -- for purposes of Sections 4.1, 4.2 and 4.3, the
officers of the Company who are selected by the Committee as provided in Section
3; for purposes of Section 4.3 only, any executive employee of the Company or
its Affiliates whose rate of Recognized Compensation for the Plan Year exceeds
the annual compensation limit then in effect under Code section 401(a)(17), and
who is selected by the Committee as provided in Section 3.
2.14. ERISA -- the Employee Retirement Income Security Act of 1974, including
applicable regulations for the specified section of ERISA. Any reference in this
Plan to a section of ERISA, including the applicable regulation, shall be
considered also to mean and refer to any subsequent amendment or replacement of
that section or regulation.
2.15. ESOP -- the tax-qualified, stock bonus plan known as the "Donaldson
Company, Inc. Employee Stock Ownership Plan (1987 Restatement)."
2.16. FIXED MATCHING CREDIT -- any amount credited to an Eligible Employee in
accordance with Section 4.4(a).
2.17. 401(k) PLAN -- the tax-qualified, profit sharing plan known as the
"Donaldson Company, Inc. Retirement Savings Plan (1987 Restatement)."
2.18. PARTICIPANT -- an Eligible Employee or a former Eligible Employee of the
Company or its Affiliates who has any amount credited to his or her Account in
this Plan.
2.19. PLAN -- the Donaldson Company, Inc. Deferred Compensation and 401(k)
Excess Plan as set forth herein, and as the same may be amended from time to
time.
2.20. PLAN YEAR -- the twelve (12) consecutive month period ending on any July
31.
2.21. PROFIT SHARING CREDIT -- any amount credited to an Eligible Employee in
accordance with Section 4.4(c).
2.22. RECOGNIZED COMPENSATION -- for purposes of section 4.3 of the Plan, wages,
tips and other compensation paid to the Participant by the Employer and
reportable in the box designated "wages, tips, other compensation" on Treasury
Form W-2 (or any comparable successor box or form) for the applicable period but
determined without regard to any rules that limit the remuneration included in
wages based on the nature or location of the employment or the services
performed (such as the exception for agricultural labor in section 3401(a)(2) of
the Code) and further determined without regard to any amounts paid or
reimbursed by the Employer for moving expenses incurred by the Participant (but
only to the extent that at the time of the payment it is reasonable to believe
that these amounts are deductible by the Participant under section 217 of the
Code); subject, however, to the following:
(a) INCLUDED ITEMS. In determining a Participant's Recognized
Compensation there shall be included elective contributions
made by the Employer on behalf
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<PAGE>
of the Participant that are not includible in gross income
under sections 125, 402(e)(3), 402(h), 403(b), 414(h)(2) and
457 of the Code including elective contributions authorized by
the Participant under a Retirement Savings Agreement, a
cafeteria plan or any other qualified cash or deferred
arrangement under section 401(k) of the Code.
(b) EXCLUDED ITEMS. In determining a Participant's Recognized
Compensation there shall be excluded all of the following: (i)
reimbursements or other expense allowances including foreign
service allowances, station allowances, foreign tax
equalization payment and other similar payments, (ii) welfare
and fringe benefits (both cash and noncash) including
third-party sick pay (i.e., short-term and long-term
disability insurance benefits), income imputed from insurance
coverages and premiums, employee discounts and other similar
amounts, payments for vacation or sick leave accrued but not
taken, final payments on account of termination of employment
(i.e., severance payments) and settlement for accrued but
unused vacation and sick leave, (iii) moving expenses, and
(iv) deferred compensation (both when deferred and when
received).
(c) ATTRIBUTION TO PERIODS. A Participant's Recognized
Compensation shall be considered attributable to the period in
which it is actually paid and not when earned or accrued;
provided, however, amounts earned but not paid in a Plan Year
because of the timing of pay periods and pay days may be
included in the Plan Year when earned if these amounts are
paid during the first few weeks of the next Plan Year, the
amounts are included on a uniform and consistent basis with
respect to all similarly situated Participants and no amount
is included in more than one Plan Year.
(d) EXCLUDED PERIODS. Amounts received after the Participant's
termination of employment shall not be taken into account in
determining a Participant's Recognized Compensation.
(e) MULTIPLE EMPLOYERS. If a Participant is employed by more than
one Employer in a Plan Year, a separate amount of Recognized
Compensation shall be determined for each Employer.
2.23. VALUATION DATE -- each July 31 and each other day that the New York Stock
Exchange is open and conducting business, or such other date or dates as the
Committee may establish.
2.24. VARIABLE CREDIT -- any amount credited to an Eligible Employee in
accordance with Section 4.4(b).
2.25. VESTED -- nonforfeitable.
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<PAGE>
2.26. YEAR OF SERVICE -- a one year period of employment with the Company in
which the Participant completes at least 1,000 hours of service.
-6-
<PAGE>
SECTION 3
ELIGIBILITY AND PARTICIPATION
3.1. ELIGIBILITY. Any officer of the Company who is affirmatively selected by
the Committee shall be an Eligible Employee and may participate under the Plan
for purposes of Sections 4.1, 4.2 and 4.3 until the earlier of: (1) termination
from employment with the Company, or (2) transfer to a non-officer position with
the Company or its Affiliates. Any executive employee of the Company or its
Affiliates whose rate of Recognized Compensation for the Plan Year exceeds the
annual compensation limit then in effect under Code section 401(a)(17), and who
is affirmatively selected by the Committee, shall be an Eligible Employee for
that Plan Year and may participate under the Plan for purposes of Section 4.3.
The Committee may rescind its selection and discontinue an employee's or
officer's active participation in the Plan at any time.
3.2. COMMENCEMENT OF PARTICIPATION. An Eligible Employee shall become a
Participant in the Plan when the Eligible Employee is first credited with any
amount pursuant to Section 4.
3.3. TERMINATION OF PARTICIPATION. A person shall cease to be a Participant as
soon as all amounts credited to the Participant's Account have been paid in
full.
3.4. OVERRIDING EXCLUSION. Notwithstanding anything apparently to the contrary
in this Plan or in any written communication, summary, resolution or document or
oral communication, no individual shall be a Participant in this Plan, develop
benefits under this Plan or be entitled to receive benefits under this Plan
(either for the employee or his or her survivors) unless such individual is a
member of a select group of management or highly compensated employees (as that
expression is used in ERISA). If a court of competent jurisdiction, any
representative of the U.S. Department of Labor or any other governmental,
regulatory or similar body makes any direct or indirect, formal or informal,
determination that an individual is not a member of a select group of management
or highly compensated employees (as that expression is used in ERISA), such
individual shall not be (and shall not have ever been) a Participant in this
Plan at any time. If any person not so defined has been erroneously treated as a
Participant in this Plan, upon discovery of such error such person's erroneous
participation shall immediately terminate AB INITIO and upon demand such person
shall be obligated to reimburse the Company for all amounts erroneously paid to
him or her.
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<PAGE>
SECTION 4
DEFERRED COMPENSATION AMOUNTS
4.1. SALARY DEFERRAL CREDITS. An Eligible Employee may elect to have salary
which the Eligible Employee would otherwise have received and included in gross
income credited to his or her Account. Such election must comply with the rules
and limits established by the Committee and must be made by giving advance
written notice to the Company on an election form approved by the Committee.
Elections with respect to salary earned during a pay period must be received by
the Company prior to the beginning of the pay period to which the election
applies. Participant elections will remain effective until the earlier of: (i)
the time a revised election is received and becomes effective, or (ii) the
following January 1. Revised elections will take effect on the first day of the
first pay period commencing after the pay period in which the election is
received by the Company.
4.2. BONUS DEFERRAL CREDITS. An Eligible Employee may elect to have a portion of
the annual bonus which the Eligible Employee would otherwise have received and
included in gross income credited to his or her Account. Such election must
comply with the rules and limits established by the Committee and must be made
by giving advance written notice to the Company on an election form approved by
the Committee. For the Plan Year beginning August 1, 1997 and all subsequent
Plan Years, elections with respect to bonus earned during a Plan Year must be
received by the Company prior to the April 1 of the end of the Plan Year in
which the bonus was earned; provided, however, that the Committee may permit an
employee who becomes an Eligible Employee after April 1 of the Plan Year to make
an election for the remainder of that Plan Year effective with respect to
bonuses earned on or after the date the election is received.
4.3. EXCESS DEFERRAL CREDITS. An Eligible Employee may elect to have up to six
percent (6%) of Recognized Compensation which the Eligible Employee would
otherwise have received and included in gross income credited to his or her
Account. Elections under this Section 4.3 shall apply only to Recognized
Compensation earned after the Eligible Employee's Recognized Compensation for
the Plan Year has exceeded the annual compensation limit then in effect under
Code section 401(a)(17). Such election must be made by giving advance written
notice to the Company on an election form approved by the Committee. Elections
with respect to Recognized Compensation earned during a pay period must be
received by the Company prior to the beginning of the pay period to which the
election applies. Participant elections made by officers will remain effective
until a revised election is received and becomes effective.
Notwithstanding anything herein to the contrary, a Participant electing to make
deferrals under this Section 4.3 with respect to Recognized Compensation earned
during the period beginning December 21, 1997 and ending July 31, 1998 may elect
to defer up to 10.2% of Recognized Compensation earned during the period ending
July 31, 1998.
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<PAGE>
4.4. COMPANY CREDITS.
(a) FIXED MATCHING CREDITS. Any Eligible Employee who elects
Deferral Credits in lieu of receiving Recognized Compensation
shall be credited with a Fixed Matching Credit to the Eligible
Employee's Account. The amount of an Eligible Employee's Fixed
Matching Credit shall equal the amount the Eligible Employee
would have received on the deferrals made under Sections 4.1,
4.2 and 4.3, as set forth in Section 3.2 of the ESOP, if such
deferrals had been made to the 401(k) Plan, without regard to
the annual compensation limit then in effect under Code
section 401(a)(17). Notwithstanding the foregoing, any
Eligible Employee who retires either during a Plan Year or
after the end of a Plan Year in which such Eligible Employee
is a Participant in this Plan and who receives a bonus after
the end of the Plan Year that was earned in the Plan Year in
which such Eligible Employee retired shall receive a Fixed
Matching Credit of three percent (3%) of the bonus amount in
such Eligible Employee's Account. Notwithstanding the
foregoing, Fixed Matching Credits to officers who are Eligible
Employees during the Plan Year ending July 31, 1998, shall be
made at a rate determined by the Company to equal 3% of such
Eligible Employee's compensation as of July 31, 1998;
provided, however, that Fixed Matching Credits shall not be
made in an amount greater than the deferral amount elected by
such Eligible Employee.
(b) VARIABLE CREDITS. Any Eligible Employee who elects Deferral
Credits in lieu of receiving Recognized Compensation may be
credited with a Variable Credit to the Eligible Employee's
Account. The amount of an Eligible Employee's Variable Credit
shall equal the amount the Eligible Employee would have
received on the deferrals made under Sections 4.1, 4.2 and
4.3, as set forth in Section 3.3 of the ESOP, if such
deferrals had been made to the 401(k) Plan, without regard to
the annual compensation limit then in effect under Code
section 401(a)(17).
(c) PROFIT SHARING CREDITS. The Board may, in its sole discretion,
cause the Account of an Eligible Employee to be credited with
Profit Sharing Credits for a Plan Year. Such Profit Sharing
Credits shall equal the amount the Eligible Employee would
have received if the profit sharing contribution to the 401(k)
Plan for that Eligible Employee had been made without regard
to the annual compensation limit then in effect under Code
section 401(a)(17), minus the amount of profit sharing
contributions actually made to the Eligible Employee's account
in the 401(k) Plan.
4.5. VESTING. The Accounts of all Participants shall be 100% vested at all
times.
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<PAGE>
SECTION 5
TIME AND MANNER OF PAYMENTS
5.1. TIME OF PAYMENT. Payment of all or, under Section 5.1(b), a portion of the
Participant's Account under the Plan will be made as soon as administratively
feasible following the occurrence of the earliest of the following events:
(a) death, or
(b) the date of distribution selected by the Participant upon
electing to make Deferral Credits under Sections 4.1, 4.2 or
4.3.
5.2. MANNER OF PAYMENT. The portion of the Participant's Account attributable to
deferrals under Sections 4.1 or 4.2 will be paid to the Participant in either a
single lump sum payment or installments. The portion of the Participant's
Account attributable to deferrals under Section 4.3 will be paid to a
Participant in either a single lump sum payment or in installments of not more
than fifteen (15) years beginning up to two (2) years after departure from the
Company. The Participant must elect a manner of payment at the time the
Participant elects to make Deferral Credits under Sections 4.1, 4.2 or 4.3.
5.3. CHANGES IN TIME AND MANNER OF PAYMENT. Notwithstanding the foregoing, a
Participant may make a new election concerning selection of the time and form of
payment authorized pursuant to this Section 5.3 (the "New Election") in
accordance with the following terms and conditions, unless waived or modified by
the Committee:
(a) A New Election shall only be permitted twice and must be made
and become effective as hereinafter provided, if at all, prior
to a Participant's termination of employment with the Company
for any reason whatsoever;
(b) A New Election shall be effective (i) immediately upon receipt
with respect to deferrals first credited after the date the
Company receives the New Election and (ii) at the beginning of
the calendar year following the date of the New Election for
any and all deferrals previously credited to or for the
benefit of the Participant pursuant to the Plan; and
(c) If any of the events set forth in Section 5.1 of the Plan
occur prior to the effective date of a New Election with
respect to previously credited deferrals, then payments shall
be paid hereunder to or with respect to the Participant
according to the terms of any old or prior elections pursuant
to Sections 5.1 and 5.2.
-10-
<PAGE>
5.4. HARDSHIP DISTRIBUTIONS.
5.4.1. WHEN AVAILABLE. A Participant may receive a hardship
distribution from his or her Account if the Committee determines that such
hardship distribution is for a purpose described in Section 5.4.2 and the
conditions in Section 5.4.3 have been fulfilled. To receive such a distribution,
the Participant must file a written hardship distribution application with the
Committee and furnish such documentation as the Committee may require. In the
application, the Participant shall specify the basis for the distribution and
the dollar amount to be distributed. If such hardship distribution is approved
by the Committee, distribution shall be made as soon as administratively
feasible following the approval of a completed application by the Committee and
such hardship distribution shall be made in a lump sum cash payment. The amount
of each hardship distribution shall be taken from the portion of the Account
attributable to the earliest enrollment (including related earnings) first.
5.4.2. PURPOSES. Hardship distributions shall be allowed under Section
5.4.1 only if the Participant establishes that the hardship distribution is to
be made on account of an immediate and heavy financial need of the Participant
for which the Participant does not have other available resources.
5.4.3. LIMITATIONS. The amount of the hardship distribution shall not
exceed the amount of the Participant's proven immediate and heavy financial
need. A hardship distribution shall not be made after the death of the
Participant. The amount of approved hardship distribution shall not exceed the
value of the Account.
5.5. CHANGE IN CONTROL DISTRIBUTIONS. A Participant or Beneficiary will receive
a distribution of his or her entire Account if a Change in Control has occurred.
Distribution of the entire Account shall be made within 30 days of the Change in
Control. Such distribution shall be made in a lump sum cash payment.
5.6. ACCELERATION OF PAYMENTS.
5.6.1. WHEN AVAILABLE. A Participant or Beneficiary who is receiving
installments may receive an accelerated payment of his or her entire Account
(after reduction for the forfeiture described in Section 5.6.2). To receive such
an accelerated payment, the Participant or Beneficiary must file a written
payment application with the Committee. Payment of the accelerated payment
(after reduction for the forfeiture described in Section 5.6.2) shall be made as
soon as administratively feasible following the approval of a completed
application by the Committee. Such accelerated payment shall be made in a lump
sum cash payment. The amount of the accelerated payment shall be equal to the
value of the Account as of such distribution date (after reduction for the
forfeiture described below).
5.6.2. FORFEITURE. Upon the approval of an accelerated payment, there
shall be irrevocably forfeited from the Account of the Participant or
Beneficiary an amount equal to six percent (6%) of the Account. In addition, if
the Participant is an active employee at the time of the
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<PAGE>
accelerated payment, the Participant will not be an Eligible Employee under this
Plan for two (2) years following such accelerated payment.
5.7. DEATH BENEFIT. In the event of a Participant's death prior to the date on
which distribution of the Participant's Account is made, the Company shall pay
the amount of the Participant's Account as of the date of death in a lump sum or
in installments, as previously elected by the Participant, to the Participant's
designated Beneficiary as soon as administratively feasible.
5.8. BENEFICIARY DESIGNATION. A Participant shall submit to the Company before
enrollment into the Plan, and at such other times as the Participant desires, on
a form provided by the Committee, a written designation of the beneficiary or
beneficiaries to whom payment of the Participant's Account under the Plan shall
be made in the event of the Participant's death. Beneficiary designations shall
become effective only when received by the Company. Beneficiary designations
first received by the Company after the Participant's death, and any
designations in effect at the time a valid subsequent designation is received by
the Company, shall be invalid and have no effect.
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<PAGE>
SECTION 6
DEFERRED COMPENSATION ACCOUNT
6.1. PARTICIPANT ACCOUNTS. The Committee shall cause a bookkeeping account to be
kept in the name of each Participant which shall reflect the value of the
Deferral Credits and Company Credits, and any earnings thereon, credited to a
Participant. Deferral Credits shall be credited to a Participant's Account as of
the date the amounts deferred otherwise would have become due or payable.
Company Credits shall be credited at such times as the Committee shall direct.
6.2. INVESTMENT OF ACCOUNTS. Amounts credited to a Participant's Account will be
adjusted for gains and losses to the same extent that an equal amount would be
adjusted if it had been invested as directed by the Participant in the subfund
or subfunds designated by the Committee.
6.3. ASSUMPTION OF RISK. The Participant, by electing to make deferrals under
this Plan, assumes all risk in connection with any decrease in value of the
Participant's Account.
6.4. CHARGES AGAINST ACCOUNTS. There shall be charged against each Participant's
bookkeeping account any payments made to the Participant or the Participant's
Beneficiary in accordance with Section 5.
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<PAGE>
SECTION 7
FUNDING
7.1. FUNDING. The Company and its Affiliates shall be responsible for paying all
benefits due hereunder. For the purpose of facilitating the payment of benefits
due hereunder, the Company may (but shall not be required to) establish and
maintain a grantor trust pursuant to an Agreement between the Company and a
trustee selected by the Company; provided, however, that any such grantor trust
must be structured so that it does not result in any federal income tax
consequences to any Participant until distributions under Section 5 are actually
received. The Company may contribute to a grantor trust thereby created such
amounts as it may from time to time determine.
7.2. CORPORATE OBLIGATION. Neither the officers nor any member of the Board of
Directors of the Company or any of its Affiliates in any way secures or
guarantees the payment of any benefit or amount which may become due and payable
hereunder to or with respect to any Participant. Each Participant and other
person entitled at anytime to payments hereunder shall look solely to the assets
of the Company and its Affiliates for such payments as an unsecured, general
creditor. Nothing herein shall be construed to give a Participant, Beneficiary
or any other person or persons any right, title, interest or claim in or to any
specific asset, fund, reserve, account or property of any kind whatsoever owned
by the Company or in which it may have any right, title or interest now or in
the future. After benefits shall have been paid to or with respect to a
Participant and such payment purports to cover in full the benefit hereunder,
such former Participant or other person or persons, as the case may be, shall
have no further right or interest in the other assets of the Company and its
Affiliates in connection with this Plan.
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<PAGE>
SECTION 8
FORFEITURE OF BENEFITS
All unpaid benefits under this Plan accrued under Section 4.4 shall be
permanently forfeited upon the determination by the Committee that the
Participant, either before or after termination of employment:
(a) engaged in criminal or fraudulent conduct resulting in a
hardship to the Company or an Affiliate; or
(b) breached the Participant's employment agreement with the
Company or an Affiliate.
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<PAGE>
SECTION 9
ADMINISTRATION
9.1. AUTHORITY. The Plan shall be administered by the Committee, which shall
have full discretionary power and authority to administer and interpret the Plan
and to determine all factual and legal questions under the Plan, including but
not limited to the entitlement of Participants and Beneficiaries, and the amount
of their respective interests.
9.2. LIABILITY. No member of the Committee and no director or member of the
management of the Company or its Affiliates shall be liable to any persons for
any actions taken under the Plan, or for any failure to effect any of the
objective or purposes of the Plan, by reason of insolvency or otherwise.
9.3. PROCEDURES. The Committee may from time to time adopt such rules and
procedures as it deems appropriate to assist in the administration of the Plan.
9.4. CLAIM FOR BENEFITS. No employee or other person shall have any claim or
right to payment of any amount hereunder until payment has been authorized and
directed by the Committee.
9.5. CLAIMS PROCEDURE. Until modified by the Committee, the claims procedure set
forth in this Section 9.5 shall be the claims procedure for the resolution of
disputes and disposition of claims arising under the Plan.
9.5.1. ORIGINAL CLAIM. Any employee, former employee, or Beneficiary of
such employee or former employee may, if the employee, former employee or
Beneficiary so desires, file with the Committee a written claim for benefits
under the Plan. Within ninety (90) days after the filing of such a claim, the
Committee shall notify the claimant in writing whether the claim is upheld or
denied in whole or in part or shall furnish the claimant a written notice
describing specific special circumstances requiring a specified amount of
additional time (but not more than one hundred eighty (180) days from the date
the claim was filed) to reach a decision on the claim. If the claim is denied in
whole or in part, the Committee shall state in writing:
(a) the specific reasons for the denial,
(b) the specific references to the pertinent provisions of this
Plan on which the denial is based,
(c) a description of any additional material or information
necessary for the claimant to perfect the claim and an
explanation of why such material or information is necessary,
and
(d) an explanation of the claims review procedure set forth in
this Section.
-16-
<PAGE>
9.5.2. CLAIMS REVIEW PROCEDURE. Within sixty (60) days after receipt of
notice that the claim has been denied in whole or in part, the claimant may file
with the Committee a written request for a review and may, in conjunction
therewith, submit written issues and comments. Within sixty (60) days after the
filing of such a request for review, the Committee shall notify the claimant in
writing whether, upon review, the claim was upheld or denied in whole or in part
or shall furnish the claimant a written notice describing specific special
circumstances requiring a specified amount of additional time (but not more than
one hundred twenty days (120) from the date the request for review was filed) to
reach a decision on the request for review.
9.5.3. GENERAL RULES.
(a) No inquiry or question shall be deemed to be a claim or a
request for a review of a denied claim unless made in
accordance with the claims procedure. The Committee may
require that any claim for benefits and any request for a
review of a denied claim be filed on forms to be furnished by
the Committee upon request.
(b) All decisions on original claims shall be made by the
Committee and requests for a review of denied claims shall be
made by the Committee.
(c) The Committee may, in its discretion, hold one or more
hearings on a claim or a request for a review of a denied
claim.
(d) Claimants may be represented by a lawyer or other
representative at their own expense, but the Committee
reserves the right to require the claimant to furnish written
authorization. A claimant's representative shall be entitled
to copies of all notices given to the claimant.
(e) The decision of the Committee on an original claim or on a
request for a review of a denied claim shall be served on the
claimant in writing. If a decision or notice is not received
by a claimant within the time specified, the claim or request
for a review of a denied claim shall be deemed to have been
denied.
(f) Prior to filing a claim or a request for a review of a denied
claim, the claimant or the claimant's representative shall
have a reasonable opportunity to review a copy of this Plan
Statement and all other pertinent documents in the possession
of the Company and its Affiliates.
9.6. PAYMENTS UPON IMPOSITION OF FEDERAL OR STATE TAXES. If any Participant is
determined to be subject to federal or state income tax on any amount accrued on
his or her behalf under this Plan prior to the time of payment hereunder,
federal or state taxes attributable to the amount determined to be so taxable
shall be distributed by the Plan to such Participant. An amount accrued
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<PAGE>
on his or her behalf under this Plan shall be determined to be subject to
federal income tax upon the earliest of:
(i) a final determination by the United States Internal Revenue
Service addressed to the Participant which is not appealed to
the courts;
(ii) a final determination by the United States Tax Court or any
other Federal Court affirming any such determination by the
Internal Revenue Service; or
(iii) an opinion by the Tax Counsel of the Company, addressed to the
Company that, by reason of Treasury Regulations, amendments to
the Internal Revenue Code, published Internal Revenue Service
rulings, court decisions or other substantial precedent,
amounts accrued on a Participant's behalf hereunder are
subject to federal or state income tax prior to payment.
The Company shall undertake at its sole expense to defend any tax claims
described herein which are asserted by the Internal Revenue Service or by any
state revenue authority against any Participant, including attorney fees and
costs of appeal, and shall have the sole authority to determine whether or not
to appeal any determination made by the Internal Revenue Service, by any state
revenue authority or by a lower court. The Company also agrees to reimburse any
Participant for any interest or penalties in respect of federal or state tax
claims hereunder upon receipt of documentation of same.
9.7. LEGAL FEES. If the Company does not pay the benefits required under the
terms of the Plan for reasons other than the insolvency of the Company, the
Company agrees to reimburse any Participant for all legal fees incurred in
enforcing his or her claim to benefits under the Plan.
9.8. ERRORS IN COMPUTATIONS. The Committee shall not be liable or responsible
for any error in the computation of any benefit payable to or with respect to
any Participant resulting from any misstatement of fact made by the Participant
or by or on behalf of any Beneficiary to whom such benefit shall be payable,
directly or indirectly, to the Committee, and used by the Committee in
determining the benefit. The Committee shall not be obligated or required to
increase the benefit payable to or with respect to such Participant which, on
discovery of the misstatement, is found to be understated as a result of such
misstatement of the participant. However, the benefit of any Participant which
is overstated by reason of any such misstatement or any other reason shall be
reduced to the amount appropriate in view of the truth (and to recover any prior
overpayment).
-18-
<PAGE>
SECTION 10
MISCELLANEOUS
10.1. NOT AN EMPLOYMENT CONTRACT. This Plan is not and shall not be deemed to
constitute a contract of employment between the Company and any employee or
other person, nor shall anything herein contained be deemed to give any employee
or other person any right to be retained in the Company's employ or in any way
limit or restrict the Company's right or power to discharge any employee or
other person at any time and to treat him without regard to the effect which
such treatment might have upon the employee as a Participant in the Plan.
10.2. NONTRANSFERABILITY. A Participant's rights and interest under the Plan,
including amounts payable, may not be assigned, alienated, pledged or
transferred except, in the event of a Participant's death to his Beneficiary. No
benefit payable under this Plan shall be subject to attachment, garnishment,
execution following judgment or other legal process before actual payment to the
Participant or Beneficiary.
10.3. TAX WITHHOLDING. The Company shall withhold the amount of any federal,
state or local income tax or other tax required to be withheld by the Company
under applicable law with respect to any amount payable under the Plan. The
Participant shall not be liable for any tax withholding.
10.4. EXPENSES. All expenses of administering the Plan shall be borne by the
Company.
10.5. GOVERNING LAW. Except to the extent that federal law is controlling, the
Plan shall be construed and enforced in accordance with and governed by the laws
of the State of Minnesota.
10.6. AMENDMENT AND TERMINATION. The Company reserves the power to unilaterally
amend this Plan at any time, either prospectively or retroactively or both:
(a) in any respect by resolution of its Board of Directors; and
(b) in any respect that does not materially increase the cost of
the Plan by action of the Committee (with the written
concurrence of the Chief Executive Officer of the Company).
The Committee may likewise terminate or curtail the benefits of this Plan both
with regard to persons expecting to receive benefits in the future and persons
already receiving benefits at the time of such action; provided, however, that
the Committee may not amend or terminate the Plan with respect to benefits that
have accrued and are vested pursuant to Section 4. No modification of the
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<PAGE>
terms of this Plan shall be effective unless it is in writing and signed on
behalf of the Company by a person authorized to execute such writing. No oral
representation concerning the interpretation or effect of this Plan shall be
effective to amend the Plan.
Date: 12-19-97 DONALDSON COMPANY, INC.
By /s/ William Van Dyke
-----------------------------------
Chief Executive Officer
-20-
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<ARTICLE> 5
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<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> JAN-31-1998
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0
0
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