SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[x] Annual report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended July 31, 1998 or
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 (No Fee Required) 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 No.)
1400 West 94th Street, Minneapolis, Minnesota 55431
- --------------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (612) 887-3131
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
------------------- -------------------
Common Stock, $5 Par Value New York Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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 (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes _X_ No ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.[ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of September 25, 1998 was $736,424,514.
The shares of common stock outstanding as of September 25, 1998 were 47,587,174.
Documents Incorporated by Reference
-----------------------------------
Portions of the 1998 Annual Report to Shareholders of the registrant are
incorporated by reference in Parts I and II, as specifically set forth in Parts
I and II.
Portions of the Proxy Statement for the 1998 annual shareholders meeting are
incorporated by reference in Part III, as specifically set forth in Part III.
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PART I
Item 1. BUSINESS
GENERAL
Donaldson Company, Inc. ("Donaldson" or the "Company") was founded in 1915
and organized in its present corporate form under the laws of the State of
Delaware in 1936.
The Company is a worldwide manufacturer of air filters, liquid filters and
exhaust and emission control products and accessories for heavy duty mobile
equipment; in-plant air cleaning systems; air intake systems and exhaust
products for industrial gas turbines; and specialized filters for diverse
applications. The Company has one industry segment which consists of the design,
manufacture and sale of products to filter air, sound and liquid. Its principal
products are distributed through multiple channels. The Company has customer
relationships with original equipment manufacturers (OEMs) worldwide for selling
first-fit air intake, exhaust and liquid filtration systems. Sales of
aftermarket replacement products are through OEM dealers and independent
wholesalers/distributors. In-plant air cleaning systems include dust, fume and
mist collectors typically found in manufacturing, production and assembly plants
and are sold to end-users worldwide. Gas turbine products include static and
pulse-clean air filter systems, replacement filters, inlet-exhaust silencers,
evaporative coolers, chiller coils, inlet heating and anti-icing systems. Sales
are made through customer relationships with gas turbine manufacturers and
direct sales of replacement parts to end-users. Specialized filter products for
computer disk drives, aircraft cabins, industrial and hospital clean rooms,
business machines, room air cleaners and other industrial applications are sold
through customer relationships with OEMs and end-users for specific applications
and/or markets.
The table below shows the percentage of total net sales contributed by the
principal classes of similar products for each of the last three fiscal years:
Year Ended July 31
1998 1997 1996
---- ---- ----
Air cleaners, filtration
devices and accessories 66% 66% 67%
Acoustical products 11% 11% 11%
Other 23% 23% 22%
COMPETITION
The Company's business is not considered to be seasonal. Principal methods
of competition are price, geographic coverage, service and product performance.
The Company operates in a highly competitive environment. The Company estimates
it has more than 20 competitors in the sale of filtration products worldwide and
less than 10 competitors in the sale of acoustical products worldwide.
RAW MATERIALS
The Company experienced no significant or unusual problems in the purchase
of raw materials or commodities. Donaldson has more than one source of raw
materials essential to its business. The Company is not required to carry
significant amounts of inventory to meet rapid delivery demands or secure
supplier allotments.
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PATENTS AND TRADEMARKS
The Company owns various patents and trademarks which it considers in the
aggregate to constitute a valuable asset. However, it does not regard the
validity of any one patent or trademark as being of material importance.
MAJOR CUSTOMER
Sales to Caterpillar, Inc. and subsidiaries ("Caterpillar") accounted for 11
percent, 11 percent and 12 percent of net sales in 1998, 1997 and 1996,
respectively. Caterpillar has been a customer of the Company for many years and
it purchases several models and types of products for a variety of applications.
Sales to the U.S. Government do not constitute a material portion of the
Company's business.
BACKLOG
At August 31, 1998, the backlog of orders expected to be delivered within 90
days was $139,749,000. The 90 day backlog at August 31, 1997 was $163,682,000.
RESEARCH AND DEVELOPMENT
During 1998 the Company spent $23,509,000 on research and development
activities relating to the development of new products or improvements of
existing products or manufacturing processes. The Company spent $17,288,000 in
1997 and $15,906,000 in 1996 on research and development activities. Essentially
all commercial research and development is Company-sponsored.
ENVIRONMENTAL MATTERS
The Company does not anticipate any material effect on its capital
expenditures, earnings or competitive position due to compliance with government
regulations involving environmental matters.
EMPLOYEES
The Company employed 6,867 persons in worldwide operations as of July 31,
1998.
GEOGRAPHIC AREAS
Note H of the Notes to Consolidated Financial Statements on page 24 in the
1998 Annual Report to Shareholders contains information regarding the Company's
geographic areas and is incorporated herein by reference.
Item 2. PROPERTIES
The Company's principal office and research facilities are located in
Bloomington, a suburb of Minneapolis, Minnesota. European administrative and
engineering offices are located in Leuven, Belgium.
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Manufacturing activities are carried on in thirteen plants in the
United States, two in Japan and Mexico and one each in Australia, France, United
Kingdom, Hong Kong, South Africa, Italy, Belgium, India, China and Germany. The
back cover of the 1998 Annual Report to Shareholders lists U.S. plant locations
and is incorporated herein by reference. Note H on page 24 of the 1998 Annual
Report to Shareholders presents identifiable assets by geographic area and is
incorporated herein by reference.
The Company is a lessee under several long-term leases. These leases provide
for options to purchase the facilities at the end of the lease term and have
been capitalized.
The Company's properties are considered to be suitable for their present
purposes, well maintained and in good operating condition.
Item 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings, other than ordinary routine
litigation incidental to the Company's business.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - Not applicable.
EXECUTIVE OFFICERS OF THE REGISTRANT
Current information regarding executive officers is presented below. All
terms of office are for one year. There are no arrangements or understandings
between individual officers and any other person pursuant to which he was
selected as an officer.
First Year
Elected or
Appointed
as an
Name Age Positions and Offices Held Officer
- ---- --- -------------------------- -------
William G. Van Dyke 53 Chairman, Chief Executive 1979
Officer and President
William M. Cook 45 Senior Vice President, 1994
Commercial and Industrial
James R. Giertz 41 Senior Vice President and 1994
Chief Financial Officer
Norman C. Linnell 39 General Counsel and Secretary 1996
Nickolas Priadka 52 Senior Vice President, 1989
OE Engine
Lowell F. Schwab 50 Senior Vice President, 1994
Operations
Thomas A. Windfeldt 49 Vice President, Controller 1985
and Treasurer
All of the above-named executive officers have held executive or management
positions with Registrant for more than the past five years except Mr.
Giertz who was previously Assistant Treasurer Corporate Finance for General
Motors Corporation (1995) and Treasurer of various subsidiaries of General
Motors Corporation, Mr. Linnell, who was previously a partner in the law
firm of Dorsey & Whitney LLP, and Mr. Schwab, who was previously Vice
President and General Manager of the Machinery Division of Washington
Scientific, Inc.
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<PAGE>
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The information in the sections "Quarterly Financial Information
(Unaudited)" and "NYSE Listing," on pages 25 and 28, and restrictions on payment
of dividends in Note D, page 19 of the 1998 Annual Report to Shareholders is
incorporated herein by reference. As of September 25, 1998, there were
approximately 1,702 shareholders of record of Common Stock.
The high and low sales prices for registrant's common stock for each
full quarterly period during 1998 and 1997, restated to reflect the registrant's
2-for-1 stock split effected in the form of a stock dividend issued on January
13, 1998, are as follows:
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
1997 $12 11/16-14 5/8 $14 5/16-17 $15 3/8-18 5/16 $17 3/4-20 3/8
1998 $20 5/16-27 3/16 $22 1/4-25 11/16 $22 5/8-26 3/16 $18 9/16-25 1/8
Item 6. SELECTED FINANCIAL DATA
The information for the years 1994 through 1998 on pages 26 and 27 of the
1998 Annual Report to Shareholders is incorporated herein by reference.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information set forth in the section "Management's Discussion and
Analysis" on pages 6 through 11 of the 1998 Annual Report to Shareholders is
incorporated herein by reference.
A. MARKET RISK
Market Risk disclosure as discussed under "Market Risk" and "Foreign
Currency" on page 10 of the 1998 Annual Report to Shareholders is incorporated
herein by reference.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements and Notes to Consolidated Financial
Statements on pages 12 through 25, and the Quarterly Financial Information
(Unaudited) on page 25 of the 1998 Annual Report to Shareholders is incorporated
herein by reference.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE - Not applicable.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information under the captions "Nominees For Election" and "Directors
Continuing In Office" on page 4 under the heading "Compliance With Section 16
(a) of the Securities Exchange Act of 1934" on page 17 of the Company's
definitive proxy statement dated October 14, 1998 is incorporated herein by
reference. Information about the executive officers of the Company is set forth
in Part I of this report.
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Item 11. EXECUTIVE COMPENSATION
The information under "Director Compensation" on page 5 and in the section
"Executive Compensation" on pages 10 through 12, the "Pension Plan Table" on
page 16 and under the caption "Change-in-Control Arrangements" on page 17 of the
Company's definitive proxy statement dated October 14, 1998, is incorporated
herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information in the section "Security Ownership" on page 2 of
the Company's definitive proxy statement dated October 14, 1998, is incorporated
herein by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - Not applicable.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents filed with this report:
(1) Financial Statements -
Consolidated Balance Sheets--July 31, 1998 and 1997 (incorporated by
reference from page 13 of the 1998 Annual Report to Shareholders)
Consolidated Statements of Earnings--years ended July 31, 1998, 1997
and 1996 (incorporated by reference from page 12 of the 1998 Annual
Report to Shareholders)
Consolidated Statements of Cash Flows--years ended July 31, 1998,
1997 and 1996 (incorporated by reference from page 14 of the 1998
Annual Report to Shareholders)
Consolidated Statements of Changes in Shareholders' Equity--years
ended July 31, 1998, 1997 and 1996 (incorporated by reference from
page 15 of the 1998 Annual Report to Shareholders)
Notes to Consolidated Financial Statements (incorporated by
reference from pages 16 through 25 of the 1998 Annual Report to
Shareholders)
Report of Independent Auditors (incorporated by reference from page
25 of the 1998 Annual Report to Shareholders).
(2) Financial Statement Schedules -
Schedule II Valuation and qualifying accounts
All other schedules (Schedules I, III, IV and V) for which provision
is made in the applicable accounting regulations of the Securities
and Exchange Commission are not required under the related
instruction, or are inapplicable, and therefore have been omitted.
(3) Exhibits
The exhibits listed in the accompanying index are filed as part of
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this report or incorporated by reference as indicated therein.
(b) Reports on Form 8-K
No reports on Form 8-K were filed for the three months ended July 31,
1998.
Pursuant to the requirements of Section 13 or 15(d) 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: October 29, 1998 By /s/ Norman C. Linnell
----------------------- -----------------------------
Norman C. Linnell
General Counsel and
Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the date indicated.
/s/ William G. Van Dyke Chairman, Chief Executive
- ----------------------------- Officer and President
William G. Van Dyke
/s/ James R. Giertz Senior Vice President and
- ----------------------------- Chief Financial Officer
James R. Giertz
/s/ Thomas A. Windfeldt Vice President, Controller
- ----------------------------- and Treasurer
Thomas A. Windfeldt
*F. Guillaume Bastiaens Director
- -----------------------------
F. Guillaume Bastiaens
*Paul B. Burke Director
- -----------------------------
Paul B. Burke
*Janet M. Dolan Director
- -----------------------------
Janet M. Dolan
*Jack W. Eugster Director
- -----------------------------
Jack W. Eugster
*John F. Grundhofer Director
- -----------------------------
John F. Grundhofer
*Kendrick B. Melrose Director
- -----------------------------
Kendrick B. Melrose
*S. Walter Richey Director
- -----------------------------
S. Walter Richey
*Stephen W. Sanger Director
- -----------------------------
Stephen W. Sanger
*By /s/ Norman C. Linnell Date: October 29, 1998
- ----------------------------- ----------------
Norman C. Linnell
* As attorney-in-fact
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SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
DONALDSON COMPANY, INC. AND SUBSIDIARIES
(Thousands of Dollars)
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
- ------------------------------------------------------------------------------------------------------
Additions
----------------------------
Balance at Charged to Balance at
Beginning Costs and Charged to End of
Description of Period Expenses Other Accounts(A) Deductions(B) Period
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended July 31, 1998:
Allowance for doubtful
accounts deducted from
accounts receivable $ 4,094 $ 413 $(136) $ (675) $3,696
======= ======= ====== ========= ======
Warranty Reserves $19,197 $ 7,254 $(10,355) $16,096
======= ======= ========= =======
Year ended July 31, 1997:
Allowance for doubtful
accounts deducted from
accounts receivable $ 3,695 $ 894 $(161) $ (334) $ 4,094
======= ======= ====== ========= =======
Warranty Reserves $12,750 $12,080 $ (5,633) $19,197
======= ======= ========= =======
Year ended July 31, 1996:
Allowance for doubtful
accounts deducted from
accounts receivable $ 3,957 $ 511 $(246) $ (527) $ 3,695
======= ======= ====== ======== =======
Warranty Reserves $ 6,442 $ 9,894 $(3,586) $12,750
======= ======= ======== =======
</TABLE>
Note A--Foreign currency translation losses (gains) recorded directly to equity.
Note B--Bad debts charged to allowance, net of recoveries.
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EXHIBIT INDEX
ANNUAL REPORT ON FORM 10-K
* 3-A - Certificate of Incorporation of Registrant as currently in effect
(Filed as Exhibit 3-A to Form 10-Q for the Second Quarter ended
January 31, 1998)
* 3-B - By-laws of Registrant as currently in effect (Filed as Exhibit 3-B to
1996 Form 10-K Report)
* 4 - **
* 4-A - Preferred Stock Amended and Restated Rights Agreement (Filed as
Exhibit 4.1 to Form 8-K Report Dated January 12, 1996)
* 10-A - Annual Cash Bonus Plan (Filed as Exhibit 10-A to 1995 Form 10-K
Report)***
* 10-B - Supplementary Retirement Agreement with William A. Hodder (Filed as
Exhibit 10-B to 1993 Form 10-K Report)***
* 10-C - 1980 Master Stock Compensation Plan as Amended (Filed as Exhibit 10-C
to 1993 Form 10-K Report)***
* 10-D - Form of Performance Award Agreement under 1991 Master Stock
Compensation Plan (Filed as Exhibit 10-D to 1995 Form 10-K Report)***
* 10-E - Copy of ESOP Restoration Plan as Amended and Restated (Filed as
Exhibit 10-E to Form 10-Q for the Second Quarter ended January 31,
1998)***
* 10-F - Deferred Compensation Plan for Non-employee Directors as amended
(Filed as Exhibit 10-F to 1990 Form 10-K Report)***
* 10-G - Form of "Change in Control" Agreement with key employees as amended
(Filed as Exhibit 10-G to 1990 Form 10-K Report)***
* 10-H - Independent Director Retirement and Benefit Plan as amended (Filed as
Exhibit 10-H to 1995 Form 10-K Report)***
* 10-I - Excess Benefit Plan (Filed as Exhibit 10-I to 1989 Form 10-K Report)
***
* 10-J - Copy of Supplementary Executive Retirement Plan (Filed as Exhibit
10-J to 1991 Form 10-K Report)***
10-K - 1991 Master Stock Compensation Plan as amended***
* 10-L - Form of Restricted Stock Award under 1991 Master Stock Compensation
Plan. (Filed as Exhibit 10-L to 1992 Form 10-K Report)***
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* 10-M - Form of Agreement to Defer Compensation for certain Executive
Officers (Filed as Exhibit 10-M to 1993 Form 10-K Report)***
10-N - Stock Option Program for Nonemployee Directors***
* 10-O - Salaried Employees' Pension Plan - 1997 Restatement (Filed as Exhibit
l0-0 to 1997 10-K Report)***
* 10-P - Eighth Amendment of Employee Stock Ownership Plan Trust Agreement -
1987 Restatement (Filed as Exhibit 10-P to 1997 10-K Report)***
* 10-Q - Deferred Compensation and 401(K) Excess Plan (Filed as Exhibit 10-Q
to Form 10-Q for the Second Quarter ended January 31, 1998)***
10-R - Note Purchase Agreement among Donaldson Company, Inc. and certain
listed Insurance Companies dated as of July 15, 1998.
10-S - First Supplement to Note Purchase Agreement among Donaldson Company,
Inc. and certain listed Insurance Companies dated as of August 1,
1998.
10-T - Deferred Stock Option Gain Plan***
11 - Computation of net earnings per share ("Earnings Per Share" in
"Summary of Significant Accounting Policies" in Note A, page 16 of
the 1998 Annual Report to Shareholders is incorporated herein by
reference)
13 - Portions of Registrant's Annual Report to Shareholders for the year
ended July 31, 1998
21 - Subsidiaries ("Wholly Owned Subsidiaries" and "Joint Ventures" on the
back cover of the 1998 Annual Report to Shareholders is incorporated
by reference)
23 - Consent of Independent Auditors
24 - Powers of Attorney
27 - Financial Data Schedule
* Exhibit has heretofore been filed with the Securities and Exchange
Commission and is incorporated herein by reference as an exhibit.
** Pursuant to the provisions of Regulation S-K Item 601(b)(4)(iii)(A) copies
of instruments defining the rights of holders of certain long-term debts of
Registrant and its subsidiaries are not filed and in lieu thereof
Registrant agrees to furnish a copy thereof to the Securities and Exchange
Commission upon request.
*** Denotes compensatory planor management contract.
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.
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EXHIBIT 10.K
DONALDSON COMPANY, INC.
1991 MASTER STOCK COMPENSATION PLAN
I. GENERAL
SECTION 1.01 PURPOSE OF THE PLAN.
The purpose of the 1991 Master Stock Compensation Plan is to enhance the
long-term profitability of Donaldson and shareholder value by offering stock
based incentives in addition to current compensation to those individuals who
are key to the growth and success of Donaldson.
SECTION 1.02 DEFINITIONS.
For all purposes of the Plan, the following terms shall have the meanings
assigned to them, unless the context otherwise requires:
(a) "Award" means any award described in Parts II and III.
(b) "Award Agreement" means an agreement entered into between Donaldson and
a Participant setting forth the terms and conditions applicable to the Award
granted to the Participant.
(c) "Change in 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 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 by 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
(c) occurs shall be referred to herein as an "Acceleration Date").
(d) "Committee" means the subcommittee (or subcommittees as may be
necessary) of the Human Resources Committee of the Board of Directors (the
"Board") appointed to administer the Plan and constituted so as to satisfy the
legal requirements, including any such requirements for disinterested
administration, imposed by Rule 16b-3 of the Exchange Act ("Rule 16b-3").
(e) "Common Stock" means the Common Stock of Donaldson, par value $5.00 per
share, including treasury Shares and authorized but unissued Shares or any
security of Donaldson issued in substitution, exchange or in lieu thereof.
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(f) "Donaldson" means Donaldson Company, Inc. and its Subsidiaries.
(g) "Limitation Amount" means with respect to any Plan Year, one and one
half (11/2) percent of the Outstanding Shares.
(h) "Market Value" of Common Stock as of any date means the closing sales
price on such date on the New York Stock Exchange, or if there was no sale on
that date, then, unless otherwise specifically set forth hereinafter, on the
preceding date on which a sale occurred.
(i) "Outstanding Shares" means, with respect to any Plan Year, the
outstanding Shares of Common Stock, outstanding Common Stock equivalents (as
determined by Donaldson in the calculation of earnings per share on a fully
diluted basis) and Treasury Shares as reported in the Annual Report on Form 10-K
of Donaldson for the most recent fiscal year that ends during the Plan Year.
(j) "Participant" means an individual who has been granted an Award
pursuant to the Plan.
(k) "Plan" means this 1991 Master Stock Compensation Plan.
(l) "Plan Year" means the calendar year.
(m) "Shares" means shares of Common Stock.
(n) "Subsidiary" means any corporation or other entity of which a majority
of the voting power is owned, directly or indirectly, by Donaldson, or which is
otherwise controlled by Donaldson.
SECTION 1.03 SHARES SUBJECT TO THE PLAN.
(a) Subject to adjustments authorized by Section 1.05 and the provisions of
the remaining subsections of this Section 1.03, the number of Shares with
respect to which Awards may be issued under the Plan in any Plan Year shall not
exceed the Limitation Amount; provided that any Shares with respect to which
Awards may be issued, but are not issued, under the Plan in any Plan Year shall
be carried forward and shall be available to be covered by Awards issued in any
subsequent Plan Year in which Awards may be issued under the Plan.
(b) In the event any options granted under the Plan shall terminate or
expire for any reason without having been exercised in full, the Shares not
purchased under such options shall again be available under the Plan.
(c) In the event Shares that are the subject of Awards under the Plan are
subsequently forfeited to Donaldson pursuant to the applicable restrictions or
Award Agreement, such Shares shall again be available under the Plan.
(d) If a Participant exercises a stock appreciation right, any Shares
covered by the stock appreciation right in excess of the number of Shares issued
(or, in the case of a settlement in cash or any other form of property, in
excess of the number of Shares equal in value to the amount of such settlement,
based on the Market Value of such Shares on the date of such exercise) shall
again be available under the Plan.
(e) If pursuant to the terms of the Plan a Participant uses Shares to (i)
pay a purchase or exercise price, including an option exercise price, or (ii)
satisfy tax withholding or payment requirements, such Shares shall become
available for grant under the Plan; provided, however, that such Shares shall
not become available for grant under the Plan unless the Committee determines
that this provision would be in compliance with the applicable requirements of
Rule 16b-3 and other applicable law.
(f) The Shares that again become available under the Plan pursuant to
Subsections (b), (c), and (d) above, and the Shares that become available under
the Plan pursuant to Subsection (e) above, shall be in addition to the number of
Shares authorized by Subsection (a) above.
(g) Subject to the foregoing provisions of this Section 1.03, the grant of
an Award, the payment or settlement of which may be made in Shares, shall be
deemed to be a grant of Shares equal to the greater of the number of Shares that
may be issued under the Award or the number of Shares on the basis of which the
Award is calculated. The grant of an Award that is convertible into, or
exercisable for, Shares shall be deemed to be a grant of Shares equal to the
number of Shares into which the Award is convertible or exercisable on the date
of grant. Where the value of an Award is variable on the date it is granted, the
value of the Award
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shall be deemed to be equal to the maximum limitation on the number of Shares
that may be granted or purchased under the Award. Where two or more Awards are
granted with respect to the same Shares, such Shares shall be taken into account
only once for purposes of this Section 1.03.
(h) Shares authorized or issued under any other plan or which are not
specifically issued pursuant to this Plan, shall not reduce the number of Shares
with respect to which Awards may be issued under this Plan.
SECTION 1.04 ADMINISTRATION OF THE PLAN.
The Plan shall be administered by the Committee which shall in its sole
discretion determine:
(a) the individuals to participate in the Plan;
(b) the number of Shares to be covered by Awards granted under the Plan and
the price to be paid, if any, for such Shares;
(c) the size and terms of the Awards, any performance periods and
objectives, and range of achievement percentages;
(d) the provisions governing the disposition of an Award in the event of
retirement, disability, death or other termination of a Participant's employment
or relationship to Donaldson; and
(e) the interpretation, construction and implementation of the Plan.
All determinations of the Committee shall be by a majority of its members.
Decisions and determinations by the Committee shall be final.
SECTION 1.05 ADJUSTMENTS UPON CHANGES IN CAPITALIZATION.
(a) In the event that the Committee shall determine that any dividend or
other distribution (whether in the form of cash, Shares, other securities, or
other property), extraordinary cash dividend, recapitalization, stock split,
reverse stock split, reorganization, merger, consolidation, split-up,
combination, repurchase, or exchange of Shares or other securities,
exercisability of stock purchase rights received under the rights plan, issuance
of warrants or other rights to purchase Shares or other securities, or other
similar corporate transaction or event affects the Shares with respect to which
Awards have been or may be issued under the Plan, such that an adjustment is
determined by the Committee to be appropriate in order to prevent dilution or
enlargement of the benefits or potential benefits intended to be made available
under the Plan, then the Committee, in such manner as the Committee may deem
equitable, may adjust any or all of (i) the number and type of Shares that
thereafter may be made the subject of Awards, (ii) the number and type of Shares
(or other securities or property) subject to outstanding Awards, and (iii) the
grant, purchase, or exercise price with respect to any Award, or, if deemed
appropriate, make provision for a cash payment to the holder of an outstanding
Award; provided, in each case, that with respect to incentive stock options, no
such adjustment shall be authorized to the extent that such adjustment would
cause such options to violate Section 422 of the Internal Revenue Code of 1988
as amended (the "Code") or any successor provision; and provided further, that
the number of Shares subject to any Award denominated in Shares shall always be
a whole number.
(b) In the event of a corporate merger, consolidation, acquisition of
property or stock, reorganization or liquidation, the Committee shall be
authorized to cause the Corporation to issue or to assume stock options or stock
appreciation rights, whether or not in a transaction to which Section 424(a) of
the Code applies, by means of substitution of new options or rights for
previously issued options or rights or an assumption or previously issued
options or rights, but only if and to the extent that such substitution or
assumption is consistent with the other provisions of the Plan, with the
applicable requirements of Rule 16b-3, and with any other applicable law.
SECTION 1.06 EFFECTIVE DATE.
The effective date of the Plan shall be the date upon which the Plan shall
be approved by the shareholders of Donaldson. Unless the Plan is terminated
earlier in accordance with Section 1.07 hereof, the Plan shall remain in full
force and effect until the close of business on December 31, 2001, at which time
the right to grant Awards under the Plan shall terminate automatically unless
the Shareholders of Donaldson approve an extension or renewal. Any Awards
granted under the Plan before such termination date shall continue to be
governed, thereafter, by the terms of the Plan and of the Awards.
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SECTION 1.07 AMENDMENT OR TERMINATION OF PLAN.
The Board may at any time terminate the Plan or from time to time amend or
revise the terms of the Plan or any part thereof without further action of the
shareholders; provided, however, that the Board may not amend the Plan in any
manner or by any procedure that would result in noncompliance with Rule 16b-3 or
any applicable law.
Notwithstanding any of the above, on or after the occurrence of a Change in
Control, no direct or indirect alteration, amendment, suspension, termination or
discontinuance of the Plan, no establishment or modification of rules,
regulations or procedures under the Plan, no interpretation of the Plan or
determination under the Plan, and no exercise of authority or discretion vested
in the Committee under any provision of the Plan (collectively or individually,
a "Change") shall be made if such Change(1) is not required by applicable law,
necessary to meet the requirements of Rule 16b-3, or required to preserve the
qualification of incentive stock options under the Code, and(2) would have the
effect of:
(i) eliminating, reducing or otherwise adversely affecting a Participant's,
former Participant's or beneficiary's right with respect to any Award (including
without limitation any Award previously deferred and unpaid (including any
appreciation, dividend equivalents, interest, or other earnings thereon) in
accordance with a deferral election made prior to such Change and in accordance
with any investment or payment option permitted (irrespective of any requirement
for approval) pursuant to rules, regulations or procedures in effect on the date
immediately preceding the date on which the Change in Control occurs),
(ii) altering the meaning or operation of the definition of "Change in
Control" in Section 1.02 hereof (and of the definition of all the defined terms
that appear in the definition of "Change in Control"), the provisions of this
Section 1.07 or Section 1.13 or any rule, regulation, procedure, provision or
determination made or adopted prior to the Change in Control pursuant to this
Section 1.07 or any provision in any rule, regulation, procedure, provision or
determination made or adopted pursuant to the Plan that becomes effective upon
the occurrence of a Change in Control (collectively, the "Change in Control
Provisions"), or
(iii) undermining or frustrating the intent of the Change in Control
Provisions to secure for Participants, former Participants and beneficiaries the
maximum rights and benefits that can be provided under the Plan.
Upon and after the occurrence of a Change in Control, all rights of all
Participants, former Participants and beneficiaries under the Plan (including
without limitation any rules, regulations or procedures promulgated under the
Plan) shall be contractual rights enforceable against Donaldson and any
successor to all or substantially all of the Donaldson's business or assets.
SECTION 1.08 WITHHOLDING OF TAX.
Each participant, as a condition precedent to the issuance of Shares
hereunder, shall make arrangements with Donaldson for payment or withholding of
the amount of any tax required by any government authority to be withheld and
paid by Donaldson to such government authority for the account of the
participant.
SECTION 1.09 EMPLOYMENT.
Nothing in the Plan and no grant of an Award shall be deemed to grant any
right of continued employment to a participating employee or to limit or waive
any rights of Donaldson to terminate such employment at any time, with or
without cause.
SECTION 1.10 RIGHTS AS SHAREHOLDERS.
A participating employee shall have no rights whatsoever as a shareholder
of Donaldson with respect to any Shares covered by an Award until the date of
issuance of a stock certificate pursuant to the terms of such Award.
SECTION 1.11 UNFUNDED PLAN.
The Plan shall be unfunded. Donaldson shall not be required to segregate
any assets that may at any time be represented by Awards made pursuant to the
Plan. Neither Donaldson nor the Board shall be deemed to be a trustee of any
amounts to be paid under the Plan. Any liability of Donaldson to any
Participant, former Participant or beneficiary with respect to an Award shall be
based solely upon contractual obligations created by the Plan and the Award
Agreement. No such obligation shall be deemed to be secured by any pledge of or
any encumbrance on any property of Donaldson.
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SECTION 1.12 NO FRACTIONAL SHARES.
No fractional Shares shall be issued pursuant to the Plan or any Award. The
Committee shall determine whether cash, other securities, or other property
shall be paid or transferred in lieu of fractional Shares, or whether fractional
Shares or any rights thereto shall be canceled, terminated or otherwise
eliminated.
SECTION 1.13 CHANGE IN CONTROL. IN THE EVENT OF A CHANGE IN CONTROL OF
DONALDSON:
(a) any outstanding options and stock appreciation rights granted under the
Plan not previously vested and exercisable shall become fully vested and
exercisable and shall remain exercisable thereafter until they are either
exercised or expire by their terms;
(b) performance objectives applicable to Awards granted under the Plan
shall be deemed to have been met at 100% of target then prorated on the basis of
the portion of the performance period that has expired; and
(c) the restrictions applicable to any restricted Shares awarded under the
Plan shall lapse and such Shares shall become fully vested.
II. EMPLOYEE AWARDS
SECTION 2.01
The following types of Awards may be granted under this Part II, singly or
in combination or in tandem with other Awards (or with awards under other plans
of Donaldson) as the Committee may determine. All such Awards shall be in a form
determined by the Committee provided that no Award may be inconsistent with the
terms of the Plan and must be set forth in an Award Agreement.
SECTION 2.02 GRANT OF STOCK OPTIONS.
Any employee (including officers and employee directors) regularly employed
by Donaldson shall be eligible to receive options hereunder. No option may be
granted to any employee who owns more than 5% of the Common Stock.
Options shall be evidenced by written Award Agreements. The Award
Agreements, in such form as the Committee shall from time to time approve, shall
contain the terms and conditions of such option including the following:
(a) TIME OF EXERCISE. An employee may exercise an option at such time or
times as determined by the Committee at the time of the grant; provided,
however, that all rights to exercise an incentive stock option shall expire not
more than ten years after the date such option is granted.
(b) EXERCISE PRICE. The exercise price per share of Common Stock
deliverable upon the exercise of an option shall be determined by the Committee
at the time of grant and clearly set forth in the Award Agreement; but shall not
be less than the Market Value of the Shares on the date the option is granted.
(c) EXERCISE OF OPTIONS. To exercise an option in whole or in part, the
Participant employee shall give written notice to Donaldson's Treasurer at the
principal offices of Donaldson of the exercise of the option, stating the number
of Shares with respect to which the Participant is so exercising and
accompanying such notice with full payment of the exercise price for such number
of Shares. Payment of the exercise price may be made in cash or, with the
consent of the Committee, in whole or in part through the delivery or
attestation to the ownership of Common Stock valued at the Market Value on the
day preceding the date of exercise provided that in the case of attestation, the
Shares transferred upon exercise of the option shall be net of the number of
Shares attested to. Subject to rules established by the Committee, the amount of
any tax required to be paid or withheld pursuant to Section 1.08 may be
satisfied by Donaldson withholding Shares issued on exercise having a Market
Value on the day preceding the date of exercise equal to such taxes; provided,
that the number of Shares so withheld shall be rounded up to avoid the necessity
of issuing fractional Shares.
(d) The Committee may grant "reload" options pursuant to which, subject to
the terms and conditions established by the Committee and any applicable
requirements of Rule 16b-3 or any other applicable law, the Participant would be
granted a new option when the payment of the exercise price of a previously
granted
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option is made by the delivery or attestation to ownership of Common Stock owned
by the Participant, as described in Section 2.02(c) hereof, which new option (i)
would be an option to purchase the number of Shares provided as consideration
upon the exercise of the previously granted option and (ii) would have a per
share exercise price equal to the Market Value as of the date of grant of the
new option.
SECTION 2.03 STOCK APPRECIATION RIGHTS.
The Committee may grant stock appreciation rights under the Plan. A Stock
Appreciation Right (SAR) is a right, denominated in Shares, to receive, upon
surrender of the right (or of both the right and a related option in the case of
a tandem right) in whole or in part, but without payment, an amount (payable in
Shares, in cash, or a combination thereof as the Committee shall determine) that
does not exceed the excess of the Market Value on the exercise date of the
number of Shares for which the SAR is exercised over the exercise price of such
right, which exercise price shall not be less than the Market Value for such
Shares on the date the right was granted (or, in the case of an option with
tandem SAR not less than the option price that the optionee otherwise would have
been required to pay for such Shares); provided that, in the case of any SAR
granted retroactively in tandem with or in substitution for another Award (or
any outstanding award granted under any other plan of Donaldson), the exercise
price shall not be less than the Market Value for the number of Shares for which
the SAR is exercised on the date of grant of the other Award (or award). The
exercise of SARs for cash by a Participant who is an officer or a director for
purposes of Sections 16(a) and 16(b) of the Exchange Act or any successor
thereto, shall be subject to the requirements of Rule 16b-3. Upon exercise of a
tandem SAR as to some or all of the Shares covered by the grant, the related
stock option shall be canceled automatically to the extent of the number of
Shares covered by such exercise. If a related stock option is exercised as to
some or all of the Shares covered by the grant, the tandem SAR, if any, shall be
canceled automatically to the extent of the number of Shares covered by the
stock option exercise.
SECTION 2.04 INCENTIVE STOCK OPTIONS.
At the discretion of the Committee, options granted under Section 2.02
above may be designated incentive stock options in compliance with Section 422
of the Code or any successor section, as it may be amended from time to time,
and the regulations thereunder.
Incentive stock options shall be evidenced by written Award Agreements and
may be granted only with respect to Shares of Common Stock. The aggregate number
of Shares for which incentive stock options may be granted under the Plan shall
not exceed 1,000,000 Shares of Common Stock, subject in any Plan Year to the
limitations imposed and adjustments required by Section 1.03 hereof and subject
to the adjustment provisions set forth in Section 1.05 hereof. Incentive stock
options may not be granted under the Plan after November 15, 2001.
SECTION 2.05 RESTRICTED STOCK.
The Committee may grant to any employee restricted stock, for no cash
consideration, if permitted by applicable law, or for such other consideration
as may be determined by the Committee and specified in the Award Agreement which
sets forth the Award. The terms and conditions of Awards of restricted stock
shall be determined by the Committee. Unless otherwise specified in the Award
Agreement, holders of restricted stock shall have the right to vote such Shares
and receive cash and stock dividends on such shares.
Any restricted stock issued hereunder may be evidenced in such manner as
the Committee in its sole discretion shall deem appropriate, including, without
limitation, bookentry registration or issuance of a stock certificate or
certificates, and may be held in escrow by such party as the Committee in its
sole discretion shall designate. In the event any stock certificate is issued in
respect of restricted stock granted hereunder and not held in escrow, such
certificate shall bear an appropriate legend with respect to the restrictions
applicable to such Award.
SECTION 2.06 OTHER STOCK-BASED AWARDS.
The Committee may grant Awards (other than the Awards described above)
under the Plan that consist of or are denominated in or payable in, valued in
whole or in part by reference to, or otherwise based on or related to, Shares,
provided that such grants must comply with Rule 16b-3 and other applicable law.
The Committee may subject such Awards to such restrictions on transfer and/or
such other restrictions on incidents of ownership as the Committee may
determine, provided that such restrictions must be consistent
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with the terms of the Plan. The Committee may grant Awards under this Section
2.06 that require no payment of consideration by the Participant (other than
services previously rendered or, as may be permitted by applicable law, services
to be rendered), either on the date of grant or the date any restriction(s)
thereon are removed. In addition, the Committee may grant Awards under this
Section 2.06 that provide to the Participant the right to purchase Shares,
provided that the purchase price or exercise price, if any, shall in no event be
less than the Market Value for such Shares on the date of grant; provided that,
in the case of any Award granted retroactively in tandem with or in substitution
for another Award (or any outstanding award granted unde any other plan of
Donaldson) the purchase price or exercise price, if any, shall not be less than
the Market Value on the date of grant of the other Award (or award).
SECTION 2.07 DOLLAR-DENOMINATED AWARDS.
The Committee may grant cash Awards under the Plan that are denominated in,
valued by reference to, or otherwise based on or related to, a designated dollar
amount or amounts (including dollar amounts that are determined pursuant to a
formula), as determined by the Committee, and that are determined in accordance
with the achievement of long-term performance criteria applicable to Donaldson,
a Subsidiary, division, operating unit or individual Participant, as determined
by the Committee. Awards granted pursuant to this Section 2.07 shall be payable
only in cash.
SECTION 2.08 DIVIDEND EQUIVALENTS.
The Committee may grant dividend equivalents in respect of Awards. In
respect of any such Award that is outstanding on a dividend record date for the
Shares covered by the Award, the Participant may be credited with an amount
equal to the amount of cash or stock dividends that would have been paid on the
Shares covered by the Award if the covered Shares had been issued and
outstanding on the dividend record date. Subject to the terms of the Plan and
any applicable Award Agreements, the Committee shall establish such rules and
procedures governing the crediting of dividend equivalents, including the timing
and payment contingencies that apply to the dividend equivalents, as the
Committee deems necessary or appropriate and which rules and procedures shall
comply with Rule 16b-3 and other applicable law. Dividend equivalents shall be
paid only in cash.
SECTION 2.09 NON-TRANSFERABILITY OF AWARDS.
Awards (other than Restricted Shares, the restrictions upon which have
lapsed) are not transferable by an employee other than by will or the laws of
descent and distribution. During the employee's lifetime, stock options and
stock appreciation rights may be exercised only by such employee.
Notwithstanding the above, transferability of stock option grants is permitted
with the approval of the Committee.
III. NONEMPLOYEE DIRECTOR AWARDS
SECTION 3.01 ELIGIBLE PARTICIPANTS.
Each member of the Board from time to time who is not a full time employee
of Donaldson shall be an eligible participant ("Part III Participant") for an
Award under this Part III.
SECTION 3.02 DEFERRED SHARES IN LIEU OF RETAINER OR MEETING FEES.
(a) AUTOMATIC RECEIPT OF RESTRICTED SHARES. Thirty percent (30%) of the
annual retainer payable to a Part III Participant for service on the Board shall
be payable solely by crediting to such Part III Participant's deferred stock
account (a "Deferred Stock Account") a number of Shares having a Fair Market
Value equal to 30% of such annual retainer. Such Part III Participant shall
receive the Shares held in his or her Deferred Share Account in accordance with
the terms of Section 3.09 below. The Shares shall be issued to a Part III
Participant in accordance with the election made by such Part III Participant
prior to the commencement of the service year for which services will be
rendered to the Board; provided that, if no such election is made, all such
Deferred Shares shall be deferred until such Part III Participant's retirement
from service on the Board.
(b) ELECTION TO RECEIVE ADDITIONAL RESTRICTED SHARES. Each Part III
Participant shall have the right to elect to receive up to 100% of his or her
annual retainer for services on the Board which would otherwise be payable in
cash (other than fees which have been deferred under the Company's Compensation
Plan for
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Nonemployee Directors), in the form of Shares. Any part of the annual retainer
elected to be so deferred shall be payable in Shares held in his or her Deferred
Share Account in accordance with the terms of Section 3.09 below. The number of
Shares to be credited to a Part III Participant's Deferred Stock Account
hereunder shall be determined in accordance with Section 3.02(d) of this Plan.
Such election must be made prior to the service year for which the annual
retainer is to be so deferred. Elections under this Subsection 3.02(b) shall
remain in effect from year to year until changed by the Part III Participant. No
change shall be effective until the next service year.
(c) ELECTION TO RECEIVE DEFERRED SHARES IN LIEU OF MEETING FEES. Each Part
III Participant may also elect to be credited with Shares in lieu of all or any
portion of the meeting fees otherwise payable to such Part III Participant. The
number of Shares to be credited to a Part III Participant's Deferred Stock
Account hereunder shall be determined in accordance with Section 3.02(d) of this
Plan. Such election must be made prior to the service year for which the annual
retainer is to be so deferred. Elections under this Subsection 3.02(c) shall
remain in effect from year to year until changed by the Part III Participant. No
change shall be effective until the next service year.
(d) CREDITS TO DEFERRED STOCK ACCOUNT FOR ELECTIVE DEFERRALS. On December 1
and on June 1 of each service year (each a "Credit Date"), a Part III
Participant shall receive a credit to his or her Deferred Stock Account. The
amount of the credit on December 1 shall be the number of Shares (rounded to the
nearest one-hundredth of a share) determined by dividing (i) an amount equal to
the portion of the annual retainer fees for the upcoming service year specified
for deferral pursuant to Section 3.04 and the meeting fees payable to such Part
III Participant on such Credit Date for meetings attended since the preceding
Credit Date and specified for deferral pursuant to Section 3.04, by (ii) the
Fair Market Value of one Share on such Credit Date. The amount of the credit on
June 1 shall be the number of Shares (rounded to the nearest one-hundredth of a
share) determined by dividing (i) an amount equal to the meeting fees payable to
such Part III Participant on such Credit Date for meetings attended since the
preceding Credit Date and specified for deferral pursuant to Section 3.04, by
(ii) the Fair Market Value of one Share on such Credit Date.
SECTION 3.03 ISSUANCE OF STOCK IN LIEU OF CASH.
The Company shall not issue fractional shares; however, fractional shares
will be credited to the Deferred Stock Accounts (rounded to the nearest
one-hundredth share). Whenever, under the terms of this Plan, a fractional share
would be required to be issued, an amount in lieu thereof shall be paid in cash
for such fractional share based upon the same Fair Market Value as was utilized
to determine the number of Shares to be issued on the relevant issue date.
SECTION 3.04 MANNER OF MAKING DEFERRAL ELECTION.
A Part III Participant may elect to defer payment of a portion of the
annual retainer or meeting fees pursuant to Sections 3.02(b) or (c) of this Plan
by filing, no later than November 15 of each year (or by such other date as the
Administrator shall determine), an irrevocable election with the Administrator
on a form provided for that purpose ("Deferral Election"). The Deferral Election
shall be effective with respect to the annual retainer and meeting fees payable
on or after December 1 of the following service year unless the Part III
Participant shall revoke or change the election in accordance with the procedure
set forth in Section 3.07. The Deferral Election form shall specify an amount to
be deferred expressed as a dollar amount or as a percentage of the Part III
Participant's annual retainer and/or meeting fees payment.
SECTION 3.05 DIVIDEND CREDIT.
Each time a dividend is paid on the Common Stock, a Part III Participant
shall receive a credit to his or her Deferred Stock Account equal to that number
of shares of Common Stock (rounded to the nearest one-hundredth of a share)
having a Fair Market Value on the dividend payment date equal to the amount of
the dividend payable on the number of Shares credited to the Part III
Participant's Deferred Stock Account on the dividend record date.
SECTION 3.06 FAIR MARKET VALUE.
For purposes of converting dollar amounts into shares of Common Stock, the
Fair Market Value of each share of Common Stock shall be equal to the closing
price of one share of the Company's Common Stock on
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the New York Stock Exchange-Composite Transactions on the last business day as
of which Deferred Shares are credited to the Part III Participant's Deferred
Stock Account or the date of issuance of Shares, as the case may be.
SECTION 3.07 CHANGE IN ELECTION.
Each Part III Participant may irrevocably elect in writing to change an
earlier Deferral Election, either to change the percentage of his or her annual
retainer or meeting fees to be credited in Shares to such Part III Participant's
Deferred Share Account or to receive the entire amount in cash (an "Amended
Election"). Such Amended Election shall not become effective until the December
1 following the date of receipt of such Amended Election by the Company.
SECTION 3.09 DEFERRAL PAYMENT.
(a) DEFERRAL PAYMENT ELECTION. At the time of making the Deferral Election,
each Part III Participant shall also complete a deferral payment election
specifying one of the payment options described in Sections 3.09(b) and (c), and
the year in which amounts credited to the Part III Participant's Deferred Stock
Account shall be paid in a lump sum pursuant to Section 3.09(b), or in which
installment payments shall commence pursuant to Section 3.09(c). The deferral
payment election shall be irrevocable as to all amounts credited to the Part III
Participant's Deferred Stock Account. The Part III Participant may change the
deferral payment election by means of a subsequent deferral payment election in
writing that will take effect for deferrals credited after the date the Company
receives such subsequent deferral payment election.
(b) PAYMENT OF DEFERRED STOCK ACCOUNTS IN A LUMP SUM. Unless a Part III
Participant elects to receive payment of his or her Deferred Stock Account in
installments as described in Section 3.09(c), credits to a Part III
Participant's Deferred Stock Account shall be payable in full on December 1 of
the year following the Part III Participant's termination of service on the
Board (or the first business day thereafter) or such other date as elected by
the Part III Participant pursuant to Section 3.09(a). All payments shall be made
in shares of Common Stock plus cash in lieu of any fractional share.
Notwithstanding the foregoing, in the event of a Change in Control, credits to a
Part III Participant's Deferred Stock Account as of the business day immediately
prior to the effective date of the transaction constituting the Change in
Control shall be paid in full to the Part III Participant or the Part III
Participant's beneficiary or estate, as the case may be, in whole shares of
Common Stock (together with cash in lieu of a fractional share) on such date.
(c) PAYMENT OF DEFERRED STOCK ACCOUNTS IN INSTALLMENTS. A Part III
Participant may elect to have his or her Deferred Stock Account paid in annual
installments following termination of service as a director or at such other
time as elected by the Part III Participant pursuant to Section 3.09(a). All
payments shall be made in shares of Common Stock plus cash in lieu of any
fractional share. All installment payments shall be made annually on December 1
of each year (or the first business day thereafter). The amount of each
installment payment shall be computed as the number of Shares credited to the
Part III Participant's Deferred Stock Account on the relevant installment
payment date, multiplied by a fraction, the numerator of which is one and the
denominator of which is the total number of installments elected (not to exceed
ten) minus the number of installments previously paid. Amounts paid prior to the
final installment payment shall be rounded to the nearest whole number of
Shares; the final installment payment shall be for the whole number of Shares
then credited to the Part III Participant's Deferred Stock Account, together
with cash in lieu of any fractional shares. Notwithstanding the foregoing, in
the event of a Change of Control, credits to a Part III Participant's Deferred
Stock Account as of the business day immediately prior to the effective date of
the transaction constituting the Change of Control shall be paid in full to the
Part III Participant or the Part III Participant's beneficiary or estate, as the
case may be, in whole Shares (together with cash in lieu of a fractional share)
on such date.
SECTION 3.10 LIMITATION ON RIGHTS OF PART III PARTICIPANTS.
(a) SERVICE AS A DIRECTOR. Nothing in this Plan will interfere with or
limit in any way the right of the Company's Board or its stockholders to remove
a Part III Participant from the Board. Neither this Plan nor any action taken
pursuant to it will constitute or be evidence of any agreement or understanding,
express or implied, that the Company's Board or its stockholders have retained
or will retain a Part III Participant as a director for any period of time or at
any particular rate of compensation.
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(b) NONEXCLUSIVITY OF THE PLAN. Nothing contained in this Plan is intended
to effect, modify or rescind any of the Company's existing compensation plans or
programs or to create any limitations on the Board's power or authority to
modify or adopt compensation arrangements as the Board may from time to time
deem necessary or desirable.
(c) PARTICIPANTS ARE GENERAL CREDITORS OF THE COMPANY. The Part III
Participants and beneficiaries thereof shall be general, unsecured creditors of
the Company with respect to any payments to be made pursuant to this Plan and
shall not have any preferred interest by way of trust, escrow, lien or otherwise
in any specific assets of the Company. If the Company shall, in fact, elect to
set aside monies or other assets to meet its obligations hereunder (there being
no obligation to do so), whether in a grantor's trust or otherwise, the same
shall, nevertheless, be regarded as a part of the general assets of the Company
subject to the claims of its general creditors, and neither any Part III
Participant nor any beneficiary thereof shall have a legal, beneficial or
security interest therein.
SECTION 3.11 SPECIAL ONE-TIME AWARD OF DEFERRED SHARES.
The following Award is being paid in conjunction with the termination,
effective as of May 21, 1998, of the Company's Independent Director Retirement
and Death Benefit Plan (the "Director Retirement Plan") with respect to all
directors who are members of the Board of Directors on May 21, 1998:
Each Part III Participant who is a director on May 21, 1998, shall be
awarded a one-time grant, effective on such date, of Shares to his or her
Deferred Stock Account in an amount equal to 115% of the benefits accrued for
such Part III Participant in the Director Retirement Plan as of such date
divided by the Fair Market Value of one Share as of such date. All of such
Shares credited to a Part III Participant's Deferred Stock Account shall be paid
out in three, equal, annual installments, commencing on December 1 of the first
service year in which such Part III Participant is no longer serving as a
director.
SECTION 3.12 RESTRICTED STOCK AWARDS.
If such grant does not affect the "disinterested administrator" status of
the Committee under Rule 16b-3, the Committee may grant to any Part III
Participant Shares of restricted stock, for no cash consideration, if permitted
by applicable law, or for such other consideration as may be determined by the
Committee and specified in the Award.
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EXHIBIT 10.N
DONALDSON COMPANY, INC.
1998 NONEMPLOYEE DIRECTOR STOCK OPTION PLAN
1. Purpose of the Plan. This plan shall be known as the "Donaldson
Company, Inc. 1998 Nonemployee Director Stock Option Plan" and is hereinafter
referred to as the "Plan." The purpose of the Plan is to promote the interests
of the Company by enhancing its ability to attract and retain the services of
experienced and knowledgeable outside directors and by providing additional
incentive for such directors to increase their interest in the Company's
long-term success and progress.
2. Definitions. As used herein, the following definitions shall
apply:
(a) "Board" shall mean the Board of Directors of the Company.
(b) A "Change in Control" of the Company shall have occurred if
(i) any "person," as such term is used in Sections 13(d)and 14(d) of 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 Donaldson, 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 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 by 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 defined above) 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.
(c) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
Nonemployee Director Stock Option Plan
<PAGE>
(d) "Common Stock" shall mean the Common Stock, $5 par value, of
the Company.
(e) "Company" or "Donaldson" shall mean Donaldson Company, Inc.
and its Subsidiaries.
(f) "Director" shall mean a member of the Board.
(g) "Employee" shall mean any person, including officers and
directors, employed by the Company or any Subsidiary of the Company. The payment
of a Director's fee by the Company shall not be sufficient in and of itself to
constitute "employment" by the Company.
(h) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
(i) "Market Value" of a share of Common Stock shall mean the
closing sale price of the Common Stock on such date on the New York Stock
Exchange (or on the principal exchange on which it is then listed if other than
the New York Stock Exchange), as reported in The Wall Street Journal, or if
there was no sale on that date, then on the nearest preceding date on which a
sale occurred.
(j) "Option" shall mean a stock option granted pursuant to the
Plan.
(k) "Optionee" shall mean an Outside Director who receives an
Option.
(l) "Outside Director" shall mean a Director who is not an
Employee.
(m) "Subsidiary" shall mean any corporation or other entity of
which a majority of the voting power is owned, directly or indirectly, by
Donaldson, or which is otherwise controlled by Donaldson.
3. Administration of Plan. The Plan shall be administered by a
committee (the "Committee") of three or more persons appointed by the Board of
Directors of the Company and constituted so as to satisfy the legal
requirements, including any such requirements for nonemployee directors, imposed
by Rule 16b-3 of the Exchange Act. All determinations of the Committee shall be
made by a majority of its members. Grants of Options under the Plan and the
amount and nature of the awards to be granted shall be automatic as described in
Section 7, and no person shall have any discretion to select which Outside
Directors shall be granted Options or to determine the number of shares of
Common Stock to be covered by Options granted to Outside Directors. However, all
questions of interpretation of the Plan or of any Options issued under it shall
be determined by the Committee, and such determination shall be final and
binding upon all persons having an interest in the Plan.
4. Eligibility. Each Outside Director of the Company who shall be a
member of the Board on December 1 of each year shall be eligible to participate
in the Plan.
5. Stock Subject to the Plan. Subject to adjustment as provided in
Section 11 hereof, the maximum aggregate number of shares of Common Stock with
respect to which Options
Nonemployee Director Stock Option Plan
-2-
<PAGE>
may be exercised under the Plan shall be [200,000]. All shares of Common Stock
issued under this Plan shall either be shares held in the treasury of the
Company or previously issued shares purchased by the Company on the open market.
If an Option should expire or become unexercisable for any reason without having
been exercised in full, the unpurchased shares which were subject thereto shall,
unless the Plan shall have been terminated, become available for future grant
under the Plan. Shares of Common Stock issued upon the exercise of an Option
shall be fully paid and nonassessable. No fractional shares of Common Stock
shall be issued upon exercise of an Option under the Plan.
6. Nonqualified Stock Options. None of the Options granted hereunder
shall qualify as "incentive stock options" within the meaning of Section 422 of
the Code.
7. Grants of Options under the Plan. Each Option granted under this
Plan shall be evidenced by a written agreement in such form as the Committee
shall from time to time approve, which agreement shall comply with and be
subject to the following terms and conditions:
(a) ANNUAL OPTION GRANTS. An Option to purchase 3,600 shares
of Common Stock shall be granted automatically on the first business
day of December (the "Grant Date") of each year to each eligible
Director in office on such Grant Date. All grants of Options
hereunder shall be automatic and nondiscretionary.
(b) OPTION EXERCISE PRICE. The exercise price per share of
Common Stock deliverable upon the exercise of an Option shall be the
Market Value of the Common Stock on the Grant Date.
(c) PERIOD OF OPTIONS. Each Option shall terminate upon the
expiration of 10 years from the date on which it was granted.
(d) EXERCISE OF OPTIONS.
(i) Options granted under the Plan shall vest and may be
exercised by the Optionee with respect to 1,200 shares on the
first day of December of each of the first three calendar
years following the Grant Date; provided, however, that an
unvested portion of an Option shall only vest so long as (1)
the Outside Director remains a Director on the date such
portion vests, (2) the Outside Director retires or resigns
from service as a Director in accordance with Bylaw 4 of the
Bylaws of the Company or (3) the Outside Director's service is
terminated for any other reason and a majority of the members
of the Board other than the terminating Director consent to
continued vesting of such portion of the Option in accordance
with the original vesting schedule therefor; provided,
further, that if the Optionee shall die prior to the time the
Option is fully vested, such Option shall continue to vest for
a period of two years after the Optionee's death but shall, in
all events, terminate upon the expiration of the original term
of such Option.
(ii) An Optionee electing to exercise an Option shall
give written notice to the Company of such election, stating
the number of shares subject to such exercise. The full
purchase price of such shares shall be tendered with such
Nonemployee Director Stock Option Plan
-3-
<PAGE>
notice of exercise. Payment of the Option price may be made in
cash (including check, bank draft or money order) or, with the
consent of the Committee, in whole or in part through the
delivery or attestation to ownership of Common Stock already
owned by the Optionee for at least six months and having a
Market Value on the day preceding the date of exercise equal
to the Option price, subject to the approval of the Committee
and to such rules as the Committee may adopt.
(iii) An Option may not be exercised for a fraction of a
share.
(e) RELOAD OPTIONS. Each Optionee shall be granted a new
option (a "Reload Option") when the payment of the exercise price of
any Option is made by the delivery of Common Stock owned by the
Optionee, which Reload Option: (i) shall be for the number of shares
of Common Stock provided as consideration upon the exercise of the
previously granted Option, (ii) shall have an expiration date that
is the same as the expiration date of the Option to which it
relates, (iii) shall have a per share exercise price equal to the
Market Value of the Common Stock on the date of grant of the Reload
Option and (iv) shall be exercisable in full as of the date of grant
of the Reload Option; provided, however, that Reload Options shall
only be granted to an Optionee during such Optionee's term as an
Outside Director of the Company. A Reload Option shall be granted
only once with respect to any shares acquired upon exercise of the
original Option to which the Reload Option relates.
(f) OPTIONS NON-TRANSFERABLE. No Option granted under the Plan
shall be transferable by the Optionee otherwise than by will or by
the laws of descent and distribution as provided in Section 7(h)
hereof. During the lifetime of the Optionee, the Options shall be
exercisable only by such Optionee. No Option or interest therein may
be transferred, assigned, pledged or hypothecated by the Optionee
during such Optionee's lifetime, whether by operation of law or
otherwise, or be made subject to execution, attachment or similar
process.
(g) TERMINATION OF STATUS AS A DIRECTOR. If an Outside
Director ceases to serve as a Director, he or she may, exercise an
Option to the extent that he or she was entitled to exercise it at
the date of such termination, subject to the provisions set forth in
Section 7(d)(i) for continued vesting. To the extent that the
Director was not entitled to exercise an Option at the date of such
termination, or if such Director does not exercise such Option
(which the Director was entitled to exercise) within the time
specified herein, the Option shall terminate.
(h) EFFECT OF DEATH. If the Optionee shall die prior to the
time the Option is fully exercised, such Option may be exercised at
any time within two years after his or her death by the personal
representatives or administrators of the Optionee or by any person
or persons to whom the Option is transferred by will or the
applicable laws of descent and distribution, to the extent of the
full number of shares the Optionee was entitled to purchase under
the Option on the date of death, subject to the provisions set forth
in Section 7(d)(i) for continued vesting and subject to the
condition that no Option shall be exercisable after the expiration
of the term of the Option.
Nonemployee Director Stock Option Plan
-4-
<PAGE>
8. Term of Plan. The Plan shall become effective immediately upon
its adoption by the Board and shall continue in effect for a term of ten (10)
years unless sooner terminated under Section 11 of the Plan. No Option may be
granted after such termination, but termination of the Plan shall not, without
the consent of the Optionee, alter or impair any rights or obligations under any
Option theretofore granted. Options granted prior to the termination of the Plan
shall remain in effect until their exercise or expiration in accordance with
their terms.
9. Limitation of Rights.
(a) NO RIGHT TO CONTINUE AS DIRECTOR. Neither the Plan, nor the
granting of an Option nor any other action taken pursuant to the Plan, shall
constitute, or be evidence of, any agreement or understanding, express or
implied, that the Company will retain a Director for any period of time, or at
any particular rate of compensation, nor shall it interfere in any way with any
rights which the Director or the Company may have to terminate the Director's
membership on the Board.
(b) NO SHAREHOLDER RIGHTS FOR OPTIONS. An Optionee shall have no
rights as a shareholder with respect to the shares covered by Options until the
date of the issuance to such Optionee of a stock certificate therefor, and no
adjustment will be made for cash dividends or other rights for which the record
date is prior to the date such certificate is issued.
10. Adjustments Upon Changes in Capitalization or Change in Control.
(a) In the event that the number of outstanding shares of Common
Stock of the Company is changed by a stock dividend, stock split, reverse stock
split, combination, reclassification or similar change in the capital structure
of the Company, appropriate adjustments in the Plan and outstanding Options
shall be made. In the event of any such changes, adjustments shall include,
where appropriate, changes in the aggregate number of shares subject to the
Plan, the number of shares subject to outstanding Options and the Option
exercise prices thereof in order to prevent dilution or enlargement of Option
rights. Such adjustment shall be made by the Committee, whose determination in
that respect shall be final, binding and conclusive.
(b) In the event of a Change in Control of the Company, any or
all outstanding Options shall, notwithstanding any contrary terms of the written
agreement governing such Option, accelerate and become fully vested and
exercisable and shall remain exercisable thereafter until they are either
exercised or expire by their terms.
11. Amendment and Termination of the Plan. The Board may at any time
amend, alter, suspend, or discontinue the Plan, but no amendment, alteration,
suspension, or discontinuance shall be made which would impair the rights of any
Optionee under any grant theretofore made, without his or her consent. Any such
amendment or termination of the Plan shall not affect Options already granted,
and such Options shall remain in full force and effect as if this Plan had not
been amended or terminated, unless mutually agreed otherwise by the Optionee and
the Board.
12. Conditions Upon Issuance of Shares. Shares of Common Stock shall
not be issued pursuant to the exercise of an Option unless the exercise of such
Option and the issuance
Nonemployee Director Stock Option Plan
-5-
<PAGE>
and delivery of such shares pursuant thereto shall comply with all relevant
provisions of law, including, without limitation, the Securities Act of 1933, as
amended, the Exchange Act, the rules and regulations promulgated thereunder,
state securities laws, and the requirements of any stock exchange upon which the
shares may then be listed, and shall be further subject to the approval of
counsel for the Company with respect to such compliance. Inability of the
Company to obtain authority from any regulatory body having jurisdiction, which
authority is deemed by the Company's counsel to be necessary to the lawful
issuance and sale of any shares of Common Stock hereunder, shall relieve the
Company of any liability in respect of the failure to issue or sell such shares
as to which such requisite authority shall not have been obtained.
13. Governing Law. The Plan and all determinations made and actions
taken pursuant hereto shall be governed by the law of the State of Delaware and
construed accordingly.
Nonemployee Director Stock Option Plan
-6-
EXHIBIT 10.R
CONFORMED COPY
================================================================================
DONALDSON COMPANY, INC.
$150,000,000
Senior Notes Issuable In Series
$23,000,000
6.20% Senior Notes, Series 1998-A, Tranche 1,
due July 15, 2005
$27,000,000
6.31% Senior Notes, Series 1998-A, Tranche 2,
due July 15, 2008
-----------
NOTE PURCHASE AGREEMENT
-----------
Dated as of July 15, 1998
================================================================================
Series 1998-A, Tranche 1 PPN: 257651 A* 0
Series 1998-A, Tranche 2 PPN: 257651 A @ 8
<PAGE>
TABLE OF CONTENTS
Section Page
1. AUTHORIZATION OF NOTES...................................................1
1.1. Amount; Establishment of Series....................................1
1.2. The Series 1998-A Notes............................................2
2. SALE AND PURCHASE OF SERIES 1998-A NOTES.................................2
3. CLOSING..................................................................3
4. CONDITIONS TO CLOSING....................................................3
4.1. Representations and Warranties.....................................3
4.2. Performance; No Default............................................3
4.3. Compliance Certificates............................................3
4.4. Opinions of Counsel................................................4
4.5. Purchase Permitted By Applicable Law, etc..........................4
4.6. Sale of Other Notes................................................4
4.7. Payment of Special Counsel Fees....................................4
4.8. Private Placement Number...........................................4
4.9. Changes in Corporate Structure.....................................5
4.10. Proceedings and Documents..........................................5
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY............................5
5.1. Organization; Power and Authority..................................5
5.2. Authorization, etc.................................................5
5.3. Disclosure.........................................................6
5.4. Organization and Ownership of Shares of Subsidiaries; Affiliates...6
5.5. Financial Statements...............................................7
5.6. Compliance with Laws, Other Instruments, etc.......................7
5.7. Governmental Authorizations, etc...................................7
5.8. Litigation; Observance of Agreements, Statutes and Orders..........8
5.9. Taxes..............................................................8
5.10. Title to Property; Leases..........................................8
5.11. Licenses, Permits, etc.............................................9
5.12. Compliance with ERISA..............................................9
5.13. Private Offering by the Company...................................10
5.14. Use of Proceeds; Margin Regulations...............................10
5.15. Existing Indebtedness; Future Liens...............................11
5.16. Foreign Assets Control Regulations, etc...........................11
5.17. Status under Certain Statutes.....................................11
i
<PAGE>
5.18. Environmental Matters.............................................11
6. REPRESENTATIONS OF THE PURCHASERS.......................................12
6.1. Purchase for Investment...........................................12
6.2. Source of Funds...................................................12
7. INFORMATION AS TO COMPANY...............................................14
7.1. Financial and Business Information................................14
7.2. Officer's Certificate.............................................17
7.3. Inspection........................................................17
8. PREPAYMENT OF THE NOTES.................................................18
8.1. Required Prepayments..............................................18
8.2. Optional Prepayments with Make-Whole Amount.......................18
8.3. Allocation of Partial Prepayments.................................18
8.4. Maturity; Surrender, etc..........................................18
8.5. Purchase of Notes.................................................19
8.6. Make-Whole Amount.................................................19
9. AFFIRMATIVE COVENANTS...................................................20
9.1. Compliance with Law...............................................20
9.2. Insurance.........................................................21
9.3. Maintenance of Properties.........................................21
9.4. Payment of Taxes and Claims.......................................21
9.5. Corporate Existence, etc..........................................21
10. NEGATIVE COVENANTS......................................................22
10.1. Consolidated Indebtedness; Indebtedness of Restricted
Subsidiaries......................................................22
10.2. Liens.............................................................22
10.3. Sale of Assets....................................................24
10.4. Mergers, Consolidations, etc......................................24
10.5. Disposition of Stock of Restricted Subsidiaries...................25
10.6. Designation of Unrestricted Subsidiaries..........................25
10.7. Nature of Business................................................26
10.8. Transactions with Affiliates......................................26
11. EVENTS OF DEFAULT.......................................................26
12. REMEDIES ON DEFAULT, ETC................................................28
12.1. Acceleration......................................................28
12.2. Other Remedies....................................................29
12.3. Rescission........................................................29
12.4. No Waivers or Election of Remedies, Expenses, etc.................30
13. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES...........................30
13.1. Registration of Notes.............................................30
ii
<PAGE>
13.2. Transfer and Exchange of Notes....................................30
13.3. Replacement of Notes..............................................31
14. PAYMENTS ON NOTES.......................................................31
14.1. Place of Payment..................................................31
14.2. Home Office Payment...............................................31
15. EXPENSES, ETC...........................................................32
15.1. Transaction Expenses..............................................32
15.2. Survival..........................................................32
16. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT............32
17. AMENDMENT AND WAIVER....................................................33
17.1. Requirements......................................................33
17.2. Solicitation of Holders of Notes..................................33
17.3. Binding Effect, etc...............................................33
17.4. Notes held by Company, etc........................................34
18. NOTICES.................................................................34
19. REPRODUCTION OF DOCUMENTS...............................................34
20. CONFIDENTIAL INFORMATION................................................35
21. SUBSTITUTION OF PURCHASER...............................................36
22. MISCELLANEOUS...........................................................36
22.1. Successors and Assigns............................................36
22.2. Payments Due on Non-Business Days.................................36
22.3. Severability......................................................36
22.4. Construction......................................................37
22.5. Counterparts......................................................37
22.6. Governing Law.....................................................37
SCHEDULE A -- Information Relating to Purchasers
SCHEDULE B -- Defined Terms
SCHEDULE B-1 -- Existing Investments
SCHEDULE 5.4 -- Subsidiaries of the Company and Ownership of Subsidiary
Stock
SCHEDULE 5.5 -- Financial Statements
iii
<PAGE>
SCHEDULE 5.15 -- Existing Indebtedness
SCHEDULE 10.2 -- Existing Liens
EXHIBIT 1.1-A -- Form of Senior Note
EXHIBIT 1.1-B -- Form of Supplement
EXHIBIT 1.2(a) -- Form of Series 1998-A, Tranche 1, Senior Note
EXHIBIT 1.2(b) -- Form of Series 1998 -A, Tranche 2, Senior Note
EXHIBIT 4.4(a) -- Form of Opinion of Counsel for the Company
EXHIBIT 4.4(b) -- Form of Opinion of Special Counsel for the Purchasers
iv
<PAGE>
DONALDSON COMPANY, INC.
1400 West 94th Street
Minneapolis, Minnesota 55440
(612) 887-3131
Fax: (612) 887 3005
$150,000,000
Senior Notes Issuable In Series
$23,000,000
6.20% Senior Notes, Series 1998-A, Tranche 1,
due July 15, 2005
$27,000,000
6.31% Senior Notes, Series 1998-A, Tranche 2,
due July 15, 2008
Dated as of July 15, 1998
TO EACH OF THE PURCHASERS LISTED IN
THE ATTACHED SCHEDULE A:
Ladies and Gentlemen:
DONALDSON COMPANY, INC., a Delaware corporation (the "COMPANY"),
agrees with you as follows:
1. AUTHORIZATION OF NOTES.
1.1. AMOUNT; ESTABLISHMENT OF SERIES.
The Company is contemplating the issue and sale of up to
$150,000,000 aggregate principal amount of its Senior Notes issuable in series
(the "NOTES", such term to include any such Notes issued in substitution
therefor pursuant to Section 13 of this Agreement). The Notes shall be
substantially in the form set out in Exhibit 1.1-A, with such changes therefrom,
if any, as may be approved by the purchasers of such Notes, or series thereof,
and the Company. Certain capitalized terms used in this Agreement are defined in
Schedule B; references to a "Schedule" or an "Exhibit" are, unless otherwise
specified, to a Schedule or an Exhibit attached to this Agreement. The Notes may
be issued in one or more series. Each series of Notes, other than the initial
series, shall be issued pursuant to a supplement to this Agreement
<PAGE>
(a "SUPPLEMENT") in substantially the form of Exhibit 1.1-B, and shall be
subject to the following terms and conditions:
(a) the designation of each series of Notes shall distinguish the
Notes of one series from the Notes of all other series and the designation
of each tranche within a series shall distinguish the Notes of one tranche
from the Notes of all other tranches;
(b) the Notes of each series shall rank PARI PASSU with the Notes of
all other series and the Company's other outstanding unsecured
Indebtedness that has not been expressly subordinated to any other
Indebtedness of the Company;
(c) each series of Notes shall be dated the date of issue, bear
interest at such rate or rates, mature on such date or dates, be subject
to such mandatory prepayments on the dates and with the Make-Whole
Amounts, if any, as are provided in the Supplement under which such Notes
are issued, and shall have such additional or different conditions
precedent to closing and such additional or different representations and
warranties or other terms and provisions as shall be specified in such
Supplement;
(d) except to the extent provided in foregoing clauses (a) through
(c), all of the provisions of this Agreement shall apply to the Notes of
each series.
The Purchasers of the Series 1998-A Notes need not purchase subsequent series of
Notes.
1.2. THE SERIES 1998-A NOTES.
The Company has authorized, as the initial series of Notes
hereunder, the issue and sale of $50,000,000 aggregate principal amount of Notes
to be designated as its "SERIES 1998-A NOTES" (such term to include any such
Notes issued in substitution therefor pursuant to Section 13 of this Agreement).
The Series 1998-A Notes will consist of $23,000,000 aggregate principal amount
of 6.20% Senior Notes, Series 1998-A, Tranche 1, due July 15, 2005 (the "SERIES
1998-A, TRANCHE 1, NOTES"), and $27,000,000 aggregate principal amount of 6.31%
Senior Notes, Series 1998-A, Tranche 2, due July 15, 2008 (the "SERIES 1998-A,
TRANCHE 2, NOTES"). The Series 1998-A Notes shall be substantially in the forms
set out in Exhibits 1.2(a) and (b), respectively, with such changes therefrom,
if any, as may be approved by you and the Company.
2. SALE AND PURCHASE OF SERIES 1998-A NOTES.
Subject to the terms and conditions of this Agreement, the Company
will issue and sell to you and each of the other purchasers named in Schedule A
(the "OTHER PURCHASERS"), and you and the Other Purchasers will purchase from
the Company, at the Closing provided for in Section 3, Series 1998-A Notes in
the principal amount specified opposite your names in Schedule A at the purchase
price of 100% of the principal amount thereof. Your obligation hereunder and the
obligations of the Other Purchasers are several and not joint obligations and
you shall have no liability to any Person for the performance or non-performance
by any Other Purchaser hereunder.
2
<PAGE>
3. CLOSING.
The sale and purchase of the Series 1998-A Notes to be purchased by
you and the Other Purchasers shall occur at the offices of Gardner, Carton &
Douglas, Quaker Tower, Suite 3400, 321 North Clark Street, Chicago, Illinois
60610 at 9:00 a.m., Chicago time, at a closing (the "CLOSING") on July 15, 1998
or on such other Business Day thereafter on or prior to July 30, 1998 as may be
agreed upon by the Company and you and the Other Purchasers. At the Closing the
Company will deliver to you the Series 1998-A Notes to be purchased by you in
the form of a single Series 1998-A Note (or such greater number of Series 1998-A
Notes in denominations of at least $500,000 as you may request) dated the date
of the Closing and registered in your name (or in the name of your nominee),
against delivery by you to the Company or its order of immediately available
funds in the amount of the purchase price therefor by wire transfer of
immediately available funds for the account of the Company to account number
1502-5005-4130 at US Bank - Minneapolis, US Bank Place, 601 Second Avenue South,
Minneapolis, MN 55402, ABA No. 0910-0002-2. If at the Closing the Company shall
fail to tender such Series 1998-A Notes to you as provided above in this Section
3, or any of the conditions specified in Section 4 shall not have been fulfilled
to your satisfaction, you shall, at your election, be relieved of all further
obligations under this Agreement, without thereby waiving any rights you may
have by reason of such failure or such nonfulfillment.
4. CONDITIONS TO CLOSING.
Your obligation to purchase and pay for the Series 1998-A Notes to
be sold to you at the Closing is subject to the fulfillment to your
satisfaction, prior to or at the Closing, of the following conditions:
4.1. REPRESENTATIONS AND WARRANTIES.
The representations and warranties of the Company in this Agreement
shall be correct when made and at the time of the Closing.
4.2. PERFORMANCE; NO DEFAULT.
The Company shall have performed and complied with all agreements
and conditions contained in this Agreement required to be performed or complied
with by it prior to or at the Closing and after giving effect to the issue and
sale of the Series 1998-A Notes (and the application of the proceeds thereof as
contemplated by Section 5.14) no Default or Event of Default shall have occurred
and be continuing. Neither the Company nor any Subsidiary shall have entered
into any transaction since the date of the Memorandum that would have been
prohibited by Sections 10.1 through 10.8 had such Sections applied since such
date.
4.3. COMPLIANCE CERTIFICATES.
(a) Officer's Certificate. The Company shall have delivered to you
an Officer's Certificate, dated the date of the Closing, certifying that
the conditions specified in Sections 4.1, 4.2 and 4.9 have been fulfilled.
3
<PAGE>
(b) Secretary's Certificate. The Company shall have delivered to you
a certificate certifying as to the resolutions attached thereto and other
corporate proceedings relating to the authorization, execution and
delivery of the Series 1998-A Notes and the Agreement.
4.4. OPINIONS OF COUNSEL.
You shall have received opinions in form and substance satisfactory
to you, dated the date of the Closing (a) from Dorsey & Whitney LLP, Counsel for
the Company, covering the matters set forth in Exhibit 4.4(a) and covering such
other matters incident to the transactions contemplated hereby as you or your
counsel may reasonably request (and the Company instructs its counsel to deliver
such opinion to you) and (b) from Gardner, Carton & Douglas, your special
counsel in connection with such transactions, substantially in the form set
forth in Exhibit 4.4(b) and covering such other matters incident to such
transactions as you may reasonably request.
4.5. PURCHASE PERMITTED BY APPLICABLE LAW, ETC.
On the date of the Closing your purchase of Series 1998-A Notes
shall (i) be permitted by the laws and regulations of each jurisdiction to which
you are subject, without recourse to provisions (such as Section 1405(a)(8) of
the New York Insurance Law) permitting limited investments by insurance
companies without restriction as to the character of the particular investment,
(ii) not violate any applicable law or regulation (including, without
limitation, Regulation T, U or X of the Board of Governors of the Federal
Reserve System) and (iii) not subject you to any tax, penalty or liability under
or pursuant to any applicable law or regulation, which law or regulation was not
in effect on the date hereof. If requested by you, you shall have received an
Officer's Certificate certifying as to such matters of fact as you may
reasonably specify to enable you to determine whether such purchase is so
permitted.
4.6. SALE OF OTHER NOTES.
Contemporaneously with the Closing the Company shall sell to the
Other Purchasers and the Other Purchasers shall purchase the Series 1998-A Notes
to be purchased by them at the Closing as specified in Schedule A.
4.7. PAYMENT OF SPECIAL COUNSEL FEES.
Without limiting the provisions of Section 15.1, the Company shall
have paid on or before the Closing the fees, charges and disbursements of your
special counsel referred to in Section 4.4, to the extent reflected in a
statement of such counsel rendered to the Company at least one Business Day
prior to the Closing.
4.8. PRIVATE PLACEMENT NUMBER.
Private Placement numbers issued by Standard & Poor's CUSIP Service
Bureau (in cooperation with the Securities Valuation Office of the National
Association of Insurance Commissioners) shall have been obtained for the Series
1998-A Notes.
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4.9. CHANGES IN CORPORATE STRUCTURE.
The Company shall not have changed its jurisdiction of incorporation
or been a party to any merger or consolidation and shall not have succeeded to
all or any substantial part of the liabilities of any other entity, at any time
following the date of the most recent financial statements referred to in
Schedule 5.5.
4.10. PROCEEDINGS AND DOCUMENTS.
All corporate and other proceedings in connection with the
transactions contemplated by this Agreement and all documents and instruments
incident to such transactions shall be satisfactory to you and your special
counsel, and you and your special counsel shall have received all such
counterpart originals or certified or other copies of such documents as you or
they may reasonably request.
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to you that:
5.1. ORGANIZATION; POWER AND AUTHORITY.
The Company is a corporation duly organized, validly existing and in
good standing under the laws of its jurisdiction of incorporation, and is duly
qualified as a foreign corporation and is in good standing in each jurisdiction
in which such qualification is required by law, other than those jurisdictions
as to which the failure to be so qualified or in good standing could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect. The Company has the corporate power and authority to own or hold
under lease the properties it owns or holds under lease, to transact the
business it transacts and proposes to transact, to execute and deliver this
Agreement and the Series 1998-A Notes and to perform the provisions hereof and
thereof.
5.2. AUTHORIZATION, ETC.
This Agreement and the Series 1998-A Notes have been duly authorized
by all necessary corporate action on the part of the Company, and this Agreement
constitutes, and upon execution and delivery thereof each Series 1998-A Note
will constitute, a legal, valid and binding obligation of the Company
enforceable against the Company in accordance with its terms, except as such
enforceability may be limited by (i) applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally and (ii) general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at law).
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5.3. DISCLOSURE.
The Company, through its agent, BancAmerica Robertson Stephens, has
delivered to you and each Other Purchaser a copy of a Private Placement
Memorandum, dated June 1998 (the "MEMORANDUM"), relating to the transactions
contemplated hereby. The Memorandum fairly describes, in all material respects,
the general nature of the business and principal properties of the Company and
its Subsidiaries. Except for projections, as to which no representation or
warranty is made, this Agreement, the Memorandum, the documents, certificates or
other writings delivered to you by or on behalf of the Company in connection
with the transactions contemplated hereby and the financial statements listed in
Schedule 5.5, taken as a whole, do not contain any untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein not misleading in light of the circumstances under which they
were made. The projections provided to you are based upon good faith estimates
and assumptions believed by the Company to be reasonable. Except as disclosed in
the Memorandum or in one of the documents, certificates or other writings
identified therein, or in the financial statements listed in Schedule 5.5, since
July 31, 1997, there has been no change in the financial condition, operations,
business or properties of the Company or any Restricted Subsidiary except
changes that individually or in the aggregate could not reasonably be expected
to have a Material Adverse Effect. There is no fact known to the Company that
could reasonably be expected to have a Material Adverse Effect that has not been
set forth herein or in the Memorandum or in the other documents, certificates
and other writings delivered to you by or on behalf of the Company specifically
for use in connection with the transactions contemplated hereby.
5.4. ORGANIZATION AND OWNERSHIP OF SHARES OF SUBSIDIARIES; AFFILIATES.
(a) Schedule 5.4 contains (except as noted therein) complete and
correct lists (i) of the Company's Subsidiaries, showing, as to each
Subsidiary, the correct name thereof, the jurisdiction of its
organization, and the percentage of shares of each class of its capital
stock or similar equity interests outstanding owned by the Company and
each other Subsidiary, (ii) to the Company's knowledge, of the Company's
Affiliates, other than Subsidiaries, and (iii) of the Company's directors
and senior officers. Each Subsidiary listed in Schedule 5.4 is a
Restricted Subsidiary.
(b) All of the outstanding shares of capital stock or similar equity
interests of each Subsidiary shown in Schedule 5.4 as being owned by the
Company and its Subsidiaries have been validly issued, are fully paid and
nonassessable and are owned by the Company or another Subsidiary free and
clear of any Lien (except as otherwise disclosed in Schedule 5.4).
(c) Each Subsidiary identified in Schedule 5.4 is a corporation or
other legal entity duly organized, validly existing and in good standing
under the laws of its jurisdiction of organization, and is duly qualified
as a foreign corporation or other legal entity and is in good standing in
each jurisdiction in which such qualification is required by law, other
than those jurisdictions as to which the failure to be so qualified or in
good
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standing could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect. Each such Subsidiary has the
corporate or other power and authority to own or hold under lease the
properties it purports to own or hold under lease and to transact the
business it transacts and proposes to transact.
(d) No Subsidiary is a party to, or otherwise subject to any legal
restriction or any agreement (other than this Agreement, the agreements
listed on Schedule 5.4 and limitations imposed by corporate law statutes)
restricting the ability of such Subsidiary to pay dividends out of profits
or make any other similar distributions of profits to the Company or any
of its Subsidiaries that owns outstanding shares of capital stock or
similar equity interests of such Subsidiary.
5.5. FINANCIAL STATEMENTS.
The Company has delivered to you and each Other Purchaser copies of
the financial statements of the Company and its Subsidiaries listed on Schedule
5.5. All of said financial statements (including in each case the related
schedules and notes) fairly present in all material respects the consolidated
financial condition of the Company and its Subsidiaries as of the respective
dates specified in such Schedule and the consolidated results of their
operations and cash flows for the respective periods so specified and have been
prepared in accordance with GAAP consistently applied throughout the periods
involved except as set forth in the notes thereto (subject, in the case of any
interim financial statements, to normal year-end adjustments).
5.6. COMPLIANCE WITH LAWS, OTHER INSTRUMENTS, ETC.
The execution, delivery and performance by the Company of this
Agreement and the Series 1998-A Notes will not (i) contravene, result in any
breach of, or constitute a default under, or result in the creation of any Lien
in respect of any property of the Company or any Subsidiary under, any Material
agreement, or corporate charter or By-Laws, to which the Company or any
Subsidiary is bound or by which the Company or any Subsidiary or any of their
respective properties may be bound or affected, (ii) conflict with or result in
a breach of any of the terms, conditions or provisions of any order, judgment,
decree, or ruling of any court, arbitrator or Governmental Authority applicable
to the Company or any Subsidiary or (iii) violate any provision of any statute
or other rule or regulation of any Governmental Authority applicable to the
Company or any Subsidiary.
5.7. GOVERNMENTAL AUTHORIZATIONS, ETC.
No consent, approval or authorization of, or registration, filing or
declaration with, any Governmental Authority is required in connection with the
execution, delivery or performance by the Company of this Agreement or the
Series 1998-A Notes.
5.8. LITIGATION; OBSERVANCE OF AGREEMENTS, STATUTES AND ORDERS.
(a) Except as disclosed in Schedule 5.8, there are no actions, suits
or proceedings pending or, to the knowledge of the Company, threatened
against or
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affecting the Company or any Subsidiary or any property of the Company or
any Subsidiary in any court or before any arbitrator of any kind or before
or by any Governmental Authority that, individually or in the aggregate,
could reasonably be expected to have a Material Adverse Effect.
(b) Neither the Company nor any Subsidiary is in default under any
term of any agreement or instrument to which it is a party or by which it
is bound, or any order, judgment, decree or ruling of any court,
arbitrator or Governmental Authority or is in violation of any applicable
law, ordinance, rule or regulation (including without limitation
Environmental Laws) of any Governmental Authority, which default or
violation, individually or in the aggregate, could reasonably be expected
to have a Material Adverse Effect.
5.9. TAXES.
The Company and its Subsidiaries have filed all tax returns that are
required to have been filed in any jurisdiction, and have paid all taxes shown
to be due and payable on such returns and all other taxes and assessments levied
upon them or their properties, assets, income or franchises, to the extent such
taxes and assessments have become due and payable and before they have become
delinquent, except for any taxes and assessments (i) the amount of which is not
individually or in the aggregate Material or (ii) the amount, applicability or
validity of which is currently being contested in good faith by appropriate
proceedings and with respect to which the Company or a Subsidiary, as the case
may be, has established adequate reserves in accordance with GAAP. The Company
knows of no basis for any other tax or assessment that could reasonably be
expected to have a Material Adverse Effect. The charges, accruals and reserves
on the books of the Company and its Subsidiaries in respect of Federal, state or
other taxes for all fiscal periods are adequate under GAAP. The Federal income
tax liabilities of the Company and its Subsidiaries have been determined by the
Internal Revenue Service and paid for all fiscal years up to and including the
fiscal year ended December 31, 1990.
5.10. TITLE TO PROPERTY; LEASES.
The Company and its Subsidiaries have good and
sufficient title to the properties that they own or purport to own and that
individually or in the aggregate are Material, including all such
properties reflected in the most recent audited balance sheet referred to in
Section 5.5 or purported to have been acquired by the Company or any Subsidiary
after said date (except as sold or otherwise disposed of in the ordinary course
of business), in each case free and clear of Liens prohibited by this Agreement.
All leases that individually or in the aggregate are Material are valid and
subsisting and are in full force and effect in all material respects.
5.11. LICENSES, PERMITS, ETC.
Except as disclosed in Schedule 5.11,
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(a) the Company and its Subsidiaries own or possess all licenses,
permits, franchises, authorizations, patents, copyrights, service marks,
trademarks and trade names, or rights thereto, that individually or in the
aggregate are Material, without known Material conflict with the rights of
others;
(b) to the best knowledge of the Company, no product of the Company
infringes in any Material respect any license, permit, franchise,
authorization, patent, copyright, service mark, trademark, trade name or
other right owned by any other Person; and
(c) to the best knowledge of the Company, there is no Material
violation by any Person of any right of the Company or any of its
Subsidiaries with respect to any patent, copyright, service mark,
trademark, trade name or other right owned or used by the Company or any
of its Subsidiaries.
5.12. COMPLIANCE WITH ERISA.
(a) The Company and each ERISA Affiliate have operated and
administered each Plan in compliance with all applicable laws except for
such instances of noncompliance as have not resulted in and could not
reasonably be expected to result in a Material Adverse Effect. Neither the
Company nor any ERISA Affiliate has incurred any liability pursuant to
Title I or IV of ERISA or the penalty or excise tax provisions of the Code
relating to employee benefit plans (as defined in Section 3 of ERISA), and
no event, transaction or condition has occurred or exists that could
reasonably be expected to result in the incurrence of any such liability
by the Company or any ERISA Affiliate, or in the imposition of any Lien on
any of the rights, properties or assets of the Company or any ERISA
Affiliate, in either case pursuant to Title I or IV of ERISA or to such
penalty or excise tax provisions or to Section 401(a)(29) or 412 of the
Code, other than such liabilities or Liens as would not be individually or
in the aggregate Material.
(b) The present value of the aggregate benefit liabilities under
each of the Plans that are subject to Title IV of ERISA (other than
Multiemployer Plans), determined as of the end of such Plan's most
recently ended plan year on the basis of the actuarial assumptions
specified for funding purposes in such Plan's most recent actuarial
valuation report, did not exceed the aggregate current value of the assets
of such Plan allocable to such benefit liabilities by more than 5% of
Adjusted Consolidated Net Worth. The term "BENEFIT LIABILITIES" has the
meaning specified in section 4001 of ERISA and the terms "CURRENT VALUE"
and "PRESENT VALUE" have the meaning specified in section 3 of ERISA.
(c) The Company and its ERISA Affiliates have not incurred
withdrawal liabilities (and are not subject to contingent withdrawal
liabilities) under section 4201 or 4204 of ERISA in respect of
Multiemployer Plans that individually or in the aggregate are Material.
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(d) The expected postretirement benefit obligation (determined as of
the last day of the Company's most recently ended fiscal year in
accordance with Financial Accounting Standards Board Statement No. 106,
without regard to liabilities attributable to continuation coverage
mandated by section 4980B of the Code) of the Company and its Subsidiaries
is not Material or has been disclosed in the most recent audited
consolidated financial statements of the Company and its Subsidiaries.
(e) The execution and delivery of this Agreement and the issuance
and sale of the Notes hereunder will not involve any transaction that is
subject to the prohibitions of section 406 of ERISA or in connection with
which a tax could be imposed pursuant to section 4975(c)(1)(A)-(D) of the
Code. The representation by the Company in the first sentence of this
Section 5.12(e) is made in reliance upon and subject to the accuracy of
your representation in Section 6.2 as to the sources of the funds used to
pay the purchase price of the Notes to be purchased by you.
5.13. PRIVATE OFFERING BY THE COMPANY.
Neither the Company nor anyone acting on its behalf has offered the
Series 1998-A Notes or any similar securities for sale to, or solicited any
offer to buy any of the same from, or otherwise approached or negotiated in
respect thereof with, any person other than you, the Other Purchasers and not
more than 42 other Institutional Investors, each of which has been offered the
Series 1998-A Notes at a private sale for investment. Neither the Company nor
anyone acting on its behalf has taken, or will take, any action that would
subject the issuance or sale of the Series 1998-A Notes to the registration
requirements of Section 5 of the Securities Act.
5.14. USE OF PROCEEDS; MARGIN REGULATIONS.
The Company will apply the proceeds of the sale of the Series 1998-A
Notes to the repayment of Indebtedness to banks. No part of the proceeds from
the sale of the Series 1998-A Notes hereunder will be used, directly or
indirectly, for the purpose of buying or carrying any margin stock within the
meaning of Regulation U of the Board of Governors of the Federal Reserve System
(12 CFR 221), or for the purpose of buying or carrying or trading in any
securities under such circumstances as to involve the Company in a violation of
Regulation X of said Board (12 CFR 224) or to involve any broker or dealer in a
violation of Regulation T of said Board (12 CFR 220). Margin stock does not
constitute more than 5% of the value of the consolidated assets of the Company
and its Subsidiaries and the Company does not have any present intention that
margin stock will constitute 25% or more of the value of such assets. As used in
this Section, the terms "MARGIN STOCK" and "PURPOSE OF BUYING OR CARRYING" shall
have the meanings assigned to them in said Regulation U.
5.15. EXISTING INDEBTEDNESS; FUTURE LIENS.
(a) Except as described therein, Schedule 5.15 sets forth a complete
and correct list of all outstanding Indebtedness of the Company and its
Subsidiaries as of
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April 30, 1998, since which date there has been no Material change in the
amounts, interest rates, sinking funds, installment payments or maturities
of the Indebtedness of the Company or its Subsidiaries. Neither the
Company nor any Subsidiary is in default and no waiver of default is
currently in effect, in the payment of any principal or interest on any
Indebtedness of the Company or such Subsidiary that is outstanding in an
aggregate principal amount in excess of $5,000,000 and no event or
condition exists with respect to any Indebtedness of the Company or any
Subsidiary that is outstanding in an aggregate principal amount in excess
of $5,000,000 and that would permit (or that with notice or the lapse of
time, or both, would permit) one or more Persons to cause such
Indebtedness to become due and payable before its stated maturity or
before its regularly scheduled dates of payment.
(b) Except as disclosed in Schedule 5.15, neither the Company nor
any Subsidiary has agreed or consented to cause or permit in the future
(upon the happening of a contingency or otherwise) any of its property,
whether now owned or hereafter acquired, to be subject to a Lien not
permitted by Section 10.2.
5.16. FOREIGN ASSETS CONTROL REGULATIONS, ETC.
Neither the sale of the Series 1998-A Notes by the Company hereunder
nor its use of the proceeds thereof will violate the Trading with the Enemy Act,
as amended, or any of the foreign assets control regulations of the United
States Treasury Department (31 CFR, Subtitle B, Chapter V, as amended) or any
enabling legislation or executive order relating thereto.
5.17. STATUS UNDER CERTAIN STATUTES.
Neither the Company nor any Subsidiary is subject to regulation
under the Investment Company Act of 1940, as amended, the Public Utility Holding
Company Act of 1935, as amended, the Interstate Commerce Act, as amended by the
ICC Termination Act, as amended, or the Federal Power Act, as amended.
5.18. ENVIRONMENTAL MATTERS.
Neither the Company nor any Subsidiary has knowledge of any claim or
has received any notice of any claim, and no proceeding has been instituted
asserting any claim against the Company or any of its Subsidiaries or any of
their respective real properties now owned, leased or operated by any of them or
other assets nor, to the knowledge of the Company or any Subsidiary, has any
such proceeding been instituted against any of their respective real properties
formerly owned, for damage to the environment or violation of any Environmental
Laws, except, in each case, such as could not reasonably be expected to result
in a Material Adverse Effect. Except as otherwise disclosed to you in writing,
(a) neither the Company nor any Subsidiary has knowledge of any
facts that would give rise to any claim for violation of Environmental
Laws or damage to the environment emanating from, occurring on or in any
way related to real properties now or
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formerly owned, leased or operated by any of them or to other assets or
their use, except, in each case, such as could not reasonably be expected
to result in a Material Adverse Effect;
(b) neither the Company nor any of its Subsidiaries has stored any
Hazardous Materials on real properties now or formerly owned, leased or
operated by any of them and has not disposed of any Hazardous Materials in
a manner contrary to any Environmental Laws in each case in any manner
that could reasonably be expected to result in a Material Adverse Effect;
and
(c) all buildings on all real properties now owned, leased or
operated by the Company or any of its Subsidiaries are in compliance with
applicable Environmental Laws, except where failure to comply could not
reasonably be expected to result in a Material Adverse Effect.
6. REPRESENTATIONS OF THE PURCHASERS.
6.1. PURCHASE FOR INVESTMENT.
You represent that you are purchasing the Series 1998-A Notes for
your own account or for one or more separate accounts maintained by you or for
the account of one or more pension or trust funds and not with a view to the
distribution thereof, provided that the disposition of your or their property
shall at all times be within your or their control. You understand that the
Series 1998-A Notes have not been registered under the Securities Act and may be
resold only if registered pursuant to the provisions of the Securities Act or if
an exemption from registration is available, and that the Company is not
required to register the Series 1998-A Notes.
6.2. SOURCE OF FUNDS.
You represent that at least one of the following statements is an
accurate representation as to each source of funds (a "SOURCE") to be used by
you to pay the purchase price of the Series 1998-A Notes to be purchased by you
hereunder:
(a) if you are an insurance company, the Source does not include
assets allocated to any separate account maintained by you in which any
employee benefit plan (or its related trust) has any interest, other than
a separate account that is maintained solely in connection with your fixed
contractual obligations under which the amounts payable, or credited, to
such plan and to any participant or beneficiary of such plan (including
any annuitant) are not affected in any manner by the investment
performance of the separate account; or
(b) the Source is either (i) an insurance company pooled separate
account, within the meaning of Prohibited Transaction Exemption ("PTE")
90-1 (issued January 29, 1990), or (ii) a bank collective investment fund,
within the meaning of the PTE 91-38
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(issued July 12, 1991) and, except as you have disclosed to the Company in
writing pursuant to this paragraph (b), no employee benefit plan or group
of plans maintained by the same employer or employee organization
beneficially owns more than 10% of all assets allocated to such pooled
separate account or collective investment fund; or
(c) the Source constitutes assets of an "investment fund" (within
the meaning of Part V of the QPAM Exemption) managed by a "qualified
professional asset manager" or "QPAM" (within the meaning of Part V of the
QPAM Exemption), no employee benefit plan's assets that are included in
such investment fund, when combined with the assets of all other employee
benefit plans established or maintained by the same employer or by an
affiliate (within the meaning of Section V(c)(1) of the QPAM Exemption) of
such employer or by the same employee organization and managed by such
QPAM, exceed 20% of the total client assets managed by such QPAM, the
conditions of Part I(c) and (g) of the QPAM Exemption are satisfied,
neither the QPAM nor a person controlling or controlled by the QPAM
(applying the definition of "control" in Section V(e) of the QPAM
Exemption) owns a 5% or more interest in the Company and (i) the identity
of such QPAM and (ii) the names of all employee benefit plans whose assets
are included in such investment fund have been disclosed to the Company in
writing pursuant to this paragraph (c); or
(d) the Source is a governmental plan; or
(e) the Source is one or more employee benefit plans, or a separate
account or trust fund comprised of one or more employee benefit plans,
each of which has been identified to the Company in writing pursuant to
this paragraph (e); or
(f) the Source does not include assets of any employee benefit plan,
other than a plan exempt from the coverage of ERISA; or
(g) the Source is an "insurance company general account" as such
term is defined in the Department of Labor Prohibited Transaction Class
Exemption 95-60 (issued July 12, 1995) ("PTE 95-60") and there is no
"employee benefit plan" with respect to which the aggregate amount of such
general account's reserves and liabilities for the contracts held by or on
behalf of such employee benefit plan and all other employee benefit plans
maintained by the same employer (and affiliates thereof as defined in
Section V(a)(1) of PTE 95-60) or by the same employee organization (in
each case determined in accordance with the provisions of PTE 95-60)
exceeds 10% of the total reserves and liabilities of such general account
(as determined under PTE 95-60) (exclusive of separate account
liabilities) plus surplus as set forth in the National Association of
Insurance Commissioners Annual Statement filed with the state of domicile
of such Purchaser.
As used in this Section 6.2, the terms "EMPLOYEE BENEFIT PLAN", "GOVERNMENTAL
PLAN", "PARTY IN INTEREST" and "SEPARATE ACCOUNT" shall have the respective
meanings assigned to such terms in Section 3 of ERISA.
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7. INFORMATION AS TO COMPANY.
7.1. FINANCIAL AND BUSINESS INFORMATION
The Company shall deliver to each holder of Notes that is an
Institutional Investor:
(a) Quarterly Statements -- within 60 days after the end of each
quarterly fiscal period in each fiscal year of the Company (other than the
last quarterly fiscal period of each such fiscal year), duplicate copies
of,
(i) a consolidated balance sheet of the Company and its
Subsidiaries as at the end of such quarter, and
(ii) consolidated statements of income, changes in
stockholders' equity and cash flows of the Company and its
Subsidiaries, for such quarter and (in the case of the second and
third quarters) for the portion of the fiscal year ending with such
quarter,
setting forth in each case in comparative form the figures for the
corresponding periods in the previous fiscal year, all in reasonable
detail, prepared in accordance with GAAP applicable to quarterly financial
statements generally, and certified by a Senior Financial Officer as
fairly presenting, in all material respects, the financial condition of
the companies being reported on and their results of operations and cash
flows, subject to changes resulting from year-end adjustments, provided
that delivery within the time period specified above of copies of the
Company's Quarterly Report on Form 10-Q prepared in compliance with the
requirements therefor and filed with the Securities and Exchange
Commission shall be deemed to satisfy the requirements of this Section
7.1(a);
(b) Annual Statements -- within 120 days after the end of each
fiscal year of the Company, duplicate copies of,
(i) a consolidated balance sheet of the Company and its
Subsidiaries, as at the end of such year, and
(ii) consolidated statements of income, changes in
stockholders' equity and cash flows of the Company and its
Subsidiaries, for such year,
setting forth in each case in comparative form the figures for the
previous fiscal year, all in reasonable detail, prepared in accordance
with GAAP, and accompanied by an opinion thereon of independent certified
public accountants of recognized national standing, which opinion shall
state that such financial statements present fairly, in all material
respects, the financial condition of the companies being reported upon and
their results of operations and cash flows and have been prepared in
conformity with GAAP, and that the examination of such accountants in
connection with such financial statements has been made in accordance with
generally accepted auditing standards, and that such audit
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provides a reasonable basis for such opinion in the circumstances,
provided that the delivery within the time period specified above of the
Company's Annual Report on Form 10-K for such fiscal year (together with
the Company's annual report to shareholders, if any, prepared pursuant to
Rule 14a-3 under the Exchange Act) prepared in accordance with the
requirements therefor and filed with the Securities and Exchange
Commission shall be deemed to satisfy the requirements of this Section
7.1(b);
(c) Unrestricted Subsidiaries -- if, at the time of delivery of any
financial statements pursuant to Section 7.1(a) or (b), Unrestricted
Subsidiaries account for more than 10% of (i) the consolidated total
assets of the Company and its Subsidiaries reflected in the balance sheet
included in such financial statements or (ii) the consolidated revenues of
the Company and its Subsidiaries reflected in the consolidated statement
of income included in such financial statements, an unaudited balance
sheet for all Unrestricted Subsidiaries taken as whole as at the end of
the fiscal period included in such financial statements and the related
unaudited statements of income, stockholders' equity and cash flows for
such Unrestricted Subsidiaries for such period, together with
consolidating statements reflecting all eliminations or adjustments
necessary to reconcile such group financial statements to the consolidated
financial statements of the Company and its Subsidiaries;
(d) SEC and Other Reports -- promptly upon their becoming available,
one copy of (i) each financial statement, report, notice or proxy
statement sent by the Company or any Subsidiary to public securities
holders generally, and (ii) each regular or periodic report, each
registration statement (without exhibits except as expressly requested by
such holder), and each prospectus and all amendments thereto filed by the
Company or any Subsidiary with the Securities and Exchange Commission and
of all press releases and other statements made available generally by the
Company or any Restricted Subsidiary to the public concerning developments
that are Material;
(e) Notice of Default or Event of Default -- promptly, and in any
event within five days after a Responsible Officer obtains actual
knowledge of the existence of any actual or claimed Default or Event of
Default or that any Person has given any notice or taken any action with
respect to a claimed default of the type referred to in Section 11(f), a
written notice specifying the nature and period of existence thereof and
what action the Company is taking or proposes to take with respect
thereto;
(f) ERISA Matters -- promptly, and in any event within five days
after a Responsible Officer becoming aware of any of the following, a
written notice setting forth the nature thereof and the action, if any,
that the Company or an ERISA Affiliate proposes to take with respect
thereto:
(i) with respect to any Plan, any reportable event, as defined
in section 4043(b) of ERISA and the regulations thereunder, for
which notice thereof has not been waived pursuant to such
regulations as in effect on the date hereof; or
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(ii) the taking by the PBGC of steps to institute, or the
threatening by the PBGC of the institution of, proceedings under
section 4042 of ERISA for the termination of, or the appointment of
a trustee to administer, any Plan, or the receipt by the Company or
any ERISA Affiliate of a notice from a Multiemployer Plan that such
action has been taken by the PBGC with respect to such Multiemployer
Plan; or
(iii) any event, transaction or condition that could result in
the incurrence of any liability by the Company or any ERISA
Affiliate pursuant to Title I or IV of ERISA or the penalty or
excise tax provisions of the Code relating to employee benefit
plans, or in the imposition of any Lien on any of the rights,
properties or assets of the Company or any ERISA Affiliate pursuant
to Title I or IV of ERISA or such penalty or excise tax provisions,
if such liability or Lien, taken together with any other such
liabilities or Liens then existing, could reasonably be expected to
have a Material Adverse Effect;
(g) Notices from Governmental Authority -- promptly, and in any
event within 30 days of receipt thereof, copies of any notice to the
Company or any Subsidiary from any Federal or state Governmental Authority
relating to any order, ruling, statute or other law or regulation that
could reasonably be expected to have a Material Adverse Effect;
(h) Requested Information -- with reasonable promptness, such other
data and information relating to the business, operations, affairs,
financial condition, assets or properties of the Company or any of its
Subsidiaries or relating to the ability of the Company to perform its
obligations hereunder and under the Notes as from time to time may be
reasonably requested by any such holder of Notes that is an Institutional
Investor; and
(i) Supplements to Agreement -- in the event an additional series of
Notes is, or is proposed to be, issued under this Agreement, promptly, and
in any event within 10 Business Days after execution and delivery thereof,
a true copy of the Supplement pursuant to which such Notes are to be, or
were, issued.
7.2. OFFICER'S CERTIFICATE.
Each set of financial statements delivered to a holder of Notes
pursuant to Section 7.1(a) or (b) shall be accompanied by a certificate of a
Senior Financial Officer setting forth:
(a) Covenant Compliance -- the information (including detailed
calculations) required in order to establish whether the Company was in
compliance with the requirements of Section 10.1 during the quarterly or
annual period covered by the statements then being furnished; and
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(b) Event of Default -- a statement that such officer has reviewed
the relevant terms hereof and has made, or caused to be made, under his or
her supervision, a review of the transactions and conditions of the
Company and its Restricted Subsidiaries from the beginning of the
quarterly or annual period covered by the statements then being furnished
to the date of the certificate and that such review has not disclosed the
existence during such period of any condition or event that constitutes a
Default or an Event of Default or, if any such condition or event existed
or exists (including any such event or condition resulting from the
failure of the Company or any Restricted Subsidiary to comply with any
Environmental Law), specifying the nature and period of existence thereof
and what action the Company shall have taken or proposes to take with
respect thereto.
7.3. INSPECTION.
The Company will permit the representatives of each holder of Notes
that is an Institutional Investor:
(a) No Default -- if no Default or Event of Default then exists, at
the expense of such holder and upon reasonable prior notice to the
Company, to visit the principal executive office of the Company, to
discuss the affairs, finances and accounts of the Company and its
Restricted Subsidiaries with the Company's officers, and (with the consent
of the Company, which consent will not be unreasonably withheld) its
independent public accountants, and (with the consent of the Company,
which consent will not be unreasonably withheld) to visit the other
offices and properties of the Company and each Restricted Subsidiary, all
at such reasonable times and as often as may be reasonably requested in
writing; and
(b) Default -- if a Default or Event of Default then exists, at the
expense of the Company and upon reasonable prior notice to the Company, to
visit the principal executive office of the Company, to discuss the
affairs, finances and accounts of the Company and its Restricted
Subsidiaries with the Company's officers, and (with the consent of the
Company, which consent will not be unreasonably withheld) its independent
public accountants, and (with the consent of the Company, which consent
will not be unreasonably withheld) to visit the other offices and
properties of the Company and each Restricted Subsidiary, all at such
reasonable times and as often as may be reasonably requested in writing.
8. PREPAYMENT OF THE NOTES.
8.1. REQUIRED PREPAYMENTS.
No regularly scheduled prepayments are due on the Series 1998-A
Notes prior to their stated maturity.
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8.2. OPTIONAL PREPAYMENTS WITH MAKE-WHOLE AMOUNT.
The Company may, at its option, upon notice as provided below,
prepay at any time all, or from time to time any part of, the Notes of any
series, including the Series 1998-A Notes, in an amount not less than $2,000,000
in the aggregate in the case of a partial prepayment, at 100% of the principal
amount so prepaid, plus the Make-Whole Amount determined for the prepayment date
with respect to such principal amount. The Company will give each holder of
Notes of the series to be prepaid written notice of each optional prepayment
under this Section 8.2 not less than 30 days and not more than 60 days prior to
the date fixed for such prepayment. Each such notice shall specify such date,
the aggregate principal amount of the Notes to be prepaid on such date, the
principal amount of each Note held by such holder to be prepaid (determined in
accordance with Section 8.3), and the interest to be paid on the prepayment date
with respect to such principal amount being prepaid, and shall be accompanied by
a certificate of a Senior Financial Officer as to the estimated Make-Whole
Amount due in connection with such prepayment (calculated as if the date of such
notice were the date of the prepayment), setting forth the details of such
computation. Two Business Days prior to such prepayment, the Company shall
deliver to each holder of Notes a certificate of a Senior Financial Officer
specifying the calculation of such Make-Whole Amount as of the specified
prepayment date.
8.3. ALLOCATION OF PARTIAL PREPAYMENTS.
In the case of each partial prepayment of the Notes of a series, the
principal amount of the Notes of such series to be prepaid shall be allocated
among all of the Notes of every tranche of such series at the time outstanding
in proportion, as nearly as practicable, to the respective unpaid principal
amounts thereof not theretofore called for prepayment. Each such partial
prepayment pursuant to Section 8.2 shall, in respect of the Notes of a series,
be applied first to the payment due on such Notes at final maturity and
thereafter to any required prepayments on such Notes, in inverse order of
maturity.
8.4. MATURITY; SURRENDER, ETC.
In the case of each prepayment of Notes pursuant to this Section 8,
the principal amount of each Note to be prepaid shall mature and become due and
payable on the date fixed for such prepayment, together with interest on such
principal amount accrued to such date and the applicable Make-Whole Amount, if
any. From and after such date, unless the Company shall fail to pay such
principal amount when so due and payable, together with the interest and
Make-Whole Amount, if any, as aforesaid, interest on such principal amount shall
cease to accrue. Any Note paid or prepaid in full shall be surrendered to the
Company and canceled and shall not be reissued, and no Note shall be issued in
lieu of any prepaid principal amount of any Note.
8.5. PURCHASE OF NOTES.
The Company will not, and will not permit any Affiliate to,
purchase, redeem, prepay or otherwise acquire, directly or indirectly, any of
the outstanding Notes except upon the payment or prepayment of the Notes in
accordance with the terms of this Agreement and the
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Notes. The Company will promptly cancel all Notes acquired by it or any
Affiliate pursuant to any payment, prepayment or purchase of Notes pursuant to
any provision of this Agreement and no Notes may be issued in substitution or
exchange for any such Notes.
8.6. MAKE-WHOLE AMOUNT.
The term "MAKE-WHOLE AMOUNT" means, with respect to any Note, an
amount equal to the excess, if any, of the Discounted Value of the Remaining
Scheduled Payments with respect to the Called Principal of such Note over the
amount of such Called Principal, provided that the Make-Whole Amount may in no
event be less than zero. For the purposes of determining the Make-Whole Amount,
the following terms have the following meanings:
"CALLED PRINCIPAL" means, with respect to any Note, the principal of
such Note that is to be prepaid pursuant to Section 8.2 or has become or
is declared to be immediately due and payable pursuant to Section 12.1, as
the context requires.
"DISCOUNTED VALUE" means, with respect to the Called Principal of
any Note, the amount obtained by discounting all Remaining Scheduled
Payments with respect to such Called Principal from their respective
scheduled due dates to the Settlement Date with respect to such Called
Principal, in accordance with accepted financial practice and at a
discount factor (applied on the same periodic basis as that on which
interest on the Notes is payable) equal to the Reinvestment Yield with
respect to such Called Principal.
"REINVESTMENT YIELD" means, with respect to the Called Principal of
any Note, .50% over the yield to maturity implied by (i) the yields
reported, as of 10:00 A.M. (New York City time) on the second Business Day
preceding the Settlement Date with respect to such Called Principal, on
the display designated as the "PX Screen" on the Bloomberg Financial
Market Service (or such other display as may replace the PX Screen on
Bloomberg Financial Market Service) for actively traded U.S. Treasury
securities having a maturity equal to the Remaining Average Life of such
Called Principal as of such Settlement Date, or (ii) if such yields are
not reported as of such time or the yields reported as of such time are
not ascertainable, the Treasury Constant Maturity Series Yields reported,
for the latest day for which such yields have been so reported as of the
second Business Day preceding the Settlement Date with respect to such
Called Principal, in Federal Reserve Statistical Release H.15 (519) (or
any comparable successor publication) for actively traded U.S. Treasury
securities having a constant maturity equal to the Remaining Average Life
of such Called Principal as of such Settlement Date. Such implied yield
will be determined, if necessary, by (a) converting U.S. Treasury bill
quotations to bond-equivalent yields in accordance with accepted financial
practice and (b) interpolating linearly between (1) the actively traded
U.S. Treasury security with the MATURITY closest to and greater than the
Remaining Average Life and (2) the actively traded U.S. Treasury security
with the MATURITY closest to and less than the Remaining Average Life.
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"REMAINING AVERAGE LIFE" means, with respect to any Called
Principal, the number of years (calculated to the nearest one-twelfth
year) obtained by dividing (i) such Called Principal into (ii) the sum of
the products obtained by multiplying (a) the principal component of each
Remaining Scheduled Payment with respect to such Called Principal by (b)
the number of years (calculated to the nearest one-twelfth year) that will
elapse between the Settlement Date with respect to such Called Principal
and the scheduled due date of such Remaining Scheduled Payment.
"REMAINING SCHEDULED PAYMENTS" means, with respect to the Called
Principal of any Note, all payments of such Called Principal and interest
thereon that would be due after the Settlement Date with respect to such
Called Principal if no payment of such Called Principal were made prior to
its scheduled due date, provided that if such Settlement Date is not a
date on which interest payments are due to be made under the terms of the
Notes, then the amount of the next succeeding scheduled interest payment
will be reduced by the amount of interest accrued to such Settlement Date
and required to be paid on such Settlement Date pursuant to Section 8.2 or
12.1.
"SETTLEMENT DATE" means, with respect to the Called Principal of any
Note, the date on which such Called Principal is to be prepaid pursuant to
Section 8.2 or has become or is declared to be immediately due and payable
pursuant to Section 12.1, as the context requires.
9. AFFIRMATIVE COVENANTS.
The Company covenants that so long as any of the Notes are
outstanding:
9.1. COMPLIANCE WITH LAW.
The Company will, and will cause each Subsidiary to, comply with all
laws, ordinances or governmental rules or regulations to which each of them is
subject, including, without limitation, Environmental Laws, and will obtain and
maintain in effect all licenses, certificates, permits, franchises and other
governmental authorizations necessary to the ownership of their respective
properties or to the conduct of their respective businesses, in each case to the
extent necessary to ensure that non-compliance with such laws, ordinances or
governmental rules or regulations or failures to obtain or maintain in effect
such licenses, certificates, permits, franchises and other governmental
authorizations could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect.
9.2. INSURANCE.
The Company will, and will cause each Restricted Subsidiary to,
maintain, with financially sound and reputable insurers, insurance with respect
to their respective properties and businesses against such casualties and
contingencies, of such types, on such terms and in such amounts (including
deductibles, co-insurance and self-insurance, if adequate reserves are
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maintained with respect thereto) as is customary in the case of entities of
established reputations engaged in the same or a similar business and similarly
situated.
9.3. MAINTENANCE OF PROPERTIES.
The Company will and will cause each Restricted Subsidiary to
maintain and keep, or cause to be maintained and kept, their respective
properties in good repair, working order and condition (other than ordinary wear
and tear), so that the business carried on in connection therewith may be
properly conducted at all times, provided that this Section shall not prevent
the Company or any Restricted Subsidiary from discontinuing the operation and
the maintenance of any of its properties if such discontinuance is desirable in
the conduct of its business and the Company has concluded that such
discontinuance could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect.
9.4. PAYMENT OF TAXES AND CLAIMS.
The Company will, and will cause each Subsidiary to, file all tax
returns required to be filed in any jurisdiction and to pay and discharge all
taxes shown to be due and payable on such returns and all other taxes,
assessments, governmental charges, or levies imposed on them or any of their
properties, assets, income or franchises, to the extent such taxes and
assessments have become due and payable and before they have become delinquent
and all claims for which sums have become due and payable that have or might
become a Lien on properties or assets of the Company or any Subsidiary, provided
that neither the Company nor any Subsidiary need pay any such tax or assessment
or claim if (i) the amount, applicability or validity thereof is contested by
the Company or such Subsidiary in good faith and in appropriate proceedings, and
the Company or a Subsidiary has established adequate reserves therefor in
accordance with GAAP on the books of the Company or such Subsidiary or (ii) the
nonpayment of all such taxes, assessments and claims in the aggregate could not
reasonably be expected to have a Material Adverse Effect.
9.5. CORPORATE EXISTENCE, ETC.
Subject to Section 10.4, the Company will at all times preserve and
keep in full force and effect its corporate existence. Subject to Sections 10.3
and 10.4, the Company will at all times preserve and keep in full force and
effect the corporate existence of each Restricted Subsidiary (unless merged into
the Company or another Restricted Subsidiary) and all rights and franchises of
the Company and its Restricted Subsidiaries unless, in the good faith judgment
of the Company, the termination of or failure to preserve and keep in full force
and effect such corporate existence, right or franchise could not, individually
or in the aggregate, have a Material Adverse Effect.
10. NEGATIVE COVENANTS.
The Company covenants that so long as any of the Notes are
outstanding:
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10.1. CONSOLIDATED INDEBTEDNESS; INDEBTEDNESS OF RESTRICTED SUBSIDIARIES.
The Company will not permit:
(a) Consolidated Indebtedness to exceed 65% of Consolidated Total
Capitalization at any time; and
(b) Any Restricted Subsidiary to incur any Indebtedness if, after
giving effect thereto and to the application of the proceeds therefrom,
Priority Debt outstanding would exceed 20% of Consolidated Total
Capitalization.
10.2. LIENS.
The Company will not, and will not permit any Restricted Subsidiary
to, permit to exist, create, assume or incur, directly or indirectly, any Lien
on its properties or assets, whether now owned or hereafter acquired (unless,
concurrently with the incurrence, assumption or creation of such Lien, the
Company makes, or causes to be made, effective provision whereby the Notes are
equally and ratably secured by a Lien on the same property or assets), except:
(a) Liens existing on property or assets of the Company or any
Restricted Subsidiary as of the date of this Agreement that are described
in Schedule 10.2;
(b) Liens for taxes, assessments or governmental charges not then
due and delinquent or the nonpayment of which is permitted by Section 9.4;
(c) encumbrances in the nature of leases, subleases, zoning
restrictions, easements, rights of way and similar charges and
encumbrances of record on the use of real property and defects in title
arising or incurred in the ordinary course of business, which,
individually and in the aggregate, do not materially impair the use or
value of the property or assets subject thereto;
(d) Liens incidental to the conduct of business or the ownership of
properties and assets (including landlords', carriers', warehousemen's,
mechanics', materialmen's and other similar liens) and Liens to secure the
performance of bids, tenders, leases or trade contracts, or to secure
statutory obligations (including obligations under workers compensation,
unemployment insurance and other social security legislation), surety or
appeal bonds or other Liens of like general nature incurred in the
ordinary course of business and not in connection with the borrowing of
money;
(e) any attachment or judgment Lien, unless the judgment it secures
has not, within 60 days after the entry thereof, been discharged or
execution thereof stayed pending appeal, or has not been discharged within
60 days after the expiration of any such stay;
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(f) Liens securing Indebtedness of a Restricted Subsidiary to the
Company or to another Restricted Subsidiary;
(g) Liens (i) existing on property at the time of its acquisition by
the Company or a Restricted Subsidiary and not created in contemplation
thereof, whether or not the Indebtedness secured by such Lien is assumed
by the Company or a Restricted Subsidiary; or (ii) on property created
contemporaneously with its acquisition or within 180 days of the
acquisition or completion of construction or improvement thereof to secure
or provide for all or a portion of the purchase price or cost of
construction or improvement of such property after the date of Closing; or
(iii) existing on property of a Person at the time such Person is merged
or consolidated with, or becomes a Restricted Subsidiary of, or
substantially all of its assets are acquired by, the Company or a
Restricted Subsidiary and not created in contemplation thereof; provided
that in the case of clauses (i), (ii) and (iii) such Liens do not extend
to additional property of the Company or any Restricted Subsidiary (other
than property that is an improvement to or is acquired for specific use in
connection with the subject property) and, in the case of clause (ii)
only, that the aggregate principal amount of Indebtedness secured by each
such Lien does not exceed the lesser of the fair market value (determined
in good faith by the board of directors of the Company or by one or more
officers of the Company to whom authority to enter into the transaction
has been delegated by the board of directors) or cost of acquisition or
construction of the property subject thereto;
(h) Liens coincident to asset securitization transactions;
(i) Liens resulting from extensions, renewals or replacements of
Liens permitted by paragraphs (a), (f), (g) and (h), provided that (i)
there is no increase in the principal amount or decrease in maturity of
the Indebtedness secured thereby at the time of such extension, renewal or
replacement, (ii) any new Lien attaches only to the same property
theretofore subject to such earlier Lien and (iii) immediately after such
extension, renewal or replacement no Default or Event of Default would
exist; and
(j) Additional Liens securing Indebtedness not otherwise permitted
by paragraphs (a) through (i) above, provided that, at the time of
creation, assumption or incurrence thereof and immediately after giving
effect thereto and to the application of the proceeds therefrom, Priority
Debt outstanding does not exceed 20% of Consolidated Total Capitalization.
10.3. SALE OF ASSETS.
Except as permitted by Section 10.4, the Company will not, and will
not permit any Restricted Subsidiary to, sell, lease, transfer or otherwise
dispose of, including by way of merger (collectively a "DISPOSITION"), any
assets, including capital stock of Restricted Subsidiaries, in one or a series
of transactions, to any Person, other than (a) Dispositions in the ordinary
course of business, (b) Dispositions by the Company to a Restricted Subsidiary
or by a Restricted Subsidiary to the Company or another Restricted Subsidiary or
(c) other Dispositions not otherwise permitted by this Section 10.3, including
the sale of receivables pursuant to asset
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securitization transactions, provided that the aggregate net book value of all
assets so disposed of in any fiscal year pursuant to this Section 10.3(c) does
not exceed 10% of Consolidated Total Assets as of the end of the immediately
preceding fiscal year. Notwithstanding the foregoing, the Company may, or may
permit any Restricted Subsidiary to, make a Disposition and the assets subject
to such Disposition shall not be subject to or included in the foregoing
limitation and computation contained in Section 10.3(c) of the preceding
sentence to the extent that (i) such assets were acquired or constructed not
more than 180 days prior to Closing and are leased back by the Company or any
Restricted Subsidiary, as lessee, within 180 days of the acquisition or
construction thereof, or (ii) the net proceeds from such Disposition are within
one year of such Disposition (A) reinvested in productive assets by the Company
or a Restricted Subsidiary or (B) applied to the payment or prepayment of any
outstanding Indebtedness of the Company or any Restricted Subsidiary that is not
subordinated to the Notes. Any prepayment of Notes pursuant to this Section 10.3
shall be in accordance with Sections 8.2 and 8.3, without regard to the minimum
prepayment requirements of Section 8.2.
10.4. MERGERS, CONSOLIDATIONS, ETC.
The Company will not, and will not permit any Restricted Subsidiary
to, consolidate with or merge with any other Person or convey, transfer, sell or
lease all or substantially all of its assets in a single transaction or series
of transactions to any Person except that:
(a) the Company may consolidate or merge with any other Person or
convey, transfer, sell or lease all or substantially all of its assets in
a single transaction or series of transactions to any Person, provided
that:
(i) the successor formed by such consolidation or the survivor
of such merger or the Person that acquires by conveyance, transfer,
sale or lease all or substantially all of the assets of the Company
as an entirety, as the case may be, shall be a solvent corporation
organized and existing under the laws of the United States or any
State thereof (including the District of Columbia), and, if the
Company is not such corporation, such corporation (x) shall have
executed and delivered to each holder of any Notes its assumption of
the due and punctual performance and observance of each covenant and
condition of this Agreement and the Notes and (y) shall have caused
to be delivered to each holder of any Notes an opinion of
independent counsel reasonably satisfactory to the Required Holders,
to the effect that all agreements or instruments effecting such
assumption are enforceable in accordance with their terms and comply
with the terms hereof;
(ii) the successor formed by such consolidation or the
survivor of such merger or the Person that acquires by conveyance,
transfer, sale or lease all or substantially all of the assets of
the Company as an entirety, as the case may be, could incur
immediately thereafter $1.00 of additional Priority Debt;
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(iii) immediately before and after giving effect to such
transaction, no Default or Event of Default shall exist; and
(b) Any Restricted Subsidiary may (x) merge into the Company
(provided that the Company is the surviving corporation) or another
Restricted Subsidiary or (y) sell, transfer or lease all or any part of
its assets to the Company or another Restricted Subsidiary, or (z) merge
or consolidate with, or sell, transfer or lease all or substantially all
of its assets to, any Person in a transaction that is permitted by Section
10.3 or, as a result of which, such Person becomes an Restricted
Subsidiary; provided in each instance set forth in clauses (x) through (z)
that, immediately before and after giving effect thereto, there shall
exist no Default or Event of Default.
10.5. DISPOSITION OF STOCK OF RESTRICTED SUBSIDIARIES.
The Company (i) will not permit any Restricted Subsidiary to issue
its capital stock, or any warrants, rights or options to purchase, or securities
convertible into or exchangeable for, such capital stock, to any Person other
than the Company or another Restricted Subsidiary (other than directors'
qualifying shares, shares satisfying local ownership requirements or shares for
any similar statutory purposes), and (ii) will not, and will not permit any
Restricted Subsidiary to, sell, transfer or otherwise dispose of any shares of
capital stock of a Restricted Subsidiary (other than directors' qualifying
shares, shares satisfying local ownership requirements or shares for any similar
statutory purposes) if such sale would be prohibited by Section 10.3. If a
Restricted Subsidiary at any time ceases to be such as a result of a sale or
issuance of its capital stock, any Liens on property of the Company or any other
Restricted Subsidiary securing Indebtedness owed to such Restricted Subsidiary,
which is not contemporaneously repaid, together with such Indebtedness, shall be
deemed to have been incurred by the Company or such other Restricted Subsidiary,
as the case may be, at the time such Restricted Subsidiary ceases to be a
Restricted Subsidiary.
10.6. DESIGNATION OF UNRESTRICTED SUBSIDIARIES.
The Company may designate any Restricted Subsidiary as an
Unrestricted Subsidiary and any Unrestricted Subsidiary as a Restricted
Subsidiary; provided that, (a) if such Subsidiary initially is a Restricted
Subsidiary, then such Restricted Subsidiary may be subsequently designated as an
Unrestricted Subsidiary and such Unrestricted Subsidiary may be subsequently
designated as a Restricted Subsidiary, but no further changes in designation may
be made, (b) if such Subsidiary initially is an Unrestricted Subsidiary, then
such Unrestricted Subsidiary may be subsequently designated as a Restricted
Subsidiary and such Restricted Subsidiary may be subsequently designated as an
Unrestricted Subsidiary, but no further changes in designation may be made, (c)
immediately before and after designation of a Restricted Subsidiary as an
Unrestricted Subsidiary there exists no Default or Event of Default and (d)
after designation of a Restricted Subsidiary as an Unrestricted Subsidiary, the
Company could incur an additional $1.00 of Priority Debt.
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10.7. NATURE OF BUSINESS.
The Company will not, and will not permit any Restricted Subsidiary
to, engage in any business if, as a result, the general nature of the business
in which the Company and its Restricted Subsidiaries, taken as a whole, would
then be engaged would be substantially changed from the general nature of the
business in which the Company and its Restricted Subsidiaries, taken as a whole,
are engaged on the date of this Agreement as described in the Memorandum.
10.8. TRANSACTIONS WITH AFFILIATES.
The Company will not and will not permit any Restricted Subsidiary
to enter into directly or indirectly any Material transaction or Material group
of related transactions (including without limitation the purchase, lease, sale
or exchange of properties of any kind or the rendering of any service) with any
Affiliate (other than the Company or another Restricted Subsidiary), except upon
fair and reasonable terms no less favorable to the Company or such Restricted
Subsidiary than would be obtainable in a comparable arm's-length transaction
with a Person not an Affiliate.
11. EVENTS OF DEFAULT.
An "EVENT OF DEFAULT" shall exist if any of the following conditions
or events shall occur and be continuing:
(a) the Company defaults in the payment of any principal or
Make-Whole Amount, if any, on any Note when the same becomes due and
payable, whether at maturity or at a date fixed for prepayment or by
declaration or otherwise; or
(b) the Company defaults in the payment of any interest on any Note
for more than five Business Days after the same becomes due and payable;
or
(c) the Company defaults in the performance of or compliance with
any term contained in Section 7.1(e) or Sections 10.1 through 10.8; or
(d) the Company defaults in the performance of or compliance with
any term contained herein (other than those referred to in paragraphs (a),
(b) and (c) of this Section 11) and such default is not remedied within 30
days after the earlier of (i) a Responsible Officer obtaining actual
knowledge of such default and (ii) the Company receiving written notice of
such default from any holder of a Note; or
(e) any representation or warranty made in writing by or on behalf
of the Company or by any officer of the Company in this Agreement or in
any writing furnished in connection with the transactions contemplated
hereby proves to have been false or incorrect in any material respect on
the date as of which made; or
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(f) (i) the Company or any Restricted Subsidiary is in default (as
principal or as guarantor or other surety) in the payment of any principal
of or premium or make-whole amount or interest on any Indebtedness that is
outstanding in an aggregate principal amount in excess of 5% of Adjusted
Consolidated Net Worth (as of the end of the most recently completed
fiscal period of the Company) beyond any period of grace provided with
respect thereto, or (ii) the Company or any Restricted Subsidiary is in
default in the performance of or compliance with any term of any evidence
of any Indebtedness that is outstanding in an aggregate principal amount
in excess of 5% of Adjusted Consolidated Net Worth (as of the end of the
most recently completed fiscal period of the Company) or of any mortgage,
indenture or other agreement relating thereto or any other condition
exists, and as a consequence of such default or condition such
Indebtedness has become, or has been declared, due and payable before its
stated maturity or before its regularly scheduled dates of payment, or
(iii) as a consequence of the occurrence or continuation of any event or
condition (other than the giving of notice of optional redemption, the
passage of time or the right of the holder of Indebtedness to convert such
Indebtedness into equity interests), the Company or any Restricted
Subsidiary has become obligated to purchase or repay Indebtedness before
its regular maturity or before its regularly scheduled dates of payment in
an aggregate outstanding principal amount in excess of 5% of Adjusted
Consolidated Net Worth (as of the end of the most recently completed
fiscal period of the Company); or
(g) the Company or any Significant Subsidiary (i) is generally not
paying, or admits in writing its inability to pay, its debts as they
become due, (ii) files, or consents by answer or otherwise to the filing
against it of, a petition for relief or reorganization or arrangement or
any other petition in bankruptcy, for liquidation or to take advantage of
any bankruptcy, insolvency, reorganization, moratorium or other similar
law of any jurisdiction, (iii) makes an assignment for the benefit of its
creditors, (iv) consents to the appointment of a custodian, receiver,
trustee or other officer with similar powers with respect to it or with
respect to any substantial part of its property, (v) is adjudicated as
insolvent or to be liquidated, or (vi) takes corporate action for the
purpose of authorizing any of the foregoing; or
(h) a court or governmental authority of competent jurisdiction
enters an order appointing, without consent by the Company or any
Significant Subsidiary, a custodian, receiver, trustee or other officer
with similar powers with respect to it or with respect to any substantial
part of its property, or constituting an order for relief or approving a
petition for relief or reorganization or any other petition in bankruptcy
or for liquidation or to take advantage of any bankruptcy or insolvency
law of any jurisdiction, or ordering the dissolution, winding-up or
liquidation of the Company or any Significant Subsidiary, or any such
petition shall be filed against the Company or any Significant Subsidiary
and such petition shall not be dismissed within 60 days; or
(i) a final judgment or judgments for the payment of money
aggregating in excess of 5% of Adjusted Consolidated Net Worth (as of the
end of the most recently completed fiscal period of the Company) are
rendered against one or more of the
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Company and its Significant Subsidiaries, which judgments are not, within
60 days after entry thereof, bonded, discharged or stayed pending appeal,
or are not discharged within 60 days after the expiration of such stay; or
(j) if (i) any Plan shall fail to satisfy the minimum funding
standards of ERISA or the Code for any plan year or part thereof or a
waiver of such standards or extension of any amortization period is sought
or granted under section 412 of the Code, (ii) a notice of intent to
terminate any Plan shall have been or is reasonably expected to be filed
with the PBGC or the PBGC shall have instituted proceedings under ERISA
section 4042 to terminate or appoint a trustee to administer any Plan or
the PBGC shall have notified the Company or any ERISA Affiliate that a
Plan may become a subject of any such proceedings, (iii) the aggregate
"amount of unfunded benefit liabilities" (within the meaning of section
4001(a)(18) of ERISA) under all Plans, determined in accordance with Title
IV of ERISA, shall exceed 5% of Adjusted Consolidated Net Worth (as of the
end of the most recently completed fiscal period of the Company), (iv) the
Company or any ERISA Affiliate shall have incurred or is reasonably
expected to incur any liability pursuant to Title I or IV of ERISA or the
penalty or excise tax provisions of the Code relating to employee benefit
plans, (v) the Company or any ERISA Affiliate withdraws from any
Multiemployer Plan, or (vi) the Company or any Subsidiary establishes or
amends any employee welfare benefit plan that provides post-employment
welfare benefits in a manner that would increase the liability of the
Company or any Subsidiary thereunder; and any such event or events
described in clauses (i) through (vi) above, either individually or
together with any other such event or events, could reasonably be expected
to have a Material Adverse Effect.
As used in Section 11(j), the terms "EMPLOYEE BENEFIT PLAN" and "EMPLOYEE
WELFARE BENEFIT PLAN" shall have the respective meanings assigned to such terms
in Section 3 of ERISA.
12. REMEDIES ON DEFAULT, ETC.
12.1. ACCELERATION.
(a) If an Event of Default with respect to the Company described in
paragraph (g) or (h) of Section 11 (other than an Event of Default
described in clause (i) of paragraph (g) or described in clause (vi) of
paragraph (g) by virtue of the fact that such clause encompasses clause
(i) of paragraph (g)) has occurred, all the Notes then outstanding shall
automatically become immediately due and payable.
(b) If any other Event of Default has occurred and is continuing,
any holder or holders of more than 50% in principal amount of the Notes at
the time outstanding may at any time at its or their option, by notice or
notices to the Company, declare all the Notes then outstanding to be
immediately due and payable.
(c) If any Event of Default described in paragraph (a) or (b) of
Section 11 has occurred and is continuing, any holder or holders of Notes
at the time outstanding affected by such Event of Default may at any time,
at its or their option, by notice or
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<PAGE>
notices to the Company, declare all the Notes held by it or them to be
immediately due and payable.
Upon any Notes becoming due and payable under this Section 12.1,
whether automatically or by declaration, such Notes will forthwith mature and
the entire unpaid principal amount of such Notes, plus (x) all accrued and
unpaid interest thereon and (y) the Make-Whole Amount determined in respect of
such principal amount (to the full extent permitted by applicable law), shall
all be immediately due and payable, in each and every case without presentment,
demand, protest or further notice, all of which are hereby waived. The Company
acknowledges, and the parties hereto agree, that each holder of a Note has the
right to maintain its investment in the Notes free from repayment by the Company
(except as herein specifically provided for) and that the provision for payment
of a Make-Whole Amount by the Company in the event that the Notes are prepaid or
are accelerated as a result of an Event of Default, is intended to provide
compensation for the deprivation of such right under such circumstances.
12.2. OTHER REMEDIES.
If any Default or Event of Default has occurred and is continuing,
and irrespective of whether any Notes have become or have been declared
immediately due and payable under Section 12.1, the holder of any Note at the
time outstanding may proceed to protect and enforce the rights of such holder by
an action at law, suit in equity or other appropriate proceeding, whether for
the specific performance of any agreement contained herein or in any Note, or
for an injunction against a violation of any of the terms hereof or thereof, or
in aid of the exercise of any power granted hereby or thereby or by law or
otherwise.
12.3. RESCISSION.
At any time after any Notes have been declared due and payable
pursuant to clause (b) or (c) of Section 12.1, the holders of more than 50% in
principal amount of the Notes then outstanding, by written notice to the
Company, may rescind and annul any such declaration and its consequences if (a)
the Company has paid all overdue interest on the Notes, all principal of and
Make-Whole Amount, if any, on any Notes that are due and payable and are unpaid
other than by reason of such declaration, and all interest on such overdue
principal and Make-Whole Amount, if any, and (to the extent permitted by
applicable law) any overdue interest in respect of the Notes, at the Default
Rate, (b) all Events of Default and Defaults, other than non-payment of amounts
that have become due solely by reason of such declaration, have been cured or
have been waived pursuant to Section 17, and (c) no judgment or decree has been
entered for the payment of any monies due pursuant hereto or to the Notes. No
rescission and annulment under this Section 12.3 will extend to or affect any
subsequent Event of Default or Default or impair any right consequent thereon.
12.4. NO WAIVERS OR ELECTION OF REMEDIES, EXPENSES, ETC.
No course of dealing and no delay on the part of any holder of any
Note in exercising any right, power or remedy shall operate as a waiver thereof
or otherwise prejudice
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<PAGE>
such holder's rights, powers or remedies. No right, power or remedy conferred by
this Agreement or by any Note upon any holder thereof shall be exclusive of any
other right, power or remedy referred to herein or therein or now or hereafter
available at law, in equity, by statute or otherwise. Without limiting the
obligations of the Company under Section 15, the Company will pay to the holder
of each Note on demand such further amount as shall be sufficient to cover all
costs and expenses of such holder incurred in any enforcement or collection
under this Section 12, including, without limitation, reasonable attorneys'
fees, expenses and disbursements.
13. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES.
13.1. REGISTRATION OF NOTES.
The Company shall keep at its principal executive office a register
for the registration and registration of transfers of Notes. The name and
address of each holder of one or more Notes, each transfer thereof and the name
and address of each transferee of one or more Notes shall be registered in such
register. Prior to due presentment for registration of transfer, the Person in
whose name any Note shall be registered shall be deemed and treated as the owner
and holder thereof for all purposes hereof, and the Company shall not be
affected by any notice or knowledge to the contrary. The Company shall give to
any holder of a Note that is an Institutional Investor, promptly upon request
therefor, a complete and correct copy of the names and addresses of all
registered holders of Notes.
13.2. TRANSFER AND EXCHANGE OF NOTES.
Upon surrender of any Note at the principal executive office of the
Company for registration of transfer or exchange (and in the case of a surrender
for registration of transfer, duly endorsed or accompanied by a written
instrument of transfer duly executed by the registered holder of such Note or
his attorney duly authorized in writing and accompanied by the address for
notices of each transferee of such Note or part thereof), the Company shall
execute and deliver, at the Company's expense (except as provided below), one or
more new Notes (as requested by the holder thereof) of the same series in
exchange therefor, in an aggregate principal amount equal to the unpaid
principal amount of the surrendered Note. Each such new Note shall be payable to
such Person as such holder may request and shall be substantially in the form of
Note established for such series. Each such new Note shall be dated and bear
interest from the date to which interest shall have been paid on the surrendered
Note or dated the date of the surrendered Note if no interest shall have been
paid thereon. The Company may require payment of a sum sufficient to cover any
stamp tax or governmental charge imposed in respect of any such transfer of
Notes. Notes shall not be transferred in denominations of less than $500,000,
provided that if necessary to enable the registration of transfer by a holder of
its entire holding of Notes, one Note may be in a denomination of less than
$500,000. Any transferee, by its acceptance of a Note registered in its name (or
the name of its nominee), shall be deemed to have made the representations set
forth in Sections 6.1(to the extent such representation is required for such
transfer) and 6.2.
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13.3. REPLACEMENT OF NOTES.
Upon receipt by the Company of evidence reasonably satisfactory to
it of the ownership of and the loss, theft, destruction or mutilation of any
Note (which evidence shall be, in the case of an Institutional Investor, notice
from such Institutional Investor of such ownership and such loss, theft,
destruction or mutilation), and
(a) in the case of loss, theft or destruction, of indemnity
reasonably satisfactory to it (provided that if the holder of such Note
is, or is a nominee for, an original Purchaser or another Institutional
Investor holder of a Note with a minimum net worth of at least
$250,000,000, such Person's own unsecured agreement of indemnity shall be
deemed to be satisfactory), or
(b) in the case of mutilation, upon surrender and cancellation
thereof,
the Company at its own expense shall execute and deliver, in lieu thereof, a new
Note of the same series, dated and bearing interest from the date to which
interest shall have been paid on such lost, stolen, destroyed or mutilated Note
or dated the date of such lost, stolen, destroyed or mutilated Note if no
interest shall have been paid thereon.
14. PAYMENTS ON NOTES.
14.1. PLACE OF PAYMENT.
Subject to Section 14.2, payments of principal, Make-Whole Amount,
if any, and interest becoming due and payable on the Notes shall be made in
Chicago, Illinois at the principal office of Bank of America National Trust &
Savings Association in such jurisdiction. The Company may at any time, by notice
to each holder of a Note, change the place of payment of the Notes so long as
such place of payment shall be either the principal office of the Company in
such jurisdiction or the principal office of a bank or trust company in such
jurisdiction.
14.2. HOME OFFICE PAYMENT.
So long as you or your nominee shall be the holder of any Note, and
notwithstanding anything contained in Section 14.1 or in such Note to the
contrary, the Company will pay all sums becoming due on such Note for principal,
Make-Whole Amount, if any, and interest by the method and at the address
specified for such purpose below your name in Schedule A, or by such other
method or at such other address as you shall have from time to time specified to
the Company in writing for such purpose, without the presentation or surrender
of such Note or the making of any notation thereon, except that upon written
request of the Company made concurrently with or reasonably promptly after
payment or prepayment in full of any Note, you shall surrender such Note for
cancellation, reasonably promptly after any such request, to the Company at its
principal executive office or at the place of payment most recently designated
by the Company pursuant to Section 14.1. Prior to any sale or other disposition
of any Note held by you or your nominee you will, at your election, either
endorse thereon the amount of principal paid thereon and the last date to which
interest has been paid thereon or
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surrender such Note to the Company in exchange for a new Note or Notes pursuant
to Section 13.2. The Company will afford the benefits of this Section 14.2 to
any Institutional Investor that is the direct or indirect transferee of any Note
purchased by you under this Agreement and that has made the same agreement
relating to such Note as you have made in this Section 14.2.
15. EXPENSES, ETC.
15.1. TRANSACTION EXPENSES.
Whether or not the transactions contemplated hereby are consummated,
the Company will pay all costs and expenses (including reasonable attorneys'
fees of one special counsel for you and the Other Purchasers collectively and,
if reasonably required, local or other counsel) incurred by you and each Other
Purchaser or holder of a Note in connection with such transactions and in
connection with any amendments, waivers or consents under or in respect of this
Agreement or the Notes (whether or not such amendment, waiver or consent becomes
effective), including, without limitation: (a) the reasonable costs and expenses
incurred in enforcing or defending (or determining whether or how to enforce or
defend) any rights under this Agreement or the Notes or in responding to any
subpoena or other legal process or informal investigative demand issued in
connection with this Agreement or the Notes, or by reason of being a holder of
any Note, and (b) the costs and expenses, including financial advisors' fees,
incurred in connection with the insolvency or bankruptcy of the Company or any
Subsidiary or in connection with any work-out or restructuring of the
transactions contemplated hereby and by the Notes. The Company will pay, and
will save you and each other holder of a Note harmless from, all claims in
respect of any fees, costs or expenses if any, of brokers and finders (other
than those retained by you).
15.2. SURVIVAL.
The obligations of the Company under this Section 15 will survive
the payment or transfer of any Note, the enforcement, amendment or waiver of any
provision of this Agreement or the Notes, and the termination of this Agreement.
16. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT.
All representations and warranties contained herein shall survive
the execution and delivery of this Agreement and the Notes, the purchase or
transfer by you of any Note or portion thereof or interest therein and the
payment of any Note, and may be relied upon by any subsequent holder of a Note,
regardless of any investigation made at any time by or on behalf of you or any
other holder of a Note. All statements contained in any certificate or other
instrument delivered by or on behalf of the Company pursuant to this Agreement
shall be deemed representations and warranties of the Company under this
Agreement. Subject to the preceding sentence, this Agreement and the Notes
embody the entire agreement and understanding between you and the Company and
supersede all prior agreements and understandings relating to the subject matter
hereof.
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17. AMENDMENT AND WAIVER.
17.1. REQUIREMENTS.
This Agreement and the Notes may be amended, and the observance of
any term hereof or of the Notes may be waived (either retroactively or
prospectively), with (and only with) the written consent of the Company and the
Required Holders, except that (a) no amendment or waiver of any of the
provisions of Section 1, 2, 3, 4, 5, 6 or 21 hereof, or any defined term (as it
is used therein), will be effective as to you unless consented to by you in
writing, and (b) no such amendment or waiver may, without the written consent of
the holder of each Note at the time outstanding affected thereby, (i) subject to
the provisions of Section 12 relating to acceleration or rescission, change the
amount or time of any prepayment or payment of principal of, or reduce the rate
or change the time of payment or method of computation of interest or of the
Make-Whole Amount on, the Notes, (ii) change the percentage of the principal
amount of the Notes the holders of which are required to consent to any such
amendment or waiver, or (iii) amend any of Sections 8, 11(a), 11(b), 12, 17 or
20.
17.2. SOLICITATION OF HOLDERS OF NOTES.
(a) Solicitation. The Company will provide each holder of the Notes
(irrespective of the amount of Notes then owned by it) with sufficient
information, sufficiently far in advance of the date a decision is
required, to enable such holder to make an informed and considered
decision with respect to any proposed amendment, waiver or consent in
respect of any of the provisions hereof or of the Notes. The Company will
deliver executed or true and correct copies of each amendment, waiver or
consent effected pursuant to the provisions of this Section 17 to each
holder of outstanding Notes promptly following the date on which it is
executed and delivered by, or receives the consent or approval of, the
requisite holders of Notes.
(b) Payment. The Company will not directly or indirectly pay or
cause to be paid any remuneration, whether by way of supplemental or
additional interest, fee or otherwise, or grant any security, to any
holder of Notes as consideration for or as an inducement to the entering
into by any holder of Notes or any waiver or amendment of any of the terms
and provisions hereof unless such remuneration is concurrently paid, or
security is concurrently granted, on the same terms, ratably to each
holder of Notes then outstanding even if such holder did not consent to
such waiver or amendment.
17.3. BINDING EFFECT, ETC.
Any amendment or waiver consented to as provided in this Section 17
applies equally to all holders of Notes and is binding upon them and upon each
future holder of any Note and upon the Company without regard to whether such
Note has been marked to indicate such amendment or waiver. No such amendment or
waiver will extend to or affect any obligation, covenant, agreement, Default or
Event of Default not expressly amended or waived or impair any right consequent
thereon. No course of dealing between the Company and the holder of any Note nor
any delay in exercising any rights hereunder or under any Note shall operate as
a waiver
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<PAGE>
of any rights of any holder of such Note. As used herein, the term "THIS
AGREEMENT" or "THE AGREEMENT" and references thereto shall mean this Agreement
as it may from time to time be amended or supplemented.
17.4. NOTES HELD BY COMPANY, ETC.
Solely for the purpose of determining whether the holders of the
requisite percentage of the aggregate principal amount of Notes then outstanding
approved or consented to any amendment, waiver or consent to be given under this
Agreement or the Notes, or have directed the taking of any action provided
herein or in the Notes to be taken upon the direction of the holders of a
specified percentage of the aggregate principal amount of Notes then
outstanding, Notes directly or indirectly owned by the Company or any of its
Affiliates shall be deemed not to be outstanding.
18. NOTICES.
All notices and communications provided for hereunder shall be in
writing and sent (a) by telecopy if the sender on the same day sends a
confirming copy of such notice by a recognized overnight delivery service
(charges prepaid), or (b) by registered or certified mail with return receipt
requested (postage prepaid), or (c) by a recognized overnight delivery service
(with charges prepaid). Any such notice must be sent:
(i) if to you or your nominee, to you or it at the address
specified for such communications in Schedule A, or at such other
address as you or it shall have specified to the Company in writing,
(ii) if to any other holder of any Note, to such holder at
such address as such other holder shall have specified to the
Company in writing, or
(iii) if to the Company, to the Company at its address set
forth at the beginning hereof to the attention of the Chief
Financial Officer, or at such other address as the Company shall
have specified to the holder of each Note in writing.
Notices under this Section 18 will be deemed given only when actually received.
19. REPRODUCTION OF DOCUMENTS.
This Agreement and all documents relating thereto, including,
without limitation, (a) consents, waivers and modifications that may hereafter
be executed, (b) documents received by you at the Closing (except the Notes
themselves), and (c) financial statements, certificates and other information
previously or hereafter furnished to you, may be reproduced by you by any
photographic, photostatic, microfilm, microcard, miniature photographic or other
similar process and you may destroy any original document so reproduced. The
Company agrees and stipulates that, to the extent permitted by applicable law,
any such reproduction shall be admissible in evidence as the original itself in
any judicial or administrative proceeding (whether or not the original is in
existence and whether or not such reproduction was made by you in the regular
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<PAGE>
course of business) and any enlargement, facsimile or further reproduction of
such reproduction shall likewise be admissible in evidence. This Section 19
shall not prohibit the Company or any other holder of Notes from contesting any
such reproduction to the same extent that it could contest the original, or from
introducing evidence to demonstrate the inaccuracy of any such reproduction.
20. CONFIDENTIAL INFORMATION.
For the purposes of this Section 20, "CONFIDENTIAL INFORMATION"
means information delivered to you by or on behalf of the Company or any
Subsidiary in connection with the transactions contemplated by or otherwise
pursuant to this Agreement that is proprietary in nature and that was clearly
marked or labeled or otherwise adequately identified in writing when received by
you as being confidential or nonpublic information of the Company or such
Subsidiary, provided that such term does not include information that (a) was
publicly known or otherwise known to you prior to the time of such disclosure,
(b) subsequently becomes publicly known through no act or omission by you or any
person acting on your behalf, (c) otherwise becomes known to you other than
through disclosure by the Company or any Subsidiary or a Person known to you to
be under an obligation of confidentiality to the Company, or (d) constitutes
financial statements delivered to you under Section 7.1 that are otherwise
publicly available. You will maintain the confidentiality of such Confidential
Information in accordance with procedures adopted by you in good faith to
protect confidential information of third parties delivered to you, provided
that you may deliver or disclose Confidential Information to (i) your directors,
trustees, officers, employees, agents, attorneys and affiliates (to the extent
such disclosure reasonably relates to the administration of the investment
represented by your Notes), (ii) your financial advisors and other professional
advisors who agree to hold confidential the Confidential Information
substantially in accordance with the terms of this Section 20 (to the extent
such disclosure reasonably relates to the administration of the investment
represented by your Notes), (iii) any other holder of any Note, (iv) any
Institutional Investor to which you sell or offer to sell such Note or any part
thereof or any participation therein (if such Person has agreed in writing prior
to its receipt of such Confidential Information to be bound by the provisions of
this Section 20), (v) any Person from which you offer to purchase any security
of the Company (if such Person has agreed in writing prior to its receipt of
such Confidential Information to be bound by the provisions of this Section 20),
(vi) any federal or state regulatory authority having supervisory jurisdiction
over you, (vii) the National Association of Insurance Commissioners or any
similar organization, or any nationally recognized rating agency that requires
access to information about your investment portfolio or (viii) any other Person
to which such delivery or disclosure may be necessary or appropriate (w) to
effect compliance with any law, rule, regulation or order applicable to you, (x)
in response to any subpoena or other legal process, (y) in connection with any
litigation to which you are a party or (z) if an Event of Default has occurred
and is continuing, to the extent you may reasonably determine such delivery and
disclosure to be necessary or appropriate in the enforcement or for the
protection of the rights and remedies under your Notes and this Agreement. Each
holder of a Note, by its acceptance of a Note, will be deemed to have agreed to
be bound by and to be entitled to the benefits of this Section 20 as though it
were a party to this Agreement. On reasonable request by the Company in
connection with the delivery to any holder of a Note of information required to
be delivered to
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such holder under this Agreement or requested by such holder (other than a
holder that is a party to this Agreement or its nominee), such holder will enter
into an agreement with the Company embodying the provisions of this Section 20.
21. SUBSTITUTION OF PURCHASER.
You shall have the right to substitute any one of your Affiliates as
the purchaser of the Notes that you have agreed to purchase hereunder, by
written notice to the Company, which notice shall be signed by both you and such
Affiliate, shall contain such Affiliate's agreement to be bound by this
Agreement and shall contain a confirmation by such Affiliate of the accuracy
with respect to it of the representations set forth in Section 6. Upon receipt
of such notice, wherever the word "you" is used in this Agreement (other than in
this Section 21), such word shall be deemed to refer to such Affiliate in lieu
of you. In the event that such Affiliate is so substituted as a purchaser
hereunder and such Affiliate thereafter transfers to you all of the Notes then
held by such Affiliate, upon receipt by the Company of notice of such transfer,
wherever the word "you" is used in this Agreement (other than in this Section
21), such word shall no longer be deemed to refer to such Affiliate, but shall
refer to you, and you shall have all the rights of an original holder of the
Notes under this Agreement.
22. MISCELLANEOUS.
22.1. SUCCESSORS AND ASSIGNS.
All covenants and other agreements contained in this Agreement by or
on behalf of any of the parties hereto bind and inure to the benefit of their
respective successors and assigns (including, without limitation, any subsequent
holder of a Note) whether so expressed or not.
22.2. PAYMENTS DUE ON NON-BUSINESS DAYS.
Anything in this Agreement or the Notes to the contrary
notwithstanding, any payment of principal of or Make-whole Amount or interest on
any Note that is due on a date other than a Business Day shall be made on the
next succeeding Business Day without including the additional days elapsed in
the computation of the interest payable on such next succeeding Business Day.
22.3. SEVERABILITY.
Any provision of this Agreement that is prohibited or unenforceable
in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent
of such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall (to the full extent permitted by law) not invalidate or
render unenforceable such provision in any other jurisdiction.
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22.4. CONSTRUCTION.
Each covenant contained herein shall be construed (absent express
provision to the contrary) as being independent of each other covenant contained
herein, so that compliance with any one covenant shall not (absent such an
express contrary provision) be deemed to excuse compliance with any other
covenant. Where any provision herein refers to action to be taken by any Person,
or which such Person is prohibited from taking, such provision shall be
applicable whether such action is taken directly or indirectly by such Person.
22.5. COUNTERPARTS.
This Agreement may be executed in any number of counterparts, each
of which shall be an original but all of which together shall constitute one
instrument. Each counterpart may consist of a number of copies hereof, each
signed by less than all, but together signed by all, of the parties hereto.
22.6. GOVERNING LAW.
This Agreement shall be construed and enforced in accordance with,
and the rights of the parties shall be governed by, the law of the State of
Illinois excluding choice-of-law principles of the law of such State that would
require the application of the laws of a jurisdiction other than such State.
* * * * *
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If you are in agreement with the foregoing, please sign the form of
agreement on the accompanying counterpart of this Agreement and return it to the
Company, whereupon the foregoing shall become a binding agreement between you
and the Company.
Very truly yours,
DONALDSON COMPANY, INC.
By:
------------------------------
Name:
Title:
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The foregoing is agreed to
as of the date thereof.
METROPOLITAN LIFE INSURANCE
COMPANY
By:
---------------------------------
Name:
Title:
PRINCIPAL LIFE INSURANCE
COMPANY
By:
---------------------------------
Name:
Title:
By:
---------------------------------
Name:
Title:
TMG LIFE INSURANCE COMPANY
By:
---------------------------------
Name:
Title:
By:
---------------------------------
Name:
Title:
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STATE FARM LIFE INSURANCE COMPANY
By:
---------------------------------
Name:
Title:
By:
---------------------------------
Name:
Title:
AMERITAS LIFE INSURANCE CORP.
By: Ameritas Investment Advisors, Inc.,
as Agent
By:
---------------------------------
Name: Patrick J. Henry
Title: Vice President - Fixed Income Securities
AMERITAS VARIABLE LIFE INSURANCE
COMPANY
By: Ameritas Investment Advisors, Inc.,
as Agent
By:
---------------------------------
Name: Patrick J. Henry
Title: Vice President - Fixed Income Securities
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SCHEDULE A
INFORMATION RELATING TO PURCHASERS
Principal Amount of
Name and Address of Purchaser Notes to be Purchased
- ----------------------------- ---------------------
METROPOLITAN LIFE INSURANCE $22,000,000
COMPANY Series 1998-A, Tranche 2
(1) All payments by wire transfer of immediately available funds to:
Metropolitan Life Insurance Company, Corporate Investments
Account No. 002-2-410591
The Chase Manhattan Bank
Metropolitan Branch
33 East 23rd Street
New York, NY 10010
ABA # 021000021
providing sufficient information, including PPN, to identify the source
and application of funds and requesting the bank to send a credit advice
thereof to Metropolitan Life Insurance Company.
(2) All other communications:
Metropolitan Life Insurance Company
Fixed Income Investments
334 Madison Avenue, P.O. Box 633
Convent Station, NJ 07961-0633
Attention: Private Placement Unit
Telecopier Number: (973) 254-3050
Tax ID #13-5581829
Schedule A
<PAGE>
Principal Amount of
Name and Address of Purchaser Notes to be Purchased
- ----------------------------- ---------------------
PRINCIPAL LIFE INSURANCE $10,000,000
COMPANY Series 1998-A, Tranche 1
711 High Street
Des Moines, IA 50392-0800
Attention: Investment Department - Secuirities
Fax: (515) 248-2490
Tel: (515) 248-3495
Address for all communications is as above,
except notices of payment with respect to the
notes, which shall be addressed to:
Principal Life Insurance Company
711 High Street
Des Moines, IA 50392-0960
Attention: Investment Accounting - Secuirities
Fax: (515) 248-2643
Tel: (515) 247-0689
All payments are to be by bank wire transfer of
immediately available funds to:
Norwest Bank Iowa, N.A.
7th & Walnut Streets
Des Moines, IA 50309
ABA # 073000228 OBI PFGSE (S) B0061681 ( )
For credit to Principal Life Insurance Company
Account No. 032395
2
Schedule A
<PAGE>
With the following accompanying information:
Name of Company: Donaldson Company, Inc.
Description of Security: $23,000,000 Series 1998-A, Tranche 1,
Senior Notes due July 15, 2005
Issuance Date: __________________________
Security Number: 257651 A* 0
Bond Number: 16-B-61681
due Date and Application (as among principal, premium and interest)
of the payment being made.
Notes to be delivered to the Law Department of Purchaser
Taxpayer ID #42-0127290
3
Schedule A
<PAGE>
Principal Amount of
Name and Address of Purchaser Notes to be Purchased
- ----------------------------- ---------------------
TMG LIFE INSURANCE COMPANY $5,000,000
c/o The Mutual Group (U.S.), Inc. Series 1998-A, Tranche 1
401 North Executive Drive, Suite 300
Brookfield, WI 53008-0503
Attention: Connie Keller
Phone: (414) 641-4022
Facsimile: (414) 641-4055
(1) All payments on account of the Notes shall be made by wire or interbank
transfer of immediately available funds to:
Norwest Bank Minnesota, N.A.
ABA# 091000019
BNF A/C: 0840245
BNF: Trust Clearing Account
REF: ATTN: Income Collections
TRUST ACCOUNT: 12250600
Service Experts PPN: 257651 A* 0
(2) All notices in respect of payment shall be delivered to:
TMG Life Insurance Company
c/o The Mutual Group (U.S.), Inc.
Attention: Tamie Greenwood
401 North Executive Drive, Suite 300
Brookfield, WI 53008-0503
Phone: (414) 641-4027
Facsimile: (414) 641-4055
(3) All other communications shall be delivered to:
TMG Life Insurance Company
c/o The Mutual Group (U.S.), Inc.
401 North Executive Drive, Suite 300
Brookfield, WI 53008-0503
Phone: (414) 641-4027
Facsimile: (414) 641-4055
Name of Nominee in which Notes are to be issued: TMG Life Insurance Company
4
Schedule A
<PAGE>
Taxpayer I.D. #: 45-0208990
5
Schedule A
<PAGE>
Principal Amount of
Name and Address of Purchaser Notes to be Purchased
- ----------------------------- ---------------------
STATE FARM LIFE INSURANCE $5,000,000
COMPANY Series 1998-A, Tranche 1
$5,000,000
Series 1998-A, Tranche 2
WIRE TRANSFER INSTRUCTIONS
The Chase Manhattan Bank
ABA No. 021000021
SSG Private Income Processing
A/C #900-9-000200
For Credit To Account Number G 06893
Ref. PPN: 257651 A* 0 (Series 1998-A, Tranche 1)
PPN: 257651 A @ 8 (Series 1998-A, Tranche 2)
Rate: 6.20% (Series 1998-A, Tranche 1)
6.31% (Series 1998-A, Tranche 2)
Maturity Date: July 15, 2005 (Series 1998-A, Tranche 1)
July 15, 2008 (Series 1998-B, Tranche 2)
SEND NOTICES TO:
State Farm Life Insurance Company
Investment Dept. E-10
One State Farm Plaza
Bloomington, IL 61710
SEND CONFIRMATIONS TO:
State Farm Life Insurance Company
Investment Accounting Dept. D-3
One State Farm Plaza
Bloomington, IL 61710
6
Schedule A
<PAGE>
SEND THE ORIGINAL (VIA REGISTERED MAIL) TO:
Chase Manhattan Bank
Attn: Barbara Walsh
(North America Insurance)
3 Chase Metrotech Center - 6th Floor
Brooklyn, New York 11245
SEND AN ADDITIONAL COPY OF THE ORIGINAL SECURITY TO:
State Farm Life Insurance Company
One State Farm Plaza E-8
Bloomington, IL 61710
Attn: Investment Legal E-8
Larry Rottunda, Investment Counsel
Tax ID #37-0533090
7
Schedule A
<PAGE>
Principal Amount of
Name and Address of Purchaser Notes to be Purchased
- ----------------------------- ---------------------
AMERITAS LIFE INSURANCE $2,000,000
CORP. Series 1998-A, Tranche 1
(1) All payments by wire trans-
fer of immediately available
funds to:
U.S. Bank
ABA# 104-000-029
Ameritas Life Insurance Corp.
Acct# 1-494-0070-0188
Re: Description of Note; Principal
& Interest Breakdown
with sufficient information
to identify the source and
application of such funds.
(2) All notices of payments and
written confirmations of such
wire transfers:
Ameritas Life Insurance Corp.
5900 "O" Street
Lincoln, NE 68510-2234
Fax Number (402) 467-6970
Attn: James Mikus
(3) All other communications:
Ameritas Life Insurance Corp.
5900 "O" Street
Lincoln, NE 68510-2234
Attn: James Mikus
Tax ID Number: 47-0098400
8
Schedule A
<PAGE>
Principal Amount of
Name and Address of Purchaser Notes to be Purchased
- ----------------------------- ---------------------
AMERITAS VARIABLE LIFE INSURANCE $1,000,000
COMPANY Series 1998-A, Tranche 1
5900 "O" Street
Lincoln, NE 68510-2234
(1) All payments by wire trans-
fer of Federal or other immediately
available funds to:
Bankers Trust Company
ABA# 021-001-033
Attn: Private Placement Processing
FCC: Ameritas Variable Life Insurance Company
Acct: 097223
Re: Description of Note; Principal
& Interest Breakdown with sufficient information
with sufficient information
to identify the source and
application of such funds.
(2) All notices of payments and
written confirmations of such
wire transfers:
Ameritas Variable Life Insurance Company
c/o Ameritas Life Insurance Corp.
5900 "O" Street
Lincoln, NE 68510-2234
Fax Number (402) 467-6970
Attn: James Mikus
(3) All other communications:
Ameritas Variable Life Insurance Company
Ameritas Life Insurance Corp.
5900 "O" Street
Lincoln, NE 68510-2234
Attn: James Mikus
9
Schedule A
<PAGE>
Tax ID Number: 47-0657746
10
Schedule A
<PAGE>
SCHEDULE B
DEFINED TERMS
As used herein, the following terms have the respective meanings set
forth below or set forth in the Section hereof following such term:
"ADJUSTED CONSOLIDATED NET WORTH" means, as of any date,
consolidated stockholders' equity of the Company and its Restricted Subsidiaries
on such date, determined in accordance with GAAP, less the amount by which
outstanding Restricted Investments on such date exceed 10% of the consolidated
stockholders' equity of the Company and its Restricted Subsidiaries, determined
in accordance with GAAP.
"AFFILIATE" means, at any time, and with respect to any Person, (a)
any other Person that at such time directly or indirectly through one or more
intermediaries Controls, or is Controlled by, or is under common Control with,
such first Person, and (b) any Person beneficially owning or holding, directly
or indirectly, 10% or more of any class of voting or equity interests of the
Company or any Subsidiary or any corporation of which the Company and its
Subsidiaries beneficially own or hold, in the aggregate, directly or indirectly,
10% or more of any class of voting or equity interests. As used in this
definition, "CONTROL" means the possession, directly or indirectly, of the power
to direct or cause the direction of the management and policies of a Person,
whether through the ownership of voting securities, by contract or otherwise.
Unless the context otherwise clearly requires, any reference to an "Affiliate"
is a reference to an Affiliate of the Company.
"BUSINESS DAY" means (a) for the purposes of Section 8.6 only, any
day other than a Saturday, a Sunday or a day on which commercial banks in New
York City are required or authorized to be closed, and (b) for the purposes of
any other provision of this Agreement, any day other than a Saturday, a Sunday
or a day on which commercial banks in Chicago, Illinois or New York City are
required or authorized to be closed.
"CAPITAL LEASE" means, at any time, a lease with respect to which
the lessee is required concurrently to recognize the acquisition of an asset and
the incurrence of a liability in accordance with GAAP.
"CLOSING" is defined in Section 3.
"CODE" means the Internal Revenue Code of 1986, as amended from time
to time, and the rules and regulations promulgated thereunder from time to time.
"COMPANY" means Donaldson Company, Inc., a Delaware corporation.
Schedule B
<PAGE>
"CONFIDENTIAL INFORMATION" is defined in Section 20.
"CONSOLIDATED INDEBTEDNESS" means, as of any date, Indebtedness of
the Company and its Restricted Subsidiaries as of such date determined on a
consolidated basis in accordance with GAAP.
"CONSOLIDATED TOTAL ASSETS" means, as of any date, the assets and
properties of the Company and its Restricted Subsidiaries as of such date
determined on a consolidated basis in accordance with GAAP.
"CONSOLIDATED TOTAL CAPITALIZATION" means, as of any date, the sum
of Consolidated Indebtedness and Adjusted Consolidated Net Worth as of such
date.
"DEFAULT" means an event or condition the occurrence or existence of
which would, with the lapse of time or the giving of notice or both, become an
Event of Default.
"DEFAULT RATE" means that rate of interest that is the greater of
(i) 2% per annum above the rate of interest stated in clause (a) of the first
paragraph of the Notes or (ii) 2% over the rate of interest publicly announced
by Bank of America National Trust & Savings Association in Chicago, Illinois as
its "base" or "prime" rate.
"DOMESTIC RESTRICTED SUBSIDIARY" means any Restricted Subsidiary
organized under the laws of the United States or any State thereof (including
the District of Columbia), substantially all of whose assets and business are
located or transacted in the United States.
"ENVIRONMENTAL LAWS" means any and all Federal, state, local, and
foreign statutes, laws, regulations, ordinances, rules, judgments, orders,
decrees, permits, concessions, grants, franchises, licenses, agreements or
governmental restrictions relating to pollution and the protection of the
environment or the release of any materials into the environment, including but
not limited to those related to hazardous substances or wastes, air emissions
and discharges to waste or public systems.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended from time to time, and the rules and regulations promulgated
thereunder from time to time in effect.
"ERISA AFFILIATE" means any trade or business (whether or not
incorporated) that is treated as a single employer together with the Company
under section 414 of the Code.
"EVENT OF DEFAULT" is defined in Section 11.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
2
Schedule B
<PAGE>
"GAAP" means generally accepted accounting principles as in effect
from time to time in the United States of America.
"GOVERNMENTAL AUTHORITY" means
(a) the government of
(i) the United States of America or any State or other
political subdivision thereof, or
(ii) any jurisdiction in which the Company or any Subsidiary
conducts all or any part of its business, or which otherwise has
jurisdiction over any properties of the Company or any Subsidiary,
or
(b) any entity exercising executive, legislative, judicial,
regulatory or administrative functions of, or pertaining to, any such
government.
"GUARANTY" means, with respect to any Person, any obligation (except
the endorsement in the ordinary course of business of negotiable instruments for
deposit or collection and representations and warranties made in connection with
the securitization of assets) of such Person guaranteeing or in effect
guaranteeing any indebtedness, dividend or other obligation of any other Person
in any manner, whether directly or indirectly, including (without limitation)
obligations incurred through an agreement, contingent or otherwise, by such
Person:
(a) to purchase such indebtedness or obligation or any property
constituting security therefor;
(b) to advance or supply funds (i) for the purchase or payment of
such indebtedness or obligation, or (ii) to maintain any working capital
or other balance sheet condition or any income statement condition of any
other Person or otherwise to advance or make available funds for the
purchase or payment of such indebtedness or obligation;
(c) to lease properties or to purchase properties or services
primarily for the purpose of assuring the owner of such indebtedness or
obligation of the ability of any other Person to make payment of the
indebtedness or obligation; or
(d) otherwise to assure the owner of such indebtedness or obligation
against loss in respect thereof.
In any computation of the indebtedness or other liabilities of the obligor under
any Guaranty, the indebtedness or other obligations that are the subject of such
Guaranty shall be assumed to be direct obligations of such obligor.
3
Schedule B
<PAGE>
"HAZARDOUS MATERIAL" means any and all pollutants, toxic or
hazardous wastes or any other substances that might pose a hazard to health or
safety, the removal of which may be required or the generation, manufacture,
refining, production, processing, treatment, storage, handling, transportation,
transfer, use, disposal, release, discharge, spillage, seepage, or filtration of
which is or shall be restricted, prohibited or penalized by any applicable
Environmental Law (including, without limitation, asbestos, urea formaldehyde
foam insulation and polychlorinated biphenyls).
"HOLDER" means, with respect to any Note, the Person in whose name
such Note is registered in the register maintained by the Company pursuant to
Section 13.1.
"INDEBTEDNESS" with respect to any Person means, at any time,
without duplication,
(a) its liabilities for borrowed money;
(b) its liabilities for the deferred purchase price of property
acquired by such Person (excluding accounts payable and other accrued
liabilities arising in the ordinary course of business but including all
liabilities created or arising under any conditional sale or other title
retention agreement with respect to any such property);
(c) all liabilities appearing on its balance sheet in accordance
with GAAP in respect of Capital Leases;
(d) all liabilities for borrowed money secured by any Lien with
respect to any property owned by such Person (whether or not it has
assumed or otherwise become liable for such liabilities); and
(e) any Guaranty of such Person with respect to liabilities of a
type described in any of clauses (a) through (d) hereof.
Indebtedness of any Person shall include all obligations of such Person of the
character described in clauses (a) through (e) to the extent such Person remains
legally liable in respect thereof notwithstanding that any such obligation is
deemed to be extinguished under GAAP. Indebtedness of the Company or a
Restricted Subsidiary shall not include Indebtedness of the Company to a
Restricted Subsidiary or Indebtedness of a Restricted Subsidiary to the Company
or to another Restricted Subsidiary.
"INSTITUTIONAL INVESTOR" means (a) any original purchaser of a Note
and (b) any bank, trust company, savings and loan association or other financial
institution, any pension plan, any investment company, any insurance company, or
any other similar financial institution or entity, regardless of legal form.
4
Schedule B
<PAGE>
"INVESTMENTS" means all investments made, in cash or by delivery of
property, directly or indirectly, by any Person, in any other Person, whether by
acquisition of shares of capital stock, indebtedness or other obligations or
securities or by loan, advance, capital contribution or otherwise.
"LIEN" means, with respect to any Person, any mortgage, lien,
pledge, charge, security interest or other encumbrance, or any interest or title
of any vendor, lessor, lender or other secured party to or of such Person under
any conditional sale or other title retention agreement or Capital Lease, upon
or with respect to any property or asset of such Person (including in the case
of stock, stockholder agreements, voting trust agreements and all similar
arrangements).
"MAKE-WHOLE AMOUNT" is defined in Section 8.6.
"MATERIAL" means material in relation to the business, operations,
affairs, financial condition, assets or properties of the Company and its
Restricted Subsidiaries taken as a whole.
"MATERIAL ADVERSE EFFECT" means a material adverse effect on (a) the
business, operations, affairs, financial condition, assets or properties of the
Company and its Restricted Subsidiaries taken as a whole, or (b) the ability of
the Company to perform its obligations under this Agreement and the Notes, or
(c) the validity or enforceability of this Agreement or the Notes.
"MEMORANDUM" is defined in Section 5.3.
"MULTIEMPLOYER PLAN" means any Plan that is a "multiemployer plan"
(as such term is defined in section 4001(a)(3) of ERISA).
"NOTES" is defined in Section 1.1.
"OFFICER'S CERTIFICATE" means a certificate of a Senior Financial
Officer or of any other officer of the Company whose responsibilities extend to
the subject matter of such certificate.
"OTHER PURCHASERS" is defined in Section 2.
"PBGC" means the Pension Benefit Guaranty Corporation referred to
and defined in ERISA or any successor thereto.
"PERSON" means an individual, partnership, corporation, limited
liability company, association, trust, unincorporated organization, or a
government or agency or political subdivision thereof.
5
Schedule B
<PAGE>
"PLAN" means an "employee benefit plan" (as defined in section 3(3)
of ERISA) that is or, within the preceding five years, has been established or
maintained, or to which contributions are or, within the preceding five years,
have been made or required to be made, by the Company or any ERISA Affiliate or
with respect to which the Company or any ERISA Affiliate may have any liability.
"PRIORITY DEBT" means, as of any date, the sum (without duplication)
of (a) unsecured Indebtedness of Domestic Restricted Subsidiaries on such date
(other than Indebtedness owed to the Company or another Restricted Subsidiary or
Indebtedness of a Person outstanding at the time such Person is merged or
consolidated with, or becomes, a Restricted Subsidiary) and (b) Indebtedness of
the Company and its Domestic Restricted Subsidiaries secured by Liens permitted
by Section 10.2(j) on such date.
"PROPERTY" or "PROPERTIES" means, unless otherwise specifically
limited, real or personal property of any kind, tangible or intangible, choate
or inchoate.
"PURCHASER" means each purchaser listed in Schedule A.
"QPAM EXEMPTION" means Prohibited Transaction Class Exemption 84-14
issued by the United States Department of Labor.
"REQUIRED HOLDERS" means, at any time, the holders of at least a
majority in principal amount of the Notes at the time outstanding (exclusive of
Notes then owned by the Company or any of its Affiliates).
"RESPONSIBLE OFFICER" means any Senior Financial Officer and any
other officer of the Company with responsibility for the administration of the
relevant portion of this agreement.
"RESTRICTED INVESTMENTS" means all Investments of the Company and
its Restricted Subsidiaries, other than:
(a) property or assets to be used or consumed in the ordinary course
of business;
(b) assets arising from the sale of goods or services in the
ordinary course of business;
(c) Investments in Restricted Subsidiaries or in any Person which,
as a result thereof, becomes a Restricted Subsidiary;
6
Schedule B
<PAGE>
(d) Investments existing as of the date of this Agreement that are
listed in the attached Schedule B-1;
(e) Investments in treasury stock;
(f) Investments in:
(i) obligations, maturing within one year from the date of
acquisition, of or fully guaranteed by (A) the United States of
America or an agency thereof or (B) Canada or a province thereof;
(ii) tax-exempt securities, having an effective maturity
within one year from the date of acquisition, which are rated in one
of the top two rating classifications by at least one nationally
recognized rating agency;
(iii) certificates of deposit or banker's acceptances maturing
within one year from the date of acquisition issued by Bank of
America National Trust & Savings Association or other commercial
banks whose long-term unsecured debt obligations (or the long-term
unsecured debt obligations of the bank holding company owning all of
the capital stock of such bank) are rated in one of the top three
rating classifications by at least one nationally recognized rating
agency;
(iv) commercial paper maturing within 270 days from the date
of issuance that, at the time of acquisition, is rated in one of the
top two rating classifications by at least one nationally recognized
rating agency;
(v) repurchase agreements, having a term of not more than 90
days and fully collateralized with obligations of the type described
in clause (i), with a bank satisfying the requirements of clause
(iii) or a broker-dealer registered as such under the Exchange Act
whose long-term unsecured debt obligations are rated in one of the
top three rating classifications by at least one nationally
recognized rating agency; and
(vi) cash or cash equivalents and money market instrument
programs that are properly classified as current assets in
accordance with GAAP.
For purposes of this Agreement, an Investment shall be valued at the lesser of
(i) cost and (ii) the value at which such Investment is shown on the books of
the Company and its Restricted Subsidiaries in accordance with GAAP.
"RESTRICTED SUBSIDIARY" means any Subsidiary (a) of which at least a
majority of the voting securities are owned by the Company and/or one or more
Wholly-Owned Restricted
7
Schedule B
<PAGE>
Subsidiaries and of which the Company has management control and (b) which the
Company has not designated an Unrestricted Subsidiary.
"SECURITIES ACT" means the Securities Act of 1933, as amended from
time to time.
"SENIOR FINANCIAL OFFICER" means the chief financial officer,
principal accounting officer, treasurer or comptroller of the Company.
"SERIES 1998-A NOTES" is defined in Section 1.2.
"SIGNIFICANT SUBSIDIARY" means, as of the date of determination, any
Restricted Subsidiary the assets or revenues of which account for more than 10%
of the Consolidated Total Assets of the Company and its Restricted Subsidiaries
at the end of the most recently ended fiscal period or more than 10% of the
consolidated revenues of the Company and its Restricted Subsidiaries for the
most recently completed four fiscal quarters.
"SOURCE" is defined in Section 6.2
"SUBSIDIARY" means, as to any Person, any corporation, association
or other business entity in which such Person or one or more of its Subsidiaries
or such Person and one or more of its Subsidiaries owns sufficient equity or
voting interests to enable it or them (as a group) ordinarily, in the absence of
contingencies, to elect a majority of the directors (or Persons performing
similar functions) of such entity, and any partnership or joint venture if more
than a 50% interest in the profits or capital thereof is owned by such Person or
one or more of its Subsidiaries or such Person and one or more of its
Subsidiaries (unless such partnership can and does ordinarily take major
business actions without the prior approval of such Person or one or more of its
Subsidiaries). Unless the context otherwise clearly requires, any reference to a
"Subsidiary" is a reference to a Subsidiary of the Company.
"SUPPLEMENT" is defined in Section 1.1.
"THIS AGREEMENT" OR "THE AGREEMENT" is defined in Section 17.3.
"UNRESTRICTED SUBSIDIARY" means any Subsidiary of the Company that
the Company has designated an Unrestricted Subsidiary by notice in writing given
to the holders of the Notes.
"WHOLLY-OWNED SUBSIDIARY" means, at any time, any Subsidiary 100% of
all of the equity interests (except directors' qualifying shares) and voting
interests of which are owned by any one or more of the Company and the Company's
other Wholly-Owned Subsidiaries at such time.
8
Schedule B
<PAGE>
SCHEDULE B-1
EXISTING INVESTMENTS
Loan to AFS Inc. in the amount of $200,000
Loan Guarantee to AFS Inc. in the amount of $100,000
Loan to Craig Phillips in the amount of $750,000
Loan to Douglas Smyth dba. Tubtec $305,000
Schedule B-1
<PAGE>
SCHEDULE 5.4
SUBSIDIARIES AND OWNERSHIP
OF SUBSIDIARY STOCK
Schedule 5.4
<PAGE>
SCHEDULE 5.5
FINANCIAL STATEMENTS
Audited consolidated balance sheets of the Company and its Subsidiaries as of
July 31, 1997, 1996, 1995, 1994, 1993 and 1992, and the related consolidated
statements of earnings, changes in shareholders' equity and cash flows for each
of the years then ended.
Unaudited consolidated balance sheets of the Company and its Subsidiaries as of
January 31, 1998 and 1997, the consolidated statements of earnings for the three
months ended January 31, 1998 and 1997 and the six months ended January 31, 1997
and 1998, and the consolidated statements of cash flows for the six months ended
January 31, 1998 and 1997.
Schedule 5.5
<PAGE>
SCHEDULE 5.15
EXISTING INDEBTEDNESS
(Principal Amounts in Excess of $5,000,000)
Donaldson Company Multi-Currency Revolver $55,000,000
Donaldson Coordination Center NV $9,319,000
Schedule 5.15
<PAGE>
SCHEDULE 10.2
EXISTING LIENS
Capital Leases in an aggregate amount of $325,000
Donaldson Europe NV Mortgage $182,000
Schedule 10.2
<PAGE>
EXHIBIT 1.1-A
[FORM OF NOTE]
DONALDSON COMPANY, INC.
[____]% SENIOR NOTE DUE [__________, ____]
No. [_____] [Date]
$[_______] PPN[______________]
FOR VALUE RECEIVED, the undersigned, DONALDSON COMPANY, INC. (herein
called the "Company"), a corporation organized and existing under the laws of
the State of Delaware, promises to pay to [__________], or registered assigns,
the principal sum of $[_______] on [_____], [_____], with interest (computed on
the basis of a 360-day year of twelve 30-day months) (a) on the unpaid balance
thereof at the rate of [____]% per annum from the date hereof, payable
semiannually, on [______] [____] and [______][____] in each year, commencing
with the [______] [____] or [______] [____] next succeeding the date hereof,
until the principal hereof shall have become due and payable, and (b) to the
extent permitted by law on any overdue payment (including any overdue
prepayment) of principal, any overdue payment of interest and any overdue
payment of any Make-Whole Amount (as defined in the Note Purchase Agreement
referred to below), payable semiannually as aforesaid (or, at the option of the
registered holder hereof, on demand), at a rate per annum from time to time
equal to the greater of (i) [_____]% or (ii) 2% over the rate of interest
publicly announced by Bank of America National Trust & Savings Association from
time to time in Chicago, Illinois as its "base" or "prime" rate.
Payments of principal of, interest on and any Make-Whole Amount with
respect to this Note are to be made in lawful money of the United States of
America at the principal office of Bank of America National Trust & Savings
Association in Chicago, Illinois or at such other place as the Company shall
have designated by written notice to the holder of this Note as provided in the
Note Purchase Agreement referred to below.
This Note is one of a series of Senior Notes (herein called the
"Notes") issued pursuant to a Note Purchase Agreement dated as of July 15, 1998
[and a Supplement thereto dated as of [________], [________]](as from time to
time further amended and supplemented, the "Note Purchase Agreement"), between
the Company and the respective Purchasers named therein, and is entitled to the
benefits thereof. Each holder of this Note will be deemed, by its acceptance
hereof, (i) to have agreed to the confidentiality provisions set forth in
Section 20 of the Note Purchase Agreement and (ii) to have made the
representation set forth in Sections 6.1(to the extent such representation is
required for such transfer) and 6.2 of the Note Purchase Agreement. The Notes
have not been registered under the Securities Act of 1933, as amended.
Exhibit 1.1-A
<PAGE>
This Note is a registered Note and, as provided in the Note Purchase
Agreement, upon surrender of this Note for registration of transfer, duly
endorsed, or accompanied by a written instrument of transfer duly executed, by
the registered holder hereof or such holder's attorney duly authorized in
writing, a new Note for a like principal amount will be issued to, and
registered in the name of, the transferee. Prior to due presentment for
registration of transfer, the Company may treat the person in whose name this
Note is registered as the owner hereof for the purpose of receiving payment and
for all other purposes, and the Company will not be affected by any notice to
the contrary.
[The Company will make required prepayments of principal on the
dates and in the amounts specified in the Note Purchase Agreement.] This Note is
[also] subject to optional prepayment, in whole or from time to time in part, at
the times and on the terms specified in the Note Purchase Agreements but not
otherwise.
If an Event of Default, as defined in the Note Purchase Agreement,
occurs and is continuing, the principal of this Note may be declared or
otherwise become due and payable in the manner, at the price (including any
applicable Make-Whole Amount) and with the effect provided in the Note Purchase
Agreement.
This Note shall be construed and enforced in accordance with, and
the rights of the parties shall be governed by, the law of the State of Illinois
excluding choice-of-law principles of the law of such State that would require
the application of the laws of a jurisdiction other than such State.
DONALDSON COMPANY, INC.
By:
-----------------------------------
Title:
--------------------------------
2
Exhibit 1.1-A
<PAGE>
EXHIBIT 1.1-B
[FORM OF SUPPLEMENT]
SUPPLEMENT TO NOTE PURCHASE AGREEMENT
THIS SUPPLEMENT is entered into as of [ ], [ ] (this
"Supplement") between Donaldson Company, Inc., a Delaware corporation (the
"COMPANY"), and the Purchasers listed in the attached Schedule A (the
"PURCHASERS").
R E C I T A L S
A. The Company has entered into a Note Purchase Agreement dated as
of July 15, 1998 with the purchasers listed in Schedule A thereto [and one or
more supplements or amendments thereto] (as heretofore amended and supplemented,
the "NOTE PURCHASE AGREEMENT"); and
B. The Company desires to issue and sell, and the Purchasers desire
to purchase, an additional series of Notes (as defined in the Note Purchase
Agreement) pursuant to the Note Purchase Agreement and in accordance with the
terms set forth below;
NOW, THEREFORE, the Company and the Purchasers agree as follows:
1. Authorization of the New Series of Notes. The Company has
authorized the issue and sale of $[ ] aggregate principal amount of Notes to be
designated as its [__]% Senior Notes, Series [ ], due [ ], [ ] (the "SERIES [ ]
NOTES", such term to include any such Notes issued in substitution therefor
pursuant to Section 13 of the Note Purchase Agreement). The Series [ ] Notes
shall be substantially in the form set out in Exhibit 1, with such changes
therefrom, if any, as may be approved by you and the Company.
2. Sale and Purchase of Series [ ] Notes. Subject to the terms and
conditions of this Supplement and the Note Purchase Agreement, the Company will
issue and sell to each of the Purchasers, and the Purchasers will purchase from
the Company, at the Closing provided for in Section 3, Series [ ] Notes in the
principal amount specified opposite their respective names in Schedule A at the
purchase price of 100% of the principal amount thereof. The obligations of the
Purchasers hereunder are several and not joint obligations and no Purchaser
shall have any liability to any Person for the performance or non-performance by
any other Purchaser hereunder.
Exhibit 1.1-B
<PAGE>
3. Closing. The sale and purchase of the Series [ ] Notes to be
purchased by the Purchasers shall occur at the offices of Gardner, Carton &
Douglas, Quaker Tower, Suite 3400, 321 North Clark Street, Chicago, Illinois
60610 at 9:00 a.m., Chicago time, at a closing (the "CLOSING") on [ ], [ ] or on
such other Business Day thereafter on or prior to [ ], [ ] as may be agreed upon
by the Company and the Purchasers. At the Closing the Company will deliver to
each Purchaser the Series [ ] Notes to be purchased by it in the form of a
single Note (or such greater number of Series [ ] Notes in denominations of at
least $500,000 as such Purchaser may request) dated the date of the Closing and
registered in its name (or in the name of its nominee), against delivery by such
Purchaser to the Company or its order of immediately available funds in the
amount of the purchase price therefor by wire transfer of immediately available
funds for the account of the Company to account number [__________] at
[_________________] Bank, [Insert Bank address, ABA number for wire transfers,
and any other relevant wire transfer information]. If at the Closing the Company
shall fail to tender such Series [ ] Notes to a Purchaser as provided above in
this Section 3, or any of the conditions specified in Section 4 of the Note
Purchase Agreement, as modified or expanded by Section 4 hereof, shall not have
been fulfilled to such Purchaser's satisfaction, such Purchaser shall, at its
election, be relieved of all further obligations under this Agreement, without
thereby waiving any rights it may have by reason of such failure or such
nonfulfillment.
4. Conditions to Closing. Each Purchasers obligation to purchase and
pay for the Series [ ] Notes to be sold to it at the Closing is subject to the
fulfillment to its satisfaction, prior to or at the Closing, of the conditions
set forth in Section 4 of the Note Purchase Agreement, as hereafter modified,
and to the following additional conditions:
[Set forth any modifications and additional conditions.]
5. Representations and Warranties of the Company. The Company
represents and warrants to the Purchasers that each of the representations and
warranties contained in Section 5 of the Note Purchase Agreement is true and
correct as of the date hereof (i) except that all references to "Purchaser" and
"you" therein shall be deemed to refer to the Purchasers hereunder, all
references to "this Agreement" shall be deemed to refer to the Note Purchase
Agreement as supplemented by this Supplement, all references to "Notes" therein
shall be deemed to include the Series [ ] Notes, and (ii) except for changes to
such representations and warranties or the Schedules referred to therein, which
changes are set forth in the attached Schedule 5.
6. Representations of the Purchasers. Each Purchaser confirms to the
Company that the representations set forth in Section 6 of the Note Purchase
Agreement are true and correct as to such Purchaser.
2
Exhibit 1.1-B
<PAGE>
7. Mandatory Prepayment of the Series [ ] Notes. [The Series [ ]
Notes are not subject to mandatory prepayment by the Company.] [On [ ], [ ] and
on each [ ] thereafter to and including [ ], [ ] the Company will prepay $[ ]
principal amount (or such lesser principal amount as shall then be outstanding)
of the Series [ ] Notes at par and without payment of the Make-Whole Amount or
any premium.]
8. Applicability of Note Purchase Agreement. Except as otherwise
expressly provided herein (and expressly permitted by the Note Purchase
Agreement), all of the provisions of the Note Purchase Agreement are
incorporated by reference herein and shall apply to the Series [ ] Notes as if
expressly set forth in this Supplement.
IN WITNESS WHEREOF, the Company and the Purchasers have caused this
Supplement to be executed and delivered as of the date set forth above.
DONALDSON COMPANY, INC.
By:
-----------------------------------
Title:
--------------------------------
[ADD PURCHASER SIGNATURE BLOCKS]
3
Exhibit 1.1-B
<PAGE>
Schedule A
to Supplement
INFORMATION RELATING TO PURCHASERS
Principal Amount of Series
Name and Address of Purchaser [ ] Notes to be Purchased
- ----------------------------- --------------------------
[NAME OF PURCHASER] $
(1) All payments by wire transfer
of immediately available
funds to:
with sufficient information
to identify the source and
application of such funds.
(2) All notices of payments and
written confirmations of such
wire transfers:
(3) All other communications:
4
Exhibit 1.1-B
<PAGE>
Schedule 5
to Supplement
EXCEPTIONS TO REPRESENTATIONS
AND WARRANTIES
5
Exhibit 1.1-B
<PAGE>
Exhibit 1 to
Supplement
[FORM OF SERIES [ ] NOTE]
6
Exhibit 1.1-B
<PAGE>
EXHIBIT 1.2(a)
[FORM OF SERIES 1998-A, TRANCHE 1, NOTE]
DONALDSON COMPANY, INC.
6.20% Senior Note, Series 1998, Tranche 1
Due July 15, 2005
No. [_____] [Date]
$[_______] PPN[______________]
FOR VALUE RECEIVED, the undersigned, DONALDSON COMPANY, INC. (herein
called the "Company"), a corporation organized and existing under the laws of
the State of Delaware, promises to pay to [__________], or registered assigns,
the principal sum of $[ ] on July 15, 2005, with interest (computed on the basis
of a 360-day year of twelve 30-day months) (a) on the unpaid balance thereof at
the rate of 6.20% per annum from the date hereof, payable semiannually, on July
15 and January 15 in each year, commencing with the July 15 or January 15 next
succeeding the date hereof, until the principal hereof shall have become due and
payable, and (b) to the extent permitted by law on any overdue payment
(including any overdue prepayment) of principal, any overdue payment of interest
and any overdue payment of any Make-Whole Amount (as defined in the Note
Purchase Agreement referred to below), payable semiannually as aforesaid (or, at
the option of the registered holder hereof, on demand), at a rate per annum from
time to time equal to the greater of (i) 8.20% or (ii) 2% over the rate of
interest publicly announced by Bank of America National Trust & Savings
Association from time to time in Chicago, Illinois as its "base" or "prime"
rate.
Payments of principal of, interest on and any Make-Whole Amount with
respect to this Note are to be made in lawful money of the United States of
America at the principal office of Bank of America National Trust & Savings
Association in Chicago, Illinois or at such other place as the Company shall
have designated by written notice to the holder of this Note as provided in the
Note Purchase Agreement referred to below.
This Note is one of a series of Notes (herein called the "Notes")
issued pursuant to a Note Purchase Agreement, dated as of July 15, 1998 as from
time to time amended and supplemented, the "Note Purchase Agreement"), between
the Company and the respective Purchasers named therein, and is entitled to the
benefits thereof. Each holder of this Note will be deemed, by its acceptance
hereof, (i) to have agreed to the confidentiality provisions set forth in
Section 20 of the Note Purchase Agreement and (ii) to have made the
representations set forth in Sections 6.1 (to the extent such representation is
required for such transfer) and 6.2 of the Note
Exhibit 1.2(a)
<PAGE>
Purchase Agreement. The Notes have not been registered under the Securities Act
of 1933, as amended.
This Note is a registered Note and, as provided in the Note Purchase
Agreement, upon surrender of this Note for registration of transfer, duly
endorsed, or accompanied by a written instrument of transfer duly executed, by
the registered holder hereof or such holder's attorney duly authorized in
writing, a new Note for a like principal amount will be issued to, and
registered in the name of, the transferee. Prior to due presentment for
registration of transfer, the Company may treat the person in whose name this
Note is registered as the owner hereof for the purpose of receiving payment and
for all other purposes, and the Company will not be affected by any notice to
the contrary.
This Note is subject to optional prepayment, in whole or from time
to time in part, at the times and on the terms specified in the Note Purchase
Agreement but not otherwise.
If an Event of Default, as defined in the Note Purchase Agreement,
occurs and is continuing, the principal of this Note may be declared or
otherwise become due and payable in the manner, at the price (including any
applicable Make-Whole Amount) and with the effect provided in the Note Purchase
Agreement.
This Note shall be construed and enforced in accordance with, and
the rights of the parties shall be governed by, the law of the State of Illinois
excluding choice-of-law principles of the law of such State that would require
the application of the laws of a jurisdiction other than such State.
DONALDSON COMPANY, INC.
By:
-----------------------------------
Title:
--------------------------------
2
Exhibit 1.2(a)
<PAGE>
EXHIBIT 1.2(b)
[FORM OF SERIES 1998-A, TRANCHE 2, NOTE]
DONALDSON COMPANY, INC.
6.31% Senior Note, Series 1998, Tranche 2
Due July 15, 2008
No. [_____] [Date]
$[_______] PPN[______________]
FOR VALUE RECEIVED, the undersigned, DONALDSON COMPANY, INC. (herein
called the "Company"), a corporation organized and existing under the laws of
the State of Delaware, promises to pay to [_________], or registered assigns,
the principal sum of $[ ] on July 15, 2008, with interest (computed on the basis
of a 360-day year of twelve 30-day months) (a) on the unpaid balance thereof at
the rate of 6.31% per annum from the date hereof, payable semiannually, on July
15 and January 15 in each year, commencing with the July 15 or January 15 next
succeeding the date hereof, until the principal hereof shall have become due and
payable, and (b) to the extent permitted by law on any overdue payment
(including any overdue prepayment) of principal, any overdue payment of interest
and any overdue payment of any Make-Whole Amount (as defined in the Note
Purchase Agreement referred to below), payable semiannually as aforesaid (or, at
the option of the registered holder hereof, on demand), at a rate per annum from
time to time equal to the greater of (i) 8.31% or (ii) 2% over the rate of
interest publicly announced by Bank of America National Trust & Savings
Association from time to time in Chicago, Illinois as its "base" or "prime"
rate.
Payments of principal of, interest on and any Make-Whole Amount with
respect to this Note are to be made in lawful money of the United States of
America at the principal office of Bank of America National Trust & Savings
Association in Chicago, Illinois or at such other place as the Company shall
have designated by written notice to the holder of this Note as provided in the
Note Purchase Agreement referred to below.
This Note is one of a series of Notes (herein called the "Notes")
issued pursuant to a Note Purchase Agreement, dated as of July 15, 1998 as from
time to time amended and supplemented, the "Note Purchase Agreement"), between
the Company and the respective Purchasers named therein, and is entitled to the
benefits thereof. Each holder of this Note will be deemed, by its acceptance
hereof, (i) to have agreed to the confidentiality provisions set forth in
Section 20 of the Note Purchase Agreement and (ii) to have made the
representations set forth in Sections 6.1 (to the extent such representation is
required for such transfer) and 6.2 of the Note
Exhibit 1.2(b)
<PAGE>
Purchase Agreement. The Notes have not been registered under the Securities Act
of 1933, as amended.
This Note is a registered Note and, as provided in the Note Purchase
Agreement, upon surrender of this Note for registration of transfer, duly
endorsed, or accompanied by a written instrument of transfer duly executed, by
the registered holder hereof or such holder's attorney duly authorized in
writing, a new Note for a like principal amount will be issued to, and
registered in the name of, the transferee. Prior to due presentment for
registration of transfer, the Company may treat the person in whose name this
Note is registered as the owner hereof for the purpose of receiving payment and
for all other purposes, and the Company will not be affected by any notice to
the contrary.
This Note is subject to optional prepayment, in whole or from time
to time in part, at the times and on the terms specified in the Note Purchase
Agreement but not otherwise.
If an Event of Default, as defined in the Note Purchase Agreement,
occurs and is continuing, the principal of this Note may be declared or
otherwise become due and payable in the manner, at the price (including any
applicable Make-Whole Amount) and with the effect provided in the Note Purchase
Agreement.
This Note shall be construed and enforced in accordance with, and
the rights of the parties shall be governed by, the law of the State of Illinois
excluding choice-of-law principles of the law of such State that would require
the application of the laws of a jurisdiction other than such State.
DONALDSON COMPANY, INC.
By:
-----------------------------------
Title:
--------------------------------
2
Exhibit 1.2(b)
<PAGE>
EXHIBIT 4.4(a)
FORM OF OPINION OF COUNSEL
TO THE COMPANY
The opinion of Dorsey & Whitney LLP, counsel for the Company, shall
be to the effect that:
1. The Company is a corporation duly incorporated, validly existing
in good standing under the laws of Delaware, and has all requisite corporate
power and authority to own and operate its properties, to carry on its business
as now conducted and to enter into and perform the Note Purchase Agreement.
2. The Note Purchase Agreement and the Notes have been duly
authorized by proper corporate action on the part of the Company, have been duly
executed and delivered by an authorized officer of the Company, and constitute
the legal, valid and binding agreements of the Company, enforceable in
accordance with their terms, except to the extent that enforcement thereof may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws of general application relating to or affecting the enforcement of
the rights of creditors or by equitable principles, regardless of whether
enforcement is sought in a proceeding in equity or at law.
3. The offering, sale and delivery of the Notes do not require the
registration of the Notes under the Securities Act of 1933, as amended, or the
qualification of an indenture under the Trust Indenture Act of 1939, as amended.
4. No authorization, approval or consent of, and no designation,
filing, declaration, registration and/or qualification with, any United States
federal or Minnesota state Governmental Authority is necessary or required in
connection with the execution, delivery and performance by the Company of the
Note Purchase Agreement or the offering, issuance and sale by the Company of the
Notes.
5. The issuance and sale of the Notes by the Company, the
performance of the terms and conditions of the Notes and the Note Purchase
Agreement and the execution and delivery of the Note Purchase Agreement do not
conflict with, or result in any breach or violation of any of the provisions of,
or constitute a default under, or result in the creation or imposition of any
Lien on, the property of the Company or any Subsidiary pursuant to the
provisions of (i) the Certificate of Incorporation or By-laws of the Company,
(ii) any loan agreement known to such counsel to which the Company or any
Subsidiary is a party or by which any of them or their property is bound,
pursuant to which Indebtedness in an amount in excess of $5,000,000 is
Exhibit 1.2(b)
<PAGE>
outstanding, (iii) any other Material agreement or instrument known to such
counsel to which the Company or any Subsidiary is a party or by which any of
them or their property is bound, (iv) any United States federal or Minnesota
state law (including usury laws) or regulation applicable to the Company, or (v)
to the knowledge of such counsel, any order, writ, injunction or decree of any
court or Governmental Authority applicable to the Company.
6. Except as disclosed in Schedule 5.8 to the Note Purchase
Agreement, to the knowledge of such counsel, there are no actions, suits or
proceedings pending or overtly threatened against, or affecting the Company or
any Subsidiary, at law or in equity or before or by any Governmental Authority,
which are likely to result, individually or in the aggregate, in a Material
Adverse Effect.
7. Neither the Company nor any Subsidiary is (i) a "public utility
company" or a "holding company," or an "affiliate" or a "subsidiary company" of
a "holding company," or an "affiliate" of such a "subsidiary company," as such
terms are defined in the Public Utility Holding Company Act of 1935, as amended
(the "1935 Act"), (ii) a "public utility" as defined in the Federal Power Act,
as amended, or (iii) an "investment company" or an "affiliated person" thereof,
as such terms are defined in the Investment Company Act of 1940, as amended (the
"1940 Act").
8. The issuance of the Notes and the intended use of the proceeds of
the sale of the Notes do not violate or conflict with Regulation T, U or X of
the Board of Governors of the Federal Reserve System.
The opinion of Dorsey & Whitney LLP shall cover such other matters relating to
the sale of the Notes as the Purchasers may reasonably request. With respect to
matters of fact on which such opinion is based, such counsel shall be entitled
to rely on appropriate certificates of public officials and officers of the
Company. For purposes of its opinion as to enforceability of the Note Purchase
Agreement and the Notes contained in paragraph 2, such counsel may assume that
the Note Purchase Agreement and the Notes are governed by the laws of the State
of Minnesota.
2
Exhibit 1.2(b)
<PAGE>
EXHIBIT 4.4(b)
FORM OF OPINION OF SPECIAL COUNSEL
TO THE PURCHASERS
The opinion of Gardner, Carton & Douglas, special counsel to the
Purchasers, shall be to the effect that:
1. The Company is a corporation organized and validly existing in
good standing under the laws of the State of Delaware, with all requisite
corporate power and authority, in the case of the Company, to enter into the
Agreement and to issue and sell the Notes.
2. The Agreement and the Notes have been duly authorized by proper
corporate action on the part of the Company, have been duly executed and
delivered by an authorized officer of the Company, and constitute the legal,
valid and binding agreements of the Company, enforceable in accordance with
their terms, except to the extent that enforcement thereof may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws of
general application relating to or affecting the enforcement of the rights of
creditors or by equitable principles, regardless of whether enforcement is
sought in a proceeding in equity or at law.
3. Based upon the representations set forth in the Agreement, the
offering, sale and delivery of the Notes do not require the registration of the
Notes under the Securities Act of 1933, as amended, nor the qualification of an
indenture under the Trust Indenture Act of 1939, as amended.
4. The issuance and sale of the Notes and compliance with the terms
and provisions of the Notes and the Agreement will not conflict with or result
in any breach of any of the provisions of the Certificate of Incorporation or
By-Laws of the Company.
5. No approval, consent or withholding of objection on the part of,
or filing, registration or qualification with, any governmental body, Federal or
state, is necessary in connection with the execution and delivery of the Note
Purchase Agreement or the Notes.
The opinion of Gardner, Carton & Douglas also shall state that the opinion of
Dorsey & Whitney, delivered to you pursuant to the Agreement, is satisfactory in
form and scope to Gardner, Carton & Douglas, and, in its opinion, the Purchasers
and it are justified in relying thereon and shall cover such other matters
relating to the sale of the Notes as the Purchasers may reasonably request.
Exhibit 4.4(b)
EXHIBIT 10.S
DRAFT: 7/31/98
================================================================================
DONALDSON COMPANY, INC.
$25,000,000
6.39% Senior Notes, Series 1998-B
due August 15, 2010
-----------
FIRST SUPPLEMENT TO
NOTE PURCHASE AGREEMENT
-----------
Dated as of August 1, 1998
================================================================================
PPN:
<PAGE>
FIRST SUPPLEMENT
TO
NOTE PURCHASE AGREEMENT
THIS FIRST SUPPLEMENT is entered into as of August 1, 1998 (this
"FIRST SUPPLEMENT") between Donaldson Company, Inc., a Delaware corporation (the
"COMPANY"), and the Purchaser listed in the attached Schedule A (the
"PURCHASER").
R E C I T A L S
A. The Company has entered into a Note Purchase Agreement dated as
of July 15, 1998 with the institutions listed in Schedule A thereto (the "NOTE
PURCHASE AGREEMENT"); and
B. The Company desires to issue and sell, and the Purchaser desires
to purchase, an additional series of Notes (as defined in the Note Purchase
Agreement) pursuant to the Note Purchase Agreement and in accordance with the
terms set forth below;
NOW, THEREFORE, the Company and the Purchaser agree as follows:
1. Authorization of the New Series of Notes. The Company has
authorized the issue and sale of $25,000,000 aggregate principal amount of Notes
to be designated as its 6.39% Senior Notes, Series 1998-B, due August 15, 2010
(the "Series 1998-B Notes", such term to include any such Notes issued in
substitution therefor pursuant to Section 13 of the Note Purchase Agreement).
The Series 1998-B Notes shall be substantially in the form set out in Exhibit 1,
with such changes therefrom, if any, as may be approved by you and the Company.
2. Sale and Purchase of Series 1998-B Notes. Subject to the terms
and conditions of this Supplement and the Note Purchase Agreement, the Company
will issue and sell to the Purchaser, and the Purchaser will purchase from the
Company, at the Closing provided for in Section 3, Series 1998-B Notes in the
principal amount specified opposite its name in Schedule A at the purchase price
of 100% of the principal amount thereof.
3. Closing. The sale and purchase of the Series 1998-B Notes to be
purchased by the Purchaser shall occur at the offices of Gardner, Carton &
Douglas, Quaker Tower, Suite 3400, 321 North Clark Street, Chicago, Illinois
60610 at 9:00 a.m., Chicago time, at a closing (the "CLOSING") on August 14,
1998 or on such other Business Day thereafter on or prior to August 31, 1998 as
may be agreed upon by the Company and the Purchaser. At the Closing the Company
will deliver to the Purchaser the Series 1998-B Notes to be purchased by it in
the form of a single Note (or such greater number of Series 1998-B Notes in
denominations of at least $500,000 as the Purchaser may request) dated the date
of the Closing and registered in its name
<PAGE>
(or in the name of its nominee), against delivery by the Purchaser to the
Company or its order of immediately available funds in the amount of the
purchase price therefor by wire transfer of immediately available funds for the
account of the Company to account number 1502-5005-4130 at US Bank -
Minneapolis, US Bank Place, 601 Second Avenue South, Minneapolis, MN 55402, ABA
No. 0910-0002-2. If at the Closing the Company shall fail to tender such Series
1998-B Notes to the Purchaser as provided above in this Section 3, or any of the
conditions specified in Section 4 of the Note Purchase Agreement, as modified or
expanded by Section 4 hereof, shall not have been fulfilled to the Purchaser's
satisfaction, the Purchaser shall, at its election, be relieved of all further
obligations under this Agreement, without thereby waiving any rights it may have
by reason of such failure or such nonfulfillment.
4. Conditions to Closing. The Purchaser's obligation to purchase and
pay for the Series 1998-B Notes to be sold to it at the Closing is subject to
the fulfillment to its satisfaction, prior to or at the Closing, of the
conditions set forth in Section 4 of the Note Purchase Agreement, as hereafter
modified, and to the following additional conditions:
(a) References in Section 4 of the Note Purchase Agreement to
"Series 1998-A Notes" shall be deemed to be references to the 1998-B
Notes and references to the "Closing" shall be deemed to refer to
the Closing as such term is defined in this First Supplement;
(b) Section 4.6 of the Note Purchase Agreement shall not apply
to the issuance and sale of the Series 1998-B Notes;
(c) The legal opinions, and forms thereof, called for by
Section 4.4 of the Note Purchase Agreement shall be appropriately
modified to reflect this First Supplement and the transactions
contemplated herein.
5. Representations and Warranties of the Company. The Company
represents and warrants to the Purchaser that:
(a) Each of the representations and warranties contained in
Section 5 of the Note Purchase Agreement is true and correct as of
the date hereof (i) except that all references to "Purchaser" and
"you" therein shall be deemed to refer to the Purchaser hereunder,
all references to "this Agreement" shall be deemed to refer to the
Note Purchase Agreement as supplemented by this Supplement, all
references to "Notes" therein shall be deemed to include the Series
1998-B Notes, and (ii) except for changes to such representations
and warranties or the Schedules referred to therein, which changes
are set forth in the attached Schedule 5.
(b) The Company has implemented measures to have all critical
business systems year 2000 ready by December 31, 1998, and the
advent of the year 2000 and its impact on such computer systems is
not expected to have a Material Adverse Effect.
<PAGE>
6. Representations of the Purchaser. Each Purchaser confirms to the
Company that the representations set forth in Section 6 of the Note Purchase
Agreement are true and correct as to it, except that all references therein to
"you" therein shall be deemed to refer to the Purchaser hereunder, and all
references to "Series 1998-A Notes" therein shall be deemed to include the
Series 1998-B Notes.
7. Mandatory Prepayment of the Series 1998-B Notes. On August 15,
2006 and on each August 15 thereafter to and including August 15, 2009 the
Company will prepay $5,000,000 principal amount (or such lesser principal amount
as shall then be outstanding) of the Series 1998-B Notes at par and without
payment of the Make-Whole Amount or any premium.
8. Applicability of Note Purchase Agreement. Except as otherwise
expressly provided herein (and expressly permitted by the Note Purchase
Agreement), all of the provisions of the Note Purchase Agreement are
incorporated by reference herein and shall apply to the Series 1998-B Notes as
if expressly set forth in this Supplement and, accept as so provided or where
the context otherwise requires, references in the Note Purchase Agreement to
"Series 1998-A Notes" and to the "Notes" shall be deemed to refer to the Series
1998-B Notes and to include the Series 1998-B Notes.
IN WITNESS WHEREOF, the Company and the Purchaser have caused this
Supplement to be executed and delivered as of the date set forth above.
DONALDSON COMPANY, INC.
By: /s/ James R. Giertz
------------------------------
Title: Senior Vice President and
Chief Financial Officer
METROPOLITAN LIFE INSURANCE
COMPANY
By: /s/ Gerald P. Marcus
------------------------------
Name:
Title: Director
<PAGE>
Schedule A to
First Supplement
INFORMATION RELATING TO PURCHASER
Principal Amount of Series
Name and Address of Purchaser 1998-B Notes to be Purchased
- ----------------------------- ----------------------------
METROPOLITAN LIFE INSURANCE $25,000,000
COMPANY
(1) All payments by wire transfer of
immediately available funds to:
Metropolitan Life Insurance Company,
Corporate Investments
Account No. 002-2-410591
The Chase Manhattan Bank
Metropolitan Branch
33 East 23rd Street
New York, NY 10010
ABA # 021000021
providing sufficient information, including PPN,
to identify the source and application of funds
and requesting the bank to send a credit advice
thereof to Metropolitan Life Insurance Company.
(2) All other communications:
Metropolitan Life Insurance Company
Fixed Income Investments
334 Madison Avenue, P.O. Box 633
Convent Station, NJ 07961-0633
Attention: Private Placement Unit
Telecopier Number: (973) 254-3050
Tax ID #13-5581829
<PAGE>
Schedule 5
to Supplement
EXCEPTIONS TO REPRESENTATIONS
AND WARRANTIES
<PAGE>
Exhibit 1 to
Supplement
[FORM OF SERIES 1998-B NOTE]
DONALDSON COMPANY, INC.
6.39% Senior Note, Series 1998-B
due August 15, 2010
No. [_____] [Date]
$[_______] PPN[______________]
FOR VALUE RECEIVED, the undersigned, DONALDSON COMPANY, INC. (herein
called the "Company"), a corporation organized and existing under the laws of
the State of Delaware, promises to pay to [__________], or registered assigns,
the principal sum of $[ ] on August 15, 2008, with interest (computed on the
basis of a 360-day year of twelve 30-day months) (a) on the unpaid balance
thereof at the rate of 6.39% per annum from the date hereof, payable
semiannually, on August 15 and February 15 in each year, commencing with the
August 15 or February 15 next succeeding the date hereof, until the principal
hereof shall have become due and payable, and (b) to the extent permitted by law
on any overdue payment (including any overdue prepayment) of principal, any
overdue payment of interest and any overdue payment of any Make-Whole Amount (as
defined in the Note Purchase Agreement referred to below), payable semiannually
as aforesaid (or, at the option of the registered holder hereof, on demand), at
a rate per annum from time to time equal to the greater of (i) 8.39% or (ii) 2%
over the rate of interest publicly announced by Bank of America National Trust &
Savings Association from time to time in Chicago, Illinois as its "base" or
"prime" rate.
Payments of principal of, interest on and any Make-Whole Amount with
respect to this Note are to be made in lawful money of the United States of
America at the principal office of Bank of America National Trust & Savings
Association in Chicago, Illinois or at such other place as the Company shall
have designated by written notice to the holder of this Note as provided in the
Note Purchase Agreement referred to below.
This Note is one of a series of Notes (herein called the "Notes")
issued pursuant to a Note Purchase Agreement, dated as of August 15, 1998, as
supplemented by a First Supplement dated as of August 1, 1998 (as so
supplemented and a hereafter from time to time amended and supplemented, the
"Note Purchase Agreement"), and is entitled to the benefits thereof. Each holder
of this Note will be deemed, by its acceptance hereof, (i) to have agreed to the
confidentiality provisions set forth in Section 20 of the Note Purchase
Agreement and (ii) to have made the representations set forth in Sections 6.1
(to the extent such representation is
<PAGE>
required for such transfer) and 6.2 of the Note Purchase Agreement. The Notes
have not been registered under the Securities Act of 1933, as amended.
This Note is a registered Note and, as provided in the Note Purchase
Agreement, upon surrender of this Note for registration of transfer, duly
endorsed, or accompanied by a written instrument of transfer duly executed, by
the registered holder hereof or such holder's attorney duly authorized in
writing, a new Note for a like principal amount will be issued to, and
registered in the name of, the transferee. Prior to due presentment for
registration of transfer, the Company may treat the person in whose name this
Note is registered as the owner hereof for the purpose of receiving payment and
for all other purposes, and the Company will not be affected by any notice to
the contrary.
The Company will make required prepayments of principal on the dates
and in the amounts specified in the Note Purchase Agreements. This Note is also
subject to optional prepayment, in whole or from time to time in part, at the
times and on the terms specified in the Note Purchase Agreement, but not
otherwise.
If an Event of Default, as defined in the Note Purchase Agreement,
occurs and is continuing, the principal of this Note may be declared or
otherwise become due and payable in the manner, at the price (including any
applicable Make-Whole Amount) and with the effect provided in the Note Purchase
Agreement.
This Note shall be construed and enforced in accordance with, and
the rights of the parties shall be governed by, the law of the State of Illinois
excluding choice-of-law principles of the law of such State that would require
the application of the laws of a jurisdiction other than such State.
DONALDSON COMPANY, INC.
By:
-----------------------------------
Title:
--------------------------------
EXHIBIT 10.T
DONALDSON COMPANY, INC.
DEFERRED STOCK OPTION GAIN PLAN
First Effective July 25, 1997
<PAGE>
DONALDSON COMPANY, INC.
DEFERRED STOCK OPTION GAIN 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
2.5.1. Affiliate
2.5.2. Beneficial Owner
2.5.3. Exchange Act
2.5.4. Person
2.6. Committee
2.7. Common Stock
2.8. Company
2.9. Deferral Election
2.10. Deferred Stock Units
2.11. Effective Date
2.12. Eligible Employee
2.13. Exercise Date
2.14. Participant
2.15. Plan
2.16. Plan Year
2.17. Termination of Employment
2.18. Vested
SECTION 3. ELIGIBILITY AND PARTICIPATION ................................. 6
3.1. Eligibility
3.2. Commencement of Participation
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3.3. Termination of Participation
3.4. Overriding Exclusion
SECTION 4. DEFERRED STOCK UNIT AMOUNTS ................................... 7
4.1. Deferral Elections
4.2. Deferred Stock Units
4.3. Discretionary Credits
4.4. Dividend Credits
4.5. Vesting
SECTION 5. TIME AND MANNER OF PAYMENTS ................................... 9
5.1. Time of Payment
5.2. Manner of Payment
5.3. Changes in Time and Manner of Payment
5.4. Change in Control Distributions
5.5. Acceleration of Payments
5.5.1. When Available
5.5.2. Forfeiture
5.6. Death Benefit
5.7. Beneficiary Designation
SECTION 6. DEFERRED STOCK UNIT ACCOUNTS ................................. 11
6.1. Participant Accounts
6.2. Charges Against Accounts
SECTION 7. FUNDING ...................................................... 12
7.1. Funding
7.2. Corporate Obligation
SECTION 8. ADMINISTRATION ............................................... 13
8.1. Authority
8.2. Liability
8.3. Procedures
8.4. Claim for Benefits
8.5. Claims Procedure
8.5.1. Original Claim
8.5.2. Claims Review Procedure
8.5.3. General Rules
8.6. Payments upon Imposition of Federal or State Taxes
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8.7. Legal Fees
8.8. Errors in Computations
SECTION 9. MISCELLANEOUS ................................................ 17
9.1. Not an Employment Contract
9.2. Nontransferability
9.3. Tax Withholding
9.4. Expenses
9.5. Governing Law
9.6. Amendment and Termination
9.7. Rules of Interpretation
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<PAGE>
DONALDSON COMPANY, INC.
DEFERRED STOCK OPTION GAIN PLAN
SECTION 1
ESTABLISHMENT AND PURPOSE
1.1. ESTABLISHMENT. Effective as of July 25, 1997, Donaldson Company, Inc.
hereby establishes a nonqualified, unfunded, elective deferral plan for a select
group of highly compensated employees known as the "DONALDSON COMPANY, INC.
DEFERRED STOCK OPTION GAIN PLAN."
1.2. PURPOSE. The purposes of this Plan are to allow a select group of
management and highly compensated employees of the Company to defer the receipt
of income that would otherwise be subject to income tax upon exercise of stock
options granted by the Company and to attract and retain certain executive
employees of outstanding competence.
<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 5 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" shall be deemed to have occurred
if the event set forth in any one of the following paragraphs shall have
occurred:
(a) any Person is or becomes the Beneficial Owner, directly or
indirectly, of securities of the Company representing 25% or more of
the combined voting power of the Company's then outstanding
securities, excluding any Person who becomes such a Beneficial Owner
in connection with a transaction described in clause (i) of
paragraph (c) below; or
(b) the following individuals cease for any reason to constitute a
majority of the number of directors then serving: individuals who,
on the date hereof, constitute the Board and any new director (other
than a director whose initial assumption of office is in connection
with an actual or threatened election contest, including but not
limited to a consent solicitation, relating to the election of
directors of the Company) whose appointment or election by the Board
or nomination for election by the Company's stockholders was
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approved or recommended by a vote of at least two-thirds (2/3) of
the directors then still in office who either were directors on the
date hereof or whose appointment, election or nomination for
election was previously so approved or recommended; or
(c) there is consummated a merger or consolidation of the Company or any
direct or indirect subsidiary of the Company with any other
corporation, other than (i) a merger or consolidation which would
result in the voting securities of the Company outstanding
immediately prior to such merger or consolidation continuing to
represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity or any parent
thereof), in combination with the ownership of any trustee or other
fiduciary holding securities under an employee benefit plan of the
Company or any subsidiary of the Company, at least 60% of the
combined voting power of the securities of the Company or such
surviving entity or any parent thereof outstanding immediately after
such merger or consolidation, or (ii) a merger or consolidation
effected to implement a recapitalization of the Company (or similar
transaction) in which no Person is or becomes the Beneficial Owner,
directly or indirectly, of securities of the Company representing
25% or more of the combined voting power of the Company's then
outstanding securities; or
(d) the stockholders of the Company approve a plan of complete
liquidation or dissolution of the Company or there is consummated an
agreement for the sale or disposition by the Company of all or
substantially all of the Company's assets, other than a sale or
disposition by the Company of all or substantially all of the
Company's assets to an entity, at least 60% of the combined voting
power of the voting securities of which are owned by stockholders of
the Company in substantially the same proportions as their ownership
of the Company immediately prior to such sale.
Notwithstanding the foregoing, a "Change in Control" shall not be deemed to have
occurred by virtue of the consummation of any transaction or series of
integrated transactions immediately following which the record holders of the
common stock of the Company immediately prior to such transaction or series of
transactions continue to have substantially the same proportionate ownership in
an entity which owns all or substantially all of the assets of the Company
immediately following such transaction or series of transactions. Solely for
purposes of this Section 2.5, the following words and phrases shall have the
following meanings:
2.5.1. AFFILIATE -- an "affiliate" within the meaning of Rule 12b-2
promulgated under Section 12 of the Exchange Act.
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<PAGE>
2.5.2. BENEFICIAL OWNER -- a "beneficial owner" within the meaning of Rule
13d-3 under the Exchange Act.
2.5.3. EXCHANGE ACT -- the Securities Exchange Act of 1934, as amended
from time to time.
2.5.4 PERSON -- a "person" within the meaning of Section 3(a)(9) of the
Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof, except
that such term shall not include (i) the Company or any of its subsidiaries,
(ii) a trustee or other fiduciary holding securities under an employee benefit
plan of the Company or any of its Affiliates, (iii) an underwriter temporarily
holding securities pursuant to an offering of such securities, or (iv) a
corporation owned, directly or indirectly, by the stockholders of the Company in
substantially the same proportions as their ownership of stock of the Company.
2.6. COMMITTEE -- the Human Resources Committee of the Board of Directors of the
Company.
2.7. COMMON STOCK -- the common stock of the Company.
2.8. COMPANY -- Donaldson Company, Inc. and, except in determining under Section
2.5 hereof whether or not any Change in Control has occurred, shall include any
successor by merger, purchase or otherwise.
2.9. DEFERRAL ELECTION -- an election to defer the receipt of gain on an option
to buy Common Stock made by an Eligible Employee in accordance with Section 4.1.
2.10. DEFERRED STOCK UNITS -- the units credited to a Participant's Account
pursuant to Section 4.2.
2.11. EFFECTIVE DATE -- July 25, 1997.
2.12. ELIGIBLE EMPLOYEE -- an officer of the Company who is selected by the
Committee as provided in Section 3.
2.13. EXERCISE DATE -- the date on which an Eligible Employee exercises an
option to purchase Common Stock that is subject to a Deferral Election; provided
however, that such date shall not be deemed to occur prior to the date on which
the Participant tenders mature shares of Common Stock in payment of the option
exercise price, by attestation to the ownership of shares. For the purpose of
this Plan, shares of Common Stock shall be considered mature if they have been
held by the Participant for at least six months and have not been used to pay
the exercise price for another stock option exercise during the six months prior
to their tender.
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<PAGE>
2.14. PARTICIPANT -- an Eligible Employee or a former Eligible Employee of the
Company or its Affiliates who has any amount credited to his Account in this
Plan.
2.15. PLAN -- the Donaldson Company, Inc. Stock Option Gain Deferral Plan as set
forth herein, and as the same may be amended from time to time.
2.16. PLAN YEAR -- the twelve (12) consecutive month period ending on any July
31.
2.17. TERMINATION OF EMPLOYMENT -- the complete severance of an employee's
employment relationship with the Company and all Affiliates, if any, for any
reason.
2.18. VESTED -- nonforfeitable.
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<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 actively participate under
the Plan until the earlier of the officer's Termination of Employment or
transfer to a non-officer position with the Company or its Affiliates. The
Committee may rescind an officer's selection as an Eligible Employee and
discontinue an 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 Statement 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 himself or herself 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 STOCK UNIT AMOUNTS
4.1. DEFERRAL ELECTIONS. An Eligible Employee may file with the Committee a
Deferral Election as to any option to buy Common Stock granted to such Eligible
Employee by the Company, subject to the following:
(a) Except as provided in subsection (f) below and subject to the
modifications described in Sections 5.3 and 5.5, a Deferral Election
shall be irrevocable once it has been filed with the Committee.
(b) Deferral Elections may only be made with respect to options whose
exercise price may be paid in shares of Common Stock, and shall
obligate the Eligible Employee making the Deferral Election to pay
the exercise price and any tax withholding required at the time of
exercise by attestation to the ownership of shares of Common Stock
that the Eligible Employee has owned for at least six months and
that have not been used to exercise another option for at least six
months.
(c) Each Deferral Election shall specify the time and manner in which
distribution of the portion of the Participant's Account
attributable to that Deferral Election shall be made; provided,
however, that distribution may not commence prior to the first
anniversary of the Exercise Date of the option that is subject to
the Deferral Election.
(d) Nothing in this Plan shall be deemed to extend the period during
which stock options may be exercised, or to otherwise alter the
terms of any stock option.
(e) Deferral Elections must be made on forms approved by the Committee,
must be made at such time as the Committee shall determine but not
less than six months prior to the Exercise Date with respect to
those options, and shall conform to such other procedural and
substantive rules as the Committee shall make.
(f) Any Deferral Elections with respect to options that have not been
exercised shall become null and void upon an Eligible Employee's
Termination of Employment.
4.2. DEFERRED STOCK UNITS. As of each Exercise Date, a Participant's Account
shall be credited with the number of Deferred Stock Units equal to the
difference between (a) and (b):
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(a) The number of shares of Common Stock obtained by exercise of the
option being exercised; and
(b) The number of shares of Common Stock required to pay both the
exercise price of the option being exercised and any required tax
withholding.
4.3. DISCRETIONARY CREDITS. In the event of any change in the outstanding shares
of common stock of the Company by reason of any stock split or stock dividend in
the form of a split, the Committee shall adjust the number of Deferred Stock
Units in a Participant's Account so that such number equals the number of
Deferred Stock Units in the Account prior to the event, multiplied by a
fraction, the denominator of which is the number of Deferred Stock Units in the
Account prior to the event, and the numerator of which is the number of shares
of Common Stock the Participant would have had after the event if the
Participant had shares of Common Stock immediately prior to the event equal in
number to the number of Deferred Stock Units in the Participant's Account
immediately prior to the event. In the event of any dividend (other than a stock
dividend in the form of a split), recapitalization, merger, consolidation,
spinoff, reorganization, combination or exchange of shares or other similar
corporate change, then if the Committee, or the board of directors of a
successor corporation, shall determine, in its sole discretion, that such change
equitably requires an adjustment in the number of Deferred Stock Units then held
in the Participant's Account, such adjustment shall be made by the Committee or
said board and shall be conclusive and binding for all purposes of the Plan.
4.4. DIVIDEND CREDITS. The number of Deferred Stock Units in a Participant's
Account shall be automatically increased as of each Common Stock dividend
payment date in an amount equal to the number of shares of Common Stock that
could be purchased on such dividend payment date with the cash dividends that
would be paid on a number of shares of Common Stock equal to the number of
Deferred Stock Units in the Participant's Account on the record date for such
dividend.
4.5. VESTING. The Accounts of all Participants shall be 100% Vested at all
times.
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SECTION 5
TIME AND MANNER OF PAYMENTS
5.1. TIME OF PAYMENT. Payment of all or, under Section 5.1(b), a portion of a
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 in writing at a
time and on a form prescribed by the Committee (Deferral Election).
In no event, however, may payment of the portion of a Participant's Account
attributable to a particular option exercise begin less than one year after the
Exercise Date with respect to that option exercise.
5.2. MANNER OF PAYMENT. The Participant's Account will be paid to a Participant
in either a single lump sum payment or in annual 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 his or her date of distribution pursuant to Section 5.1(b).
Payment shall be made exclusively in the form of shares of Common Stock and cash
for any fractional shares. For purposes of determining any cash payment and any
tax withholding on a payment, the value of Common Stock will be the market price
of such Common Stock as of the close of business on the day prior to the date as
of which the payment is made.
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 once and must be made and
become effective as hereinafter provided, if at all, prior to a
Participant's Termination of Employment;
(b) A New Election shall become effective twelve months after it is
received by the Company;
(c) A New Election shall be subject to the limitations described in
Section 4.1(a) through (f); and
(d) 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,
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then payments shall be paid hereunder to or with respect to the
Participant according to the elections in effect at the time of the
event.
5.4. 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 on the date the Change in
Control occurs. Such distribution shall be made in a lump sum stock
distribution.
5.5. ACCELERATION OF PAYMENTS.
5.5.1. 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 5.5.2). 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 5.5.2) 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).
5.5.2. 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 accelerated payment,
the Participant will not be an Eligible Employee under this Plan for two (2)
years following such accelerated payment.
5.6. 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 (as adjusted
from time to time pursuant to Section 4.4) in a lump sum or in installments, as
previously elected by the Participant, to the Participant's designated
Beneficiary as soon as administratively feasible.
5.7. BENEFICIARY DESIGNATION. A Participant shall submit to the Company upon
initial designation as an Eligible Employee in 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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SECTION 6
DEFERRED STOCK UNIT ACCOUNTS
6.1. PARTICIPANT ACCOUNTS. The Committee shall cause a bookkeeping account to be
kept in the name of each Participant which shall reflect the Deferred Stock
Units credited to a Participant.
6.2. 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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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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SECTION 8
ADMINISTRATION
8.1. 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. The Committee may delegate or redelegate to one
or more persons, jointly or severally, and whether or not such persons are
members of the Committee or employees of the Company, such functions assigned to
the Committee hereunder as it may from time to time deem advisable.
8.2. 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.
8.3. 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.
8.4. 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.
8.5. CLAIMS PROCEDURE. Until modified by the Committee, the claims procedure set
forth in this Section 8.5 shall be the claims procedure for the resolution of
disputes and disposition of claims arising under the Plan.
8.5.1. 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,
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<PAGE>
(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.
8.5.2. 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.
8.5.3. 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
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<PAGE>
a copy of this Plan Statement and all other pertinent documents in
the possession of the Company and its Affiliates.
8.6. 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 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. The Participant agrees
to cooperate with the Company in connection with any tax audit.
8.7. 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.
8.8. 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
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<PAGE>
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).
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<PAGE>
SECTION 9
MISCELLANEOUS
9.1. 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.
9.2. 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.
9.3. 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.
9.4. EXPENSES. All expenses of administering the Plan shall be borne by the
Company.
9.5. 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.
9.6. 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 in any manner that reduces the
amount of such benefits or alters the effect of any participant election
previously filed with the Company. No modification of the 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.
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<PAGE>
9.7. RULES OF INTERPRETATION. The titles given to the various sections of this
Plan are inserted for convenience of reference only and are not part of this
Plan, and they shall not be considered in determining the purpose, meaning or
intent of any provision hereof. This Plan shall be construed and this Plan shall
be administered to create an unfunded plan providing deferred compensation to a
select group of management or highly compensated employees so that it is exempt
from the requirements of Parts 2, 3 and 4 of Title I of ERISA and qualifies for
a form of simplified, alternative compliance with the reporting and disclosure
requirements of Part 1 of Title I of ERISA.
Date: DONALDSON COMPANY, INC.
-----------------
By
------------------------------------
Chief Executive Officer
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EXHIBIT 13
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS The following discussion of the company's financial
condition and results of operations should be read in conjunction with the
Consolidated Financial Statements and Notes thereto and other financial
information included elsewhere in this Report.
FISCAL 1998 COMPARED TO FISCAL 1997 The company reported record sales in 1998 of
$940.4 million, up 12.8 percent from prior-year sales of $833.3 million. Strong
business conditions were evident across all businesses. Sales for the core
Engine Products businesses - first-fit and replacement parts - were up 12.4
percent over last year. Industrial Products businesses, including the Torit
Products and Gas Turbine businesses, were up 13.6 percent from last year.
Domestic Engine Products sales were up 19 percent, primarily from increased
shipments to original equipment manufacturers (OEMs) and overall good economic
conditions in the United States. In addition, domestic Aftermarket sales
increased 13.2 percent year over year. Domestic Industrial Products sales
increased 18.9 percent, led by strong sales in the Torit Products (dust
collection) market and Gas Turbine Systems offset by lower sales in High Purity
Products.
In U.S. dollars overseas Engine Products sales were up 3.3 percent compared
to the prior year, mostly attributable to increased shipments in Europe.
Overseas Industrial Products sales increased approximately 6.2 percent due
primarily to increased sales of High Purity Products and Gas Turbine systems in
Hong Kong. Overseas sales in local currencies were down approximately 3.5
percent in Japan and Australia and were up 23 percent in Europe.
The company reported record net earnings for 1998 of $57.0 million compared
to $50.6 million in 1997, an increase of 12.7 percent. Net earnings per share
were $1.14, up 15 percent from the prior year. Increased sales levels and a
reduction in the effective income tax rate were the primary reasons for the
higher earnings. Overseas operating income totaled approximately 50.3 percent
and 54.7 percent of consolidated operating income in 1998 and 1997.
Gross margin for 1998 decreased to 28 percent compared to 30 percent in the
prior year. The primary factors leading to this decline in margins include:
integration and process problems at Armada Tube facilities; lower gross margins
on automotive product lines; product cost increases in Engine businesses, not
immediately recoverable in price; pricing pressures in certain High Purity
Product market segments.
Operating expenses as a percentage of sales for 1998 and 1997 were 18.8
percent and 20.1 percent, respectively. Operating expenses in 1998 totaled
$176.5 million compared to $167.6 million in 1997, which reflects an increase of
$8.9 million, or 5.3 percent. Selling expenses in 1998 increased $5.2 million,
primarily due to the higher sales levels, while general and administrative
expenses decreased $2.5 million due to lower pension expenses, the write-down in
1997 of purchased intangibles of $5.0 million on a previous business acquisition
in 1997, decreased warranty accruals on product lines and other accruals.
Interest expense increased $2.3 million, or 98 percent, primarily due to the
increase in total debt. Other (income)/expense totaled $(4.3) million in 1998
compared to other (income)/ expense of $1.3 million in the prior year. The
significant items leading to this change in other (income)/expense were a
decrease in charitable contributions of $2.3 million and a decrease in other
miscellaneous items such as legal accruals and non-compete payments related to a
previous business acquisition which were included in 1997 other (income)/expense
totals.
The effective income tax rate of 34 percent in 1998 was lower compared to 36
percent in 1997 due primarily to lower overseas tax rates.
Total backlogs of $243.3 million were down 5.2 percent from the prior
year-end. Hard order backlogs, goods scheduled for delivery in 90 days, were
$138.8 million and $164.2 million at
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July 31, 1998 and 1997, respectively. Worldwide Engine Products backlog
decreased $16.5 million and worldwide Industrial Pro ducts backlog decreased
$8.9 million from 1997. After adjusting for discontinued product lines and other
special factors, hard backlogs were essentially unchanged from last year.
Backlog for Gas Turbine Products was down about $4.6 million after an
exceptionally strong period of shipments in the third quarter of 1998. About
$14.5 million of the hard order backlog decline was associated with discontinued
product lines - automotive systems for GM light trucks, catalytic converter
mufflers for medium and heavy-duty truck OEMs and certain disk drive filter
units. Finally, about $4.5 million of the hard backlog decline related to the
timing of orders in our Engine Aftermarket and High Purity Product lines and
does not reflect an overall change in the level of sales activity.
FISCAL 1997 COMPARED TO FISCAL 1996 The company reported record sales in 1997 of
$833.3 million, up 9.8 percent from prior-year sales of $758.6 million. Strong
business conditions were evident across all businesses. Sales for the core
Engine Products businesses - first-fit and replacement parts - were up 10.2
percent over last year. Industrial Products businesses, including the Torit
Products and Gas Turbine businesses, were up 9.1 percent from last year.
Domestic Engine products sales were up 11.6 percent, primarily from
increased shipments to OEMs and overall good economic conditions in the U.S.
Weakness in the heavy-duty Transportation market was more than offset by
business growth in the Auto motive and Defense markets. In addition, domestic
Aftermarket sales increased 11 percent year over year. Domestic Industrial
Products sales increased 7.1 percent, led by strong sales in the Torit Products
(dust collection) market, offset by lower sales in High Purity Products and Gas
Turbine Products.
Overseas sales increased almost 7 percent, 15 percent in local currencies,
primarily due to increased net sales in Europe, Japan and Hong Kong. Overseas
Engine Products sales were up 7.7 percent compared to the prior year as
shipments increased in Europe. Overseas Industrial Products sales increased
approximately 12.9 percent due primarily to increased sales of High Purity
Products and Gas Turbine systems in Hong Kong.
The company reported record net earnings for 1997 of $50.6 million compared
to $43.4 million in 1996, an increase of 16.6 percent. Net earnings per share
were $.99, up 18.6 percent from the prior year. Increased sales levels and
improvements in the gross margin and a reduction in the effective income tax
rate were the primary reasons for the higher earnings. Overseas operating income
totaled approximately 55 percent of consolidated operating income.
Gross margin for 1997 increased to 30 percent compared to 29.4 percent in
the prior year. Increased manufacturing efficiencies gained by higher operating
levels, product mix and lower raw material prices in 1997 contributed to this
improvement. Margins improved in Industrial Products markets and remained flat
for Engine Products.
Operating expenses as a percentage of sales for 1997 and 1996 were 20.1
percent and 19.4 percent, respectively. Operating expenses in 1997 totaled
$167.6 million compared to $147.2 million in 1996, which reflects an increase of
$20.3 million, or 13.8 percent. Selling expenses in 1997 increased $6.2 million,
primarily due to the higher sales levels, while general and administrative
expenses increased $12.7 million due to higher pension expenses, the write-down
of purchased intangibles of $5.0 million on a previous business acquisition,
increased warranty accruals on product lines and other accruals.
Interest expense declined $0.5 million, or 18.8 percent, primarily due to
the decline in total debt. Other expense totaled $1.3 million in 1997 compared
to other expense of $1.6 million in the prior year. The $0.3 million change is
due to a $0.6 million decrease in foreign exchange loss, a $0.4 million decline
in
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1998 Annual Report
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interest income, an increase in charitable contributions of $1.2 million, an
increase in earnings from joint ventures, including AFSI, a joint venture with
Caterpillar, Inc., of $.06 million and a decrease in other miscellaneous items
of $0.1 million.
The effective income tax rate of 36 percent in 1997 was lower compared to
38.9 percent in 1996 due to lower overseas tax rates.
Hard order backlogs, goods scheduled for delivery in 90 days, were $164.2
million and $121.9 million at July 31, 1997 and 1996, respectively. Worldwide
Engine Products backlog increased $24.5 million and worldwide Industrial
Products backlog increased $17.9 million from 1996. Total backlogs of $257.1
million were up 26.4 percent from the prior year-end, primarily due to higher
overall orders and strong business conditions.
During 1997, the company completed the acquisition of two overseas
operations in our Engine Products businesses. In South Africa, the company
purchased the exhaust products manufacturing assets of the Kilber Division of
N.E.I., which will allow the company to expand its exhaust products into that
market. In Mexico, the company purchased all of the outstanding shares of Diemo,
S.A. de D.V., a supplier of liquid filter components, in what was primarily a
vertical integration. The company also completed the acquisition of the assets
of the Armada Tube Group, including Armada Products Co., located in Armada,
Michigan, and Lakeside Tube Fabricators, Inc., located in Mooresville, North
Carolina. The Armada businesses generated annual sales of more than $15 million
in manufacturing and delivering bent and fabricated tubular assemblies for
exhaust and other engine related products. In addition, the company completed
the acquisition of the assets of Aercology Incorporated, located in Old
Saybrook, Connecticut. The Aercology business generated annual sales of more
than $10 million in the manufacturing of smaller sized industrial air filtration
products. All of the above acquisitions were treated as purchases. The results
of operations of these businesses were not material in relation to the company's
consolidated results of operations for 1997. See Note B in the footnotes to the
Consolidated Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
FINANCIAL CONDITION At July 31, 1998 the company's capital structure was
comprised of $45.8 million of current debt, $50.3 million of long-term debt and
$255.7 million of shareholders' equity. The ratio of long-term debt to total
long-term capital was 16.5 percent, compared with 1.7 percent at July 31, 1997.
Total debt increased $49.7 million during 1998 to $96.2 million. The
increase resulted from the issuance of $50.0 million of senior notes in July
1998 and the use of $45.5 million of short-term debt for operating purposes.
In 1998, the company renewed and modified its multi-currency revolving
credit facility totaling $100.0 million with a group of international banks, led
by Citibank as the agent. There was $22.0 million outstanding under this
facility at July 31, 1998. The company believes that the combination of present
capital resources, internally generated funds, and unused financing sources are
more than adequate to meet cash requirements for 1999.
Shareholders' equity increased $11.8 million in 1998 to $255.7 million. The
increase was primarily due to an increase in retained earnings of $57.0 million
from current year net earnings, issuance of stock awards of $3.7 million offset
by $33.3 million of treasury stock repurchases, a $6.1 million increase in the
cumulative translation adjustment and $9.6 million of dividend payments.
On November 21, 1997 the Board of Directors declared a 2-for-1 stock split
of its common stock, effected in the form of a 100 percent stock dividend. The
stock dividend was issued on January 13, 1998, to shareholders of record as of
December 19, 1997.
CASH FLOWS During 1998, $36.1 million of cash was generated from operating
activities, compared with $54.6 million in 1997 and $76.9 million in 1996. The
decrease in 1998 was largely the result of a significant increase in accounts
receivable and inventory, a significant decrease in trade accounts payable,
accruals and income taxes payable, all of which more than offset the
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Donaldson Company
<PAGE>
results of increased net earnings. In addition to cash generated from operating
activities the company obtained approximately $48.8 million in long-term debt as
a result of the issuance of $50.0 million in senior notes in July 1998.
Significant uses for cash included $54.7 million for capital expenditures, $33.2
million for stock repurchases, $2.5 million for repayment of long-term debt and
$9.6 million for dividend payments. Cash and cash equivalents increased $1.8
million during 1998.
Capital expenditures for property, plant and equipment totaled $54.7 million
in 1998, compared to $47.3 million in 1997 and $39.3 million in 1996. Capital
expenditures related to productivity enhancing projects at various plants in the
U.S. and overseas, capacity expansion at various plants throughout the world and
continuing upgrades to information systems.
Capital spending in 1999 is planned to be $40 million. Significant planned
expenditures include the further upgrade of information systems and investment
in manufacturing equipment and tooling. It is anticipated that 1999 capital
expenditures will be financed primarily from funds from operations.
DIVIDENDS The company's dividend policy is to maintain a payout ratio which
allows dividends to increase with the long-term growth of earnings per share,
while sustaining dividends in down years. The company's dividend payout ratio
target is 20 percent to 25 percent of the average earnings per share of the last
three years. The current quarterly dividend of 5 cents per share equates to 20.2
percent of the 1996 through 1998 average net earnings per share.
SHARE REPURCHASE PLAN In January 1998 the Board of Directors authorized the
company to repurchase 4.0 million shares of common stock. At July 31, 1998, the
company had approximately 2.8 million remaining shares under the repurchase
authorizations. Management and the Board of Directors believe the share
repurchase program is an excellent means of returning value to the shareholders.
In 1998, the company repurchased 1.3 million shares of common stock on the
open market for $33.3 million, at an average price of $24.63 per share. The
company repurchased 1.4 million shares for $24.9 million in 1997 and 1.8 million
shares for $23.1 million in 1996.
ENVIRONMENTAL MATTERS The company is a party to certain remedial activities at
third party-disposed sites claims relating to environmental and waste disposal
matters. The company has established reserves for potential environmental
liabilities and plans to continue to accrue reserves in appropriate amounts.
While uncertainties exist with respect to the amounts and timing of the
company's ultimate environmental liabilities, management believes that such
liabilities, individually and in the aggregate, will not have a material adverse
effect on the company's financial condition or results of operations.
NEW ACCOUNTING STANDARDS Statement of Financial Accounting Standards (SFAS) No.
130 "Reporting Comprehensive Income," and SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information," are effective for fiscal
years beginning after December 15, 1997 and SFAS No. 133 "Accounting for
Derivative Instruments and Hedging Activities" is effective for fiscal years
beginning after June 15, 1999. SFAS 130 requires a company to display an amount
representing comprehensive income, as defined by the statement, as part of the
company's basic financial statements. Comprehensive income will include items
such as unrealized gains or losses on certain investment securities and foreign
currency items. The adoption of SFAS 130 results in disclosure only for
financial reporting purposes, therefore will not affect the financial results of
the company.
SFAS 131 requires a company to disclose financial and other information, as
defined by the statement, about its business segments, their products and
services, geographic areas, major customers, revenues, profits, assets and other
information. The company has not yet assessed what impact SFAS 131 will have on
its consolidated financial statement reporting.
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1998 Annual Report
<PAGE>
SFAS 133 requires a company to recognize all derivatives on the balance
sheet at fair value. Derivatives that are not hedges must be adjusted to fair
value through income. If the derivative is a hedge, depending on the nature of
the hedge, changes in the fair value of derivatives will either be offset
against the change in fair value of the hedged assets, liabilities, or firm
commitments and recognized through earnings or in other comprehensive income
until the hedged item is recognized in earnings. The ineffective portion of a
derivative's change in fair value will be immediately recognized in earnings.
The company has not yet determined what the effect of SFAS 133 will be on
earnings and financial position of the company.
MARKET RISK The market risk inherent in the company's market risk sensitive
instruments and positions is the potential loss arising from adverse changes in
foreign currency exchange rates and interest rates as discussed below.
FOREIGN CURRENCY In 1998, the U.S. dollar was generally stronger relative to the
currencies of foreign countries where the company operates. A stronger dollar
generally has a negative impact on overseas results because foreign-currency
denominated earnings translate into less U.S. dollars; a weaker dollar generally
has a positive translation effect.
It is not possible to determine the true impact of foreign currency
translation changes; however the direct effect on net sales and net earnings can
be estimated. For 1998, the stronger U.S. dollar decreased net sales by $24.5
million and decreased net earnings by $1.9 million. During 1997, the generally
stronger U.S. dollar decreased net sales by $20.2 million and decreased net
earnings by $0.8 million.
The company maintains significant assets and operations in Europe, Japan,
China (including Hong Kong), Australia and Mexico. As a result, exposure to
foreign currency gains and losses exists. A portion of foreign currency exposure
is hedged by incurring liabilities, including bank debt, denominated in the
local currency where subsidiaries are located.
The subsidiaries of the company purchase products and parts in various
currencies. As a result, the company may be exposed to cost increases relative
to local currencies in the markets to which it sells. To mitigate such adverse
trends, the company enters into forward exchange contracts and other hedging
activities. Also, foreign currency positions are partially offsetting and are
netted against one another to reduce exposure.
Some products made in the U.S. are sold abroad, primarily in Canada and
Mexico. As a result, sales of such products are affected by the value of the
U.S. dollar relative to other currencies. Any long-term strengthening of the
U.S. dollar could depress these sales. Also, competitive conditions in the
company's markets may limit its ability to increase product pricing in the face
of adverse currency movements. The potential loss in fair value from a 10
percent adverse change in foreign currency exchange rates is not material.
INTEREST At July 31, 1998 the fair value of the company's long-term debt
approximates market. Market risk is estimated as the potential increase in fair
value resulting from a hypothetical one-half percent decrease in interest rates
and amounts to approximately $2.0 million over the term of the debt.
YEAR 2000 AND EURO CURRENCY ISSUES The company has developed plans to address
the potential for business interruption related to the impact of Year 2000 on
computer systems. Financial, information and operating systems (including any
equipment with embedded microprocessors) have been surveyed and assessed. In
most cases, identified problems have already been rectified or detailed plans
are in place to modify impacted systems prior to the end of 1998. In some cases
identified problems will be addressed with repair projects to be completed in
1999. Progress against these plans is monitored and reported to senior
management and to the Audit Committee of the Board of Directors on a regular
basis. Implementation of required changes to, and testing of, critical business
systems is expected to be complete by the
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Donaldson Company
<PAGE>
end of 1998. Changes to all other systems are expected to be complete by July
1999. Testing of non-critical systems will be performed on a spot basis; more
extensive testing may be initiated if it is deemed appropriate.
The company has also surveyed its significant suppliers to assess the
potential impact on operations if key third parties are not successful in
converting their systems in a timely manner. Responses to these surveys are
incomplete at this time. Responses received to date indicate that our suppliers
are aware of the Year 2000 issue and are implementing all necessary changes,
mostly scheduled for completion by mid-1999. Vendors not responding to surveys
are now being evaluated and follow-up action will take place over the next
several months.
Incremental costs (including contractor expenses and the cost of internal
resources dedicated to achieving Year 2000 compliance) are charged to expense as
incurred. Total costs for all relevant activity is estimated to be $5 million,
of which approximately 70 percent has been spent to date.
In general, the company has a relatively low risk profile relative to Year
2000 issues. Only a small percentage of our products contain microprocessors and
all of our product range is now Year 2000 compliant. Our information systems
(financial, purchasing, manufacturing planning, etc.) are easily inventoried and
detailed modification plans exist and are being executed. Our manufacturing
systems are, in general, standard pieces of equipment with relatively few
proprietary or unique operating systems or controls. At this time, the company
does not have in place a comprehensive, global contingency plan relative to
potential Year 2000 disruptions. Rather, each significant system either has been
repaired and tested, or is being repaired. For systems currently being reworked,
contingency plans exist to address unforeseen problems.
The most reasonably likely negative scenario is that modification work will
not proceed on schedule, causing some increase to the total cost of achieving
Year 2000 compliance. The impact on the company's results of operations if the
company or its suppliers or customers are not fully Year 2000 compliant is not
reasonably determinable. However, since we are depending on our ability to
execute modification plans and our vendors to continue material supply without
interruption, there can be no assurance that unforeseen difficulties will not
arise for the company or its customers and that related costs will not thereby
be incurred. This dependence on the performance of our employees, contractors
and vendors, as it relates to the Year 2000 issue, does not appear significantly
different from our dependence on these groups relative to a wide range of other
expectations (e.g., product quality, dependable delivery, technical support,
etc.).
The company's current accounting and operational software at its Europe
subsidiaries will accommodate the conversion on January 1, 1999 to a common
currency, the "euro," by members of the European Union. The impact on the
company's results of operation if the company or its suppliers or customers are
not fully able to accommodate the "euro" conversion is not reasonably
determinable.
RISK FACTORS Except for the historical information contained herein, certain of
the matters discussed in this annual report 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, Year 2000 issues,
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 report 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.
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1998 Annual Report
<PAGE>
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
Year Ended July 31
(Thousands of dollars except share and per share amounts) 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $ 940,351 $ 833,348 $ 758,646
Cost of sales 677,089 583,075 535,772
- ---------------------------------------------------------------------------------------------------------
Gross Margin 263,262 250,273 222,874
Selling, general and administrative 152,954 150,270 131,326
Research and development 23,509 17,288 15,906
Interest expense 4,671 2,358 2,905
Other expense (income) (4,313) 1,263 1,617
- ---------------------------------------------------------------------------------------------------------
Total Expenses 176,821 171,179 151,754
- ---------------------------------------------------------------------------------------------------------
Earnings Before Income Taxes 86,441 79,094 71,120
Income taxes 29,390 28,474 27,684
- ---------------------------------------------------------------------------------------------------------
Net Earnings $ 57,051 $ 50,620 $ 43,436
=========================================================================================================
Weighted Average Shares Outstanding 49,332,266 50,314,976 51,473,882
=========================================================================================================
Diluted Shares Outstanding 50,229,005 51,216,766 52,026,848
=========================================================================================================
Net Earnings Per Share - Basic $ 1.16 $ 1.01 $ .84
=========================================================================================================
Net Earnings Per Share - Assuming Dilution $ 1.14 $ .99 $ .84
=========================================================================================================
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
12
Donaldson Company
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
At July 31
(Thousands of dollars except share amounts) 1998 1997
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 16,069 $ 14,278
Accounts receivable, net 161,914 161,440
Inventories
Raw materials 38,346 36,178
Work in process 14,557 11,488
Finished products 49,114 38,253
- ----------------------------------------------------------------------------------------------------------------------
Total Inventories 102,017 85,919
Prepaids and other current assets 7,341 7,181
- ----------------------------------------------------------------------------------------------------------------------
Total Current Assets 287,341 268,818
Property, Plant and Equipment, at cost
Land 7,726 8,356
Buildings 102,371 98,289
Machinery and equipment 256,698 236,038
Construction in progress 24,586 11,471
- ----------------------------------------------------------------------------------------------------------------------
391,381 354,154
Less accumulated depreciation (212,514) (199,559)
178,867 154,595
Other Assets 33,113 30,981
- ----------------------------------------------------------------------------------------------------------------------
$ 499,321 $ 454,394
======================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term borrowings $ 45,491 $ 42,027
Current maturities of long-term debt 405 647
Trade accounts payable 59,368 68,317
Accrued employee compensation and related taxes 26,837 28,760
Income taxes payable 6,565 2,738
Warranty and customer support 22,691 28,156
Other current liabilities 6,135 5,652
- ----------------------------------------------------------------------------------------------------------------------
Total Current Liabilities 167,492 176,297
Long-term Debt 50,349 4,201
Deferred Income Taxes 1,604 1,442
Other Long-term Liabilities 24,205 28,589
Shareholders' Equity
Preferred stock, $1.00 par value, 1,000,000 shares authorized, none issued -- --
Common stock, $5.00 par value, 80,000,000 shares authorized, 49,655,954 and 54,126,814
shares issued in 1998 and 1997 248,280 135,317
Additional paid-in capital 1,199 6,212
Retained earnings 39,965 167,444
Cumulative translation adjustment (5,135) 934
Treasury stock - 1,274,251 and 4,674,758 shares in 1998 and 1997, at cost (28,638) (63,312)
Receivable from ESOP -- (2,730)
- ----------------------------------------------------------------------------------------------------------------------
Total Shareholders' Equity 255,671 243,865
$ 499,321 $ 454,394
======================================================================================================================
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
13
1998 Annual Report
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended July 31
(Thousands of dollars) 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net earnings $ 57,051 $ 50,620 $ 43,436
Adjustments to reconcile net earnings to net cash provided by operating activities
Depreciation and amortization 25,272 21,494 21,674
Write-down of impaired assets 1,000 5,029 2,009
Equity in earnings of affiliates (3,655) (3,025) (2,445)
Deferred income taxes 4,226 (950) (5,683)
Other (7,972) 6,125 6,177
Changes in operating assets and liabilities, net of acquired businesses
Accounts receivable (6,780) (24,949) (7,150)
Inventories (20,037) (14,498) (2,035)
Prepaids and other current assets (656) 3,574 (4,779)
Trade accounts payable and other accrued expenses (12,305) 11,146 25,720
- -------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 36,144 54,566 76,924
INVESTING ACTIVITIES
Net expenditures on property and equipment (54,705) (47,327) (39,297)
Acquisitions and investments in affiliates (920) (23,606) (2,152)
Dividends from affiliate 1,711 3,749 616
- -------------------------------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (53,914) (67,184) (40,833)
FINANCING ACTIVITIES
Net change in long-term debt 46,307 (5,280) (361)
Net change in short-term borrowings 4,568 28,976 (8,360)
Payment received from ESOP 2,730 -- 2,520
Purchase of treasury stock (33,250) (24,904) (23,143)
Dividends paid (9,630) (8,799) (7,725)
Exercise of stock options 2,619 1,788 129
- -------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by (Used in) Financing Activities 13,344 (8,219) (36,940)
Effect of exchange rate changes on cash 6,217 4,191 3,208
- -------------------------------------------------------------------------------------------------------------------------
Increase (Decrease) in Cash and Cash Equivalents 1,791 (16,646) 2,359
Cash and Cash Equivalents, Beginning of Year 14,278 30,924 28,565
- -------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents, End of Year $ 16,069 $ 14,278 $ 30,924
=========================================================================================================================
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
14
Donaldson Company
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Additional Cumulative
(Thousands of dollars, Common Paid-in Retained Translation Treasury Receivable
except per share amounts) Stock Capital Earnings Adjustments Stock from ESOP Total
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE JULY 31, 1995 $135,317 $ 2,639 $ 93,746 $ 14,824 $ (20,103) $ (5,250) $221,173
Treasury stock acquired (23,143) (23,143)
Stock options exercised (140) (689) 958 129
Payment received from ESOP 2,520 2,520
Performance awards 114 27 727 868
Tax reduction - employee plans 381 381
Net earnings 43,436 43,436
Translation adjustments (8,759) (8,759)
Cash dividends ($.15 per share) (7,725) (7,725)
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE JULY 31, 1996 135,317 2,994 128,795 6,065 (41,561) (2,730) 228,880
Treasury stock acquired (24,904) (24,904)
Stock options exercised 174 (3,266) 2,198 (894)
Performance awards 1,426 94 955 -- 2,475
Tax reduction - employee plans 1,618 1,618
Net earnings 50,620 50,620
Translation adjustments (5,131) (5,131)
Cash dividends ($.17 per share) (8,799) (8,799)
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE JULY 31, 1997 135,317 6,212 167,444 934 (63,312) (2,730) 243,865
Treasury stock acquired (33,250) (33,250)
Stock options exercised 143 (5,145) 3,135 (1,867)
Payment received from ESOP 2,730 2,730
Performance awards (1,546) 594 1,349 397
Tax reduction - employee plans 2,444 2,444
Net earnings 57,051 57,051
Translation adjustments (6,069) (6,069)
Two-for-one stock split 112,963 (6,054) (170,349) 63,440 --
Cash dividends ($.19 per share) (9,630) (9,630)
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE JULY 31, 1998 $248,280 $ 1,199 $ 39,965 $ (5,135) $ (28,638) $ -- $255,671
==================================================================================================================================
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
15
1998 Annual Report
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the
accounts of Donaldson Company, Inc. and all majority-owned subsidiaries. All
significant intercompany accounts and transactions have been eliminated. The
accounts of overseas subsidiaries are included for fiscal years ended June 30.
Certain amounts in prior periods have been reclassified to conform to the
current presentation. The reclassifications had no impact on the net earnings as
previously reported.
USE OF ESTIMATES The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
FOREIGN CURRENCY TRANSLATION For most foreign operations, local currencies are
considered the functional currency. Assets and liabilities are translated using
the exchange rates in effect at the balance sheet date. Results of operations
are translated using the average exchange rates prevailing throughout the
period. Translation gains or losses, net of applicable deferred taxes, are
accumulated in the foreign currency adjustment in shareholders' equity. Foreign
currency transaction losses of $1.4 million, $0.5 million and $1.1 million in
1998, 1997 and 1996, respectively, are included in earnings before income taxes.
CASH EQUIVALENTS The company considers all highly liquid temporary investments
with a maturity of three months or less when purchased to be cash equivalents.
Cash equivalents are carried at cost which approximates market value.
INVENTORIES Inventories are stated at the lower of cost or market. Domestic
inventories are valued using the last-in, first-out (LIFO) method, while the
overseas subsidiaries use the first-in, first-out (FIFO) method. Inventories
valued at LIFO were 60 percent and 57 percent of total inventories at July 31,
1998 and 1997, respectively.
The current cost of inventories valued under the LIFO method exceeded their
LIFO carrying values by $19.9 million and $19.5 million at July 31, 1998 and
1997, respectively.
PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated at cost.
Depreciation is computed principally by use of declining balance methods on
facilities and equipment acquired on or prior to July 31, 1992. The company
adopted the straight-line depreciation method for all property acquired after
July 31, 1992. Accelerated depreciation methods are generally used for income
tax purposes.
The estimated useful lives of property, plant and equipment are as follows:
- --------------------------------------------------------------------------------
Buildings 10 to 40 years
Machinery and Equipment 3 to 10 years
================================================================================
INTANGIBLE ASSETS Intangible assets are recorded at their estimated fair values
at date of acquisition and are amortized on a straight-line basis over periods
ranging up to 15 years.
IMPAIRMENT OF LONG-LIVED ASSETS The company reviews the long-lived assets,
including identifiable intangibles and associated goodwill, for impairment when
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. If impairment indicators are present and the estimated
future undiscounted cash flows are less than the carrying value of the assets
and any related goodwill, the carrying value is reduced to the estimated fair
value as measured by the discounted cash flows.
During 1998 and 1997, the company reassessed the carrying value of certain
amounts of purchased intangibles related to previous business acquisitions. As a
result, a total non-cash charge of $1.0 million and $5.0 million was recorded
and is included in selling, general and administrative expenses on the
consolidated statement of earning in 1998 and 1997, respectively.
16
Donaldson Company
<PAGE>
INCOME TAXES Deferred tax assets and liabilities are recognized for the expected
future tax consequences attributed to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax basis. Deferred tax assets and liabilities are measured using the
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be reversed.
EARNINGS PER SHARE During the second quarter of fiscal 1998, the company adopted
Statement of Financial Accounting Standards (SFAS) No. 128 "Earnings per Share."
All current and prior year earnings per share data have been restated to conform
to the provisions of SFAS 128.
The company's basic net earnings per share is computed by dividing net
earnings by the weighted average number of outstanding common shares. The
company's diluted net earnings per share is computed by dividing net earnings by
the weighted average number of outstanding common shares and common share
equivalents relating to stock options, when dilutive.
The following table presents information necessary to calculate basic and
diluted earnings per common share and common share equivalent:
(Thousands of dollars
except share and per share amounts) 1998 1997 1996
- --------------------------------------------------------------------------------
Weighted average shares
outstanding - Basic $49,332 $50,315 $51,474
Dilutive share equivalents 897 902 553
- --------------------------------------------------------------------------------
Weighted average shares - Diluted 50,229 51,217 52,027
================================================================================
Net earnings for basic and diluted
earnings per share computation $57,051 $50,620 $43,436
================================================================================
Basic earnings per share $ 1.16 $ 1.01 $ .84
================================================================================
Diluted earnings per share $ 1.14 $ .99 $ .84
================================================================================
Earnings per share amounts, stock options, dividends, and shares outstanding
have been restated to reflect the company's 2-for-1 stock split effected in the
form of a stock dividend issued on January 13, 1998.
TREASURY STOCK Repurchased Common Stock is stated at cost and is presented as a
separate reduction of shareholders' equity.
RESEARCH AND DEVELOPMENT All expenditures for research and development are
charged against earnings in the year incurred.
STOCK-BASED COMPENSATION Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" encourages, but does not require,
companies to record compensation cost for stock-based employee compensation
plans at fair value. The company has chosen to continue to account for
stock-based compensation using the intrinsic value method prescribed in
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," and related Inter pretations. Accordingly, compensation cost for
stock options is measured as the excess, if any, of the quoted market price of
the company's stock at the date of the grant over the amount an employee must
pay to acquire the stock. Compensation cost for performance equity units is
recorded based on the quoted market price of the company's stock at the end of
the period.
REVENUE RECOGNITION Revenue is recognized when product is shipped and invoiced
or performance of services is complete.
PRODUCT WARRANTIES The company provides for estimated warranty costs and accrues
for specific items at the time their existence is known and the amounts are
determinable.
NEW ACCOUNTING STANDARDS Statement of Financial Accounting Standards (SFAS) No.
130 "Reporting Comprehensive Income," and SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information," are effective for fiscal
years beginning after December 15, 1997 and SFAS No. 133 "Accounting for
Derivative Instruments and Hedging Activities" is effective for fiscal years
beginning after June 15, 1999. SFAS 130 requires a company to display an amount
representing comprehensive income, as defined by the statement, as part of the
company's basic financial statements. Comprehensive income will include items
such as unrealized gains or losses on certain investment
17
1998 Annual Report
<PAGE>
securities and foreign currency items. The adoption of SFAS 130 results in
disclosure only for financial reporting purposes, therefore will not affect the
financial results of the company.
SFAS 131 requires a company to disclose financial and other information, as
defined by the statement, about its business segments, their products and
services, geographic areas, major customers, revenues, profits, assets and other
information. The company has not yet assessed what impact SFAS 131 will have on
its consolidated financial statement reporting.
SFAS 133 requires a company to recognize all derivatives on the balance
sheet at fair value. Derivatives that are not hedges must be adjusted to fair
value through income. If the derivative is a hedge, depending on the nature of
the hedge, changes in the fair value of the hedged assets, liabilities, or firm
commitments are recognized through earnings or in other comprehensive income
until the hedged item is recognized in earnings. The ineffective portion of a
derivative's change in fair value will be immediately recognized in earnings.
The company has not yet determined what the effect of SFAS 133 will be on
earnings and the financial position of the company.
NOTE B
ACQUISITIONS
All acquisitions were accounted for as purchases. The purchase prices assigned
to the net assets acquired were based on the fair value of such assets and
liabilities at the respective acquisition dates. The operating results of these
acquired companies have been included in the consolidated statement of earnings
from the dates of acquisition. Consolidated pro forma earnings and earnings per
share would not be materially different from the reported amounts for all years
presented.
During 1998, the company acquired an additional 10 percent of PT Panata Jaya
Mandiri in Jakarta, Indonesia for $0.7 million. This additional investment
brought the total ownership in this joint venture to 30 percent.
The company also invested approximately $1.6 million for a 50 percent
ownership in MSCA, LLC in Monticello, Indiana. Operating results were immaterial
in fiscal 1998.
During 1997, the company acquired the remaining 50.1 percent of its
Australian Torit Products distributor; acquired the exhaust products
manufacturing assets of the Kilber Division of N.E.I. in South Africa; and
acquired the common stock of Diemo, S.A. de D.V., a supplier of liquid filter
components in Mexico. Aggregate consideration for these transactions was $3.7
million.
In April 1997, the company acquired the assets of the Armada Tube Group,
including Armada Products Co., located in Armada, Michigan, and Lakeside Tube
Fabricators, Inc., located in Mooresville, North Carolina, for $11.3 million in
cash.
The Armada Tube Group manufactures exhaust products. The excess of purchase
price over the fair values of the net assets acquired was $5.3 million and has
been recorded as goodwill which is being amortized on a straight-line basis over
15 years. In 1998 the company reassessed the goodwill related to this
acquisition and recorded a non-cash charge of $1.0 million included in selling,
general and administrative expenses.
In July 1997, the company acquired the assets of Aercology Incorporated,
located in Old Saybrook, Connecticut, for $9.8 million in cash. Aercology
manufactures industrial air filtration products. The excess purchase price over
the fair value of the net assets acquired was $6.7 million and has been recorded
as goodwill which is being amortized on a straight-line basis over 15 years.
During 1996, the company acquired all of the common stock of Tecnov S.A., a
French manufacturer of heavy-duty exhaust mufflers and invested in a Torit
Products manufacturer in the People's Republic of China.
18
Donaldson Company
<PAGE>
NOTE C
CREDIT FACILITIES
In December 1997, the company amended and renewed a five-year revolving facility
with a group of participating banks under which it may borrow up to $100
million. The agreement provides that loans may be made under a selection of rate
formulas including Base Rate Advance or Eurocurrency Rate Advance. The interest
rate on each advance is based on certain adjusted leverage and debt to
capitalization ratios. Facility fees and other fees on the entire loan
commitment are payable for the duration of this facility. Total amount
outstanding under this credit facility was $22.0 million and $25.0 million,
leaving $78.0 million and $75.0 million available for further borrowing under
such facility at July 31, 1998 and 1997, respectively. The weighted average
interest rate on short-term borrowings outstanding at July 31, 1998 and 1997 was
5.29 percent and 5.95 percent, respectively.
At July 31, 1998, there was an additional $25 million available for use
under uncommitted facilities which provide unsecured borrowings for general
corporate purposes. The total amount outstanding under this credit facility was
$1.0 million, leaving $24.0 million available for further borrowing under such
facility at July 31, 1998. The weighted average interest rate on this facility
was 5.29 percent. There were no amounts outstanding under these facilities at
July 31, 1997.
Overseas subsidiaries may borrow under various uncommitted facilities. As of
July 31, 1998 and 1997, borrowings under these facilities were $22.5 million and
$17.0 million, respectively. The weighted average interest rate on short-term
borrowings outstanding at July 31, 1998 and 1997 was 5.47 percent and 7.4
percent, respectively.
NOTE D
LONG-TERM DEBT
Long-term debt consists of the following:
(Thousands of dollars) 1998 1997
- --------------------------------------------------------------------------------
U.S.
6.20% Unsecured senior notes due July 15, 2005;
interest payable semi-annually (net of
unamortized issue cost of $0.6 million) $22,446 $ --
6.31% Unsecured senior notes due July 15, 2008;
interest payable semi-annually (net of
unamortized issue cost of $0.6 million) 26,350 --
Other 493 2,950
OVERSEAS SUBSIDIARIES 1,465 1,898
- --------------------------------------------------------------------------------
Total 50,754 4,848
Less Current Maturities 405 647
- --------------------------------------------------------------------------------
Total Long-Term Debt $50,349 $ 4,201
================================================================================
Annual maturities of long-term debt for the next five years are $0.4 million
in 1999, $0.3 million in 2000, $94,000 in 2001, $28,800 in 2002, $28,800 in 2003
and $49.8 million thereafter. The carrying value of long-term debt approximates
its fair market value.
Total interest paid relating to all debt was $4.6 million, $2.4 million and
$2.8 million in 1998, 1997 and 1996, respectively. In addition, total interest
expense recorded in 1998, 1997 and 1996 was $4.7 million, $2.4 million and $2.9
million, respectively. Certain note agreements contain debt covenants related to
working capital levels and limitations on indebtedness. Further, the company is
restricted from paying dividends or repurchasing Common Stock if its tangible
net worth (as defined) does not exceed certain minimum levels. At July 31, 1998,
under the most restrictive agreement, tangible net worth exceeded the minimum by
$85.0 million.
Subsequent to year-end, the company issued an additional $25.0 million in
6.39 percent senior notes due August 15, 2010. These senior notes require
principal payments of $5.0 million per year starting in year eight of the term.
19
1998 Annual Report
<PAGE>
NOTE E
EMPLOYEE BENEFIT PLANS
PENSION PLANS Donaldson Company, Inc. and certain of its subsidiaries have
defined benefit pension plans for substantially all hourly and salaried
employees. The domestic plan provides defined benefits pursuant to a cash
balance feature whereby a participant accumulates a benefit comprised of a
percentage of current salary which varies with years of service, interest
credits and transition credits. The overseas plans generally provide pension
benefits based on years of service and compensation level. The company's general
funding policy is to make contributions as required by applicable regulations.
The assets are primarily invested in diversified equity and debt portfolios.
Cost for the company's pension plans includes the following components:
(Thousands of dollars) 1998 1997 1996
- --------------------------------------------------------------------------------
Service cost $ 6,570 $ 6,184 $ 5,224
Interest cost on projected benefit obligation 8,465 8,189 7,029
Actual return on plan assets (8,955) (26,078) (4,391)
Net amortization and deferral (739) 18,324 (3,221)
- --------------------------------------------------------------------------------
Net Periodic Pension Expense $ 5,341 $ 6,619 $ 4,641
================================================================================
The funded status of the company's pension plans as of July 31, 1998 and
1997, is as follows:
(Thousands of dollars) 1998 1997
- --------------------------------------------------------------------------------
Plan assets at fair value $123,956 $112,161
Accumulated benefit obligation:
Vested (98,712) (85,393)
Nonvested (4,921) (4,015)
Provision for future salary increases (17,580) (28,266)
- --------------------------------------------------------------------------------
Plan assets in excess of (less than)
projected benefit obligation 2,743 (5,513)
Unrecognized net loss 1,344 2,547
Unrecognized prior service cost 863 4,987
Unrecognized net transition asset (5,963) (7,059)
Additional minimum liability (2,442) (628)
- --------------------------------------------------------------------------------
Accrued Pension Liability $ (3,455) $ (5,666)
================================================================================
The principal actuarial assumptions:
1998 1997 1996
- --------------------------------------------------------------------------------
Discount rate 7.25% 7.5% 8.0%
Rate of future compensation increases 6.0% 6.0% 5.5%
Expected long-term rate of return 9.0% 9.0% 9.0%
- --------------------------------------------------------------------------------
EMPLOYEE STOCK OWNERSHIP PLAN In 1987, the company established an Employee Stock
Ownership Plan (ESOP) for eligible U.S. employees. The ESOP borrowed $21.0
million from the company to purchase 3,600,000 newly issued shares of Common
Stock. These shares were held in trust and were issued to employees' accounts in
the ESOP as the loan was repaid over 10 years. At July 31, 1998 and 1997, the
total 3,600,000 shares have been allocated to employees. The loan obligation of
the ESOP was considered unearned employee benefit expense and, as such, was
recorded as a reduction of the company's shareholders' equity. The company's
contributions to the ESOP, plus dividends paid on unallocated shares held by the
ESOP, were used to repay the loan principal and interest. Both the loan
obligation and the unearned benefit expense were reduced by the amount of loan
principal repayments made by the ESOP. The ESOP contribution expense totaled
$2.6 million and $2.5 million in 1997 and 1996, respectively. The ESOP's 10-year
term was completed at July 31, 1997.
401(k) SAVINGS PLAN The company provides a contributory employee savings plan
which permits participants to make contributions by salary reduction pursuant to
section 401(k) of the Internal Revenue Code. Company's contributions under this
plan are based primarily on the performance of the business units and employee
compensation. Total contribution expense was $2.9 million for the year ended
July 31, 1998.
20
Donaldson Company
<PAGE>
NOTE F
SHAREHOLDERS' EQUITY
STOCK RIGHTS On January 12, 1996, the Board of Directors of the company approved
the extension of the benefits afforded by the company's existing rights plan by
adopting a new shareholder rights plan. Pursuant to the new Rights Agreement,
dated as of January 12, 1996, by and between the company and Norwest Bank
Minnesota, National Association, as Rights Agent, one Right was issued on March
4, 1996 for each outstanding share of Common Stock, par value $5.00 per share,
of the company upon the expiration of the company's existing Rights. Each of the
new Rights will entitle the registered holder to purchase from the company one
one-thousandth of a share of Series A Junior Participating Preferred Stock,
without par value, at a price of $130.00 per one one-thousandth of a share. The
Rights, however, will not become exercisable unless and until, among other
things, any person acquires 15 percent or more of the outstanding Common Stock
of the company. If a person acquires 15 percent or more of the outstanding
Common Stock of the company (subject to certain conditions and exceptions more
fully described in the Rights Agreement), each Right will entitle the holder
(other than the person who acquired 15 percent or more of the outstanding Common
Stock) to purchase Common Stock of the company having a market value equal to
twice the exercise price of a Right. The new Rights are redeemable under certain
circumstances at $.01 per Right and will expire, unless earlier redeemed, on
March 3, 2006.
EMPLOYEE INCENTIVE PLANS In November 1991, shareholders approved the 1991 Master
Stock Compensation Plan. The Plan extends through December 2001 and allows for
the granting of nonqualified stock options, incentive stock options, restricted
stock, stock appreciation rights (SARs), dividend equivalents,
dollar-denominated awards and other stock-based awards.
The 1980 Master Stock Compensation Plan allows for the granting of
nonqualified stock options and incentive stock options. Both plans allow for the
granting of performance awards to a limited number of key executives. The awards
are payable in Common Stock and are based on a formula which measures
performance of the company over a three-year period. Performance award expense
totaled $0.7 million, $3.5 million and $2.1 million in 1998, 1997 and 1996,
respectively. Options under both Plans are granted to key employees at or above
100 percent of the market price at the date of grant. Options are exercisable
for up to 10 years from the date of grant.
STOCK OPTIONS Stock options issued during fiscal 1997 and 1998 become
exercisable in each of the following three years, in an equal number of shares
each year, for both executives and non-executives. Stock options issued prior to
fiscal 1997 for non-executives and during fiscal 1996 for executives become
exercisable over a four-year period in an equal number of shares each year.
Prior to fiscal 1996 stock options vested immediately for executives. At July
31, 1998, options to purchase 3,348,176 shares are outstanding under these
plans.
In fiscal 1997, the company adopted the disclosure-only provisions of
Statement of Financial Accounting Standards (SFAS) No. 123 "Accounting for
Stock-Based Compensation." SFAS 123 encourages entities to adopt a fair
value-based method of accounting for employee stock compensation plans, but
allows companies to continue to account for those plans using the accounting
prescribed by APB Opinion 25, "Accounting for Stock Issued to Employees." The
company has elected to continue to account for stock based compensation using
APB 25, making pro forma disclosures of net earnings and earnings per share as
if the fair value-based method had been applied. Accordingly, no compensation
expense has been recorded for the stock option plans. Had compensation expense
for the stock option plans been determined under SFAS 123 in fiscal 1998, 1997
and 1996, the company's net income and earnings per share would have been
approximately $55.7 million and $1.11; $49.4 million and $.97, and $42.8 million
and $.83, respectively. The pro forma effect on net income and earnings per
share is not representative of the pro forma net earnings in future years
because it does not take into consideration pro forma compensation expense
related to grants made prior to 1996.
21
1998 Annual Report
<PAGE>
For purposes of computing compensation cost of stock options granted, the
fair value of each stock option grant was estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions: 5.63 percent risk free interest rate in 1998 and 6.13 percent risk
free interest rate in 1997 and 1996, three, six, seven or nine year lives in
1998 and five or seven year lives in 1997 and 1996, 22.5 percent expected
volatility in 1998 and 19.4 percent expected volatility in 1997 and 1996, and 1
percent expected dividend yield in 1998, 1997 and 1996. Black-Scholes is a
widely accepted stock option pricing model; however, the ultimate value of stock
options granted will be determined by the actual lives of options granted and
future price levels of the company's common stock.
The weighted average fair value for options granted during fiscal 1998, 1997
and 1996 is $6.35, $7.76 and $6.19 per share, respectively.
The number and option price of options granted under these plans were as
follows:
Options Weighted Average
Outstanding Exercise Price
- --------------------------------------------------------------------------------
Outstanding at July 31, 1995 3,084,982 $ 9.27
Granted 402,582 12.58
Exercised (191,798) 9.12
Canceled (34,000) 7.68
- --------------------------------------------------------------------------------
Outstanding at July 31, 1996 3,261,766 9.70
Granted 627,778 15.94
Exercised (567,736) 9.14
Canceled (4,500) 12.38
- --------------------------------------------------------------------------------
Outstanding at July 31, 1997 3,317,308 10.98
Granted 472,595 22.83
Exercised (419,728) 8.40
Canceled (21,999) 14.98
- --------------------------------------------------------------------------------
OUTSTANDING AT JULY 31, 1998 3,348,176 $12.95
================================================================================
At July 31, 1998 and 1997 there were 2,536,342 and 2,648,258 options
exercisable, respectively. Shares reserved at July 31, 1998 for outstanding
options and future grants were 7,930,077.
The following table summarizes information concerning currently outstanding
and exercisable options:
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life (Years) Price Exercisable Price
- --------------------------------------------------------------------------------
$0 to $5 52,200 .94 $ 3.33 52,200 $ 3.33
$5 to $10 1,184,312 2.50 8.76 1,184,312 8.76
$10 to $15 1,170,224 5.93 12.28 1,023,524 12.27
$15 and above 941,440 8.64 19.58 276,306 18.38
- --------------------------------------------------------------------------------
3,348,176 5.40 $12.95 2,536,342 $11.11
================================================================================
NOTE G
INCOME TAXES
The components of earnings before income taxes are as follows:
(Thousands of dollars) 1998 1997 1996
- --------------------------------------------------------------------------------
Earnings before income taxes:
United States $60,673 $50,259 $47,589
Overseas 25,768 28,835 23,531
- --------------------------------------------------------------------------------
Total $86,441 $79,094 $71,120
================================================================================
The components of the provision for income taxes are as follows:
(Thousands of dollars) 1998 1997 1996
- --------------------------------------------------------------------------------
Income Taxes:
Current:
Federal $15,931 $18,527 $21,796
State 1,837 2,092 2,047
Overseas 7,396 8,805 9,524
- --------------------------------------------------------------------------------
25,164 29,424 33,367
================================================================================
Deferred:
Federal 3,410 (525) (5,424)
State 195 (30) (470)
Overseas 621 (395) 211
- --------------------------------------------------------------------------------
4,226 (950) (5,683)
- --------------------------------------------------------------------------------
Total $29,390 $28,474 $27,684
================================================================================
22
Donaldson Company
<PAGE>
The tax effects of temporary differences that give rise to deferred tax
assets and liabilities are as follows:
(Thousands of dollars) 1998 1997 1996
- --------------------------------------------------------------------------------
Deferred Tax Assets:
Compensation and retirement plans $ 5,705 $ 6,979 $10,587
Accrued expenses 8,365 9,758 7,155
Brazilian asset write-down 720 498 571
NOL carryforwards 2,070 2,115 1,553
Inventories 1,095 1,074 1,861
Investment in joint venture 1,195 1,306 957
Cumulative translation adjustment 2,646 -- --
Other 3,630 3,650 4,689
- --------------------------------------------------------------------------------
Gross Deferred Tax Assets 25,426 25,380 27,373
Valuation Allowance (1,172) (1,316) (1,615)
- --------------------------------------------------------------------------------
Net Deferred Tax Assets 24,254 24,064 25,758
Deferred Tax Liabilities:
Depreciation and amortization (8,573) (6,756) (5,397)
Cumulative translation adjustment -- (502) (3,264)
Other (2,224) (1,987) (1,445)
- --------------------------------------------------------------------------------
Gross Deferred Tax Liabilities (10,797) (9,245) (10,106)
- --------------------------------------------------------------------------------
Net Deferred Taxes $13,457 $14,819 $15,652
================================================================================
The following table reconciles the U.S. statutory income tax rate with the
effective income tax rate:
1998 1997 1996
- --------------------------------------------------------------------------------
Statutory U.S. federal rate 35.0% 35.0% 35.0%
State income taxes 1.4 1.7 1.5
Overseas taxes at (lower) higher rates (1.3) (2.1) 2.1
Other (1.1) 1.4 0.3
- --------------------------------------------------------------------------------
34.0% 36.0% 38.9%
================================================================================
At July 31, 1998, certain overseas subsidiaries had available net operating
loss carryforwards of approximately $5.8 million to offset future taxable
income. The majority of such carryforwards expire after 2001. Unremitted
earnings of overseas subsidiaries amounted to approximately $79.8 million at
July 31, 1998. The majority of those earnings are intended to be indefinitely
reinvested and, accordingly, no income taxes have been provided. If a portion
were to be remitted, foreign tax credits would substantially offset any
resulting tax liability. It is not practicable to estimate the amount of
unrecognized taxes on these undistributed earnings due to the complexity of the
computation.
The company made cash payments for income taxes of $22.5 million, $30.7
million and $20.5 million in 1998, 1997 and 1996, respectively.
NOTE H
SEGMENT INFORMATION
The company operates on a worldwide basis in a single business segment which
consists of the design, manufacture and sale of filtration products. The
company's key markets for filters are heavy-duty truck and equipment, light-duty
truck, in-plant air cleaning systems, industrial gas turbines and computer disk
drives.
23
1998 Annual Report
<PAGE>
The table below sets forth information about operations in different
geographic areas:
<TABLE>
<CAPTION>
(Thousands of dollars) United States Europe Japan China/Hong Kong Other Countries Eliminations Consolidated
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1998
Sales to customers $ 615,770 $ 160,211 $ 69,695 $ 55,506 $ 39,169 $ -- $ 940,351
Sales between geographic areas 81,256 1,995 1,484 2,179 1,812 (88,726) --
- ------------------------------------------------------------------------------------------------------------------------------------
Net Sales $ 697,026 $ 162,206 $ 71,179 $ 57,685 $ 40,981 $ (88,726) $ 940,351
====================================================================================================================================
Operating Income $ 43,664 $ 18,974 $ 7,183 $ 15,369 $ 3,066 $ (1,457) $ 86,799
====================================================================================================================================
Identifiable Assets:
Accounts receivable, net $ 82,711 $ 39,206 $ 16,446 $ 16,856 $ 6,695 $ -- $ 161,914
Other 256,483 118,953 21,183 33,951 25,532 (137,609) 318,493
- ------------------------------------------------------------------------------------------------------------------------------------
Total identifiable assets $ 339,194 $ 158,159 $ 37,629 $ 50,807 $ 32,227 $(137,609) $ 480,407
General corporate assets 18,914
- ------------------------------------------------------------------------------------------------------------------------------------
Total Assets $ 499,321
====================================================================================================================================
1997
Sales to customers $ 522,289 $ 141,358 $ 78,704 $ 54,437 $ 36,560 $ -- $ 833,348
Sales between geographic areas 46,414 1,930 2,006 1,831 621 (52,802) --
- ------------------------------------------------------------------------------------------------------------------------------------
Net Sales $ 568,703 $ 143,288 $ 80,710 $ 56,268 $ 37,181 $ (52,802) $ 833,348
====================================================================================================================================
Operating Income $ 37,397 $ 17,739 $ 9,331 $ 13,910 $ 4,525 $ (187) $ 82,715
====================================================================================================================================
Identifiable Assets:
Accounts receivable, net $ 77,201 $ 38,766 $ 22,635 $ 15,776 $ 7,062 $ -- $ 161,440
Other 157,235 104,445 23,788 23,154 26,661 (56,096) 279,187
- ------------------------------------------------------------------------------------------------------------------------------------
Total identifiable assets $ 234,436 $ 143,211 $ 46,423 $ 38,930 $ 33,723 $ (56,096) $ 440,627
General corporate assets 13,767
- ------------------------------------------------------------------------------------------------------------------------------------
Total Assets $ 454,394
====================================================================================================================================
1996
Sales to customers $ 474,831 $ 129,765 $ 80,734 $ 36,466 $ 36,850 $ -- $ 758,646
Sales between geographic areas 36,566 1,137 1,910 1,766 418 (41,797) --
- ------------------------------------------------------------------------------------------------------------------------------------
Net Sales $ 511,397 $ 130,902 $ 82,644 $ 38,232 $ 37,268 $ (41,797) $ 758,646
====================================================================================================================================
Operating Income $ 35,535 $ 17,713 $ 10,955 $ 9,775 $ 1,864 $ (200) $ 75,642
====================================================================================================================================
Identifiable Assets:
Accounts receivable, net $ 58,591 $ 37,403 $ 24,515 $ 8,919 $ 7,679 $ 38 $ 137,145
Other 143,975 59,616 24,169 17,167 8,708 (29,216) 224,419
- ------------------------------------------------------------------------------------------------------------------------------------
Total identifiable assets $ 202,566 $ 97,019 $ 48,684 $ 26,086 $ 16,387 $ (29,178) $ 361,564
General corporate assets 41,286
- ------------------------------------------------------------------------------------------------------------------------------------
Total Assets $ 402,850
====================================================================================================================================
</TABLE>
24
Donaldson Company
<PAGE>
Sales between geographic areas are made at cost plus a proportionate share
of operating profit. Net income of foreign operations includes royalty income
and reflects the gain or loss in foreign currency exchange. General corporate
assets include corporate cash and cash equivalents and buildings and equipment
used for corporate purposes. Sales to one customer accounted for 11 percent, 11
percent and 12 percent of net sales in 1998, 1997 and 1996, respectively.
NOTE I
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
(Thousand of dollars, First Second Third Fourth
except per share amounts) Quarter Quarter Quarter Quarter
- --------------------------------------------------------------------------------
1998
Net Sales $234,067 $232,974 $233,840 $239,470
Gross Margin 68,390 64,940 62,744 67,188
Net Earnings 14,018 12,509 15,924 14,600
Diluted Earnings Per Share .27 .25 .32 .30
Dividends Declared Per Share .05 .05 .05 .05
- --------------------------------------------------------------------------------
1997
Net Sales $187,176 $196,849 $213,876 $235,447
Gross Margin 56,132 58,195 66,204 69,742
Net Earnings 11,590 10,976 14,200 13,854
Diluted Earnings Per Share .22 .22 .28 .27
Dividends Declared Per Share .04 .04 .05 .05
- --------------------------------------------------------------------------------
The above diluted earnings per share and dividends declared per share
amounts have been restated for the 2-for-1 stock split issued in January 1998
and the adoption of SFAS 128 in the second quarter of fiscal 1998.
NOTE J
CONTINGENCIES
The company is involved on an on-going basis in litigation arising in the
ordinary course of business. In the opinion of management, the outcome of
litigation currently pending will not materially affect the company's results of
operations, financial condition or liquidity.
REPORT OF INDEPENDENT AUDITORS
Shareholders and Board of Directors
Donaldson Company, Inc.
We have audited the accompanying consolidated balance sheets of Donaldson
Company, Inc. and subsidiaries as of July 31, 1998 and 1997, and the related
consolidated statements of earnings, changes in shareholders' equity and cash
flows for each of the three years in the period ended July 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Donaldson
Company, Inc. and subsidiaries at July 31, 1998 and 1997, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended July 31, 1998, in conformity with generally accepted accounting
principles.
/s/ ERNST & YOUNG LLP
Minneapolis, Minnesota
September 11, 1998
25
1998 Annual Report
<PAGE>
ELEVEN-YEAR COMPARISON OF RESULTS
(Thousands of dollars, except per share
amounts) 1998 1997 1996
- --------------------------------------------------------------------------------
OPERATING RESULTS
Net sales $940,351 $833,348 $758,646
Gross margin $263,262 250,273 222,874
Gross margin percentage 28.0% 30.0% 29.4%
Operating income $ 86,799 82,715 75,642
Operating income percentage 9.2% 9.9% 10.0%
Interest expense $ 4,671 2,358 2,905
Earnings before income taxes $ 86,441 79,094 71,120
Income taxes $ 29,390 28,474 27,684
Effective income tax rate 34.0% 36.0% 38.9%
Net earnings $ 57,051 50,620 43,436
Return on sales 6.1% 6.1% 5.7%
Return on average shareholders' equity 22.8% 21.4% 19.3%
Return on investment 20.6% 20.8% 18.5%
FINANCIAL POSITION
Total assets $499,321 454,394 402,850
Current assets $287,341 268,818 250,751
Current liabilities $167,492 176,297 138,578
Working capital $119,849 92,521 112,173
Current ratio 1.7 1.5 1.8
Current debt $ 45,896 42,674 13,145
Long-term debt $ 50,349 4,201 10,041
Total debt $ 96,245 46,875 23,186
Shareholders' equity $255,671 243,865 228,880
Long-term capitalization ratio 16.5% 1.7% 4.2%
Property, plant and equipment, net $178,867 154,595 124,913
Net expenditures on
property, plant and equipment $ 54,705 47,327 39,297
Depreciation and amortization $ 25,272 21,494 21,674
SHAREHOLDER INFORMATION
Net earnings per share - Assuming Dilution $ 1.14 .99 .84
Dividends paid per share $ .19 .17 .15
Shareholders' equity per share $ 5.28 4.93 4.52
Shares outstanding (000s) 48,382 49,452 50,650
Common stock price range, per share
High $27 3/16 20 3/8 14
Low $18 9/16 12 5/8 11 15/16
- --------------------------------------------------------------------------------
AMOUNTS ARE ADJUSTED FOR ALL STOCK SPLITS AND REFLECT ADOPTION OF SFAS 128.
OPERATING INCOME IS GROSS MARGIN LESS SELLING, GENERAL AND ADMINISTRATIVE,
AND RESEARCH AND DEVELOPMENT EXPENSE.
RETURN ON INVESTMENT IS NET EARNINGS DIVIDED BY AVERAGE LONG-TERM DEBT PLUS
AVERAGE SHAREHOLDERS' EQUITY.
LONG-TERM CAPITALIZATION RATIO IS LONG-TERM DEBT DIVIDED BY LONG-TERM DEBT
PLUS SHAREHOLDERS' EQUITY.
(1)EXCLUDES THE CUMULATIVE EFFECT OF AN ACCOUNTING CHANGE OF $2,206, OR $.08 PER
SHARE, IN 1994 AND EXTRAORDINARY CREDITS OF $1,384, OR $.05 PER SHARE, IN
1988.
26
Donaldson Company
<PAGE>
[REPORT CONTINUED FROM PREVIOUS PAGE]
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991 1990 1989 1988
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$703,959 $593,503 $533,327 $482,104 $457,692 $422,885 $397,535 $362,862
197,979 166,599 152,236 133,574 129,858 121,454 105,275 104,828
28.1% 28.1% 28.5% 27.7% 28.4% 28.7% 26.5% 28.9%
65,531 52,079 45,246 41,249 41,304 44,354 37,851 36,047
9.3% 8.8% 8.5% 8.6% 9.0% 10.5% 9.5% 9.9%
3,089 3,362 2,723 2,681 3,526 3,731 3,555 3,229
63,172 50,193 44,682 41,721 39,385 34,875 27,664 29,868
24,636 18,244 16,468 15,952 15,337 13,849 12,230 13,630
39.0% 36.3% 36.9% 38.2% 38.9% 39.7% 44.2% 45.6%
38,536 31,949(1) 28,214 25,769 24,048 21,026 15,434 16,238(1)
5.5% 5.4% 5.3% 5.3% 5.3% 5.0% 3.9% 4.5%
18.8% 17.6% 16.9% 17.2% 18.0% 17.8% 15.1% 15.6%
17.6% 16.0% 15.0% 14.8% 14.9% 14.2% 11.5% 11.7%
381,042 337,360 300,217 286,348 253,194 245,947 204,813 193,548
247,904 220,308 196,014 187,360 169,398 168,522 130,848 122,602
123,747 115,757 93,666 89,956 77,537 79,917 58,009 52,126
124,157 104,551 102,348 97,404 91,861 88,605 72,839 70,476
2.0 1.9 2.1 2.1 2.2 2.1 2.3 2.4
20,800 16,956 7,595 11,425 6,380 11,384 8,602 3,875
10,167 16,028 18,920 23,482 25,673 28,320 30,750 33,784
30,967 32,984 26,515 34,907 32,053 39,704 39,352 37,659
221,173 189,697 174,008 160,303 138,947 128,787 107,516 97,254
4.4% 7.8% 9.8% 12.8% 15.6% 18.0% 22.2% 25.8%
110,640 99,559 90,515 84,899 72,863 68,290 61,914 62,160
25,334 24,642 15,005 15,538 16,208 16,055 11,567 9,954
20,529 16,365 14,752 14,047 12,187 10,857 10,583 10,351
.73 .59(1) .51 .46 .42 .37 .27 .28(1)
.14 .12 .10 .09 .07 .06 .06 .05
4.23 3.58 3.19 2.91 2.51 2.23 1.88 1.70
52,370 53,020 54,564 55,138 55,478 57,728 57,386 57,194
14 131/16 101/16 715/16 69/16 513/16 215/16 413/16
10 15/16 9 1/8 7 5 3/16 4 1/16 2 13/16 2 3/4 11 3/16
- -----------------------------------------------------------------------------------------------
</TABLE>
27
1998 Annual Report
<PAGE>
CORPORATE AND SHAREHOLDER INFORMATION
NYSE LISTING
The common shares of Donaldson Company, Inc. are traded on the New York Stock
Exchange, under the symbol DCI.
SHAREHOLDER INFORMATION
For any concerns relating to your current or prospective shareholdings, please
contact Shareholder Services at (800)468-9716 or (612)450-4064.
DIVIDEND REINVESTMENT PLAN
As of September 21, 1998, 1,000 of Donaldson Company's approximately 1,700
shareholders of record were participating in the Dividend Reinvestment Plan.
Under the plan, shareholders can invest Donaldson Company dividends in
additional shares of company stock. They may also make periodic voluntary cash
investments for the purchase of company stock.
Both alternatives are provided without service charges or brokerage
commissions. Shareholders may obtain a brochure giving further details by
writing Shareholder Services, Donaldson Company, Inc., M.S. 101, P.O. Box 1299,
Minneapolis, Minnesota 55440.
ANNUAL MEETING
The annual meeting of shareholders will be held at 10 a.m. on Friday, November
20, 1998, at The Conference Center at Atrium Center, 3105 E. 80th Street,
Bloomington, Minnesota. You are welcome to attend.
10-K REPORTS
Copies of the Report 10-K, filed with the Securities and Exchange Commission,
are available on request from Shareholder Services, Donaldson Company, Inc.,
M.S. 101, P.O. Box 1299, Minneapolis, Minnesota 55440. In addition, these and
similar reports can be accessed through our web site at www.donaldson.com.
AUDITORS
Ernst & Young LLP,
Minneapolis, Minnesota
PUBLIC RELATIONS COUNSEL
Padilla Speer Beardsley Inc.,
Minneapolis, Minnesota
TRANSFER AGENT AND REGISTRAR
Norwest Bank Minnesota, N.A.,
South St. Paul, Minnesota
SIX-YEAR QUARTERLY HIGH-LOW STOCK PRICES
[PLOT POINTS CHART OMITTED]
28
Donaldson Company
<PAGE>
BOARD OF DIRECTORS AND CORPORATE OFFICERS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
BOARD OF DIRECTORS CORPORATE OFFICERS
<S> <C> <C>
F. GUILLAUME BASTIAENS, 55, KENDRICK B. MELROSE, 58, WILLIAM G. VAN DYKE, 53,
Vice Chairman, Chairman and Chief Executive Officer, Chairman, President and
Cargill Inc., Minneapolis (Agribusiness). The Toro Company, Minneapolis (Manufacturing). Chief Executive Officer.
Director since 1995.(2),(3) Director since 1991.(1),(2) 26 years service.
PAUL B. BURKE, 42, S. WALTER RICHEY, 62, WILLIAM M. COOK, 45,
Chairman, President and Retired Chairman, President and Senior Vice President,
Chief Executive Officer, Chief Executive Officer, Commercial and Industrial.
BMC Industries, Inc., Minneapolis Meritex, Inc., Minneapolis, 18 years service.
(Manufacturing). (Distribution Services).
Director since 1996.(1),(3) Director since 1991.(2),(3) JAMES R. GIERTZ, 41,
Senior Vice President and
JANET M. DOLAN, 49, STEPHEN W. SANGER, 52, Chief Financial Officer.
President and Chief Operating Officer, Chairman and Chief Executive Officer, 5 years service.
Tennant Company, Minneapolis General Mills, Inc., Minneapolis
(Manufacturing). (Consumer Products). NICKOLAS PRIADKA, 52,
Director since 1996.(2),(3) Director since 1992.(1),(2) Senior Vice President, OE Engine.
29 years service.
JACK W. EUGSTER, 53, WILLIAM G. VAN DYKE, 53,
Chairman, President and Chairman, President and LOWELL F. SCHWAB, 50,
Chief Executive Officer, Chief Executive Officer, Senior Vice President, Operations.
The Musicland Group, Inc., Donaldson Company, Inc. 19 years service.
Minneapolis (Consumer Products). Director since 1994.
Director since 1993.(1),(3) EDMUND C. CRAFT, 58,
(1) HUMAN RESOURCES COMMITTEE VICE PRESIDENT, ENGINE AFTERMARKET.
JOHN F. GRUNDHOFER, 59, (2) AUDIT COMMITTEE 19 YEARS SERVICE.
President And Chief Executive Officer, (3) DIRECTORS AFFAIRS COMMITTEE
U.S. Bancorp, Minneapolis NORMAN C. LINNELL, 39,
(Financial Services). General Counsel and Secretary.
Director since 1997.(1),(3) 3 years service.
JOHN E. THAMES, 48,
Vice President, Human Resources.
10 years service.
THOMAS A. WINDFELDT, 49,
Vice President, Controller and Treasurer.
18 years service.
</TABLE>
1998 ANNUAL REPORT
<PAGE>
WORLDWIDE OPERATIONS
<TABLE>
<S> <C> <C>
WORLD HEADQUARTERS JOINT VENTURES Tecnov-Donaldson, S.A.,
DOMJEAN, FRANCE
Donaldson Company, Inc. Advanced Filtration Systems Inc.,
CHAMPAIGN, ILLINOIS Donaldson Filtros Iberica S.L.,
Minneapolis, Minnesota MADRID, SPAIN
MSCA, LLC,
MONTICELLO, INDIANA Donaldson Italia s.r.l.,
U.S. PLANTS OSTIGLIA, ITALY
Guilin Air King Enterprises Ltd.,
OLD SAYBROOK, CONNECTICUT GUILIN, PEOPLE'S REPUBLIC OF CHINA Nippon Donaldson, Ltd.,
DIXON, ILLINOIS TOKYO, JAPAN
FRANKFORT, INDIANA PT Panata Jaya Mandiri,
CRESCO, IOWA JAKARTA, INDONESIA Donaldson Korea Co., Ltd.,
GRINNELL, IOWA SEOUL, SOUTH KOREA
OELWEIN, IOWA
NICHOLASVILLE, KENTUCKY SUBSIDIARIES Donaldson Far East Ltd.,
PORT HURON, MICHIGAN HONG KONG, S.A.R.,
CHILLICOTHE, MISSOURI ENV Services, Inc., PEOPLE'S REPUBLIC OF CHINA
MOORESVILLE, NORTH CAROLINA MINNEAPOLIS, MINNESOTA
PHILADELPHIA, PENNSYLVANIA Donaldson (Wuxi) Filters Co., Ltd.,
BALDWIN, WISCONSIN Donaldson Europe, N.V., WUXI, PEOPLE'S REPUBLIC OF CHINA
STEVENS POINT, WISCONSIN LEUVEN, BELGIUM
D.I. Filter Systems Pvt. Ltd.,
Donaldson Coordination Center, N.V., NEW DELHI, INDIA
DISTRIBUTION CENTERS LEUVEN, BELGIUM
Donaldson Australasia (Pty.) Ltd.,
RENSSELAER, INDIANA Donaldson Gesellschaft m.b.H., WYONG, AUSTRALIA
ONTARIO, CALIFORNIA DULMEN, GERMANY
ANTWERP, BELGIUM Donaldson Filtration Systems (Pty.) Ltd.,
Donaldson Filter Components, Ltd., CAPE TOWN, SOUTH AFRICA
HULL, ENGLAND
Donaldson, S.A. de C.V.,
Donaldson Torit, B.V., AGUASCALIENTES, MEXICO
HAARLEM, NETHERLANDS
Diemo S.A. de C.V.,
Donaldson France, S.A., GUADALAJARA, MEXICO
BRON, FRANCE
LICENSEE
Parker Hannifin Ind. Com. Ltda.,
SAO PAULO, BRAZIL
</TABLE>
[LOGO] DONALDSON(R) Donaldson Company, Inc. MAILING ADDRESS:
1400 West 94th Street P.O. Box 1299
Minneapolis, Minnesota Minneapolis, Minnesota
U.S.A. 55440 U.S.A
612-887-3131
www.donaldson.com
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Donaldson Company, Inc. of our report dated September 11, 1998, included in
the 1998 Annual Report to Shareholders of Donaldson Company, Inc.
Our audit also included the financial statement schedule of Donaldson Company,
Inc. listed in Item 14(a). This schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits. In
our opinion, the financial statement schedule referred to above, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
We also consent to the incorporation by reference in the Registration Statement
Number 333-56027 on Form S-8 dated June 4, 1998, Registration Statement Number
33-27086 on Form S-8 dated February 17, 1989, Registration Statement Number
2-90488 on Form S-8 dated May 2, 1984 as amended through Post Effective
Amendment No. 1 dated January 7, 1988, and Registration Statement Number
33-44624 dated December 20, 1991 of our report dated September 11, 1998, with
respect to the consolidated financial statements incorporated herein by
reference and our report included in the preceding paragraph with respect to the
financial statement schedule of Donaldson Company, Inc. included in this Annual
Report on Form 10-K of Donaldson Company, Inc.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
October 29, 1998
EXHIBIT 24
POWER OF ATTORNEY
The undersigned does hereby constitute and appoint William G. Van Dyke
and Norman C. Linnell, and each of them, the undersigned's attorneys-in-fact and
agents for the purpose of signing in the undersigned's name and on the
undersigned's behalf as a Director of Donaldson Company, Inc., a report on Form
10-K for the Annual Report for Fiscal year 1998, pursuant to Section 13 or 15(d)
of the Securities Act of 1934, of Donaldson Company, Inc., and any and all
amendments thereto, and to deliver on the undersigned's behalf said report so
signed for filing with the Securities and Exchange Commission.
Dated: September 25, 1998
/s/ F. Guillaume (Bassy) Bastiaens
---------------------------------------
F. Guillaume (Bassy) Bastiaens
<PAGE>
POWER OF ATTORNEY
The undersigned does hereby constitute and appoint William G. Van Dyke
and Norman C. Linnell, and each of them, the undersigned's attorneys-in-fact and
agents for the purpose of signing in the undersigned's name and on the
undersigned's behalf as a Director of Donaldson Company, Inc., a report on Form
10-K for the Annual Report for Fiscal year 1998, pursuant to Section 13 or 15(d)
of the Securities Act of 1934, of Donaldson Company, Inc., and any and all
amendments thereto, and to deliver on the undersigned's behalf said report so
signed for filing with the Securities and Exchange Commission.
Dated: September 25, 1998
/s/ Paul B. Burke
---------------------------------------
Paul B. Burke
<PAGE>
POWER OF ATTORNEY
The undersigned does hereby constitute and appoint William G. Van Dyke
and Norman C. Linnell, and each of them, the undersigned's attorneys-in-fact and
agents for the purpose of signing in the undersigned's name and on the
undersigned's behalf as a Director of Donaldson Company, Inc., a report on Form
10-K for the Annual Report for Fiscal year 1998, pursuant to Section 13 or 15(d)
of the Securities Act of 1934, of Donaldson Company, Inc., and any and all
amendments thereto, and to deliver on the undersigned's behalf said report so
signed for filing with the Securities and Exchange Commission.
Dated: September 25, 1998
/s/ Janet M. Dolan
---------------------------------------
Janet M. Dolan
<PAGE>
POWER OF ATTORNEY
The undersigned does hereby constitute and appoint William G. Van Dyke
and Norman C. Linnell, and each of them, the undersigned's attorneys-in-fact and
agents for the purpose of signing in the undersigned's name and on the
undersigned's behalf as a Director of Donaldson Company, Inc., a report on Form
10-K for the Annual Report for Fiscal year 1998, pursuant to Section 13 or 15(d)
of the Securities Act of 1934, of Donaldson Company, Inc., and any and all
amendments thereto, and to deliver on the undersigned's behalf said report so
signed for filing with the Securities and Exchange Commission.
Dated: September 25, 1998
/s/ Jack W. Eugster
---------------------------------------
Jack W. Eugster
<PAGE>
POWER OF ATTORNEY
The undersigned does hereby constitute and appoint William G. Van Dyke
and Norman C. Linnell, and each of them, the undersigned's attorneys-in-fact and
agents for the purpose of signing in the undersigned's name and on the
undersigned's behalf as a Director of Donaldso n Company, Inc., a report on Form
10-K for the Annual Report for Fiscal year 1998, pursuant to Section 13 or 15(d)
of the Securities Act of 1934, of Donaldson Company, Inc., and any and all
amendments thereto, and to deliver on the undersigned's behalf said report so
signed for filing with the Securities and Exchange Commission.
Dated: September 25, 1998
/s/ John F. Grundhofer
---------------------------------------
John F. Grundhofer
<PAGE>
POWER OF ATTORNEY
The undersigned does hereby constitute and appoint William G. Van Dyke
and Norman C. Linnell, and each of them, the undersigned's attorneys-in-fact and
agents for the purpose of signing in the undersigned's name and on the
undersigned's behalf as a Director of Donaldson Company, Inc., a report on Form
10-K for the Annual Report for Fiscal year 1998, pursuant to Section 13 or 15(d)
of the Securities Act of 1934, of Donaldson Company, Inc., and any and all
amendments thereto, and to deliver on the undersigned's behalf said report so
signed for filing with the Securities and Exchange Commission.
Dated: September 25, 1998
/s/ Kendrick B. Melrose
---------------------------------------
Kendrick B. Melrose
<PAGE>
POWER OF ATTORNEY
The undersigned does hereby constitute and appoint William G. Van Dyke
and Norman C. Linnell, and each of them, the undersigned's attorneys-in-fact and
agents for the purpose of signing in the undersigned's name and on the
undersigned's behalf as a Director of Donaldson Company, Inc., a report on Form
10-K for the Annual Report for Fiscal year 1998, pursuant to Section 13 or 15(d)
of the Securities Act of 1934, of Donaldson Company, Inc., and any and all
amendments thereto, and to deliver on the undersigned's behalf said report so
signed for filing with the Securities and Exchange Commission.
Dated: September 25, 1998
/s/ S. Walter Richey
---------------------------------------
S. Walter Richey
<PAGE>
POWER OF ATTORNEY
The undersigned does hereby constitute and appoint William G. Van Dyke
and Norman C. Linnell, and each of them, the undersigned's attorneys-in-fact and
agents for the purpose of signing in the undersigned's name and on the
undersigned's behalf as a Director of Donaldson Company, Inc., a report on Form
10-K for the Annual Report for Fiscal year 1998, pursuant to Section 13 or 15(d)
of the Securities Act of 1934, of Donaldson Company, Inc., and any and all
amendments thereto, and to deliver on the undersigned's behalf said report so
signed for filing with the Securities and Exchange Commission.
Dated: September 25, 1998
/s/ Stephen W. Sanger
---------------------------------------
Stephen W. Sanger
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