UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDING January 31, 1999 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE TRANSITION PERIOD FROM ________________ TO ________________.
Commission File Number 1-7891
DONALDSON COMPANY, INC.
------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 41-0222640
------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1400 West 94th Street
Minneapolis, Minnesota 55431
----------------------------
(Address of principal executive offices)
(Zip Code)
Registrant's telephone number, including area code (612) 887-3131
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
Yes __X__ No _____
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, $5 Par Value -- 46,675,059 shares as of February 28, 1999
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
DONALDSON COMPANY, INC. AND SUBSIDIARIES
(Thousands of Dollars Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
January 31 January 31
------------------------------ ------------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 220,249 $ 232,974 $ 445,680 $ 467,041
Cost of sales 157,987 167,971 321,035 333,637
------------ ------------ ------------ ------------
Gross margin 62,262 65,003 124,645 133,404
Operating expenses 43,484 44,971 85,736 91,334
Other (income) expense (2,353) 88 (3,714) (98)
Interest expense 1,761 991 3,592 1,976
------------ ------------ ------------ ------------
Earnings before income taxes 19,370 18,953 39,031 40,192
Income taxes 6,198 6,444 12,490 13,665
------------ ------------ ------------ ------------
Net earnings $ 13,172 $ 12,509 $ 26,541 $ 26,527
============ ============ ============ ============
Weighted average shares
outstanding - basic 47,125,314 49,593,217 47,481,330 49,528,532
Weighted average shares
outstanding - diluted 47,896,535 50,697,926 48,223,003 50,594,132
Net earnings per share-basic $ .28 $ .25 $ .56 $ .54
Net earnings per share-diluted $ .27 $ .25 $ .55 $ .52
Dividends paid per share $ .06 $ .05 $ .11 $ .09
</TABLE>
2
<PAGE>
CONDENSED CONSOLIDATED BALANCE SHEETS
DONALDSON COMPANY, INC. AND SUBSIDIARIES
(Thousands of Dollars)
(Unaudited)
<TABLE>
<CAPTION>
January 31 July 31
1999 1998
---------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ 19,818 $ 16,069
Accounts Receivable 162,713 161,914
Inventories
Materials 35,277 38,346
Work in Process 12,997 14,557
Finished Products 44,560 49,114
---------- ----------
Total Inventories 92,834 102,017
Prepaid and Other Current Assets 10,465 7,341
---------- ----------
TOTAL CURRENT ASSETS 285,830 287,341
Property, Plant and Equipment, at Cost 418,489 391,381
Less Accumulated Depreciation (232,167) (212,514)
---------- ----------
Property, Plant and Equipment, Net 186,322 178,867
Other Assets 35,652 33,113
---------- ----------
TOTAL ASSETS $ 507,804 $ 499,321
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-Term Debt $ 33,734 $ 45,491
Current Maturities of Long-Term Debt 460 405
Trade Accounts Payable 55,699 59,368
Accrued Employee Compensation & Related Taxes 21,494 26,837
Warranty and Customer Support 16,268 16,096
Other Current Liabilities 27,433 19,295
---------- ----------
TOTAL CURRENT LIABILITIES 155,088 167,492
Long-Term Debt 75,270 50,349
Deferred Income Taxes 1,680 1,604
Other Long-Term Liabilities 24,988 24,205
SHAREHOLDERS' EQUITY
Preferred Stock, $1 par value,
1,000,000 shares authorized, no shares issued -- --
Common Stock, $5 par value, 80,000,000 shares authorized,
49,655,954 issued at both dates 248,280 248,280
Additional Paid-in Capital 1,364 1,199
Retained Earnings 59,952 39,965
Accumulated Other Comprehensive Income 1,409 (5,135)
Treasury Stock - 2,955,528 and 1,274,251 shares at
January 31, 1999 and July 31, 1998, respectively (60,227) (28,638)
---------- ----------
TOTAL SHAREHOLDERS' EQUITY 250,778 255,671
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 507,804 $ 499,321
========== ==========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
3
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
DONALDSON COMPANY, INC. AND SUBSIDIARIES
(Thousands of Dollars)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
January 31
1999 1998
---------- ----------
<S> <C> <C>
OPERATING ACTIVITIES
Net Earnings $ 26,541 $ 26,527
Adjustments to Reconcile Net Earnings to
Net Cash Provided by Operating Activities:
Depreciation and Amortization 14,045 12,001
Changes in Operating Assets and Liabilities 10,811 (14,332)
Other (1,785) (2,972)
---------- ----------
Net Cash Provided by Operating Activities 49,612 21,224
INVESTING ACTIVITIES
Net Expenditures on Property and Equipment (17,070) (31,274)
Business Acquisitions, Net of Cash Acquired (200) --
Return of Investment in Affiliate -- 1,500
Dividends From Affiliate 47 --
---------- ----------
Net Cash Used in Investing Activities (17,223) (29,774)
FINANCING ACTIVITIES
Purchase of Treasury Stock (33,586) (6,149)
Net Change in Debt 11,279 10,049
Dividends Paid (5,250) (4,707)
Payment Received from ESOP -- 2,730
Other 1,154 157
---------- ----------
Net Cash (Used In) Provided by Financing Activities (26,403) 2,080
Effect of Exchange Rate Changes on Cash (2,237) (1,517)
---------- ----------
Increase (Decrease) in Cash and Cash Equivalents 3,749 (7,987)
Cash and Cash Equivalents-Beginning of Year 16,069 14,278
---------- ----------
Cash and Cash Equivalents-End of Period $ 19,818 $ 6,291
========== ==========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note A - Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles and the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of only normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the six month period ended January 31, 1999 are not necessarily
indicative of the results that may be expected for the year ended July 31, 1999.
For further information, refer to the consolidated financial statements and
footnotes thereto included in Donaldson Company, Inc. and subsidiaries' annual
report on Form 10-K for the year ended July 31, 1998.
Note B - Net Earnings Per Share
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 net earnings per common share:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
January 31 January 31
-------------------------- --------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Weighted average shares outstanding-Basic 47,125,314 49,593,217 47,481,330 49,528,532
Dilutive share equivalents 771,221 1,104,709 741,673 1,065,600
----------- ----------- ----------- -----------
Weighted average shares outstanding-
Diluted 47,896,535 50,697,926 48,223,003 50,594,132
=========== =========== =========== ===========
Net earnings for basic and diluted
earnings per share computation $13,172,000 $12,509,000 $26,541,000 $26,527,000
----------- ----------- ----------- -----------
Net earnings per share - Basic $ .28 $ .25 $ .56 $ .54
=========== =========== =========== ===========
Net earnings per share - Diluted $ .27 $ .25 $ .55 $ .52
=========== =========== =========== ===========
</TABLE>
5
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Note C - Comprehensive Income
The Financial Accounting Standards Board issued SFAS No. 130, "Reporting
Comprehensive Income," which was adopted by the Company in the first quarter of
fiscal 1999. Upon adoption of SFAS No. 130, the Company is reporting Accumulated
Other Comprehensive Income as a separate item in the shareholders' equity
section of the balance sheet and disclosing components of other comprehensive
income. The adoption of this Statement has no impact on the Company's net
earnings or shareholders' equity. Other comprehensive income consists solely of
foreign currency translation adjustments. Prior financial statements have been
restated to conform to the provisions of SFAS 130.
Total comprehensive income and its components are as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
January 31 January 31
------------------- -------------------
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net earnings $13,172 $12,509 $26,541 $26,527
Foreign currency translation adjustment 4,013 (3,000) 6,544 (5,787)
Total other comprehensive income $17,185 $ 9,509 $33,085 $20,740
</TABLE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
A. Financial Condition
The Company generated $49.6 million of cash and cash equivalents from operations
during the first six months of fiscal 1999. Operating cash flows more than
doubled from the prior year period primarily due to a decrease in inventory
levels compared to an increase for the same period in the prior
year, as well as a decrease in accounts receivable factoring in the effects of
foreign exchange translation. These cash flows plus borrowings from the
Company's credit facility were used primarily to support $17.1 million in
capital additions (a 45.4% decrease from prior year), repurchase $33.6 million
of treasury stock, and the payment of $5.3 million in dividends during the first
six months of fiscal 1999.
At the end of the second quarter, the Company held $19.8 million in cash and
cash equivalents. Short-term debt totaled $33.7 million, down from $45.5 million
at July 31, 1998. Long-term debt of $75.3 million at January 31, 1999,
represented 23.1% of total long-term capital, up from 16.5% 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.
6
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B. Results of Operations
The Company reported net earnings for the second quarter ended January 31, 1999
of $13.2 million, up 5.3% from the $12.5 million recorded in the second quarter
last year. Total net sales for the three months ended January 31, 1999 of $220.2
million were down 5.5% from prior year sales of $233.0 million. The lower sales
volume is primarily due to depressed demand in the agricultural, mining and
other off-road end-user markets and generally unfavorable economic conditions in
those markets. Diluted net earnings per share were 27 cents, up 8.0% from
prior year diluted net earnings per share of 25 cents as the average number of
shares outstanding decreased 5.5% compared to the prior year period. The
increase in net earnings, despite the decrease in net sales, was primarily due
to a reduction in the effective income tax rate, cost reduction measures taken
in general operating expenses and the favorable impact from various other
income/expense items described below.
For the six months ended January 31, 1999, net earnings were $26.5 million,
unchanged from the six months ended in the prior year. Diluted net earnings per
share were 55 cents, up 5.8% from prior year's diluted net earnings per share of
52 cents. The net earnings remained unchanged from prior year as lower gross
margin was offset by a reduction in operating expenses, a reduction in the
effective income tax rate and the favorable impact of various other
income/expense items. Total net sales for the six months ended January 31, 1999
of $445.7 million were down 4.6% from the prior years sales of $467.0 million.
Excluding the negative impact of foreign currency translation of $2.6 million,
sales were down 4.0% from last year.
For the quarter Engine products showed an 8.1% decrease in net sales from the
same period in the prior year. The most significant factors contributing to this
decrease were lower demand in the agricultural and other off-road markets and
lower sales to automotive customers. Net sales for the Industrial products were
essentially unchanged for the quarter from the same period in the prior year.
Within the Industrial products area, the dust collection and disk drive product
lines showed revenue growth, but gas turbine and other high purity product lines
posted lower sales than the prior year. Disk drive gains reflect a strong disk
drive market resulting in an increase in sales of disk drive products. Although
gas turbine sales are lower, backlogs are significantly higher for this product
line and the Company expects that net sales for gas turbine for the full year
will be essentially unchanged from the prior full year. Geographically, domestic
sales were down 7.0% in the second quarter, primarily attributed to weakness in
end markets for Engine products. Europe posted a sales increase of about 10.0%
from the prior year while our sales in Japan were about 10.0% below last year.
The strength in the European market is primarily attributed to Engine products,
both first-fit and aftermarket. Overall, activity in the off-road end-user
markets has slowed and we anticipate revenue for the fiscal year 1999 will be at
or slightly below the level of 1998.
The gross margins for the second quarter of fiscal 1999 were 28.3%--about one
half of one percentage points above the same quarter last year. The improvement
in gross margin for the quarter reflects the positive impact of cost reduction
and product improvement initiatives,
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partially offset by the negative impact of lower production volumes. The six
months figures are 28.0% and 28.6% respectively.
Operating expenses during the second quarter of fiscal 1999 were $43.5 million,
19.7% of sales, compared to $45.0 million, 19.3% of sales in the same quarter of
fiscal 1998. Year-to-date operating expense as a percentage of sales have
decreased from 19.6% to 19.2% from the prior year period. This reduction in
operating expense was due primarily to lower levels of warranty expense and
lower salary compensation expense.
Other income has increased $2.4 million and $3.6 million from the prior years
three and six month periods ending January 31. These increases are due to lower
charitable contributions, the gain on sale of surplus land in Minnesota, the
sale of a product line in Hong Kong, an increase in income from the Company's
joint venture activities and a general weakening of the dollar primarily in
Japan in fiscal 1999.
The effective income tax rate for the six month period ending January 31, 1999
was 32% compared to 34% for the same period last year due to taxes on overseas
earnings.
Hard order backlogs -- goods scheduled for delivery in 90 days -- of $149.1
million for the second quarter of fiscal 1999 are down 3.5% from the same period
last year and up 2.5% from the prior quarter end. Relative to last year, the
majority of the decline in backlog is attributed to the automotive, defense and
heavy duty truck market product lines in North America. Excluding the impact of
discontinued product lines and other special factors in these three businesses,
backlogs are essentially unchanged from prior year.
The US dollar has weakened relative to the currencies of foreign countries where
the Company operates. The weakening of the dollar, primarily in Japan, has had
positive effects on net income for the three and six month periods ending
January 31, 1999. The impact of foreign exchange rates on net income was an
increase of approximately $800,000 over the prior year six month period.
Year 2000
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. In the remaining cases identified problems
will be addressed with repair projects with target completion dates of no later
than October 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 was substantially completed at the end of 1998. Changes to all
other systems are expected to be complete by no later than October 1999.
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. A survey of all significant suppliers has been
completed. Responses received to date indicate
8
<PAGE>
that our suppliers are aware of the Year 2000 issue and are implementing all
necessary changes, mostly scheduled for completion by mid-1999. A contingency
plan for potentially non-compliant suppliers is now being implemented.
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 Year 2000 specific activity is estimated
to be $5 million, of which approximately 80 percent has been spent to date. The
source of funds for these costs is operating cash flow.
In general, 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.) have been 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. The Company is in the
process of developing and implementing a comprehensive, global contingency plan
relative to potential Year 2000 disruptions. Each significant system either has
been repaired and tested, or is being repaired. For systems currently being
reworked, contingency plans exist to address the most reasonably likely negative
scenarios.
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 although modification work will be completed for year 2000
compliance purposes. The impact on the Company's results of operations if the
Company or its suppliers or customers are not fully Year 2000 compliant and the
scope of resulting difficulties and related costs are not reasonably
determinable. Our dependence on the performance of our employees, contractors,
vendors and customers, as it relates to the Year 2000 issue, can be compared to
our dependence on these groups relative to a wide range of other expectations
(e.g., product quality, dependable delivery, technical support, timely payment,
etc.)
Euro Currency
The Company has a significant number of customers located in the European Union
countries participating in the conversion to a new European Currency (the "Euro
Conversion"). The Company does not expect the costs of any modifications to its
internal systems to have a material effect on the Company's results of
operations or financial condition. The Euro Conversion may also have competitive
implications for the sale of the Company's products, which could be material in
nature, however, any such impact is not known at this time. 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.
Market Risk
The Company's market risk includes the potential loss arising from adverse
changes in foreign currency exchange rates and interest rates. The Company
manages foreign currency market risk through the use of a variety of financial
and derivative instruments. The Company's objective in
9
<PAGE>
managing these risks is to reduce fluctuations in earnings and cash flows
associated with changes in foreign currency exchange rates. The Company uses
forward exchange contracts and other hedging activities to hedge the U.S. dollar
value resulting from anticipated foreign currency transactions. The Company's
market risk on interest rates is the potential increase in fair value of
long-term debt resulting from a potential decrease in interest rates. There have
been no material changes in the reported market risks of the Company since July
31, 1998. See further discussion of these market risks in the Donaldson Company,
Inc. annual report on Form 10-K for the year ended July 31, 1998.
Private Securities Litigation Reform Act of 1995 "Safe Harbor"
The Company desires to take advantage of the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995 and is making this cautionary
statement in connection with such safe harbor legislation. This Form 10-Q, the
Company's Annual Report to Shareholders, any Form 10-K, Form 10-Q or Form 8-K of
the Company or any other written or oral statements made by or on behalf of the
Company may include forward-looking statements which reflect the Company's
current views with respect to future events and financial performance. The words
"believe," "expect," "anticipate," "intends," "estimate," "forecast," "project,"
"should" and similar expressions are intended to identify "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. All forecasts and projections in this Form 10-Q are "forward-looking
statements," and are based on management's current expectations of the Company's
near-term results, based on current information available pertaining to the
Company, including the risk factors noted below.
The Company wishes to caution investors that any forward-looking statements made
by or on behalf of the Company are subject to uncertainties and other factors
that could cause actual results to differ materially from such statements. These
uncertainties and other risk factors include, but are not limited to: changing
economic and political conditions in the U.S. and in other countries, changes in
governmental spending and budgetary policies, governmental laws and regulations
surrounding various matters such as environmental remediation, contract pricing,
and international trading restrictions, customer product acceptance, continued
access to capital markets, issues related to the Company's Year 2000 compliance
program, and foreign currency risks (including risks associated with the
introduction of the Euro currency). For a more detailed explanation of the
foregoing and other risks see exhibit 99 attached hereto. The Company wishes to
caution investors that other factors may in the future prove to be important in
affecting the Company's results of operations. New factors emerge from time to
time and it is not possible for management to predict all such factors, nor can
it assess the impact of each such factor on the business or the extent to which
any factor, or a combination of factors, may cause actual results to differ
materially from those contained in any forward-looking statements.
Investors are further cautioned not to place undue reliance on such
forward-looking statements as they speak only to the Company's views as of the
date the statement is made. The Company undertakes no obligation to publicly
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise.
10
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Item 3. Quantitative and Qualitative Disclosure about Market Risk
See discussion of quantitative and qualitative disclosure about market
risk in "Market Risk" section of Management's Discussion and Analysis.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security holders
(a) The Annual meeting of shareholders of Registrant was held on
November 20, 1998. A total of 47,587,174 shares were
outstanding and entitled to vote at the meeting.
(b) Not Applicable.
(c) Matters Submitted and Voting Results:
(i) Election of Directors:
Name of Nominee Vote Tabulation
For Withheld
--- --------
Paul B. Burke 43,411,205 1,094,625
Kendrick B. Melrose 43,921,108 584,722
Stephen W. Sanger 43,950,942 554,888
(ii) Ratified selection of Ernst & Young LLP as
Registrant's independent public auditors for the
fiscal year ending July 31, 1999 with the following
vote: For - 44,010,960: Against - 316,312; Abstaining
- 178,558.
(iii) Approved the adoption of the amendment of the
Company's 1991 Master Stock Compensation Plan with
the following vote: For - 41,757,594; Against -
2,082,745; Abstaining - 665,491.
(d) Not Applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit Index
3-B Bylaws of Registrant as currently in effect
10-G Form of "Change in Control" Agreement with key employees
99 Factors Affecting Future Operating Results
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Note: Exhibits have been furnished only to the Securities and
Exchange Commission. Copies will be furnished to individuals
upon request and payment of $20 representing Registrant's
reasonable expense in furnishing such exhibits.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter ended
January 31, 1999.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DONALDSON COMPANY, INC.
(Registrant)
Date March 17, 1999 By /s/ James R. Giertz
---------------------- -------------------
James R. Giertz
Senior Vice President and
Chief Financial Officer
13
EXHIBIT 3.B
AMENDED AND RESTATED
BYLAWS
OF
DONALDSON COMPANY, INC.
Offices
1. The principal office of the Company shall be in Wilmington,
Delaware, and the resident agent in charge thereof shall be Corporation Service
Company. The Company may also have an office or offices at such place or places,
within or without the State of Delaware as the Board of Directors may from time
to time designate or the business of the Company may require.
Corporate Seal
2. The corporate seal shall have inscribed thereon the name of the
Company, the year of its incorporation, and the words "Incorporated Delaware."
Meetings of Stockholders
3. The Annual Meeting of Stockholders for the election of directors and
for the transaction of such other business as may properly come before the
meeting shall be held on the third Friday in November of each year or on such
other date as may be fixed by resolution of the Board of Directors.
Special meetings of the stockholders may only be called at any time by
(i) the chairman of the board or the president or (ii) by vote of a majority of
the directors.
All meetings of the stockholders, including meetings for the election
of directors, shall be held at such place or places within or without the State
of Delaware as may from time to time be fixed by the Board of Directors or shall
be specified and fixed in the respective notices or waivers of notices thereof.
No business may be transacted at an annual meeting or special meeting
of stockholders, other than business that is either (a) specified in the notice
of meeting (or any supplement thereto) given by or at the direction of the Board
of Directors (or any duly authorized committee thereof), (b) otherwise properly
brought before the meeting by or at the direction of the Board of Directors (or
any duly authorized committee
<PAGE>
thereof) or (c) otherwise properly brought before the meeting by any stockholder
of record on the date of the giving of the notice provided for in this Bylaw 3
and on the record date for the determination of stockholders entitled to vote at
such meeting.
In addition to any other applicable requirements, for business to be
properly brought before an annual meeting or special meeting by a stockholder,
such stockholder must have given timely notice thereof in proper written form to
the secretary of the Company.
For notice to be timely for an annual meeting, a stockholder's notice
to the secretary must be delivered to or mailed and received at the principal
executive offices of the Company not less than ninety days nor more than
one-hundred twenty days prior to the anniversary date of the immediately
preceding annual meeting of stockholders; provided, however, that in the event
the annual meeting is called for a date that is not within thirty days before or
after such anniversary date, notice by the stockholder in order to be timely
must be received no later than the close of business on the tenth day following
the day on which such notice of the date of the annual meeting was mailed or
public disclosure of the date of the annual meeting was made, whichever first
occurs. In no event shall the public disclosure of an adjournment of an annual
meeting commence a new time period for the giving of a stockholder's notice as
described in these Bylaws.
To be in proper written form, a stockholder's notice to the secretary
must set forth as to each matter such stockholder proposes to bring before the
annual meeting or special meeting (a) a brief description of the business
desired to be brought before the meeting and the reasons for conducting such
business at the meeting, (b) the name and record address of such stockholder,
(c) the class or series and number of shares of capital stock of the Company
which are owned beneficially or of record by such stockholder, (d) a description
of all arrangements or understandings between such stockholder and any other
person or persons (including their names) in connection with the proposal of
such business by such stockholder and any material interest of such stockholder
in such business and (v) a representation that such stockholder intends to
appear in person or by proxy at the meeting to bring such business before the
meeting. In the case of a proposed nomination for election or re-election as a
director, a stockholder's notice shall set forth as to each person whom the
stockholder proposes to nominate for election or re-election as a director all
information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors in an election contest, or is
otherwise required, in each case pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and Rule 14a-11 thereunder
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(including such person's written consent to being named in the proxy statement
as a nominee and to serving as a director if elected).
Nominations of persons for election to the Board of Directors may be
made at a special meeting of stockholders at which directors are to be elected
pursuant to the Company's notice of meeting (a) by or at the direction of the
Board of Directors or (b) provided that the Board of Directors has determined
that directors shall be elected at such meeting, by any stockholder of the
Company who is a stockholder of record at the time of giving of notice provided
for in this Bylaw 3, who shall be entitled to vote at the meeting and who
complies with the notice procedures set forth in this Bylaw 3. In the event the
Company calls a special meeting of stockholders for the purpose of electing one
or more directors to the Board of Directors, any such stockholder may nominate a
person or persons (as the case may be), for election to such position(s) as
specified in the Company's notice of meeting, if the stockholder's notice
required by this Bylaw 3 shall be delivered to the secretary at the principle
executive offices of the Company not earlier than one-hundred twenty days prior
to such special meeting and not later than the later of ninety days prior to
such special meeting or the tenth day following the day on which public
announcement is first made of the date of the special meeting and of the
nominees proposed by the Board of Directors to be elected at such meeting. In no
event shall the public announcement of an adjournment of a special meeting
commence a new time period for the giving of a stockholder's notice as described
in this Bylaw 3.
A complete list of stockholders entitled to vote, arranged in
alphabetical order, shall be prepared by the secretary and shall be open to the
examination of any stockholder at the place of election, for ten days prior
thereto, and during the whole time of the election.
No business shall be conducted at an annual meeting or special meeting
of stockholders except business brought before the meeting in accordance with
the procedures set forth in this Bylaw 3; provided, however, that, once business
has been properly brought before such meeting in accordance with such
procedures, nothing in this Bylaw 3 shall be deemed to preclude discussion by
any stockholder of any such business. If the chairman of an annual meeting or
special meeting determines that business was not properly brought before such
meeting in accordance with the foregoing procedures, the chairman shall declare
to the meeting that the business was not properly brought before the meeting and
such business shall not be transacted.
Except as otherwise provided by statute or by the Certificate of
Incorporation, at each meeting of the stockholders each stockholder having the
right to vote thereat shall be entitled to (i) one vote, in person or by proxy
signed by such stock-
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holder, for each share of common stock of the Company standing in his name, and
(ii) such voting rights, if any, as are provided in the applicable Certificate
of Designation, Preferences and Rights with respect to any series of preferred
stock of the Company standing in his name, which voting rights may be exercised
in person or by proxy signed by such stockholder, and in all such instances on
the date fixed by the Board of Directors as the record date for the
determination of the stockholders who shall be entitled to notice of and vote at
such meeting; or if no record date shall have been fixed, then at the close of
business on the day next preceding the day on which notice thereof shall be
given. Such right to vote shall be subject to the right of the Board of
Directors to close the transfer books or to fix a record date for voting
stockholders as hereinafter provided and if the directors shall not have
exercised such right, no share of stock shall be voted on at any election for
directors which shall have been transferred on the books of the Company within
twenty days next preceding such election.
Written notice of all meetings shall be given by the secretary not less
than ten nor more than sixty days before the date of the meeting to each
stockholder entitled to vote at such meeting.
The holders of a majority of the Common Stock outstanding present in
person or represented by proxy shall be requisite to and shall constitute a
quorum for the transaction of business except as otherwise provided by law or by
the Certificate of Incorporation as amended or by these Bylaws. However, the
holders of the majority of the Common Stock who are present in person or
represented by proxy shall have power to adjourn such meeting from time to time
without notice other than announcement at the meeting until a quorum is secured.
Directors
4. The property and business of the Company shall be managed and
controlled by its Board of Directors. The number of directors which shall
constitute the whole board shall be such number, not less than three nor more
than fifteen, as may be determined from time to time (i) by the stockholders by
the affirmative vote of the holders of two-thirds of the outstanding shares of
all classes of stock of the Company entitled to vote for the election of
directors (considered for this purpose as one class) or (ii) by the Board of
Directors by a vote of not less than a majority of all of the directors then in
office. All directors to be elected shall be elected for three-year terms
(except as hereinafter provided with respect to directors to fill certain
vacancies) so that approximately one-third of the directors will be elected to
each annual meeting of the stockholders. Each director shall continue in office
until the annual meeting in the year in which his term expires and until his
successor shall have been elected and qualified,
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or until his death, or until he shall resign or have been removed by the vote of
the holders of a majority of the outstanding shares of capital stock of all
classes of the Company entitled to vote in the election of directors at a
special meeting of the stockholders called for that purpose.
Any vacancies in the Board of Directors from any cause, including
vacancies created by increase in the number of directors, may be filled by a
majority of the then qualified directors, even though less than a quorum. Each
director so chosen shall hold office for the unexpired term of the director
whose place shall be vacant, providing that each director so chosen to fill a
vacancy created by increase in the number of directors shall be elected for an
appropriate term so that approximately one-third of the directors will be
elected at each annual meeting of the stockholders thereafter.
Directors shall be bona fide owners of at least one hundred (100)
shares of this Company's stock, shall not stand for election or reelection after
attaining the age of sixty-eight and shall offer their resignation from the
Board at such time as they may change their basic business or professional
activity or affiliation; provided, however, that nonemployee directors need not
offer such resignation in the event of normal retirement. Nonemployee directors'
continuous membership on the Board of Directors shall be limited to five
consecutive three-year terms.
Powers of Directors
5. The business and affairs of the Company shall be managed under the
direction of the Board of Directors. In addition to the powers and authorities
expressly conferred upon them by these Bylaws, the Board of Directors may
exercise all such powers of the Company and do all such lawful acts and things
as are not by statute or by the Certificate of Incorporation or by these Bylaws
required to be exercised or done by the stockholders.
Meetings of Directors
6. Immediately after each annual election of directors, the directors
shall meet for the purpose of organization, the election of officers and the
transaction of other business at such place as shall be specified in the notice
of such meeting provided as hereinafter established for either regular or
special meetings.
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The Board of Directors may provide by resolution, the time and place,
either at the general office of the Company or elsewhere, for the holding of
regular meetings without other notice than such resolution.
Special meetings of the directors may be called at any time by the
chairman of the board or the president and shall be called on the written
request of any two directors. Notice of special meeting of the directors shall
be given to each director at his residence or usual place of business in writing
by hand delivery, first-class or overnight mail or courier service, telegram or
facsimile transmission, or orally by telephone. If mailed by first-class mail,
such notice shall be deemed adequately delivered when deposited in the United
States mails so addressed, with postage thereon prepaid, at least five days
before such meeting. If by telegram, overnight mail or courier service, such
notice shall be deemed adequately delivered when the telegram is delivered to
the telegraph company or the notice is delivered to the overnight mail or
courier service company at least twenty-four hours before such meeting. If by
facsimile transmission, such notice shall be deemed adequately delivered when
the notice is transmitted at least twelve hours before such meeting. If by
telephone or by hand delivery, the notice shall be given at least twelve hours
prior to the time set for the meeting. Neither the business to be transacted at,
nor the purposes of, any regular or special meeting of the Board of Directors
need be specified in the notice of such meeting, except for amendments to these
Bylaws in accordance with Bylaw 25. A meeting may be held at any time without
notice if all the directors are present or if those not present waive notice of
the meeting in accordance with Bylaw 24.
Special meetings of the directors may be held within or without the
State of Delaware at such place as is indicated in the notice or waiver of
notice thereof.
A majority of the directors shall constitute a quorum, but a smaller
number may adjourn from time to time, without further notice, until a quorum is
secured.
Executive and Other Committees
7. The Board of Directors may by resolution or resolutions passed by a
majority of the whole board designate one or more committees, each committee to
consist of one or more of the directors of the Company. The board may designate
one or more directors as alternate members of any committee, who may replace any
absent or disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or members present at
any meeting and not disqualified from voting, whether or not such member or
members constitute a quorum, may unanimously appoint another member of the Board
of Directors to act at
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the meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in a resolution of the Board of Directors,
shall have and may exercise all the powers and authority of the Board of
Directors in the management of the business and affairs of the Company, and may
authorize the seal of the Company to be affixed to all papers which may require
it; but no such committee shall have the power or authority in reference to the
following matter: (i) approving or adopting, or recommending to the
stockholders, any action or matter expressly required by the Delaware General
Corporation Law (the "DGCL") to be submitted to stockholders for approval or
(ii) adopting, amending or releasing these Bylaws.
Compensation of Directors and Members of Committees
8. Directors and members of standing committees shall receive such
compensation for attendance at each regular or special meeting as the board
shall from time to time prescribe.
Officers of the Company
9. The officers of the Company shall be the chairman of the Board of
Directors (if one is elected by the Board of Directors), the president, one or
more vice presidents, a secretary, a treasurer and such other officers as may
from time to time be elected by the Board of Directors.
The officers of the Company shall hold office until their successors
are elected and qualify. An officer elected by the Board of Directors may be
removed either with or without cause at any time by the affirmative vote of a
majority of the whole Board of Directors. Such removal, however, shall be
without prejudice of the contract rights of the person so removed. If the office
of any officer becomes vacant for any reason, the vacancy may be filled by the
affirmative vote of a majority of the whole Board of Directors.
Duties of the Chairman of the Board and the President
10. The chairman of the Board of Directors, if one is elected, shall
preside at all meetings of the stockholders and directors and shall have such
other duties as may be prescribed from time to time by the Board of Directors.
In the absence of the chairman of the Board of Directors, the president
shall preside at all meetings of the stockholders and directors and shall have
such other duties as may be prescribed from time to time by the Board of
Directors.
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If the chairman of the Board of Directors is not the president, the
Board of Directors shall designate which of the chairman of the Board of
Directors or the president is the chief executive officer of the Company, and
shall provide for the division of executive duties and responsibilities between
those two officers. If the chairman of the Board of Directors is also president,
the chairman shall be the chief executive officer of the Company and shall have
general and active management of the business of the Company.
Vice President
11. The vice president or vice presidents, in the order designated by
the Board of Directors, shall be vested with all the powers and required to
perform all the duties of the president in his absence or disability and shall
perform such other duties as may be prescribed by the Board of Directors.
President Pro Tem
12. In the absence or disability of the chairman of the board, the
president and the vice presidents, the board may appoint from their own number a
president pro tem.
Secretary
13. The secretary shall attend all meetings of the Company, the Board
of Directors, the executive committee and standing committees. He shall act as
clerk thereof and shall record all of the proceedings of such meetings in a book
kept for that purpose. He shall give proper notice of meetings of stockholders
and directors and shall perform such other duties as shall be assigned to him by
the chief executive officer or the Board of Directors.
Financial Officers
14. The Vice President-Chief Financial Officer shall have such
authority and responsibility as specified herein for both the Treasurer and the
Controller.
The treasurer, vice president-finance or such other similar title shall
be the financial officer, shall have custody of, and be responsible for, all
funds of the Company; shall deposit all moneys and other valuable effects in the
name and to the credit of the Company in such depositories as may be designated
by the Board of Directors; shall render to the chief executive officer and
directors, whenever they may
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require it, an account of all transactions as treasurer and of the financial
condition of the Company; shall keep an account of stock registered and
transferred in such manner and subject to such regulations as the Board of
Directors may prescribe; and shall perform all of the duties incident to the
office of the treasurer and such other duties as from time to time may be
assigned by the chief financial officer, chief executive officer of Board of
Directors.
The controller shall be the chief accounting officer, shall keep full
and accurate accounts of all assets, liabilities, receipts, disbursements and
other financial transactions in books belonging to the Company; shall cause
regular audits of such books and records to be made; shall see that all
expenditures are made in accordance with procedures duly established by the
Company; shall render to the chief executive officer and Board of Directors,
whenever requested, financial statements of the Company; and shall perform all
the duties incident to the office of controller and such other duties as, from
time to time, may be assigned by the chief financial officer, chief executive
officer or Board of Directors.
Financial officers may be required to furnish bond in such amount as
shall be determined by the Board of Directors.
Duties of Officers May Be Delegated
15. In case of the absence or disability of any officer of the Company
or for any other reason deemed sufficient by a majority of the board, the Board
of Directors may delegate his powers or duties to any other officer or to any
director for the time being.
Certificates of Stock
16. Certificates of stock shall be signed by the President or a Vice
President and the Treasurer, Assistant Treasurer, Secretary or Assistant
Secretary. Any or all of the signatures on the certificates may be a facsimile.
In case any officer, transfer agent or registrar who has signed or whose
facsimile signature has been placed upon any such certificate shall thereafter
have ceased to be such officer, transfer agent or registrar before such
certificate is issued, such certificate may nevertheless be issued by the
Company with the same effect as though the person who signed such certificate,
or whose facsimile signature shall have been placed thereupon, were such
officer, transfer agent or registrar at the date of issue. If a certificate of
stock be lost, mutilated or destroyed, another may be issued in its stead upon
proof of such loss, mutilation or destruction, and the giving of a bond of
indemnity in form, substance and amount
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satisfactory to the Company and to the Transfer Agent and Registrar, if any, of
such stock, provided that, if there be no Transfer Agent or Registrar for the
class of stock of which the certificate be lost, mutilated or destroyed, the
Board of Directors may waive the requirement of a bond indemnity if in its
judgment such waiver is warranted by the circumstances.
Transfer of Stock
17. All transfers of stock of the Company shall be made upon its books
by the holder of the shares in person or by his lawfully constituted
representative, upon surrender of certificates of stock for cancellation.
Provided, however, that, with respect to stock which has been presumed abandoned
under an applicable state law, appropriate officers of the Company may effect
cancellation of the certificate representing the abandoned shares and cause
transfer thereof to such state by means of delivery of a new certificate in the
name of such state.
Record Date
18. The Board of Directors shall fix, in advance, a record date, which
shall not be more than sixty nor less than ten days before the date of any
meeting of stockholders, nor more than sixty days prior to any other action, for
the determination of stockholders entitled to notice of, and to vote, at any
such meeting or any adjournment thereof, or entitled to receive payment of any
such dividend, or to any such allotment of rights, or to exercise the rights in
respect of any such change, conversion or exchange of stock or to give such
consent, and in such case such stockholders and only such stockholders as shall
be stockholders of record on the date so fixed shall be entitled to such notice
of, and to vote at such meeting and any adjournment thereof, or to receive
payment of such dividend, or to receive such allotment of rights, or to exercise
such rights, or to give such consent, as the case may be, notwithstanding any
transfer of any stock on the books of the Company after such record date fixed
as aforesaid.
Stockholders of Record
19. The Company shall be entitled to treat the holder of record of any
share or shares as the holder in fact thereof and accordingly shall not be bound
to recognize any equitable or other claim to or interest in such share on the
part of any other person whether or not it shall have express or other notice
thereof, save as expressly provided by the laws of Delaware.
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Fiscal Year
20. The fiscal year of the Company shall begin on the first day of
August in each year.
Dividends
21. Dividends upon the capital stock may be declared by the Board of
Directors at any regular or special meeting and may be paid in cash or in
property or in shares of the capital stock. Before paying any dividend or making
any distribution of profits, the directors may set apart out of any of the funds
of the Company available for dividends a reserve or reserves for any proper
purpose and may alter or abolish any such reserve or reserves.
Checks for Money
22. All checks, drafts or orders for the payment of money shall be
signed by the treasurer or by such other officer or officers as the Board of
Directors may from time to time designate. No check shall be signed in blank.
Books and Records
23. The books, accounts and records of the Company, except as otherwise
required by the laws of the State of Delaware, may be kept within or without the
State of Delaware, at such place or places as may from time to time be
designated by the Bylaws or by resolution of the directors.
Notices
24. Except as specifically set forth herein, notice required to be
given under the provisions of these Bylaws to any director, officer or
stockholder shall not be construed to mean personal notice, but may be given in
writing by depositing the same in a post office or letter-box, in a post-paid
sealed wrapper, addressed to such stockholder, officer or director at such
address as appears on the books of the Company, and such notice shall be deemed
to be given at the time when the same shall be thus mailed. Any stockholder,
officer or director may waive, in writing, any notice required to be given under
these Bylaws, whether before or after the time stated therein.
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<PAGE>
Amendments of Bylaws
25. Except as hereinafter stated, these Bylaws may be amended, altered,
repealed or added to by the stockholders by the affirmative vote of a majority
of the outstanding shares entitled to vote on the matter, or by the Board of
Directors by a majority of the directors then in office, at any regular meeting
or at any special meeting called for that purpose. Provided that any amendment,
alteration or repeal of, or addition to, the first paragraph of Bylaw 4 or this
sentence of Bylaw 25 by stockholders shall require the affirmative vote of
66 2/3% of the outstanding shares of capital stock of all classes of the Company
entitled to vote generally for the election of directors, considered for this
purpose as one class.
Indemnification of Directors and Officers
26. Each person who was or is made a party or is threatened to be made
a party to or is involved in or called as a witness in any action, suit or
proceeding, whether civil, criminal, administrative or investigative, and any
appeal therefrom (hereinafter, collectively a "proceeding"), by reason of the
fact that he or she is, was or had agreed to become a director of the Company or
is, was or had agreed to become an officer of the Company or is or was serving
at the request of the Company as a director, officer, employee or agent of
another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans, shall be
indemnified and held harmless by the Company to the fullest extent permitted
under the DGCL as the same now exists or may hereafter be amended (but, in the
case of any such amendment, only to the extent that such amendment permits the
Company to provide broader indemnification rights than the DGCL permitted the
Company to provide prior to such amendment), against all expenses, liabilities
and losses (including attorneys' fees, judgments, fines, excise taxes or
penalties pursuant to the Employee Retirement Income Security Act of 1974, as
amended, and amounts paid or to be paid in settlement) reasonably incurred or
suffered by such person in connection therewith; provided, that except as
explicitly provided herein, prior to a Change in Control of the Company, as
defined herein, a person seeking indemnity in connection with a proceeding (or
part thereof) initiated by such person against the Company or any director,
officer, employee or agent of the Company shall not be entitled thereto unless
the Company has joined in or consented to such proceeding (or part thereof). For
purposes of this Bylaw 26, a "Change in Control of the Company" shall be deemed
to have occurred if (i) any "Person" (as used in Sections 13(d) and 14(d) of the
Exchange Act) is or becomes (except in a transaction approved in advance by the
Board of Directors of the Company) the beneficial owner (as defined in Rule
13d-3 the Exchange Act), directly or indirectly, of securities of the Company
representing 40% or more of the combined voting power
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of the Company's then outstanding securities or (ii) during any period of two
consecutive years, individuals who at the beginning of such period constitute
the Board of Directors of the Company cease for any reason to constitute at
least a majority thereof unless the election of each director who was not a
director at the beginning of the period was approved by a vote of at least
two-thirds of the directors then still in office who were directors at the
beginning of the period.
Any indemnification under this Bylaw 26 (unless ordered by a court)
shall be paid by the Company unless within sixty days of such request for
indemnification a determination is made (i) by the Board of Directors by a
majority vote of a quorum consisting of directors who were not parties to such
proceeding, (ii) if such quorum is not obtainable, or even if obtainable a
quorum of disinterested directors so directs, by independent legal counsel (who
may be the regular counsel of the Company) in a written opinion or (iii) by the
stockholders, that indemnification of such person is not proper under the
circumstances because such person has not met the necessary standard of conduct
under the DGCL, provided, however, that following a Change of Control of the
Company, with respect to all matters thereafter arising out of acts, omissions
or events prior to the Change of Control of the Company concerning the rights of
any person seeking indemnification under this Bylaw 26, such determination shall
be made by special independent counsel selected by such person and approved by
the Company (which approval shall not be unreasonably withheld), which counsel
has not otherwise performed services (other than in connection with similar
matters) within the five years preceding its engagement to render such opinion
for such person or for the Company or any affiliates (as such term is defined in
Rule 405 under the Securities Act of 1933, as amended) of the Company (whether
or not they were affiliates when services were so performed) ("Independent
Counsel"). Unless such person has theretofore selected Independent Counsel
pursuant to this Bylaw 26 and such Independent Counsel has been approved by the
Company, legal counsel approved by a resolution or resolutions of the Board of
Directors prior to a Change in Control of the Company shall be deemed to have
been approved by the Company as required. Such Independent Counsel shall
determine as promptly as practicable whether and to what extent such person
would be permitted to be indemnified under applicable law and shall render its
written opinion to the Company and such person to such effect. The Company
agrees to pay the reasonable fees of the Independent Counsel referred to above
and to fully indemnify such Independent Counsel against any and all expenses,
claims, liabilities and damages arising out of or relating to this Bylaw 26 or
its engagement pursuant hereto.
Expenses, including attorneys' fees, incurred by a person referred to
in this Bylaw 26 in defending or otherwise being involved in a proceeding shall
be paid by the Company in advance of the final disposition of such proceeding,
including any appeal
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therefrom, upon receipt of an undertaking (the "Undertaking") by or on behalf of
such person to repay such amount if it shall ultimately be determined that he or
she is not entitled to be indemnified by the Company.
If a claim under this Bylaw 26 hereof is not paid in full by the
Company within sixty days after a written claim has been received by the Company
or if expenses pursuant to this Bylaw 26 have not been advanced within ten days
after a written request for such advancement accompanied by the Undertaking has
been received by the Company, the claimant may at any time thereafter bring suit
against the Company to recover the unpaid amount of the claim or the advancement
or expenses. (If the claimant is successful, in whole or in part, in such suit
or any other suit to enforce a right for expenses for indemnification against
the Company or any other party under any other agreement, such claimant shall
also be entitled to be paid the reasonable expense of prosecuting such claim.)
It shall be a defense to any such action (other than an action brought to
enforce a claim for expenses incurred in defending any proceeding in advance of
its final disposition where the required Undertaking has been tendered to the
Company) that the claimant has not met the standards to conduct which make it
permissible under the DGCL for the Company to indemnify the claimant for the
amount claimed. After a Change in Control, the burden of proving such defense
shall be on the Company, and any determination by the Company (including its
Board of Directors, independent legal counsel to its stockholders) that the
claimant had not met the applicable standard of conduct required under the DGCL
shall not be a defense to the action nor create a presumption that claimant had
not met such applicable standard of conduct.
The rights conferred on any person by this Bylaw 26 shall not be
exclusive of any other right which such person may have or hereafter acquire
under any statute, provision of the Certificate of Incorporation, Bylaws,
agreement, vote of stockholders or disinterested directors or otherwise. The
Board of Directors shall have the authority, by resolution, to provide for such
other indemnification of directors, officers, employees or agents as it shall
deem appropriate.
The Company may purchase and maintain insurance to protect itself and
any director, officer, employee or agent of the Company or another corporation,
partnership, joint venture, trust or other enterprise against any expenses,
liabilities or losses, whether or not the Company would have the power to
indemnify such expenses, liabilities or losses under the DGCL.
The provisions of this Bylaw 26 shall be applicable to all proceedings
commenced after its adoption, whether such arise out of events, acts, omissions
or
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circumstances which occurred or existed prior or subsequent to such adoption,
and shall continue as to a person who has ceased to be a director or officer and
shall inure to the benefit of the heirs, executors and administrators of such
person. This Bylaw 26 shall be deemed to grant each person who, at any time that
this Bylaw 26 is in effect, serves or agrees to serve in any capacity which
entitles him to indemnification hereunder rights against the Company to enforce
the provisions of this Bylaw 26, and any repeal or other modification of this
Bylaw 26 or any repeal or modification of the DGCL or any other applicable law
shall not limit any rights of indemnification then existing or arising out of
events, acts, omissions, circumstances occurring or arising out of events, acts,
omissions, circumstances occurring out or existing prior to such repeal or
modification, including, without limitation, the right to indemnification for
proceedings commenced after such repeal or modification to enforce this Bylaw 26
with regard to acts, omissions, events or circumstances occurring or existing
prior to such repeal or modification.
If this Bylaw 26 or any portion hereof shall be invalidated on any
ground by any court of competent jurisdiction, then the Company shall
nevertheless indemnify such director and officer of the Company as to costs,
charges and expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement with respect to any proceeding, whether civil, criminal,
administrative or investigative, including an action by or in the right of the
Company, to the full extent permitted by any applicable portion of this Bylaw 26
that shall not have been invalidated and to the full extent permitted by
applicable law.
15
EXHIBIT 10.G
MANAGEMENT SEVERANCE AGREEMENT
THIS AGREEMENT, dated as of July 24, 1998, is made by and between
Donaldson Company, Inc., a Delaware corporation (the "Company"), and (the
"Executive").
WHEREAS, the Company considers it essential to the best interests of
its stockholders to foster the continued employment of key management personnel;
and
WHEREAS, the Board recognizes that, as is the case with many publicly
held corporations, the possibility of a Change in Control exists and that such
possibility, and the uncertainty and questions which it may raise among
management, may result in the departure or distraction of management personnel
to the detriment of the Company and its stockholders; and
WHEREAS, the Board has determined that appropriate steps should be
taken to reinforce and encourage the continued attention and dedication of
members of the Company's management, including the Executive, to their assigned
duties without distraction in the face of potentially disturbing circumstances
arising from the possibility of a Change in Control;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the Company and the Executive hereby agree as
follows:
1. Defined Terms. The definitions of capitalized terms used in this
Agreement are provided in the last Section hereof.
2. Term of Agreement. The Term of this Agreement shall commence on the
date hereof and shall
<PAGE>
continue in effect through July 31, 2000; provided, however, that commencing on
August 1, 1999 and each August 1 thereafter, the Term shall automatically be
extended for one additional year unless, not later than April 30 of the
preceding year, the Company or the Executive shall have given notice not to
extend the Term; and further provided, however, that if a Change in Control
shall have occurred during the Term, the Term shall expire no earlier than
twenty-four (24) months beyond the month in which such Change in Control
occurred.
3. Company's Covenants Summarized. In order to induce the Executive to
remain in the employ of the Company and in consideration of the Executive's
covenants set forth in Section 4 hereof, the Company agrees, under the
conditions described herein, to pay the Executive the Severance Payments and the
other payments and benefits described herein. Except as provided in Section 9.1
hereof, no Severance Payments shall be payable under this Agreement unless
there shall have been (or, under the terms of the second sentence of Section 6.1
hereof, there shall be deemed to have been) a termination of the Executive's
employment with the Company following a Change in Control and during the Term.
This Agreement shall not be construed as creating an express or implied
contract of employment and, except as otherwise agreed in writing between the
Executive and the Company, the Executive shall not have any right to be retained
in the employ of the Company.
4. The Executive's Covenants. The Executive agrees that, subject to
the terms and conditions of this Agreement, in the event of a Potential Change
in Control during the Term, the Executive will remain in the employ of the
Company until the earliest of (i) a date which is six (6) months from the date
of such Potential Change of Control, (ii) the date of a Change in Control, (iii)
the date of termination by the Executive of the Executive's employment for Good
Reason or by reason of death, Disability or Retirement, or (iv) the termination
by the Company of the Executive's employment for any reason.
5. Compensation Other Than Severance Payments.
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5.1 Following a Change in Control and during the Term, during any
period that the Executive fails to perform the Executive's full-time duties with
the Company as a result of incapacity due to physical or mental illness, the
Company shall pay the Executive's full salary to the Executive at the rate in
effect at the commencement of any such period, together with all compensation
and benefits payable to the Executive under the terms of any compensation or
benefit plan, program or arrangement maintained by the Company during such
period (other than the Com pany's short- or long-term disability plan, as
applicable), until the Executive's employment is terminated by the Company for
Disability.
5.2 If the Executive's employment shall be terminated for any reason
following a Change in Control and during the Term, the Company shall pay the
Executive's full salary to the Executive through the Date of Termination at the
rate in effect immediately prior to the Date of Termination or, if higher, the
rate in effect immediately prior to the first occurrence of an event or
circumstance constituting Good Reason, together with all compensation and
benefits payable to the Executive through the Date of Termination under the
terms of the Company's compensation and benefit plans, programs or arrangements
as in effect immediately prior to the Date of Termination or, if more favorable
to the Executive, as in effect immediately prior to the first occurrence of an
event or circumstance constituting Good Reason.
5.3 If the Executive's employment shall be terminated for any reason
following a Change in Control and during the Term, the Company shall pay to the
Executive the Executive's normal post-termination compensation and benefits as
such payments become due. Such post-termination compensation and benefits shall
be determined under, and paid in accordance with, the Company's retirement,
insurance and other compensation or benefit plans, programs and arrangements as
in effect immediately prior to the Date of Termination or, if more favorable to
the Executive, as in effect immediately prior to the occurrence of the first
event or circumstance constituting Good Reason.
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6. Severance Payments.
6.1 If (i) the Executive's employment is terminated following a Change
in Control and during the Term, other than (A) by the Company for Cause, (B) by
reason of death or Disability, or (C) by the Executive without Good Reason, or
(ii) the Executive voluntarily terminates his employment for any reason during
the one-month period commencing on the first anniversary of the Change in
Control, then, in either such case, the Company shall pay the Executive the
amounts, and provide the Executive the benefits, described in this Section 6.1
("Severance Payments") and Section 6.2, in addition to any payments and benefits
to which the Executive is entitled under Section 5 hereof. For purposes of this
Agreement, the Executive's employment shall be deemed to have been terminated
following a Change in Control by the Company without Cause or by the Executive
with Good Reason, if (i) the Executive's employment is terminated by the Company
without Cause prior to a Change in Control (whether or not a Change in Control
ever occurs) and such termination was at the request or direction of a Person
who has entered into an agreement with the Company the consummation of which
would constitute a Change in Control, (ii) the Executive terminates his
employment for Good Reason prior to a Change in Control (whether or not a Change
in Control ever occurs) and the circumstance or event which constitutes Good
Reason occurs at the request or direction of such Person, or (iii) the
Executive's employment is terminated by the Company without Cause or by the
Executive for Good Reason and such termination or the circumstance or event
which constitutes Good Reason is otherwise in connection with or in anticipation
of a Change in Control (whether or not a Change in Control ever occurs). For
purposes of any determination regarding the applicability of the immediately
preceding sentence, any position taken by the Executive shall be presumed to be
correct unless the Company establishes to the Board by clear and convincing
evidence that such position is not correct.
(A) In lieu of any further salary payments to the Executive
for periods subse-
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quent to the Date of Termination and in lieu of any severance benefit
otherwise payable to the Executive, the Company shall pay to the
Executive a lump sum severance payment, in cash, equal to three times
the sum of (i) the Execu tive's base salary as in effect immediately
prior to the Date of Termination or, if higher, in effect immediately
prior to the first occurrence of an event or circumstance constituting
Good Reason, and (ii) the Executive's "target bonus" (i.e., the
Executive's "opportunity incentive target" bonus multiplied by the
"target" factor, which for 1998 is 1.4) pursuant to the Company's
Management Compensation Plan or any successor thereto in respect of the
fiscal year in which occurs the Date of Termination or, if higher, the
fiscal year in which occurs the first event or circumstance
constituting Good Reason.
(B) For the thirty-six (36) month period immediately following
the Date of Termination, the Company shall arrange to provide the
Executive and his dependents life, disability, accident and health
insurance benefits substantially similar to those provided to the
Executive and his dependents immediately prior to the Date of
Termination or, if more favorable to the Executive, those provided to
the Executive and his dependents immediately prior to the first
occurrence of an event or circumstance constituting Good Reason, at no
greater cost to the Executive than the cost to the Executive
immediately prior to such date or occurrence; provided, however, that,
unless the Executive consents to a different method (after taking into
account the effect of such method on the calculation of "parachute
payments" pursuant to Section 6.2 hereof), such health insurance
benefits shall be provided through a third-party insurer. Benefits
otherwise receivable by the Executive pursuant to this Section 6.1 (B)
shall be reduced to the extent benefits of the same type are received
by or made available to the Executive during the thirty-six (36) month
period following the Executive's termination of employment (and any
such benefits received by or
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made available to the Executive shall be re ported to the Company by
the Executive); provided, however, that the Company shall reimburse the
Executive for the excess, if any, of the cost of such benefits to the
Executive over such cost immediately prior to the Date of Termination
or, if more favorable to the Executive, the first occurrence of an
event or circumstance constituting Good Reason.
(C) In addition to the retirement benefits to which the
Executive is entitled under each Pension Plan or any successor plan
thereto, the Company shall pay the Executive a lump sum amount, in
cash, equal to the excess of (i) the actuarial equivalent of the
aggregate retirement pension (taking into account any early retirement
subsidies associated therewith and determined as a straight life
annuity commencing at the date (but in no event earlier than the third
anniversary of the Date of Termination) as of which the actuarial
equivalent of such annuity is greatest) which the Executive would have
accrued under the terms of all Pension Plans (without regard to any
amendment to any Pension Plan made subsequent to a Change in Control
and on or prior to the Date of Termination, which amendment adversely
affects in any manner the computation of retirement benefits
thereunder), determined as if the Executive were fully vested
thereunder and had accumulated (after the Date of Termination)
thirty-six (36) additional months of service credit thereunder and had
been credited under each Pension Plan during such period with
compensation equal to the Executive's compensation (as defined in such
Pension Plan) during the twelve (12) months immediately preceding Date
of Termination or, if higher, during the twelve months immediately
prior to the first occurrence of an event or circumstance constituting
Good Reason, over (ii) the actuarial equivalent of the aggregate
retirement pension (taking into account any early retirement subsidies
associated therewith and determined as a straight life annuity
commencing at the date (but in no event earlier than the Date of
Termination) as of which the actuarial
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equivalent of such annuity is greatest) which the Executive had accrued
pursuant to the provisions of the Pension Plans as of the Date of
Termination. For purposes of this Section 6.1(C), "actuarial
equivalent" shall be determined using the same assumptions utilized
under the Company's Salaried Employees' Pension Plan immediately prior
to the Date of Termination. or, if more favorable to the Executive,
immediately prior to the first occurrence of an event or circumstance
constituting Good Reason."
(D) The Company shall provide the Executive with outplacement
services suitable to the Executive's position for a period of three
years or, if earlier, until the first acceptance by the Executive of an
offer of employment.
6.2 (A) Whether or not the Executive becomes entitled to the Severance
Payments, if any of the payments or benefits received or to be received by the
Executive in connection with a Change in Control or the Executive's termination
of employment (whether pursuant to the terms of this Agreement or any other
plan, arrangement or agreement with the Company, any Person whose actions result
in a Change in Control or any Person affiliated with the Company or such Person)
(such payments or benefits, excluding the Gross-Up Payment, being hereinafter
referred to as the "Total Payments") will be subject to the Excise Tax, the
Company shall pay to the Executive an additional amount (the "Gross-Up Payment")
such that the net amount retained by the Executive, after deduction of any
Excise Tax on the Total Payments and any federal, state and local income and
employment taxes and Excise Tax upon the Gross-Up Payment, shall be equal to
the Total Payments.
(B) For purposes of determining whether any of the Total
Payments will be subject to the Excise Tax and the amount of such
Excise Tax, (i) all of the Total Payments shall be treated as
"parachute payments" (within the meaning of section 280G(b)(2) of the
Code) unless, in the opinion of tax counsel ("Tax Counsel") reasonably
acceptable to the Executive and selected by the accounting firm which
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was, immediately prior to the Change in Control, the Company's
independent auditor (the "Auditor"), such payments or benefits (in
whole or in part) do not constitute parachute payments, including by
reason of section 280G(b)(4)(A) of the Code, (ii) all "excess parachute
payments" within the meaning of section 280G(b)(l) of the Code shall be
treated as subject to the Excise Tax unless, in the opinion of Tax
Counsel, such excess parachute payments (in whole or in part) represent
reasonable compensation for services actually rendered (within the
meaning of section 280G(b)(4)(B) of the Code) in excess of the Base
Amount allocable to such reasonable compensation, or are otherwise not
subject to the Excise Tax, and (iii) the value of any noncash benefits
or any deferred payment or benefit shall be determined by the Auditor
in accordance with the principles of sections 280G(d)(3) and (4) of the
Code. For purposes of determining the amount of the Gross-Up Payment,
the Executive shall be deemed to pay federal income tax at the highest
marginal rate of federal income taxation in the calendar year in which
the Gross-Up Payment is to be made and state and local income taxes at
the highest marginal rate of taxation in the state and locality of the
Executive's residence on the Date of Termination (or if there is no
Date of Termination, then the date on which the Gross-Up Payment is
calculated for purposes of this Section 6.2), net of the maximum
reduction in federal income taxes which could be obtained from
deduction of such state and local taxes.
(C) In the event that the Excise Tax is finally determined to
be less than the amount taken into account hereunder in calculating the
Gross-Up Payment, the Executive shall repay to the Company, within five
(5) business days following the time that the amount of such reduction
in the Excise Tax is finally determined, the portion of the Gross-Up
Payment attributable to such reduction (plus that portion of the
Gross-Up Payment attributable to the Excise Tax and federal, state and
local income and employment taxes imposed on the Gross-Up Payment being
repaid by the Executive, to the extent that such repayment results in a
reduction in the Excise Tax and a dollar-for-dollar reduction in the
Executive's taxable income and wages for purposes of federal, state
and local income and employment taxes,
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plus interest on the amount of such repayment at 120% of the rate
provided in section 1274(b)(2)(B) of the Code. In the event that the
Excise Tax is determined to exceed the amount taken into account
hereunder in calculating the Gross-Up Payment (including by reason of
any payment the existence or amount of which cannot be determined at
the time of the Gross-Up Payment), the Company shall make an
additional Gross-Up Payment in respect of such excess (plus any
interest, penalties or additions payable by the Executive with respect
to such excess) within five (5) business days following the time that
the amount of such excess is finally determined. The Executive and the
Company shall each reasonably cooperate with the other in connection
with any administrative or judicial proceedings concerning the
existence or amount of liability for Excise Tax with respect to the
Total Payments.
6.3 The payments provided in subsections (A) and (C) of Section 6.1
hereof and in Section 6.2 hereof shall be made not later than the fifth day
following the Date of Termination; provided, however, that if the amounts of
such payments cannot be finally determined on or before such day, the Company
shall pay to the Executive on such day an estimate, as determined in good faith
by the Executive or, in the case of payments under Section 6.2 hereof, in
accordance with Section 6.2 hereof, of the minimum amount of such payments to
which the Executive is clearly entitled and shall pay the remainder of such
payments (together with interest on the unpaid remainder (or on all such
payments to the extent the Company fails to make such payments when due) at 120%
of the rate provided in section 1274(b)(2)(B) of the Code) as soon as the amount
thereof can be determined but in no event later than the thirtieth (30th) day
after the Date of Termination. In the event that the amount of the estimated
payments exceeds the amount subsequently determined to have been due, such
excess shall constitute a loan by the Company to the Executive, payable on the
fifth (5th) business day after demand by the Company (together with interest at
120% of the rate provided in section 1274(b)(2)(B) of the Code). At the time
that payments are made under this Agreement, the Company shall provide the
Executive with a written statement setting forth the manner in
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which such payments were calculated and the basis for such calculations
including, without limitation, any opinions or other advice the Company has
received from Tax Counsel, the Auditor or other advisors or consultants (and any
such opinions or advice which are in writing shall be attached to the
statement).
6.4 The Company also shall pay to the Executive all legal fees and
expenses incurred by the Executive in disputing in good faith any issue
hereunder relating to the termination of the Executive's employment, in seeking
in good faith to obtain or enforce any benefit or right provided by this
Agreement or in connection with any tax audit or proceeding to the extent
attributable to the application of section 4999 of the Code to any payment or
benefit provided hereunder. Such payments shall be made within five (5) business
days after delivery of the Executive's written requests for payment accompanied
with such evidence of fees and expenses incurred as the Company reasonably may
require.
7. Termination Procedures and Compensation During Dispute.
7.1 Notice of Termination. After a Change in Control and during the
Term, any purported termination of the Executive's employment (other than by
reason of death) shall be communicated by written Notice of Termination from one
party hereto to the other party hereto in accordance with Section 10 hereof. For
purposes of this Agreement, a "Notice of Termination" shall mean a notice which
shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of the Executive's employment under the
provision so indicated. Further, a Notice of Termination for Cause is required
to include a copy of a resolution duly adopted by the affirmative vote of not
less than three-quarters (3/4) of the entire membership of the Board at a
meeting of the Board which was called and held for the purpose of considering
such termination (after reasonable notice to the Executive and an opportunity
for the Executive, together with the Executive's counsel, to be heard before
the Board) finding that, in the good
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faith opinion of the Board, the Executive was guilty of conduct set forth in
clause (i) or (ii) of the definition of Cause herein, and specifying the
particulars thereof in detail.
7.2 Date of Termination. "Date of Termination," with respect to any
purported termination of the Executive's employment after a Change in Control
and during the Term, shall mean (i) if the Executive's employment is terminated
for Disability, thirty (30) days after Notice of Termination is given (provided
that the Executive shall not have returned to the full-time performance of the
Executive's duties during such thirty (30) day period), and (ii) if the
Executive's employment is terminated for any other reason, the date specified in
the Notice of Termination (which, in the case of a termination by the Company,
shall not be less than thirty (30) days (except in the case of a termination for
Cause) and, in the case of a termination by the Executive, shall not be less
than fifteen (15) days nor more than sixty (60) days, respectively, from the
date such Notice of Termination is given).
7.3 Dispute Concerning Termination. If within fifteen (15) days after
any Notice of Termination is given, or, if later, prior to the Date of
Termination (as determined without regard to this Section 7.3), the party
receiving such Notice of Termination notifies the other party that a dispute
exists concerning the termination, the Date of Termination shall be extended
until the earlier of (i) the date on which the Term ends or (ii) the date on
which the dispute is finally resolved, either by mutual written agreement of the
parties or by a final judgment, order or decree of an arbitrator or a court of
competent jurisdiction (which is not appealable or with respect to which the
time for appeal therefrom has expired and no appeal has been perfected);
provided, however, that the Date of Termination shall be extended by a notice of
dispute given by the Executive only if such notice is given in good faith and
the Executive pursues the resolution of such dispute with reasonable diligence.
7.4 Compensation During Dispute. If a purported termination occurs
following a Change in
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Control and during the Term and the Date of Termination is extended in
accordance with Section 7.3 hereof, the Company shall continue to pay the
Executive the full compensation in effect when the notice giving rise to the
dispute was given (including, but not limited to, salary) and continue the
Executive as a participant in all compensation, benefit and insurance plans in
which the Executive was participating when the notice giving rise to the dispute
was given, until the Date of Termination, as determined in accordance with
Section 7.3 hereof. Amounts paid under this Section 7.4 are in addition to all
other amounts due under this Agreement (other than those due under Section 5.2
hereof) and shall not be offset against or reduce any other amounts due under
this Agreement.
8. No Mitigation. The Company agrees that, if the Executive's
employment with the Company terminates during the Term, the Executive is not
required to seek other employment or to attempt in any way to reduce any amounts
payable to the Executive by the Company pursuant to Section 6 hereof or Section
7.4 hereof. Further, the amount of any payment or benefit provided for in this
Agreement (other than Section 6.1(B) hereof) shall not be reduced by any
compensation earned by the Executive as the result of employment by another
employer, by retirement benefits, by offset against any amount claimed to be
owed by the Executive to the Company, or otherwise.
9. Successors; Binding Agreement.
9.1 In addition to any obligations imposed by law upon any successor to
the Company, the Company will require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of the Company to expressly assume and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place.
Failure of the Company to obtain such assumption and agreement prior to the
effectiveness of any such succession shall be a breach of this Agreement and
shall entitle the Executive to compensation from the Company in the same amount
and on the
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same terms as the Executive would be entitled to hereunder if the Executive were
to terminate the Executive's employment for Good Reason after a Change in
Control, except that, for purposes of implementing the foregoing, the date on
which any such succession becomes effective shall be deemed the Date of
Termination.
9.2 This Agreement shall inure to the benefit of and be enforceable by
the Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the Executive shall
die while any amount would still be payable to the Executive hereunder (other
than amounts which, by their terms, terminate upon the death of the Executive)
if the Executive had continued to live, all such amounts, unless otherwise
provided herein, shall be paid in accordance with the terms of this Agreement to
the executors, personal representatives or administrators of the Executive's
estate.
10. Notices. For the purpose of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed, if to the
Executive, to the address inserted below the Executive's signature on the final
page hereof and, if to the Company, to the address set forth below, or to such
other address as either party may have furnished to the other in writing in
accordance herewith, except that notice of change of address shall be effective
only upon actual receipt:
To the Company:
Donaldson Company, Inc.
P.O. Box 1299
Minneapolis
Minnesota 55440-1299
Attention: General Counsel
11. Miscellaneous. No provision of this Agreement may be modified,
waived or discharged
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unless such waiver, modification or discharge is agreed to in writing and signed
by the Executive and such officer as may be specifically designated by the
Board. No waiver by either party hereto at any time of any breach by the other
party hereto of, or of any lack of compliance with, any condition or provision
of this Agreement to be performed by such other party shall be deemed a waiver
of similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time. This Agreement supersedes any other agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof which have been made by either party, including the
Management Agreement entered into between the Company and the Executive,
effective as of [, as amended as of ]; provided, however,
that this Agreement shall supersede any agreement setting forth the terms and
conditions of the Executive's employment with the Company only in the event that
the Executive's employment with the Company is terminated on or following a
Change in Control, by the Company other than for Cause or by the Executive other
than for Good Reason. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
Delaware. All references to sections of the Exchange Act or the Code shall be
deemed also to refer to any successor provisions to such sections. Any payments
provided for hereunder shall be paid net of any applicable withholding required
under federal, state or local law and any additional withholding to which the
Executive has agreed. The obligations of the Company and the Executive under
this Agreement which by their nature may require either partial or total
performance after the expiration of the Term (including, without limitation,
those under Sections 6 and 7 hereof) shall survive such expiration.
12. Validity. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
13. Counterparts. This Agreement may be executed in several
counterparts, each of which
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shall be deemed to be an original but all of which together will constitute one
and the same instrument.
14. Settlement of Disputes; Arbitration. 14.1 All claims by the
Executive for benefits under this Agreement shall be directed to and determined
by the Board and shall be in writing. Any denial by the Board of a claim for
benefits under this Agreement shall be delivered to the Executive in writing
and shall set forth the specific reasons for the denial and the specific
provisions of this Agreement relied upon. The Board shall afford a reasonable
opportunity to the Executive for a review of the decision denying a claim and
shall further allow the Executive to appeal to the Board a decision of the Board
within sixty (60) days after notification by the Board that the Executive's
claim has been denied.
14.2 Any further dispute or controversy arising under or in connection
with this Agreement shall be settled exclusively by arbitration in Minneapolis,
Minnesota in accordance with the rules of the American Arbitration Association
then in effect; provided, however, that the evidentiary standards set forth in
this Agreement shall apply. Judgment may be entered on the arbitrator's award in
any court having jurisdiction. Notwithstanding any provision of this Agreement
to the contrary, the Executive shall be entitled to seek specific performance
of the Executive's right to be paid until the Date of Termination during the
pendency of any dispute or controversy arising under or in connection with this
Agreement.
15. Definitions. For purposes of this Agreement, the following terms
shall have the meanings indicated below:
(A) "Affiliate" shall have the meaning set forth in Rule 12b-2
promulgated under Section 12 of the Exchange Act.
(B) "Auditor" shall have the meaning set forth in Section 6.2
hereof.
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(C) "Base Amount" shall have the meaning set forth in section
280G(b)(3) of the Code.
(D) "Beneficial Owner" shall have the meaning set forth in
Rule 13d-3 under the Exchange Act.
(E) "Board" shall mean the Board of Directors of the Company.
(F) "Cause" for termination by the Company of the Executive's
employment shall mean (i) the willful and continued failure by the
Executive to substantially perform the Executive's duties with the
Company (other than any such failure resulting from the Executive's
incapacity due to physical or mental illness or any such actual or
anticipated failure after the issuance of a Notice of Termination for
Good Reason by the Executive pursuant to Section 7.1 hereof) after a
written demand for substantial performance is delivered to the
Executive by the Board, which demand specifically identifies the manner
in which the Board believes that the Executive has not substantially
performed the Executive's duties, or (ii) the willful engaging by the
Executive in conduct which is demonstrably and materially injurious to
the Company or its subsidiaries, monetarily or otherwise. For purposes
of clauses (i) and (ii) of this definition, (x) no act, or failure to
act, on the Executive's part shall be deemed "willful" unless done, or
omitted to be done, by the Executive not in good faith and without
reasonable belief that the Executive's act, or failure to act, was in
the best interest of the Company and (y) in the event of a dispute
concerning the application of this provision, no claim by the Company
that Cause exists shall be given effect unless the Company establishes
to the Board by clear and convincing evidence that Cause exists.
(G) 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:
(I) any Person is or becomes the Beneficial Owner,
directly or indirectly, of securities of the
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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 (III)
below; or
(II) 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
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
(III) 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
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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
(IV) 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 Com-
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pany immediately following such transaction or series of transactions.
(H) "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
(I) "Company" shall mean Donaldson Company, Inc. and, except
in determining under Section 15(E) hereof whether or not any Change in
Control of the Company has occurred, shall include any successor to
its business and/or assets which assumes and agrees to perform this
Agreement by operation of law, or otherwise.
(J) "Date of Termination" shall have the meaning set forth in
Section 7.2 hereof.
(K) "Disability" shall be deemed the reason for the
termination by the Company of the Executive's employment, if, as a
result of the Executive's incapacity due to physical or mental illness,
the Executive shall have been absent from the full-time performance of
the Executive's duties with the Company for a period of six (6)
consecutive months, the Company shall have given the Executive a Notice
of Termination for Disability, and, within thirty (30) days after such
Notice of Termination is given, the Executive shall not have returned
to the full-time performance of the Executive's duties.
(L) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended from time to time.
(M) "Excise Tax" shall mean any excise tax imposed under
section 4999 of the Code.
(N) "Executive" shall mean the individual named in the first
paragraph of this Agreement.
(O) "Good Reason" for termination by the Executive of the
Executive's employment shall mean the occurrence (without the
Executive's express written consent) after any Change in Control, or
prior to a Change in Control under the circumstances described in
clauses (ii) and (iii) of the second sentence of Section 6.1 hereof
(treating all refer-
19
<PAGE>
ences in paragraphs (I) through (VII) below to a "Change in Control" as
references to a "Potential Change in Control"), of any one of the
following acts by the Company, or failures by the Company to act,
unless, in the case of any act or failure to act described in paragraph
(I), (V), (VI) or (VII) below, such act or failure to act is corrected
prior to the Date of Termination specified in the Notice of Termination
given in respect thereof:
(I) the assignment to the Executive of any duties
inconsistent with the Executive's status as a senior
executive officer of the Company or a substantial adverse
alteration in the nature or status of the Executive's
responsibilities from those in effect immediately prior to the
Change in Control, including without limitation (if the
Executive is an executive officer of the Company immediately
prior to the Change in Control) ceasing to be an executive
officer of a public company;
(II) a reduction by the Company in the Executive's
annual base salary as in effect on the date hereof or as the
same may be increased from time to time;
(III) the relocation of the Executive's principal
place of employment to a location more than 25 miles from the
Executive's principal place of employment immediately prior to
the Change in Control or the Company's requiring the Executive
to be based anywhere other than such principal place of
employment (or permitted relocation thereof) except for
required travel on the Company's business to an extent
substantially consistent with the Executive's present business
travel obligations;
(IV) the failure by the Company to pay to the
Executive any portion of the Executive's current compensation
except pursuant to an across-the-board compensation deferral
similarly affecting all se-
20
<PAGE>
nior executives of the Company and all senior executives of
any Person in control of the Company, or to pay to the
Executive any portion of an installment of deferred
compensation under any deferred compensation program of the
Company, within seven (7) days of the date such compensation
is due;
(V) the failure by the Company to continue in effect
any compensation plan in which the Executive participates
immediately prior to the Change in Control which is material
to the Executive's total compensation, including but not
limited to the Company's equity compensation plans, annual
incentive bonus plan, long-term compensation plan, 401(k)
excess plan, excess pension plan, supplemental executive
pension plan, and deferred stock option gain plan or any
substitute plans adopted prior to the Change in Control,
unless an equitable arrangement (embodied in an ongoing
substitute or alternative plan) has been made with respect to
such plan, or the failure by the Company to continue the
Executive's participation therein (or in such substitute or
alternative plan) on a basis not materially less favorable,
both in terms of the amount or timing of payment of benefits
provided and the level of the Executive's participation
relative to other participants, as existed immediately prior
to the Change in Control;
(VI) the failure by the Company to continue to
provide the Executive with benefits substantially similar to
those enjoyed by the Executive under any of the Company's
pension, savings, life insurance, medical, health and
accident, or disability plans in which the Executive was
participating immediately prior to the Change in Control
(except for across the board changes similarly affecting all
senior executives of the Company and all
21
<PAGE>
senior executives of any Person in control of the Company),
the taking of any other action by the Company which would
directly or indirectly materially reduce any of such benefits
or deprive the Executive of any material fringe benefit
enjoyed by the Executive at the time of the Change in Control,
or the failure by the Company to provide the Executive with
the number of paid vacation days to which the Executive is
entitled on the basis of years of service with the Company in
accordance with the Company's normal vacation policy in effect
at the time of the Change in Control; or
(VII) any purported termination of the Executive's
employment which is not effected pursuant to a Notice of
Termination satisfying the requirements of Section 7.1
hereof; for purposes of this Agreement, no such purported
termination shall be effective.
The Executive's right to terminate the Executive's employment
for Good Reason shall not be affected by the Executive's incapacity due
to physical or mental illness. The Executive's continued employment
shall not constitute consent to, or a waiver of rights with respect to,
any act or failure to act constituting Good Reason hereunder.
For purposes of any determination regarding the existence of
Good Reason, any claim by the Executive that Good Reason exists shall
be presumed to be correct unless the Company establishes to the Board
by clear and convincing evidence that Good Reason does not exist.
(P) "Gross-Up Payment" shall have the meaning set forth in
Section 6.2 hereof.
(Q) "Notice of Termination" shall have the meaning set forth
in Section 7.1 hereof.
(R) "Pension Plan" shall mean any tax-qualified, supplemental
or excess benefit pension
22
<PAGE>
plan maintained by the Company and any other plan or agreement entered
into between the Executive and the Company which is designed to provide
the Executive with supplemental retirement benefits.
(S) "Person" shall have the meaning given in 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.
(T) "Potential Change in Control" shall be deemed to have
occurred if the event set forth in any one of the following paragraphs
shall have occurred:
(I) the Company enters into an agreement, the
consummation of which would result in the occurrence of a
Change in Control;
(II) the Company or any Person publicly announces an
intention to take or to consider taking actions which, if
consummated, would constitute a Change in Control;
(III) any Person becomes the Beneficial Owner,
directly or indirectly, of securities of the Company
representing 15% or more of either the then outstanding shares
of common stock of the Company or the combined voting power of
the Company's then outstanding securities (not including in
the securities beneficially owned by such Person any
securities acquired di rectly from the Company or its
affiliates); or
23
<PAGE>
(IV) the Board adopts a resolution to the effect
that, for purposes of this Agreement, a Potential Change in
Control has occurred.
(U) "Retirement" shall be deemed the reason for the
termination by the Executive of the Executive's employment if such
employment is terminated in accordance with the Company's retirement
policy, including early retirement, generally applicable to its
salaried employees.
(V) "Severance Payments" shall have the meaning set forth in
Section 6.1 hereof.
(W) "Tax Counsel" shall have the meaning set forth in Section
6.2 hereof.
(X) "Term" shall mean the period of time described in Section
2 hereof (including any extension, continuation or termination
described therein).
(Y) "Total Payments" shall mean those payments so described in
Section 6.2 hereof.
DONALDSON COMPANY, INC.
By:
--------------------------------------
Name: William G. Van Dyke
Title: Chairman, Chief Executive
Officer and President
---------------------------------------
[name and address of
Executive]
24
EXHIBIT 99
FACTORS AFFECTING FUTURE OPERATING RESULTS
From time to time, the Company, through its management, may make forward-looking
statements reflecting the Company's current views with respect to future events
and financial performance. These forward-looking statements, which may be in
reports filed under the Securities Exchange Act of 1934, as amended ( The
"Exchange Act"), in press releases and in other documents and materials as well
as in written or oral statements made by or on behalf of the company, are
subject to certain risks and uncertainties, including those discussed below
which could cause actual results to differ materially from historical results or
those anticipated. The words or phrases " will likely result," "are expected
to," "will continue," "estimate," "project," "believe," "expect," "anticipate,"
"forecast" and similar expressions are intended to identify forward-looking
statements within the meaning of Section 21e of the Exchange Act and Section 27A
of the Securities Act of 1933, as amended, as enacted by the Private Securities
Litigation Reform Act of 1995.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date such statements are made. In
addition, the company wishes to advise readers that the factors listed below, as
well as other factors could affect the company's financial or other performance
and could cause the Company's actual results for future periods to differ
materially from any opinions or statements expressed with respect to future
periods or events in any current statement. This discussion of factors is not
intended to be exhaustive, but rather to highlight important risk factors that
impact results. General economic conditions and many other contingencies that
may cause the Company's actual results to differ from those currently
anticipated are not separately discussed. The Company undertakes no obligation
to publicly update or revise any forward-looking statements, whether as a result
of new information, future events or otherwise.
RISKS ASSOCIATED WITH CURRENCY FLUCTUATIONS
The Company maintains international subsidiaries and operations in many
countries, and the results of operations and the financial position of each of
the company's subsidiaries is reported in the relevant foreign currency and then
translated into United States ("U.S.") dollars at the applicable foreign
currency exchange rate for inclusion in the Company's consolidated financial
statements. As exchange rates between these foreign currencies and the U.S.
dollar fluctuate, the translation effect of such fluctuations may have an
adverse effect on the Company's results of operations or financial position as
reported in U.S. dollars.
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
The Company does business in numerous countries, including markets in Asia,
Mexico and Europe. Maintenance and continued growth of this portion of the
company's business may be affected by changes in trade, monetary and fiscal
policies and the laws and regulations of the United States and other trading
nations. In addition, the Company's international operations are subject to the
risk of new and different legal and regulatory requirements in local
jurisdictions, tariffs and trade barriers, potential difficulties in staffing
and managing local operations, credit risk of local customers and distributors,
potential difficulties in protecting intellectual property,
<PAGE>
risk of nationalization of private enterprises, potential imposition of
restrictions on investments, potentially adverse tax consequences, including
imposition or increase of withholding and other taxes on remittances and other
payments by subsidiaries, and local economic, political and social conditions,
including the possibility of hyper-inflationary conditions, in certain
countries. Recently, growth in net sales in Asia has slowed and the Company
anticipates this trend to continue for the near term.
COMPETITION AND TECHNOLOGY ISSUES
The markets in which the Company operates are highly competitive and fragmented
both geographically and by application. As a result, the Company competes with
numerous regional or specialized competitors, many of which are well established
in their respective markets. The Company has, from time to time, experienced
price pressures from competitors in certain product lines and geographic
markets. The Company's competitors and new entrants into the Company's lines of
business can be expected to continue to improve the design and performance of
their products and to introduce new products with competitive price and
performance characteristics. Competition in the Company's lines of business may
limit its ability to recover future increases in labor and raw material
expenses. Although the Company believes that it has certain technological and
other advantages over its competitors, realizing and maintaining these
advantages will require continued productive investment by the Company in
research and development, sales and marketing and customer service and support.
There can be no assurance that the Company will be successful in maintaining
such advantages. Successful product innovation by competitors that reach the
market prior to comparable innovation by the Company or that are amenable to
patent protection may adversely affect the Company's financial performance.
A number of the Company's major OEM customers manufacture products for their own
use that compete with the Company's products. Although these OEM customers have
indicated that they will continue to rely on outside suppliers, the OEMs could
elect to manufacture products for their own use and in place of the products now
supplied by the Company. In addition, customers of the Company's engine
filtration and exhaust products business line could decide to meet their
filtration requirements through alternative methods, such as engine design
modifications, rather than rely on the Company's products.
RISKS RELATING TO FUTURE ACQUISITIONS
The Company has in the past and may in the future pursue acquisitions of
complementary product lines, technologies or businesses. Future acquisitions by
the Company may results in potentially dilutive issuance's of equity securities,
the incurrence of debt and contingent liabilities and amortization expenses
related to goodwill and other intangible assets, which could adversely affect
the Company's profitability. In addition, acquisitions involve numerous risks,
including difficulties in the assimilation of the operations, technologies and
products of the acquired companies, corporate culture conflicts, the diversion
of management's attention from other business concerns, assumption of
unanticipated legal liabilities and the potential loss of key employees of the
acquired company. There can be no assurance that the Company will be able to
identify and successfully complete and integrate potential acquisitions in the
future. In the event that any such acquisition does occur, however, there can be
no assurance as to the effect thereof on the Company's business or operating
results.
<PAGE>
ENVIRONMENTAL MATTERS
The Company is subject to various environmental laws and regulations in the
jurisdictions in which it operates, including those relating to air emissions,
wastewater discharges, the handling and disposal of solid and hazardous wastes
and the remediation of contamination associated with the use and disposal of
hazardous substances. The Company, like many of its competitors, has incurred
and will continue to incur, capital and operating expenditures and other costs
in complying with such laws and regulations in both the United States and
abroad.
PRODUCT DEMAND CONSIDERATIONS
Demand for certain of the Company's products tends to be cyclical, responding
historically to varying levels of construction, agricultural, heavy equipment
manufacturing and industrial activity, principally in the United States and, to
a lesser extend, in other industrialized nations. Other factors affecting demand
include the availability and cost of financing for equipment purchases and the
market availability of used equipment.
Sale to one customer and its subsidiaries have accounted for greater than 10
percent of the Company's net sales in each of the last three fiscal years. An
adverse change in the customer's financial performance, condition or results of
operations or a material reduction in sales to this customer for any other
reason could result in a material adverse change in the Company's operating
results.
AVAILABILITY OF PRODUCT COMPONENTS
The Company obtains raw material and certain manufactured components from
third-party suppliers. The Company maintains limited raw material inventories,
even brief unanticipated delays in delivery by suppliers, including those due to
capacity constraints, labor disputes, impaired financial condition of suppliers,
weather emergencies or other natural disasters, may adversely affect the
Company's ability to satisfy its customers on a timely basis and thereby affect
the Company's financial performance.
CHANGES IN THE MIX OF PRODUCTS COMPRISING REVENUE
The Company's products constitute various product lines, which have varying
profit margins. A change in the mix of products sold by the Company from that
currently experienced could adversely affect the Company's financial
performance.
RESEARCH AND DEVELOPMENT
The Company makes significant annual investment in research and development
activities to develop new and improved products and manufacturing processes.
There can be no assurance that research and development activities will yield
new or improved products or products which will be purchased by the Company's
customers, or new and improved manufacturing processes.
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