UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement [_] Soliciting Material Pursuant to
[_] Confidential, For Use of the SS.240.14a-11(c) or SS.240.14a-12
Commission Only (as permitted
by Rule 14a-6(e)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
Donaldson Company, Inc.
--------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
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1) Title of each class of securities to which transaction applies:
___________________________________________________________________________
2) Aggregate number of securities to which transaction applies:
___________________________________________________________________________
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[LOGO]
DONALDSON COMPANY, INC.
1400 WEST 94TH STREET
MINNEAPOLIS, MINNESOTA 55431-2370
www.donaldson.com
NOTICE OF 2003 ANNUAL MEETING OF STOCKHOLDERS
TIME: 10:00 a.m. (CST) on Friday, November 21, 2003
PLACE: Donaldson Company, Inc. Corporate Offices,
1400 West 94th Street,
Minneapolis, Minnesota.
ITEMS OF BUSINESS: (1) To elect four directors;
(2) To ratify appointment of PricewaterhouseCoopers LLP
as Donaldson Company's independent auditors;
(3) Amendment of the Company's Certificate of
Incorporation to increase the number of authorized
shares of Company Common Stock from 80,000,000 to
120,000,000; and
(4) To act on any other business that properly comes
before the meeting.
RECORD DATE: You may vote if you are a stockholder of record at the
close of business on September 26, 2003.
PROXY VOTING: It is important that your shares be represented and voted
at the Annual Meeting. Please follow the instructions
provided with your proxy card and promptly vote your
proxy by telephone, internet or by signing and returning
the enclosed proxy card. Your support is appreciated and
you are cordially invited to attend the Annual Meeting.
PLEASE PROMPTLY VOTE YOUR PROXY TO SAVE THE
COMPANY THE EXPENSE OF ADDITIONAL SOLICITATION
By Order of the Board of Directors
/s/ Norman C. Linnell
Norman C. Linnell
SECRETARY
Dated: October 14, 2003
TABLE OF CONTENTS
PAGE
-----
Proxy Statement ................................................................... 1
Proposals You are Asked to Vote on ............................................... 1
General Information about the Annual Meeting and Voting .......................... 2
Security Ownership ................................................................ 4
Election of Directors ............................................................. 6
Nominees for Election ............................................................ 7
Directors Continuing in Office ................................................... 7
Director Compensation ............................................................ 8
Audit Committee Report and Appointment of Auditors ................................ 9
Audit Committee Report ........................................................... 9
Information Regarding Independent Auditors ....................................... 9
Amendment to Certificate of Incorporation to Increase Authorized Common Stock ..... 10
Total Return to Shareholders ...................................................... 12
Executive Compensation ............................................................ 13
Human Resources Committee Report on Executive Compensation ........................ 16
Human Resources Committee Interlocks and Insider Participation .................... 18
Pension Benefits .................................................................. 18
Compliance with Section 16(a) of the Securities Exchange Act of 1934 .............. 19
Change-in-Control Arrangements .................................................... 19
Appendix A Audit Committee Charter ................................................ A-1
i
DONALDSON COMPANY, INC.
1400 WEST 94TH STREET
MINNEAPOLIS, MINNESOTA 55431
------------------------
PROXY STATEMENT
MAILING DATE: OCTOBER 14, 2003
------------------------
PROPOSALS YOU ARE ASKED TO VOTE ON
ITEM NO. 1
----------
ELECTION OF DIRECTORS
Four current directors, Jack W. Eugster, John F. Grundhofer, Paul D.
Miller and William G. Van Dyke, are recommended for election to the Board of
Directors at the annual meeting. Detailed information on the nominees is
provided on page 7. Directors are elected for a three-year term so that
approximately one-third are elected at each annual meeting of stockholders.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR EACH DIRECTOR
NOMINEE.
ITEM NO. 2
----------
RATIFICATION OF THE APPOINTMENT OF INDEPENDENT AUDITORS
The Audit Committee has selected PricewaterhouseCoopers LLP ("PWC") to
audit the Company's consolidated financial statements for fiscal year 2004,
subject to ratification by the stockholders.
Representatives of PWC will attend the annual meeting, where they will have the
opportunity to make a statement and to answer questions.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE RATIFICATION
OF THE APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT AUDITORS FOR
FISCAL YEAR 2004.
ITEM NO. 3
----------
APPROVAL OF INCREASE IN AUTHORIZED COMMON SHARES FROM 80,000,000 TO 120,000,000
The Board of Directors has approved that the Company's number of
authorized shares of common stock be increased from 80,000,000 to 120,000,000,
subject to approval by the Company's stockholders.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE PROPOSAL TO
AMEND THE COMPANY'S CERTIFICATE OF INCORPORATION TO INCREASE THE NUMBER OF
AUTHORIZED SHARES OF COMMON STOCK.
1
GENERAL INFORMATION ABOUT THE ANNUAL MEETING AND VOTING
Q: WHY DID I RECEIVE THIS PROXY STATEMENT?
A: Because you are a Donaldson stockholder as of the close of business on the
record date of September 26, 2003. Only stockholders of record are entitled
to vote at the annual meeting and the Board of Directors is soliciting your
proxy to vote at the meeting. The Company had 43,483,232 shares of common
stock outstanding as of close of business on the record date. Each share
entitles its holder to one vote.
This Proxy Statement summarizes the information you need to know to vote.
We first mailed the Proxy Statement and proxy card to stockholders on or
about October 14, 2003.
Q: WHAT AM I VOTING ON AND WHAT DOES THE BOARD RECOMMEND?
A: 1. The election of four directors;
2. The ratification of the appointment of our independent auditors for
fiscal year 2004; and
3. The approval of the increase in authorized common shares from 80,000,000
to 120,000,000.
THE BOARD RECOMMENDS A VOTE FOR EACH OF THE DIRECTORS AND FOR THE OTHER TWO
ITEMS.
Q: HOW DO I VOTE IF I AM A STOCKHOLDER OF RECORD?
A: If you are a stockholder of record you may vote using any ONE of the methods
set forth on your enclosed proxy card:
1. VOTE BY PHONE TOLL FREE 1-800-240-6326 QUICK *** EASY *** IMMEDIATE
2. VOTE BY INTERNET -- http://www.eproxy.com/dci/
3. VOTE BY PROMPTLY MAILING YOUR PROXY CARD -- COMPLETE AND SIGN
4. VOTE BY CASTING YOUR VOTE IN PERSON AT THE MEETING
If you participate in the Donaldson Dividend Reinvestment Program open to
all stockholders and administered by the transfer agent, your shares in that
program have been added to your other holdings and included on your proxy
card.
If you participate in the Donaldson Employee Stock Purchase Program
administered by the transfer agent, your shares in that program have been
added to your other holdings and included on your proxy card.
Q: HOW DO I VOTE IF I HOLD STOCK THROUGH A DONALDSON EMPLOYEE BENEFIT PLAN?
A: We have added the shares of common stock held by participants in Donaldson's
employee benefit plans to the participants' other holdings shown on their
proxy cards. Donaldson's employee benefit plans are the Employee Stock
Ownership Plan, the PAYSOP, and the Donaldson Company, Inc. Retirement
Savings Plan (the 401(k) plan).
If you hold stock through Donaldson's employee benefit plans, voting your
proxy using one of methods 1-3 above also serves as confidential voting
instructions to the plan trustee, Fidelity Management Trust Company
("Fidelity"). Fidelity will vote your employee benefit plan shares as
directed by you provided that your proxy vote is RECEIVED BY NOVEMBER 18,
2003.
Fidelity also will vote the shares allocated to individual participant
accounts for which it has not received instructions, as well as shares not
so allocated, in the same proportion as the directed shares are voted.
Q: HOW DO I VOTE IF MY SHARES ARE HELD IN A BROKERAGE ACCOUNT IN MY BROKER'S
NAME (I.E., STREET NAME)?
A: If your shares are held in a brokerage account in your broker's name (street
name), you should follow the voting directions provided by your broker or
nominee. If you do so, your broker or nominee will vote your shares as you
have directed.
2
Q: WHAT DOES IT MEAN IF I RECEIVE MORE THAN ONE PROXY CARD?
A: It means that you have multiple accounts with banks or stockbrokers or with
the transfer agent. PLEASE VOTE ALL OF YOUR SHARES.
Q: WHAT IF I CHANGE MY MIND AFTER I VOTE MY SHARES?
A: You can revoke your proxy at any time before it is voted at the meeting by:
1. Sending written notice of revocation to the Company Secretary
2. Submitting a properly signed proxy card with a later date
3. Voting by telephone or internet at a time following your prior
telephone or internet vote; or
4. Voting in person at the annual meeting.
Q: HOW ARE THE VOTES COUNTED?
A: For item (1), the election of directors, you may 1) vote for all of the
nominees, 2) withhold your vote from all of the nominees or 3) withhold your
vote from a specifically designated nominee. For items (2) and (3), the
ratification of the appointment of the independent auditors, and the
increase in authorized shares, you may vote (or abstain) by choosing For,
Against or Abstain.
If you abstain from items (2) or (3), your shares will be counted as present
at the meeting for the purposes of determining a quorum, and they will be
treated as shares not voted on the specific proposal.
If you hold shares in street name and do not provide voting instructions to
your broker, your broker will not vote your shares on any proposal where the
broker does not have discretionary authority to vote. In such a situation,
the shares will be considered present at the meeting for purposes of
determining a quorum, but will not be considered to be represented at the
meeting for purposes of calculating the vote with respect to the matter
requiring discretionary authority. New York Stock Exchange Rules permit
brokers discretionary authority to vote on items (1), (2) and (3), if they
do not receive instructions from the street name holder of the shares. As a
result, if you do not vote your street name shares, your broker has
authority to vote on your behalf.
The Company uses an independent inspector of elections, Wells Fargo Bank
Minnesota, which tabulates the votes received.
Q: WHAT IF I DO NOT SPECIFY HOW I WANT MY SHARES VOTED?
A. If you do not specify on your returned proxy card or through the telephone
or internet prompts how you want to vote your shares, they will be voted FOR
the election of all director nominees, FOR the ratification of the
appointment of the independent auditors and FOR the increase in authorized
shares.
Q: HOW MANY SHARES MUST BE PRESENT TO HOLD THE MEETING?
A: A quorum must be present for the meeting to be valid. This means that at
least a majority of the shares outstanding as of the record date must be
present. We will count you as present if you:
1. Have properly voted your proxy by telephone, internet or mailing of the
proxy card; or
2. Are present and vote in person at the meeting.
Q: HOW MANY VOTES ARE NEEDED TO APPROVE EACH ITEM?
A: The vote of a plurality of the shares of common stock present or represented
and entitled to vote at the meeting is required for election as a director.
This means that, since stockholders will be electing 4 directors, the 4
nominees receiving the most votes will be elected. Ratification of the
appointment of the independent auditors requires the affirmative vote of a
majority of shares entitled to vote and represented at the meeting in person
or by proxy. Approval of the amendment to the Company's Certificate of
Incorporation requires the affirmative vote of a majority of the shares of
the Company's common stock outstanding on the record date.
Q: HOW WILL VOTING ON ANY OTHER BUSINESS BE CONDUCTED?
A: We do not know of any business to be considered at the 2003 Annual Meeting
of Stockholders other than the proposals described in this Proxy Statement.
If any other business is presented at the annual
3
meeting, the persons named in the form of proxy intend to vote the shares
represented by such proxies in accordance with their best judgment.
Q: WHO MAY ATTEND THE MEETING?
A: All Donaldson stockholders of record as of the close of business on
September 26, 2003 may attend.
Q: WHERE DO I FIND THE VOTING RESULTS OF THE MEETING?
A: We will publish the voting results in our Form 10-Q for the second quarter
of fiscal 2004, which we will file with the Securities and Exchange
Commission.
Q: HOW DO I SUBMIT A STOCKHOLDER PROPOSAL?
A: If you wish to include a proposal in the Company's Proxy Statement for its
2004 annual meeting of stockholders, you must submit the proposal in writing
so that it is received no later than June 16, 2004. Please send your
proposal to the Company Secretary, Donaldson Company, Inc., P.O. Box 1299,
Minneapolis, MN 55440-1299.
Under our bylaws, if you wish to nominate a director or bring other business
before the stockholders at our 2004 annual meeting without having your
proposal included in our Proxy Statement:
--> You must notify the Company Secretary of Donaldson Company, Inc. in
writing between July 24, 2004 and August 23, 2004.
--> Your notice must contain the specific information required in our
bylaws. If you would like a copy of our bylaws, we will send you one
without charge. Please write to the Company Secretary at the address
shown above.
Q: WHO PAYS FOR THE COST OF PROXY PREPARATION AND SOLICITATION?
A: Donaldson pays for the cost of proxy preparation and solicitation, including
the reasonable charges and expenses of brokerage firms, banks or other
nominees for forwarding proxy materials to street name holders. We have
retained Morrow & Co., to assist in the solicitation of proxies for the
annual meeting for a fee of approximately $5,000, plus associated costs and
expenses. We are soliciting proxies primarily by mail. In addition, our
directors, officers and regular employees may solicit proxies by telephone
or facsimile or personally. These individuals will receive no additional
compensation for their services other than their regular salaries.
SECURITY OWNERSHIP
Set forth below is information regarding persons known by the Company to
own beneficially more than 5% of the outstanding Common Stock of the Company
based on the number of shares of Common Stock outstanding on September 26,
2003:
NAME AND ADDRESS AMOUNT AND NATURE PERCENT
OF BENEFICIAL OWNER (1) OF BENEFICIAL OWNERSHIP OF CLASS
------------------------------ ----------------------- --------
None. See footnote (1)
------------------
(1) Fidelity Management Trust Company, as the trustee of the Company's
Retirement Savings Plan -- 401(k) Profit Sharing and ESOP/PAYSOP Plan,
held 4,889,333 shares, or 11.2%, of the Company's common stock as of
September 26, 2003. Fidelity disclaims beneficial ownership of the shares
claiming that it holds the shares solely for the benefit of the employee
participants, and that it does not have the power to vote or dispose of
those shares except as directed by the employee participants.
The table on page 5 shows information regarding the beneficial ownership
of the Company's common stock and information concerning deferred restricted
stock units, deferred share units under stock option exercises and phantom
stock units, as of September 26, 2003, by each director, each of the Named
Officers (as identified on page 13) and all executive officers and directors of
the Company as a group. The definition of beneficial ownership includes shares
over which a person has sole or shared voting power, or sole or shared power to
invest or dispose of the shares, whether or not a person has any economic
interest in the shares, and
4
also includes shares subject to options exercisable within 60 days of September
26, 2003. Except as otherwise indicated, the named beneficial owner has sole
voting and investment power with respect to the shares held by such beneficial
owner.
AMOUNT AND
NATURE OF
BENEFICIAL
OWNERSHIP PERCENT OF DEFERRED
OF COMMON COMMON STOCK EXERCISABLE
NAME OF BENEFICIAL OWNER SHARES (1)(2)(3) SHARES (3) UNITS (3) OPTIONS
---------------------------------------- --------------------- ------------ ----------- ------------
William G. Van Dyke ................. 884,298(4) 2.0 409,690 555,596
James R. Giertz ..................... 290,020 * 29,427 211,522
William M. Cook ..................... 280,320 * 20,272 194,215
Lowell F. Schwab .................... 231,652 * 7,915 141,414
Nickolas Priadka .................... 196,794(5) * 102,473 72,795
Kendrick B. Melrose ................. 70,509(6) * -- 38,000
Stephen W. Sanger ................... 60,406(6) * -- 34,000
Jack W. Eugster ..................... 50,366(6) * -- 30,000
F. Guillaume Bastiaens .............. 37,239(6) * -- 30,000
Janet M. Dolan ...................... 35,807(6) * -- 26,000
John F. Grundhofer .................. 24,071(6)(7) * -- 9,130
Jeffrey Noddle ...................... 15,045(6) * -- 10,800
Paul D. Miller ...................... 9,093(6) -- 7,200
John P. Wiehoff ..................... 100(6) * -- 0
Directors and Officers as a Group ... 2,427,294 5.6 638,282 1,543,934
------------------
* Less than 1%
(1) Includes restricted shares, shares for non-employee directors held in trust
and the shares underlying options exercisable within 60 days, as listed
under the Exercisable Options column.
(2) Includes the following shares held in the ESOP trust: Mr. Van Dyke, 28,225
shares; Mr. Giertz, 4,193 shares; Mr. Cook, 17,921 shares; Mr. Schwab,
12,651 shares; Mr. Priadka, 21,459 shares. Voting of shares held in the
ESOP Trust is passed through to the participants. Also includes the
following shares held in the 401K Plan trust: Mr. Van Dyke, 0 shares; Mr.
Giertz, 4,230 shares; Mr. Cook, 2,594 shares; Mr. Schwab, 6,525 shares; Mr.
Priadka, 0 shares. Voting of shares held in the 401K Plan Trust is passed
through to the participants. Also includes the following shares held in the
Deferred Compensation and 401K Excess Plan trust: Mr. Van Dyke, 10,440
shares; Mr. Giertz, 2,177 shares; Mr. Cook, 2,009 shares; Mr. Schwab, 1,773
shares; Mr. Priadka, 1,631 shares. Voting of shares held in the Deferred
Compensation and 401K Excess Plan trust is passed through to the
participants.
(3) The deferred stock units listed under the third column "Deferred Stock
Units" are not included in the beneficial ownership totals or in the
percent of ownership (columns 1 and 2) because there are not yet any
issued shares and there is no voting or investment power. The column
"Deferred Stock Units" includes phantom stock units allocated to employees
earning in excess of the limits established by the Internal Revenue Code
for the qualified Employee Stock Ownership Plan that distributed shares in
trust for employees during the period from 1987 to 1996. ESOP phantom
stock units are held by the named executive officers in the following
amounts: Van Dyke, 31,475; Giertz, 4,295, Cook, 2,582; Schwab, 3,105;
Priadka, 3,907; and all directors and officers as a group, 48,537.
The Deferred Stock Units column also includes deferred restricted stock
units under the Deferred Compensation and 401(k) plan. Deferred restricted
stock units are held by the named executive officers in the following
amounts: Giertz, 25,132; all directors and officers as a group, 25,132.
The Deferred Stock Units column also includes deferred stock units under
the Deferred Compensation and 401(k) plan for exercises of stock options
where the executive has previously elected to defer the receipt of the
underlying shares. Deferred stock option gain units are held by the named
executive officers in the following amounts: Van Dyke, 330,005; Cook,
3,375; Priadka, 87,914; all directors and officers as a group, 476,092.
The Deferred Stock Units column also includes deferred stock units under
the Deferred Compensation and 401(k) plan for deferral of shares awarded
under the long-term compensation plan under the 1991
5
Master Stock Compensation Plan, where the executive has previously elected
to defer the receipt of the underlying shares. Deferred stock units are held
by the named executive officers in the following amounts: Van Dyke, 48,210;
Cook, 14,315; Schwab, 4,810; Priadka, 10,652; and all directors and officers
as a group, 88,521.
(4) Includes 226,952 shares held in a family trust of which Mr. Van Dyke is a
trustee and a beneficiary, as to which he shares voting and investment
power, and 61,636 shares held in a family trust of which Mr. Van Dyke is a
trustee, as to which he shares voting and investment power; and 20,200
shares underlying options gifted to trusts for immediate family members.
(5) Includes 24,358 shares held in a trust of which Mr. Priadka is a trustee
and has shared voting and investment power.
(6) Includes the following shares held in the non-employee director's deferred
stock account trust: Mr. Melrose, 10,163 shares; Mr. Sanger, 10,111
shares; Mr. Eugster, 7,941 shares; Mr. Bastiaens, 2,584 shares; Ms. Dolan,
7,048 shares; Mr. Grundhofer, 6,158 shares; Mr. Noddle, 3,245 shares; Mr.
Miller, 1,693 shares; and Mr. Wiehoff, 0 shares. Voting of shares held in
the deferred stock account trust is passed through to the participants.
(7) Includes 2,000 shares held in a trust of which Mr. Grundhofer is a trustee
and has shared voting and investment power; and 7,863 shares held in a trust
of which Mr. Grundhofer is a trustee and has shared voting and investment
power with his spouse.
ELECTION OF DIRECTORS
The Bylaws of the Company provide that the Board of Directors shall
consist of not less than three nor more than 15 directors and that the number
of directors may be fixed from time to time by the affirmative vote of a
majority of the directors. The Board of Directors has fixed the number of
directors constituting the entire Board at 10. Vacancies and newly created
directorships resulting from an increase in the number of directors may be
filled by a majority of the directors then in office and the directors so
chosen will hold office until the next election of the class for which such
directors shall have been chosen and until their successors are elected and
qualified. Directors are elected for a term of three years with positions
staggered so that approximately one-third of the directors are elected at each
annual meeting of the stockholders. The terms of Messrs. Eugster, Grundhofer,
Miller and Van Dyke expire at the annual meeting. It is intended that proxies
received will be voted, unless authority is withheld, FOR the election of the
nominees, namely Messrs. Eugster, Grundhofer, Miller and Van Dyke. The four
director nominees receiving the highest number of votes will be elected to fill
the seats on the Board.
The Board of Directors meets on a regularly scheduled basis. During the
past fiscal year, the Board held six meetings. Each director attended at least
75% of the aggregate of the Board meetings and meetings of Board committees on
which each served.
The Board of Directors has assigned certain responsibilities to standing
committees. The Audit Committee is composed of directors Janet M. Dolan, Jack W.
Eugster (Chair), Kendrick B. Melrose, Jeffrey Noddle, Stephen W. Sanger and John
P. Wiehoff, all of whom are independent non-employee directors. The Board of
Directors has determined that Mr. Wiehoff is an audit committee financial
expert as defined by the rules of the Securities and Exchange Commission. The
Audit Committee held five meetings during the past fiscal year. The
responsibilities of the Audit Committee are described in the Audit Committee
Report to this Proxy Statement and are set forth in its Charter, which is
reviewed and amended periodically, as appropriate. A copy of the Audit Committee
Charter may be found in Appendix A to this Proxy Statement.
The Human Resources Committee is composed of directors F. Guillaume
Bastiaens, Jack W. Eugster, John F. Grundhofer, Kendrick B. Melrose and Jeffrey
Noddle (Chair), all of whom are independent non-employee directors. This
Committee held two meetings during the past fiscal year. The functions of this
committee include review and approval of compensation arrangements for the
chief executive officer and senior management and administration of the
Company's stock compensation plans. The Report of the Human Resources Committee
on Executive Compensation follows in this Proxy Statement.
The Corporate Governance Committee is composed of directors F. Guillaume
Bastiaens, Janet M. Dolan, John F. Grundhofer (Chair), Paul D. Miller and John
P. Wiehoff, all of whom are independent non-employee
6
directors. This Committee held three meetings during the past fiscal year. The
Committee's duties include oversight of the organization and evaluation of the
Board and its committees, to propose to the Board a slate of directors for
election by the stockholders at each Annual Meeting, to propose candidates to
fill vacancies on the Board, to review and recommend director compensation, and
recommending to the Board a set of corporate governance principles. The
Committee will consider nominees for director recommended by stockholders.
Recommendations should be addressed to the Secretary, Donaldson Company, Inc.,
P.O. Box 1299, Minneapolis, MN 55440. Any proposal by a stockholder for the
nomination of a candidate for director at the annual meeting for the election of
directors is required by the Company's Bylaws to be submitted in writing to the
Secretary and received at the principal executive offices of the Company not
less than 90 days nor more than 120 days prior to the anniversary date of the
immediately preceding annual meeting.
The Board of Directors has no reason to believe that any nominees will be
unavailable or unable to serve, but in the event any nominee is not a candidate
at the meeting, the persons named in the enclosed proxy intend to vote in favor
of the remaining nominees and such other person, if any, as they may determine.
The table below and on the following page sets forth additional
information with respect to each nominee for election as a director and each
other person whose term of office as a director will continue after the
meeting.
NOMINEES FOR ELECTION
NAME PRINCIPAL OCCUPATION AND BUSINESS EXPERIENCE
---- -----------------------------------------------------------------------------
TERMS EXPIRING IN 2003:
Jack W. Eugster Non-Executive Chairman of ShopKo Stores, Inc. (consumer products).
Age - 58 Former Chairman, Chief Executive Officer and President of The Musicland
Director since 1993 Group, Inc. from 1986 until 2001.
John F. Grundhofer Chairman Emeritus (2003) of U.S. Bancorp (financial services); Previously,
Age - 64 Chairman (1990-1997 and 1999-2002), Chief Executive Officer (1990-2001)
Director since 1997 and President (1990-1999 and 2000-2001) of U.S. Bancorp. Also, a director
of Minnesota Life Insurance Company and Chicago Pizza & Brewery.
Admiral Paul David Miller Chairman of ATK (Alliant Techsystems Inc.), (aerospace and defense company);
Age 61 Previously Chief Executive Officer (1999-2003) and President of ATK (2000-2001).
Director since 2001 Previously, President (1994-1999) of Sperry Marine, Inc. and Vice President
(1997-1999) of Litton Marine Systems. Prior to his retirement from the
U.S. Navy following a 30-year career, Admiral Miller served as Commander-
in-Chief, U.S. Atlantic Command and NATO Supreme Allied Commander-
Atlantic. Also, a director of the advisory board of a subsidiary of SunTrust
Bank and a director of Teledyne Technologies, Inc.
William G. Van Dyke Chairman, Chief Executive Officer and President of the Company since
Age - 58 1996. Also, a director of Graco, Inc. and Alliant Techsystems Inc.
Director since 1994
DIRECTORS CONTINUING IN OFFICE
NAME PRINCIPAL OCCUPATION AND BUSINESS EXPERIENCE
---- -----------------------------------------------------------------------------
TERMS EXPIRING IN 2004:
John P. Wiehoff Chief Executive Officer (2002) and President (1999) of C.H. Robinson
Age - 42 Worldwide, Inc. (transportation and logistics). Previously, Senior Vice
Director since 2003 President (1998-1999) and Chief Financial Officer (1998-1999). Also, a
Director of C.H. Robinson.
Kendrick B. Melrose Chairman of The Toro Company (manufacturer of outdoor maintenance
Age - 63 products) since 1987 and Chief Executive Officer since 1983. Also, a
Director since 1991 director of SurModics, Inc.
7
NAME PRINCIPAL OCCUPATION AND BUSINESS EXPERIENCE
---- -----------------------------------------------------------------------------
Stephen W. Sanger Chairman and Chief Executive Officer of General Mills, Inc. (consumer
Age - 57 products and services) since 1995. Also, a director of Target Corporation
Director since 1992 and Wells Fargo & Company.
DIRECTORS CONTINUING IN OFFICE
NAME PRINCIPAL OCCUPATION AND BUSINESS EXPERIENCE
------------------------- --------------------------------------------------------------------------
TERMS EXPIRING IN 2005:
F. Guillaume Bastiaens Vice Chairman (1998) of Cargill, Inc. (agribusiness). Previously, Executive
Age - 60 Vice President and President, Food Sector of Cargill, Inc.
Director since 1995
Janet M. Dolan Chief Executive Officer (1999) and President (1998) of Tennant Company
Age - 53 (manufacturer of floor maintenance equipment and coating products). Also,
Director since 1996 a director of Tennant Company, The St. Paul Companies, Inc. and a member of the
NYSE Listed Company Advisory Committee.
Jeffrey Noddle Chairman, Chief Executive Officer and President of SUPERVALU INC.
Age - 57 (food retailer and distributor) since 2002. Previously, Chief Executive
Director since 2000 Officer and President of SUPERVALU from 2001 to 2002; President and Chief
Operating Officer of SUPERVALU from 2000 to 2001; and Executive Vice President,
and President and Chief Operating Officer-Wholesale Food Companies, for
SUPERVALU from 1995 to 2000. Also a director of General Cable
Corporation.
DIRECTOR COMPENSATION
Directors who are not employees receive a retainer fee of $28,000 annually
and are paid $2,000 for each Board meeting attended and $1,000 for each
Committee meeting attended. The Audit Committee Chair receives an additional
annual retainer of $5,000 and the other Committee Chairs receive an additional
annual retainer of $2,500. Pursuant to the Company's Compensation Plan for
Non-Employee Directors, any non-employee director may elect, prior to each year
of their term, to defer all or part of his or her director compensation received
during the upcoming year. Each participating director is entitled to a Company
credit on the balance in his or her deferral account at the ten-year Treasury
Bond rate plus 2%. The deferral election must also specify the manner for
distribution of the deferral balance.
Non-employee directors are credited with shares to a deferred stock
account in lieu of 30% of the annual retainer for services as a Director to be
rendered in the following service year. Directors are allowed to elect to
receive a credit of shares to a deferred stock account in lieu of all or part
of the remaining retainer and meeting fees. The directors also receive a credit
for dividend reinvestment shares. The Company contributes an amount equal to
the deferred stock accounts to a trust and the trust purchases shares of
Donaldson Common Stock. Each director is entitled to direct the trustee to vote
all shares allocated to the director's account in the trust. The Common Stock
will be distributed to each director following the director's retirement from
the Board pursuant to the director's deferral payment election. The trust
assets remain subject to the claims of the Company's creditors. The trust
becomes irrevocable in the event of a "Change in Control" as defined under the
1991 Master Stock Compensation Plan and 2001 Master Stock Incentive Plan.
The Company's Non-Qualified Stock Option Program for Non-employee
Directors provides for the automatic grant of a non-qualified stock option for
3,600 shares of Common Stock to each non-employee Director of the Company who
is a member of the Board on December 1 each year. The exercise price of such
options is the closing price of Common Stock in consolidated trading on the
first business day of December in the respective year. The options are fully
vested and have a term of ten years. The option award was modified beginning in
1998 to include a "reload option" granted at the time of exercise of the
original option for the number of shares equal to the shares used in payment of
the purchase price. The one-time reload option feature is similar to that
included in the option grants to officers.
Shares credited to deferred stock accounts to non-employee directors in
fiscal 2003, were as follows: Bastiaens, 242 shares, Dolan, 1,061 shares,
Eugster, 990 shares, Grundhofer, 1,061 shares, Melrose, 1,104 shares, Miller,
898 shares, Noddle, 1,039 shares, Sanger, 1,153 shares, and Wiehoff, 0 shares.
8
AUDIT COMMITTEE REPORT AND APPOINTMENT OF AUDITORS
AUDIT COMMITTEE REPORT
The Audit Committee of the Board of Directors is composed entirely of
independent, non-employee directors in accordance with the applicable
independence standards of the New York Stock Exchange. In addition, our Board
has determined that John P. Wiehoff is an audit committee financial expert, as
defined by the rules of the Securities and Exchange Commission.
The Audit Committee assists the board in carrying out its oversight of the
Company's financial reporting process, audit process and internal controls. The
Audit Committee formally met five times during the past fiscal year in carrying
out its oversight functions. The Committee is guided by its written charter
adopted by the Board of Directors and attached as Appendix A. The Audit
Committee has the sole authority to appoint, terminate or replace our
independent auditors. The independent auditors report directly to the Audit
Committee.
The Audit Committee has discussed with PricewaterhouseCoopers LLP, the
Company's independent auditors, matters relating to the auditors' judgments
about the quality, as well as the acceptability, of the Company's accounting
principles, as applied in its financial reporting as required by Statement of
Auditing Standards No. 61, Communications with Audit Committees. In addition,
the Audit Committee has discussed with PWC their independence from management
and the Company, as well as the matters in the written disclosures received
from PWC and required by Independence Standards Board Standard No. 1,
Independence Discussions with Audit Committees. The Committee also reviewed and
considered the compatibility of PWC's performance of non-audit services with
the maintenance of PWC's independence as the Company's independent auditor.
Based on the review and discussions with management and the independent
auditors, the Audit Committee recommended to the Board of Directors that the
audited financial statements be included in the Company's Annual Report on Form
10-K for the fiscal year ending July 31, 2003 for filing with the Securities
and Exchange Commission. The Audit Committee also approved the appointment of
PricewaterhouseCoopers LLP as the Company's independent auditors for the fiscal
year ending July 31, 2004.
Audit Committee
Jack W. Eugster, Chair
Janet M. Dolan
Kendrick B. Melrose
Jeffrey Noddle
Stephen W. Sanger
John P. Wiehoff
INFORMATION REGARDING INDEPENDENT AUDITORS
INDEPENDENT AUDITORS FEES
The aggregate fees billed to the Company for fiscal years 2003 and 2002 by
PWC, the Company's independent public accountants, are as follows:
FISCAL 2003 FISCAL 2002
----------- -----------
Audit Fees .................... $ 920,966 $ 533,000
Audited Related Fees .......... 162,547 85,350
Tax Fees ...................... 673,829 930,336
Other Fees .................... 1,400 1,400
---------- ----------
Total Fees ................... $1,758,742 $1,550,086
Audit Fees includes audit of the Company's financial statements, including
the quarterly reviews and statutory audits of certain of the Company's
international subsidiaries. Audit Related Fees includes primarily benefit plan
audits, due diligence and acquisition related work. Tax Fees includes primarily
tax returns, advice and planning. All Other Fees includes license fee for
technical materials.
9
AUDIT COMMITTEE PRE-APPROVAL POLICIES AND PROCEDURES
In 2003, the Audit Committee adopted formal policies and procedures
requiring pre-approval for audit and non-audit services to be provided by the
independent auditor to the Company. The Audit Committee approved all of the
services performed by PricewaterhousCoopers LLP during fiscal 2003.
INITIAL APPOINTMENT OF PRICEWATERHOUSECOOPERS AS AUDITOR
On April 18, 2002, the board of directors (the "Board") of the Company, at
the recommendation of its audit committee, dismissed Arthur Andersen LLP
("Andersen") as the Company's independent public accountants and engaged
PricewaterhouseCoopers LLP ("PWC") to serve as the Company's independent public
accountants for fiscal year 2002.
Andersen's reports on the Company's consolidated financial statements for
each of the years ended July 31, 2001 and 2000 did not contain an adverse
opinion or disclaimer of opinion, nor were they qualified or modified as to
uncertainty, audit scope or accounting principles.
During the years ended July 31, 2001 and 2000 and through April 18, 2002,
there were no disagreements with Andersen on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure, which, if not resolved to Andersen's satisfaction, would have caused
them to make reference to the subject matter of the disagreements in connection
with their report on the Company's consolidated financial statements for such
years; and there were no "reportable events," as such term is defined in Item
304(a)(1)(v) of Regulation S-K.
The Company reported the dismissal and change in independent auditor on
Form 8-K on April 24, 2002. The Form 8-K contained a letter from Andersen dated
April 18, 2002 and addressed to the Securities and Exchange Commission, stating
its agreement with the statements contained in such disclosures.
During the years ended July 31, 2001 and 2000 and through the date of the
Board's decision to engage PWC, the Company did not consult PWC with respect to
the application of accounting principles to a specified transaction, either
completed or proposed, or the type of audit opinion that might be rendered on
the Company's consolidated financial statements, or any other matters or
reportable events as set forth in Items 304(a)(2)(i) and (ii) of Regulation S-K.
The Audit Committee has appointed PricewaterhouseCoopers LLP as
independent public accountants to audit the books and accounts of the Company
for the fiscal year ending July 31, 2004, such appointment to continue at the
pleasure of the Audit Committee and subject to ratification by the
stockholders. PWC has audited the books and accounts of the Company since 2002.
Representatives of PWC are expected to be present at the meeting with the
opportunity to make a statement and to respond to appropriate questions. In the
event this appointment is not ratified, the Audit Committee will reconsider its
selection. Ratification of the selection will require the affirmative vote of a
majority of the shares of Common Stock of the Company entitled to vote and
represented at the meeting in person or by proxy.
The Audit Committee of the Board of Directors recommends that stockholders
vote FOR ratification of the appointment of PricewaterhouseCoopers LLP as
independent auditors for the fiscal year ending July 31, 2004.
AMENDMENT TO CERTIFICATE OF INCORPORATION
TO INCREASE AUTHORIZED COMMON STOCK
The Company's Board of Directors has determined that Article Fourth of the
Company's Articles of Incorporation should be amended and has voted to submit
an amendment to the Company's stockholders for adoption. The proposed amendment
to Article Fourth would increase the number of authorized shares of Common
Stock, par value $5.00, from 80,000,000 to 120,000,000, and the total number of
shares of stock which the Company has the authority to issue from 81,000,000 to
121,000,000.
As of September 26, 2003, there were 43,483,232 shares of Common Stock
outstanding, and 4,498,514 shares reserved for future issuance pursuant to the
Company's stock compensation plans.
The additional shares of Common Stock for which authorization is sought
would be a part of the existing class of Common Stock and, if and when issued,
would have the same rights and privileges as the shares of Common Stock
presently outstanding. Such additional shares would not (and the shares of
Common Stock presently outstanding do not) entitle the holders thereof to
preemptive or cumulative voting rights.
10
PURPOSES AND EFFECTS OF THE AMENDMENT
The Board of Directors believes that additional authorized shares of Common
Stock will enable the Company to take timely advantage of market conditions and
the availability of favorable financing and acquisition opportunities without
the delay and expense associated with convening a special stockholders' meeting
(unless otherwise required by the rules of any stock exchange on which the
Company's Common Stock may then be listed). The shares of Common Stock could be
used for issuing stock dividends (including stock splits issued in the form of
stock dividends), the grant of stock options, acquisition by the Company of
businesses or properties, equity financing and other general corporate purposes.
The Company has no present plans, commitment or understandings in place with
regard to uses of such shares.
Unless required by law or by the rules of any stock exchange on which the
Company's Common Stock may in the future be listed, no further vote by the
stockholders will be sought for any issuance of shares of Common Stock. Under
existing New York Stock Exchange, Inc. regulations, approval by a majority of
the holders of Common Stock would nevertheless be required in connection with
any transaction or series of related transactions that would result in the
original issuance of additional shares of Common Stock, other than in a public
offering for cash, (a) if such additional shares of Common Stock (including
securities convertible into or exercisable for Common Stock) has, or will have
upon issuance, voting power equal to or in excess of 20 percent of the voting
power outstanding before the issuance of the Common Stock; (b) if the number of
such additional shares of Common Stock is or will be equal to or in excess of 20
percent of the number of shares of Common Stock outstanding before the issuance
of such additional shares, or (c) if the issuance would result in a change in
control of the Company.
The increase in authorized but unissued shares of Common Stock is designed
to enable the Company to issue stock dividends, grant stock options or other
equity-based compensation under the Company's 2001 Master Stock Incentive Plan
or other stockholder-approved plan of the Company, to consider potential
acquisitions and to use for general corporate purposes. The Company has no
present intention to use the additional shares for any purpose other than these
routine corporate purposes.
The increase in the authorized but unissued shares of Common Stock,
however, could make a change in control of the Company more difficult to
achieve. Under certain circumstances, such shares of Common Stock could be used
to create voting impediments to frustrate persons seeking to effect a takeover
or otherwise gain control of the Company.
The Company's Certificate of Incorporation currently requires the
affirmative vote of at least 75% of the outstanding shares to be voted in order
to approve certain business combinations involving the Company and an
interested stockholder of the Company. Although the Board of Directors
presently has no intention of doing so, shares of authorized but unissued
Common Stock could be issued to a holder who would thereby have sufficient
voting power to assure that any such business combination or amendment to the
Restated Certificate of Incorporation would not receive the 75% stockholder
vote required for approval thereof. In addition, to the extent that the
adoption of the proposed amendment renders less likely a merger or other
transaction that is not negotiated with and approved by the Company's incumbent
Board of Directors, such adoption may result in the Board of Directors and
management retaining their current positions.
BOARD RECOMMENDATION
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSAL TO AMEND THE
COMPANY'S CERTIFICATE OF INCORPORATION TO INCREASE THE NUMBER OF AUTHORIZED
SHARES OF COMMON STOCK. The affirmative vote of a majority of the outstanding
shares of the Company's Common Stock is necessary to approve this Proposal.
Proxies will be voted in favor of this Proposal unless otherwise specified.
11
TOTAL RETURN TO SHAREHOLDERS
The following graphs compare the cumulative total stockholder return on
the Company's Common Stock for the last five fiscal years and fourteen fiscal
years with the cumulative total return of the Standard & Poor's 500 Stock Index
and the Standard & Poor's Index of Industrial Machinery Companies. The graph
and table assume the investment of $100 in each of Donaldson's common stock and
the specified indexes at the beginning of the applicable period, and assume the
reinvestment of all dividends. The second graph shows the total return over the
Company's fourteen-year period of consecutive double-digit increases in
earnings per share.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
[GRAPH]
1998 1999 2000 2001 2002 2003
------------ ------------ ------------ ------------ ------------ ------------
Donaldson Co., Inc. ............... $ 100.00 $ 135.21 $ 105.85 $ 171.85 $ 188.67 $ 277.04
S&P 500 ........................... 100.00 120.20 130.99 112.22 85.71 94.83
S&P Industrial Machinery .......... 100.00 132.12 108.02 118.19 118.83 139.41
------------------
* $100 invested on 7/31/98 in stock or index -- including reinvestment of
dividends. Fiscal year ending July 31.
COMPARISON OF FOURTEEN YEAR CUMULATIVE TOTAL RETURN*
[GRAPH]
FISCAL YEARS ENDED JULY 31
1989 1990 1991 1992 1993 1994 1995
------------ ------------ ------------ ------------ ------------ ------------ ------------
Donaldson ......... $ 100.00 $ 181.43 $ 210.14 $ 275.35 $ 341.93 $ 456.67 $ 504.55
S&P 500 ........... 100.00 106.50 120.09 135.45 147.27 154.87 195.31
S&P Industrial
Machinery ........ 100.00 109.41 123.21 139.05 157.35 181.91 243.72
[WIDE TABLE CONTINUED FROM ABOVE]
1996 1997 1998 1999 2000 2001 2002 2003
------------ ------------ ------------ ------------ ------------ -------------- -------------- --------------
Donaldson ......... $ 469.91 $ 786.11 $ 722.40 $ 976.72 $ 764.64 $ 1,241.45 $ 1,362.95 $ 2,001.34
S&P 500 ........... 227.67 346.37 413.16 496.64 541.21 463.66 354.10 391.79
S&P Industrial
Machinery ........ 258.26 407.15 401.55 532.68 440.19 484.07 483.93 567.53
------------------
* $100 invested on 7/31/89 in stock or index -- including reinvestment of
dividends. Fiscal year ending July 31.
12
EXECUTIVE COMPENSATION
The following table includes information for each person who was, at the
end of fiscal 2003, the Chief Executive Officer or one of the other four most
highly compensated executive officers of the Company (the "Named Officers") on
the basis of total annual salary and bonus for the last completed fiscal year.
The table includes compensation information for each of the last three fiscal
years.
SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION
------------------------------------------
ANNUAL COMPENSATION (1) AWARDS PAYOUTS
------------------------ --------------------------- --------------
SECURITIES
RESTRICTED UNDERLYING
STOCK STOCK ALL OTHER
FISCAL AWARD(S) OPTIONS/SARS LTIP PAYOUTS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) ($) (2) (SHARES) (3) ($) (4) ($) (5)
-------------------------------- -------- ------------ ----------- ------------ -------------- -------------- -------------
WILLIAM G. VAN DYKE ............ 2003 665,000 558,600 0 85,000 0 56,644
Chairman, Chief 2002 656,962 581,875 0 85,000 487,867 59,247
Executive Officer and 2001 632,885 452,200 0 159,096 385,368 74,732
President
NICKOLAS PRIADKA ............... 2003 273,000 197,516 0 47,967 0 17,912
Senior Vice President, 2002 264,538 169,915 0 60,347 82,875 12,044
OEM Engine Systems 2001 249,616 63,250 0 89,812 68,241 16,958
and Parts
WILLIAM M. COOK ................ 2003 288,000 152,352 0 22,112 0 19,743
Senior Vice President, 2002 284,616 175,680 0 25,603 346,809 19,829
International and Chief 2001 250,885 154,444 0 21,500 292,380 21,807
Financial Officer
LOWELL F. SCHWAB ............... 2003 273,000 144,417 0 57,112 0 17,581
Senior Vice President, 2002 269,615 166,530 0 38,040 176,744 14,664
Operations 2001 246,462 113,649 0 43,377 123,206 18,364
JAMES R. GIERTZ ................ 2003 281,000 92,449 0 24,500 0 16,836
Senior Vice President, 2002 277,615 139,910 0 24,500 178,259 19,266
Commercial and Industrial 2001 270,881 204,034 0 97,041 144,506 18,660
------------------
(1) Includes any portion of salary and bonus deferred under the Deferred
Compensation and 401(K) Excess Plan. In fiscal 2001, Mr. Cook and Mr.
Priadka elected to participate in the stock option bonus replacement
program and received option grants in fiscal 2002 in lieu of all or a
portion of their fiscal 2001 cash bonus. Mr. Cook received an option grant
for 4,103 shares with an exercise price of $30.11 in lieu of receiving 20%
of his bonus and Mr. Priadka received an option grant for 8,403 shares
with an exercise price of $30.11 in lieu of receiving 100% of his bonus.
(2) Amounts in the Restricted Stock Award column represent the dollar value of
grants of restricted stock under the Company's 2001 Master Stock
Compensation Plan. Regular dividends are paid on the restricted shares. At
the end of fiscal 2003, the number and value of the aggregate restricted
stockholdings for the Named Officers were: William G. Van Dyke, 0, $0;
Nickolas Priadka, 0, $0; William M. Cook, 12,500, $607,875; Lowell F.
Schwab, 9,000, $437,670; and James R. Giertz, 0, $0. Mr. Giertz surrendered
25,000 shares of restricted stock in 2001 and received 24,637.5 deferred
restricted share units. The balance of Mr. Giertz's deferred restricted
share units at the end of fiscal 2003, including dividend equivalent rights
earned, was 25,089 shares valued at $1,220,089. No restricted stock awards
were made to the Executive Officer Employees in fiscal 2003.
(3) The stock option grants include both new fiscal 2003 annual grants and
previously awarded reload grants resulting from the exercise in fiscal 2003
of option awards granted in prior years.
(4) Earned under the Company's 1991 Master Stock Compensation Plan during the
three-year period ending in the fiscal year in which the payout is listed.
Payout is made in the form of the Company's common stock and delivered or
deferred into the deferred compensation plan during the following fiscal
year.
13
(5) Amounts in this column represent the dollar value of share allocations (i)
under the Company's match for bonus and salary under the Company's ESOP
and 401k benefit plans; and (ii) under the Company's match for deferred
bonus and salary and salary in excess of the limits established by Section
415 of the Internal Revenue Code contributed by the Company to an
unqualified supplemental plan; and (iii) also includes amounts for the
dollar value of the interest accrued that is above the market interest
rates determined under SEC rules during each of the applicable three
fiscal year periods for compensation deferred under the Company's deferred
compensation plan. The amounts of this interest for fiscal 2001 are: Van
Dyke $22,440, Priadka $1,740, Cook $3,180, Schwab $0, and Giertz $0; and
the amounts for fiscal 2002 are: Van Dyke $20,436, Priadka $1,462, Cook
$3,302, Schwab $0, and Giertz $0. The amounts for each of the items for
fiscal 2003 are:
2003
SALARY DEFERRED SALARY ABOVE MARKET
NAME AND BONUS MATCH AND BONUS MATCH EXCESS MATCH INTEREST
---- ----------------- ----------------- -------------- -------------
William G. Van Dyke ..... $2,667 $22,937 $18,600 $12,440
Nickolas Priadka ........ 7,321 1,092 8,637 862
William M. Cook ......... 5,339 2,812 9,729 1,863
Lowell F. Schwab ........ 8,000 0 9,581 0
James R. Giertz ......... 8,000 0 8,836 0
OPTION/SARS GRANTED IN LAST FISCAL YEAR
INDIVIDUAL GRANTS (1)
--------------------------------------------- POTENTIAL REALIZABLE VALUE AT
NUMBER OF % OF TOTAL D ANNUAL RAT
SECURITIES OPTIONS/SARS ASSUMERECIATION FOES OF STOCK
UNDERLYING GRANTED TO EXERCISE PRICE APP (3) R OPTION TERM
OPTIONS/SARS EMPLOYEES OR BASE EXPIRATION ----------------------------------
NAME GRANTED (2) IN FISCAL YEAR PRICE/SH ($) DATE 0% ($) 5% ($) 10% ($)
---- -------------- --------------- -------------- ----------- -------- ----------- ------------
WILLIAM G. VAN DYKE 85,000 14.9 35.56 12/05/12 0 1,900,897 4,817,246
NICHOLAS PRIADKA 22,500 3.9 35.56 12/05/12 0 503,179 1,275,153
18,897(4) 3.3 48.30 12/05/12 0 528,031 1,313,744
6,570(4) 1.1 45.07 08/06/11 0 144,313 346,970
WILLIAM M. COOK 21,500 3.8 35.56 12/05/12 0 480,815 1,218,480
612(4) 0.1 40.37 12/14/03 0 788 1,564
LOWELL F. SCHWAB 21,000 3.7 35.56 12/05/12 0 469,633 1,190,143
19,680(4) 3.4 34.66 12/19/07 0 191,719 424,496
16,432(4) 2.9 39.48 12/06/09 0 249,095 575,188
JAMES R. GIERTZ 24,500 4.3 35.56 12/05/12 0 547,906 1,388,500
ALL EXECUTIVE OFFICERS AS
A GROUP 253,691 44.4
ALL NON-EXECUTIVE OFFICER
EMPLOYEES AS A GROUP 317,906 55.6
------------------
(1) No stock appreciation rights ("SARs") have been granted. Total shares used
to calculate the total options percentages do not include options granted
to the Board of Directors of 42,012.
(2) All officer grants (other than as noted in footnote (4)) during the period
were non-qualified stock options granted at the market value on date of
grant for a term of ten years, vesting immediately and were granted with
the right to use shares in lieu of the exercise price and to satisfy any
tax withholding obligations.
(3) These amounts represent certain assumed rates of appreciation over the full
term of the option. The value ultimately realized, if any, will depend on
the amount by which the market price of the Company's stock exceeds the
exercise price on date of sale.
(4) These grants were made to officers who exercised an option during fiscal
2003 and made payment of the purchase price using shares of previously
owned Company stock. This restoration or "reload" grant is for
14
the number of shares equal to the shares used in payment of the purchase
price or withheld for tax withholding. The option price is equal to the
market value of the Company's stock on the date of exercise and will expire
on the same date as the original option which was exercised. These options,
which are the result of such a restoration, do not contain the reload
feature.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION/SAR VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS/SARS
OPTIONS/SARS AT FISCAL YEAR-END (2) AT FISCAL YEAR-END (2)(3)
----------------------------------- ------------------------------
SHARES VALUE
ACQUIRED ON REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
NAME EXERCISE (1) ($) (SHARES) (SHARES) ($) ($)
---- -------------- ---------- ------------- --------------- ------------- --------------
WILLIAM G. VAN DYKE 0 0 555,596 0 11,680,408 0
NICKOLAS PRIADKA 75,531 997,596 77,411 0 586,519 0
WILLIAM M. COOK 3,580 97,806 205,629 0 5,201,721 0
LOWELL F. SCHWAB 55,436 845,271 150,068 0 2,518,081 0
JAMES R. GIERTZ 24,021 618,312 211,522 0 4,448,931 0
------------------
(1) The number of shares shown in this column is larger than the number of
shares actually acquired on exercise. The actual number of shares received
is reduced by the number of shares delivered in payment of the exercise
price and shares withheld to cover withholding taxes.
(2) No SARs were exercised in fiscal 2003.
(3) This value is based on the difference between the exercise price of such
options and the closing price of Company Common Stock as of fiscal
year-end 2003.
LONG-TERM INCENTIVE PLANS -- AWARDS IN LAST FISCAL YEAR
ESTIMATED FUTURE PAYOUTS
NUMBER OF PERFORMANCE UNDER NON-STOCK
SHARES, UNITS OR OTHER PERIOD PRICE-BASED PLAN
OR OTHER UNTIL MATURATION ------------------------------------
NAME RIGHTS (1) OR PAYOUT THRESHOLD TARGET MAXIMUM
---- --------------- ------------------ ----------- -------- --------
WILLIAM G. VAN DYKE 11,700 8/1/02 - 7/31/05 2,925 11,700 32,175
NICKOLAS PRIADKA 3,500 8/1/02 - 7/31/05 875 3,500 9,625
WILLIAM M. COOK 3,600 8/1/02 - 7/31/05 900 3,600 9,900
LOWELL F. SCHWAB 3,500 8/1/02 - 7/31/05 875 3,500 9,625
JAMES R. GIERTZ 3,600 8/1/02 - 7/31/05 900 3,600 9,900
------------------
(1) Awards are of Performance Shares of the Company's common stock. Awards are
earned only if the Company achieves the minimum Performance Objectives and
the Award Value will be based on a weighting of compound corporate net
sales growth and after-tax return on investment over the three year
period. The amounts shown in the table under the headings "Threshold",
"Target" and "Maximum" are amounts awarded at 25%, 100% and 275% of the
targeted award. The award may also be adjusted upward by 25% if earnings
per share increase in each of the three years in the period by at least
5%.
15
HUMAN RESOURCES COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Human Resources Committee of the Board of Directors, consisting of
five independent, non-employee directors ("the Committee"), is responsible for
establishing the compensation programs for the Company's key executives. The
Company's executive compensation program comprises base salary, annual
incentive and long-term incentive compensation. The objectives of the Company's
executive compensation program are to:
o emphasize a pay-for-performance philosophy by placing significant
portions of pay at risk and requiring outstanding results for payment at
the threshold level;
o attract, reward and retain the best executives available in our industry
taking into consideration all aspects of performance and ethical
leadership and have their compensation levels keyed to a peer group of
companies;
o motivate and reward executives responsible for attaining the financial
and strategic objectives essential to the Company's long-term success
focusing on earnings per share growth and continued growth in stockholder
value; and
o align the interests of executives with those of the Company's
stockholders by providing a significant portion of compensation in the
form of Company common stock. Common stock ownership objectives have been
established for all executive officers ranging from five times base salary
for Vice Presidents, seven times base salary for Senior Vice Presidents
and ten times base salary for the Chief Executive Officer.
BASE SALARIES. Base salaries for all executives are reviewed annually based
on performance and market conditions. A performance appraisal taking into
consideration predetermined performance objectives is required for all
executives of the Company. The Committee approves and/or determines the annual
base salary increases for all senior executive officers based on performance of
the executive and external market data. The Company's objective is that base
salaries should approximate the mid-point (average) of senior executives of
manufacturing companies of similar size in the United States. The Company uses
surveys by national consultants for external market data.
ANNUAL CASH INCENTIVE. Executive officers are eligible for target awards
under the annual incentive program that range up to 70% of base salary. The
size of the target award is determined by the executive officer's position and
competitive data for similar positions at the peer and cross-industry companies
as presented in the same nationally recognized surveys as are used for the base
salary. The Company sets performance goals and, in keeping with the strong
performance-based philosophy, the resulting awards decrease or increase
substantially if actual Company performance fails to meet or exceeds targeted
levels. Payments can range from 0% to 200% of the target awards. The CEO has
100% of his annual cash incentive opportunity linked to achieving record
earnings per share (EPS). The remaining Named Officers have 50% of their
opportunity linked to achieving record EPS and 50% linked to achieving sales,
net operating profit and return on investment targets for their respective
business unit responsibilities.
Consequently, executive officers must obtain record EPS, thereby
increasing shareholder value, to receive a competitive annual cash incentive.
LONG-TERM INCENTIVE STOCK COMPENSATION AWARDS AND STOCK OPTION GRANTS.
There was no payout under the Long-Term Compensation Plan in 2003 as shown in
the summary compensation table on page 12. There was no payout under the Plan
because the Company did not achieve the performance objectives for three-year
compounded growth in net sales. The variance in the Long Term Compensation Plan
award payouts are consistent with the at risk and pay for performance
compensation philosophy. The Long Term Compensation Plan Award targets are based
on three-year compounded growth in net sales and an after-tax return on
investment that exceeds the Company's weighted average cost of capital. Under
this program, the Committee selected eligible executives and established an
incentive opportunity as a percentage of base salary. In order for a participant
to receive a payout, minimum performance must be attained.
The Committee also occasionally grants restricted stock with a fixed
restriction period, usually five years, to ensure retention of key executives.
The Committee also believes that stock option grants encourage the key
executives to own and hold Donaldson stock and tie their long-term economic
interests directly to those of the stockholders. Stock options are typically
granted annually. In determining the number of shares covered by such options,
the Committee takes into account position levels, base salary, and other factors
relevant to
16
individual performance but does not consider the amount and terms of options and
restricted stock already held by the executive.
Targets for the incentive portion of compensation are tied to financial
performance in the sixtieth to sixty-fifth percentile of the peer group.
STOCK OPTION BONUS REPLACEMENT PROGRAM. To encourage stock ownership by
executives, the Company adopted in fiscal 2000 a program that allows executives
to elect to receive stock options under the 1991 Master Stock Compensation Plan
and going forward under the 2001 Master Stock Incentive Plan in lieu of some or
all of the cash compensation earned under the annual cash bonus incentive
program. Currently under the program, participants receive an option to acquire
$4 of stock at market value for every $1 of compensation exchanged. In fiscal
2003, no executives participated in the program.
STOCK OWNERSHIP. Ownership of Donaldson stock is expected of Donaldson
executives. The Committee believes that linking a significant portion of the
executive's current and potential net worth to the Company's success, as
reflected in the stock price, gives the executive a stake similar to the
stockholders. The Committee has established stock ownership guidelines for the
Named Officers and certain other executive officers, which encourage retention
of shares. The guidelines range from five to ten times base salary and, in
addition, require officers to retain one-half of the difference between their
initial target ownership and their potential ownership. The goal of the Chief
Executive Officer is ten times annual base salary. Mr. Van Dyke currently
exceeds this ownership goal.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER. Mr. Van Dyke's fiscal 2003
base salary and incentive award opportunity were determined by the Committee in
accordance with the evaluation process and the methodology described above. The
Committee considered Mr. Van Dyke's performance against pre-established
objectives and met both in private and with Mr. Van Dyke in completing his
performance appraisal and setting his compensation and objectives.
BASE SALARY. Mr. Van Dyke's base salary for fiscal 2003 was $665,000,
which is approximately at the market mid-point for manufacturing companies
of similar size.
ANNUAL BONUS. Mr. Van Dyke's bonus award for fiscal 2003 was $558,600.
This annual bonus was earned under the annual incentive program based on
earning per share growth from $1.90 to $2.11, up more than 11% over the
previous record earned in fiscal 2002.
STOCK OPTIONS. Mr. Van Dyke received annual option grants in December
2002 of options to purchase 85,000 shares of stock.
LONG-TERM INCENTIVE PLAN PAYOUT. Mr. Van Dyke received no payout of stock
under the Long-Term Incentive Plan in 2003 based on the Company's not
achieving the performance objectives for three-year compounded growth in
net sales.
POLICY ON QUALIFYING COMPENSATION. The Company's policy is to preserve the
tax deduction for compensation paid to its Chief Executive Officer and other
senior executive officers. In accordance with this policy, in November 1994, the
stockholders approved the material terms of the performance goals for payment of
the cash bonus under the Company's Annual Cash Bonus Plan for Designated
Executives. The 1991 Master Stock Compensation Plan, now expired, and the 2001
Master Stock Incentive Plan were approved by stockholders in 1991 and 2001
respectively and limit the number of shares that can be granted in any one year
to any one individual to further the policy of preserving the tax deduction for
compensation paid to executives.
CONCLUSION. The executive officer compensation program administered by the
Committee provides incentives to attain strong financial performance and an
alignment with stockholder interests. The Committee believes that the Company's
compensation program focuses the efforts of Company executives on the continued
achievement of growth and profitability for the long-term and for the benefit of
the Company's stockholders.
Human Resources Committee
Jeffrey Noddle, Chair
F. Guillaume Bastiaens
Jack W. Eugster
John F. Grundhofer
Kendrick B. Melrose
17
HUMAN RESOURCES COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of the Human Resources Committee is either a current or former
employee of the Company. There are no compensation committee interlocks, which
means that none of the Company's executive officers serves as a member of the
compensation committee of another entity that has an executive officer serving
on the Human Resources Committee of the Company's Board of Directors. Paul David
Miller, the Chief Executive Officer of Alliant Techsystems, Inc., serves as a
member of the Company's Board of Directors and William G. Van Dyke, the
Company's Chief Executive Officer, serves on Alliant Techsystems, Inc.'s Board
of Directors. Admiral Miller is not a member of the Donaldson Human Resources
Committee and actions pertaining to its Chief Executive Officer's compensation
that are taken by the Human Resources Committee are not subject to approval by
the Company's Board of Directors. The actions of the Personnel and Compensation
Committee of Alliant Techsystems relating to its Chief Executive Officer's
compensation are subject to the approval of the Alliant Techsystems Board of
Directors, but Mr. Van Dyke recuses himself from those deliberations and
decisions.
PENSION BENEFITS
The Company maintains the Donaldson Company, Inc. Salaried Employees'
Pension Plan (the "Retirement Plan"), a defined benefit pension plan that
provides retirement benefits to eligible employees through a cash balance plan
structure. The Company also maintains the Donaldson Company, Inc. Excess
Retirement Plan (the "Excess Retirement Plan"). The Excess Retirement Plan is
an unfunded, non-qualified deferred compensation arrangement that primarily
provides retirement benefits that cannot be paid under the Retirement Plan
because of the limitations imposed by the Code on qualified plans in regards to
compensation and benefits.
Participants in the Retirement and Excess Retirement Plans accumulate
benefits in a hypothetical account balance through interest credits, and
company credits that vary with age, service and pay. At retirement or
termination of employment, the vested account balance is payable to the
participant in the form of an immediate or deferred lump sum, or an actuarially
equivalent annuity.
Under the cash balance benefit structure, account balances receive an
Interest Credit annually. The Interest Credit is defined as the current plan
year's Interest Crediting Rate times the account balance as of the beginning of
the plan year. The Interest Crediting Rate for a particular plan year is the
greater of the yield on one-year U.S. Treasury Constant Maturities during the
month of June preceding the plan year, plus one percent, and 4.83%. The
Interest Crediting Rate is 4.83% for the 2003 plan year.
Company Credits are credited to the account balances at the end of each
plan year. The participant's Company Credit Percentages are based on the
participant's years of age and service with the Company and its affiliates as
of the end of each plan year. As of August 1, 2003, the sum of years of age
plus service for Messrs. Van Dyke, Priadka, Cook, Schwab and Giertz were 88,
90, 72, 77 and 55, respectively. The participant's Base Company Credit is equal
to the Base Company Credit Percentage times total covered compensation during
the plan year ("Pensionable Earnings"). The participant's Excess Company Credit
is equal to the Excess Company Credit Percentage times Pensionable Earnings in
excess of the Social Security taxable wage base. The following table displays
the Company Credit Percentages for the sum of years of age and service shown:
COMPANY CREDIT
PERCENTAGES
-------------------
SUM OF YEARS OF AGE PLUS SERVICE BASE EXCESS
-------------------------------- --------- ---------
Less than 40 3.0% 3.0%
40 - 49 4.0 4.0
50 - 59 5.0 5.0
60 - 69 6.5 5.0
70 or more 8.5 5.0
Special Career Credits are credited at the end of the plan year to the
account balances of participants who were born prior to August 1, 1957 and
continuously employed since August 1, 1992. The Special Career Credits are equal
to 3.0% of the participant's Pensionable Earnings and will continue through the
end of the 2006 plan year, or if earlier, through the plan year in which the
participant attains 35 years of benefit service. Messrs. Van Dyke, Priadka, Cook
and Schwab are all currently eligible to receive Special Career Credits.
18
The individuals named in the Summary Compensation Table are also eligible
for retirement benefits under the Donaldson Company, Inc. Supplemental
Executive Retirement Plan (the "SERP"). The SERP assures participants a lump
sum retirement benefit from all company funded retirement programs equal to six
times their average compensation (three highest consecutive years) upon
reaching age 62 with 20 years of service. This target benefit is reduced by 2%
for each year the participant's retirement precedes age 62, and it is also
reduced on a prorated basis for less than 20 years of service. In determining
whether the SERP must supplement the other company funded retirement programs,
the Company will consider the lump sum benefits described in the previous
paragraph and footnote (5) to the Summary Compensation Table, as well as, any
vested pension benefits available from prior employers, if any.
The projections below set forth the estimated annual benefit payable to
each of the individuals named in the Summary Compensation Table as a single
life annuity, beginning at age 65, under the Retirement and Excess Retirement
Plans: Mr. Van Dyke, $496,358; Mr. Priadka, $182,533; Mr. Cook, $231,661; Mr.
Schwab, $159,110; and Mr. Giertz, $177,651. No additional benefits are expected
to be required from the SERP for any of these participants. These projections
are based on the following assumptions: (1) employment until age 65; (2) no
future increase in pensionable earnings; (3) interest credits at the actual
rate of 4.83% during the 2003 plan year, and thereafter; and (4) conversion to
a single life annuity at normal retirement age based on a discount rate of
6.00% and the Unisex 1983 Group Annuity Mortality Table.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers to file initial reports of ownership
and reports of changes in ownership with the SEC and the New York Stock
Exchange. To the Company's knowledge, based on a review of copies of such forms
and representations furnished to the Company during fiscal 2003, all Section
16(a) filing requirements applicable to the Company's directors and executive
officers were satisfied, except for two late form 4 filings for each of
Nickolas Priadka, William Cook, Lowell Schwab, Jim Giertz and Norman Linnell
and three late filings for William Van Dyke and Thomas Windfeldt. Each of the
late filings was for the acquisition of shares through a matching contribution
of shares by the Company under its employee benefit plans; Also a late filing
for Mr. Schwab for a March 11, 2002 gift of 600 shares.
CHANGE-IN-CONTROL ARRANGEMENTS
Each of the Named Officers has a severance agreement with the Company
designed to retain the executive and provide for continuity of management in the
event of an actual or threatened change of control in the Company (as defined in
the agreements). The agreements provide that in the event of a change of
control, each key employee would have specific rights and receive certain
benefits if, within three years after a change in control, the employee is
terminated without cause or the employee terminates voluntarily under
"constructive involuntary" circumstances as defined in the agreement. In such
circumstance the employee will receive a severance payment equal to three times
the employee's annual average compensation calculated over the five years
preceding such termination as well as continued health, disability and life
insurance for three years after termination. The awards issued under the stock
compensation plans, the supplementary retirement benefit plan and the deferred
compensation plan also provide for immediate vesting or payment in the event of
termination under circumstances of a change in control.
STOCKHOLDERS WHO WISH TO OBTAIN A COPY OF THE COMPANY'S ANNUAL REPORT ON
FORM 10-K, FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, FOR THE FISCAL
YEAR ENDED JULY 31, 2003, MAY DO SO WITHOUT CHARGE BY WRITING TO COMPANY
SECRETARY, DONALDSON COMPANY, INC., MS 101, P.O. BOX 1299, MINNEAPOLIS, MN
55440-1299.
By Order of the Board of Directors
/s/ Norman C. Linnell
Norman C. Linnell
SECRETARY
October 14, 2003
19
APPENDIX A
DONALDSON COMPANY, INC.
AUDIT COMMITTEE CHARTER
MISSION STATEMENT
The Audit Committee will assist the Board of Directors in fulfilling its
oversight of (1) the integrity of the Company's financial statements, (2) the
Company's compliance with legal and regulatory requirements, (3) the
independent auditor's qualifications and independence, and (4) the performance
of the Company's internal audit function and independent auditors; and will
prepare the report that SEC rules require be included in the Company's annual
proxy statement. The Committee also will carry out its duties and
responsibilities to retain and terminate the Company's independent auditors and
to conduct an annual performance evaluation of the Audit Committee.
While the Audit Committee has the oversight responsibilities and powers
set forth in this charter, the Committee does not itself prepare financial
statements or perform audits, and its members are not auditors or certifiers of
the Company's financial statements. This is the responsibility of management
and the Company's independent auditor.
ORGANIZATION
The Committee will be organized consistent with the following significant
parameters:
SIZE OF THE COMMITTEE: The Committee will have no less than three
members.
QUALIFICATIONS: Committee members must be non-employee directors who meet
the independence and experience requirements of the Securities and Exchange
Commission, the New York Stock Exchange and applicable law.
FREQUENCY OF MEETINGS: The Committee will have no less than four regularly
scheduled meetings each fiscal year. In addition, the Committee will meet at
other times if deemed necessary to discharge completely its duties and
responsibilities as outlined in this charter.
APPOINTMENT OF MEMBERS AND CHAIRPERSON: Each Committee member and the
Chairperson will be recommended by the Corporate Governance Committee and shall
be elected by vote of the Board of Directors to serve a term of one year.
Committee members and the Chairperson may serve successive one-year terms
without limitation.
OVERSIGHT
INTERNAL CONTROLS AND DISCLOSURE CONTROLS:
1. Review the appointment, performance and replacement of the senior
internal audit executive.
2. Review the internal auditor's reports and findings on internal audit
activities and the major issues as to the adequacy of the Company's
internal controls.
3. Review the Company's disclosure controls and procedures for its filings
with the Securities and Exchange Commission.
FINANCIAL REPORTING:
1. Review the Company's policies with respect to risk assessment and risk
management.
2. Review major issues regarding accounting principles and financial
statement presentations, including any significant change in the
Company's selection or application of accounting principles.
3. Review analyses prepared by management and/or the independent auditor
setting forth the Company's critical accounting policies and estimates,
and significant financial reporting issues and judgments made in
connection with the preparation of the financial statements, including
analyses of the effects of alternative GAAP methods on the financial
statements.
4. Review the effect on the financial statements of regulatory and
accounting initiatives and off-balance sheet structures.
A-1
5. Review the annual financial statements, including the Company's
disclosures under "Management's Discussion and Analysis of Financial
Condition and Results of Operations," with management and the
independent auditors prior to the filing or release of such financial
statements, including confirmation that the Committee (i) discussed with
the external auditors the matters requiring discussion by Statement on
Auditing Standards No. 61, and (ii) received the written report from the
external auditors required by Independence Standards Board Statement No.
1. Based on these reviews and discussions, recommend to the Board of
Directors that the audited financial statements be included in the
Annual Report on Form 10-K filed with the SEC.
6. Review and approve the process for reviewing and discussing with
management and the independent auditors the quarterly financial
statements, including the Company's disclosures under "Management's
Discussion and Analysis of Financial Condition and Results of
Operations," either through the Committee as a whole or through the
Chairperson.
COMPLIANCE WITH LAWS, REGULATIONS AND COMPANY POLICIES:
1. Review the Company's compliance system (including, but not limited to, a
code of ethics for senior financial officers).
2. Review the Committee's charter on an annual basis and recommend any
proposed changes to the Board of Directors for approval.
3. Affirmatively determine that the Committee members are independent as
required by the "Qualifications" section of this charter.
RELATIONSHIP WITH INDEPENDENT AUDITOR:
1. The Committee has the ultimate authority and responsibility to select
and evaluate the independent auditor, approve all audit engagement terms
and fees to be paid to such firm, and terminate such firm when
circumstances warrant, and the independent auditor shall be accountable
to and report to the Committee.
2. Evaluate the independent auditor's qualifications, performance and
independence on an ongoing basis, but no less frequently than once per
year.
3. Review and approve the scope of the external audit to be performed each
fiscal year.
4. Set policies and procedures for, and, as appropriate, approve the
engagement of, the independent auditor for any non-audit service (to the
extent such service is not prohibited) and the fee for such service, and
consider whether the independent auditor's performance of any non-audit
services is compatible with its independence.
5. Review with the independent auditor any audit problems or difficulties
the independent auditor may have encountered in the course of the audit
work and any management letter provided by the independent auditor, and
management's response (including any restrictions on the scope of the
independent auditor's activities or on access to requested information
and any significant disagreements with management).
6. At least annually, obtain and review a report by the independent auditor
describing:
o the independent auditor's internal quality-control procedures;
o any material issues raised by the most recent internal
quality-control review, or peer review, of the independent auditor's
firm, or by any inquiry or investigation by governmental or
professional authorities, within the preceding five years,
respecting one or more independent audits carried out by the firm,
and any steps taken to deal with such issues; and (to assess the
auditor's independence)
o all relationships between the independent auditor and the Company.
A-2
OTHER RESPONSIBILITIES:
1. Set clear hiring policies for employees or former employees of the
independent auditor.
2. Review procedures for the receipt, retention and treatment of complaints
received by the Company regarding accounting, internal controls or
auditing matters, and the confidential, anonymous submissions by
employees of concerns regarding questionable accounting or auditing
matters.
3. Meet separately, periodically, with management, with internal auditors
and with the independent auditor in executive sessions.
4. Discuss generally with management earnings press releases and financial
information and earnings guidance provided through public disclosures
under the New York Stock Exchange requirements and applicable law.
5. Prepare the Committee report for inclusion in the Company's annual proxy
statement.
6. Conduct an annual performance evaluation of the Committee.
7. As appropriate, obtain advice and assistance from outside legal,
accounting or other advisors. In this regard, the Committee will have
authority to:
o conduct or authorize investigations into any matters within its
scope of responsibilities;
o engage outside auditors for special audits, reviews and other
procedures;
o retain special counsel and other experts and consultants to advise
the Committee and meet with any representative of the Company; and
o approve the fees and other retention terms for such parties.
8. Report regularly to the full Board of Directors regarding the
significant items of discussion at each Committee meeting.
A-3
Donaldson Company, Inc. Annual Meeting of Stockholders
Friday, November 21, 2003, at 10:00 a.m.
Held at the Corporate Offices of
Donaldson Company, Inc.
1400 West 94th Street
Minneapolis, Minnesota
[LOGO]
DONALDSON COMPANY, INC.
ANNUAL MEETING OF STOCKHOLDERS
NOVEMBER 21, 2003
10:00 A.M., CENTRAL TIME
DONALDSON COMPANY, INC.
1400 WEST 94TH STREET
MINNEAPOLIS, MINNESOTA
DONALDSON COMPANY, INC. PROXY
--------------------------------------------------------------------------------
The undersigned appoints WILLIAM G. VAN DYKE, WILLIAM M. COOK and NORMAN C.
LINNELL, and each of them, as Proxies, each with the power to appoint his
substitute, to represent and vote, as designated on the reverse side, all
shares of the undersigned at the 2003 Annual Meeting of Stockholders of
Donaldson Company, Inc. at Donaldson Company, Inc., 1400 West 94th Street,
Minneapolis, Minnesota, at 10:00 a.m., Central Time, on Friday, November 21,
2003, and at any adjournment thereof.
In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the Meeting or any adjournment thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION
IS GIVEN, WILL BE VOTED FOR EACH PROPOSAL. THIS PROXY IS SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS, DONALDSON COMPANY, INC.
(CONTINUED, AND TO BE SIGNED AND DATED ON OTHER SIDE)
--------------------------
|COMPANY # |
| |
|CONTROL # |
--------------------------
THERE ARE THREE WAYS TO VOTE YOUR PROXY
YOUR TELEPHONE OR INTERNET VOTE AUTHORIZES THE NAMED PROXIES TO VOTE YOUR
SHARES IN THE SAME MANNER AS IF YOU MARKED, SIGNED AND RETURNED YOUR PROXY
CARD.
VOTE BY PHONE -- TOLL FREE -- 1-800-240-6326 -- QUICK *** EASY *** IMMEDIATE
o Use any touch-tone telephone to vote your proxy 24 hours a day, 7 days a
week, until 12:00 p.m. (CT) on November 20, 2003.
o You will be prompted to enter your 3-digit Company Number, your 7-digit
Control Number (these numbers are located on the proxy card) and the last 4
digits of the U.S. Social Security Number or Tax Identification Number for
this account. If you do not have a U.S. SSN or TIN please enter 4 zeros.
o Follow the simple instructions the voice provides you.
VOTE BY INTERNET -- HTTP://WWW.EPROXY.COM/DCI/ -- QUICK *** EASY *** IMMEDIATE
o Use the Internet to vote your proxy 24 hours a day, 7 days a week, until
12:00 p.m. (CT) on November 20, 2003.
o You will be prompted to enter your 3-digit Company Number, your 7-digit
Control Number (these numbers are located on the proxy card) and the last 4
digits of the U.S. Social Security Number or Tax Identification Number for
this account to obtain your records and create an electronic ballot. If you
do not have a U.S. SSN or TIN please leave blank.
VOTE BY MAIL
Mark, sign and date your proxy card and return it in the postage-paid envelope
we've provided or return it to Donaldson Company, Inc., c/o Shareowner
Services-, P.O. Box 64873, St. Paul, MN 55164-0873.
IF YOU VOTE BY PHONE OR INTERNET, PLEASE DO NOT MAIL YOUR PROXY CARD
\|/ PLEASE DETACH HERE \|/
THE BOARD OF DIRECTORS RECOMMENDS VOTES FOR:
1. Election of directors: 01 JACK W. EUGSTER 03 PAUL D. MILLER [ ] Vote FOR [ ] Vote WITHHELD
02 JOHN F. GRUNDHOFER 04 WILLIAM G. VAN DYKE all nominees from all nominees
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY NOMINEE(S), -----------------------------------------
WRITE THE NUMBER(S) OF THE NOMINEE(S) IN THE BOX TO THE RIGHT. | |
-----------------------------------------
2. Ratify appointment of PricewaterhouseCoopers LLP as independent auditors. [ ] For [ ] Against [ ] Abstain
3. Amend certificate of incorporation to increase authorized shares of common
stock from 80,000,000 to 120,000,000. [ ] For [ ] Against [ ] Abstain
Address Change? Mark Box [ ]
Indicate changes below:
Date _________________________________________
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| |
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PLEASE DATE AND SIGN ABOVE exactly as name
appears, indicating, if appropriate,
official position or representative capacity.
If stock is held in joint tenancy, each joint
owner should sign.