UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

x Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended July 31, 2011 or

o 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 No.)


1400 West 94th Street, Minneapolis, Minnesota			55431
(Address of principal executive offices)			(Zip Code)

Registrant’s telephone number, including area code: (952) 887-3131

Securities registered pursuant to Section 12(b) of the Act:


	Title of each class		Name of each exchange on which registered
Common Stock, $5 Par Value		New York Stock Exchange
Preferred Stock Purchase Rights		New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: NONE

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. x Yes o No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. o Yes x No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such short period that the registrant was required to submit and post such files) x Yes o No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer x	Accelerated filer o

Non-accelerated filer o	Smaller reporting company o

(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

o Yes x No

As of January 28, 2011, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of voting and non-voting common stock held by non-affiliates of the registrant was $4,424,036,897 (based on the closing price of $58.04 as reported on the New York Stock Exchange as of that date).

As of August 31, 2011, there were approximately 74,522,228 shares of the registrant’s common stock outstanding.

Documents Incorporated by Reference

Portions of the registrant’s Proxy Statement for its 2011 annual meeting of stockholders (the “2011 Proxy Statement”) are incorporated by reference in Part III, as specifically set forth in Part III.

DONALDSON COMPANY, INC.

ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS


		Page
PART I

Item 1.	Business	1
	General	1
	Seasonality	1
	Competition	2
	Raw Materials	2
	Patents and Trademarks	2
	Major Customers	2
	Backlog	2
	Research and Development	2
	Environmental Matters	2
	Employees	2
	Geographic Areas	2
Item 1A.	Risk Factors	3
Item 1B.	Unresolved Staff Comments	5
Item 2.	Properties	5
Item 3.	Legal Proceedings	6
Item 4.	(Removed and Reserved)	6
	Executive Officers of the Registrant	6
PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	7
Item 6.	Selected Financial Data	10
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	10
	Safe Harbor Statement under the Securities Reform Act of 1995	23
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	24
Item 8.	Financial Statements and Supplementary Data	25
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	54
Item 9A.	Controls and Procedures	54
Item 9B.	Other Information	55
PART III
Item 10.	Directors, Executive Officers and Corporate Governance	55
Item 11.	Executive Compensation	55
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	55
Item 13.	Certain Relationships and Related Transactions, and Director Independence	56
Item 14.	Principal Accounting Fees and Services	57
PART IV
Item 15.	Exhibits, Financial Statement Schedules	57
	Signatures	58
	Schedule II – Valuation and Qualifying Accounts	59
	Exhibit Index	60

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P ART I

I tem 1. Business

G eneral

Donaldson Company, Inc. (“Donaldson” or the “Company”) was founded in 1915 and organized in its present corporate form under the laws of the State of Delaware in 1936.

The Company is a worldwide manufacturer of filtration systems and replacement parts. The Company’s product mix includes air and liquid filtration systems and exhaust and emission control products. Products are manufactured at 39 plants around the world and through three joint ventures. The Company has two reporting segments: Engine Products and Industrial Products. Products in the Engine Products segment consist of air filtration systems, exhaust and emissions systems, liquid filtration systems, and replacement filters. The Engine Products segment sells to original equipment manufacturers (“OEMs”) in the construction, mining, agriculture, aerospace, defense, and truck markets and to OEM dealer networks, independent distributors, private label accounts, and large equipment fleets. Products in the Industrial Products segment consist of dust, fume, and mist collectors, compressed air purification systems, air filtration systems for gas turbines, PTFE membrane-based products, and specialized air filtration systems for applications including computer hard disk drives. The Industrial Products segment sells to various industrial end-users, OEMs of gas-fired turbines and OEMs and end-users requiring clean air.

The table below shows the percentage of total net sales contributed by the principal classes of similar products for each of the last three fiscal years:


	Year Ended July 31,
	2011			2010			2009
Engine Products segment
Off-Road Products		14	%		12	%		13	%
Aerospace and Defense Products		5	%		6	%		6	%
On-Road Products		5	%		4	%		4	%
Aftermarket Products*		38	%		37	%		30	%
Retrofit Emissions Products		1	%		1	%		2	%
*includes replacement part sales to the Company’s OEMs customers

Industrial Products segment
Industrial Filtration Solutions Products		22	%		22	%		26	%
Gas Turbine Products		7	%		8	%		11	%
Special Applications Products		8	%		10	%		8	%

Financial information about segment operations appears in Note K in the Notes to Consolidated Financial Statements on page 49.

The Company makes its annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, and amendments to those reports, available free of charge through its website, at www.donaldson.com, as soon as reasonably practicable after it electronically files such material with (or furnishes such material to) the Securities and Exchange Commission. Also available on the Company’s website are corporate governance documents, including the Company’s code of business conduct and ethics, corporate governance guidelines, Audit Committee charter, Human Resources Committee charter, and Corporate Governance Committee charter. These documents are available in print, free of charge to any shareholder who requests them. The information contained on the Company’s website is not incorporated by reference into this Annual Report on Form 10-K and should not be considered to be part of this Form 10-K.

Se asonality

A number of the Company’s end markets are dependent on the construction, agricultural, and power generation industries, which are generally stronger in the second half of the Company’s fiscal year. The first two quarters of the fiscal year also contain the traditional summer and winter holiday periods, which are characterized by more Customer plant closures.

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C ompetition

Principal methods of competition in both the Engine and Industrial Products segments are technology, price, geographic coverage, service, and product performance. The Company competes in a number of highly competitive filtration markets in both segments. The Company believes it is a market leader with many of its product lines. The Company believes within the Engine Products segment it is a market leader in its Off-Road Equipment and On-Road Products lines for OEMs and is a significant participant in the aftermarket for replacement filters. The Engine Products segment’s principal competitors include several large global competitors and many regional competitors, especially in the Engine Aftermarket Products business. The Industrial Products segment’s principal competitors vary from country to country and include several large regional and global competitors and a significant number of smaller competitors who compete in a specific geographical region or in a limited number of product applications.

R aw Materials

The principal raw materials that the Company uses are steel, filter media, and plastics. Commodity prices generally increased throughout the year, but the impact was moderated by certain long term supply contracts. The Company anticipates a further impact from rising commodity prices in Fiscal 2012, as compared to Fiscal 2011, specifically for steel and media, as these supply contracts expired during the latter half of Fiscal 2011. The Company experienced no significant supply problems in the purchase of its major raw materials. The Company typically has multiple sources of supply for the raw materials essential to its business, and is not required to carry significant amounts of raw material inventory to secure supplier allotments. However, the Company does stock finished goods inventory at its regional distribution centers in order to meet anticipated Customer demand.

P atents and Trademarks

The Company owns various patents and trademarks, which it considers in the aggregate to constitute a valuable asset, including patents and trademarks for products sold under the Ultra-Web®, PowerCore®, and Donaldson® trademarks. However, it does not regard the validity of any one patent or trademark as being of material importance.

Ma jor Customers

There were no Customers that accounted for over 10 percent of net sales in Fiscal 2011, 2010 or 2009. There were no Customers over 10 percent of gross accounts receivable in Fiscal 2011 or 2010.

B acklog

At August 31, 2011, the backlog of orders expected to be delivered within 90 days was $423.8 million. All of this backlog is expected to be shipped during Fiscal 2012. The 90-day backlog at August 31, 2010, was $361.1 million. Backlog is one of many indicators of business conditions in the Company’s markets. However, it is not always indicative of future results for a number of reasons, including short lead times in the Company’s replacement parts businesses and the timing of orders in many of the Company’s Engine OEM and Industrial markets.

Re search and Development

During Fiscal 2011, the Company spent $55.3 million on research and development activities. Research and development expenses include basic scientific research and the application of scientific advances to the development of new and improved products and their uses. The Company spent $44.5 million and $40.6 million in Fiscal 2010 and Fiscal 2009, respectively, on research and development activities. Substantially all commercial research and development is performed in-house.

Env ironmental Matters

The Company does not anticipate any material effect on its capital expenditures, earnings, or competitive position during Fiscal 2012 due to compliance with government regulations regulating the discharge of materials into the environment or otherwise relating to the protection of the environment.

Emp loyees

The Company employed over 13,000 persons in worldwide operations as of August 31, 2011.

Geo graphic Areas

Financial information about geographic areas appears in Note K of the Notes to Consolidated Financial Statements on page 49.

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I tem 1A. Risk Factors

There are inherent risks and uncertainties associated with our global operations that involve the manufacturing and sale of products for highly demanding Customer applications throughout the world. These risks and uncertainties could adversely affect our operating performance and financial condition. The following discussion, along with discussions elsewhere in this report, outlines the risks and uncertainties that we believe are the most material to our business. In light of the global economic slowdown in recent years and the continued uncertainty, we want to further highlight the risks and uncertainties associated with: world economic factors and the ongoing economic uncertainty that is impacting many regions of the world, the financial condition of our suppliers and Customers, the potential for some Customers to increase their reliance on their own filtration capabilities, currency fluctuations, commodity prices, political factors, the Company’s international operations, the possible reduced demand for hard disk drive products with the increased use of flash memory, highly competitive markets, governmental laws and regulations, including the impact of the various economic stimulus and financial reform measures being implemented by governments around the world, the implementation of our new information systems, potential global events resulting in instability and unpredictability in the world’s markets, including financial bailouts of sovereign nations, political changes, military and terrorist activities, health outbreaks, and other factors discussed below. 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.

Operating internationally carries risks which could negatively affect our financial performance.

We have sales and manufacturing operations throughout the world, with the heaviest concentrations in North America, Europe and Asia. Our stability, growth, and profitability are subject to a number of risks of doing business internationally that could harm our business, including:


	•	political and military events,

	•	legal and regulatory requirements, including import, export, defense regulations, and foreign exchange controls,

	•	tariffs and trade barriers,

	•	potential difficulties in staffing and managing local operations,

	•	credit risk of local Customers and distributors,

	•	difficulties in protecting intellectual property,

	•	local economic, political and social conditions, specifically in China and Thailand where we have significant investments and

	•	potential global health outbreaks.

Maintaining a competitive advantage requires continuing investment with uncertain returns.

We operate in highly competitive markets and have numerous competitors who may already be well-established in those markets. We expect our competitors to continue improving the design and performance of their products and to introduce new products that could be competitive in both price and performance. We believe that we have certain technological advantages over our competitors, but maintaining these advantages requires us to continually invest in research and development, sales and marketing, and Customer service and support. There is no guarantee that we will be successful in maintaining these advantages. We make investments in new technologies that address increased performance and regulatory requirements around the globe. There is no guarantee that we will be successful in completing development or achieving sales of these products or that the margins on such products will be acceptable. Our financial performance may be negatively impacted if a competitor’s successful product innovation reaches the market before ours or gains broader market acceptance.

A few of our major OEM Customers also manufacture filtration systems. Although these OEM Customers rely on us and other suppliers for some of their filtration systems, they sometimes choose to manufacture additional filtration systems for their own use. There is also a risk that a Customer could acquire one or more of our competitors.

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We may be adversely impacted by changes in technology that could reduce or eliminate the demand for our products. These risks include:


	•	breakthroughs in technology which provide a viable alternative to diesel engines and

	•	reduced demand for disk drive products by flash memory or a similar technology, which would eliminate the need for our filtration solutions in disk drives.

We participate in highly competitive markets with pricing pressure. If we are not able to compete effectively our margins and results of operations could be adversely affected.

The businesses and product lines in which we participate are very competitive and we risk losing business based on a wide range of factors including technology, price, geographic coverage, product performance, and Customer service. Large Customers continue to seek productivity gains and lower prices from their suppliers. We may lose business or negatively impact our margins if we are unable to deliver the best value to our Customers.

Demand for our products relies on economic and industrial conditions worldwide.

Demand for our products tends to respond to varying levels of economic, construction, agricultural, mining, and industrial activity in the United States and in other industrialized nations.

Sales to Caterpillar accounted for slightly less than 10 percent of our net sales in Fiscal 2011, 2010 and 2009. An adverse change in Caterpillar’s financial performance or a material reduction in our sales to Caterpillar could negatively impact our operating results.

Changes in our product mix impacts our financial performance.

We sell products that have varying profit margins. Our financial performance can be impacted depending on the mix of products we sell during a given period.

Unavailable or higher cost materials could impact our financial performance.

We obtain raw materials including steel, filter media, plastics, and other components from third-party suppliers and tend to carry limited raw material inventories. An unanticipated delay in delivery by our suppliers could result in the inability to deliver on-time and meet the expectations of our Customers. This could negatively affect our financial performance. An increase in commodity prices could also result in lower operating margins.

Difficulties with the Company’s information technology systems could adversely affect our results.

The Company has many information technology systems that are important to the operation of its businesses. The Company could encounter difficulties in developing new systems or maintaining and upgrading existing systems. Such difficulties could lead to significant expenses due to disruption in business operations and could adversely affect the Company’s results.

Unfavorable fluctuations in foreign currency exchange rates could negatively impact our results and financial position.

We have operations in many countries. Each of our subsidiaries reports its results of operations and financial position in its relevant foreign currency, which is then translated into U.S. dollars. This translated financial information is included in our consolidated financial statements. The strengthening of the U.S. dollar in comparison to the foreign currencies of our subsidiaries could have a negative impact on our results and financial position.

Acquisitions may have an impact on our results.

We have made and continue to pursue acquisitions. We cannot guarantee that these acquisitions will have a positive impact on our results. These acquisitions could negatively impact our profitability due to operating and integration inefficiencies, the incurrence of debt, contingent liabilities, and amortization expenses related to intangible assets. There are also a number of other risks involved in acquisitions. We could lose key existing Customers, have difficulties in assimilating the acquired operations, assume unanticipated legal liabilities, or lose key employees.

Compliance with environmental and product laws and regulations can be costly.

We are subject to many environmental laws and regulations in the jurisdictions in which we operate. We routinely incur costs in order to comply with these laws and regulations. We may be adversely impacted by new or changing laws and regulations that affect both our operations and our ability to develop and sell products that meet our Customers’ requirements.

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It em 1B. Unresolved Staff Comments

None.

It em 2. Properties

The Company’s principal administrative office and research facilities are located in Bloomington, a suburb of Minneapolis, Minnesota. The principal European administrative and engineering offices are located in Leuven, Belgium. The Company also has extensive operations in the Asia-Pacific region.

The Company’s principal manufacturing and distribution activities are located throughout the world. The following is a summary of the principal plants and other materially important physical properties owned or leased by the Company.


Americas	Europe / Middle East / Africa
Auburn, Alabama (E)	Kadan, Czech Republic (I)
Riverbank, California (I)*	Klasterec, Czech Republic
Valencia, California (E)*	Domjean, France (E)
Dixon, Illinois	Paris, France (E)*
Frankfort, Indiana	Dulmen, Germany (E)
Cresco, Iowa	Flensburg, Germany (I)
Grinnell, Iowa (E)	Haan, Germany (I)
Nicholasville, Kentucky	Ostiglia, Italy
Bloomington, Minnesota	Cape Town, South Africa
Chillicothe, Missouri (E)	Johannesburg, South Africa*
Chesterfield, Missouri (E)*	Hull, United Kingdom
Philadelphia, Pennsylvania (I)	Leicester, United Kingdom (I)
Greeneville, Tennessee
Baldwin, Wisconsin	Australia
Stevens Point, Wisconsin	Wyong, Australia
Sao Paulo, Brazil (E)*
Brockville, Canada (I)*	Asia
Aguascalientes, Mexico	Hong Kong, China*
Monterrey, Mexico (I)	Wuxi, China
	New Delhi, India
Joint Venture Facilities	Gunma, Japan
Champaign, Illinois (E)	Rayong, Thailand (I)
Jakarta, Indonesia
Dammam, Saudi Arabia (I)	Third-Party Logistics Providers
	Santiago, Chile
Distribution Centers	Wuxi, China
Wyong, Australia	Mumbai, India
Brugge, Belgium	Plainfield, Indiana (I)
Rensselaer, Indiana	Gunma, Japan
Ostiglia, Italy	Singapore
Aguascalientes, Mexico	Greeneville, Tennessee (I)
Johannesburg, South Africa

The Company’s properties are utilized for both the Engine and Industrial Products segments except as indicated with an (E) for Engine or (I) for Industrial. The Company leases certain of its facilities, primarily under long-term leases. The facilities denoted with an asterisk (*) are leased facilities. In Wuxi, China and Bloomington, Minnesota a portion of the activities are conducted in leased facilities. The Company uses third-party logistics providers for some of its product distribution and neither leases nor owns the facilities. The Company considers its properties to be suitable for their present purposes, well-maintained, and in good operating condition.

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It em 3. Legal Proceedings

The Company records provisions with respect to identified claims or lawsuits when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Claims and lawsuits are reviewed quarterly and provisions are taken or adjusted to reflect the status of a particular matter. The Company believes the recorded reserves in its consolidated financial statements are adequate in light of the probable and estimable outcomes. Any recorded liabilities were not material to the Company’s financial position, results of operation or liquidity, and the Company does not believe that any of the currently identified claims or litigation will materially affect its financial position, results of operation or liquidity.

The Company has reached a preliminary agreement to settle the class action lawsuits that were previously disclosed in its SEC filings, including most recently the Form 10-Q for the quarter ending April 30, 2011. On March 31, 2008, S&E Quick Lube, a filter distributor, filed a lawsuit alleging that 12 filter manufacturers, including the Company, engaged in a conspiracy to fix prices, rig bids, and allocate U.S. Customers for aftermarket automotive filters. The U.S. cases have been consolidated into a single multi-district litigation in the Northern District of Illinois. The Company denies any liability and has vigorously defended the claims raised in these lawsuits. The settlement will fully resolve all claims brought against the Company in the lawsuits and the Company does not admit any liability or wrongdoing. The settlement is still subject to Court approval and will not have a material impact on the Company’s financial position, results of operations or liquidity.

The Company has reached a preliminary agreement with the Air Resources Board for the State of California (“ARB”) to settle regulatory claims brought by ARB in connection with the sales of our Diesel Multi-Stage Filter System (“DMF”) for an immaterial amount. On May 19, 2010, ARB revoked its verification of the Company’s DMF for use with on-road diesel engines, for which verification was originally issued on December 16, 2005. The Company denies that any sales were made in California without ARB verification. The Company is not currently selling any DMF product and is working with the Environmental Protection Agency to verify the product for any future sales.

It em 4. (Removed and Reserved)

Exe cutive Officers of the Registrant

Current information regarding executive officers is presented below. All terms of office are for one year. There are no arrangements or understandings between individual officers and any other person pursuant to which the officer was selected as an executive officer.


Name	Age	Positions and Offices Held	First Fiscal Year Appointed as an Executive Officer
Tod E. Carpenter	52	Vice President, Europe and Middle East	2008

William M. Cook	58	Chairman, President and Chief Executive Officer	1994

Sandra N. Joppa	46	Vice President, Human Resources	2005

Norman C. Linnell	52	Vice President, General Counsel and Secretary	1996

Charles J. McMurray	57	Senior Vice President, Industrial Products	2003

Mary Lynne Perushek	53	Vice President and Chief Information Officer	2006

David W. Timm	58	Vice President, Asia-Pacific	2007

Thomas R. VerHage	58	Vice President and Chief Financial Officer	2004

Jay L. Ward	47	Senior Vice President, Engine Products	2006

Debra L. Wilfong	56	Vice President and Chief Technology Officer	2007

Mr. Carpenter joined the Company in 1996 and has held various positions, including Gas Turbine Systems General Manager from 2002 to 2004; General Manager, Industrial Filtration Systems (“IFS’) Sales from 2004 to 2006; General Manager, IFS Americas in 2006; and Vice President, Global IFS from 2006 to 2008. Mr. Carpenter was appointed Vice President, Europe and Middle East in August 2008. Mr. Carpenter has been appointed Senior Vice President, Engine Products, effective October 1, 2011.

Mr. Cook joined the Company in 1980 and has held various positions, including CFO and Senior Vice President, International from 2001 to 2004 and President and CEO from 2004 to 2005. Mr. Cook was appointed Chairman, President and CEO in July 2005.

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Ms. Joppa was appointed Vice President, Human Resources and Communications in November 2005. Prior to that time, Ms. Joppa held various positions at General Mills, a consumer food products company, from 1989 to 2005, including service as Director of Human Resources for several different operating divisions from 1999 to 2005.

Mr. Linnell joined the Company in 1996 as General Counsel and Secretary and was appointed Vice President, General Counsel and Secretary in 2000.

Mr. McMurray joined the Company in 1980 and has held various positions, including Director, Global Information Technology from 2001 to 2003; Vice President, Human Resources from 2004 to 2005; and Vice President, Information Technology, Europe, South Africa, and Mexico from 2005 to 2006. Mr. McMurray became Senior Vice President, Industrial Products in September 2006. Mr. McMurray has been appointed Senior Vice President and Chief Administrative Officer, effective October 1, 2011.

Ms. Perushek was appointed Vice President and Chief Information Officer in November 2006. Prior to that time, Ms. Perushek was Vice President of Global Information Technology at H.B. Fuller Company, a worldwide manufacturer of adhesive products, from 2005 to 2006 and Chief Information Officer for Young America Corporation, a marketing company, from 1999 to 2004.

Mr. Timm joined the Company in 1983 and has held various positions, including General Manager, Disk Drive from 1995 to 2005 and General Manager, Gas Turbine Systems Products from 2005 to 2006. Mr. Timm was appointed Vice President, Asia-Pacific in December 2006. The Company has announced that Mr. Timm will retire from the Company at the end of 2011, with his replacement to be announced at a later date.

Mr. VerHage was appointed Vice President and Chief Financial Officer in March 2004. Prior to that time, Mr. VerHage was a partner for Deloitte & Touche, LLP, an international accounting firm, from 2002 to 2004. The Company has announced that Mr. VerHage is leaving the Company on October 31, 2011 and that James F. Shaw, age 42, currently Controller and Principal Accounting Officer for the Company, has been appointed Vice President and Chief Financial Officer, effective November 1, 2011.

Mr. Ward joined the Company in 1998 and has held various positions, including Director, Operations from 2001 to 2003; Director, Product and Business Development, IFS Group from 2003 to 2004; Managing Director, Europe from 2004 to 2006; and Vice President, Europe, and Middle East from 2006 to 2008. Mr. Ward was appointed Senior Vice President, Engine Products in August 2008. Mr. Ward has been appointed Senior Vice President, Industrial Products, effective October 1, 2011.

Ms. Wilfong was appointed Vice President and Chief Technology Officer in May 2007. Prior to that time, Ms. Wilfong was Director, Research and Development at 3M Company, an international consumer products company, from 2000 to 2007, most recently as Director, Research and Development for the 3M Automotive Division from 2006 to 2007.

PA RT II

It em 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

The common shares of the Company are traded on the New York Stock Exchange under the symbol DCI. The amount and frequency of all cash dividends declared on the Company’s common stock for Fiscal 2011 and 2010 appear in Note P of the Notes to Consolidated Financial Statements on page 54. The Company’s dividend payout ratio target is 20 percent to 30 percent of the average earnings per share of the last three years. This guidance is expected to be used for future dividend payouts. As of September 22, 2011, there were 1,950 shareholders of record of common stock.

The low and high sales prices for the Company’s common stock for each full quarterly period during Fiscal 2011 and 2010 were as follows:


	First Quarter	Second Quarter	Third Quarter	Fourth Quarter
Fiscal 2011	$40.86 - 50.19	$48.51 - 60.28	$54.59 - 62.90	$54.62 - 63.04

Fiscal 2010	$32.60 - 39.82	$35.24 - 45.19	$37.24 - 47.38	$40.51 - 48.21

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The following table sets forth information in connection with purchases made by, or on behalf of, the Company or any affiliated purchaser of the Company, of shares of the Company’s common stock during the quarterly period ended July 31, 2011.


Period	Total Number of Shares Purchased (1)		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
May 1 - May 31, 2011		—	$	—		—		6,187,240
June 1 - June 30, 2011		900,000	$	56.35		900,000		5,287,240
July 1 - July 31, 2011		291,558	$	59.23		256,648		5,030,592
Total		1,191,558	$	57.06		1,156,648		5,030,592

The Company initiated the purchase of an additional 162,900 shares for $9.2 million in July 2011 that are not included in Fiscal 2011 repurchases as the transactions did not settle until after fiscal year end. These repurchases will be included in Fiscal 2012 activity.


	(1)	On March 26, 2010, the Company announced that the Board of Directors authorized the repurchase of up to 8.0 million shares of common stock. This repurchase authorization, which is effective until terminated by the Board of Directors, replaced the existing authority that was authorized on March 31, 2006. There were no repurchases of common stock made outside of the Company’s current repurchase authorization during the quarter ended July 31, 2011. However, the “Total Number of Shares Purchased” column of the table above includes 34,910 previously owned shares tendered by option holders in payment of the exercise price of options during the quarter. While not considered repurchases of shares, the Company does at times withhold shares that would otherwise be issued under equity-based awards to cover the withholding taxes due as a result of exercising stock options or payment of equity-based awards.

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The graph below compares the cumulative total stockholder return on the Company’s common stock for the last five fiscal years with the cumulative total return of the Standard & Poor’s 500 Stock Index and the Standard & Poor’s Industrial Machinery Index. The graph and table assume the investment of $100 in each of the Company’s common stock and the specified indexes at the beginning of the applicable period, and assume the reinvestment of all dividends.

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN
Among Donaldson Company, Inc., the S&P 500 Index
and the S&P Industrial Machinery Index

(LINE GRAPH)


	Year Ended July 31,
	2011		2010		2009		2008		2007		2006
Donaldson Company, Inc.	$	177.91	$	150.95	$	119.50	$	139.95	$	111.77	$	100.00
S&P 500		112.56		94.07		82.64		103.25		116.13		100.00
S&P Industrial Machinery		143.55		119.05		90.70		118.06		129.23		100.00

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I tem 6. Selected Financial Data

The following table sets forth selected financial data for each of the fiscal years in the five-year period ended July 31, 2011 (in millions, except per share data):


	Year Ended July 31,
	2011		2010		2009		2008		2007
Net sales	$	2,294.0	$	1,877.1	$	1,868.6	$	2,232.5	$	1,918.8
Income from continuing operations		225.3		166.2		131.9		172.0		150.7
Diluted earnings per share		2.87		2.10		1.67		2.12		1.83
Total assets		1,726.1		1,499.5		1,334.0		1,548.6		1,319.0
Long-term obligations		205.7		256.2		253.7		176.5		129.0
Cash dividends declared per share		0.560		0.480		0.460		0.430		0.370
Cash dividends paid per share		0.535		0.470		0.455		0.420		0.360

I tem 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation

Results of Operation

The following discussion of the Company’s financial condition and results of operations should be read in conjunction with the Consolidated Financial Statements and Notes thereto and other financial information included elsewhere in this report.

Overview

The Company is a worldwide manufacturer of filtration systems and replacement parts. The Company’s core strengths are leading filtration technology, strong Customer relationships, and its global presence. The Company operates through two reporting segments, Engine Products and Industrial Products, and has a product mix including air and liquid filtration systems and exhaust and emission control products. As a worldwide business, the Company’s results of operations are affected by conditions in the global economic environment. Under normal economic conditions, the Company’s market diversification between its OEM and replacement parts Customers, its diesel engine and industrial end markets, and its North American and international end markets has helped to limit the impact of weakness in any one product line, market or geography on the consolidated results of the Company.

The Company reported record sales in Fiscal 2011 of $2,294.0 million, up 22.2 percent from $1,877.1 million in the prior year. The Company’s results were positively impacted by foreign currency translation, which increased sales by $49.8 million. Excluding the current year impact of foreign currency translation, worldwide sales increased 19.6 percent.

Although net sales excluding foreign currency translation is not a measure of financial performance under GAAP, the Company believes it is useful in understanding its financial results and provides a comparable measure for understanding the operating results of the Company between different fiscal periods excluding the impact of foreign currency translation. The following is reconciliation to the most comparable GAAP financial measure of this non-GAAP financial measure (in millions):


	Year Ended July 31,
	2011		2010
Net sales, excluding foreign currency translation	$	2,244.2	$	1,833.9
Foreign currency translation impact		49.8		43.2
Net sales	$	2,294.0	$	1,877.1

The Company also reported record net earnings in Fiscal 2011 of $225.3 million, an increase of 35.6 percent from $166.2 million in the prior year. The Company’s net earnings were also positively impacted by foreign currency translation, which increased net earnings by $6.1 million. Excluding the current year impact of foreign currency translation, net earnings increased 31.9 percent.

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Although net earnings excluding foreign currency translation is not a measure of financial performance under GAAP, the Company believes it is useful in understanding its financial results and provides a comparable measure for understanding the operating results of the Company between different fiscal periods excluding the impact of foreign currency translation. The following is a reconciliation to the most comparable GAAP financial measure of this non-GAAP financial measure (in millions):


	Year Ended July 31,
	2011		2010
Net earnings, excluding foreign currency translation	$	219.2	$	162.6
Foreign currency translation impact, net of tax		6.1		3.6
Net earnings	$	225.3	$	166.2

The Company reported diluted earnings per share of $2.87, a 36.7 percent increase from $2.10 in the prior year.

As discussed above, the Company recorded full year records for net sales and net earnings. In addition, operating margin was a record of 13.7 percent for the year. The Company’s manufacturing plants and distribution centers executed very well and continued to make both capital and operating investments which, along with the Company’s Continuous Improvement initiatives, resulted in a record year and puts the Company in a position to profitably support its Customers’ global growth plans. These improvements were slightly offset by increases in purchased raw material and freight costs.

Following is financial information for the Company’s Engine and Industrial Products segments. Corporate and Unallocated includes corporate expenses determined to be non-allocable to the segments and interest income and expense. See further discussion of segment information in Note K of the Company’s Notes to Consolidated Financial Statements.


	Engine Products		Industrial Products		Corporate & Unallocated			Total Company
	(thousands of dollars )
2011
Net sales	$	1,440,495	$	853,534	$	—		$	2,294,029
Earnings before income taxes		211,255		123,871		(22,863	)		312,263

2010
Net sales	$	1,126,007	$	751,057	$	—		$	1,877,064
Earnings before income taxes		155,833		91,084		(16,741	)		230,176

2009
Net sales	$	1,027,685	$	840,944	$	—		$	1,868,629
Earnings before income taxes		85,896		87,427		(11,898	)		161,425

For the twelve months ended July 31, 2010 and 2009, net sales reflect the reclassification of $31,636 and $25,724, respectively, earnings before income taxes reflect a reclassification of $5,360 and $2,099, respectively, as a result of an internal reorganization of Industrial Hydraulics from Industrial Products to Engine Products, which became effective August 1, 2010.

Many factors contributed to the Company’s results for each of the Company’s reporting segments for Fiscal 2011, including an improvement in global economic conditions, the Company’s program of Continuous Improvement initiatives, new product introductions, emerging market growth, and the expansion of the Company’s distribution capabilities.

In the Engine Products segment, the Company experienced increased sales in all end-markets and regions with the exception of Aerospace and Defense Products. The earnings improvement for the current fiscal year was primarily driven by better absorption of fixed costs due to improved volumes at our manufacturing plants, and Continuous Improvement initiatives. The Aftermarket Products sales increases were driven by continued improvement in equipment utilization rates in the mining, construction, and transportation industries globally. The Off-Road Product sales increase is driven by higher demand for agriculture and mining equipment, due to continued strong commodity prices and improved sales of heavy construction equipment, which was due to increased global infrastructure spending, especially in developing economies. On-Road Products sales improved as North America and Europe heavy truck build rates continued rebounding.

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In the Industrial Products segment, where many product lines are later economic cycle businesses, sales increased due to improving global economies leading to greater Customer demand. In Industrial Filtration Solutions Products, sales of new dust collection equipment and replacement filters continued to grow. Gas Turbine Products sales remained slow due to static Customer demand for large gas turbine power generation projects as a result of unchanged global power generation requirements. The increase in sales in Special Applications Products is due to strong sales in certain product lines serving the membrane, semiconductor, imaging, and venting end markets.

Following are net sales by product within both the Engine and Industrial Products segments:


	2011		2010		2009
	(thousands of dollars )
Engine Products segment:
Off-Road Products	$	327,557	$	222,329	$	243,691
Aerospace and Defense Products		104,883		111,977		119,094
On-Road Products		127,107		81,874		71,958
Aftermarket Products*		861,393		691,899		561,846
Retrofit Emissions Products		19,555		17,928		31,096
Total Engine Products segment		1,440,495		1,126,007		1,027,685
Industrial Products segment:
Industrial Filtration Solutions Products		507,646		423,050		477,908
Gas Turbine Products		154,726		150,131		206,760
Special Applications Products		191,162		177,876		156,276
Total Industrial Products segment		853,534		751,057		840,944

Total Company	$	2,294,029	$	1,877,064	$	1,868,629


	*	Includes replacement part sales to the Company’s OEM Customers.

Outlook

The Company forecasts continued expansion in many of its end markets, with higher growth in emerging economies. The Company forecasts its full year Fiscal 2012 EPS to be between $3.15 and $3.45.


	•	The Company is planning its total Fiscal 2012 sales to be between $2.45 and $2.60 billion, or up about 7 to 15 percent from Fiscal 2011. Foreign currency translation is based on the Company’s planned rates for the Euro at US$1.42 and 81 Yen to the US$.

	•	The Company’s full year Fiscal 2012 operating margin is forecasted to be 13.7 to 14.5 percent.

	•	The Company’s full year Fiscal 2012 tax rate is projected to be between 28 and 30 percent.

	•	The Company projects that cash generated by operating activities will be between $275 and $305 million in Fiscal 2012. Capital spending in Fiscal 2012 is estimated to be approximately $100 million.

Engine Products – The Company forecasts full year sales to increase 8 to 15 percent, including the impact of foreign currency translation.


	•	The Company anticipates sales to its agricultural, mining, and construction equipment OEM Customers to grow at a more moderate pace in Fiscal 2012 compared to Fiscal 2011’s growth rate. The Company also expects to continue to benefit from increased market share on their Customers’ new Tier IV equipment platforms.

	•	In the On-Road Products’ business, the Company believes build rates for heavy and medium duty trucks at their OEM Customers will be higher than Fiscal 2011, but are expected to grow at a more normal rate.

	•	Sales of the Company’s Aftermarket Products are expected to remain strong based on current utilization rates for both off-road equipment and on-road heavy trucks. The Company should also benefit as its distribution

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		networks continue to expand in the emerging economies and from the increasing number of systems installed in the field with their proprietary filtration systems.

	•	The Company forecasts modest sales gains in Aerospace and Defense Products for Fiscal 2012 as the continued slowdown in military spending is anticipated to be offset by increased commercial aerospace sales.

Industrial Products - The Company forecasts full year FY12 sales to increase 7 to 15 percent, including the impact of foreign currency translation.


	•	The Company’s Industrial Filtration Solutions Products’ sales are projected to increase 7 to 14 percent, assuming demand for new filtration equipment and replacement filters both continue to improve as general industrial capital activity and spending increase globally.

	•	The Company anticipates its Gas Turbine Products’ sales to increase 14 to 22 percent due to improvement in the power generation market and ongoing strength in the oil and gas market segment.

	•	Special Applications Products’ sales are projected to increase 2 to 9 percent primarily due to growing sales of their membranes products.

Fiscal 2011 Compared to Fiscal 2010

Engine Products Segment The Engine Products segment sells to OEMs in the construction, mining, agriculture, aerospace, defense, and truck markets and to independent distributors, OEM dealer networks, private label accounts, and large equipment fleets. Products include air filtration systems, exhaust and emissions systems, liquid filtration systems, and replacement filters.

Sales for the Engine Products segment were $1,440.5 million, an increase of 27.9 percent from $1,126.0 million in the prior year. Engine Products sales in the United States increased by 25.9 percent in Fiscal 2011 compared to Fiscal 2010. International Engine Products sales increased 29.8 percent from the prior year. The impact of foreign currency increased total sales by $31.5 million, or 2.8 percent. Earnings before income taxes as a percentage of Engine Products segment sales of 14.7 percent increased from 13.8 percent in the prior year. The earnings improvement for the current fiscal year was driven by better absorption of fixed costs due to improved volumes and the Company’s ongoing Continuous Improvement initiatives, partially offset by increased commodity costs compared to the prior year. There were $1.9 million in restructuring expenses for the Engine Products segment in the prior year.

Worldwide sales of Off-Road Products were $327.6 million, an increase of 47.3 percent from $222.3 million in the prior year. Sales in the United States increased 35.8 percent over the prior fiscal year. Internationally, sales of Off-Road Products were up 56.0 percent from the prior year, with sales increasing in Asia and Europe by 58.2 percent and 55.6 percent, respectively. The Company’s overall increase was driven by higher demand for agriculture, construction, and mining equipment due to continued strong commodity prices and improved sales of heavy construction equipment, which was due to increased global infrastructure spending, especially in developing economies. Off-Road Products sales in the U.S. also benefited from market share gains on new platforms that began production during calendar year 2011. These increases were slightly offset by U.S. residential and non-residential construction markets, which showed continued weakness, resulting in lower sales of the Company’s products into those markets.

Worldwide sales of Aerospace and Defense Products were $104.9 million, a 6.3 percent decrease from $112.0 million in the prior year. Sales in the United States decreased 8.7 percent over the prior year as a result of slowdowns in U.S. military activity, which is causing an associated slowdown in government procurement spending for major programs. Internationally, sales of Aerospace and Defense Products increased 3.0 percent over the prior year. The international sales increased primarily due to market share gains resulting from improving the Company’s Aerospace distribution capabilities in Europe.

Worldwide sales of On-Road Products were $127.1 million, an increase of 55.2 percent from $81.9 million in the prior year. On-Road Products sales in the United States increased 86.0 percent from the prior year. Class 8 build rates increased 47.8 percent and medium duty truck build rates increased 37.1 percent over the prior year. International On-Road Products sales increased 27.4 percent from the prior year, driven by increased sales in Europe of 45.6 percent. This increase is consistent with the increase in European build rates. The overall sales increase was a result of an increase in Customer truck build rates, higher content per truck, and a slightly higher market share.

Worldwide Engine Aftermarket Products sales of $861.4 million increased 24.5 percent from $691.9 million in the prior year. Sales in the United States increased 26.3 percent over the prior year. International sales increased 23.1

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percent from the prior year, primarily driven by sales increases in Asia, Latin America and Europe of 37.8 percent, 25.7 percent, and 13.5 percent, respectively. The sales increases in the U.S. and internationally were attributable to improved On-Road and Off-Road equipment utilization rates from a year ago, the Company’s increased distribution and market share growth, and the continued increase in the percentage of equipment in the field that uses the Company’s proprietary filtration systems.

Worldwide sales of Retrofit Emissions Products were $19.6 million, an increase of 9.1 percent from $17.9 million in the prior year. The Company’s Retrofit Emissions Products sales are solely in the United States. Sales of Retrofit Emissions Products increased overall, but challenges still remain in the supply chain for certain components and delays in regulatory approval for certain of the Company’s products have impacted the Company’s sales.

Industrial Products Segment The Industrial Products segment sells to various industrial end-users, OEMs of gas-fired turbines, and OEMs and end-users requiring clean air. Products include dust, fume, and mist collectors, compressed air purification systems, air filtration systems for gas turbines, PTFE membrane based products, and specialized air filtration systems for applications, including computer hard disk drives.

Sales for the Industrial Products segment were $853.5 million, an increase of 13.6 percent from $751.1 million in the prior year. International Industrial Products sales increased 8.5 percent and sales in the United States increased 27.2 percent from the prior year. The impact of foreign currency increased sales by $18.3 million, or 2.4 percent. Earnings before income taxes as a percentage of Industrial Products segment sales of 14.5 percent increased from 12.1 percent in the prior year. The improvement in earnings as a percent of sales over the prior year was driven by better leverage of fixed operating costs and better plant utilization. Restructuring expenses in Fiscal 2011 were $0.7 million, a decrease from $8.3 million in Fiscal 2010.

Worldwide sales of Industrial Filtration Solutions Products of $507.6 million increased 20.0 percent from $423.1 million in the prior year. Sales in the United States, Europe and Asia increased 25.3 percent, 12.9 percent, and 26.2 percent, respectively. The increased sales were due to increased manufacturing activity, higher investment in capital equipment by manufacturers, and the continued strengthening of replacement filter sales due to utilization of existing equipment. North American general industrial activity remained strong as evidenced by a 110 percent increase in machine tool consumption in the United States during Fiscal 2011 as compared to Fiscal 2010.

Worldwide sales of Gas Turbine Products were $154.7 million, an increase of 3.1 percent from $150.1 million in the prior year. Gas Turbine Products sales are typically large systems and, as a result, the Company’s shipments and revenues fluctuate from period to period. Sales slightly improved due to additional demand for smaller systems used in the oil and gas industry as a result of higher average oil prices and an increase in Aftermarket sales for replacement filters. These increases were slightly offset by a decline in the sales of air filtration systems for large turbines used for power generation.

Worldwide sales of Special Applications Products were $191.2 million, a 7.5 percent increase from $177.9 million in the prior year. International sales of Special Application Products increased 6.1 percent over the prior year, primarily in Europe, which increased 47.0 percent. Domestic Special Application Products sales increased 17.1 percent. The global sales increases were driven by strong sales in some of the Company’s product lines serving the membrane, semiconductor, imaging, and venting end markets, partially offset by a slight decline in the Company’s disk drive filter sales due to soft demand in the global end market for hard disk drives. Overall, the decline in disk drive sales is comparable with published disk drive build rates.

Consolidated Results The Company reported net earnings for Fiscal 2011 of $225.3 million compared to $166.2 million in Fiscal 2010, an increase of 35.6 percent. Diluted net earnings per share were $2.87, up 36.7 percent from $2.10 in the prior year. The Company’s operating income of $315.3 million increased from prior year operating income of $238.2 million by 32.3 percent.

The table below shows the percentage of total operating income contributed by each segment for each of the last three fiscal years. Corporate and Unallocated includes corporate expenses determined to be non-allocable to the segments, interest income, and interest expense:


	2011			2010			2009
Engine Products		64.1	%		63.1	%		45.7	%
Industrial Products		38.7	%		37.8	%		50.6	%
Corporate and Unallocated		(2.8	)%		(0.9	)%		3.7	%
Total Company		100.0	%		100.0	%		100.0	%

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International operating income, prior to corporate expense allocations, totaled 80.2 percent of consolidated operating income in Fiscal 2011 as compared to 80.3 percent in Fiscal 2010. Total international operating income increased 32.1 percent from the prior year. This increase is attributable to increased Customer sales and the leverage of fixed costs with the higher volume of sales. The table below shows the percentage of total operating income contributed by each major geographic region for each of the last three fiscal years:


	2011			2010			2009
United States		19.8	%		19.7	%		22.1	%
Europe		31.0	%		24.6	%		23.3	%
Asia - Pacific		39.6	%		45.3	%		43.5	%
Other		9.6	%		10.4	%		11.1	%
Total Company		100.0	%		100.0	%		100.0	%

Gross margin for Fiscal 2011 was 35.5 percent, an increase from 35.1 percent in the prior year. The improved gross margin was the result of better fixed cost absorption and the Company’s ongoing Continuous Improvement initiatives of approximately $27 million, which were partially offset by increases in purchased raw material (steel and petrochemical based raw materials) of approximately $19 million, net of selective price increases to Customers. Within gross margin, the Company incurred minimal restructuring and asset impairment charges during the fiscal year, compared to $7.5 million last year. The fiscal 2010 charges were primarily related to a downsizing at a plant in Germany and included severance and asset impairments for the building and inventory.

Operating expenses for Fiscal 2011 were $498.5 million or 21.7 percent of sales, as compared to $420.5 million or 22.4 percent in the prior year. The decrease in operating expenses as a percentage of sales is driven by the higher volume of sales and benefits from the Company’s Continuous Improvement initiatives. In addition, the current year included a $1.9 million reduction in restructuring expenses compared to Fiscal 2010. These benefits were partially offset by costs for our strategic operating investments totaling $13.9 million for the fiscal year and higher compensation related expenses such as incentive compensation of $9.2 million and pension expense of $5.1 million over the prior year.

Interest expense of $12.5 million increased $0.5 million from $12.0 million in the prior year. Net other income totaled $9.5 million in Fiscal 2011 up from $3.9 million in the prior year. The increase of $5.6 million over the prior year is primarily attributable to increased interest income of $2.0 million, increased earnings from non-consolidated joint ventures of $2.1 million, and increased royalty income of $1.4 million. Components of other income for Fiscal 2011 were as follows: interest income of $3.3 million, earnings from non-consolidated joint ventures of $4.1 million, royalty income of $8.7 million, partially offset by charitable donations of $1.1 million, foreign exchange losses of $4.5 million, and other miscellaneous income and expense items resulting in expenses of $1.0 million.

The effective tax rate for Fiscal 2011 was 27.9 percent compared to 27.8 percent in Fiscal 2010. The average underlying tax rate remained at 29.7 percent, while discrete items were also a consistent percentage of pre-tax profits. Fiscal 2010 contained $4.3 million of discrete tax benefits from the expiration of the statute of limitations at foreign subsidiaries. Fiscal 2011 contained $5.8 million of discrete tax benefits primarily from the release of reserves after the favorable conclusions of foreign tax audits, the expiration of statutes in various jurisdictions, and the positive impact of dividends from some foreign subsidiaries.

Total backlog at July 31, 2011, was $816.4 million, up 29.9 percent from the same period in the prior year. Backlog is one of many indicators of business conditions in the Company’s markets. However, it is not always indicative of future results for a number of reasons, including short lead times in the Company’s replacement parts businesses and the timing of the receipt of orders in many of the Company’s Engine OEM and Industrial markets. In the Engine Products segment, total open order backlog increased 36.6 percent from the prior year. In the Industrial Products segment, total open order backlog increased 14.9 percent from the prior year. Because some of the change in backlog can be attributed to a change in the ordering patterns of the Company’s Customers and/or the impact of foreign exchange translation rates, it may not necessarily correspond to future sales.

Fiscal 2010 Compared to Fiscal 2009

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Sales for the Engine Products segment were $1,126.0 million, an increase of 9.6 percent from $1,027.7 million in the prior year. Engine Products sales in the United States remained relatively flat in Fiscal 2010 compared to Fiscal 2009, increasing only 0.5 percent in the current fiscal year. International Engine Products sales increased 19.6 percent from the prior year. The impact of foreign currency increased sales by $24.9 million, or 2.4 percent. Earnings before income taxes as a percentage of Engine Products segment sales of 13.8 percent increased from 8.4 percent in the prior year. The earnings improvement for the current fiscal year was driven by a greater mix of higher-margin Aftermarket sales versus lower-margin first-fit product sales, better absorption of fixed manufacturing costs due to the increase in production volumes and benefits related to completed restructuring efforts and other Continuous Improvement initiatives. In addition, restructuring expenses for the Engine Products segment were down $5.3 million over the prior year, but this was more than offset by $6.2 million of increased warranty expenses related to Retrofit Emissions Products.

Worldwide sales of Off-Road Products were $222.3 million, a decrease of 8.8 percent from $243.7 million in the prior year. Sales in the United States decreased 15.0 percent to $95.1 million for the fiscal year. Internationally, sales of Off-Road Products were down 3.4 percent from the prior year, with sales decreasing in Europe by 10.7 percent, which were slightly offset by an increase in Off-Road sales in Asia of 7.4 percent. The Company’s overall decrease was driven by a weakness in the early portion of the fiscal year with a gradual strengthening in end-markets in the last half of the fiscal year. This was evident in the gradual improvement of sales to OEMs during the last months of the fiscal year. The first half of the year was down primarily due to declines in spending in the residential and non-residential construction markets. The latter half of the year saw increases in the mining industry as a result of higher commodity prices and improvements in worldwide construction activity.

Worldwide sales of On-Road Products were $81.9 million, an increase of 13.8 percent from $72.0 million in the prior year. On-Road Products sales in the United States increased 3.4 percent from the prior year, primarily as a result of a slight market share improvement and higher content per truck. The Company performed better than the impact due to the change in truck build rates for the year in Class 8 truck builds, which decreased by 3.7 percent and medium duty truck build rates which increased 0.3 percent. International On-Road Products sales increased 25.2 percent from the prior year, driven by increased sales in Asia of 45.2 percent, as a result of increased truck exports by the Company’s Japanese OEM Customers to higher growth emerging markets, and rebounding sales in Europe during the second half of the fiscal year.

Worldwide Engine Aftermarket Products sales of $691.9 million increased 23.1 percent from $561.8 million in the prior year. Sales in the United States increased 14.7 percent over the prior year. International sales increased 29.7 percent from the prior year, primarily driven by sales increases in Asia, Latin America and Europe of 36.9 percent, 28.9 percent, and 24.7 percent, respectively. The sales increases in the United States and internationally were driven by rebounds in equipment utilization rates in the mining, construction, and transportation industries. The Company also improved its distribution capabilities to be closer to and better serve its Customers and increased sales due to the Company’s recent market share “wins.”

Worldwide sales of Retrofit Emissions Products were $17.9 million, a decrease of 42.3 percent from $31.1 million in the prior year. The Company’s Retrofit Emissions Products sales are solely in the United States. Sales of Retrofit Emissions Products decreased as a result of continuing postponements in the availability of government grant money and delays and losses of regulatory approval for certain of the Company’s products, including the DMF product.

Worldwide sales of Aerospace and Defense Products were $112.0 million, a 6.0 percent decrease from $119.1 million in the prior year. Sales in the United States decreased 9.0 percent over the prior year as a result of slowdowns in government procurement for major defense programs. Internationally, sales of Aerospace and Defense Products increased 8.0 percent over the prior year. The international sales increased primarily as a result of the startup of recent defense program wins.

Sales for the Industrial Products segment were $751.1 million, a decrease of 10.7 percent from $840.9 million in the prior year. International Industrial Products sales decreased 9.0 percent, and sales in the United States decreased 15.0 percent from the prior year. The impact of foreign currency increased sales by $17.2 million, or 2.0 percent. Despite the 10.7 percent decrease in sales, earnings before income taxes as a percentage of Industrial Products segment sales were 12.1 percent, increasing from 10.4 percent in the prior year. The improvement in earnings as a percent of

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sales over the prior year was driven by better execution on large project shipments, increased plant utilization, improved product mix, and Continuous Improvement initiatives. Restructuring expenses in Fiscal 2010 were $8.3 million, a decrease from $10.1 million in Fiscal 2009.

Worldwide sales of Industrial Filtration Solutions Products of $423.1 million decreased 11.5 percent from $478.0 million in the prior year. Sales in the United States, Europe and Asia decreased 11.9 percent, 12.0 percent, and 8.0 percent, respectively. Sales in Mexico decreased 20.9 percent in Fiscal 2010 as compared to Fiscal 2009. Overall, the Company experienced weak sales conditions for its Industrial Filtration Solutions Products during the beginning of the fiscal year, with conditions improving towards the end of the fiscal year. The decreased sales in Europe and Asia were due to reduced demand for industrial dust collectors and compressed air purification systems due to the downturn in general manufacturing activity. Domestic sales decreased due to a decline in general industrial activity that did not stabilize until late in the fiscal year, as evidenced by a 19 percent drop in machine tool consumption in the United States during fiscal year 2010 as compared to fiscal year 2009.

Worldwide sales of Gas Turbine Products were $150.1 million, a decrease of 27.4 percent from $206.8 million in the prior year. Gas Turbine Products sales are typically large systems and, as a result, the Company’s shipments and revenues fluctuate from period to period. Incoming orders declined 9 percent in Fiscal 2010 versus Fiscal 2009, a reflection of the reduced demand for power generation projects globally. Sales remained slow due to a deceleration in Customer demand for large gas turbine power generation projects as a result of the decrease in global electrical power requirements and also as a result of one Customer’s increased utilization of its own internal filtration businesses.

Worldwide sales of Special Applications Products were $177.9 million, a 13.8 percent increase from $156.3 million in the prior year. Domestic Special Application Products sales increased 5.8 percent, driven by an increase in sales to industrial Customers of PTFE membranes. International sales of Special Application Products increased 15.1 percent over the prior year, primarily in Asia, which increased 18.6 percent. These international sales increases were driven by improved demand for the Company’s Customers’ hard disk drives as the end-markets for computers, data storage devices, and other electronic products rebounded. Overall, the Company’s market growth is comparable with published disk drive build rates.

Consolidated Results The Company reported net earnings for Fiscal 2010 of $166.2 million compared to $131.9 million in Fiscal 2009, an increase of 26.0 percent. Diluted net earnings per share were $2.10, up 25.7 percent from $1.67 in the prior year. The Company’s operating income of $238.2 million increased from prior year operating income of $170.0 million by 40.2 percent.


	2010			2009			2008
Engine Products		63.1	%		45.7	%		61.1	%
Industrial Products		37.8	%		50.6	%		42.1	%
Corporate and Unallocated		(0.9	)%		3.7	%		(3.2	)%
Total Company		100.0	%		100.0	%		100.0	%

International operating income, prior to corporate expense allocations, totaled 80.3 percent of consolidated operating income in Fiscal 2010 as compared to 77.9 percent in Fiscal 2009. Total international operating income increased 44.6 percent from the prior year. This increase is attributable to increased Customer sales and stronger foreign currencies. The table below shows the percentage of total operating income contributed by each major geographic region for each of the last three fiscal years:


	2010			2009			2008
United States		19.7	%		22.1	%		10.6	%
Europe		24.6	%		23.3	%		43.3	%
Asia - Pacific		45.3	%		43.5	%		37.9	%
Other		10.4	%		11.1	%		8.2	%
Total Company		100.0	%		100.0	%		100.0	%

Gross margin for Fiscal 2010 was 35.1 percent, an increase from 31.6 percent in the prior year. The improved gross margin was the result of improved fixed cost absorption, a higher mix of replacement filter sales, savings from restructuring actions and ongoing Continuous Improvement initiatives. Within gross margin, the Company incurred

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$7.5 million in restructuring and asset impairment charges during the fiscal year, compared to $10.1 million last year. This year’s charges were primarily related to a downsizing at a plant in Germany and included severance and asset impairments for the building and inventory.

Operating expenses for Fiscal 2010 were $420.5 million or 22.4 percent of sales, as compared to $419.8 million or 22.5 percent in the prior year. Operating expenses as a percent of sales was relatively flat and included $15.1 million of higher incentive compensation expense partially offset by a $5.0 million decrease in restructuring costs as compared to the prior year. During the fiscal year the Company increased warranty accruals due to specific warranty matters in our Retrofit Emissions Products group, recording an expense of $6.2 million for this matter during the year.

Interest expense of $12.0 million decreased $5.0 million from $17.0 million in the prior year as a result of reduced debt levels and lower interest rates throughout the year. Net other income totaled $3.9 million in Fiscal 2010 down from $8.5 million in the prior year. Components of other income for Fiscal 2010 were as follows: interest income of $1.3 million, earnings from non-consolidated joint ventures of $2.0 million, royalty income of $7.2 million, charitable donations of $1.6 million, foreign exchange losses of $4.6 million, and other miscellaneous income and expense items resulting in expenses of $0.4 million.

The effective tax rate for Fiscal 2010 was 27.8 percent compared to 18.3 percent in Fiscal 2009. The increase in effective tax rate is primarily due to a decrease in discrete tax benefits. Fiscal 2009 contained $19.6 million of discrete tax benefits, which predominantly occurred in the second quarter, and primarily related to changes to uncertain tax position reserves in connection with the effective settlements of court cases and examinations in various jurisdictions covering various years. Fiscal 2010 contained $4.3 million of discrete tax benefits, primarily recorded in the second quarter, from the expiration of the statute of limitations at foreign subsidiaries and other discrete items. Without consideration of discrete items, the average underlying tax rate improved over the prior year to 29.7 percent from 30.4 percent mainly due to the mix of earnings between tax jurisdictions.

Total backlog at July 31, 2010, was $628.3 million, up 19.0 percent from the same period in the prior year. Backlog is one of many indicators of business conditions in the Company’s markets. However, it is not always indicative of future results for a number of reasons, including short lead times in the Company’s replacement parts businesses and the timing of receipt of orders in many of the Company’s Engine OEM and Industrial markets. In the Engine Products segment, total open order backlog increased 31.5 percent from the prior year. In the Industrial Products segment, total open order backlog decreased 1.8 percent from the prior year. Because some of the change in backlog can be attributed to a change in the ordering patterns of the Company’s Customers and/or the impact of foreign exchange translation rates, it may not necessarily correspond to future sales.

Liquidity and Capital Resources

Financial Condition At July 31, 2011, the Company’s capital structure was comprised of $61.0 million of current debt, $205.7 million of long-term debt and $934.7 million of shareholders’ equity. The Company had cash and cash equivalents of $273.5 million at July 31, 2011. The ratio of long-term debt to total capital was 18.0 percent and 25.5 percent at July 31, 2011 and 2010, respectively.

Total debt outstanding decreased $45.0 million during the year to $266.7 million outstanding at July 31, 2011. Short-term borrowings outstanding at the end of the year were $36.9 million less than the prior year, and long-term debt decreased $8.1 million (including current maturities) from the prior year.

The following table summarizes the Company’s cash obligations as of July 31, 2011, for the years indicated (thousands of dollars):


	Payments Due by Period
Contractual Obligations	Total		Less than 1 year		1 - 3 years		3 - 5 years		More than 5 years
Long-term debt obligations	$	247,037	$	45,595	$	101,442	$	—	$	100,000
Capital lease obligations		796		428		360		8		—
Interest on long-term debt obligations		49,508		11,946		19,752		10,960		6,850
Operating lease obligations		26,579		10,546		12,196		3,006		831
Purchase obligations ⁽¹⁾		246,872		236,709		9,339		824		—
Pension and deferred compensation ⁽²⁾		78,324		5,070		10,533		10,372		52,349
Total ⁽³⁾	$	649,116	$	310,294	$	153,622	$	25,170	$	160,030

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	⁽¹⁾	Purchase obligations consist primarily of inventory, tooling, contract employment services and capital expenditures. The Company’s purchase orders for inventory are based on expected Customer demand, and quantities and dollar volumes are subject to change.

	⁽²⁾	Pension and deferred compensation consists of long-term pension liabilities and salary and bonus deferrals elected by certain executives under the Company’s deferred compensation plan. Deferred compensation balances earn interest based on a Treasury bond rate as defined by the plan and are payable at the election of the participants.

	⁽³⁾	In addition to the above contractual obligations, the Company may be obligated for additional cash outflows of $21.5 million of potential tax obligations, including accrued interest and penalties. The payment and timing of any such payments is affected by the ultimate resolution of the tax years that are under audit or remain subject to examination by the relevant taxing authorities, and are therefore not currently capable of estimation by period.

The Company’s general funding policy for its pension plans is to make at least the minimum contributions as required by applicable regulations. Additionally, the Company may elect to make additional contributions up to the maximum tax deductible contribution. As such, the Company made contributions of $20.6 million to its U.S. pension plans in Fiscal 2011. There is no minimum funding requirement for the Company’s U.S. pension plans for Fiscal 2012. The Company is currently evaluating whether or not a U.S. pension contribution will be made in Fiscal 2012. The Company made contributions of $7.1 million to its non-U.S. pension plans in Fiscal 2011 and estimates that it will contribute approximately $4.7 million in Fiscal 2012 based upon the local government prescribed funding requirements. Future estimates of the Company’s pension plan contributions may change significantly depending on the actual rate of return on plan assets, discount rates, and regulatory requirements.

The Company has a five-year, multi-currency revolving facility with a group of banks under which the Company may borrow up to $250 million. This facility matures on April 2, 2013. The agreement provides that loans may be made under a selection of currencies and rate formulas including Base Rate Advances or Off Shore Rate Advances. The interest rate on each advance is based on certain market interest rates and leverage ratios. Facility fees and other fees on the entire loan commitment are payable over the duration of this facility. There was nothing outstanding at July 31, 2011 and $50.0 million outstanding at July 31, 2010. At July 31, 2011 and 2010, $238.6 million and $180.0 million, respectively, was available for further borrowing under such facilities. The amount available for further borrowing reflects a reduction for issued standby letters of credit, as discussed below. The weighted average interest rate on short-term borrowings outstanding at July 31, 2010 was 0.6 percent. Our multi-currency revolving facility contains debt covenants specifically related to maintaining a certain interest coverage ratio and a certain leverage ratio as well as other covenants that under certain circumstances can restrict our ability to incur additional indebtedness, make investments and other restricted payments, create liens, and sell assets. As of July 31, 2011, the Company was in compliance with all such covenants.

The Company has three uncommitted credit facilities in the United States, which provide unsecured borrowings for general corporate purposes. At July 31, 2011 and 2010, there was $56.9 million and $70.0 million available for use, respectively. There was $13.1 million outstanding at July 31, 2011 and nothing outstanding at July 31, 2010.

The Company has a €100 million program for issuing treasury notes for raising short, medium, and long-term financing for its European operations. There was nothing outstanding on this program at July 31, 2011 or 2010. Additionally, the Company’s European operations have lines of credit with an available limit of €45.6 million. There was nothing outstanding on these lines of credit as of July 31, 2011 or 2010.

Other international subsidiaries may borrow under various credit facilities. There was nothing outstanding under these credit facilities as of July 31, 2011 or 2010.

Also, at July 31, 2011 and 2010, the Company had outstanding standby letters of credit totaling $11.4 million, upon which no amounts had been drawn. The letters of credit guarantee payment to third parties in the event the Company is in breach of a specified bond financing agreement and insurance contract terms as detailed in each letter of credit.

During Fiscal 2011, credit in the global credit markets became more accessible than in recent years and market interest rates remained low. The Company believes that its current financial resources are sufficient to continue financing its operations for the next twelve months. There can be no assurance, however, that the cost or availability of future borrowings will not be impacted by future capital market disruptions.

Certain note agreements contain debt covenants related to working capital levels and limitations on indebtedness. As of July 31, 2011, the Company was in compliance with all such covenants. The Company currently expects to remain in compliance with these covenants.

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Shareholders’ equity increased $188.1 million in Fiscal 2011 to $934.7 million at July 31, 2011. The increase was primarily due to the current year earnings of $225.3 million, changes to foreign currency translation of $72.5 million, $13.8 million of stock options exercised, $12.2 million in tax reductions related to employee plans, $7.2 million (net of tax) of adjustments related to the pension liability, and $6.5 million of stock option expense. These increases were partially offset by $108.9 million of treasury stock repurchases and $42.8 million of dividend declarations.

Cash Flows During Fiscal 2011, $246.1 million of cash was generated from operating activities, compared with $203.0 million in Fiscal 2010. The increase in cash generated from operating activities of $43.1 million was primarily attributable to the Company’s net earnings increase of $59.1 million over the prior year, partially offset by changes in working capital needs resulting from increased inventory to support increased demand and a larger discretionary pension contribution than the prior year. Cash flow generated by operations and cash on hand was used primarily to support $59.9 million of net capital expenditures, $108.9 million for stock repurchases, $41.0 million for dividend payments and to reduce total debt by $50.0 million. Cash and cash equivalents increased $41.5 million during Fiscal 2011.

Net capital expenditures for property, plant and equipment totaled $59.9 million in Fiscal 2011 and $42.7 million in Fiscal 2010. Net capital expenditures is comprised of purchases of property, plant, and equipment of $60.6 million and $43.1 million in Fiscal 2011 and 2010, respectively, partially offset by proceeds from the sale of property, plant and equipment of $0.8 million in Fiscal 2011 and $0.5 million in Fiscal 2010. Fiscal 2011 capital expenditures primarily related to new plant capacity additions, productivity enhancing investments at various plants worldwide, and tooling to manufacture new products.

Capital spending in Fiscal 2012 is planned to be approximately $100.0 million. It is anticipated that Fiscal 2012 capital expenditures will be financed primarily by cash on hand, cash generated from operations, and existing lines of credit as needed.

The Company expects that cash generated by operating activities will be between $275 and $305 million in Fiscal 2012. At July 31, 2011, the Company had cash of $273.5 million, which exists at subsidiaries outside of the United States. The Company also had $295.5 million available under existing credit facilities in the United States, €145.6 million or $209.7 million, available under existing credit facilities in Europe and $67.5 million available under various credit facilities and currencies in Asia and the rest of the world. The Company believes that the combination of existing cash, available credit under existing credit facilities, and the expected cash generated by operating activities will be adequate to meet cash requirements for Fiscal 2012, including debt repayment, issuance of anticipated dividends, possible share repurchase activity, and capital expenditures.

Dividends The Company’s dividend policy is to maintain a payout ratio, which allows dividends to increase with the long-term growth of earnings per share. The Company’s dividend payout ratio target is 20 percent to 30 percent of the average earnings per share of the last three years. Including the Company’s declaration on July 29, 2011 of a $0.15 per share dividend to be paid, the dividend payout ratio was 28.1 percent on July 31, 2011.

Share Repurchase Plan The Board of Directors authorized the repurchase of 8.0 million shares of common stock under the stock repurchase plan dated March 26, 2010. In Fiscal 2011, the Company repurchased 2.0 million shares of common stock for $108.9 million, or 2.5 percent of its diluted outstanding shares, at an average price of $55.67 per share. The Company repurchased 1.7 million shares for $66.7 million in Fiscal 2010. The Company repurchased 0.8 million shares for $32.8 million in Fiscal 2009. As of July 31, 2011, the Company had remaining authorization to repurchase 5.0 million shares pursuant to the current authorization. The Company initiated the purchase of an additional 162,900 shares in July 2011 for $9.2 million that are not included in Fiscal 2011 repurchases as the transactions did not settle until after fiscal year end. These repurchases will be included in Fiscal 2012 activity.

Off-Balance Sheet Arrangements The Company does not have any off-balance sheet arrangements, with the exception of the guarantee of 50 percent of certain debt of its joint venture, AFSI as further discussed in Note L of the Company’s Notes to Consolidated Financial Statements. As of July 31, 2011, the joint venture had $24.6 million of outstanding debt. The Company does not believe that this guarantee will have a current or future effect on its financial condition, results of operation, liquidity or capital resources.

New Accounting Standards In December 2010, the FASB updated the accounting guidance relating to the annual goodwill impairment test. The updated guidance requires companies to perform the second step of the impairment test to measure the amount of impairment loss, if any, when it is more likely than not that goodwill impairment exists when the carrying amount of a reporting unit is zero or negative. In considering whether it is more likely than not that goodwill impairment exists, an entity shall evaluate whether there are adverse qualitative factors. The updated guidance

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is effective for the Company beginning in the first quarter of fiscal year 2012. The adoption of this guidance is not expected to have a material impact on the Company’s consolidated financial statements.

In May 2011, the FASB updated the accounting guidance related to fair value measurements. The updated guidance results in a consistent definition of fair value and common requirements for measurement of and disclosure about fair value between U.S. GAAP and International Financial Reporting Standards (IFRS). The updated guidance is effective for the Company beginning in the third quarter of fiscal year 2012. The Company is currently evaluating the impact of adoption of this accounting guidance on its consolidated financial statements.

In June 2011, the FASB updated the disclosure requirements for comprehensive income. The updated guidance requires companies to disclose the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The updated guidance does not affect how earnings per share is calculated or presented. The updated guidance is effective for the Company beginning in the third quarter of fiscal year 2012. The Company is currently evaluating the impact of adoption of this accounting guidance on its consolidated financial statements.

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 from time to time through the use of a variety of financial and derivative instruments. The Company does not enter into any of these instruments for trading purposes to generate revenue. Rather, the Company’s objective in 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 existing recognized foreign currency denominated asset and liability balances and also for anticipated foreign currency transactions. The Company also naturally hedges foreign currency through its production in the countries in which it sells its products. The Company’s market risk on interest rates is the potential decrease in fair value of long-term debt resulting from a potential increase in interest rates. See further discussion of these market risks below and in Note E of the Notes to Consolidated Financial Statements.

Foreign Currency During Fiscal 2011, the U.S. dollar was generally weaker than Fiscal 2010 compared to many of the currencies of the foreign countries in which the Company operates. The overall weakness of the dollar had a positive impact on the Company’s international net sales results because the foreign denominated revenues translated into more U.S. dollars.

It is not possible to determine the true impact of foreign currency translation changes. However, the direct effect on reported net sales and net earnings can be estimated. For the year ended July 31, 2011, the impact of foreign currency translation resulted in an overall increase in reported net sales of $49.8 million, operating expenses of $9.7 million and reported net earnings of $6.1 million. Foreign currency translation had a positive impact in most regions around the world. In Europe, the weaker U.S. dollar relative to the euro and British pound resulted in a total increase of $8.1 million in reported net sales. The weaker U.S. dollar relative to the Japanese yen, Australian dollar, Mexican peso, Chinese renminbi, South African rand, and Thai baht also had a positive impact on foreign currency translation, with an increase in reported net sales of $15.6 million, $8.8 million, $5.0 million, $4.8 million, $4.4 million, and $4.1 million, respectively, and an increase in reported net earnings of $1.1 million, $1.2 million, $0.6 million, $0.9 million, $0.4 million, and $1.0 million, respectively.

The Company maintains significant assets and operations in Europe, Asia-Pacific, South Africa, and Mexico, resulting in exposure to foreign currency gains and losses. A portion of the Company’s foreign currency exposure is naturally hedged by incurring liabilities, including bank debt, denominated in the local currency in which the Company’s foreign subsidiaries are located.

The foreign subsidiaries of the Company generally purchase the majority of their input costs and then sell to many of their Customers in the same local currency.

The Company may be exposed to cost increases relative to local currencies in the markets to which it sells. To mitigate such adverse trends, the Company, from time to time, enters into forward exchange contracts and other hedging activities. Additionally, foreign currency positions are partially offsetting and are netted against one another to reduce exposure.

Some products made in the United States are sold abroad. As a result, sales of such products are affected by the value of the U.S. dollar relative to other currencies. Any long-term strengthening of the U.S. dollar could depress these

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sales. Also, competitive conditions in the Company’s markets may limit its ability to increase product pricing in the face of adverse currency movements.

Interest The Company’s exposure to market risks for changes in interest rates relates primarily to its short-term investments, short-term borrowings, and interest rate swap agreements as well as the potential increase in fair value of long-term debt resulting from a potential decrease in interest rates. The Company has no earnings or cash flow exposure due to market risks on its long-term debt obligations as a result of the fixed-rate nature of the debt. However, interest rate changes would affect the fair market value of the debt. As of July 31, 2011, the estimated fair value of long-term debt with fixed interest rates was $268.3 million compared to its carrying value of $247.0 million. The fair value is estimated by discounting the projected cash flows using the rate that similar amounts of debt could currently be borrowed. As of July 31, 2011, the Company’s financial liabilities with exposure to changes in interest rates consisted mainly of $13.1 million of short-term debt outstanding. Assuming a hypothetical increase of one-half percent in short-term interest rates, with all other variables remaining constant, interest expense would have increased $0.4 million in Fiscal 2011.

Pensions The Company is exposed to market return fluctuations on its qualified defined benefit pension plans. Although the market value of these assets increased in Fiscal 2011, we adjusted our long–term rate of return from 8.0 percent to 7.75 percent on our U.S. plans and from a weighted average of 6.17 percent to 6.03 percent on our non-U.S. plans to reflect our future expectation for returns. In addition, we adjusted our discount rate used to value our pension obligation for our U.S. plans from 5.25 percent to 4.91 percent and from 5.17 percent to 5.36 percent for the non-U.S plans. Our plans were underfunded by $30.5 million at July 31, 2011, since the projected benefit obligation exceeded the fair value of the plan assets.

Critical Accounting Policies

The Company’s consolidated financial statements are prepared in conformity with generally accepted accounting principles in the United States of America (U.S. GAAP). The preparation of these financial statements requires the use of estimates, judgments and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the periods presented. Management bases these estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the recorded values of certain assets and liabilities. The Company believes its use of estimates and underlying accounting assumptions adheres to U.S. GAAP and is consistently applied. Valuations based on estimates and underlying accounting assumptions are reviewed for reasonableness on a consistent basis throughout the Company. Management believes the Company’s critical accounting policies that require more significant judgments and estimates used in the preparation of its consolidated financial statements and that are the most important to aid in fully understanding its financial results are the following:

Revenue recognition, warranty and allowance for doubtful accounts Revenue is recognized when both product ownership and the risk of loss have transferred to the Customer and the Company has no remaining obligations. The Company records estimated discounts and rebates as a reduction of sales in the same period revenue is recognized. Accruals for warranties on products sold are recorded based on historical return percentages and specific product recall campaigns. Allowances for doubtful accounts are estimated by management based on evaluation of potential losses related to Customer receivable balances. The Company determines the allowance based on historical write-off experience in the industry, regional economic data, and evaluation of specific Customer accounts for risk of loss. The Company reviews its allowance for doubtful accounts monthly. Account balances are charged off against the allowance when the Company feels it is probable the receivable will not be recovered. The Company does not have any off-balance sheet credit exposure related to its Customers. The establishment of this reserve requires the use of judgment and assumptions regarding the potential for losses on receivable balances. Though management considers these balances adequate and proper, changes in economic conditions in specific markets in which the Company operates could have an effect on reserve balances required.

Goodwill and other intangible assets Goodwill is assessed for impairment annually, or more frequently if events or changes in circumstances indicate that the asset might be impaired. The Company performs impairment assessments for its reporting units and uses a discounted cash flow model based on management’s judgments and assumptions to determine the estimated fair value. An impairment loss generally would be recognized when the carrying amount of the reporting unit’s net assets exceeds the estimated fair value of the reporting unit. The Company performed an impairment assessment during the third quarter of Fiscal 2011 to satisfy its annual impairment requirement. The impairment assessment in the third quarter indicated that the estimated fair value of each reporting unit exceeded its corresponding carrying amount, including recorded goodwill and, as such, no impairment existed at that time. Other intangible assets with definite lives continue to be amortized over their estimated useful lives. Definite lived intangible

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assets are also subject to impairment assessments. A considerable amount of management judgment and assumptions are required in performing the impairment assessments, principally in determining the fair value of each reporting unit. While the Company believes its judgments and assumptions are reasonable, different assumptions could change the estimated fair values and, therefore, impairment charges could be required.

Income taxes As part of the process of preparing the Company’s Consolidated Financial Statements, management is required to estimate income taxes in each of the jurisdictions in which the Company operates. This process involves estimating actual current tax exposure together with assessing temporary differences resulting from differing treatment of items for tax and book accounting purposes. These differences result in deferred tax assets and liabilities, which are included within the Company’s Consolidated Balance Sheet. These assets and liabilities are evaluated by using estimates of future taxable income streams and the impact of tax planning strategies. Management assesses the likelihood that deferred tax assets will be recovered from future taxable income and to the extent management believes that recovery is not likely, a valuation allowance is established. To the extent that a valuation allowance is established or increased, an expense within the tax provision is included in the statement of operations. Reserves are also estimated for uncertain tax positions that are currently unresolved. The Company routinely monitors the potential impact of such situations and believes that it is properly reserved. Valuations related to tax accruals and assets can be impacted by changes to tax codes, changes in statutory tax rates and the Company’s future taxable income levels. As of July 31, 2011, the liability for unrecognized tax benefits, accrued interest and penalties was $21.5 million.

Employee Benefit Plans The Company incurs expenses relating to employee benefits such as non-contributory defined benefit pension plans, and postretirement health care benefits. In accounting for these employment costs, management must make a variety of assumptions and estimates including mortality rates, discount rates, overall Company compensation increases, expected return on plan assets, and health care cost trend rates. The Company considers historical data as well as current facts and circumstances and uses a third-party specialist to assist management in determining these estimates.

To develop the assumption regarding the expected long-term rate of return on assets for its U.S. pension plans, the Company considered the historical returns and the future expectations for returns for each asset class, as well as the target asset allocation of the pension portfolio. This resulted in the selection of the 7.75 percent long-term rate of return on assets assumption as of July 31, 2011 for developing the Fiscal 2012 expense for the Company’s U.S. pension plans. In addition, we lowered our discount rate used to value our pension obligation for our U.S. plans from 5.25 percent to 4.91 percent. The expected long-term rate of return on assets assumption for the plans outside the U.S. reflects the investment allocation and expected total portfolio returns specific to each plan and country.

Reflecting the relatively long-term nature of the plans’ obligations, approximately 45 percent of the plans assets are invested in equity securities, 30 percent in alternative investments (funds of hedge funds), 10 percent in real assets (investments into funds containing commodities and real estate), 10 percent in fixed income, and 5 percent in private equity. Within equity securities, the Company targets an allocation of 15 percent international, 15 percent equity long / short, 10 percent small cap, and 5 percent large cap.

A one percent change in the expected long-term rate of return on U.S. plan assets, from 8.0 percent, would have changed the Fiscal 2011 annual pension expense by approximately $2.7 million. The expected long-term rate of return on assets assumption for the plans outside the U.S. follows the same methodology as described above but reflects the investment allocation and expected total portfolio returns specific to each plan and country.

The Company’s objective in selecting a discount rate for its pension plans is to select the best estimate of the rate at which the benefit obligations could be effectively settled on the measurement date, taking into account the nature and duration of the benefit obligations of the plan. In making this best estimate, the Company looks at rates of return on high-quality fixed-income investments currently available and expected to be available during the period to maturity of the benefits. This process includes assessing the universe of bonds available on the measurement date with a quality rating of Aa or better. Similar appropriate benchmarks are used to determine the discount rate for the non-U.S. plans. As of the measurement date of July 31, 2011, the Company decreased its discount rate for the U.S. pension plans to 4.91 percent from 5.25 percent as of July 31, 2010. The decrease of 34 basis points is consistent with published bond indices. The change increased the Company’s U.S. projected benefit obligation as of July 31, 2011 by approximately $7.2 million and is expected to increase pension expense in fiscal year 2012 by approximately $0.5 million. The rates discussed above are weighted average rates as we have multiple plans both in the U.S. and internationally.

S afe Harbor Statement under the Securities Reform Act of 1995

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

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included 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 in Item 1A of this Form 10-K, 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 (“PSLRA”). In particular the Company desires to take advantage of the protections of the PSLRA in connection with the forward-looking statements made in this Annual Report on Form 10-K, including those contained in the “Outlook” section of Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation.

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 in Item 1A of this Form 10-K, as well as other factors, could affect the Company’s performance and could cause the Company’s actual results for future periods to differ materially from any opinions or statements expressed. These factors include, but are not limited to risks associated with: world economic factors and the ongoing economic uncertainty, the reduced demand for hard disk drive products with the increased use of flash memory, the potential for some Customers to increase their reliance on their own filtration capabilities, currency fluctuations, commodity prices, political factors, the Company’s international operations, highly competitive markets, environmental laws and regulations, including regulatory approvals for Retrofit Emission Products, governmental laws and regulations, including the impact of the various economic stimulus and financial reform measures being implemented, the implementation of our new information technology systems, potential global events resulting in market instability including financial bailouts of sovereign nations, political changes, military and terrorist activities, health outbreaks, and other factors included in Item 1A of this Report on Form 10-K. 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.

I tem 7A. Quantitative and Qualitative Disclosures about Market Risk

Market risk disclosure appears in Management’s Discussion and Analysis on page 21under “Market Risk.”

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I tem 8. Financial Statements and Supplementary Data

Management’s Report on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Management conducted an evaluation of the effectiveness of internal control over financial reporting based on the framework in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on this evaluation, management concluded that the Company’s internal control over financial reporting was effective as of July 31, 2011. The Company’s independent registered public accounting firm, PricewaterhouseCoopers LLP, has audited the effectiveness of the Company’s internal control over financial reporting as of July 31, 2011, as stated in this report which follows in Item 8 of this Form 10-K.


/s/ William M. Cook	/s/ Thomas R. VerHage

William M. Cook	Thomas R. VerHage
Chief Executive Officer	Chief Financial Officer
September 23, 2011	September 23, 2011

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Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors of Donaldson Company, Inc.

In our opinion, the accompanying consolidated balance sheets and the related statements of earnings, shareholders’ equity and cash flows present fairly, in all material respects, the financial position of Donaldson Company, Inc. and its subsidiaries at July 31, 2011 and 2010, and the results of their operations and their cash flows for each of the three years in the period ended July 31, 2011, in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion the financial statement schedule appearing under item 15(II) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of July 31, 2011, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on these financial statements, on the financial statement schedule, and on the Company’s internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Minneapolis, Minnesota
September 23, 2011

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Consolidated Statements of Earnings
Donaldson Company, Inc. and Subsidiaries


	Year ended July 31,
	2011			2010			2009
	(thousands of dollars, except share and per share amounts )
Net sales	$	2,294,029		$	1,877,064		$	1,868,629
Cost of sales		1,480,233			1,218,316			1,278,923
Gross margin		813,796			658,748			589,706
Selling, general and administrative		443,227			376,018			379,108
Research and development		55,286			44,486			40,643
Operating income		315,283			238,244			169,955
Interest expense		12,525			11,975			17,018
Other income, net		(9,505	)		(3,907	)		(8,488	)
Earnings before income taxes		312,263			230,176			161,425
Income taxes		86,972			64,013			29,518
Net earnings	$	225,291		$	166,163		$	131,907
Weighted average shares - basic		77,196,370			77,848,528			77,967,141
Weighted average shares - diluted		78,598,459			79,177,772			79,199,838
Net earnings per share - basic	$	2.92		$	2.13		$	1.69
Net earnings per share - diluted	$	2.87		$	2.10		$	1.67

The accompanying notes are an integral part of these Consolidated Financial Statements.

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Consolidated Balance Sheets
Donaldson Company, Inc. and Subsidiaries


	At July 31,
	2011			2010
	(thousands of dollars, except share amounts)
Assets
Current assets
Cash and cash equivalents	$	273,494		$	232,000
Accounts receivable, less allowance of $6,908 and $6,315		445,700			358,917
Inventories, net		271,476			203,631
Deferred income taxes		29,805			22,054
Prepaids and other current assets		46,107			43,613
Total current assets	$	1,066,582		$	860,215
Property, plant and equipment, net		391,502			365,892
Goodwill		171,741			165,315
Intangible assets, net		53,496			58,292
Other assets		42,772			49,792
Total assets	$	1,726,093		$	1,499,506

Liabilities and shareholders’ equity
Current liabilities
Short-term borrowings	$	13,129		$	50,000
Current maturities of long-term debt		47,871			5,536
Trade accounts payable		215,918			165,907
Accrued employee compensation and related taxes		86,974			73,632
Accrued liabilities		64,008			40,546
Other current liabilities		68,344			53,635
Total current liabilities		496,244			389,256
Long-term debt		205,748			256,192
Deferred income taxes		11,196			7,076
Other long-term liabilities		78,194			100,349
Total liabilities		791,382			752,873
Commitments and contingencies (Note N)
Shareholders’ equity
Preferred stock, $1.00 par value, 1,000,000 shares authorized, none issued		—			—
Common stock, $5.00 par value, 120,000,000 shares authorized, 88,643,194 shares issued in 2011 and 2010		443,216			443,216
Retained earnings		925,542			744,247
Stock compensation plans		24,736			22,326
Accumulated other comprehensive income (loss)		40,027			(40,486	)
Treasury stock, 13,245,864 and 12,222,381 shares in 2011 and 2010, at cost		(498,810	)		(422,670	)
Total shareholders’ equity		934,711			746,633
Total liabilities and shareholders’ equity	$	1,726,093		$	1,499,506

The accompanying notes are an integral part of these Consolidated Financial Statements.

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Consolidated Statements of Cash Flows
Donaldson Company, Inc. and Subsidiaries


	Year ended July 31,
	2011			2010			2009
	(thousands of dollars)
Operating Activities
Net earnings	$	225,291		$	166,163		$	131,907
Adjustments to reconcile net earnings to net cash provided by operating activities
Depreciation and amortization		60,491			59,232			58,597
Equity in losses (earnings) of affiliates, net of distributions		(2,585	)		183			(982	)
Deferred income taxes		1,957			3,025			(4,726	)
Tax benefit of equity plans		(9,873	)		(4,625	)		(2,663	)
Stock compensation plan expense		9,234			8,253			1,900
Other, net		(11,991	)		(6,110	)		(7	)
Changes in operating assets and liabilities, net of acquired businesses
Accounts receivable		(62,274	)		(79,308	)		116,983
Inventories		(52,999	)		(25,826	)		66,145
Prepaids and other current assets		7,233			(3,970	)		(11,489	)
Trade accounts payable and other accrued expenses		81,571			85,988			(78,738	)
Net cash provided by operating activities		246,055			203,005			276,927
Investing Activities
Purchases of property, plant and equipment		(60,633	)		(43,149	)		(46,080	)
Proceeds from sale of property, plant and equipment		782			490			511
Acquisitions, investments and divestitures of affiliates		3,493			(250	)		(74,318	)
Net cash used in investing activities		(56,358	)		(42,909	)		(119,887	)
Financing Activities
Proceeds from long-term debt		6,774			531			80,471
Repayments of long-term debt		(13,353	)		(5,508	)		(7,745	)
Change in short-term borrowings		(36,603	)		20,713			(103,695	)
Purchase of treasury stock		(108,929	)		(66,696	)		(32,773	)
Dividends paid		(41,013	)		(36,242	)		(35,166	)
Tax benefit of equity plans		9,873			4,625			2,663
Exercise of stock options		15,899			13,053			4,476
Net cash used in financing activities		(167,352	)		(69,524	)		(91,769	)
Effect of exchange rate changes on cash		19,149			(2,259	)		(4,941	)
Increase in cash and cash equivalents		41,494			88,313			60,330
Cash and cash equivalents, beginning of year		232,000			143,687			83,357
Cash and cash equivalents, end of year	$	273,494		$	232,000		$	143,687

Supplemental Cash Flow Information
Cash paid during the year for:
Income taxes	$	57,688		$	40,032		$	41,196
Interest		12,852			11,446			14,861

The accompanying notes are an integral part of these Consolidated Financial Statements.

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Consolidated Statements of Changes in Shareholders’ Equity
Donaldson Company, Inc. and Subsidiaries


	Common Stock		Additional Paid-in Capital			Retained Earnings			Stock Compensation Plans			Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Total
	(thousands of dollars, except per share amounts)
Balance July 31, 2008	$	443,216	$	—		$	522,476		$	27,065		$	112,883		$	(365,605	)	$	740,035
Comprehensive income
Net earnings							131,907												131,907
Foreign currency translation													(63,385	)					(63,385	)
Pension liability adjustment, net of deferred taxes													(58,593	)					(58,593	)
Net loss on cash flow hedging derivatives													(582	)					(582	)
Comprehensive income																			9,347
Treasury stock acquired																(32,773	)		(32,773	)
Stock options exercised				(2,998	)		(6,151	)								12,104			2,955
Deferred stock and other activity				(529	)		(88	)		(4,344	)					3,710			(1,251	)
Performance awards				(266	)		(60	)		(2,827	)					1,932			(1,221	)
Stock option expense							4,143												4,143
Tax reduction - employee plans				3,793															3,793
Adjustment to adopt retirement benefit compensation guidance, net of tax							(887	)											(887	)
Dividends ($0.460 per share)							(35,523	)											(35,523	)
Balance July 31, 2009		443,216		—			615,817			19,894			(9,677	)		(380,632	)		688,618
Comprehensive income
Net earnings							166,163												166,163
Foreign currency translation													(15,961	)					(15,961	)
Pension liability adjustment, net of deferred taxes													(14,780	)					(14,780	)
Net loss on cash flow hedging derivatives													(68	)					(68	)
Comprehensive income																			135,354
Treasury stock acquired																(66,696	)		(66,696	)
Stock options exercised				(5,608	)		(7,678	)		2,676						22,951			12,341
Deferred stock and other activity				(704	)		(30	)		(244	)					1,707			729
Performance awards				7			(7	)											—
Stock option expense							6,891												6,891
Tax reduction - employee plans				6,305															6,305
Dividends ($0.480 per share)							(36,909	)											(36,909	)
Balance July 31, 2010		443,216		—			744,247			22,326			(40,486	)		(422,670	)		746,633
Comprehensive income
Net earnings							225,291												225,291
Foreign currency translation													72,505						72,505
Pension liability adjustment, net of deferred taxes													7,166						7,166
Net gain on cash flow hedging derivatives													842						842
Comprehensive income																			305,804
Treasury stock acquired																(108,929	)		(108,929	)
Stock options exercised				(10,792	)		(7,854	)		1,862						30,604			13,820
Deferred stock and other activity				(1,418	)		174			548						2,185			1,489
Performance awards				(7	)		7												—
Stock option expense							6,462												6,462
Tax reduction - employee plans				12,217															12,217
Dividends ($0.560 per share)							(42,785	)											(42,785	)
Balance July 31, 2011	$	443,216	$	—		$	925,542		$	24,736		$	40,027		$	(498,810	)	$	934,711

The accompanying notes are an integral part of these Consolidated Financial Statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Donaldson Company, Inc. and Subsidiaries

NOTE A Summary of Significant Accounting Policies

Description of Business Donaldson Company, Inc. (“Donaldson” or the “Company”), is a worldwide manufacturer of filtration systems and replacement parts. The Company’s product mix includes air and liquid filtration systems and exhaust and emission control products. Products are manufactured at 39 plants around the world and through three joint ventures. Products are sold to original equipment manufacturers (“OEMs”), distributors, dealers, and directly to end-users.

Principles of Consolidation The Consolidated Financial Statements include the accounts of Donaldson Company, Inc. and all majority-owned subsidiaries. All intercompany accounts and transactions have been eliminated. The Company’s three joint ventures that are not majority-owned are accounted for under the equity method. The Company does not have any variable interests in variable interest entities as of July 31, 2011. The Company uses a fiscal period which ends on a calendar basis for international affiliates and on the Friday nearest to July 31 for U.S. purposes.

Use of Estimates The preparation of Financial Statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Foreign Currency Translation For foreign operations, local currencies are considered the functional currency. Assets and liabilities are translated to U.S. dollars at year-end exchange rates and the resulting gains and losses arising from the translation of net assets located outside the United States are recorded as a cumulative translation adjustment, a component of Accumulated other comprehensive income (loss) in the Consolidated Balance Sheets. Elements of the Consolidated Statements of Earnings are translated at average exchange rates in effect during the year. Realized and unrealized foreign currency transaction gains and losses are included in Other income, net in the Consolidated Statements of Earnings. Foreign currency transaction losses of $4.5 million, $4.6 million, and $0.2 million are included in Other income, net in the Consolidated Statements of Earnings in Fiscal 2011, 2010, and 2009, respectively.

Cash Equivalents The Company considers all highly liquid temporary investments with a maturity of three months or less when purchased to be cash equivalents. Cash equivalents are carried at cost that approximates market value.

Short-Term Investments Classification of the Company’s investments as current or non-current is dependent upon management’s intended holding period, the investment’s maturity date and liquidity considerations based on market conditions. If management intends to hold the investments for longer than one year as of the balance sheet date, they are classified as non-current. The Company does not have any short-term investments as of July 31, 2011.

Accounts Receivable and Allowance for Doubtful Accounts Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in its existing accounts receivable. The Company determines the allowance based on historical write-off experience in the industry, regional economic data, and evaluation of specific Customer accounts for risk of loss. The Company reviews its allowance for doubtful accounts monthly. Past due balances over 90 days and over a specified amount are reviewed individually for collectability. All other balances are reviewed on a pooled basis by type of receivable. Account balances are charged off against the allowance when the Company feels it is probable the receivable will not be recovered. The Company does not have any off-balance-sheet credit exposure related to its Customers.

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Inventories Inventories are stated at the lower of cost or market. U.S. inventories are valued using the last-in, first-out (“LIFO”) method, while the international subsidiaries use the first-in, first-out (“FIFO”) method. Inventories valued at LIFO were approximately 33 percent and 31 percent of total inventories at July 31, 2011 and 2010, respectively. For inventories valued under the LIFO method, the FIFO cost exceeded the LIFO carrying values by $37.1 million and $32.7 million at July 31, 2011 and 2010, respectively. Results of operations for all periods presented were not materially affected by the liquidation of LIFO inventory. As of July 31, 2011 and 2010, the Company had obsolete inventory reserves of $14.5 million and $14.9 million, respectively. The components of inventory are as follows (thousands of dollars):


	At July 31,
	2011		2010
Materials	$	110,466	$	79,371
Work in process		33,917		23,163
Finished products		127,093		101,097
Total inventories	$	271,476	$	203,631

Property, Plant and Equipment Property, plant and equipment are stated at cost. Additions, improvements, or major renewals are capitalized, while expenditures that do not enhance or extend the asset’s useful life are charged to operating expense as incurred. Depreciation is computed under the straight-line method. Depreciation expense was $54.5 million in Fiscal 2011, $53.2 million in Fiscal 2010, and $52.9 million in Fiscal 2009. The estimated useful lives of property, plant, and equipment are 10 to 40 years for buildings, including building improvements, and 3 to 10 years for machinery and equipment. The components of property, plant, and equipment are as follows (thousands of dollars):


	At July 31,
	2011			2010
Land	$	22,578		$	21,771
Buildings		266,482			240,787
Machinery and equipment		625,439			587,977
Construction in progress		31,375			26,223
Less accumulated depreciation		(554,372	)		(510,866	)
Total property, plant and equipment, net	$	391,502		$	365,892

Internal-Use Software The Company capitalizes direct costs of materials and services used in the development and purchase of internal-use software. Amounts capitalized are amortized on a straight-line basis over a period of five years and are reported as a component of machinery and equipment within property, plant, and equipment.

Goodwill and Other Intangible Assets Goodwill represents the excess of the purchase price over the fair value of net assets acquired in business combinations under the purchase method of accounting. Other intangible assets, consisting primarily of patents, trademarks, Customer relationships and lists, are recorded at cost and are amortized on a straight-line basis over their estimated useful lives of 3 to 20 years. Goodwill is assessed for impairment annually or if an event occurs or circumstances change that would indicate the carrying amount may be impaired. The impairment assessment for goodwill is done at a reporting unit level. Reporting units are one level below the business segment level, but can be combined when reporting units within the same segment have similar economic characteristics. An impairment loss generally would be recognized when the carrying amount of the reporting unit’s net assets exceeds the estimated fair value of the reporting unit. The Company completed its annual impairment assessment in the third quarters of Fiscal 2011 and 2010, which indicated no impairment.

Recoverability of Long-Lived Assets The Company reviews its long-lived assets, including identifiable intangibles, for impairment when events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If impairment indicators are present and the estimated future undiscounted cash flows are less than the carrying value of the assets, the carrying value is reduced.

Income Taxes The provision for income taxes is computed based on the pretax income included in the Consolidated Statements of Earnings. Deferred tax assets and liabilities are recognized for the expected future tax consequences attributed to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to reverse.

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Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized.

Comprehensive Income (Loss) Comprehensive income (loss) consists of net income, foreign currency translation adjustments, net changes in the funded status of pension retirement obligations, and net gain or loss on cash flow hedging derivatives, and is presented in the Consolidated Statements of Changes in Shareholders’ Equity. The components of the ending balances of Accumulated other comprehensive income (loss) are as follows (thousands of dollars):


	At July 31,
	2011			2010			2009
Foreign currency translation adjustment	$	131,699		$	59,194		$	75,155
Net gain (loss) on cash flow hedging derivatives, net of deferred taxes		380			(462	)		(394	)
Pension liability adjustment, net of deferred taxes		(92,052	)		(99,218	)		(84,438	)
Total accumulated other comprehensive income (loss)	$	40,027		$	(40,486	)	$	(9,677	)

Cumulative foreign translation is not adjusted for income taxes.

Earnings Per Share The Company’s basic net earnings per share are 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 equivalent shares relating to stock options and stock incentive plans. Certain outstanding options were excluded from the diluted net earnings per share calculations because their exercise prices were greater than the average market price of the Company’s common stock during those periods. There were 494,349 options, 845,827 options, and 1,158,451 options excluded from the diluted net earnings per share calculation for the fiscal year ended July 31, 2011, 2010, and 2009, respectively.

The following table presents information necessary to calculate basic and diluted earnings per share:


	2011		2010		2009
	(thousands of dollars, except per share amounts)
Weighted average shares - basic		77,196		77,849		77,967
Diluted share equivalents		1,402		1,329		1,233
Weighted average shares - diluted		78,598		79,178		79,200
Net earnings for basic and diluted earnings per share computation	$	225,291	$	166,163	$	131,907
Net earnings per share - basic	$	2.92	$	2.13	$	1.69
Net earnings per share - diluted	$	2.87	$	2.10	$	1.67

Treasury Stock Repurchased common stock is stated at cost and is presented as a separate reduction of shareholders’ equity.

Research and Development Research and development costs are charged against earnings in the year incurred. Research and development expenses include basic scientific research and the application of scientific advances to the development of new and improved products and their uses.

Stock-Based Compensation The Company offers stock-based employee compensation plans, which are more fully described in Note I. Stock-based employee compensation cost is recognized using the fair-value based method.

Revenue Recognition Revenue is recognized when both product ownership and the risk of loss have transferred to the Customer and the Company has no remaining obligations. The Company records estimated discounts and rebates as a reduction of sales in the same period revenue is recognized. Shipping and handling costs for Fiscal 2011, 2010, and 2009 totaling $61.9 million, $49.8 million, and $50.4 million, respectively, are classified as a component of operating expenses.

Product Warranties The Company provides for estimated warranty costs at the time of sale and accrues for specific items at the time their existence is known and the amounts are determinable. The Company estimates warranty costs using standard quantitative measures based on historical warranty claim experience and evaluation of specific Customer warranty issues. For a warranty reserve reconciliation see Note M.

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Derivative Instruments and Hedging Activities The Company recognizes all derivatives on the balance sheet at fair value. Derivatives that are not hedges are adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of derivatives are either offset against the change in fair value of the hedged assets, liabilities or firm commitments through earnings or recognized in shareholders’ equity through other comprehensive income until the hedged item is recognized. Gains or losses related to the ineffective portion of any hedge are recognized through earnings in the current period.

Exit or Disposal Activities The Company accounts for costs relating to exit or disposal activities based on FASB guidance related to exit or disposal cost obligations. This guidance addresses recognition, measurement, and reporting of costs associated with exit and disposal activities including restructuring. See Note O for disclosures related to restructuring.

Guarantees Upon issuance of a guarantee, the Company recognizes a liability for the fair value of an obligation assumed under a guarantee. See Note L for disclosures related to guarantees.

NOTE B Goodwill and Other Intangible Assets

The Company has allocated goodwill to its Industrial Products and Engine Products segments. As of August 1, 2010, as a result of an internal reorganization, the Company transferred Industrial Hydraulics, a component of its Industrial Filtration Solutions Products within the Industrial Products segment to Aftermarket Products within the Engine Products segment, along with the goodwill associated with this component. Disposition of goodwill during Fiscal 2011 relates to the sale of the Company’s Ultracool chiller business, based in Terrassa, Spain, for $3.6 million, which resulted in a gain on sale of $0.4 million in the second quarter. The Ultracool chiller business manufactured industrial circulation chillers and was part of the Company’s Industrial Products segment. There was no acquisition or disposition activity during Fiscal 2010. The Company completed its annual impairment assessments in the third quarters of Fiscal 2011 and 2010. The results of this assessment showed that the fair values of the reporting units to which goodwill is assigned continue to exceed the book values of the respective reporting units, resulting in no goodwill impairment.

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Following is a reconciliation of goodwill for the years ended July 31, 2011 and 2010:


	Engine Products			Industrial Products			Total Goodwill
	(thousands of dollars)
Balance as of July 31, 2009	$	61,582		$	107,445		$	169,027
Foreign exchange translation		(668	)		(3,044	)		(3,712	)
Balance as of July 31, 2010	$	60,914		$	104,401		$	165,315
Goodwill transferred		11,258			(11,258	)		—
Disposition activity		—			(325	)		(325	)
Foreign exchange translation		794			5,957			6,751
Balance as of July 31, 2011	$	72,966		$	98,775		$	171,741

Intangible assets are comprised of patents, trademarks, and Customer relationships and lists. Following is a reconciliation of intangible assets for the years ended July 31, 2011 and 2010:


	Gross Carrying Amount			Accumulated Amortization			Net Intangible Assets
	(thousands of dollars)
Balance as of July 31, 2009	$	85,809		$	(20,423	)	$	65,386
Amortization expense		—			(6,007	)		(6,007	)
Foreign exchange translation		(2,322	)		1,235			(1,087	)
Balance as of July 31, 2010	$	83,487		$	(25,195	)	$	58,292
Amortization expense		—			(5,917	)		(5,917	)
Foreign exchange translation		1,952			(831	)		1,121
Balance as of July 31, 2011	$	85,439		$	(31,943	)	$	53,496

Net intangible assets consist of patents, trademarks and trade names of $20.0 million and $20.5 million as of July 31, 2011 and 2010, respectively, and Customer related intangibles of $33.5 million and $37.8 million as of July 31, 2011 and 2010, respectively. Expected amortization expense relating to existing intangible assets is as follows (in thousands):


Fiscal Year
2012	$	5,863
2013	$	5,700
2014	$	5,327
2015	$	5,221
2016	$	5,206

NOTE C Credit Facilities

The Company has a five-year, multi-currency revolving facility with a group of banks under which the Company may borrow up to $250 million. This facility matures on April 2, 2013. The agreement provides that loans may be made under a selection of currencies and rate formulas including Base Rate Advances or Off Shore Rate Advances. The interest rate on each advance is based on certain market interest rates and leverage ratios. Facility fees and other fees on the entire loan commitment are payable over the duration of this facility. There was nothing outstanding at July 31, 2011, and $50.0 million outstanding at July 31, 2010. At July 31, 2011 and 2010, $238.6 million and $180.0 million, respectively, were available for further borrowing under such facilities. The amount available for further borrowing reflects a reduction for issued standby letters of credit, as discussed below. The weighted average interest rate on these short-term borrowings outstanding at July 31, 2010 was 0.6 percent. Our multi-currency revolving facility contains debt covenants specifically related to maintaining a certain interest coverage ratio and a certain leverage ratio as well as other covenants that under certain circumstances can restrict our ability to incur additional indebtedness, make investments and other restricted payments, create liens, and sell assets. As of July 31, 2011, the Company was in compliance with all such covenants.

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The Company has three uncommitted credit facilities in the United States, which provide unsecured borrowings for general corporate purposes. At July 31, 2011 and 2010, there was $56.9 million and $70.0 million available for use. There was $13.1 million outstanding at July 31, 2011 and nothing outstanding at July 31, 2010. The weighted average interest rate on these short-term borrowings outstanding at July 31, 2011 was 0.9 percent.

Other international subsidiaries may borrow under various credit facilities. There was nothing outstanding under these credit facilities as of July 31, 2011 or 2010.

As discussed further in Note L, at July 31, 2011 and 2010, the Company had outstanding standby letters of credit totaling $11.4 million, upon which no amounts had been drawn. The letters of credit guarantee payment to third parties in the event the Company is in breach of specified bond financing agreement and insurance contract terms as detailed in each letter of credit.

NOTE D Long-Term Debt

Long-term debt consists of the following:


	2011		2010
	(thousands of dollars)
6.39% Unsecured senior notes due August 15, 2010, interest payable semi-annually. This note was repaid on August 16, 2010	$	—	$	4,999
4.85% Unsecured senior notes, interest payable semi-annually, principal payment of $30.0 million due December 17, 2011		30,000		30,000
6.59% Unsecured senior notes, interest payable semi-annually, principal payment of $80.0 million due November 14, 2013		80,000		80,000
5.48% Unsecured senior notes, interest payable semi-annually, principal payment of $50.0 million due June 1, 2017		50,000		50,000
5.48% Unsecured senior notes, interest payable semi-annually, principal payment of $25.0 million due September 28, 2017		25,000		25,000
5.48% Unsecured senior notes, interest payable semi-annually, principal payment of $25.0 million due November 30, 2017		25,000		25,000
1.418% Guaranteed senior notes, interest payable semi-annually, principal payment of ¥1.2 billion due January 31, 2012		15,595		13,884
2.019% Guaranteed senior note, interest payable semi-annually, principal payment of ¥1.65 billion due May 18, 2014		21,442		19,091
Variable Rate Industrial Development Revenue Bonds (“Low Floaters”) interest payable monthly, principal payment of $7.755 million due September 1, 2024, interest rate of 0.40% as of April 25, 2011. These bonds were repaid on April 25, 2011.		—		7,755
Capitalized lease obligations and other, with various maturity dates and interest rates		796		890
Terminated interest rate swap contracts		5,786		5,109
Total		253,619		261,728
Less current maturities		47,871		5,536
Total long-term debt	$	205,748	$	256,192

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Annual maturities of long-term debt are $46.0 million in 2012, $0.3 million in 2013, $101.5 million in 2014, and $100.0 million thereafter. There are no maturities in 2015 or 2016. As of July 31, 2011, the estimated fair value of long-term debt with fixed interest rates was $268.3 million compared to its carrying value of $247.0 million. On April 25, 2011, the Company paid off its Variable Rate Industrial Development Revenue Bond for $7.8 million.

NOTE E Financial Instruments

Derivatives The Company uses forward exchange contracts to manage its exposure to fluctuations in foreign exchange rates. The Company also uses interest rate swaps to manage its exposure to changes in the fair value of its fixed-rate debt resulting from interest rate fluctuations. It is the Company’s policy to enter into derivative transactions only to the extent true exposures exist; the Company does not enter into derivative transactions for speculative or trading purposes. The Company enters into derivative transactions only with counterparties with high credit ratings. These transactions may expose the Company to credit risk to the extent that the instruments have a positive fair value, but the Company has not experienced any material losses, nor does the Company anticipate any material losses.

The Company enters into forward exchange contracts of generally less than one year to hedge forecasted transactions between its subsidiaries and to reduce potential exposure related to fluctuations in foreign exchange rates for existing recognized assets and liabilities. It also utilizes forward exchange contracts for anticipated intercompany and third-party transactions such as purchases, sales, and dividend payments denominated in local currencies. Forward exchange contracts are designated as cash flow hedges as they are designed to hedge the variability of cash flows associated with the underlying existing recognized or anticipated transactions. Changes in the value of derivatives designated as cash flow hedges are recorded in other comprehensive income (loss) in shareholders’ equity until earnings are affected by the variability of the underlying cash flows. At that time, the applicable amount of gain or loss from the derivative instrument that is deferred in shareholders’ equity is reclassified to earnings. The Company expects to record $0.2 million of net deferred gains from these forward exchange contracts during the next twelve months. Effectiveness is measured using spot rates to value both the hedge contract and the hedged item. The excluded forward points, as well as any ineffective portions of hedges, are recorded in earnings through the same line as the underlying transaction. During Fiscal 2011, 2010, and 2009, $1.1 million, $0.2 million, and $0.4 million of losses were recorded due to the exclusion of forward points from the assessment of hedge effectiveness.

The impact on Accumulated other comprehensive income (loss) (OCI) and earnings from foreign exchange contracts that qualified as cash flow hedges for the twelve months ended July 31, 2011 and 2010, was as follows (thousands of dollars):


	July 31,
	2011			2010
Net carrying amount at beginning of year	$	(660	)	$	(650	)
Cash flow hedges deferred in OCI		(782	)		(3,789	)
Cash flow hedges reclassified to income (effective portion)		1,963			3,788
Change in deferred taxes		(280	)		(9	)
Net carrying amount at July 31	$	241		$	(660	)

Fair Value of Financial Instruments At July 31, 2011 and 2010, the Company’s financial instruments included cash and cash equivalents, accounts receivable, accounts payable, short-term borrowings, long-term debt, and derivative contracts. The fair values of cash and cash equivalents, accounts receivable, accounts payable, and short-term borrowings approximated carrying values because of the short-term nature of these instruments. Derivative contracts are reported at their fair values based on third-party quotes. As of July 31, 2011, the estimated fair value of long-term debt with fixed interest rates was $268.3 million compared to its carrying value of $247.0 million. The fair value is estimated by discounting the projected cash flows using the rate that similar amounts of debt could currently be borrowed.

Credit Risk The Company is exposed to credit loss in the event of nonperformance by counterparties in interest rate swaps and foreign exchange forward contracts. Collateral is generally not required of the counterparties or of the Company. In the unlikely event a counterparty fails to meet the contractual terms of an interest rate swap or foreign exchange forward contract, the Company’s risk is limited to the fair value of the instrument. The Company had no interest rate swaps outstanding at July 31, 2011. There was one interest rate swap outstanding at July 31, 2010, which

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was subsequently terminated August 17, 2010. The Company actively monitors its exposure to credit risk through the use of credit approvals and credit limits, and by selecting major international banks and financial institutions as counterparties. The Company has not had any historical instances of non-performance by any counterparties, nor does it anticipate any future instances of non-performance.

NOTE F Fair Value

The following summarizes the Company’s fair value of outstanding derivatives at July 31, 2011, and 2010, on the Consolidated Balance Sheets (thousands of dollars):


	At July 31,
	2011		2010
Asset derivatives recorded under the caption Prepaids and other current assets Foreign exchange contracts	$	945	$	807

Asset derivatives recorded under the caption Other assets Interest rate swap asset	$	—	$	4,590

Liability derivatives recorded under the caption Other current liabilities Foreign exchange contracts	$	1,470	$	2,127

The Company’s derivative financial instruments present certain market and counterparty risks; however, concentration of counterparty risk is mitigated as the Company deals with a variety of major banks worldwide. In addition, only conventional derivative financial instruments are utilized. The Company would not be materially impacted if any of the counterparties to the derivative financial instruments outstanding at July 31, 2011, failed to perform according to the terms of its agreement. At this time, the Company does not require collateral or any other form of securitization to be furnished by the counterparties to its derivative instruments.

The fair values of the Company’s financial assets and financial liabilities listed below reflect the amounts that would be received to sell the assets or paid to transfer the liabilities in an orderly transaction between market participants at the measurement date (exit price). The fair values are based on inputs other than quoted prices that are observable for the asset or liability. These inputs include foreign currency exchange rates and interest rates. The financial assets and financial liabilities are primarily valued using standard calculations and models that use as their basis readily observable market parameters. Industry standard data providers are the primary source for forward and spot rate information for both interest rates and currency rates.


	Significant Other Observable Inputs (Level 2)*
	At July 31,
	2011			2010
Forward exchange contracts – net liability position	$	(525	)	$	(1,320	)
Interest rate swaps – net asset position		—			4,590

*Inputs to the valuation methodology of level 2 assets include quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in inactive markets; inputs other than quoted prices that are observable for the asset or liability; and inputs that are derived principally from or corroborated by observable market data by correlation or other means.

NOTE G Employee Benefit Plans

Pension Plans The Company and certain of its international subsidiaries have defined benefit pension plans for many of their hourly and salaried employees. There are two types of U.S. plans. The first type of U.S. plan is a traditional defined benefit pension plan primarily for production employees. The second is a plan for salaried workers that provides defined benefits pursuant to a cash balance feature whereby a participant accumulates a benefit comprised of a percentage of current salary that varies with years of service, interest credits and transition credits. The international plans generally provide pension benefits based on years of service and compensation level.

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Net periodic pension costs for the Company’s pension plans include the following components:


	2011			2010			2009
	(thousands of dollars)
Net periodic cost:
Service cost	$	16,148		$	13,184		$	15,385
Interest cost		19,440			19,445			18,481
Expected return on assets		(27,538	)		(28,390	)		(29,143	)
Transition amount amortization		225			226			193
Prior service cost amortization		449			293			438
Actuarial loss amortization		3,962			2,864			1,088
Curtailment loss		—			—			910
Net periodic benefit cost	$	12,686		$	7,622		$	7,352

During Fiscal 2009, negotiations with one of our unions resulted in a freeze in pension benefits at one of our U.S. plants. In exchange for the freezing of the plan, participants were made eligible for a Company match in a defined contribution plan. The freeze in the plan resulted in a curtailment loss of $0.9 million during Fiscal 2009.

The obligations and funded status of the Company’s pension plans as of 2011 and 2010, is as follows:


	2011			2010
	(thousands of dollars)
Change in benefit obligation:
Benefit obligation, beginning of year	$	377,903		$	338,154
Service cost		16,148			13,183
Interest cost		19,440			19,445
Plan amendments		1,639			—
Participant contributions		1,058			1,043
Actuarial loss		1,034			31,918
Currency exchange rates		6,936			(6,531	)
Benefits paid		(20,146	)		(19,309	)
Benefit obligation, end of year	$	404,012		$	377,903

Change in plan assets:
Fair value of plan assets, beginning of year	$	319,734		$	297,479
Actual return on plan assets		38,758			31,013
Company contributions		27,655			15,064
Participant contributions		1,058			1,043
Currency exchange rates		6,496			(5,556	)
Benefits paid		(20,146	)		(19,309	)
Fair value of plan assets, end of year	$	373,555		$	319,734

Funded status:
Underfunded status at July 31, 2011 and 2010	$	(30,457	)	$	(58,169	)

The net underfunded status of $30.5 million at July 31, 2011 is recognized in the accompanying Consolidated Balance Sheet as $6.4 million within Other assets for the Company’s over-funded plans and $36.9 million within Other long-term liabilities for the Company’s underfunded plans. Included in Accumulated other comprehensive loss at July 31, 2011 are the following amounts that have not yet been recognized in net periodic pension expense: unrecognized actuarial losses of $134.7 million, unrecognized prior service cost of $5.1 million, and unrecognized transition obligations of $3.0 million. The actuarial loss, prior service cost and unrecognized transition obligation are included in Accumulated other comprehensive loss, net of tax. The amounts expected to be recognized in net periodic pension expense during Fiscal 2012 are $5.8 million, $0.5 million, and $0.2 million, respectively. The accumulated benefit obligation for all defined benefit pension plans was $365.2 million and $332.4 million at July 31, 2011 and 2010, respectively.

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The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for pension plans with accumulated benefit obligations in excess of plan assets were $294.2 million, $282.3 million, and $262.4 million, respectively, as of July 31, 2011, and $282.7 million, $266.0 million, and $230.3 million, respectively, as of July 31, 2010.

For the years ended July 31, 2011 and 2010 the U.S. pension plans represented approximately 71 percent and 73 percent, respectively, of the Company’s total plan assets, and approximately 72 percent and 74 percent, respectively, of the Company’s total projected benefit obligation.

The weighted-average discount rates and rates of increase in future compensation levels used in determining the actuarial present value of the projected benefit obligation are as follows:


Weighted average actuarial assumptions	2011			2010
All U.S. plans:
Discount rate		4.91	%		5.25	%
Rate of compensation increase		4.50	%		5.00	%
Non - U.S. plans:
Discount rate		5.36	%		5.17	%
Rate of compensation increase		3.57	%		3.69	%

The weighted-average discount rates, expected returns on plan assets and rates of increase in future compensation levels used to determine the net periodic benefit cost are as follows:


Weighted average actuarial assumptions	2011			2010			2009
All U.S. plans:
Discount rate		5.25	%		6.00	%		6.00	%
Expected return on plan assets		8.00	%		8.50	%		8.50	%
Rate of compensation increase		5.00	%		5.00	%		5.00	%
Non - U.S. plans:
Discount rate		5.17	%		5.90	%		6.30	%
Expected return on plan assets		6.17	%		6.64	%		7.14	%
Rate of compensation increase		3.69	%		3.87	%		4.48	%

Expected Long-Term Rate of Return To develop the expected long-term rate of return on assets assumption, the Company considered the historical returns and the future expectations for returns for each asset class, as well as the target asset allocation of the pension portfolio. As of our measurement date of July 31, 2011, the Company decreased its long-term rate of return for the U.S. pension plans to 7.75 percent from 8.0 percent as of July 31, 2010. The Company believes that based on the asset mix and the target asset allocation, the 7.75 percent rate is an appropriate rate. This is slightly below the Company’s twenty year average but above the five and ten year averages. Thus, the Company will use the 7.75 percent rate for the calculation of its Fiscal 2012 net periodic cost. The expected long-term rate of return on assets assumption for the plans outside the U.S. reflects the investment allocation and expected total portfolio returns specific to each plan and country. The expected long-term rate of return on assets shown in the pension benefit disclosure for non-U.S. plans is an asset-based weighted average of all non-U.S. plans.

Discount Rate The Company’s objective in selecting a discount rate is to select the best estimate of the rate at which the benefit obligations could be effectively settled on the measurement date, taking into account the nature and duration of the benefit obligations of the plan. In making this best estimate, the Company looks at rates of return on high-quality fixed-income investments currently available, and expected to be available, during the period to maturity of the benefits. This process includes looking at the universe of bonds available on the measurement date with a quality rating of Aa or better. Similar appropriate benchmarks are used to determine the discount rate for the non-U.S. plans. The discount rate disclosed in the assumptions used to determine net periodic benefit cost and to determine benefit obligations is based upon a weighted average, using year-end projected benefit obligations.

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Plan Assets The fair values of the assets held by the U.S. pension plans by asset category are as follows (in millions):


Asset Category	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
2011
Cash	$	0.3	$	—	$	—	$	0.3
Global Equity Securities		64.8		56.2		0.3		121.3
Fixed Income Securities		36.6		—		—		36.6
Private Equity		—		—		17.6		17.6
Absolute Return		—		20.1		31.4		51.5
Real Assets		—		—		38.0		38.0
Total U.S. Assets at July 31, 2011	$	101.7	$	76.3	$	87.3	$	265.3
2010
Cash	$	0.9	$	—	$	—	$	0.9
Global Equity Securities		48.7		50.2		2.4		101.3
Fixed Income Securities		17.1		—		—		17.1
Private Equity		—		—		14.8		14.8
Absolute Return		—		39.4		33.1		72.5
Real Assets		—		9.6		16.3		25.9
Total U.S. Assets at July 31, 2010	$	66.7	$	99.2	$	66.6	$	232.5

The 2010 information in the above table contains adjustments to the classifications within the fair value hierarchy from that reported in the prior year.

Global equity consists of publicly traded U.S. and non-U.S. equities, Australasia, Far East (EAFE) index funds, equity private placement funds, and some cash and cash equivalents. Publicly traded equities are valued at the closing price reported in the active market in which the individual securities are traded. Index funds are valued at the net asset value (NAV) as determined by the custodian of the fund. The NAV is based on the fair value of the underlying assets owned by the fund, minus its liabilities then divided by the number of units outstanding.

Fixed income consists primarily of investment grade debt securities, but may include up to 10% in high yield securities rated B or higher by Moody’s or S&P. It may also include up to 20% in securities denominated in foreign currencies. Corporate and other bonds and notes are valued at either the yields currently available on comparable securities of issuers with similar credit ratings or valued under a discounted cash flows approach that maximizes observable inputs, such as current yields of similar instruments, but includes adjustments for certain risks that may not be observable such as credit and liquidity risks.

Private equity consists of interests in partnerships that invest in U.S. and non-U.S. debt and equity securities. The portfolio is a diversified mix of partnership interests including buyouts, distressed debt, growth equity, mezzanine, real estate, and venture capital investments. Partnership interests are valued using the most recent general partner statement of fair value, updated for any subsequent partnership interests’ cash flow.

Absolute return consists primarily of private partnership interests in hedge funds of funds. Partnership interests are valued using the NAV as determined by the administrator or custodian of the fund.

Real Assets consist of commodity funds, Real Estate Investment Trusts (REITS), and interests in partnerships that invest in private real estate, commodity, and timber investments. Private investments are valued using the most recent partnership statement of fair value, updated for any subsequent partnership interests’ cash flows. Commodity funds and REITS are valued at the closing price reported in the active market in which they are traded.

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The following table sets forth a summary of changes in the fair values of the U.S. pension plans’ Level 3 assets for the years ended July 31, 2011 and 2010 (in millions):


	Global Equity			Private Equity		Absolute Return			Real Assets		Total
Beginning balance at August 1, 2009	$	2.7		$	11.4	$	41.4		$	15.5	$	71.0
Unrealized gains		0.1			1.8		2.8			0.1		4.8
Realized gains		—			—		0.7			—		0.7
Purchases, sales, issuances and settlements, net		(0.4	)		1.6		(11.8	)		0.7		(9.9	)
Ending balance at July 31, 2010	$	2.4		$	14.8	$	33.1		$	16.3	$	66.6
Unrealized gains		—			1.5		2.1			3.4		7.0
Realized gains		—			1.0		—			—		1.0
Purchases, sales, issuances and settlements, net		(2.1	)		0.3		(3.8	)		18.3		12.7
Ending balance at July 31, 2011	$	0.3		$	17.6	$	31.4		$	38.0	$	87.3

Fair values of the assets held by the international pension plans by asset category are as follows (in millions):


Asset Category	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
2011
Global Equity Securities	$	33.5	$	—	$	—	$	33.5
Fixed Income Securities		—		26.5		—		26.5
Equity/Fixed Income		15.4		—		26.3		41.7
Real Assets		—		6.5		—		6.5
Total International Assets at July 31, 2011	$	48.9	$	33.0	$	26.3	$	108.2
2010
Global Equity Securities	$	26.8	$	—	$	—	$	26.8
Fixed Income Securities		—		20.7		—		20.7
Equity/Fixed Income		12.5		—		21.7		34.2
Real Assets		—		5.5		—		5.5
Total International Assets at July 31, 2010	$	39.3	$	26.2	$	21.7	$	87.2

Global equity consists of a fixed weights index fund, used to maintain a fixed 50/50 distribution between UK and overseas assets. Publicly traded equities are valued at the closing price reported in the active market in which the individual securities are traded.

Fixed income consists of corporate bond funds with the investment objective to achieve active corporate bond returns which are inflation linked and paid as a single payment in 2055. Corporate bonds and notes are valued at either the closing price reported if traded on an active market or at yields currently available on comparable securities of issuers with similar credit ratings or valued under a discounted cash flows approach that maximizes observable inputs, such as current yields of similar instruments, but includes adjustments for certain risks that may not be observable such as credit and liquidity risks.

Equity/Fixed Income consists of Level 1 assets that are part of a unit linked fund with a strategic asset allocation of 40% fixed income products and 60% equity type products. Assets are valued at either the closing price reported if traded on an active market or at yields currently available on comparable securities of issuers with similar credit ratings. Index funds are valued at the net asset value as determined by the custodian of the fund. The Level 3 assets are composed of mathematical reserves on individual contracts and the Company does not have any influence on the investment decisions as made by the insurer due to the specific minimum guaranteed return characteristics of this type of contract. European insurers in general, broadly have a strategic asset allocation with 80%-90% fixed income products and 20%-10% equity type products (including real estate).

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Real Assets consists of property funds. Property funds are valued using the most recent partnership statement of fair value, updated for any subsequent partnership interests’ cash flows.

The following table sets forth a summary of changes in the fair values of the International pension plans’ Level 3 assets for the year ended July 31, 2011 and 2010 (in millions):


	Equity/Fixed Income
Beginning balance at August 1, 2009	$	23.1
Unrealized gains		0.3
Foreign currency exchange		(1.9	)
Purchases, sales, issuances and settlements, net		0.2
Ending balance at July 31, 2010	$	21.7
Unrealized gains		0.9
Foreign currency exchange		2.5
Purchases, sales, issuances and settlements, net		1.2
Ending balance at July 31, 2011	$	26.3

Investment Policies and Strategies. For the Company’s U.S. plans, the Company uses a total return investment approach to achieve a long-term return on plan assets, with a prudent level of risk for the purpose of meeting its retirement income commitments to employees. The plan’s investments are diversified to assist in managing risk. The Company’s asset allocation guidelines target an allocation of 45 percent equity securities, 30 percent alternative investments (funds of hedge funds), 10 percent real assets (investments into funds containing commodities and real estate), 10 percent fixed income, and 5 percent private equity. Within equity securities, the Company will target an allocation of 15 percent international, 15 percent equity long/short, 10 percent small cap and 5 percent large cap. These target allocation guidelines are determined in consultation with the Company’s investment consultant, and through the use of modeling the risk/return trade-offs among asset classes utilizing assumptions about expected annual return, expected volatility/standard deviation of returns, and expected correlations with other asset classes.

For the Company’s non-U.S. plans, the general investment objectives are to maintain a suitably diversified portfolio of secure assets of appropriate liquidity which will generate income and capital growth to meet, together with any new contributions from members and the Company, the cost of current and future benefits. Investment policy and performance is measured and monitored on an ongoing basis by the Company’s investment committee through its use of an investment consultant and through quarterly investment portfolio reviews.

Estimated Contributions and Future Payments The Company’s general funding policy for its pension plans is to make at least the minimum contributions as required by applicable regulations. Additionally, the Company may elect to make additional contributions up to the maximum tax deductible contribution. As such, the Company made contributions of $20.6 million to its U.S. pension plans in Fiscal 2011. There is no minimum funding request for the Company’s U.S. plans for Fiscal 2012. The Company is currently evaluating whether or not a U.S. pension contribution will be made in Fiscal 2012. The Company made contributions of $7.1 million to its non-U.S. pension plans in Fiscal 2011 and estimates that it will contribute approximately $4.7 million in Fiscal 2012 based upon the local government prescribed funding requirements. Future estimates of the Company’s pension plan contributions may change significantly depending on the actual rate of return on plan assets, discount rates and regulatory requirements.

Estimated future benefit payments for the Company’s U.S. and non-U.S. plans are as follows (thousands of dollars):


Fiscal Year
2012	$	25,769
2013	$	23,314
2014	$	25,648
2015	$	26,242
2016	$	25,323
2017-2021	$	148,290

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Postemployment and Postretirement Benefit Plans The Company provides certain postemployment and postretirement health care benefits for certain U.S. employees for a limited time after termination of employment. The Company has recorded a liability for its postretirement benefit plan in the amount of $1.5 million and $1.6 million as of July 31, 2011 and July 31, 2010, respectively. The annual cost resulting from these benefits is not material. For measurement purposes, a 7.4 percent annual rate of increase in the per capita cost of covered health care benefits was assumed for Fiscal 2011. The Company has assumed that the long-term rate of increase will decrease gradually to an ultimate annual rate of 4.5 percent. A one-percentage point increase in the health care cost trend rate would increase the Fiscal 2011 and 2010 liability by $0.1 million.

Retirement Savings and Employee Stock Ownership Plan The Company provides a contributory employee savings plan to U.S. employees that permits participants to make contributions by salary reduction pursuant to section 401(k) of the Internal Revenue Code. Employee contributions of up to 25 percent of compensation are matched at a rate equaling 100 percent of the first 3 percent contributed and 50 percent of the next 2 percent contributed. The Company’s contributions under this plan are based on the level of employee contributions as well as a discretionary contribution based on performance of the Company. Total contribution expense for these plans was $9.1 million, $4.5 million, and $5.1 million for the years ended July 31, 2011, 2010, and 2009, respectively. This plan also includes shares from an Employee Stock Ownership Plan (“ESOP”). As of July 31, 2011, all shares of the ESOP have been allocated to participants. Total ESOP shares are considered to be shares outstanding for earnings per share calculations.

Deferred Compensation and Other Benefit Plans The Company provides various deferred compensation and other benefit plans to certain executives. The deferred compensation plan allows these employees to defer the receipt of all of their bonus and other stock related compensation and up to 75 percent of their salary to future periods. Other benefit plans are provided to supplement the benefits for a select group of highly compensated individuals which are reduced because of compensation limitations set by the Internal Revenue Code. The Company has recorded a liability in the amount of $9.2 million and $8.8 million as of the year ended July 31, 2011 and July 31, 2010, respectively, related primarily to its deferred compensation plans.

NOTE H Shareholders’ Equity

Stock Rights On January 27, 2006, the Board of Directors of the Company approved the extension of the benefits afforded by the Company’s existing rights plan by adopting a new shareholder rights plan. Pursuant to the Rights Agreement, dated as of January 27, 2006 by and between the Company and Wells Fargo Bank, N.A., as Rights Agent, one right was issued on March 3, 2006 for each outstanding share of common stock of the Company upon the expiration of the Company’s existing rights. Each of the new rights entitles the registered holder to purchase from the Company one one-thousandth of a share of Series A Junior Participating Preferred Stock, without par value, at a price of $143.00 per one one-thousandth of a share. The rights, however, will not become exercisable unless and until, among other things, any person acquires 15 percent or more of the outstanding common stock of the Company. If a person acquires 15 percent or more of the outstanding common stock of the Company (subject to certain conditions and exceptions more fully described in the Rights Agreement), each right will entitle the holder (other than the person who acquired 15 percent or more of the outstanding common stock) to purchase common stock of the Company having a market value equal to twice the exercise price of a right. The rights are redeemable under certain circumstances at $.001 per right and will expire, unless earlier redeemed, on March 2, 2016.

Stock Compensation Plans The Stock Compensation Plans in the Consolidated Statements of Changes in Shareholders’ Equity consist of the balance of amounts payable to eligible participants for stock compensation that was deferred to a Rabbi Trust pursuant to the provisions of the 2010 Master Stock Incentive Plan, as well as performance awards payable in common stock discussed further in Note I.

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Treasury Stock The Company believes that the share repurchase program is a way of providing return to its shareholders. The Board of Directors authorized the repurchase, at the Company’s discretion, of up to 8.0 million shares of common stock under the stock repurchase plan dated March 26, 2010. As of July 31, 2011, the Company had remaining authorization to repurchase 5.0 million shares under this plan. Following is a summary of treasury stock share activity for Fiscal 2011 and 2010:


	2011			2010
Balance at beginning of year		12,222,381			11,295,409
Stock repurchases		1,956,648			1,651,600
Net issuance upon exercise of stock options		(862,981	)		(667,991	)
Issuance under compensation plans		(62,304	)		(46,197	)
Other activity		(7,880	)		(10,440	)
Balance at end of year		13,245,864			12,222,381

NOTE I Stock Option Plans

Employee Incentive Plans In November 2010 shareholders approved the 2010 Master Stock Incentive Plan (the “Plan”) that replaced the 2001 Plan that was scheduled to expire on December 31, 2010 and provided for similar awards. The Plan extends through September 2020 and allows for the granting of nonqualified stock options, incentive stock options, restricted stock, restricted stock units, stock appreciation rights (“SAR”), dividend equivalents, and other stock-based awards. Options under the Plan are granted to key employees at market price at the date of grant. Options are exercisable for up to 10 years from the date of grant. The Plan also allows for the granting of performance awards to a limited number of key executives. As administered by the Human Resources Committee of the Company’s Board of Directors, these performance awards are payable in common stock and are based on a formula which measures performance of the Company over a three-year period. Performance award expense under these plans totaled $1.8 million in Fiscal 2011 and $0.5 million in Fiscal 2010. The Company recorded a net reversal of performance award expense in Fiscal 2009 of $3.1 million due to the reversal of $3.6 million of Long-Term Compensation Plan expense recognized in prior periods based upon actual and forecasted results.

Stock options issued from Fiscal 2001 to Fiscal 2011 become exercisable for non-executives in equal increments over three years. Stock options issued in Fiscal 2011 become exercisable for executives in equal increments over three years. Stock options issued from Fiscal 2001 to Fiscal 2010 became exercisable for most executives immediately upon the date of grant. Certain other stock options issued to executives during Fiscal 2004, 2006, and 2007 became exercisable in equal increments over three years. For Fiscal 2011, the Company recorded pretax compensation expense associated with stock options of $6.5 million and recorded $2.4 million of related tax benefit. For Fiscal 2010 and 2009, the Company recorded pretax compensation expense associated with stock options of $6.9 million and $4.1 million, respectively, and $2.5 million and $1.5 million, respectively, of related tax benefit.

Stock-based employee compensation cost is recognized using the fair-value based method. The Company determined the fair value of these awards using the Black-Scholes option pricing model, with the following weighted average assumptions:


	2011			2010			2009
Risk - free interest rate		<0.12 - 3.1	%		< 0.01 - 3.9	%		1.4 - 4.0	%
Expected volatility		25.5 - 34.7	%		24.4 - 32.3	%		21.6 - 25.5	%
Expected dividend yield		1.0	%		1.0	%		1.0	%

Expected life
Director original grants without reloads		8 years			8 years			8 years
Non - officer original grants		8 years			7 - 8 years			7 years
Officer original grants with reloads		—			4 years			4 years
Reload grants		<8 years			<8 years			<5 years
Officer original grants without reloads		8 years			8 years			7 years

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Reload grants are grants made to officers or directors who exercised a reloadable option during the fiscal year and made payment of the purchase price using shares of previously owned Company stock. The reload grant is for the number of shares equal to the shares used in payment of the purchase price and/or withheld for minimum tax withholding. Beginning in Fiscal 2011 options no longer have a reload provision for officers and directors.

Black-Scholes is a widely accepted stock option pricing model; however, the ultimate value of stock options granted will be determined by the actual lives of options granted and the actual future price levels of the Company’s common stock. The weighted average fair value for options granted during Fiscal 2011, 2010, and 2009 is $17.26, $13.23, and $8.56 per share, respectively, using the Black-Scholes pricing model.

The following table summarizes stock option activity:


	Options Outstanding			Weighted Average Exercise Price
Outstanding at July 31, 2008		5,181,778		$	25.62
Granted		366,588			34.23
Exercised		(505,363	)		17.64
Canceled		(44,878	)		39.04
Outstanding at July 31, 2009		4,998,125			26.94
Granted		643,974			42.41
Exercised		(848,990	)		20.84
Canceled		(21,297	)		41.94
Outstanding at July 31, 2010		4,771,812			30.04
Granted		551,601			57.22
Exercised		(1,121,751	)		23.10
Canceled		(7,665	)		47.20
Outstanding at July 31, 2011		4,193,997			35.44

The total intrinsic value of options exercised during Fiscal 2011, 2010, and 2009 was $34.2 million, $19.5 million, and $9.1 million, respectively.

Shares reserved at July 31, 2011 for outstanding options and future grants were 8,307,431. Shares reserved consist of shares available for grant plus all outstanding options. Upon shareholder approval of the 2010 Master Stock Incentive Plan, 4,600,000 shares were added to shares reserved. Remaining shares available for grant under the 2001 plan were removed from the shares reserved calculation.

The following table summarizes information concerning outstanding and exercisable options as of July 31, 2011:


Range of Exercise Prices	Number Outstanding		Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price		Number Exercisable		Weighted Average Exercise Price
$12 to $22		658,066		1.19	$	17.89		658,066	$	17.89
$22 to $32		1,102,423		2.94		30.12		1,086,511		30.09
$32 to $42		1,121,686		5.67		34.95		1,101,164		34.96
$42 and above		1,311,822		8.23		49.15		655,381		44.34
		4,193,997		5.05		35.44		3,501,122		32.00

At July 31, 2011, the aggregate intrinsic value of shares outstanding and exercisable was $85.0 million and $81.9 million, respectively.

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The following table summarizes the status of options which contain vesting provisions:


	Options			Weighted Average Grant Date Fair Value
Non - vested at July 31, 2010		407,453		$	12.89
Granted		482,250			18.45
Vested		(189,913	)		12.27
Canceled		(6,915	)		15.42
Non - vested at July 31, 2011		692,875			16.90

The total fair value of shares vested during Fiscal 2011, 2010, and 2009 was $10.5 million, $8.0 million, and $7.9 million, respectively.

As of July 31, 2011, there was $6.1 million of total unrecognized compensation cost related to non-vested stock options granted under the Plan. This unvested cost is expected to be recognized during Fiscal 2012, Fiscal 2013, and Fiscal 2014.

NOTE J Income Taxes

The components of earnings before income taxes are as follows:


	2011		2010		2009
	(thousands of dollars )
Earnings before income taxes:
United States	$	117,562	$	85,987	$	69,863
Foreign		194,701		144,189		91,562
Total	$	312,263	$	230,176	$	161,425

The components of the provision for income taxes are as follows:


	2011			2010			2009
	(thousands of dollars )
Income taxes:
Current
Federal	$	26,675		$	25,455		$	18,624
State		3,555			2,206			2,444
Foreign		54,785			33,327			13,176
		85,015			60,988			34,244
Deferred
Federal		8,556			3,860			(3,888	)
State		191			20			90
Foreign		(6,790	)		(855	)		(928	)
		1,957			3,025			(4,726	)
Total	$	86,972		$	64,013		$	29,518

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The following table reconciles the U.S. statutory income tax rate with the effective income tax rate:


	2011			2010			2009
Statutory U.S. federal rate		35.0	%		35.0	%		35.0	%
State income taxes		1.0			0.8			1.3
Foreign taxes at lower rates		(6.6	)		(8.2	)		(7.5	)
Export, manufacturing and research credits		(1.6	)		(0.9	)		(0.5	)
U.S. tax impact on repatriation of earnings		(0.3	)		0.1			0.7
Change in unrecognized tax benefits		0.1			1.2			(10.6	)
Other		0.3			(0.2	)		(0.1	)
		27.9	%		27.8	%		18.3	%

The tax effects of temporary differences that give rise to deferred tax assets and liabilities are as follows:


	2011			2010
	(thousands of dollars)
Deferred tax assets:
Accrued expenses	$	12,243		$	9,130
Compensation and retirement plans		33,298			39,438
Tax credit and NOL carryforwards		1,173			954
Inventory reserves		9,545			8,324
Other		3,311			1,846
Deferred tax assets:		59,570			59,692
Valuation allowance		(692	)		(604	)
Net deferred tax assets		58,878			59,088
Deferred tax liabilities:
Depreciation and amortization		(37,112	)		(30,248	)
Other		(1,119	)		(1,420	)
Deferred tax liabilities		(38,231	)		(31,668	)
Net deferred tax asset	$	20,647		$	27,420

The effective tax rate for Fiscal 2011 was 27.9 percent compared to 27.8 percent in Fiscal 2010. The average underlying tax rate remained at 29.7 percent, while discrete items were also a consistent percentage of pre-tax profits. Fiscal 2010 contained $4.3 million of discrete tax benefits from the expiration of the statute of limitations at foreign subsidiaries and other discrete items. Fiscal 2011 contained $5.8 million of discrete tax benefits primarily from the release of reserves after the favorable conclusions of foreign tax audits, the expiration of statutes in various jurisdictions, and the favorable impact of dividends from some foreign subsidiaries.

The Company has not provided for U.S. income taxes on additional undistributed earnings of non-U.S. subsidiaries of approximately $623.0 million. The Company currently intends to permanently reinvest these undistributed earnings overseas as there are significant investment opportunities there, and the Company does not intend to incur a tax cost to repatriate these funds. If any portion were to be distributed, the related U.S. tax liability may be reduced by foreign income taxes paid on those earnings plus any available foreign tax credit carryovers. Determination of the unrecognized deferred tax liability related to these undistributed earnings is not practicable.

The Company has cumulative pre-tax loss carryforwards of $4.8 million, which exist in various international subsidiaries. If fully realized, the unexpired net operating losses may be carried forward to offset future local income tax payments of $1.2 million, at current rates of tax. Approximately 12 percent of these net operating losses expire within the next three years, while the majority of the remaining net operating loss carryforwards expire more than 5 years out or have no statutory expiration under current local laws. However, as it is more-likely-than-not that certain of these losses will not be realized, a valuation allowance of $0.7 million exists as of July 31, 2011.

The Company maintains a reserve for uncertain tax benefits. The accounting standard defines the threshold for recognizing the benefits of tax return positions in the financial statements as “more-likely-than-not” to be sustained by the taxing authorities based solely on the technical merits of the position. If the recognition threshold is met, the tax benefit is measured and recognized as the largest amount of tax benefit that in the Company’s judgment is greater than

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50 percent likely to be realized. A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows:


	2011			2010			2009
	(thousands of dollars)
Gross unrecognized tax benefits at beginning of fiscal year	$	18,994		$	16,928		$	32,002
Additions for tax positions of the current year		7,406			3,122			3,527
Additions for tax positions of prior years		668			470			772
Reductions for tax positions of prior years		(164	)		(179	)		(8,258	)
Settlements		(3,895	)		—			(10,092	)
Reductions due to lapse of applicable statute of limitations		(3,004	)		(1,347	)		(1,023	)
Gross unrecognized tax benefits at end of fiscal year	$	20,005		$	18,994		$	16,928

The Company recognizes interest and penalties accrued related to unrecognized tax benefits in income tax expense. During the fiscal year ended July 31, 2011, the Company recognized interest expense, net of tax benefit, of approximately $0.3 million. At July 31, 2011 and July 31, 2010, accrued interest and penalties on a gross basis were $1.5 million and $2.5 million, respectively.

The Company’s uncertain tax positions are affected by the tax years that are under audit or remain subject to examination by the relevant taxing authorities. The following tax years, in addition to the current year, remain subject to examination, at least for certain issues, by the major tax jurisdictions indicated:


Major Jurisdictions		Open Tax Years
Belgium		2010
China		2001 through 2010
France		2008 through 2010
Germany		2009 through 2010
Italy		2003 through 2010
Japan		2009 through 2010
Mexico		2006 through 2010
Thailand		2005 through 2010
United Kingdom		2010
United States		2008 through 2010

If the Company were to prevail on all unrecognized tax benefits recorded, substantially all of the unrecognized tax benefits would benefit the effective tax rate. With an average statute of limitations of about 5 years, up to $3.0 million of the unrecognized tax benefits could potentially expire in the next 12 month period, unless extended by audit. It is possible that quicker than expected settlement of either current or future audits and disputes would cause additional reversals of previously recorded reserves in the next 12 month period. Currently, the Company has approximately $0.2 million of unrecognized tax benefits that are in dispute with various taxing authorities related to transfer pricing and deductibility of expenses. Quantification of an estimated range and timing of future audit settlements cannot be made at this time.

NOTE K Segment Reporting

Consistent with FASB guidance related to segment reporting, the Company identified two reportable segments: Engine Products and Industrial Products. Segment selection was based on the internal organizational structure, management of operations, and performance evaluation by management and the Company’s Board of Directors.

The Engine Products segment sells to OEMs in the construction, mining, agriculture, aerospace, defense, and truck markets and to independent distributors, OEM dealer networks, private label accounts, and large equipment fleets. Products include air filtration systems, exhaust and emissions systems, liquid filtration systems, and replacement filters.

The Industrial Products segment sells to various industrial end-users, OEMs of gas-fired turbines, and OEMs and end-users requiring clean air. Products include dust, fume, and mist collectors, compressed air purification systems, air filtration systems for gas turbines, PTFE membrane based products, and specialized air filtration systems for applications including computer hard disk drives.

Corporate and Unallocated includes corporate expenses determined to be non-allocable to the segments, interest income, and interest expense. Assets included in Corporate and Unallocated principally are cash and cash equivalents,

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inventory reserves, certain prepaids, certain investments, other assets, and assets allocated to general corporate purposes.

The Company has an internal measurement system to evaluate performance and allocate resources based on profit or loss from operations before income taxes. The Company’s manufacturing facilities serve both reporting segments. Therefore, the Company uses an allocation methodology to assign costs and assets to the segments. A certain amount of costs and assets relate to general corporate purposes and are not assigned to either segment. Certain accounting policies applied to the reportable segments differ from those described in the summary of significant accounting policies. The reportable segments account for receivables on a gross basis and account for inventory on a standard cost basis.

Segment allocated assets are primarily accounts receivable, inventories, property, plant and equipment, and goodwill. Reconciling items included in Corporate and Unallocated are created based on accounting differences between segment reporting and the consolidated, external reporting as well as internal allocation methodologies.

The Company is an integrated enterprise, characterized by substantial intersegment cooperation, cost allocations, and sharing of assets. Therefore, we do not represent that these segments, if operated independently, would report the operating profit and other financial information shown below. In the following table, reclassifications have been made in prior periods as a result of an internal reorganization of Industrial Hydraulics from Industrial Products to Engine Products, which became effective August 1, 2010.

Segment detail is summarized as follows:


	Engine Products		Industrial Products		Corporate & Unallocated			Total Company
	(thousands of dollars)
2011
Net sales	$	1,440,495	$	853,534	$	—		$	2,294,029
Depreciation and amortization		36,338		19,396		4,757			60,491
Equity earnings in unconsolidated affiliates		3,302		803		—			4,105
Earnings before income taxes		211,255		123,871		(22,863	)		312,263
Assets		888,080		519,730		318,283			1,726,093
Equity investments in unconsolidated affiliates		16,619		2,558		—			19,177
Capital expenditures, net of acquired businesses		36,423		19,442		4,768			60,633

2010
Net sales	$	1,126,007	$	751,057	$	—		$	1,877,064
Depreciation and amortization		33,433		20,935		4,864			59,232
Equity earnings in unconsolidated affiliates		1,859		160		—			2,019
Earnings before income taxes		155,833		91,084		(16,741	)		230,176
Assets		702,300		477,154		320,052			1,499,506
Equity investments in unconsolidated affiliates		14,860		625		—			15,485
Capital expenditures, net of acquired businesses		24,355		15,250		3,544			43,149

2009
Net sales	$	1,027,685	$	840,944	$	—		$	1,868,629
Depreciation and amortization		32,287		20,386		5,924			58,597
Equity earnings in unconsolidated affiliates		2,172		94		—			2,266
Earnings before income taxes		85,896		87,427		(11,898	)		161,425
Assets		631,278		474,291		228,427			1,333,996
Equity investments in unconsolidated affiliates		15,474		517		—			15,991
Capital expenditures, net of acquired businesses		25,390		16,032		4,658			46,080

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Following are net sales by product within the Engine Products segment and Industrial Products segment:


	2011		2010		2009
	(thousands of dollars)
Engine Products segment:
Off-Road Products	$	327,557	$	222,329	$	243,691
Aerospace and Defense Products		104,883		111,977		119,094
On-Road Products		127,107		81,874		71,958
Aftermarket Products*		861,393		691,899		561,846
Retrofit Emissions Products		19,555		17,928		31,096
Total Engine Products segment		1,440,495		1,126,007		1,027,685

Industrial Products segment:
Industrial Filtration Solutions Products		507,646		423,050		477,908
Gas Turbine Products		154,726		150,131		206,760
Special Applications Products		191,162		177,876		156,276
Total Industrial Products segment		853,534		751,057		840,944

Total Company	$	2,294,029	$	1,877,064	$	1,868,629


*	Includes replacement part sales to the Company’s OEM Customers.

Geographic sales by origination and property, plant and equipment:


	Net Sales		Property, Plant & Equipment - Net
	(thousands of dollars)
2011
United States	$	941,218	$	141,584
Europe		653,275		131,739
Asia - Pacific		540,874		81,035
Other		158,662		37,144
Total	$	2,294,029	$	391,502

2010
United States	$	745,400	$	139,717
Europe		545,803		122,646
Asia - Pacific		460,470		72,950
Other		125,391		30,579
Total	$	1,877,064	$	365,892

2009
United States	$	778,979	$	141,052
Europe		567,117		138,350
Asia - Pacific		419,423		71,686
Other		103,110		29,980
Total	$	1,868,629	$	381,068

Concentrations There were no Customers over 10 percent of net sales during Fiscal 2011, 2010, and 2009. There were no Customers over 10 percent of gross accounts receivable in Fiscal 2011 and 2010.

NOTE L Guarantees

The Company and Caterpillar Inc. equally own the shares of Advanced Filtration Systems Inc. (AFSI), an unconsolidated joint venture, and guarantee certain debt of the joint venture. As of July 31, 2011, the joint venture had $24.6 million of outstanding debt, of which the Company guarantees half. In addition, during Fiscal 2011, 2010, and

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2009, the Company recorded its equity in earnings of this equity method investment of $1.6 million, $0.4 million, and $1.0 million and royalty income of $6.2 million, $5.4 million, and $5.1 million, respectively, related to AFSI.

At July 31, 2011 and 2010, the Company had a contingent liability for standby letters of credit totaling $11.4 million and $20.0 million, respectively, which have been issued and are outstanding. The letters of credit guarantee payment to third parties in the event the Company is in breach of a specified bond financing agreement and insurance contract terms as detailed in each letter of credit. At July 31, 2011 and 2010, there were no amounts drawn upon these letters of credit.

NOTE M Warranty

The Company provides for warranties on certain products. In addition, the Company may incur specific Customer warranty issues. Following is a reconciliation of warranty reserves (in thousands of dollars):


Balance at July 31, 2009	$	9,215
Accruals for warranties issued during the reporting period		12,389
Accruals related to pre-existing warranties (including changes in estimates)		(1,244	)
Less settlements made during the period		(4,653	)
Balance at July 31, 2010	$	15,707
Accruals for warranties issued during the reporting period		8,406
Accruals related to pre-existing warranties (including changes in estimates)		7,735
Less settlements made during the period		(12,128	)
Balance at July 31, 2011	$	19,720

During Fiscal 2011, the increase in warranty accruals was primarily due to three specific warranty matters: one in the Company’s Retrofit Emissions Product group for $3.6 million, one in the Company’s Off-Road Products group for $1.8 million, and one in the On-Road Product group for $4.1 million. These warranty accruals were partially offset by supplier and insurance recoveries of $4.2 million. During Fiscal 2010, the Company increased warranty accruals due to a specific warranty matter in our Retrofit Emissions Products group and recorded an expense of $6.2 million for this matter.

NOTE N Commitments and Contingencies

The Company records provisions with respect to identified claims or lawsuits when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Claims and lawsuits are reviewed quarterly and provisions are taken or adjusted to reflect the status of a particular matter. The Company believes the recorded reserves in its consolidated financial statements are adequate in light of the probable and estimable outcomes. The recorded liabilities were not material to the Company’s financial position, results of operation or liquidity and the Company does not believe that any of the currently identified claims or litigation will materially affect its financial position, results of operation or liquidity.

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NOTE O Restructuring

The following is a reconciliation of restructuring reserves (in thousands of dollars):


Balance at July 31, 2008	$	—
Accruals for restructuring during the reporting period		17,755
Less settlements made during the period		(13,915	)
Balance at July 31, 2009	$	3,840
Accruals for restructuring during the reporting period		8,023
Less settlements made during the period		(7,724	)
Balance at July 31, 2010	$	4,139
Accruals for restructuring during the reporting period		759
Less settlements made during the period		(4,898	)
Balance at July 31, 2011	$	—

Certain restructuring actions commenced in Fiscal 2009 in response to the dramatic downturn in the worldwide economy and these actions and related costs carried over into Fiscal 2010 and Fiscal 2011. In Fiscal 2011, the Engine Products segment incurred minimal restructuring expenses and Industrial Products segment incurred $0.7 million in restructuring expenses. The restructuring expenses in Fiscal 2011 include employee severance costs for approximately five employees related to the completion of the Company’s planned restructuring activities. The Company did not previously anticipate these additional charges in Fiscal 2011.

The fiscal 2010 costs were employee severance costs related to the reduction in workforce of approximately 550 employees. In addition to these restructuring costs, the Company recorded $2.1 million in asset impairment costs related to the downsizing of a plant in Germany. Fiscal 2009 included $17.3 million in employee severance costs related to the reduction in workforce of approximately 2,800 employees. In addition, $0.5 million was incurred primarily for distribution center consolidation and production line transfers.

Restructuring and asset impairment expense detail is summarized as follows (in thousands):


	Fiscal Year
	2011		2010		2009
Gross Margin	$	20	$	7,488	$	10,109
Operating expenses		739		2,677		7,646
Total restructuring and asset impairment expenses	$	759	$	10,165	$	17,755

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NOTE P Quarterly Financial Information (Unaudited)


	First Quarter		Second Quarter		Third Quarter		Fourth Quarter
	(In thousands)
2011
Net sales	$	536,909	$	537,105	$	594,565	$	625,450
Gross margin		188,090		189,543		209,158		227,005
Net earnings		53,134		44,579		61,811		65,767
Basic earnings per share		0.69		0.57		0.80		0.86
Diluted earnings per share		0.68		0.56		0.79		0.84
Dividends declared per share		—		0.260		—		0.300
Dividends paid per share		0.125		0.130		0.130		0.150

2010
Net sales	$	428,080	$	436,122	$	497,619	$	515,243
Gross margin		148,400		145,947		177,371		187,030
Net earnings		34,569		30,966		49,458		51,170
Basic earnings per share		0.44		0.40		0.64		0.66
Diluted earnings per share		0.44		0.39		0.62		0.65
Dividends declared per share		—		0.115		0.120		0.245
Dividends paid per share		0.115		0.115		0.120		0.120

The quarter ended October 31, 2010 included restructuring charges after-tax of $0.6 million or $0.01 per share. The quarters ended October 31, 2009, January 31, 2010, April 30, 2010, and July 31, 2010, include restructuring charges after-tax of $0.9 million or $0.01 per share, $3.6 million or $0.05 per share, $2.7 million or $0.03 per share, and less than $0.1 million, respectively.

It em 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

It em 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this report (the “Evaluation Date”), the Company carried out an evaluation, under the supervision and with the participation of management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the Evaluation Date, the Company’s disclosure controls and procedures were effective to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in applicable rules and forms, and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

No change in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) identified in connection with such evaluation during the fiscal quarter ended July 31, 2011, has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

Management’s Report on Internal Control over Financial Reporting

See Management’s Report on Internal Control over Financial Reporting under Item 8 on page 25.

Report of Independent Registered Public Accounting Firm

See Report of Independent Registered Public Accounting Firm under Item 8 on page 26.

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It em 9B. Other Information

None.

PA RT III

I tem 10. Directors, Executive Officers and Corporate Governance

The information under the captions “Item 1: Election of Directors”; “Director Selection Process,” “Audit Committee,” “Audit Committee Expertise; Complaint-Handling Procedures,” and “Section 16(a) Beneficial Ownership Reporting Compliance” of the 2011 Proxy Statement is incorporated herein by reference. Information on the Executive Officers of the Company is found under the caption “Executive Officers of the Registrant” on page 6 of this Annual Report on Form 10-K.

The Company has adopted a code of business conduct and ethics in compliance with applicable rules of the Securities and Exchange Commission that applies to its principal executive officer, its principal financial officer and its principal accounting officer or controller, or persons performing similar functions. A copy of the code of business conduct and ethics is posted on the Company’s website at www.donaldson.com. The code of business conduct and ethics is available in print, free of charge to any shareholder who requests it. The Company will disclose any amendments to, or waivers of, the code of business conduct and ethics for the Company’s principal executive officer, principal financial officer, and principal accounting officer on the Company’s website.

It em 11. Executive Compensation

The information under the captions “Executive Compensation” and “Director Compensation” of the 2011 Proxy Statement is incorporated herein by reference.

It em 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information under the caption “Security Ownership” of the 2011 Proxy Statement is incorporated herein by reference.

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The following table sets forth information as of July 31, 2011 regarding the Company’s equity compensation plans:


Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants and rights		Weighted - average exercise price of outstanding options, warrants and rights		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
	(a)		(b)		(c)
Equity compensation plans approved by security holders:
1980 Master Stock Compensation Plan:
Stock Options		—		—		—
Deferred Stock Gain Plan		42,057	$	13.9878		—

1991 Master Stock Compensation Plan:
Stock Options		114,744	$	19.3523		—
Deferred Stock Option Gain Plan		342,685	$	34.4576		—
Deferred LTC/Restricted Stock		134,158	$	22.7091		—

2001 Master Stock Incentive Plan:
Stock Options		3,164,380	$	32.6285		—
Deferred Stock Option Gain Plan		21,600	$	59.9872		—
Deferred LTC/Restricted Stock		152,118	$	30.3986		—
Long-Term Compensation		71,059	$	40.8296		—

2010 Master Stock Incentive Plan:
Stock Options		407,500	$	58.1400		See Note 1
Deferred LTC/Restricted Stock		—	$	—		—
Long-Term Compensation		—	$	—		—
Subtotal for plans approved by security holders		4,450,301	$	34.4754

Equity compensation plans not approved by security holders:
Non-qualified Stock Option Program for Non - Employee Directors		507,373	$	38.4163		See Note 2
ESOP Restoration		25,016	$	13.0282		See Note 3
Subtotal for plans not approved by security holders		532,389	$	37.2234
Total		4,982,690	$	34.769

Note 1: The 2010 Master Stock Incentive Plan limits the number of shares authorized for issuance to 4,600,000 during the 10-year term of the plan. There are currently 4,112,369 shares of the authorization remaining.

Note 2: The stock option program for non-employee directors (filed as exhibit 10-H to Form 10-Q report filed for the first quarter ended October 31, 2008) provides for each non-employee director to receive annual option grants of 7,200 shares. The 2010 Master Stock Incentive Plan, which was approved by the Company’s stockholders on November 19, 2010 provides for the issuance of stock options to non-employee directors, and the stock option program for non-employee directors has been adopted as a sub-plan under the 2010 Master Stock Incentive Plan and shares issued to directors after December 10, 2010 will be issued under the 2010 Master Stock Incentive Plan.

Note 3: The Company has a non-qualified ESOP Restoration Plan established on August 1, 1990 (filed as exhibit 10-D to the Company’s 2009 Form 10-K report), to supplement the benefits for executive employees under the Company’s Employee Stock Ownership Plan that would otherwise be reduced because of the compensation limitations under the Internal Revenue Code. The ESOP’s 10-year term was completed on July 31, 1997 and the only ongoing benefits under the ESOP Restoration Plan are the accrual of dividend equivalent rights to the participants in the Plan.

I tem 13. Certain Relationships and Related Transactions, and Director Independence

The information under the captions “Policy and Procedures Regarding Transactions with Related Persons” and “Board Oversight and Director Independence” of the 2011 Proxy Statement is incorporated herein by reference.

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I tem 14. Principal Accounting Fees and Services

The information under the captions “Independent Auditor Fees” and “Audit committee Pre-Approval Policies and Procedures” of the 2011 Proxy Statement is incorporated herein by reference.

P ART IV

I tem 15. Exhibits, Financial Statement Schedules

Documents filed with this report:


	(1)	Financial Statements

		Consolidated Statements of Earnings — years ended July 31, 2011, 2010 and 2009

		Consolidated Balance Sheets — July 31, 2011 and 2010

		Consolidated Statements of Cash Flows — years ended July 31, 2011, 2010 and 2009

		Consolidated Statements of Changes in Shareholders’ Equity — years ended July 31, 2011, 2010 and 2009

		Notes to Consolidated Financial Statements

		Report of Independent Registered Public Accounting Firm

	(2)	Financial Statement Schedules —

		Schedule II Valuation and qualifying accounts

		All other schedules (Schedules I, III, IV and V) for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instruction, or are inapplicable, and therefore have been omitted.

	(3)	Exhibits

		The exhibits listed in the accompanying index are filed as part of this report or incorporated by reference as indicated therein.

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S IGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	DONALDSON COMPANY, INC.

Date: September 23, 2011	By: /s/ William M. Cook

	William M. Cook
	Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on September 23, 2011.


/s/ William M. Cook		President, Chief Executive Officer and Chairman
William M. Cook		(principal executive officer)

/s/ Thomas R. VerHage		Vice President and Chief Financial Officer
Thomas R. VerHage		(principal financial officer)

/s/ James F. Shaw		Controller
James F. Shaw		(principal accounting officer)

*		Director
F. Guillaume Bastiaens

*		Director
Janet M. Dolan

*		Director
Jack W. Eugster

*		Director
John F. Grundhofer

*		Director
Michael J. Hoffman

*		Director
Paul David Miller

*		Director
Jeffrey Noddle

*		Director
Willard D. Oberton

*		Director
Ajita G. Rajendra

*		Director
John P. Wiehoff

*By: /s/ Norman C. Linnell
Norman C. Linnell
As attorney-in-fact

Table of Contents

S CHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

DONALDSON COMPANY, INC. AND SUBSIDIARIES
(thousands of dollars)


			Additions
Description	Balance at Beginning of Period		Charged to Costs and Expenses		Charged to Other Accounts (A)			Deductions (B)			Balance at End of Period
Year ended July 31, 2011:
Allowance for doubtful accounts deducted from accounts receivable	$	6,315	$	482	$	481		$	(370	)	$	6,908

Year ended July 31, 2010:
Allowance for doubtful accounts deducted from accounts receivable	$	7,387	$	1,063	$	(293	)	$	(1,842	)	$	6,315

Year ended July 31, 2009:
Allowance for doubtful accounts deducted from accounts receivable	$	7,509	$	1,240	$	(534	)	$	(828	)	$	7,387

Note A - Allowance for doubtful accounts foreign currency translation losses (gains) recorded directly to equity.

Note B - Bad debts charged to allowance, net of reserves and changes in estimates.

Table of Contents

E XHIBIT INDEX
ANNUAL REPORT ON FORM 10-K


* 3-A	—	Restated Certificate of Incorporation of Registrant as currently in effect (Filed as Exhibit 3-A to 2010 Form 10-K Report)

3-B	—	Certificate of Designation, Preferences and Rights of Series A Junior Participating Preferred Stock of Registrant, dated as of March 3, 2006

* 3-C	—	Amended and Restated Bylaws of Registrant (as of January 30, 2009) (Filed as Exhibit 3-C to Form 10- Q Report for the Second Quarter ended January 31, 2009)

* 4	—	**

4-A	—	Preferred Stock Amended and Restated Rights Agreement between Registrant and Wells Fargo Bank, N.A., as Rights Agent, dated as of January 27, 2006

10-A	—	Officer Annual Cash Incentive Plan***

*10-B	—	1980 Master Stock Compensation Plan as Amended (Filed as Exhibit 10-A to Form 10-Q Report filed for the first quarter ended October 31, 2008)***

*10-C	—	Form of Performance Award Agreement under 1991 Master Stock Compensation Plan (Filed as Exhibit 10-B to Form 10-Q Report filed for the first quarter ended October 31, 2008)***

*10-D	—	ESOP Restoration Plan (2003 Restatement) (Filed as Exhibit 10-D to 2009 Form 10-K Report)***

*10-E	—	Deferred Compensation Plan for Non-employee Directors as amended (Filed as Exhibit 10-C to Form 10-Q Report filed for the first quarter ended October 31, 2008)***

*10-F	—	Independent Director Retirement and Benefit Plan as amended (Filed as Exhibit 10-D to Form 10-Q Report filed for the first quarter ended October 31, 2008)***

10-G	—	Supplemental Executive Retirement Plan (2008 Restatement) ***

*10-H	—	1991 Master Stock Compensation Plan as amended (Filed as Exhibit 10-E to Form 10-Q Report filed for the first quarter ended October 31, 2008)***

*10-I	—	Form of Restricted Stock Award under 1991 Master Stock Compensation Plan (Filed as Exhibit 10-F to Form 10-Q Report filed for the first quarter ended October 31, 2008)***

*10-J	—	Form of Agreement to Defer Compensation for certain Executive Officers (Filed as Exhibit 10-G to Form 10-Q Report filed for the first quarter ended October 31, 2008)***

*10-K	—	Stock Option Program for Non-employee Directors (Filed as Exhibit 10-H to Form 10-Q Report filed for the first quarter ended October 31, 2008)***

*10-L	—	Note Purchase Agreement among Donaldson Company, Inc. and certain listed Insurance Companies Dated as of July 15, 1998 (Filed as Exhibit 10-I to Form 10-Q Report filed for the first quarter ended October 31, 2008)

*10-M	—	Second Supplement and First Amendment to Note Purchase Agreement among Donaldson Company, Inc. and certain listed Insurance Companies dated as of September 30, 2004 (Filed as Exhibit 10-N to 2010 Form 10-K Report)

*10-N	—	2001 Master Stock Incentive Plan (Filed as Exhibit 10-O to 2009 Form 10-K Report)***

*10-O	—	Form of Officer Stock Option Award Agreement under the 2001 Master Stock Incentive Plan (Filed as Exhibit 10-P to 2010 Form 10-K Report)***

*10-P	—	Form of Non-Employee Director Non-Qualified Stock Option Agreement under the 2001 Master Stock Incentive Plan (Filed as Exhibit 10-Q to 2010 Form 10-K Report)***

10-Q	—	Restated Compensation Plan for Non-Employee Directors dated July 28, 2006 ***

10-R	—	Restated Long-Term Compensation Plan dated May 23, 2006 ***

10-S	—	Qualified Performance-Based Compensation Plan ***

10-T	—	Deferred Compensation and 401(k) Excess Plan (2008 Restatement)***

10-U	—	Deferred Stock Option Gain Plan (2008 Restatement)***

10-V	—	Excess Pension Plan (2008 Restatement)***

*10-W	—	Form of Management Severance Agreement for Executive Officers (Filed as Exhibit 10-A to Form 10-Q Report for the Third Quarter ended April 30, 2008)***

*10-X	—	2010 Master Stock Incentive Plan (Filed as Exhibit 4.5 to Registration Statement on Form S-* (File No. 333-170729) filed on November 19, 2010)***

*10-Y	—	Form of Officer Stock Option Award Agreement under the 2010 Master Stock Incentive Plan (Filed as Exhibit 10.1 to Form 8-K Report filed on December 16, 2010) ***

*10-Z	—	Form of Restricted Stock Award Agreement under the 2010 Master Stock Incentive Plan (Filed as Exhibit 10.2 to Form 8-K Report filed on December 16, 2010) ***

Table of Contents


10-AA	—	Non-Employee Director Automatic Stock Option Grant Program***

11	—	Computation of net earnings per share (See “Earnings Per Share” in “Summary of Significant Accounting Policies” in Note A in the Notes to Consolidated Financial Statements on page 31)

21	—	Subsidiaries

23	—	Consent of PricewaterhouseCoopers LLP

24	—	Powers of Attorney

31-A	—	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31-B	—	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32	—	Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101	—	The following financial information from the Donaldson Company, Inc. Annual Report on Form 10-K for the fiscal year ended July 31, 2011 as filed with the Securities and Exchange Commission, formatted in Extensible Business Reporting Language (XBRL): (i) the Consolidated Statements of Earnings, (ii) the Consolidated Balance Sheets, (iii) the Consolidated Statements of Cash Flows (iv) the Consolidated Statement of Changes in Shareholders’ Equity and (v) the Notes to Consolidated Financial Statements.


*	Exhibit has previously been filed with the Securities and Exchange Commission and is incorporated herein by reference as an exhibit.

**	Pursuant to the provisions of Regulation S-K Item 601(b)(4)(iii)(A) copies of instruments defining the rights of holders of certain long-term debts of the Company and its subsidiaries are not filed and in lieu thereof the Company agrees to furnish a copy thereof to the Securities and Exchange Commission upon request.

***	Denotes compensatory plan or management contract.

Note: Exhibits have been furnished only to the Securities and Exchange Commission. Copies will be furnished to individuals upon request.

Exhibit 3-B

CERTIFICATE OF DESIGNATION, PREFERENCES

AND RIGHTS OF SERIES A JUNIOR

PARTICIPATING PREFERRED STOCK

DONALDSON COMPANY, INC.

___________________________________

Pursuant to Section 151 of the

General Corporation Law of the State of Delaware

___________________________________

The undersigned officer of Donaldson Company, Inc., a corporation organized and existing under the General Corporation Law of the State of Delaware, in accordance with the provisions of Section 103 thereof, DOES HEREBY CERTIFY:

That pursuant to the authority conferred upon the Board of Directors by the Restated Certificate of Incorporation of the said Corporation, the said Board of Directors on January 27, 2006, adopted the following resolution creating a series of 120,000 shares of Preferred Stock designated as Series A Junior Participating Preferred Stock:

RESOLVED, that pursuant to the authority vested in the Board of Directors of this Corporation in accordance with the provisions of its Restated Certificate of Incorporation, a series of Preferred Stock of the Corporation be and it hereby is created, and that the designation and amount thereof and the voting powers, preferences and relative, participating, optional and other special rights of the shares of such series, and the qualifications, limitations or restrictions thereof are as follows:

Section 1. Designation and Amount . The shares of such series shall be designated as “Series A Junior Participating Preferred Stock” and the number of shares constituting such series shall be 120,000.

Section 2.

Dividends and Distributions .

(A) The holders of shares of Series A Junior Participating Preferred Stock shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for the purpose, quarterly dividends payable in cash on the last day of March, June, September and December in each year (each such date being referred to herein as a “Quarterly Dividend Payment Date”), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of Series A Junior Participating Preferred Stock, in an amount per share (rounded to the nearest cent) equal to the greater of (a) $10.00 or (b) subject to the provision for adjustment hereinafter set forth, 1,000 times the aggregate per share amount of all cash dividends, and 1,000 times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions other than a dividend payable in shares of Common Stock

or a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise), declared on the Common Stock, par value $5.00 per share, of the Corporation (the “Common Stock”) since the immediately preceding Quarterly Dividend Payment Date, or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Series A Junior Participating Preferred Stock. In the event the Corporation shall at any time after January 27, 2006 (the “Rights Declaration Date”) (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the amount to which holders of shares of Series A Junior Participating Preferred Stock were entitled immediately prior to such event under clause (b) of the preceding sentence shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event.

(B) The Corporation shall declare a dividend or distribution on the Series A Junior Participating Preferred Stock as provided in Paragraph (A) above immediately after it declares a dividend or distribution on the Common Stock (other than a dividend payable in shares of Common Stock); provided that, in the event no dividend or distribution shall have been declared on the Common Stock during the period between any Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a dividend of $10.00 per share on the Series A Junior Participating Preferred Stock shall nevertheless be payable on such subsequent Quarterly Dividend Payment Date.

(C) Dividends shall begin to accrue and be cumulative on outstanding shares of Series A Junior Participating Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issue of such shares of Series A Junior Participating Preferred Stock, unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of shares of Series A Junior Participating Preferred Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Series A Junior Participating Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of shares of Series A Junior Participating Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be no more than 30 days prior to the date fixed for the payment thereof.

Section 3. Voting Rights . The holders of shares of Series A Junior Participating Preferred Stock shall have the following voting rights:

(A) Subject to the provision for adjustment hereinafter set forth, each share of Series A Junior Participating Preferred Stock shall entitle the holder thereof to 1,000 votes on all matters submitted to a vote of the stockholders of the Corporation. In the event the Corporation shall at any time after the Rights Declaration Date (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the number of votes per share to which holders of shares of Series A Junior Participating Preferred Stock were entitled immediately prior to such event shall be adjusted by multiplying such number by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event.

(B) Except as otherwise provided herein or by law, the holders of shares of Series A Junior Participating Preferred Stock and the holders of shares of Common Stock shall vote together as one class on all matters submitted to a vote of stockholders of the Corporation.

(C) (i) If at any time dividends on any Series A Junior Participating Preferred Stock shall be in arrears in an amount equal to six (6) quarterly dividends thereon, the occurrence of such contingency shall mark the beginning of a period (herein called a “default period”) which shall extend until such time when all accrued and unpaid dividends for all previous quarterly dividend periods and for the current quarterly dividend period on all shares of Series A Junior Participating Preferred Stock then outstanding shall have been declared and paid or set apart for payment. During each default period, all holders of Preferred Stock (including holders of the Series A Junior Participating Preferred Stock) with dividends in arrears in an amount equal to six (6) quarterly dividends thereon, voting as a class, irrespective of series, shall have the right to elect two (2) directors.

(ii) During any default period, such voting right of the holders of Series A Junior Participating Preferred Stock may be exercised initially at a special meeting called pursuant to subparagraph (iii) of this Section 3(C) or at any annual meeting of stockholders, and thereafter at annual meetings of stockholders, provided that such voting right shall not be exercised unless the holders of ten percent (10%) in number of shares of Preferred Stock outstanding shall be present in person or by proxy. The absence of a quorum of the holders of Common Stock shall not affect the exercise by the holders of Preferred Stock of such voting right. At any meeting at which the holders of Preferred Stock shall exercise such voting right initially during an existing default period, they shall have the right, voting as a class, to elect directors to fill such vacancies, if any, in the Board of Directors as may then exist up to two (2) directors or, if such right is exercised at an annual meeting, to elect two (2) directors. If the number which may be so elected at any special meeting does not amount to the required number, the holders of the Preferred Stock shall have the right to make such increase in the number of directors as shall be necessary to permit the election by them of the required number. After the holders of the Preferred Stock shall have exercised their right to elect directors in any default period and during the continuance of such period, the number of directors shall

not be increased or decreased except by vote of the holders of Preferred Stock as herein provided or pursuant to the rights of any equity securities ranking senior to or pari passu with the Series A Junior Participating Preferred Stock.

(iii) Unless the holders of Preferred Stock shall, during an existing default period, have previously exercised their right to elect directors, the Board of Directors may order, or any stockholder or stockholders owning in the aggregate not less than ten percent (10%) of the total number of shares of Preferred Stock outstanding, irrespective of series, may request, the calling of a special meeting of the holders of Preferred Stock, which meeting shall thereupon be called by the President, a Vice President or the Secretary of the Corporation. Notice of such meeting and of any annual meeting at which holders of Preferred Stock are entitled to vote pursuant to this Paragraph (C) (iii) shall be given to each holder of record of Preferred Stock by mailing a copy of such notice to him at his last address as the same appears on the books of the Corporation. Such meeting shall be called for a time not earlier than 20 days and not later than 60 days after such order or request or in default of the calling of such meeting within 60 days after such order or request, such meeting may be called on similar notice by any stockholder or stockholders owning in the aggregate not less than ten percent (10%) of the total number of shares of Preferred Stock outstanding. Notwithstanding the provisions of this Paragraph (C)(iii), no such special meeting shall be called during the period within 60 days immediately preceding the date fixed for the next annual meeting of the stockholders.

(iv) In any default period, the holders of Common Stock, and other classes of stock of the Corporation if applicable, shall continue to be entitled to elect the whole number of directors until the holders of Preferred Stock shall have exercised their right to elect two (2) directors voting as a class, after the exercise of which right (x) the directors so elected by the holders of Preferred Stock shall continue in office until their successors shall have been elected by such holders or until the expiration of the default period, and (y) any vacancy in the Board of Directors may (except as provided in Paragraph (C)(ii) of this Section 3) be filled by vote of a majority of the remaining directors theretofore elected by the holders of the class of stock which elected the director whose office shall have become vacant. References in this Paragraph (C) to directors elected by the holders of a particular class of stock shall include directors elected by such directors to fill vacancies as provided in clause (y) of the foregoing sentence.

(v) Immediately upon the expiration of a default period, (x) the right of the holders of Preferred Stock as a class to elect directors shall cease, (y) the term of any directors elected by the holders of Preferred Stock as a class shall terminate, and (z) the number of directors shall be such number as may be provided for in the certificate of incorporation or by-laws irrespective of any increase made pursuant to the provisions of Paragraph (C)(ii) of this Section 3 (such number being subject, however, to change thereafter in any manner provided by law or in the certificate of incorporation or by-laws). Any vacancies in the Board of Directors effected by the provisions of clauses (y) and (z) in the preceding sentence may be filled by a majority of the remaining directors.

(D) Except as set forth herein, holders of Series A Junior Participating Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Stock as set forth herein) for taking any corporate action.

Section 4.

Certain Restrictions .

(A) Whenever quarterly dividends or other dividends or distributions payable on the Series A Junior Participating Preferred Stock as provided in Section 2 are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on shares of Series A Junior Participating Preferred Stock outstanding shall have been paid in full, the Corporation shall not:

(i) declare or pay dividends on, make any other distributions on, or redeem or purchase or otherwise acquire for consideration any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Junior Participating Preferred Stock;

(ii) declare or pay dividends on or make any other distributions on any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Junior Participating Preferred Stock, except dividends paid ratably on the Series A Junior Participating Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled;

(iii) redeem or purchase or otherwise acquire for consideration shares of any stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Junior Participating Preferred Stock, provided that the Corporation may at any time redeem, purchase or otherwise acquire shares of any such parity stock in exchange for shares of any stock of the Corporation ranking junior (either as to dividends or upon dissolution, liquidation or winding up) to the Series A Junior Participating Preferred Stock; or

(iv) purchase or otherwise acquire for consideration any shares of Series A Junior Participating Preferred Stock, or any shares of stock ranking on a parity with the Series A Junior Participating Preferred Stock, except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes.

(B) The Corporation shall not permit any subsidiary of the Corporation to purchase or otherwise acquire for consideration any shares of stock of the Corporation unless the Corporation could, under Paragraph (A) of this Section 4, purchase or otherwise acquire such shares at such time and in such manner.

Section 5. Reacquired Shares . Any shares of Series A Junior Participating Preferred Stock purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and cancelled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of Preferred Stock and may be reissued as part of a new series of Preferred Stock to be created by resolution or resolutions of the Board of Directors, subject to the conditions and restrictions on issuance set forth herein.

Section 6.

Liquidation, Dissolution or Winding Up .

(A) Upon any liquidation (voluntary or otherwise), dissolution or winding up of the Corporation, no distribution shall be made to the holders of shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Junior Participating Preferred Stock unless, prior thereto, the holders of shares of Series A Junior Participating Preferred Stock shall have received an amount equal to $1,000 per share of Series A Junior Participating Preferred Stock plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment (the “Series A Liquidation Preference”). Following the payment of the full amount of the Series A Liquidation Preference, no additional distributions shall be made to the holders of shares of Series A Junior Participating Preferred Stock unless, prior thereto, the holders of shares of Common Stock shall have received an amount per share (the “Common Adjustment”) equal to the quotient obtained by dividing (i) the Series A Liquidation Preference by (ii) 1,000 (as appropriately adjusted as set forth in subparagraph (C) below to reflect such events as stock splits, stock dividends and recapitalizations with respect to the Common Stock) (such number in clause (ii), the “Adjustment Number”). Following the payment of the full amount of the Series A Liquidation Preference and the Common Adjustment in respect of all outstanding shares of Series A Junior Participating Preferred Stock and Common Stock, respectively, holders of Series A Junior Participating Preferred Stock and holders of shares of Common Stock shall receive their ratable and proportionate share of the remaining assets to be distributed in the ratio of the Adjustment Number to 1 with respect to such Preferred Stock and Common Stock, on a per share basis, respectively.

(B) In the event, however, that there are not sufficient assets available to permit payment in full of the Series A Liquidation Preference and the liquidation preferences of all other series of preferred stock, if any, which rank on a parity with the Series A Junior Participating Preferred Stock, then such remaining assets shall be distributed ratably to the holders of such parity shares in proportion to their respective liquidation preferences. In the event, however, that there are not sufficient assets available to permit payment in full of the Common Adjustment, then such remaining assets shall be distributed ratably to the holders of Common Stock.

(C) In the event the Corporation shall at any time after the Rights Declaration Date (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the Adjustment Number in effect immediately prior to such event shall be adjusted by

multiplying such Adjustment Number by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event.

Section 7 . Consolidation, Merger, etc . In case the Corporation shall enter into any consolidation, merger, combination or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case the shares of Series A Junior Participating Preferred Stock shall at the same time be similarly exchanged or changed in an amount per share (subject to the provision for adjustment hereinafter set forth) equal to 1,000 times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Common Stock is changed or exchanged. In the event the Corporation shall at any time after the Rights Declaration Date (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the amount set forth in the preceding sentence with respect to the exchange or change of shares of Series A Junior Participating Preferred Stock shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event.

Section 8. No Redemption . The shares of Series A Junior Participating Preferred Stock shall not be redeemable.

Section 9 . Ranking . The Series A Junior Participating Preferred Stock shall rank junior to all other series of the Corporation’s Preferred Stock which may be issued from time to time as to the payment of dividends and the distribution of assets, unless the terms of any such series shall provide otherwise.

Section 10. Amendment . At any time when any shares of Series A Junior Participating Preferred Stock are outstanding, neither the Restated Certificate of Incorporation of the Corporation nor this Certificate of Designation shall be amended in any manner which would materially alter or change the powers, preferences or special rights of the Series A Junior Participating Preferred Stock so as to affect them adversely without the affirmative vote of the holders of a majority or more of the outstanding shares of Series A Junior Participating Preferred Stock, voting separately as a class.

Section 11. Fractional Shares . Series A Junior Participating Preferred Stock may be issued in fractions of a share which shall entitle the holder, in proportion to such holder’s fractional shares, to exercise voting rights, receive dividends, participate in distributions and to have the benefit of all other rights of holders of Series A Junior Participating Preferred Stock.

IN WITNESS WHEREOF, the Corporation has caused this Certificate of Designation to be executed by its duly authorized officer on this 3 ^rd day of March, 2006.

DONALDSON COMPANY, INC.


By:	/s/ Norman C. Linnell
Name:		Norman C. Linnell
Title:		Vice President, General Counsel and Secretary

Exhibit 4-A

DONALDSON COMPANY, INC.

and

WELLS FARGO BANK, N.A.
Rights Agent

Rights Agreement

Dated as of January 27, 2006

		Page
Section 1.	Certain Definitions	1
Section 2.	Appointment of Rights Agent	6
Section 3.	Issuance of Rights Certificates	6
Section 4.	Form of Rights Certificates	8
Section 5.	Countersignature and Registration	8
Section 6.	Transfer, Split-Up, Combination and Exchange of Rights Certificates; Mutilated, Destroyed, Lost or Stolen Rights Certificates	9
Section 7.	Exercise of Rights; Purchase Price; Expiration Date of Rights	10
Section 8.	Cancellation and Destruction of Rights Certificates	12
Section 9.	Reservation and Availability of Capital Stock	12
Section 10.	Preferred Stock Record Date	14
Section 11.	Adjustment of Purchase Price, Number and Kind of Shares or Number of Rights	14
Section 12.	Certificate of Adjusted Purchase Price or Number of Shares	22
Section 13.	Consolidation, Merger or Sale or Transfer of Assets, Cash Flow or Earning Power	22
Section 14.	Fractional Rights and Fractional Shares	24
Section 15.	Rights of Action	25
Section 16.	Agreement of Rights Holders	26
Section 17.	Rights Certificate Holder Not Deemed a Stockholder	27
Section 18.	Concerning the Rights Agent	27
Section 19.	Merger or Consolidation or Change of Name of Rights Agent	27
Section 20.	Duties of Rights Agent	28
Section 21.	Change of Rights Agent	30
Section 22.	Issuance of New Rights Certificates	31
Section 23.	Redemption and Termination	31
Section 24.	Exchange	32

		Page
Section 25.	Notice of Certain Events	33
Section 26.	Notices	34
Section 27.	Supplements and Amendments	34
Section 28.	Successors	35
Section 29.	Determinations and Actions by the Board of Directors, etc.	35
Section 30.	Benefits of this Agreement	35
Section 31.	Severability	35
Section 32.	Governing Law	36
Section 33.	Counterparts	36
Section 34.	Descriptive Headings	36

EXHIBITS

Exhibit A – Form of Certificate of Designation, Preferences and Rights

Exhibit B – Form of Rights Certificates

iii

RIGHTS AGREEMENT

RIGHTS AGREEMENT, dated as of January 27, 2006 (the “Agreement”), between Donaldson Company, Inc., a Delaware corporation (the “Company”), and Wells Fargo Bank, N.A., a national banking association (the “Rights Agent”).

W I T N E S S E T H

WHEREAS, in January 1996, the Board of Directors of the Company (the “Board”) approved and adopted a Rights Agreement (the “1996 Agreement”) pursuant to which preferred stock purchase rights were distributed to the stockholders of the Company;

WHEREAS, the rights issued pursuant to the 1996 Agreement will expire on March 3, 2006; and

WHEREAS, on January 27, 2006 (the “Rights Dividend Declaration Date”), the Board determined to extend the protections afforded by the 1996 Agreement by authorizing and declaring a dividend distribution of one new Right (as hereinafter defined) for each share of common stock, par value $5.00 per share, of the Company (the “Common Stock”) outstanding at the close of business on March 3, 2006 (the “Record Date”), to replace the rights previously issued pursuant to the 1996 Agreement, and the Board has authorized the issuance of one Right (as such number may hereinafter be adjusted pursuant to the provisions of Section 11(p) hereof) for each share of Common Stock issued between the Record Date (whether originally issued or delivered from the Company’s treasury) and the Distribution Date (as hereinafter defined), each Right initially representing the right to purchase one one-thousandth of a share of Series A Junior Participating Preferred Stock of the Company (the “Preferred Stock”) having the rights, powers and preferences set forth in the form of Certificate of Designation, Preferences and Rights attached hereto as Exhibit A , upon the terms and subject to the conditions hereinafter set forth (the “Rights”).

NOW, THEREFORE, in consideration of the premises and the mutual agreements herein set forth, the parties hereby agree as follows:

Section 1. Certain Definitions . For purposes of this Agreement, the following terms have the meanings indicated:

(a) “1996 Agreement” shall have the meaning set forth in the preamble hereof.

(b) “Acquiring Person” shall mean any Person who or which, together with all Affiliates and Associates of such Person, shall be the Beneficial Owner of fifteen percent (15%) or more of the shares of Common Stock then outstanding, but shall not include (i) the Company, (ii) any Subsidiary of the Company, (iii) any employee benefit plan of the Company, or of any Subsidiary of the Company, or any Person organized, appointed or established by the Company for or pursuant to the terms of any such plan, (iv) any Person who becomes the Beneficial Owner of fifteen percent (15%) or more of the shares of Common Stock then outstanding as a result of a reduction in the number of shares

of Common Stock outstanding due to the repurchase of shares of Common Stock by the Company unless and until such Person, after becoming aware that such Person has become the Beneficial Owner of fifteen percent (15%) or more of the then outstanding shares of Common Stock, acquires beneficial ownership of additional shares of Common Stock representing one percent (1%) or more of the shares of Common Stock then outstanding or (v) any such Person who has reported or is required to report such ownership (but less than 20%) on Schedule 13G under the Exchange Act (or any comparable or successor report) or on Schedule 13D under the Exchange Act (or any comparable or successor report) which Schedule 13D does not state any intention to or reserve the right to control or influence the management or policies of the Company or engage in any of the actions specified in Item 4 of such schedule (other than the disposition of the Common Stock) and, within ten (10) Business Days of being requested by the Company to advise it regarding the same, certifies to the Company that such Person acquired shares of Common Stock in excess of 14.9% inadvertently or without knowledge of the terms of the Rights and who or which, together with all Affiliates and Associates, thereafter does not acquire additional shares of Common Stock while the Beneficial Owner of 15% or more of the shares of Common Stock then outstanding; provided , however , that if the Person requested to so certify fails to do so within ten (10) Business Days, then such Person shall become an Acquiring Person immediately after such ten (10) Business Day period.

(d) “Adjustment Shares” shall have the meaning set forth in Section 11(a)(ii) hereof.

(e) “Affiliate” and “Associate” shall have the respective meanings assigned to such terms in Rule 12b-2 of the General Rules and Regulations under the Exchange Act.

(f) “Agreement” shall have the meaning set forth in the introduction hereof.

(g) A Person shall be deemed the “Beneficial Owner” of, and shall be deemed to “beneficially own,” any securities:

(i) which such Person or any of such Person’s Affiliates or Associates, directly or indirectly, has the right to acquire (whether such right is exercisable immediately or only after the passage of time) pursuant to any agreement, arrangement or understanding (whether or not in writing) or upon the exercise of conversion rights, exchange rights, other rights, warrants or options, or otherwise; provided , however , that a Person shall not be deemed the “Beneficial Owner” of, or to “beneficially own” (A) securities tendered pursuant to a tender or exchange offer made by such Person or any of such Person’s Affiliates or Associates until such tendered securities are accepted for purchase or exchange, (B) securities issuable upon exercise of Rights at any time prior to the occurrence of a Triggering Event (as hereinafter defined) or (C) securities issuable upon exercise of Rights from and after the occurrence of a Triggering Event which Rights

were acquired by such Person or any of such Person’s Affiliates or Associates prior to the Distribution Date (as hereinafter defined) or pursuant to Section 3(a) or Section 22 hereof (the “Original Rights”) or pursuant to Section 11(i) hereof in connection with an adjustment made with respect to any Original Rights;

(ii) which such Person or any of such Person’s Affiliates or Associates, directly or indirectly, has the right to vote or dispose of or has “beneficial ownership” of (as determined pursuant to Rule 13d-3 of the General Rules and Regulations under the Exchange Act), including pursuant to any agreement, arrangement or understanding, whether or not in writing; provided , however , that a Person shall not be deemed the “Beneficial Owner” of, or to “beneficially own,” any security under this subparagraph (ii) as a result of an agreement, arrangement or understanding to vote such security if such agreement, arrangement or understanding: (A) arises solely from a revocable proxy given in response to a public proxy or consent solicitation made pursuant to, and in accordance with, the applicable provisions of the General Rules and Regulations under the Exchange Act, and (B) is not reportable by such Person on Schedule 13D under the Exchange Act (or any comparable or successor report); or

(iii) which are beneficially owned, directly or indirectly, by any other Person (or any Affiliate or Associate thereof) with which such Person (or any of such Person’s Affiliates or Associates) has any agreement, arrangement or understanding (whether or not in writing), for the purpose of acquiring, holding, voting (except pursuant to a revocable proxy as described in the proviso to subparagraph (ii) of this paragraph (g)) or disposing of any voting securities of the Company;

provided , however , that nothing in this paragraph (g) shall cause a Person engaged in business as an underwriter of securities to be the “Beneficial Owner” of, or to “beneficially own,” any securities acquired through such person’s participation in good faith in a firm commitment underwriting until the expiration of forty (40) days after the date of such acquisition, and then only if such securities continue to be owned by such Person at such expiration of forty (40) days.

(h) “Board” shall have the meaning set forth in the preamble hereof.

(i) “Business Day” shall mean any day other than a Saturday, Sunday or a day on which banking institutions in the State of New York are authorized or obligated by law or executive order to close.

(j) “By-Laws” shall mean the Amended and Restated By-Laws of the Company, as in effect on the date hereof and amended from time to time.

(k) “Certificate of Incorporation” shall mean the Restated Certificate of Incorporation of the Company, dated as of November 23, 2004, as amended from time to time.

(l) “Close of business” on any given date shall mean 5:00 P.M., New York City time, on such date; provided , however , that if such date is not a Business Day, it shall mean 5:00 P.M., New York City time, on the next succeeding Business Day.

(m) “Common Stock” shall mean the common stock, par value $5.00 per share, of the Company, except that “Common Stock” when used with reference to any Person other than the Company shall mean the capital stock of such Person with the greatest voting power, or the equity securities or other equity interest having power to control or direct the management, of such Person.

(n) “Common Stock Equivalents” shall have the meaning set forth in Section 11(a)(iii) hereof.

(o) “Company” shall have the meaning set forth in the introduction hereof.

(p) “Current Market Price” shall have the meaning set forth in Section 11(d)(i) hereof.

(q) “Current Value” shall have the meaning set forth in Section 11(a)(iii) hereof.

(r) “Distribution Date” shall have the meaning set forth in Section 3(a) hereof.

(s) “Equivalent Preferred Stock” shall have the meaning set forth in Section 11(b) hereof.

(t) “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended and in effect on the date hereof.

(u) “Exchange Ratio” shall have the meaning set forth in Section 24(a) hereof.

(v) “Expiration Date” shall have the meaning set forth in Section 7(a) hereof.

(w) “Final Expiration Date” shall have the meaning set forth in Section 7(a) hereof.

(x) “NASDAQ” shall have the meaning set forth in Section 11(d)(i) hereof.

(y) “Original Rights” shall have the meaning set forth in Section 1(g)(i) hereof.

(z) “Person” shall mean any individual, firm, corporation, partnership, limited liability company, limited liability partnership, trust, syndicate or other entity and includes, without limitation, an unincorporated group of persons who, by formal or informal agreement or arrangement (whether or not in writing), have embarked on a common purpose or act.

(aa) “Preferred Stock” shall mean shares of Series A Junior Participating Preferred Stock, par value $1.00 per share, of the Company, and, to the extent that there are not a sufficient number of shares of Series A Junior Participating Preferred Stock authorized to permit the full exercise of the Rights, any other series of preferred stock of the Company designated for such purpose containing terms substantially similar to the terms of the Series A Junior Participating Preferred Stock.

(bb) “Principal Party” shall have the meaning set forth in Section 13(b) hereof.

(cc) “Purchase Price” shall have the meaning set forth in Section 4(a) hereof.

(dd) “Qualifying Offer” shall have the meaning set forth in Section 11(a)(ii) hereof.

(ee) “Record Date” shall have the meaning set forth in the preamble hereof.

(ff) “Redemption Price” shall have the meaning set forth in Section 23(a) hereof.

(gg) “Rights” shall have the meaning set forth in the preamble hereof.

(hh) “Rights Agent” shall have the meaning set forth in the introduction hereof.

(ii) “Rights Certificate” shall have the meaning set forth in Section 3(a) hereof.

(jj) “Rights Dividend Declaration Date” shall have the meaning set forth in the preamble hereof.

(kk) “Section 11(a)(ii) Event” shall mean any event described in Section 11(a)(ii) hereof.

(ll) “Section 11(a)(ii) Trigger Date” shall have the meaning set forth in Section 11(a)(iii) hereof.

(mm) “Section 13 Event” shall mean any event described in clauses (x), (y) or (z) of Section 13(a) hereof.

(nn) “Spread” shall have the meaning set forth in Section 11(a)(iii) hereof.

(oo) “Stock Acquisition Date” shall mean the first date of public announcement (which, for purposes of this definition, shall include, without limitation, a report filed or amended pursuant to Section 13(d) under the Exchange Act) by the Company or an Acquiring Person that an Acquiring Person has become such other than pursuant to a Qualifying Offer.

(pp) “Subsidiary” shall mean, with reference to any Person, any corporation of which an amount of voting securities sufficient to elect at least a majority of the directors of such corporation is beneficially owned, directly or indirectly, by such Person, or otherwise controlled by such Person.

(qq) “Substitution Period” shall have the meaning set forth in Section 11(a)(iii) hereof.

(rr) “Trading Day” shall have the meaning set forth in Section 11(d)(i) hereof.

(ss) “Triggering Event” shall mean any Section 11(a)(ii) Event or any Section 13 Event.

Section 2. Appointment of Rights Agent . The Company hereby appoints the Rights Agent to act as agent for the Company and the holders of the Rights (who, in accordance with Section 3 hereof, shall prior to the Distribution Date also be the holders of the Common Stock) in accordance with the terms and conditions hereof, and the Rights Agent hereby accepts such appointment. The Company may from time to time appoint such co-rights agents as it may deem necessary or desirable.

Section 3. Issuance of Rights Certificates .

(a) Until the earlier of (i) the close of business on the tenth (10 ^th ) day after the Stock Acquisition Date (or, if the tenth (10 ^th ) day after the Stock Acquisition Date occurs before the Record Date, the close of business on the Record Date), or (ii) the close of business on the tenth (10 ^th ) Business Day (or such later date as the Board shall determine) after the date that a tender or exchange offer by any Person (other than the Company, any Subsidiary of the Company, any employee benefit plan of the Company or of any Subsidiary of the Company, or any Person organized, appointed or established by the Company for or pursuant to the terms of any such plan) is first published or sent or given within the meaning of Rule 14d-2(a) of the General Rules and Regulations under the Exchange Act, if upon consummation thereof, such Person would become an Acquiring Person, in either instance other than pursuant to a Qualifying Offer (the earlier of (i) and (ii) being herein referred to as the “Distribution Date”), (x) the Rights will be evidenced (subject to the provisions of paragraph (b) of this Section 3) by the certificates for the Common Stock or, in the case of uncertificated shares, the balances indicated in the book-entry account system of the transfer agent for the Common Stock registered in the names of the holders of the Common Stock (which shares of Common Stock shall be deemed also to be certificates for Rights) and not by separate certificates, and (y) the Rights will be transferable only in connection with the transfer of the underlying shares of Common Stock (including a transfer to the Company). As soon as practicable after the Distribution Date, the Rights Agent will send by first-class, insured, postage prepaid mail, to each record holder of the Common Stock as of the close of business on the Distribution

Date, at the address of such holder shown on the records of the Company, one or more rights certificates, in substantially the form of Exhibit B hereto (the “Rights Certificates”), evidencing one Right for each share of Common Stock so held, subject to adjustment as provided herein. In the event that an adjustment in the number of Rights per share of Common Stock has been made pursuant to Section 11(p) hereof, at the time of distribution of the Rights Certificates, the Company shall make the necessary and appropriate rounding adjustments (in accordance with Section 14(a) hereof) so that Rights Certificates representing only whole numbers of Rights are distributed and cash is paid in lieu of any fractional Rights. As of and after the Distribution Date, the Rights will be evidenced solely by such Rights Certificates.

(b) Until the Distribution Date, the Rights will be evidenced by the certificates for the Common Stock or, in the case of uncertificated shares, the balances indicated in the book-entry account system of the transfer agent for the Common Stock, and the registered holders of the Common Stock shall also be the registered holders of the associated Rights. Until the earlier of the Distribution Date or the Expiration Date, the transfer of any shares of Common Stock in respect of which Rights have been issued shall also constitute the transfer of the Rights associated with such shares of Common Stock.

(c) Rights shall be issued in respect of all shares of Common Stock which are issued (whether originally issued or delivered from the Company’s treasury) after the Record Date but prior to the earlier of the Distribution Date or the Expiration Date. Certificates representing such shares of Common Stock shall also be deemed to be certificates for Rights, and shall bear the following legend if such certificates are issued after the Record Date but prior to the earlier of the Distribution Date or the Expiration Date:

This certificate also evidences and entitles the holder hereof to certain Rights as set forth in the Rights Agreement between Donaldson Company, Inc. (the “Company”) and Wells Fargo Bank, N.A., a national banking association (the “Rights Agent”), dated as of January 27, 2006, as amended from time to time (the “Rights Agreement”), the terms of which are hereby incorporated herein by reference and a copy of which is on file at the principal offices of the Company. Under certain circumstances, as set forth in the Rights Agreement, such Rights will be evidenced by separate certificates and will no longer be evidenced by this certificate. The Company will mail to the holder of this certificate a copy of the Rights Agreement, as in effect on the date of mailing, without charge promptly after receipt of a written request therefor. Under certain circumstances set forth in the Rights Agreement, Rights issued to, or held by, any Person who is, was or becomes an Acquiring Person or any Affiliate or Associate thereof (as such terms are defined in the Rights Agreement), whether currently held by or on behalf of such Person or by any subsequent holder, may become null and void.

With respect to such certificates containing the foregoing legend, until the earlier of (i) the Distribution Date or (ii) the Expiration Date, the Rights associated with the Common Stock represented by such certificates shall be evidenced by such certificates alone and registered holders of Common Stock shall also be the registered holders of the associated Rights, and the transfer of any of such certificates shall also constitute the transfer of the Rights associated with the Common Stock represented by such certificates.

Section 4. Form of Rights Certificates .

(a) The Rights Certificates (and the forms of election to purchase and of assignment to be printed on the reverse thereof) shall each be substantially in the form set forth in Exhibit B hereto and may have such marks of identification or designation and such legends, summaries or endorsements printed thereon as the Company may deem appropriate and as are not inconsistent with the provisions of this Agreement, or as may be required to comply with any applicable law or with any rule or regulation made pursuant thereto or with any rule or regulation of any stock exchange on which the Rights may from time to time be listed, or to conform to usage. Subject to the provisions of Section 11 and Section 22 hereof, the Rights Certificates, whenever distributed, shall be dated as of the Record Date and on their face shall entitle the holders thereof to purchase such number of one one-thousandths of a share of Preferred Stock as shall be set forth therein at the price set forth therein (such exercise price per one one-thousandth of a share, the “Purchase Price”), but the amount and type of securities purchasable upon the exercise of each Right and the Purchase Price thereof shall be subject to adjustment as provided herein.

(b) Any Rights Certificate issued pursuant to Section 3(a), Section 11(i) or Section 22 hereof that represents Rights beneficially owned by: (i) an Acquiring Person or any Associate or Affiliate of an Acquiring Person, (ii) a transferee of an Acquiring Person (or of any such Associate or Affiliate) who becomes a transferee after the Acquiring Person becomes such, or (iii) a transferee of an Acquiring Person (or of any such Associate or Affiliate) who becomes a transferee prior to or concurrently with the Acquiring Person becoming such and receives such Rights pursuant to either (A) a transfer (whether or not for consideration) from the Acquiring Person to holders of equity interests in such Acquiring Person or to any Person with whom such Acquiring Person has any continuing agreement, arrangement or understanding regarding the transferred Rights or (B) a transfer which the Board has determined is part of a plan, arrangement or understanding which has as a primary purpose or effect the avoidance of Section 7(e) hereof, and any Rights Certificate issued pursuant to Section 6 or Section 11 hereof upon transfer, exchange, replacement or adjustment of any other Rights Certificate referred to in this sentence, shall contain (to the extent feasible) the following legend:

The Rights represented by this Rights Certificate are or were beneficially owned by a Person who was or became an Acquiring Person or an Affiliate or Associate of an Acquiring Person (as such terms are defined in the Rights Agreement). Accordingly, this Rights Certificate and the Rights represented hereby may become null and void in the circumstances specified in Section 7(e) of the Rights Agreement.

Section 5. Countersignature and Registration .

(a) The Rights Certificates shall be executed on behalf of the Company by its Chairman of the Board, its President or any Vice President, either manually or by facsimile signature, and shall have affixed thereto the Company’s seal or a facsimile

thereof which shall be attested by the Secretary or an Assistant Secretary of the Company, either manually or by facsimile signature. The Rights Certificates shall be countersigned by the Rights Agent, either manually or by facsimile signature, and shall not be valid for any purpose unless so countersigned. In case any officer of the Company who shall have signed any of the Rights Certificates shall cease to be such officer of the Company before countersignature by the Rights Agent and issuance and delivery by the Company, such Rights Certificates, nevertheless, may be countersigned by the Rights Agent and issued and delivered by the Company with the same force and effect as though the person who signed such Rights Certificates had not ceased to be such officer of the Company; and any Rights Certificates may be signed on behalf of the Company by any person who, at the actual date of the execution of such Rights Certificate, shall be a proper officer of the Company to sign such Rights Certificate, although at the date of the execution of this Rights Agreement any such person was not such an officer.

(b) Following the Distribution Date, the Rights Agent will keep, or cause to be kept, at its principal office or offices designated as the appropriate place for surrender of Rights Certificates upon exercise or transfer, books for registration and transfer of the Rights Certificates issued hereunder. Such books shall show the names and addresses of the respective holders of the Rights Certificates, the number of Rights evidenced on its face by each of the Rights Certificates and the date of each of the Rights Certificates.

Section 6. Transfer, Split-Up, Combination and Exchange of Rights Certificates; Mutilated, Destroyed, Lost or Stolen Rights Certificates .

(a) Subject to the provisions of Section 4(b), Section 7(e) and Section 14 hereof, at any time after the close of business on the Distribution Date, and at or prior to the close of business on the Expiration Date, any Rights Certificate or Certificates (other than Rights Certificates representing Rights that may have been exchanged pursuant to Section 24 hereof) may be transferred, split-up, combined or exchanged for another Rights Certificate or Certificates, entitling the registered holder to purchase a like number of one one-thousandths of a share of Preferred Stock (or, following a Triggering Event, Common Stock, other securities, cash or other assets, as the case may be) as the Rights Certificate or Certificates surrendered then entitles such holder (or former holder in the case of a transfer) to purchase. Any registered holder desiring to transfer, split-up, combine or exchange any Rights Certificate or Certificates shall make such request in writing delivered to the Rights Agent, and shall surrender the Rights Certificate or Certificates to be transferred, split-up, combined or exchanged at the principal office or offices of the Rights Agent designated for such purpose. Neither the Rights Agent nor the Company shall be obligated to take any action whatsoever with respect to the transfer of any such surrendered Rights Certificate until the registered holder shall have completed and signed the certificate contained in the form of assignment on the reverse side of such Rights Certificate and shall have provided such additional evidence of the identity of the Beneficial Owner (or former Beneficial Owner) or Affiliates or Associates thereof as the Company shall reasonably request. Thereupon the Rights Agent shall, subject to Section 4(b), Section 7(e), Section 14 and Section 24 hereof, countersign and deliver to the Person entitled thereto a Rights Certificate or Rights Certificates, as the case may be, as so requested. The Company may

require payment of a sum sufficient to cover any tax or governmental charge that may be imposed in connection with any transfer, split-up, combination or exchange of Rights Certificates.

(b) Upon receipt by the Company and the Rights Agent of evidence reasonably satisfactory to them of the loss, theft, destruction or mutilation of a Rights Certificate, and, in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to them, and reimbursement to the Company and the Rights Agent of all reasonable expenses incidental thereto, and upon surrender to the Rights Agent and cancellation of the Rights Certificate, if mutilated, the Company will execute and deliver a new Rights Certificate of like tenor to the Rights Agent for countersignature and delivery to the registered owner in lieu of the Rights Certificate so lost, stolen, destroyed or mutilated.

Section 7. Exercise of Rights; Purchase Price; Expiration Date of Rights .

(a) Subject to Section 7(e) hereof, at any time after the Distribution Date the registered holder of any Rights Certificate may exercise the Rights evidenced thereby (except as otherwise provided herein including, without limitation, the restrictions on exercisability set forth in Section 9(c), Section 11(a)(iii) and Section 23(a) hereof) in whole or in part upon surrender of the Rights Certificate, with the form of election to purchase and the certificate on the reverse side thereof duly executed, to the Rights Agent at the principal office or offices of the Rights Agent designated for such purpose, together with payment of the aggregate Purchase Price with respect to the total number of one one-thousandths of a share of Preferred Stock (or other securities, cash or other assets, as the case may be) as to which such surrendered Rights are then exercisable, at or prior to the earlier of (i) 5:00 P.M., New York City time, on March 2, 2016, or such later date as may be established by the Board prior to the expiration of the Rights (such date, as it may be extended by the Board, the (“Final Expiration Date”)), (ii) the time at which the Rights are redeemed as provided in Section 23 hereof or (iii) the time at which the Rights may be exchanged as provided in Section 24 hereof (the earlier of (i), (ii) and (iii) being herein referred to as the “Expiration Date”).

(b) The Purchase Price for each one one-thousandth of a share of Preferred Stock pursuant to the exercise of a Right initially shall be $143.00, shall be subject to adjustment from time to time as provided in Section 11 and Section 13(a) hereof and shall be payable in accordance with paragraph (c) below.

(c) Upon receipt of a Rights Certificate representing exercisable Rights, with the form of election to purchase and the certificate duly executed, accompanied by payment, with respect to each Right so exercised, of the Purchase Price per one one-thousandth of a share of Preferred Stock (or other shares, securities, cash or other assets, as the case may be) to be purchased as set forth below and an amount equal to any applicable transfer tax, the Rights Agent shall, subject to Section 20(k) hereof, thereupon promptly (i) (A) requisition from any transfer agent of the shares of Preferred Stock (or make available, if the Rights Agent is the transfer agent for such shares) certificates for the total number of one one-thousandths of a share of Preferred Stock to be purchased and the

Company hereby irrevocably authorizes its transfer agent to comply with all such requests, or (B) if the Company shall have elected to deposit the total number of shares of Preferred Stock issuable upon exercise of the Rights hereunder with a depositary agent, requisition from the depositary agent depositary receipts representing such number of one one-thousandths of a share of Preferred Stock as are to be purchased (in which case certificates for the shares of Preferred Stock represented by such receipts shall be deposited by the transfer agent with the depositary agent) and the Company will direct the depositary agent to comply with such request, (ii) requisition from the Company the amount of cash, if any, to be paid in lieu of fractional shares in accordance with Section 14 hereof, (iii) after receipt of such certificates or depositary receipts, cause the same to be delivered to or upon the order of the registered holder of such Rights Certificate, registered in such name or names as may be designated by such holder, and (iv) after receipt thereof, deliver such cash, if any, to or upon the order of the registered holder of such Rights Certificate. The payment of the Purchase Price (as such amount may be reduced pursuant to Section 11(a)(iii) hereof) shall be made in cash or by certified bank check or bank draft payable to the order of the Company. In the event that the Company is obligated to issue other securities (including Common Stock) of the Company, pay cash and/or distribute other property pursuant to Section 11(a) hereof, the Company will make all arrangements necessary so that such other securities, cash and/or other property are available for distribution by the Rights Agent, if and when appropriate. The Company reserves the right to require prior to the occurrence of a Triggering Event that, upon any exercise of Rights, a number of Rights be exercised so that only whole shares of Preferred Stock would be issued.

(d) In case the registered holder of any Rights Certificate shall exercise less than all the Rights evidenced thereby, a new Rights Certificate evidencing the Rights remaining unexercised shall be issued by the Rights Agent and delivered to, or upon the order of, the registered holder of such Rights Certificate, registered in such name or names as may be designated by such holder, subject to the provisions of Section 14 hereof.

(e) Notwithstanding anything in this Agreement to the contrary, from and after the first occurrence of a Section 11(a)(ii) Event, any Rights beneficially owned by (i) an Acquiring Person or an Associate or Affiliate of an Acquiring Person, (ii) a transferee of an Acquiring Person (or of any such Associate or Affiliate) who becomes a transferee after the Acquiring Person becomes such, or (iii) a transferee of an Acquiring Person (or of any such Associate or Affiliate) who becomes a transferee prior to or concurrently with the Acquiring Person becoming such and receives such Rights pursuant to either (A) a transfer (whether or not for consideration) from the Acquiring Person to holders of equity interests in such Acquiring Person or to any Person with whom the Acquiring Person has any continuing agreement, arrangement or understanding regarding the transferred Rights or (B) a transfer which the Board has determined is part of a plan, arrangement or understanding which has as a primary purpose or effect the avoidance of this Section 7(e), shall become null and void without any further action and no holder of such Rights shall have any rights whatsoever with respect to such Rights, whether under any provision of this Agreement or otherwise. The Company shall use all reasonable efforts to insure that the provisions of this Section 7(e) and Section 4(b) hereof are complied with, but shall have no liability to any holder of Rights Certificates or any other Person as a result of its failure to make any determinations with respect to an Acquiring Person or any of its Affiliates, Associates or transferees hereunder.

(f) Notwithstanding anything in this Agreement to the contrary, neither the Rights Agent nor the Company shall be obligated to undertake any action with respect to a registered holder upon the occurrence of any purported exercise as set forth in this Section 7 unless such registered holder shall have (i) completed and signed the certificate contained in the form of election to purchase set forth on the reverse side of the Rights Certificate surrendered for such exercise, and (ii) provided such additional evidence of the identity of the Beneficial Owner (or former Beneficial Owner) or Affiliates or Associates thereof as the Company shall reasonably request.

Section 8. Cancellation and Destruction of Rights Certificates . All Rights Certificates surrendered for the purpose of exercise, transfer, split-up, combination or exchange shall, if surrendered to the Company or any of its agents, be delivered to the Rights Agent for cancellation or in cancelled form, or, if surrendered to the Rights Agent, shall be cancelled by it, and no Rights Certificates shall be issued in lieu thereof except as expressly permitted by any of the provisions of this Agreement. The Company shall deliver to the Rights Agent for cancellation and retirement, and the Rights Agent shall so cancel and retire, any other Rights Certificate purchased or acquired by the Company otherwise than upon the exercise thereof. In accordance with applicable law and regulation, the Rights Agent shall maintain, in a retrievable database, electronic records of all cancelled or destroyed rights certificates which have been cancelled or destroyed by the Rights Agent. The Rights Agent shall maintain such electronic records or physical records for the time period required by applicable law and regulation. Upon written request of the Company, the Rights Agent shall provide to the Company, copies of such electronic records or physical records relating to rights certificates cancelled or destroyed by the Rights Agent.

Section 9. Reservation and Availability of Capital Stock .

(a) The Company covenants and agrees that it will cause to be reserved and kept available out of its authorized and unissued shares of Preferred Stock (and, following the occurrence of a Triggering Event, out of its authorized and unissued shares of Common Stock and/or other securities or out of its authorized and issued shares held in its treasury), the number of shares of Preferred Stock (and, following the occurrence of a Triggering Event, Common Stock and/or other securities) that, as provided in this Agreement including Section 11(a)(iii) hereof, will be sufficient to permit the exercise in full of all outstanding Rights.

(b) So long as the shares of Preferred Stock (and, following the occurrence of a Triggering Event, Common Stock and/or other securities) issuable and deliverable upon the exercise of the Rights may be listed on any national securities exchange, the Company shall use its best efforts to cause, from and after such time as the Rights become exercisable (but only to the extent that it is reasonably likely that the Rights will be exercised), all shares reserved for such issuance to be listed on such exchange upon official notice of issuance upon such exercise.

(c) The Company shall use its best efforts to (i) file, as soon as practicable following the earliest date after the first occurrence of a Section 11(a)(ii) Event on which the consideration to be delivered by the Company upon exercise of the Rights has been determined in accordance with Section 11(a)(iii) hereof, or as soon as required by law following the Distribution Date, a registration statement under the Act, with respect to the securities purchasable upon exercise of the Rights on an appropriate form, (ii) cause such registration statement to become effective as soon as practicable after such filing, and (iii) cause such registration statement to remain effective (with a prospectus at all times meeting the requirements of the Act) until the earlier of (A) the date as of which the Rights are no longer exercisable for such securities, and (B) the date of the expiration of the Rights. The Company will also take such action as may be appropriate under, or to ensure compliance with, the securities or “blue sky” laws of the various states in connection with the exercisability of the Rights. The Company may temporarily suspend, for a period of time not to exceed ninety (90) days after the date set forth in clause (i) of the first sentence of this Section 9(c), the exercisability of the Rights in order to prepare and file such registration statement and permit it to become effective. Upon any such suspension, the Company shall issue a public announcement stating that the exercisability of the Rights has been temporarily suspended, as well as a public announcement at such time as the suspension has been rescinded. In addition, if the Company shall determine that a registration statement is required following the Distribution Date, the Company may temporarily suspend the exercisability of the Rights until such time as a registration statement has been declared effective. Notwithstanding any provision of this Agreement to the contrary, the Rights shall not be exercisable in any jurisdiction if the requisite qualification in such jurisdiction shall not have been obtained, the exercise thereof shall not be permitted under applicable law or a registration statement shall not have been declared effective.

(d) The Company covenants and agrees that it will take all such action as may be necessary to ensure that all one one-thousandths of a share of Preferred Stock (and, following the occurrence of a Triggering Event, Common Stock and/or other securities) delivered upon exercise of Rights shall, at the time of delivery of such shares (subject to payment of the Purchase Price), be duly and validly authorized and issued and fully paid and nonassessable.

(e) The Company further covenants and agrees that it will pay when due and payable any and all federal and state transfer taxes and charges which may be payable in respect of the issuance or delivery of the Rights Certificates and of any certificates for a number of one one-thousandths of a share of Preferred Stock (or Common Stock and/or other securities, as the case may be) upon the exercise of Rights. The Company shall not, however, be required to pay any transfer tax which may be payable in respect of any transfer or delivery of Rights Certificates to a Person other than, or the issuance or delivery of a number of one one-thousandths of a share of Preferred Stock (or Common Stock and/or other securities, as the case may be) in respect of a name other than that of, the registered holder of the Rights Certificates evidencing Rights surrendered for exercise or to issue or deliver any certificates for a number of one one-thousandths of a share of Preferred Stock (or Common Stock and/or other securities, as the case may be) in a name other than that of the registered holder upon the exercise of any Rights until such tax shall have been paid (any such tax being payable by the holder of such Rights Certificates at the time of surrender) or until it has been established to the Company’s satisfaction that no such tax is due.

Section 10. Preferred Stock Record Date . Each person in whose name any certificate for a number of one one-thousandths of a share of Preferred Stock (or Common Stock and/or other securities, as the case may be) is issued upon the exercise of Rights shall for all purposes be deemed to have become the holder of record of such fractional shares of Preferred Stock (or Common Stock and/or other securities, as the case may be) represented thereby on, and such certificate shall be dated, the date upon which the Rights Certificate evidencing such Rights was duly surrendered and payment of the Purchase Price (and all applicable transfer taxes) was made; provided , however , that if the date of such surrender and payment is a date upon which the Preferred Stock (or Common Stock and/or other securities, as the case may be) transfer books of the Company are closed, such Person shall be deemed to have become the record holder of such shares (fractional or otherwise) on, and such certificate shall be dated, the next succeeding Business Day on which the Preferred Stock (or Common Stock and/or other securities, as the case may be) transfer books of the Company are open. Prior to the exercise of the Rights evidenced thereby, the holder of a Rights Certificate shall not be entitled to any rights of a stockholder of the Company with respect to shares for which the Rights shall be exercisable, including, without limitation, the right to vote, to receive dividends or other distributions or to exercise any preemptive rights, and shall not be entitled to receive any notice of any proceedings of the Company, except as provided herein.

Section 11. Adjustment of Purchase Price, Number and Kind of Shares or Number of Rights . The Purchase Price, the number and kind of shares covered by each Right and the number of Rights outstanding are subject to adjustment from time to time as provided in this Section 11.

(a) (i) In the event the Company shall at any time after the date of this Agreement (A) declare a dividend on the Preferred Stock payable in shares of Preferred Stock, (B) subdivide the outstanding Preferred Stock, (C) combine the outstanding Preferred Stock into a smaller number of shares, or (D) issue any shares of its capital stock in a reclassification of the Preferred Stock (including any such reclassification in connection with a consolidation or merger in which the Company is the continuing or surviving corporation), except as otherwise provided in this Section 11(a) and Section 7(e) hereof, the Purchase Price in effect at the time of the record date for such dividend or of the effective date of such subdivision, combination or reclassification, and the number and kind of shares of Preferred Stock or capital stock, as the case may be, issuable on such date, shall be proportionately adjusted so that the holder of any Right exercised after such time shall be entitled to receive, upon payment of the Purchase Price then in effect, the aggregate number and kind of shares of Preferred Stock or capital stock, as the case may be, which, if such Right had been exercised immediately prior to such date and at a time when the Preferred Stock transfer books of the Company were open, such holder would have owned upon such exercise and been entitled to receive by virtue of such dividend, subdivision, combination or reclassification. If an event occurs which would require an adjustment under both this Section 11(a)(i) and Section 11(a)(ii) hereof, the adjustment provided for in this Section 11(a)(i) shall be in addition to, and shall be made prior to, any adjustment required pursuant to Section 11(a)(ii) hereof.

(ii) In the event that any Person shall, at any time after the Rights Dividend Declaration Date, become an Acquiring Person, unless the event causing such Person to become an Acquiring Person is a transaction set forth in Section 13(a) hereof, or is an acquisition of shares of Common Stock pursuant to a tender offer or an exchange offer for all outstanding shares of Common Stock at a price and on terms determined by at least a majority of the members of the Board who are not officers of the Company and who are not representatives, nominees, Affiliates or Associates of an Acquiring Person, after receiving advice from one or more investment banking firms, to be (a) at a price which is fair to stockholders and not inadequate (taking into account all factors which such members of the Board deem relevant, including, without limitation, prices which could reasonably be achieved if the Company or its assets were sold on an orderly basis designed to realize maximum value) and (b) otherwise in the best interests of the Company and its stockholders (a “Qualifying Offer”), then, promptly following the occurrence of such event, proper provision shall be made so that each holder of a Right (except as provided below and in Section 7(e) hereof) shall thereafter have the right to receive, upon exercise thereof at the then current Purchase Price in accordance with the terms of this Agreement, in lieu of a number of one one-thousandths of a share of Preferred Stock, such number of shares of Common Stock of the Company as shall equal the result obtained by (x) multiplying the then current Purchase Price by the then number of one one-thousandths of a share of Preferred Stock for which a Right was exercisable immediately prior to the first occurrence of a Section 11(a)(ii) Event, and (y) dividing that product (which, following such first occurrence, shall thereafter be referred to as the Purchase Price for each Right and for all purposes of this Agreement) by 50% of the Current Market Price (determined pursuant to Section 11(d) hereof) per share of Common Stock on the date of such first occurrence (such number of shares, the “Adjustment Shares”).

(iii) In the event that the number of shares of Common Stock which are authorized by the Company’s Certificate of Incorporation, but not outstanding or reserved for issuance for purposes other than upon exercise of the Rights, is not sufficient to permit the exercise in full of the Rights in accordance with the foregoing subparagraph (ii) of this Section 11(a), the Company shall (A) determine the value of the Adjustment Shares issuable upon the exercise of a Right (the “Current Value”), and (B) with respect to each Right (subject to Section 7(e) hereof), make adequate provision to substitute for the Adjustment Shares, upon the exercise of a Right and payment of the applicable Purchase Price, (1) cash, (2) a reduction in the Purchase Price, (3) Common Stock or other equity securities of the Company (including, without limitation, shares, or units of shares, of preferred stock, such as the Preferred Stock, which the Board has deemed to have essentially the same value or economic rights as shares of Common Stock (such shares or units of stock of preferred stock being referred to as “Common Stock Equivalents”)), (4) debt securities of the Company, (5) other assets, or (6) any combination of the foregoing, having an aggregate value equal to the Current Value (less the amount of any reduction in the Purchase Price), where such aggregate value has been determined by the Board based upon the advice of a nationally recognized investment banking firm selected by the Board; provided , however , that if the Company shall not have made adequate provision to deliver value pursuant to clause (B) above within thirty (30) days following the later of (x) the first

occurrence of a Section 11(a)(ii) Event, and (y) the date on which the Company’s right of redemption pursuant to Section 23(a) expires (the later of (x) and (y) being referred to herein as the “Section 11(a)(ii) Trigger Date”), then the Company shall be obligated to deliver, upon the surrender for exercise of a Right and without requiring payment of the Purchase Price, shares of Common Stock (to the extent available) and then, if necessary, cash, which shares and/or cash have an aggregate value equal to the Spread. For purposes of the preceding sentence, the term “Spread” shall mean the excess of (i) the Current Value over (ii) the Purchase Price. If the Board determines in good faith that it is likely that sufficient additional shares of Common Stock could be authorized for issuance upon exercise in full of the Rights, the thirty (30) day period set forth above may be extended to the extent necessary, but not more than ninety (90) days after the Section 11(a)(ii) Trigger Date, in order that the Company may seek shareholder approval for the authorization of such additional shares (such thirty (30) day period, as it may be extended, is herein called the “Substitution Period”). To the extent that the Company determines that action should be taken pursuant to the first and/or third sentences of this Section 11(a)(iii), the Company (1) shall provide, subject to Section 7(e) hereof, that such action shall apply uniformly to all outstanding Rights, and (2) may suspend the exercisability of the Rights until the expiration of the Substitution Period in order to seek such shareholder approval for such authorization of additional shares and/or to decide the appropriate form of distribution to be made pursuant to such first sentence and to determine the value thereof. In the event of any such suspension, the Company shall issue a public announcement stating that the exercisability of the Rights has been temporarily suspended, as well as a public announcement at such time as the suspension is no longer in effect. For purposes of this Section 11(a)(iii), the value of each Adjustment Share shall be the Current Market Price per share of the Common Stock on the Section 11(a)(ii) Trigger Date and the per share or per unit value of any Common Stock Equivalent shall be deemed to equal the Current Market Price per share of the Common Stock on such date.

(b) In case the Company shall fix a record date for the issuance of rights, options or warrants to all holders of Preferred Stock entitling them to subscribe for or purchase (for a period expiring within forty-five (45) calendar days after such record date) Preferred Stock (or shares having the same rights, privileges and preferences as the shares of Preferred Stock (“Equivalent Preferred Stock”)) or securities convertible into Preferred Stock or Equivalent Preferred Stock at a price per share of Preferred Stock or per share of Equivalent Preferred Stock (or having a conversion price per share, if a security convertible into Preferred Stock or Equivalent Preferred Stock) less than the Current Market Price (as determined pursuant to Section 11(d) hereof) per share of Preferred Stock on such record date, the Purchase Price to be in effect after such record date shall be determined by multiplying the Purchase Price in effect immediately prior to such record date by a fraction, the numerator of which shall be the number of shares of Preferred Stock outstanding on such record date, plus the number of shares of Preferred Stock which the aggregate offering price of the total number of shares of Preferred Stock and/or Equivalent Preferred Stock so to be offered (and/or the aggregate initial conversion price of the convertible securities so to be offered) would purchase at such Current Market Price, and the denominator of which shall be the number of shares of Preferred Stock outstanding on such record date, plus the number of additional shares of Preferred Stock and/or Equivalent Preferred Stock to be offered for subscription or purchase (or into which the convertible

securities so to be offered are initially convertible). In case such subscription price may be paid by delivery of consideration, part or all of which may be in a form other than cash, the value of such consideration shall be as determined in good faith by the Board, whose determination shall be described in a statement filed with the Rights Agent and shall be binding on the Rights Agent and the holders of the Rights. Shares of Preferred Stock owned by or held for the account of the Company shall not be deemed outstanding for the purpose of any such computation. Such adjustment shall be made successively whenever such a record date is fixed, and in the event that such rights or warrants are not so issued, the Purchase Price shall be adjusted to be the Purchase Price which would then be in effect if such record date had not been fixed.

(c) In case the Company shall fix a record date for a distribution to all holders of Preferred Stock (including any such distribution made in connection with a consolidation or merger in which the Company is the continuing corporation) of cash (other than a regular quarterly cash dividend out of the earnings or retained earnings of the Company), assets (other than a dividend payable in Preferred Stock, but including any dividend payable in stock other than Preferred Stock) or evidences of indebtedness, or of subscription rights or warrants (excluding those referred to in Section 11(b) hereof), the Purchase Price to be in effect after such record date shall be determined by multiplying the Purchase Price in effect immediately prior to such record date by a fraction, the numerator of which shall be the Current Market Price (as determined pursuant to Section 11(d) hereof) per share of Preferred Stock on such record date, less the fair market value (as determined in good faith by the Board, whose determination shall be described in a statement filed with the Rights Agent and shall be binding on the Rights Agent and the holders of the Rights) of the portion of the cash, assets or evidences of indebtedness so to be distributed or of such subscription rights or warrants applicable to a share of Preferred Stock, and the denominator of which shall be such Current Market Price (as determined pursuant to Section 11(d) hereof) per share of Preferred Stock. Such adjustments shall be made successively whenever such a record date is fixed, and in the event that such distribution is not so made, the Purchase Price shall be adjusted to be the Purchase Price which would have been in effect if such record date had not been fixed.

(d) (i) For the purpose of any computation hereunder, other than computations made pursuant to Section 11(a)(iii) hereof, the “Current Market Price” per share of Common Stock on any date shall be deemed to be the average of the daily closing prices per share of such Common Stock for the thirty (30) consecutive Trading Days immediately prior to such date, and for purposes of computations made pursuant to Section 11(a)(iii) hereof, the Current Market Price per share of Common Stock on any date shall be deemed to be the average of the daily closing prices per share of such Common Stock for the ten (10) consecutive Trading Days immediately following such date; provided , however , that in the event that the Current Market Price per share of the Common Stock is determined during a period following the announcement by the issuer of such Common Stock of (A) a dividend or distribution on such Common Stock payable in shares of such Common Stock or securities convertible into shares of such Common Stock (other than the Rights), or (B) any subdivision, combination or reclassification of such Common Stock, and the ex-dividend date for such dividend or distribution, or the record date for such subdivision, combination or reclassification shall not have occurred prior to the

commencement of the requisite thirty (30) Trading Day or ten (10) Trading Day period, as set forth above, then, and in each such case, the Current Market Price shall be properly adjusted to take into account ex-dividend trading. The closing price for each day shall be the last sale price, regular way, or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the New York Stock Exchange or, if the shares of Common Stock are not listed or admitted to trading on the New York Stock Exchange, as reported in the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which the shares of Common Stock are listed or admitted to trading or, if the shares of Common Stock are not listed or admitted to trading on any national securities exchange, the last quoted price or, if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by the National Association of Securities Dealers, Inc. Automated Quotation System (“NASDAQ”) or such other system then in use, or, if on any such date the shares of Common Stock are not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in the Common Stock selected by the Board. If on any such date no market maker is making a market in the Common Stock, the fair value of such shares on such date as determined in good faith by the Board shall be used. The term “Trading Day” shall mean a day on which the principal national securities exchange on which the shares of Common Stock are listed or admitted to trading is open for the transaction of business or, if the shares of Common Stock are not listed or admitted to trading on any national securities exchange, a Business Day. If the Common Stock is not publicly held or not so listed or traded, Current Market Price per share shall mean the fair value per share as determined in good faith by the Board, whose determination shall be described in a statement filed with the Rights Agent and shall be conclusive for all purposes.

(ii) For the purpose of any computation hereunder, the Current Market Price per share of Preferred Stock shall be determined in the same manner as set forth above for the Common Stock in clause (i) of this Section 11(d) (other than the last sentence thereof). If the Current Market Price per share of Preferred Stock cannot be determined in the manner provided above or if the Preferred Stock is not publicly held or listed or traded in a manner described in clause (i) of this Section 11(d), the Current Market Price per share of Preferred Stock shall be conclusively deemed to be an amount equal to 1,000 (as such number may be appropriately adjusted for such events as stock splits, stock dividends and recapitalizations with respect to the Common Stock occurring after the date of this Agreement) multiplied by the Current Market Price per share of the Common Stock. If neither the Common Stock nor the Preferred Stock is publicly held or so listed or traded, Current Market Price per share of the Preferred Stock shall mean the fair value per share as determined in good faith by the Board, whose determination shall be described in a statement filed with the Rights Agent and shall be conclusive for all purposes.

(e) Anything herein to the contrary notwithstanding, no adjustment in the Purchase Price shall be required unless such adjustment would require an increase or decrease of at least one percent (1%) in the Purchase Price; provided , however , that any adjustments which by reason of this Section 11(e) are not required to be made shall be

carried forward and taken into account in any subsequent adjustment. All calculations under this Section 11 shall be made to the nearest cent or to the nearest ten-thousandth of a share of Common Stock or other share or one-millionth of a share of Preferred Stock, as the case may be. Notwithstanding the first sentence of this Section 11(e), any adjustment required by this Section 11 shall be made no later than the earlier of (i) three (3) years from the date of the transaction which mandates such adjustment, or (ii) the Expiration Date.

(f) If as a result of an adjustment made pursuant to Section 11(a)(ii) or Section 13(a) hereof, the holder of any Right thereafter exercised shall become entitled to receive any shares of capital stock other than Preferred Stock, thereafter the number of such other shares so receivable upon exercise of any Right and the Purchase Price thereof shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Preferred Stock contained in Sections 11(a), (b), (c), (e), (g), (h), (i), (j), (k) and (m), and the provisions of Sections 7, 9, 10, 13 and 14 hereof with respect to the Preferred Stock shall apply on like terms to any such other shares.

(g) All Rights originally issued by the Company subsequent to any adjustment made to the Purchase Price hereunder shall evidence the right to purchase, at the adjusted Purchase Price, the number of one one-thousandths of a share of Preferred Stock purchasable from time to time hereunder upon exercise of the Rights, all subject to further adjustment as provided herein.

(h) Unless the Company shall have exercised its election as provided in Section 11(i), upon each adjustment of the Purchase Price as a result of the calculations made in Sections 11(b) and (c), each Right outstanding immediately prior to the making of such adjustment shall thereafter evidence the right to purchase, at the adjusted Purchase Price, that number of one one-thousandths of a share of Preferred Stock (calculated to the nearest one-millionth) obtained by (i) multiplying (x) the number of one one-thousandths of a share covered by a Right immediately prior to this adjustment, by (y) the Purchase Price in effect immediately prior to such adjustment of the Purchase Price, and (ii) dividing the product so obtained by the Purchase Price in effect immediately after such adjustment of the Purchase Price.

(i) The Company may elect on or after the date of any adjustment of the Purchase Price to adjust the number of Rights, in lieu of any adjustment in the number of one one-thousandths of a share of Preferred Stock purchasable upon the exercise of a Right. Each of the Rights outstanding after the adjustment in the number of Rights shall be exercisable for the number of one one-thousandths of a share of Preferred Stock for which a Right was exercisable immediately prior to such adjustment. Each Right held of record prior to such adjustment of the number of Rights shall become that number of Rights (calculated to the nearest one-thousandth) obtained by dividing the Purchase Price in effect immediately prior to adjustment of the Purchase Price by the Purchase Price in effect immediately after adjustment of the Purchase Price. The Company shall make a public announcement of its election to adjust the number of Rights, indicating the record date for the adjustment, and, if known at the time, the amount of the adjustment to be made. This record date may be the date on which the Purchase Price is adjusted or any day thereafter,

but, if the Rights Certificates have been issued, shall be at least ten (10) days later than the date of the public announcement. If Rights Certificates have been issued, upon each adjustment of the number of Rights pursuant to this Section 11(i), the Company shall, as promptly as practicable, cause to be distributed to holders of record of Rights Certificates on such record date Rights Certificates evidencing, subject to Section 14 hereof, the additional Rights to which such holders shall be entitled as a result of such adjustment, or, at the option of the Company, shall cause to be distributed to such holders of record in substitution and replacement for the Rights Certificates held by such holders prior to the date of adjustment, and upon surrender thereof, if required by the Company, new Rights Certificates evidencing all the Rights to which such holders shall be entitled after such adjustment. Rights Certificates so to be distributed shall be issued, executed and countersigned in the manner provided for herein (and may bear, at the option of the Company, the adjusted Purchase Price) and shall be registered in the names of the holders of record of Rights Certificates on the record date specified in the public announcement.

(j) Irrespective of any adjustment or change in the Purchase Price or the number of one one-thousandths of a share of Preferred Stock issuable upon the exercise of the Rights, the Rights Certificates theretofore and thereafter issued may continue to express the Purchase Price per one one-thousandths of a share and the number of one one-thousandths of a share which were expressed in the initial Rights Certificates issued hereunder.

(k) Before taking any action that would cause an adjustment reducing the Purchase Price below the then stated value, if any, of the number of one one-thousandths of a share of Preferred Stock issuable upon exercise of the Rights, the Company shall take any corporate action which may, in the opinion of its counsel, be necessary in order that the Company may validly and legally issue fully paid and nonassessable such number of one one-thousandths of a share of Preferred Stock at such adjusted Purchase Price.

(l) In any case in which this Section 11 shall require that an adjustment in the Purchase Price be made effective as of a record date for a specified event, the Company may elect to defer until the occurrence of such event the issuance to the holder of any Right exercised after such record date the number of one one-thousandths of a share of Preferred Stock and other capital stock or securities of the Company, if any, issuable upon such exercise over and above the number of one one-thousandths of a share of Preferred Stock and other capital stock or securities of the Company, if any, issuable upon such exercise on the basis of the Purchase Price in effect prior to such adjustment; provided , however , that the Company shall deliver to such holder a due bill or other appropriate instrument evidencing such holder’s right to receive such additional shares (fractional or otherwise) or securities upon the occurrence of the event requiring such adjustment.

(m) Anything in this Section 11 to the contrary notwithstanding, the Company shall be entitled to make such reductions in the Purchase Price, in addition to those adjustments expressly required by this Section 11, as and to the extent that in their good faith judgment the Board shall determine to be advisable in order that any (i) consolidation or subdivision of the Preferred Stock, (ii) issuance wholly for cash of any

shares of Preferred Stock at less than the Current Market Price, (iii) issuance wholly for cash of shares of Preferred Stock or securities which by their terms are convertible into or exchangeable for shares of Preferred Stock, (iv) stock dividends or (v) issuance of rights, options or warrants referred to in this Section 11, hereafter made by the Company to holders of its Preferred Stock shall not be taxable to such stockholders.

(n) The Company covenants and agrees that it shall not, at any time after the Distribution Date, (i) consolidate with any other Person (other than a Subsidiary of the Company in a transaction which complies with Section 11(o) hereof), (ii) merge with or into any other Person (other than a Subsidiary of the Company in a transaction which complies with Section 11(o) hereof), or (iii) sell or transfer (or permit any Subsidiary to sell or transfer), in one transaction, or a series of related transactions, assets, cash flow or earning power aggregating more than 50% of the assets, cash flow or earning power of the Company and its Subsidiaries (taken as a whole) to any other Person or Persons (other than the Company and/or any of its Subsidiaries in one or more transactions each of which complies with Section 11(o) hereof), if (x) at the time of or immediately after such consolidation, merger or sale there are any rights, warrants or other instruments or securities outstanding or agreements in effect which would substantially diminish or otherwise eliminate the benefits intended to be afforded by the Rights or (y) prior to, simultaneously with or immediately after such consolidation, merger or sale, the shareholders of the Person who constitutes, or would constitute, the “Principal Party” for purposes of Section 13(a) hereof shall have received a distribution of Rights previously owned by such Person or any of its Affiliates and Associates.

(o) The Company covenants and agrees that, after the Distribution Date, it will not, except as permitted by Section 23 or Section 27 hereof, take (or permit any Subsidiary to take) any action if at the time such action is taken it is reasonably foreseeable that such action will diminish substantially or otherwise eliminate the benefits intended to be afforded by the Rights.

(p) Anything in this Agreement to the contrary notwithstanding, in the event that the Company shall at any time after the Rights Dividend Declaration Date and prior to the Distribution Date (i) declare a dividend on the outstanding shares of Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding shares of Common Stock, or (iii) combine the outstanding shares of Common Stock into a smaller number of shares, the number of Rights associated with each share of Common Stock then outstanding, or issued or delivered thereafter but prior to the Distribution Date, shall be proportionately adjusted so that the number of Rights thereafter associated with each share of Common Stock following any such event shall equal the result obtained by multiplying the number of Rights associated with each share of Common Stock immediately prior to such event by a fraction the numerator which shall be the total number of shares of Common Stock outstanding immediately prior to the occurrence of the event and the denominator of which shall be the total number of shares of Common Stock outstanding immediately following the occurrence of such event.

Section 12. Certificate of Adjusted Purchase Price or Number of Shares . Whenever an adjustment is made as provided in Section 11 and Section 13 hereof, the Company shall (a) promptly prepare a certificate setting forth such adjustment and a brief statement of the facts accounting for such adjustment, (b) promptly file with the Rights Agent, and with each transfer agent for the Preferred Stock and the Common Stock, a copy of such certificate and (c) if a Distribution Date has occurred, mail a brief summary thereof to each holder of a Rights Certificate. The Rights Agent shall be fully protected in relying on any such certificate and on any adjustment therein contained.

Section 13. Consolidation, Merger or Sale or Transfer of Assets, Cash Flow or Earning Power .

(a) In the event that, following the Stock Acquisition Date, directly or indirectly, (x) the Company shall consolidate with, or merge with and into, any other Person (other than a Subsidiary of the Company in a transaction which complies with Section 11(o) hereof), and the Company shall not be the continuing or surviving corporation of such consolidation or merger, (y) any Person (other than a Subsidiary of the Company in a transaction which complies with Section 11(o) hereof) shall consolidate with, or merge with or into, the Company, and the Company shall be the continuing or surviving corporation of such consolidation or merger and, in connection with such consolidation or merger, all or part of the outstanding shares of Common Stock shall be changed into or exchanged for stock or other securities of any other Person or cash or any other property, or (z) the Company shall sell or otherwise transfer (or one or more of its Subsidiaries shall sell or otherwise transfer), in one transaction or a series of related transactions, assets, cash flow or earning power aggregating more than 50% of the assets, cash flow or earning power of the Company and its Subsidiaries (taken as a whole) to any Person or Persons (other than the Company or any Subsidiary of the Company in one or more transactions each of which complies with Section 11(o) hereof), then, and in each such case (except as may be contemplated by Section 13(d) hereof), proper provision shall be made so that: (i) each holder of a Right, except as provided in Section 7(e) hereof, shall thereafter have the right to receive, upon the exercise thereof at the then current Purchase Price in accordance with the terms of this Agreement, such number of validly authorized and issued, fully paid, non-assessable and freely tradeable shares of Common Stock of the Principal Party (as such term is hereinafter defined), not subject to any liens, encumbrances, rights of first refusal or other adverse claims, as shall be equal to the result obtained by (1) multiplying the then current Purchase Price by the number of one one-thousandths of a share of Preferred Stock for which a Right is exercisable immediately prior to the first occurrence of a Section 13 Event (or, if a Section 11(a)(ii) Event has occurred prior to the first occurrence of a Section 13 Event, multiplying the number of such one one-thousandths of a share for which a Right was exercisable immediately prior to the first occurrence of a Section 11(a)(ii) Event by the Purchase Price in effect immediately prior to such first occurrence of a Section 11(a)(ii) Event), and (2) dividing that product (which, following the first occurrence of a Section 13 Event, shall be referred to as the “Purchase Price” for each Right and for all purposes of this Agreement) by 50% of the Current Market Price (determined pursuant to Section 11(d)(i) hereof) per share of the Common Stock of such Principal Party on the date of consummation of such Section 13 Event; (ii) such Principal Party shall thereafter be liable for, and shall assume, by virtue of such Section 13 Event, all the obligations and duties of the Company pursuant to this Agreement; (iii) the term “Company” shall thereafter be deemed to refer to such Principal Party, it being

specifically intended that the provisions of Section 11 hereof shall apply only to such Principal Party following the first occurrence of a Section 13 Event; (iv) such Principal Party shall take such steps (including, but not limited to, the reservation of a sufficient number of shares of its Common Stock) in connection with the consummation of any such transaction as may be necessary to assure that the provisions hereof shall thereafter be applicable, as nearly as reasonably may be, in relation to its shares of Common Stock thereafter deliverable upon the exercise of the Rights; and (v) the provisions of Section 11(a)(ii) hereof shall be of no effect following the first occurrence of any Section 13 Event.

(b) “Principal Party” shall mean:

(i) in the case of any transaction described in clause (x) or (y) of the first sentence of Section 13(a), the Person that is the issuer of any securities into which shares of Common Stock of the Company are converted in such merger or consolidation, and if no securities are so issued, the Person that is the other party to such merger or consolidation; and

(ii) in the case of any transaction described in clause (z) of the first sentence of Section 13(a), the Person that is the party receiving the greatest portion of the assets, cash flow or earning power transferred pursuant to such transaction or transactions;

provided , however , that in any such case, (1) if the Common Stock of such Person is not at such time and has not been continuously over the preceding twelve (12) month period registered under Section 12 of the Exchange Act, and such Person is a direct or indirect Subsidiary of another Person the Common Stock of which is and has been so registered, “Principal Party” shall refer to such other Person; and (2) in case such Person is a Subsidiary, directly or indirectly, of more than one Person, the Common Stock of two or more of which are and have been so registered, “Principal Party” shall refer to whichever of such Persons is the issuer of the Common Stock having the greatest aggregate market value.

(c) The Company shall not consummate any such consolidation, merger, sale or transfer unless the Principal Party shall have a sufficient number of authorized shares of its Common Stock which have not been issued or reserved for issuance to permit the exercise in full of the Rights in accordance with this Section 13 and unless prior thereto the Company and such Principal Party shall have executed and delivered to the Rights Agent a supplemental agreement providing for the terms set forth in paragraphs (a) and (b) of this Section 13 and further providing that, as soon as practicable after the date of any consolidation, merger or sale of assets mentioned in paragraph (a) of this Section 13, the Principal Party will:

(i) prepare and file a registration statement under the Act, with respect to the Rights and the securities purchasable upon exercise of the Rights on an appropriate form, and will use its best efforts to cause such registration statement to (A) become effective as soon as practicable after such filing and (B) remain effective (with a prospectus at all times meeting the requirements of the Act) until the Expiration Date;

(ii) take all such other action as may be necessary to enable the Principal Party to issue the securities purchasable upon exercise of the Rights, including but not limited to the registration or qualification of such securities under all requisite securities laws of jurisdictions of the various states and the listing of such securities on such exchanges and trading markets as may be necessary or appropriate; and

(iii) deliver to holders of the Rights historical financial statements for the Principal Party and each of its Affiliates which comply in all respects with the requirements for registration on Form 10 under the Exchange Act.

The provisions of this Section 13 shall similarly apply to successive mergers or consolidations or sales or other transfers. In the event that a Section 13 Event shall occur at any time after the occurrence of a Section 11(a)(ii) Event, the Rights which have not theretofore been exercised shall thereafter become exercisable in the manner described in Section 13(a).

(d) Notwithstanding anything in this Agreement to the contrary, Section 13 shall not be applicable to a transaction described in subparagraphs (x) and (y) of Section 13(a) if (i) such transaction is consummated with a Person or Persons who acquired shares of Common Stock pursuant to a Qualifying Offer (or a wholly owned subsidiary of any such Person or Persons), (ii) the price per share of Common Stock offered in such transaction is not less than the price per share of Common Stock paid to all holders of shares of Common Stock whose shares were purchased pursuant to such Qualifying Offer and (iii) the form of consideration being offered to the remaining holders of shares of Common Stock pursuant to such transaction is the same as the form of consideration paid pursuant to such Qualifying Offer. Upon consummation of any such transaction contemplated by this Section 13(d), all Rights hereunder shall expire.

Section 14. Fractional Rights and Fractional Shares .

(a) The Company shall not be required to issue fractions of Rights, except prior to the Distribution Date as provided in Section 11(p) hereof, or to distribute Rights Certificates which evidence fractional Rights. In lieu of such fractional Rights, the Company shall pay to the registered holders of the Rights Certificates with regard to which such fractional Rights would otherwise be issuable, an amount in cash equal to the same fraction of the current market value of a whole Right. For purposes of this Section 14(a), the current market value of a whole Right shall be the closing price of the Rights for the Trading Day immediately prior to the date on which such fractional Rights would have been otherwise issuable. The closing price of the Rights for any day shall be the last sale price, regular way, or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way, in either case as reported in the principal

consolidated transaction reporting system with respect to securities listed or admitted to trading on the New York Stock Exchange or, if the Rights are not listed or admitted to trading on the New York Stock Exchange, as reported in the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which the Rights are listed or admitted to trading, or if the Rights are not listed or admitted to trading on any national securities exchange, the last quoted price or, if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by NASDAQ or such other system then in use or, if on any such date the Rights are not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in the Rights selected by the Board. If on any such date no such market maker is making a market in the Rights the fair value of the Rights on such date as determined in good faith by the Board shall be used.

(b) The Company shall not be required to issue fractions of shares of Preferred Stock (other than fractions which are integral multiples of one one-thousandth of a share of Preferred Stock) upon exercise of the Rights or to distribute certificates which evidence fractional shares of Preferred Stock (other than fractions which are integral multiples of one one-thousandth of a share of Preferred Stock). In lieu of fractional shares of Preferred Stock that are not integral multiples of one one-thousandth of a share of Preferred Stock, the Company may pay to the registered holders of Rights Certificates at the time such Rights are exercised as herein provided an amount in cash equal to the same fraction of the current market value of one one-thousandth of a share of Preferred Stock. For purposes of this Section 14(b), the current market value of one one-thousandth of a share of Preferred Stock shall be one one-thousandth of the closing price of a share of Preferred Stock (as determined pursuant to Section 11(d)(ii) hereof) for the Trading Day immediately prior to the date of such exercise.

(c) Following the occurrence of a Triggering Event, the Company shall not be required to issue fractions of shares of Common Stock upon exercise of the Rights or to distribute certificates which evidence fractional shares of Common Stock. In lieu of fractional shares of Common Stock, the Company may pay to the registered holders of Rights Certificates at the time such Rights are exercised as herein provided an amount in cash equal to the same fraction of the current market value of one (1) share of Common Stock. For purposes of this Section 14(c), the current market value of one share of Common Stock shall be the closing price per share of Common Stock (as determined pursuant to Section 11(d)(i) hereof) on the Trading Day immediately prior to the date of such exercise.

(d) The holder of a Right by the acceptance of the Rights expressly waives his right to receive any fractional Rights or any fractional shares upon exercise of a Right, except as permitted by this Section 14.

Section 15. Rights of Action . All rights of action in respect of this Agreement are vested in the respective registered holders of the Rights Certificates (and, prior to the Distribution Date, the registered holders of the Common Stock), and any registered holder of any Rights Certificate (or, prior to the Distribution Date, of the Common Stock), without

the consent of the Rights Agent or of the holder of any other Rights Certificate (or, prior to the Distribution Date, of the Common Stock), may, in his own behalf and for his own benefit, enforce, and may institute and maintain any suit, action or proceeding against the Company to enforce, or otherwise act in respect of, his right to exercise the Rights evidenced by such Rights Certificate in the manner provided in such Rights Certificate and in this Agreement. Without limiting the foregoing or any remedies available to the holders of Rights, it is specifically acknowledged that the holders of Rights would not have an adequate remedy at law for any breach of this Agreement and shall be entitled to specific performance of the obligations hereunder and injunctive relief against actual or threatened violations of the obligations hereunder of any Person subject to this Agreement.

Section 16. Agreement of Rights Holders . Every holder of a Right by accepting the same consents and agrees with the Company and the Rights Agent and with every other holder of a Right that:

(a) prior to the Distribution Date, the Rights will be transferable only in connection with the transfer of Common Stock;

(b) after the Distribution Date, the Rights Certificates are transferable only on the registry books of the Rights Agent if surrendered at the principal office or offices of the Rights Agent designated for such purposes, duly endorsed or accompanied by a proper instrument of transfer and with the appropriate forms and certificates fully executed;

(c) subject to Section 6(a) and Section 7(f) hereof, the Company and the Rights Agent may deem and treat the person in whose name a Rights Certificate (or, prior to the Distribution Date, the associated Common Stock certificate or, in the case of uncertificated shares, the associated balance indicated in the book-entry account system of the transfer agent for the Common Stock) is registered as the absolute owner thereof and of the Rights evidenced thereby (notwithstanding any notations of ownership or writing on the Rights Certificates or the associated Common Stock certificate or, in the case of uncertificated shares, the associated balance indicated in the book-entry account system of the transfer agent for the Common Stock, made by anyone other than the Company or the Rights Agent) for all purposes whatsoever, and neither the Company nor the Rights Agent, subject to the last sentence of Section 7(e) hereof, shall be required to be affected by any notice to the contrary; and

(d) notwithstanding anything in this Agreement to the contrary, neither the Company nor the Rights Agent shall have any liability to any holder of a Right or other Person as a result of its inability to perform any of its obligations under this Agreement by reason of any preliminary or permanent injunction or other order, decree or ruling issued by a court of competent jurisdiction or by a governmental, regulatory or administrative agency or commission, or any statute, rule, regulation or executive order promulgated or enacted by any governmental authority, prohibiting or otherwise restraining performance of such obligation; provided , however , the Company must use its best efforts to have any such order, decree or ruling lifted or otherwise overturned as soon as possible.

Section 17. Rights Certificate Holder Not Deemed a Stockholder . No holder, as such, of any Rights Certificate shall be entitled to vote, receive dividends or be deemed for any purpose the holder of the number of one one-thousandths of a share of Preferred Stock or any other securities of the Company which may at any time be issuable on the exercise of the Rights represented thereby, nor shall anything contained herein or in any Rights Certificate be construed to confer upon the holder of any Rights Certificate, as such, any of the rights of a stockholder of the Company or any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate action, or to receive notice of meetings or other actions affecting stockholders (except as provided in Section 25 hereof), or to receive dividends or subscription rights, or otherwise, until the Right or Rights evidenced by such Rights Certificate shall have been exercised in accordance with the provisions hereof.

Section 18. Concerning the Rights Agent .

(a) The Company agrees to pay to the Rights Agent reasonable compensation for all services rendered by it hereunder and, from time to time, on demand of the Rights Agent, its reasonable expenses and counsel fees and disbursements and other disbursements incurred in the administration and execution of this Agreement and the exercise and performance of its duties hereunder. The Company also agrees to indemnify the Rights Agent for, and to hold it harmless against, any loss, liability, or expense, incurred without negligence, bad faith or willful misconduct on the part of the Rights Agent, for anything done or omitted by the Rights Agent in connection with the acceptance and administration of this Agreement, including the costs and expenses of defending against any claim of liability in the premises.

(b) The Rights Agent shall be protected and shall incur no liability for or in respect of any action taken, suffered or omitted by it in connection with its administration of this Agreement in reliance upon any Rights Certificate or certificate for Common Stock or, in the case of uncertificated shares, the associated balance indicated in the book-entry account system of the transfer agent for the Common Stock, or for other securities of the Company, instrument of assignment or transfer, power of attorney, endorsement, affidavit, letter, notice, direction, consent, certificate, statement, or other paper or document believed by it to be genuine and to be signed, executed and, where necessary, verified or acknowledged, by the proper Person or Persons.

Section 19. Merger or Consolidation or Change of Name of Rights Agent .

(a) Any legal business entity into which the Rights Agent or any successor Rights Agent may be merged or with which it may be consolidated, or any legal business entity resulting from any merger or consolidation to which the Rights Agent or any successor Rights Agent shall be a party, or any legal business entity succeeding to the corporate trust, stock transfer or other shareholder services business of the Rights Agent or any successor Rights Agent, shall be the successor to the Rights Agent under this Agreement without the execution or filing of any paper or any further act on the part of any of the parties hereto; provided , however , that such legal business entity would be eligible for appointment as a successor Rights Agent under the provisions of Section 21 hereof. In

case at the time such successor Rights Agent shall succeed to the agency created by this Agreement, any of the Rights Certificates shall have been countersigned but not delivered, any such successor Rights Agent may adopt the countersignature of a predecessor Rights Agent and deliver such Rights Certificates so countersigned; and in case at that time any of the Rights Certificates shall not have been countersigned, any successor Rights Agent may countersign such Rights Certificates either in the name of the predecessor or in the name of the successor Rights Agent; and in all such cases such Rights Certificates shall have the full force provided in the Rights Certificates and in this Agreement.

(b) In case at any time the name of the Rights Agent shall be changed and at such time any of the Rights Certificates shall have been countersigned but not delivered, the Rights Agent may adopt the countersignature under its prior name and deliver Rights Certificates so countersigned; and in case at that time any of the Rights Certificates shall not have been countersigned, the Rights Agent may countersign such Rights Certificates either in its prior name or in its changed name; and in all such cases such Rights Certificates shall have the full force provided in the Rights Certificates and in this Agreement.

Section 20. Duties of Rights Agent . The Rights Agent undertakes the duties and obligations imposed by this Agreement upon the following terms and conditions, by all of which the Company and the holders of Rights Certificates, by their acceptance thereof, shall be bound:

(a) The Rights Agent may consult with legal counsel (who may be legal counsel for the Company), and the opinion of such counsel shall be full and complete authorization and protection to the Rights Agent as to any action taken or omitted by it in good faith and in accordance with such opinion.

(b) Whenever in the performance of its duties under this Agreement the Rights Agent shall deem it necessary or desirable that any fact or matter (including, without limitation, the identity of any Acquiring Person and the determination of Current Market Price) be proven or established by the Company prior to taking or suffering any action hereunder, such fact or matter (unless other evidence in respect thereof be herein specifically prescribed) may be deemed to be conclusively proven and established by a certificate signed by the Chairman of the Board, the President, any Vice President, the Treasurer, any Assistant Treasurer, the Secretary or any Assistant Secretary of the Company and delivered to the Rights Agent; and such certificate shall be full authorization to the Rights Agent for any action taken or suffered in good faith by it under the provisions of this Agreement in reliance upon such certificate.

(d) The Rights Agent shall not be liable for or by reason of any of the statements of fact or recitals contained in this Agreement or in the Rights Certificates or be required to verify the same (except as to its countersignature on such Rights Certificates), but all such statements and recitals are and shall be deemed to have been made by the Company only.

(e) The Rights Agent shall not be under any responsibility in respect of the validity of this Agreement or the execution and delivery hereof (except the due execution hereof by the Rights Agent) or in respect of the validity or execution of any Rights Certificate (except its countersignature thereof); nor shall it be responsible for any breach by the Company of any covenant or condition contained in this Agreement or in any Rights Certificate; nor shall it be responsible for any adjustment required under the provisions of Section 11, Section 13 or Section 24 hereof or responsible for the manner, method or amount of any such adjustment or the ascertaining of the existence of facts that would require any such adjustment (except with respect to the exercise of Rights evidenced by Rights Certificates after actual notice of any such adjustment); nor shall it by any act hereunder be deemed to make any representation or warranty as to the authorization or reservation of any shares of Common Stock or Preferred Stock to be issued pursuant to this Agreement or any Rights Certificate or as to whether any shares of Common Stock or Preferred Stock will, when so issued, be validly authorized and issued, fully paid and nonassessable.

(f) The Company agrees that it will perform, execute, acknowledge and deliver or cause to be performed, executed, acknowledged and delivered all such further and other acts, instruments and assurances as may reasonably be required by the Rights Agent for the carrying out or performing by the Rights Agent of the provisions of this Agreement.

(g) The Rights Agent is hereby authorized and directed to accept instructions with respect to the performance of its duties hereunder from the Chairman of the Board, the President, any Vice President, the Secretary, any Assistant Secretary, the Treasurer or any Assistant Treasurer of the Company, and to apply to such officers for advice or instructions in connection with its duties, and it shall not be liable for any action taken or suffered to be taken by it in good faith in accordance with instructions of any such officer.

(h) The Rights Agent and any stockholder, director, officer or employee of the Rights Agent may buy, sell or deal in any of the Rights or other securities of the Company or become pecuniarily interested in any transaction in which the Company may be interested, or contract with or lend money to the Company or otherwise act as fully and freely as though it were not Rights Agent under this Agreement. Nothing herein shall preclude the Rights Agent from acting in any other capacity for the Company or for any other legal entity.

(i) The Rights Agent may execute and exercise any of the rights or powers hereby vested in it or perform any duty hereunder either itself or by or through its attorneys or agents, and the Rights Agent shall not be answerable or accountable for any act, default, neglect or misconduct of any such attorneys or agents or for any loss to the Company resulting from any such act, default, neglect or misconduct; provided , however , reasonable care was exercised in the selection and continued employment thereof.

(j) No provision of this Agreement shall require the Rights Agent to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder or in the exercise of its rights if there shall be reasonable grounds for believing that repayment of such funds or adequate indemnification against such risk or liability is not reasonably assured to it.

(k) If, with respect to any Rights Certificate surrendered to the Rights Agent for exercise or transfer, the certificate attached to the form of assignment or form of election to purchase, as the case may be, has either not been completed or indicates an affirmative response to clause 1 and/or 2 thereof, the Rights Agent shall not take any further action with respect to such requested exercise or transfer without first consulting with the Company.

Section 21. Change of Rights Agent . The Rights Agent or any successor rights agent may resign and be discharged from its duties under this Agreement upon thirty (30) days’ notice in writing mailed to the Company, and to each transfer agent of the Common Stock and Preferred Stock, by registered or certified mail, and, if such resignation occurs after the Distribution Date, to the registered holders of the Rights Certificates by first-class mail. The Company may remove the Rights Agent or any successor Rights Agent upon thirty (30) days’ notice in writing, mailed to the Rights Agent or successor Rights Agent, as the case may be, and to each transfer agent of the Common Stock and Preferred Stock, by registered or certified mail, and, if such removal occurs after the Distribution Date, to the registered holders of the Rights Certificates by first-class mail. If the Rights Agent shall resign or be removed or shall otherwise become incapable of acting, the Company shall appoint a successor to the Rights Agent. If the Company shall fail to make such appointment within a period of thirty (30) days after giving notice of such removal or after it has been notified in writing of such resignation or incapacity by the resigning or incapacitated Rights Agent or by the holder of a Rights Certificate (who shall, with such notice, submit his Rights Certificate for inspection by the Company), then any registered holder of any Rights Certificate may apply to any court of competent jurisdiction for the appointment of a new Rights Agent. Any successor Rights Agent, whether appointed by the Company or by such a court, shall be (a) a legal business entity organized and doing business under the laws of the United States or of the State of New York or of any other state of the United States, in good standing, having an office in the State of New York, which is authorized under such laws to exercise corporate trust, stock transfer or shareholder services powers and which has at the time of its appointment as Rights Agent a combined capital and surplus of at least $50,000,000 or (b) an affiliate of a legal business entity described in clause (a) of this sentence. After appointment, the successor rights agent shall be vested with the same powers, rights, duties and responsibilities as if it had been originally named as rights agent without further act or deed; but the predecessor rights agent shall deliver and transfer to the successor rights agent any property at the time held by it hereunder, and execute and deliver any further assurance, conveyance, act or deed necessary for the purpose. Not later than the effective date of any such appointment, the Company shall file notice thereof in writing with the predecessor rights agent and each transfer agent of the Common Stock and the Preferred Stock, and, if such appointment occurs after the Distribution Date, mail a notice thereof in writing to the registered holders of the Rights Certificates. Failure to give any notice provided for in this Section 21,

however, or any defect therein, shall not affect the legality or validity of the resignation or removal of the Rights Agent or the appointment of the successor rights agent, as the case may be.

Section 22. Issuance of New Rights Certificates . Notwithstanding any of the provisions of this Agreement or of the Rights to the contrary, the Company may, at its option, issue new Rights Certificates evidencing Rights in such form as may be approved by the Board to reflect any adjustment or change in the Purchase Price and the number or kind or class of shares or other securities or property purchasable under the Rights Certificates made in accordance with the provisions of this Agreement. In addition, in connection with the issuance or sale of shares of Common Stock following the Distribution Date and prior to the redemption or expiration of the Rights, the Company (a) shall, with respect to shares of Common Stock so issued or sold pursuant to the exercise of stock options or under any employee plan or arrangement, granted or awarded as of the Distribution Date, or upon the exercise, conversion or exchange of securities hereinafter issued by the Company, and (b) may, in any other case, if deemed necessary or appropriate by the Board, issue Rights Certificates representing the appropriate number of Rights in connection with such issuance or sale; provided , however , that (i) no such Rights Certificate shall be issued if, and to the extent that, the Company shall be advised by counsel that such issuance would create a significant risk of material adverse tax consequences to the Company or the Person to whom such Rights Certificate would be issued, and (ii) no such Rights Certificate shall be issued if, and to the extent that, appropriate adjustment shall otherwise have been made in lieu of the issuance thereof.

Section 23. Redemption and Termination .

(a) The Board may, at its option, at any time prior to the earlier of (i) the close of business on the tenth (10 ^th ) day following the Stock Acquisition Date (or, if the Stock Acquisition Date shall have occurred prior to the Record Date, the close of business on the tenth (10 ^th ) day following the Record Date), or (ii) the Final Expiration Date, direct the Company to, and if so directed, the Company shall, redeem all but not less than all of the then outstanding Rights at a redemption price of $0.001 per Right, as such amount may be appropriately adjusted to reflect any stock split, stock dividend or similar transaction occurring after the date hereof (such redemption price being hereinafter referred to as the “Redemption Price”). Notwithstanding anything contained in this Agreement to the contrary, the Rights shall not be exercisable after the first occurrence of a Section 11(a)(ii) Event until such time as the Company’s right of redemption hereunder has expired. The Company may, at its option, pay the Redemption Price in cash, shares of Common Stock (based on the Current Market Price of the Common Stock at the time of redemption) or any other form of consideration deemed appropriate by the Board.

(b) Immediately upon the action of the Board ordering the redemption of the Rights, evidence of which shall have been filed with the Rights Agent and without any further action and without any notice, the right to exercise the Rights will terminate and the only right thereafter of the holders of Rights shall be to receive the Redemption Price for each Right so held. Promptly after the action of the Board ordering the redemption of the Rights, the Company shall give notice of such redemption to the Rights

Agent and the holders of the then outstanding Rights by mailing such notice to all such holders at each holder’s last address as it appears upon the registry books of the Rights Agent or, prior to the Distribution Date, on the registry books of the transfer agent for the Common Stock. Any notice which is mailed in the manner herein provided shall be deemed given, whether or not the holder receives the notice. Each such notice of redemption will state the method by which the payment of the Redemption Price will be made.

Section 24. Exchange .

(a) The Board may, at its option, at any time after any Person becomes an Acquiring Person, exchange all or part of the then outstanding and exercisable Rights (which shall not include Rights that have become void pursuant to the provisions of Section 7(e) hereof) for shares of Common Stock at an exchange ratio of one share of Common Stock per Right, appropriately adjusted to reflect any stock split, stock dividend or similar transaction occurring after the date hereof (such exchange ratio being hereinafter referred to as the “Exchange Ratio”). Notwithstanding the foregoing, the Board shall not be empowered to effect such exchange at any time after any Person (other than the Company, any Subsidiary of the Company, any employee benefit plan of the Company or any such Subsidiary, or any entity holding Common Stock for or pursuant to the terms of any such plan), together with all Affiliates and Associates of such Person, becomes the Beneficial Owner of fifty percent (50%) or more of the Common Stock then outstanding.

(b) Immediately upon the action of the Board ordering the exchange of any Rights pursuant to subsection (a) of this Section 24 and without any further action and without any notice, the right to exercise such Rights shall terminate and the only right thereafter of a holder of such Rights shall be to receive that number of shares of Common Stock equal to the number of such Rights held by such holder multiplied by the Exchange Ratio. The Company shall promptly give public notice of any such exchange; provided , however , that the failure to give, or any defect in, such notice shall not affect the validity of such exchange. The Company promptly shall mail a notice of any such exchange to all of the holders of such Rights at their last addresses as they appear upon the registry books of the Rights Agent. Any notice which is mailed in the manner herein provided shall be deemed given, whether or not the holder receives the notice. Each such notice of exchange will state the method by which the exchange of the Common Stock for Rights will be effected and, in the event of any partial exchange, the number of Rights which will be exchanged. Any partial exchange shall be effected pro rata based on the number of Rights (other than Rights which have become void pursuant to the provisions of Section 7(e) hereof) held by each holder of Rights.

(c) In any exchange pursuant to this Section 24, the Company, at its option, may substitute shares of Preferred Stock (or Equivalent Preferred Stock) for shares of Common Stock exchangeable for Rights, at the initial rate of one one-thousandth of a share of Preferred Stock (or Equivalent Preferred Stock) for each share of Common Stock, as appropriately adjusted to reflect stock splits, stock dividends and other similar transactions after the date hereof.

(d) In the event that there shall not be sufficient shares of Common Stock issued but not outstanding or authorized but unissued to permit any exchange of Rights as contemplated in accordance with this Section 24, the Company shall take all such action as may be necessary to authorize additional shares of Common Stock for issuance upon exchange of the Rights.

(e) The Company shall not be required to issue fractions of shares of Common Stock or to distribute certificates which evidence fractional shares of Common Stock. In lieu of such fractional shares of Common Stock, there shall be paid to the registered holders of the Rights Certificates with regard to which such fractional share of Common Stock would otherwise be issuable, an amount in cash equal to the same fraction of the current market value of a whole share of Common Stock. For the purposes of this subsection (e), the current market value of a whole share of Common Stock shall be the closing price of a share of Common Stock (as determined pursuant to the second sentence of Section 11(d)(i) hereof) for the Trading Day immediately prior to the date of exchange pursuant to this Section 24.

Section 25. Notice of Certain Events .

(a) In case the Company shall propose, at any time after the Distribution Date, (i) to pay any dividend payable in stock of any class to the holders of Preferred Stock or to make any other distribution to the holders of Preferred Stock (other than a regular quarterly cash dividend out of earnings or retained earnings of the Company), or (ii) to offer to the holders of Preferred Stock rights or warrants to subscribe for or to purchase any additional shares of Preferred Stock or shares of stock of any class or any other securities, rights or options, or (iii) to effect any reclassification of its Preferred Stock (other than a reclassification involving only the subdivision of outstanding shares of Preferred Stock), or (iv) to effect any consolidation or merger into or with any other Person (other than a Subsidiary of the Company in a transaction which complies with Section 11(o) hereof), or to effect any sale or other transfer (or to permit one or more of its Subsidiaries to effect any sale or other transfer), in one transaction or a series of related transactions, of more than fifty percent (50%) of the assets, cash flow or earning power of the Company and its Subsidiaries (taken as a whole) to any other Person or Persons (other than the Company and/or any of its Subsidiaries in one or more transactions each of which complies with Section 11(o) hereof), or (v) to effect the liquidation, dissolution or winding up of the Company, then, in each such case, the Company shall give to each holder of a Rights Certificate, to the extent feasible and in accordance with Section 26 hereof, a notice of such proposed action, which shall specify the record date for the purposes of such stock dividend, distribution of rights or warrants, or the date on which such reclassification, consolidation, merger, sale, transfer, liquidation, dissolution, or winding up is to take place and the date of participation therein by the holders of the shares of Preferred Stock, if any such date is to be fixed, and such notice shall be so given in the case of any action covered by clause (i) or (ii) above at least twenty (20) days prior to the record date for determining holders of the shares of Preferred Stock for purposes of such action, and in the case of any such other action, at least twenty (20) days prior to the date of the taking of such proposed action or the date of participation therein by the holders of the shares of Preferred Stock, whichever shall be the earlier.

(b) In case any of the events set forth in Section 11(a)(ii) hereof shall occur, then, in any such case, (i) the Company shall as soon as practicable thereafter give to each holder of a Rights Certificate, to the extent feasible and in accordance with Section 26 hereof, a notice of the occurrence of such event, which shall specify the event and the consequences of the event to holders of Rights under Section 11(a)(ii) hereof, and (ii) all references in the preceding paragraph to Preferred Stock shall be deemed thereafter to refer to Common Stock and/or, if appropriate, other securities.

Section 26. Notices . Notices or demands authorized by this Agreement to be given or made by the Rights Agent or by the holder of any Rights Certificate to or on the Company shall be sufficiently given or made if sent by first-class mail, postage prepaid, addressed (until another address is filed in writing by the Rights Agent with the Company) as follows:

Donaldson Company, Inc.
1400 West 94th Street
Minneapolis, Minnesota 55431
Attention: Corporate Secretary

Subject to the provisions of Section 21, any notice or demand authorized by this Agreement to be given or made by the Company or by the holder of any Rights Certificate to or on the Rights Agent shall be sufficiently given or made if sent by first-class mail, postage prepaid, addressed (until another address is filed in writing by the Rights Agent with the Company) as follows:

Wells Fargo Bank, N.A.
161 North Concord Exchange
South St. Paul, MN 55075
Attention: Manager of Account Management

Notices or demands authorized by this Agreement to be given or made by the Company or the Rights Agent to the holder of any Rights Certificate (or, if prior to the Distribution Date, to the holder of shares of Common Stock) shall be sufficiently given or made if sent by first-class mail, postage prepaid, addressed to such holder at the address of such holder as shown on the registry books of the Company.

Section 27. Supplements and Amendments . Prior to the Distribution Date, the Company and the Rights Agent shall, if the Company so directs, supplement or amend any provision of this Agreement without the approval of any holders of shares of Common Stock. From and after the Distribution Date, the Company and the Rights Agent shall, if the Company so directs, supplement or amend this Agreement without the approval of any holders of Rights Certificates in order to (i) cure any ambiguity, (ii) correct or supplement any provision contained herein which may be defective or inconsistent with any other provisions herein, (iii) shorten or lengthen any time period hereunder or (iv) change or supplement the provisions hereunder in any manner which the Company may deem necessary or desirable and which shall not adversely affect the interests of the holders of Rights Certificates (other than an Acquiring Person or an Affiliate or Associate of an

Acquiring Person). Upon the delivery of a certificate from an appropriate officer of the Company which states that the proposed supplement or amendment is in compliance with the terms of this Section 27, the Rights Agent shall execute such supplement or amendment. Notwithstanding anything herein to the contrary, this Agreement may not be amended (other than pursuant to clauses (i) or (ii) of the preceding sentence) at a time when the Rights are not redeemable.

Section 28. Successors . All the covenants and provisions of this Agreement by or for the benefit of the Company or the Rights Agent shall bind and inure to the benefit of their respective successors and assigns hereunder.

Section 29. Determinations and Actions by the Board of Directors, etc . For all purposes of this Agreement, any calculation of the number of shares of Common Stock or any other class of capital stock outstanding at any particular time, including for purposes of determining the particular percentage of such outstanding shares of Common Stock of which any Person is the Beneficial Owner, shall be made in accordance with the last sentence of Rule 13d-3(d)(1)(i) of the General Rules and Regulations under the Exchange Act. The Board shall have the exclusive power and authority to administer this Agreement and to exercise all rights and powers specifically granted to the Board or to the Company, or as may be necessary or advisable in the administration of this Agreement, including, without limitation, the right and power to (i) interpret the provisions of this Agreement, and (ii) make all determinations deemed necessary or advisable for the administration of this Agreement (including a determination to redeem or not redeem the Rights or to amend the Agreement). All such actions, calculations, interpretations and determinations (including, for purposes of clause (y) below, all omissions with respect to the foregoing) which are done or made by the Board in good faith, shall (x) be final, conclusive and binding on the Company, the Rights Agent, the holders of the Rights and all other parties, and (y) not subject the Board, or any of the directors on the Board, to any liability to the holders of the Rights.

Section 30. Benefits of this Agreement . Nothing in this Agreement shall be construed to give to any Person other than the Company, the Rights Agent and the registered holders of the Rights Certificates (and, prior to the Distribution Date, registered holders of the Common Stock) any legal or equitable right, remedy or claim under this Agreement; but this Agreement shall be for the sole and exclusive benefit of the Company, the Rights Agent and the registered holders of the Rights Certificates (and, prior to the Distribution Date, registered holders of the Common Stock).

Section 31. Severability . If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction or other authority to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated; provided , however , that notwithstanding anything in this Agreement to the contrary, if any such term, provision, covenant or restriction is held by such court or authority to be invalid, void or unenforceable and the Board determines in its good faith judgment that severing the invalid language from this Agreement would adversely affect the purpose or effect of this Agreement, the right of redemption set forth in Section 23

hereof shall be reinstated and shall not expire until the close of business on the tenth (10 ^th ) day following the date of such determination by the Board. Without limiting the foregoing, if any provision requiring a specific group of directors to act is held by any court of competent jurisdiction or other authority to be invalid, void or unenforceable, such determination shall be made by the Board in accordance with applicable law and the Company’s Certificate of Incorporation and By-Laws.

Section 32. Governing Law . This Agreement, each Right and each Rights Certificate issued hereunder shall be deemed to be a contract made under the laws of the State of Delaware and for all purposes shall be governed by and construed in accordance with the laws of such State applicable to contracts made and to be performed entirely within such State.

Section 33. Counterparts . This Agreement may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument.

Section 34. Descriptive Headings . Descriptive headings of the several sections of this Agreement are inserted for convenience only and shall not control or affect the meaning or construction of any of the provisions hereof.

IN WITNESS WHEREOF, the parties hereto have caused this Rights Agreement to be duly executed all as of the day and year first above written.

Attest:		DONALDSON COMPANY, INC.

By	/s/ Norman Linnell	By	/s/ Thomas R. VerHage
	Name: Norman Linnell Title: Vice-President		Name: Thomas R. VerHage Title: Vice-President & Chief Financial Officer

Attest:		WELLS FARGO BANK, N.A.

By	/s/ John Baker	By	/s/ Darren Larson
	Name: John Baker Title: Vice-President		Name: Darren Larson Title: Vice-President

Exhibit A

FORM OF
CERTIFICATE OF DESIGNATION, PREFERENCES
AND RIGHTS OF SERIES A JUNIOR
PARTICIPATING PREFERRED STOCK
OF
DONALDSON COMPANY, INC.

__________________________________

Pursuant to Section 151 of the
General Corporation Law of the State of Delaware

__________________________________

The undersigned officers of Donaldson Company, Inc., a corporation organized and existing under the General Corporation Law of the State of Delaware, in accordance with the provisions of Section 103 thereof, DO HEREBY CERTIFY:

Section 2. Dividends and Distributions .

A-1

Junior Participating Preferred Stock, in an amount per share (rounded to the nearest cent) equal to the greater of (a) $10.00 or (b) subject to the provision for adjustment hereinafter set forth, 1,000 times the aggregate per share amount of all cash dividends, and 1,000 times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions other than a dividend payable in shares of Common Stock or a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise), declared on the Common Stock, par value $5.00 per share, of the Corporation (the “Common Stock”) since the immediately preceding Quarterly Dividend Payment Date, or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Series A Junior Participating Preferred Stock. In the event the Corporation shall at any time after January 27, 2006 (the “Rights Declaration Date”) (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the amount to which holders of shares of Series A Junior Participating Preferred Stock were entitled immediately prior to such event under clause (b) of the preceding sentence shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event.

A-2

Section 3. Voting Rights . The holders of shares of Series A Junior Participating Preferred Stock shall have the following voting rights:

A-3

Stock shall have exercised their right to elect directors in any default period and during the continuance of such period, the number of directors shall not be increased or decreased except by vote of the holders of Preferred Stock as herein provided or pursuant to the rights of any equity securities ranking senior to or pari passu with the Series A Junior Participating Preferred Stock.

A-4

Section 4. Certain Restrictions .

A-5

Section 6. Liquidation, Dissolution or Winding Up .

A-6

Adjustment Number by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event.

Section 7. Consolidation, Merger, etc . In case the Corporation shall enter into any consolidation, merger, combination or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case the shares of Series A Junior Participating Preferred Stock shall at the same time be similarly exchanged or changed in an amount per share (subject to the provision for adjustment hereinafter set forth) equal to 1,000 times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Common Stock is changed or exchanged. In the event the Corporation shall at any time after the Rights Declaration Date (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the amount set forth in the preceding sentence with respect to the exchange or change of shares of Series A Junior Participating Preferred Stock shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event.

Section 8. No Redemption . The shares of Series A Junior Participating Preferred Stock shall not be redeemable.

Section 9. Ranking . The Series A Junior Participating Preferred Stock shall rank junior to all other series of the Corporation’s Preferred Stock which may be issued from time to time as to the payment of dividends and the distribution of assets, unless the terms of any such series shall provide otherwise.

A-7

IN WITNESS WHEREOF, we have executed and subscribed this Certificate and do affirm the foregoing as true under the penalties of perjury this ___ day of __________, 2006.

Attest:		DONALDSON COMPANY, INC.

By		By
	Name: Title:		Name: Title:

A-8

Exhibit B

[Form of Rights Certificate]

Certificate No. R -

________ Rights

NOT EXERCISABLE AFTER MARCH 2, 2016 UNLESS EXTENDED PRIOR THERETO BY THE BOARD OF DIRECTORS OR EARLIER IF REDEEMED BY THE COMPANY. THE RIGHTS ARE SUBJECT TO REDEMPTION, AT THE OPTION OF THE COMPANY, AT $0.001 PER RIGHT ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT. UNDER CERTAIN CIRCUMSTANCES, RIGHTS BENEFICIALLY OWNED BY AN ACQUIRING PERSON (AS SUCH TERM IS DEFINED IN THE RIGHTS AGREEMENT) AND ANY SUBSEQUENT HOLDER OF SUCH RIGHTS MAY BECOME NULL AND VOID. [THE RIGHTS REPRESENTED BY THIS RIGHTS CERTIFICATE ARE OR WERE BENEFICIALLY OWNED BY A PERSON WHO WAS OR BECAME AN ACQUIRING PERSON OR AN AFFILIATE OR ASSOCIATE OF AN ACQUIRING PERSON (AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT). ACCORDINGLY, THIS RIGHTS CERTIFICATE AND THE RIGHTS REPRESENTED HEREBY MAY BECOME NULL AND VOID IN THE CIRCUMSTANCES SPECIFIED IN SECTION 7(e) OF SUCH AGREEMENT.] ¹

Rights Certificate

DONALDSON COMPANY, INC.

This certifies that__________________, or registered assigns, is the registered owner of the number of Rights set forth above, each of which entitles the owner thereof, subject to the terms, provisions and conditions of the Rights Agreement, dated as of January 27, 2006 (the “Rights Agreement”), between Donaldson Company, Inc., a Delaware corporation (the “Company”), and Wells Fargo Bank, N.A., a national banking association (the “Rights Agent”), to purchase from the Company at any time prior to 5:00 P.M. (New York City time) on March 2, 2016 (unless such date is extended prior thereto by the Board of Directors) at the office or offices of the Rights Agent designated for such purpose, or its successors as Rights Agent, one one-thousandth of a fully paid, non-assessable share of Series A Junior Participating Preferred Stock (the “Preferred Stock”) of the Company, at a purchase price of $______ per one one-thousandth of a share (the “Purchase Price”), upon presentation and surrender of this Rights Certificate with the Form of Election to Purchase and related Certificate duly executed. The number of Rights evidenced by this Rights Certificate (and the number of shares which may be purchased upon exercise thereof) set forth above, and the Purchase Price per share set forth above, are the number and Purchase Price as of ___________, based on the Preferred Stock as constituted at such date. The Company reserves the right to require prior to the occurrence of a Triggering Event (as such term is defined in the Rights Agreement) that a number of Rights be exercised so that only whole shares of Preferred Stock will be issued.

_________________
¹ The portion of the legend in brackets shall be inserted only if applicable and shall replace the preceding sentence.

B-1

Upon the occurrence of a Section 11(a)(ii) Event (as such term is defined in the Rights Agreement), if the Rights evidenced by this Rights Certificate are beneficially owned by (i) an Acquiring Person or an Affiliate or Associate of any such Acquiring Person (as such terms are defined in the Rights Agreement), (ii) a transferee of any such Acquiring Person, Associate or Affiliate, or (iii) under certain circumstances specified in the Rights Agreement, a transferee of a person who, after such transfer, became an Acquiring Person, or an Affiliate or Associate of an Acquiring Person, such Rights shall become null and void and no holder hereof shall have any right with respect to such Rights from and after the occurrence of such Section 11(a)(ii) Event.

As provided in the Rights Agreement, the Purchase Price and the number and kind of shares of Preferred Stock or other securities, which may be purchased upon the exercise of the Rights evidenced by this Rights Certificate are subject to modification and adjustment upon the happening of certain events, including Triggering Events.

This Rights Certificate is subject to all of the terms, provisions and conditions of the Rights Agreement, which terms, provisions and conditions are hereby incorporated herein by reference and made a part hereof and to which Rights Agreement reference is hereby made for a full description of the rights, limitations of rights, obligations, duties and immunities hereunder of the Rights Agent, the Company and the holders of the Rights Certificates, which limitations of rights include the temporary suspension of the exercisability of such Rights under the specific circumstances set forth in the Rights Agreement. Copies of the Rights Agreement are on file at the above-mentioned office of the Rights Agent and are also available upon written request to the Rights Agent.

This Rights Certificate, with or without other Rights Certificates, upon surrender at the principal office or offices of the Rights Agent designated for such purpose, may be exchanged for another Rights Certificate or Rights Certificates of like tenor and date evidencing Rights entitling the holder to purchase a like aggregate number of one one-thousandths of a share of Preferred Stock as the Rights evidenced by the Rights Certificate or Rights Certificates surrendered shall have entitled such holder to purchase. If this Rights Certificate shall be exercised in part, the holder shall be entitled to receive upon surrender hereof another Rights Certificate or Rights Certificates for the number of whole Rights not exercised.

Subject to the provisions of the Rights Agreement, the Rights evidenced by this Certificate may be redeemed by the Company at its option at a redemption price of $0.001 per Right at any time prior to the earlier of the close of business on (i) the tenth day following the Stock Acquisition Date (as such time period may be extended pursuant to the Rights Agreement), and (ii) the Final Expiration Date. In addition, under certain circumstances following the Stock Acquisition Date, the Rights may be exchanged, in whole or in part, for shares of the Common Stock, or shares of preferred stock of the Company having essentially the same value or economic rights as such shares. Immediately upon the action of the Board of Directors of the Company authorizing any such exchange, and without any further action or any notice, the Rights (other than Rights which are not subject to such exchange) will terminate and the Rights will only enable holders to receive the shares issuable upon such exchange.

B-2

No fractional shares of Preferred Stock will be issued upon the exercise of any Right or Rights evidenced hereby (other than fractions which are integral multiples of one one-thousandth of a share of Preferred Stock, which may, at the election of the Company, be evidenced by depositary receipts), but in lieu thereof a cash payment will be made, as provided in the Rights Agreement. The Company, at its election, may require that a number of Rights be exercised so that only whole shares of Preferred Stock would be issued.

No holder of this Rights Certificate shall be entitled to vote or receive dividends or be deemed for any purpose the holder of shares of Preferred Stock or of any other securities of the Company which may at any time be issuable on the exercise hereof, nor shall anything contained in the Rights Agreement or herein be construed to confer upon the holder hereof, as such, any of the rights of a stockholder of the Company or any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or to give consent to or withhold consent from any corporate action, or, to receive notice of meetings or other actions affecting stockholders (except as provided in the Rights Agreement), or to receive dividends or subscription rights, or otherwise, until the Right or Rights evidenced by this Rights Certificate shall have been exercised as provided in the Rights Agreement.

This Rights Certificate shall not be valid or obligatory for any purpose until it shall have been countersigned by the Rights Agent.

B-3

WITNESS the facsimile signature of the proper officers of the Company and its corporate seal.

Dated as of ____________ ___, _____

ATTEST:		DONALDSON COMPANY, INC.

		By:
Secretary			Title:


Countersigned: WELLS FARGO BANK, N.A.


By:
	Authorized Signature

B-4

[Form of Reverse Side of Rights Certificate]

FORM OF ASSIGNMENT

(To be executed by the registered holder if such holder
desires to transfer the Rights Certificate.)

FOR VALUE RECEIVED		hereby sells, assigns and transfers unto

(Please print name and address of transferee)

this Rights Certificate, together with all right, title and interest therein, and does hereby irrevocably constitute and appoint ___________________ Attorney, to transfer the within Rights Certificate on the books of the within-named Company, with full power of substitution.

Dated: ___________,______


	Signature

Signature Medallion Guaranteed:

B-5

Certificate

The undersigned hereby certifies by checking the appropriate boxes that:

(1) this Rights Certificate [ ] is [ ] is not being sold, assigned and transferred by or on behalf of a Person who is or was an Acquiring Person or an Affiliate or Associate of any such Acquiring Person (as such terms are defined pursuant to the Rights Agreement);

(2) after due inquiry and to the best knowledge of the undersigned, it [ ] did [ ] did not acquire the Rights evidenced by this Rights Certificate from any Person who is, was or subsequently became an Acquiring Person or an Affiliate or Associate of an Acquiring Person.

Dated: ___________,______


	Signature

Signature Medallion Guaranteed:

NOTICE

The signature to the foregoing Assignment and Certificate must correspond to the name as written upon the face of this Rights Certificate in every particular, without alteration or enlargement or any change whatsoever.

B-6

FORM OF ELECTION TO PURCHASE

(To be executed if holder desires to exercise
Rights represented by the Rights Certificate.)

To: DONALDSON COMPANY, INC.

The undersigned hereby irrevocably elects to exercise __________ Rights represented by this Rights Certificate to purchase the shares of Preferred Stock issuable upon the exercise of the Rights (or such other securities of the Company or of any other person which may be issuable upon the exercise of the Rights) and requests that certificates for such shares be issued in the name of and delivered to:

Please insert social security
or other identifying number

(Please print name and address)

If such number of Rights shall not be all the Rights evidenced by this Rights Certificate, a new Rights Certificate for the balance of such Rights shall be registered in the name of and delivered to:

Please insert social security
or other identifying number

(Please print name and address)

Dated: ___________,______


	Signature

Signature Medallion Guaranteed:

B-7

Certificate

The undersigned hereby certifies by checking the appropriate boxes that:

(1) the Rights evidenced by this Rights Certificate [ ] are [ ] are not being exercised by or on behalf of a Person who is or was an Acquiring Person or an Affiliate or Associate of any such Acquiring Person (as such terms are defined pursuant to the Rights Agreement);

(2) after due inquiry and to the best knowledge of the undersigned, it [ ] did [ ] did not acquire the Rights evidenced by this Rights Certificate from any Person who is, was or became an Acquiring Person or an Affiliate or Associate of an Acquiring Person.

Dated: ___________,______


	Signature

Signature Medallion Guaranteed:

NOTICE

The signature to the foregoing Election to Purchase and Certificate must correspond to the name as written upon the face of this Rights Certificate in every particular, without alteration or enlargement or any change whatsoever.

B-8

Exhibit 10-A

FY11 Officer
Annual Cash
(OAC) Incentive
Plan

FY11 OFFICER ANNUAL CASH INCENTIVE PLAN

PURPOSE

It is Donaldson Company’s philosophy to provide a total compensation package that attracts, retains and motivates the best employees. The Incentive Plan provides variable incentive compensation for eligible positions and is designed to reward participating employees for their contributions toward Donaldson’s achievement of specific financial goals.

PLAN YEAR

The Plan Year coincides with Donaldson Company’s fiscal year of August 1 ^st through July 31 ^st .

PLAN ELIGIBILITY

All officers are eligible for the Officer Annual Cash Incentive Plan. Participants must work a regular full-time or regular part-time schedule during the Plan Year.

INCENTIVE OPPORTUNITY

Target incentive opportunity varies by level and position and is expressed as a percentage of the participant’s base salary effective as of the last working day in July or last working day in an eligible position.

Target incentive opportunity is as follows:

•	VP’s	40%
•	SVP’s/CFO	60%
•	CEO	80%

PERFORMANCE MEASUREMENT GOALS (Metrics)

Goals are financial and are weighted based on importance and relevance. Appropriate goals and goal weightings for each participant will vary based on the organization’s goals and the position’s job responsibilities. The minimum weighting for any goal is 10%. Each year the Human Resource Committee (HR Committee) of the Board of Directors establishes and approves the performance measurement goals for the officers eligible for this plan.

FY11 OFFICER ANNUAL CASH INCENTIVE PLAN

The following are the specific performance metrics for Officers with Corporate responsibility:

CORPORATE PERFORMANCE METRICS
	0% Threshold	100% Target	150% Target	200% Target
EPS	Record ($2.12)	Plan ($2.38)	+18% over Record ($2.50)	+24% over Record ($2.63)
OI%	Plan - 2.0%	Plan	Plan + 2.0%	N/A
NI%	Plan – 1.5%	Plan	Plan +1.5%	N/A
ROI	Cost of Capital	15.0%	20.0%	21.5%
Sales	90% of Plan	Plan	110% of Plan	N/A

The following are the performance metrics for Officers with Business Segment or Regional responsibility:

BUSINESS SEGMENT AND REGIONAL PERFORMANCE METRICS
	0% Threshold	100% Target	150% Target	200% Target
EPS	Record ($2.12)	Plan ($2.38)	+18% over Record ($2.50)	+24% over Record ($2.63)
OI%	Plan -2.0%	Plan	Plan + 2.0%	N/A
ROI	67% of Plan or the cost of capital, whichever is higher	Plan or straight-line interpolation if plan < cost of capital	Straight interpolation	Plan +43% or the record of past 4 years, whichever is higher
Sales	90% of Plan	Plan	110% of Plan	NA

The following are the performance targets:

	CEO	CFO	Section 16 Officers	Non Section 16 Officers
EPS	50%	40%	40%	30%
OI%	10%	0%	20%	25%
NI%	0%	20%	0%	0%
Sales	20%	20%	20%	20%
ROI	20%	20%	20%	25%

PAYOUT ELIGIBILITY

In order to be eligible for a payout, participants must be:

	•	Performing at an acceptable level as determined by management and/or the HR Committee. Participants with a Requires Improvement (RI) performance rating are not eligible under any circumstance.
	•	Actively employed by Donaldson on the last working day of the fiscal year.

FY11 OFFICER ANNUAL CASH INCENTIVE PLAN

INCENTIVE PAYOUTS

Incentive payouts will be available no later than October 15 ^th following the end of the fiscal year. Payouts are subject to all applicable taxes and will be paid net of any required withholdings. Active participants must complete all annual performance management process requirements and acknowledge their new fiscal year goals before receiving their prior fiscal year Incentive Plan payout.

Officers are eligible to defer all or a portion of their incentive payout to the Donaldson Company, Inc. Deferred Compensation 401(k) Excess Plan. This deferral election must be made at least six months prior to the end of the performance period.

PAYOUT MODIFICATION

For the following situations, incentive payouts will be modified or prorated based on the month of change as listed in the following table:

Month of Change	New Hire/ Rehire / Newly Eligible	Job Change – Eligible Position to Another Eligible Position		Job Change –Eligible Position to Non- Eligible Position	Retirement, LTD, Death
Month of Change	New Hire/ Rehire / Newly Eligible	Job 1	Job 2	Job Change –Eligible Position to Non- Eligible Position	Retirement, LTD, Death
August	12/12	0	12/12	0	0
September	11/12	0	12/12	0	0
October	10/12	0	12/12	0	0
November	9/12	3/12	9/12	4/12	4/12
December	8/12	4/12	8/12	5/12	5/12
January	7/12	5/12	7/12	6/12	6/12
February	6/12	6/12	6/12	7/12	7/12
March	5/12	7/12	5/12	8/12	8/12
April	4/12	8/12	4/12	9/12	9/12
May	3/12	12/12	0	10/12	10/12
June	2/12	12/12	0	11/12	11/12
July	0	12/12	0	12/12	12/12

	•	Job changes – incentive payout will be prorated by month of job change based on incentive opportunity and performance measurement goals defined for jobs 1 and 2.
	•	Terminations (for any reason other than retirement, death, or LTD) – If an employee terminates employment prior to the end of the fiscal year, no incentive is earned. If an employee terminates after July 31st, the fiscal year’s incentive will be earned to the extent of the participant’s goal achievement.
	•	Other – In the case of an unusual circumstance impacting a plan participant, management and the HR Committee reserves the right to withhold or adjust an incentive payout.

FY11 OFFICER ANNUAL CASH INCENTIVE PLAN

PLAN MODIFICATIONS

Donaldson Board of Directors and/or HR Committee reserves the right to modify, amend or cancel this plan at any time in response to changing business conditions or unforeseen circumstances. They also retain the right to make adjustments for any unusual item that has an unplanned impact on the incentive payout. Adjustments, if any, may have either a negative or positive effect on the incentive payout earned by a participant.

RIGHT TO CONTINUED EMPLOYMENT

Nothing contained in the Incentive Plan shall be construed to confer upon any employee the right to continued employment, or alter the company’s right to terminate his/her employment at any time.

Exhibit 10-G

DONALDSON COMPANY, INC.

SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN

(2008 Restatement)

As Amended and Restated Effective January 1, 2008

DONALDSON COMPANY, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
(2008 Restatement)

TABLE OF CONTENTS


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SECTION 1.	HISTORY AND PURPOSE		1

	1.1.	History
	1.2.	Purpose

SECTION 2.	DEFINITIONS		1

	2.1.	Account
	2.2.	Actuarial Equivalent
	2.3.	Affiliate
	2.4.	Basic Retirement Plan Benefits
	2.5.	Beneficiary
	2.6.	Board
	2.7.	Change of Control
	2.8.	Code
	2.9.	Committee
	2.10.	Company
	2.11.	Compensation
	2.12.	Deferral Credit
	2.13.	Deferred Compensation Plan
	2.14.	Disability, Disabled
	2.15.	Early Retirement Factor
	2.16.	Effective Date
	2.17.	Eligible Employee
	2.18.	ERISA
	2.19.	Final Average Compensation
	2.20.	Participant
	2.21.	Pension Plan
	2.22.	Pension Service
	2.23.	Plan
	2.24.	Plan Year
	2.25.	Termination of Employment
	2.26.	Vested

SECTION 3.	ELIGIBILITY AND PARTICIPATION		5

	3.1.	Eligibility
	3.2.	Commencement of Participation
	3.3.	Termination of Participation
	3.4.	Overriding Exclusion

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SECTION 4.	CREDITED AMOUNTS		6

	4.1.	Normal Retirement Benefit
	4.2.	Early Retirement Benefit
	4.3.	Disability or Death Benefit
	4.4.	Vesting

SECTION 5.	TIME AND MANNER OF PAYMENTS		7

	5.1.	Time of Payment
	5.2.	Manner of Payment
	5.3.	Changes in Time and Manner of Payment
	5.4.	Change of Control Distributions
	5.5.	Death Benefit
	5.6.	Beneficiary Designation

SECTION 6.	ACCOUNT		10

	6.1.	Participant Accounts
	6.2.	Investment of Accounts
	6.3.	Charges Against Accounts

SECTION 7.	FUNDING		10

	7.1.	Funding
	7.2.	Corporate Obligation

SECTION 8.	FORFEITURE OF BENEFITS		11

SECTION 9.	ADMINISTRATION		11

	9.1.	Authority
	9.2.	Liability
	9.3.	Procedures
	9.4.	Claim for Benefits
	9.5.	Claims Procedure
		9.5.1. Original Claim
		9.5.2. Claims Review Procedure
		9.5.3. General Rules
	9.6.	Legal Fees
	9.7.	Errors in Computations

SECTION 10.	MISCELLANEOUS		13

	10.1.	Not an Employment Contract
	10.2.	Nontransferability
	10.3.	Tax Withholding
	10.4.	Expenses
	10.5.	Governing Law
	10.6.	Amendment and Termination
	10.7.	Rules of Interpretation

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DONALDSON COMPANY, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
(2008 Restatement)

SECTION 1

HISTORY AND PURPOSE

1.1. History. Donaldson Company, Inc. sponsors an unfunded, nonqualified deferred compensation for a select group of highly compensated employees, known as the “DONALDSON COMPANY, INC. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN”. The Plan, in its most current amended and restated form, is maintained under a document effective January 1, 2005 (the “Prior Plan Statement”). Effective as of January 1, 2008, Donaldson Company, Inc. hereby amends and restates the Plan in the manner hereinafter set forth to (i) freeze participation and (ii) adopt miscellaneous changes necessary in order to comply with final Treasury regulations issued under section 409A of the Code.

1.2. Purpose. The purpose of this Plan is to enable the Company to provide supplemental retirement benefits to a select group of management or highly compensated employees such that the sum of the supplemental benefits, certain other retirement benefits provided by Company, and benefits provided by prior employers, will not be less than a predetermined portion of the employee’s final average compensation.

SECTION 2

DEFINITIONS

The following words and phrases shall have the following meanings, unless a different meaning is plainly required by the context. Any masculine terminology used in the Plan shall also include the feminine gender and the definition of any terms in the singular shall also include the plural.

2.1. Account — the compensation account established under this Plan for a Participant pursuant to Section 6.1.

2.2. Actuarial Equivalent — a benefit of equivalent value computed on the basis of actuarial tables, factors and assumptions set forth in Appendix C to the Donaldson Company, Inc. Salaried Employees’ Pension Plan.

2.3. Affiliate — a business entity which is under “common control” with the Company or which is a member of an “affiliated service group” that includes the Company, as those terms are defined in section 414(b), (c) and (m) of the Code. A business entity shall also be treated as an Affiliate if, and to the extent that, such treatment is required by regulations under section 414(o) of the Code. In addition to said required treatment, the Committee may, in its discretion, designate as an Affiliate any business entity which is not such a “common control” or “affiliated service group”

business entity but which is otherwise affiliated with the Company, subject to such limitations as the Committee may impose.

2.4. Basic Retirement Plan Benefits — the single lump-sum value of the benefits payable under all of the following plans, determined as of the date of the Eligible Employee’s Termination of Employment, death or Disability, whichever happens first (or if the value of a plan cannot be determined as of that date, as of the valuation date for such plan that immediately precedes or follows such Termination of Employment, death or Disability, whichever happens first, as determined by the Committee), and subject to the limitations, if any, set forth below:


	(a)	Donaldson Company, Inc. Retirement Savings and Employee Stock Ownership Plan (including profit sharing and PAYSOP), taking into account only vested benefits attributable employer contributions;

	(b)	Donaldson Company, Inc. Salaried Employees’ Pension Plan;

	(c)	Donaldson Company, Inc. Excess Pension Plan;

	(d)	Donaldson Company, Inc. Deferred Compensation and 401(k) Excess Plan, taking into account only benefits attributable to Company Credits;

	(e)	Donaldson Company, Inc. ESOP Restoration Plan;

	(f)	Any qualified or non-qualified retirement plan, program or arrangement provided by the Company or an Affiliate and not listed above, taking into account only vested benefits attributable to employer contributions; and

	(g)	Any qualified or non-qualified retirement plan, program or arrangement provided by a prior employer, taking into account only vested benefits attributable to employer contributions.

For purposes of paragraphs (a), (f) and (g) above, “employer contributions” does not include pre-tax contributions to a tax-qualified retirement plan elected by an Eligible Employee in lieu of current compensation under a 401(k) arrangement, or any other amount contributed due to an Eligible Employee’s election to defer compensation. If prior to the earliest of the Eligible Employee’s Termination of Employment, death or Disability the Eligible Employee received a distribution of any benefits that, but for the distribution, would have been included in the Eligible Employee’s Basic Retirement Plan Benefits, such Basic Retirement Plan Benefits shall be increased by the amount of such distribution, plus interest thereon at a rate to be determined by the Committee. In the event any of the foregoing plans do not provide for payment in a single lump-sum, the benefit taken into account for purposes of this Section 2.4 shall be the single lump-sum Actuarial Equivalent of the benefit payable under such plan.

2.5. Beneficiary — any person or entity validly designated by the Participant in accordance with Section 5 to receive the benefits, if any, payable under the Plan with respect to the Participant after the Participant’s death. Designated persons or entities shall not be considered Beneficiaries until the death of the Participant.

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2.6. Board — the Board of Directors of the Company.

2.7. Change of Control — the occurrence of a “change in the ownership,” “change in effective control,” and/or a “change in the ownership of a substantial portion of the assets,” as defined under Treasury Regulation § 1.409A 3(i)(5), of the Affected Corporation. For this purpose, the “Affected Corporation” is the Participant’s employer, or any corporation (including the Company) in a chain of corporations in which each corporation is a majority shareholder of another corporation in the chain, ending with the Participant’s employer. A “majority shareholder” is a shareholder owning more than 50 percent of the total fair market value and total voting power of such corporation.

2.8. Code — the Internal Revenue Code of 1986, including applicable regulations for the specified section of the Code. Any reference in this Plan Statement to a section of the Code, including the applicable regulation, shall be considered also to mean and refer to any subsequent amendment or replacement of that section or regulation.

2.9. Committee — the Human Resources Committee of the Board of Directors of the Company.

2.10. Company — Donaldson Company, Inc. and, except in determining under Section 2.7 hereof whether or not any Change of Control has occurred, shall include any successor by merger, purchase or otherwise.

2.11. Compensation — the amount of remuneration paid to an Eligible Employee that was treated as “Compensation” within the meaning of the Donaldson Company, Inc. Excess Pension Plan (modified as described in subsections (a) and (b) of Section 4.2 of such plan), subject, however to the following:


	(a)	annual bonuses shall be included in the year they are earned, not the year they are paid;

	(b)	amounts paid under a non-qualified plan of deferred compensation shall not be included (e.g., payments of deferred salary or bonus).

2.12. Deferral Credit — any amount credited to an Eligible Employee under Section 4.1, 4.2 or 4.3 of the Deferred Compensation Plan.

2.13. Deferred Compensation Plan — the nonqualified deferred compensation plan known as the “Donaldson Company, Inc. Deferred Compensation and 401(k) Excess Plan,” as amended from time to time.

2.14. Disability, Disabled — a physical or mental impairment which constitutes total and permanent disability and during which the Eligible Employee is not receiving any payments of an Early Retirement Pension or a Vested Benefit under the Pension Plan, and the Eligible Employee either:


	(a)	is, by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a

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		continuous period of not less than twelve (12) months, receiving income replacement benefits for a period of not less than three (3) months under an accident and health plan covering employees of the Company; or

	(b)	is eligible to receive and is actually receiving (after the applicable waiting period) benefits under the federal Social Security Act as in effect at the time of the Disability.

Notwithstanding the foregoing, the terms Disability and Disabled shall at all times be interpreted in a manner so as not to violate section 409A of the Internal Revenue Code.

2.15. Early Retirement Factor — a one-sixth of one percent reduction for each month, or portion thereof, that the Participant’s Termination of Employment precedes the Participant’s attainment of age 62.

2.16. Effective Date — the amended and restated Plan document as set forth herein is effective as of January 1, 2008.

2.17. Eligible Employee — any senior officer of the Company who meets all of the requirements of Section 3.1.

2.18. ERISA — the Employee Retirement Income Security Act of 1974, including applicable regulations for the specified section of ERISA. Any reference in this Plan to a section of ERISA, including the applicable regulation, shall be considered also to mean and refer to any subsequent amendment or replacement of that section or regulation.

2.19. Final Average Compensation — the Participant’s average annual Compensation for the highest three consecutive Plan Years out of the most recent ten Plan Years, ending with the Plan Year in which the earliest of the Participant’s Termination of Employment, death or Disability, occurs.

2.20. Participant — an Eligible Employee or a former Eligible Employee who has not received all of the benefits to which he or she is entitled under this Plan.

2.21. Pension Plan — the tax-qualified pension plan known as the “Donaldson Company, Inc. Salaried Employees’ Pension Plan (1997 Restatement),” as amended from time to time.

2.22. Pension Service — the Participant’s “Benefit Service” as defined in the Pension Plan.

2.23. Plan — the Donaldson Company, Inc. Supplemental Executive Retirement Plan as set forth herein, and as the same may be amended from time to time.

2.24. Plan Year — the twelve (12) consecutive month period ending on any July 31.

2.25. Termination of Employment — the separation from service (within the meaning of Treas. Regs. § 1.409A-1(h)) with the Company Controlled Group, voluntarily or involuntarily, for any reason other than Disability or death. Whether a separation from service has occurred is determined under section 409A of the Code and Treasury Regulation 1.409A-1(h) ( i. e ., whether the

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facts and circumstances indicate that the employer and the employee reasonably anticipated that no further services would be performed after a certain date or that the level of bona fide services the employee would perform after such date (whether as an employee or independent contractor) would permanently decrease to no more than twenty percent (20%) of the average level of bona fide services performed (whether as an employee or an independent contractor) over the immediately preceding thirty-six (36) month period (or the full period of services to the employer if the employee has been providing services to the employer less than thirty-six (36) months)). Separation from service shall not be deemed to occur while the employee is on military leave, sick leave or other bona fide leave of absence if the period does not exceed six (6) months or, if longer, so long as the employee retains a right to reemployment with any member of the Company Controlled Group under an applicable statute or by contract. For this purpose, a leave is bona fide only if, and so long as, there is a reasonable expectation that the employee will return to perform services for any member of the Company Controlled Group. Notwithstanding the foregoing, a twenty-nine (29) month period of absence will be substituted for such six (6) month period if the leave is due to any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of no less than six (6) months and that causes the employee to be unable to perform the duties of his or her position of employment. For this purpose, the “Company Controlled Group” is the Participant’s employer and all persons with whom the employer would be considered a single employer under Code sections 414(b) and 414(c); provided that, in applying Code sections 1563(a)(1), (2) and (3) for purposes of determining a controlled group of corporations under Code section 414(b), the language “at least 50 percent” shall be used instead of “at least 80 percent” each place it appears therein, and in applying Treas. Regs. § 1.414(c)-2 for purposes of determining trades or businesses that are under common control for purposes of Code section 414(c), “at least 50 percent” shall be used instead of “at least 80 percent” each place it appears therein.

2.26. Vested — nonforfeitable.

SECTION 3

ELIGIBILITY AND PARTICIPATION

3.1. Eligibility . Effective January 1, 2008, no new Participants shall be permitted to participate in the Plan. Any senior officer of the Company who was affirmatively selected as an Eligible Employee by the Committee prior to January 1, 2008 may continue to participate in the Plan. Committee selections shall continue in effect until rescinded by the Committee. The Committee may rescind its selection and thereby discontinue a senior officer’s active participation in the Plan at any time. If any amendment or restatement of the Plan increases the cost of the benefits payable to a senior officer, the senior officer’s selection will be deemed rescinded immediately prior to the effective date of the amendment or restatement, unless reauthorized by the Committee or its delegate. If a senior officer’s selection is rescinded (or deemed rescinded), the benefit, if any, provided by this Plan shall be calculated pursuant to the terms of the Plan in effect when the rescission (or deemed rescission) took effect, using only the Participant’s compensation through that time, but calculating any offset for other benefits using the amount of such other benefits at the time of the person’s actual Termination of Employment. In connection with an Eligible Employee’s commencement of participation in the Plan, the Eligible Employee shall have

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elected the time and form of payment of such Participant’s Account as permitted under Section 5, along with such other elections as the Committee deems necessary or desirable under the Plan. For these elections to be valid, the election form must have been completed and timely delivered to the Committee and accepted by the Committee within thirty (30) days after the Participant first became eligible to participate in the Plan.

3.2. Commencement of Participation . Effective January 1, 2008, no new Participants shall be permitted to participate in the Plan. An Eligible Employees who became a Participant in the Plan prior to January 1, 2008 commenced participation when the Eligible Employee was first affirmatively selected as required by Section 3.1.

3.3. Termination of Participation . A person shall cease to be a Participant as soon as all amounts payable to the Participant have been paid in full.

3.4. Overriding Exclusion . Notwithstanding anything apparently to the contrary in this Plan or in any written communication, summary, resolution or document or oral communication, no individual shall be a Participant in this Plan, develop benefits under this Plan or be entitled to receive benefits under this Plan (either for the employee or his or her survivors) unless such individual is a member of a select group of management or highly compensated employees (as that expression is used in ERISA). If a court of competent jurisdiction, any representative of the U.S. Department of Labor or any other governmental, regulatory or similar body makes any direct or indirect, formal or informal, determination that an individual is not a member of a select group of management or highly compensated employees (as that expression is used in ERISA), such individual shall not be (and shall not have ever been) a Participant in this Plan at any time. If any person not so defined has been erroneously treated as a Participant in this Plan, upon discovery of such error such person’s erroneous participation shall immediately terminate ab initio and upon demand such person shall be obligated to reimburse the Company for all amounts erroneously paid to him or her.

SECTION 4

CREDITED AMOUNTS

4.1. Normal Retirement Benefit . A Participant whose Termination of Employment occurs on or after the date the Participant attains age 62 and completes at least ten (10) years of Pension Service shall be credited with a Normal Retirement Benefit equal to (a) minus (b):


(a)	the product of (i), (ii) and (iii):

	(i)	30%;

	(ii)	Years of Pension Service, limited to twenty (20); and

	(iii)	Final Average Compensation

(b)	the lump-sum value of the Participant’s Basic Retirement Plan Benefits.

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4.2. Early Retirement Benefit . A Participant whose Termination of Employment occurs after the Participant has completed at least fifteen (15) years of Pension Service and attained age 55, but before the date the Participant attains age 62 shall, in lieu of any other benefit under this Plan, be credited with an Early Retirement Benefit equal to the amount determined in the same manner as provided in Section 4.1 above, except that the product in Section 4.1(a) will include a fourth factor:


		(iv)	Early Retirement Factor

(Example: If a Participant retires early at age 60, the product in Section 4.1(a) would be further multiplied by .96.)

4.3. Disability or Death Benefit . A Participant who becomes Disabled prior to his or her Termination of Employment and after completing at least fifteen (15) years of Pension Service and before the date he or she attains age 62, or who dies prior to both the Participant’s Termination of Employment and Disability, shall, in lieu of any other benefit under this Plan, be credited with a Disability or Death Benefit equal to the amount determined in the same manner as provided in Section 4.2, taking into account only Pension Service through the date of Disability or death, and determining the Early Retirement Factor based on the amount, if any, by which the Participant’s Disability or death precedes the Participant’s attainment of age 62.

4.4. Vesting . The applicable amount determined in accordance with this Section 4 shall be credited to the Participant’s Account at the time of the Participant’s Termination of Employment, death or Disability, as applicable. Subject to the forfeiture provisions of Section 8, any Account established for a Participant under this Plan shall be 100% Vested at all times.

SECTION 5

TIME AND MANNER OF PAYMENTS

5.1. Time of Payment . Payment of a Participant’s Account under the Plan will commence as soon as administratively feasible after (but not later than December 31 of the Plan Year in which occurs, or if later, sixty (60) days following) the earliest of the following events:


	(a)	the Participant’s death;

	(b)	the Participant’s Disability;

	(c)	the date that is twenty four (24) months following the Participant’s Termination of Employment; or

	(d)	a date of distribution selected by the Participant (at the time the Participant first becomes eligible to participate, on a form prescribed by the Committee), which may be a date that is a specified number of months after the Participant’s Termination of Employment (not to exceed twenty four (24) months); provided, however, that where payment under this paragraph (d)(ii) is made to any “specified employee” (as defined under section 409A of the

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		Code) on account of Termination of Employment, such payment shall commence no earlier than six (6) months following a Termination of Employment (or upon the death of the employee, if earlier) if required to comply with section 409A of the Code.

5.2. Manner of Payment . A Participant’s Account shall be paid in cash to the Participant in either a single lump-sum payment or in annual installments over a period of not more than twenty (20) years. The Participant must elect a manner of payment at the time the Participant elects his or her date of distribution pursuant to Section 5.1(d). Notwithstanding the foregoing, the following special rules shall apply:

	(a)	in the case of the Participant’s death or Disability, payment shall be in a single lump sum;

	(b)	if the Participant’s Account upon commencement of distribution under Section 5.1 is less then Ten Thousand Dollars ($10,000), payment shall be in a single lump sum; and

	(c)	in the event no election was made by the Participant, payment shall be in a single lump sum.

5.3. Changes in Time and Manner of Payment . Notwithstanding the foregoing, a Participant who is actively employed by the Company may make a new election concerning selection of the time and form of payment authorized pursuant to this Section 5.3, subject to the following limitations:

	(a)	Such election must be submitted to and accepted by the Committee at least twelve (12) months prior to the date a distribution to the Participant would otherwise have been made or commenced;

	(b)	The election shall have no effect until at least twelve (12) months after the date on which the election is made;

	(c)	The election may change the time when payment shall commence but only if the new date selected by the Participant for commencement shall be a date that is at least five (5) years from the prior date of distribution selected by the Participant;

	(d)	The election may reduce or extend the number of installment payments (subject to the limitations in Section 5.2) so long as the initial installment is delayed at least five (5) years from the date distribution would have otherwise commenced; and

	(e)	If the participant changes the time and/or form of payment under this Section 5.3, payment shall commence as soon as administratively feasible after (but not later than December 31 of the Plan Year in which occurs, or if later, sixty (60) days following) the earliest of the following events:

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	(i)	the Participant’s death;

	(ii)	the Participant’s Disability; or

	(iii)	the new date selected by the Participant for commencement.

5.4. Change of Control Distributions . Notwithstanding any other provision of this Plan, in the event of a Change of Control, each Participant who incurs a Termination of Employment with the Company for any reason during the two (2) year period following such Change of Control shall receive within ten (10) business days after the date of termination a lump sum payment of the entire balance contained in the Participant’s Account; provided, however, that with respect to any Participant who separated from service before the date of a Change of Control, the balance of the Participant’s Account shall be paid at the time and in the manner as elected by the Participant under this Section 5 hereof (and shall not be commuted to a lump sum or otherwise accelerated by the Change of Control). Where payment under this Section 5.4 is made to any “specified employee” (as defined under section 409A of the Code) on account of Termination of Employment, such payment shall commence no earlier than six (6) months following a Termination of Employment (or upon the death of the employee, if earlier) if required to comply with section 409A of the Code.

5.5. Death Benefit . In the event of a Participant’s death, the Company shall pay the amount of the Participant’s Account as of the date of death (as adjusted from time to time pursuant to Section 6.2) in a lump-sum to the Participant’s designated Beneficiary as soon as administratively feasible after the Participant’s death (but not later than December 31 of the Plan Year in which the Participant’s death occurs, or if later, sixty (60) days following such death). Payment to a Participant’s designated Beneficiary shall be in cash.

5.6. Beneficiary Designation . A Participant shall submit to the Company upon initial designation as an Eligible Employee in the Plan, and at such other times as the Participant desires, on a form provided by the Committee, a written designation of the beneficiary or beneficiaries to whom payment of the Participant’s Account under the Plan shall be made in the event of the Participant’s death. Beneficiary designations shall become effective only when received by the Company. Beneficiary designations first received by the Company after the Participant’s death, and any designations in effect at the time a valid subsequent designation is received by the Company, shall be invalid and have no effect. If a Participant has not designated a Beneficiary, or if no designated Beneficiary is living on the date of distribution, the Participant’s Account shall be distributed to those persons entitled to receive distribution of the Participant’s benefit under the Donaldson Company, Inc. Salaried Employees’ Pension Plan (1997 Restatement), as amended from time to time.

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SECTION 6

ACCOUNT

6.1. Participant Accounts . The Committee shall cause a bookkeeping account to be kept in the name of each Participant which shall reflect the value of the Normal Retirement Benefit, Early Retirement Benefit, Disability or death benefit credited to the Participant at the time of the Participant’s Termination of Employment, death or Disability, whichever applies.

6.2. Investment of Accounts . When the manner of payment is annual installments, the Participant’s Account will be adjusted as of the last day of each Plan Year to the same extent that an equal amount would be adjusted if it had been credited to the subfund under the Deferred Compensation Plan that provides a fixed rate of return.

6.3. Charges Against Accounts . There shall be charged against each Participant’s bookkeeping account any payments made to the Participant or the Participant’s Beneficiary in accordance with Section 5.

SECTION 7

FUNDING

7.1. Funding . The Company and its Affiliates shall be responsible for paying all benefits due hereunder. For the purpose of facilitating the payment of benefits due hereunder, the Company may (but shall not be required to) establish and maintain a grantor trust pursuant to an Agreement between the Company and a trustee selected by the Company; provided, however, that any such grantor trust must be structured so that it does not result in any federal income tax consequences to any Participant until distributions under Section 5 are actually received. The Company may contribute to a grantor trust thereby created such amounts as it may from time to time determine.

7.2. Corporate Obligation . Neither the officers nor any member of the Board of Directors of the Company or any of its Affiliates in any way secures or guarantees the payment of any benefit or amount which may become due and payable hereunder to or with respect to any Participant. Each Participant and other person entitled at anytime to payments hereunder shall look solely to the assets of the Company and its Affiliates for such payments as an unsecured, general creditor. Nothing herein shall be construed to give a Participant, Beneficiary or any other person or persons any right, title, interest or claim in or to any specific asset, fund, reserve, account or property of any kind whatsoever owned by the Company or in which it may have any right, title or interest now or in the future. After benefits shall have been paid to or with respect to a Participant and such payment purports to cover in full the benefit hereunder, such former Participant or other person or persons, as the case may be, shall have no further right or interest in the other assets of the Company and its Affiliates in connection with this Plan.

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SECTION 8

FORFEITURE OF BENEFITS

All unpaid benefits under this Plan shall be permanently forfeited if the Committee determines that the Participant, either before or after the Participant’s Termination of Employment or Disability, or before the Participant’s death:


	(a)	engaged in criminal or fraudulent conduct resulting in a hardship to the Company or an Affiliate; or

	(b)	breached the Participant’s written employment agreement with the Company or an Affiliate.

SECTION 9

ADMINISTRATION

9.1. Authority . The Plan shall be administered by the Committee, which shall have full discretionary power and authority to administer and interpret the Plan and to determine all factual and legal questions under the Plan, including but not limited to the entitlement of Participants and Beneficiaries, and the amount of their respective interests. Except where necessary to comply with applicable corporate or securities law, or applicable rules of the New York Stock Exchange (e.g., with respect to executive officers), the Committee may delegate or redelegate to one or more persons, jointly or severally, and whether or not such persons are members of the committee or employees of the Company, such functions assigned to the Committee hereunder as it may from time to time deem advisable. Until withdrawn or redelegated by the Committee, all of the Committee’s delegable power and authority under this Section 9.1 shall be deemed delegated to the Company’s Vice President in charge of executive compensation, excluding only the power and authority to act in such a way as would materially increase the cost of the Plan.

9.2. Liability . No member of the Committee and no director or member of the management of the Company or its Affiliates shall be liable to any persons for any actions taken under the Plan, or for any failure to effect any of the objective or purposes of the Plan, by reason of insolvency or otherwise.

9.3. Procedures . The Committee may from time to time adopt such rules and procedures as it deems appropriate to assist in the administration of the Plan.

9.4. Claim for Benefits . No employee or other person shall have any claim or right to payment of any amount hereunder until payment has been authorized and directed by the Committee.

9.5. Claims Procedure . Until modified by the Committee, the claims procedure set forth in this Section 9.5 shall be the claims procedure for the resolution of disputes and disposition of claims arising under the Plan.

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9.5.1. Original Claim . Any employee, former employee, or Beneficiary of such employee or former employee may, if the employee, former employee or Beneficiary so desires, file with the Committee a written claim for benefits under the Plan. Within ninety (90) days after the filing of such a claim, the Committee shall notify the claimant in writing whether the claim is upheld or denied in whole or in part or shall furnish the claimant a written notice describing specific special circumstances requiring a specified amount of additional time (but not more than one hundred eighty (180) days from the date the claim was filed) to reach a decision on the claim. If the claim is denied in whole or in part, the Committee shall state in writing:


	(a)	the specific reasons for the denial;

	(b)	the specific references to the pertinent provisions of this Plan on which the denial is based;

	(c)	a description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary; and

	(d)	an explanation of the claims review procedure set forth in this Section.

9.5.2. Claims Review Procedure . Within sixty (60) days after receipt of notice that the claim has been denied in whole or in part, the claimant may file with the Committee a written request for a review and may, in conjunction therewith, submit written issues and comments. Within sixty (60) days after the filing of such a request for review, the Committee shall notify the claimant in writing whether, upon review, the claim was upheld or denied in whole or in part or shall furnish the claimant a written notice describing specific special circumstances requiring a specified amount of additional time (but not more than one hundred twenty days (120) from the date the request for review was filed) to reach a decision on the request for review.

9.5.3. General Rules .


	(a)	No inquiry or question shall be deemed to be a claim or a request for a review of a denied claim unless made in accordance with the claims procedure. The Committee may require that any claim for benefits and any request for a review of a denied claim be filed on forms to be furnished by the Committee upon request.

	(b)	All decisions on original claims shall be made by the Committee and requests for a review of denied claims shall be made by the Committee.

	(c)	The Committee may, in its discretion, hold one or more hearings on a claim or a request for a review of a denied claim.

	(d)	Claimants may be represented by a lawyer or other representative at their own expense, but the Committee reserves the right to require the claimant to furnish written authorization. A claimant’s representative shall be entitled to copies of all notices given to the claimant.

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	(e)	The decision of the Committee on an original claim or on a request for a review of a denied claim shall be served on the claimant in writing. If a decision or notice is not received by a claimant within the time specified, the claim or request for a review of a denied claim shall be deemed to have been denied.

	(f)	Prior to filing a claim or a request for a review of a denied claim, the claimant or the claimant’s representative shall have a reasonable opportunity to review a copy of this Plan Statement and all other pertinent documents in the possession of the Company and its Affiliates.

9.6. Legal Fees . If the Company does not pay the benefits required under the terms of the Plan for reasons other than the insolvency of the Company, the Company agrees to reimburse any Participant for all legal fees incurred in enforcing his or her claim to benefits under the Plan. Notwithstanding the foregoing, to the extent required to comply with the provisions of section 409A of the Code, no reimbursement of expenses incurred by the Participant during any taxable year shall be made after the last day of the following taxable year.

9.7. Errors in Computations . The Committee shall not be liable or responsible for any error in the computation of any benefit payable to or with respect to any Participant resulting from any misstatement of fact made by the Participant or by or on behalf of any Beneficiary to whom such benefit shall be payable, directly or indirectly, to the Committee, and used by the Committee in determining the benefit. The Committee shall not be obligated or required to increase the benefit payable to or with respect to such Participant which, on discovery of the misstatement, is found to be understated as a result of such misstatement of the Participant. However, the benefit of any Participant which is overstated by reason of any such misstatement or any other reason shall be reduced to the amount appropriate in view of the truth (and to recover any prior overpayment).

SECTION 10

MISCELLANEOUS

10.1. Not an Employment Contract . This Plan is not and shall not be deemed to constitute a contract of employment between the Company and any employee or other person, nor shall anything herein contained be deemed to give any employee or other person any right to be retained in the Company’s employ or in any way limit or restrict the Company’s right or power to discharge any employee or other person at any time and to treat him without regard to the effect which such treatment might have upon the employee as a Participant in the Plan.

10.2. Nontransferability . A Participant’s rights and interest under the Plan, including amounts payable, may not be assigned, alienated, pledged or transferred except, in the event of a Participant’s death to his Beneficiary. No benefit payable under this Plan shall be subject to attachment, garnishment, execution following judgment or other legal process before actual payment to the Participant or Beneficiary.

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10.3. Tax Withholding . The Company shall withhold the amount of any federal, state or local income tax or other tax required to be withheld by the Company under applicable law with respect to any amount payable under the Plan. The Participant shall not be liable for any tax withholding.

10.4. Expenses . All expenses of administering the Plan shall be borne by the Company.

10.5. Governing Law . Except to the extent that federal law is controlling, the Plan shall be construed and enforced in accordance with and governed by the laws of the State of Minnesota.

10.6. Amendment and Termination . The Company reserves the power to unilaterally amend this Plan at any time, either prospectively or retroactively or both by action of the Committee. The Committee may likewise terminate or curtail the benefits of this Plan both with regard to persons expecting to receive benefits in the future and persons already receiving benefits at the time of such action; provided, however, that the Committee may not amend or terminate the Plan with respect to benefits that have accrued and are vested pursuant to Section 4 in any manner that reduces the amount of such benefits or alters the effect of any Participant election previously filed with the Company. No modification of the terms of this Plan shall be effective unless it is in writing and signed on behalf of the Company by a person authorized to execute such writing. No oral representation concerning the interpretation or effect of this Plan shall be effective to amend the Plan. To the extent permissible under section 409A of the Code and related Treasury regulations and guidance, including but not limited to such guidance and regulations as may be issued after the effective date of this Plan, if there is a termination of the Plan, the Company shall have the right, in its sole discretion, and notwithstanding any elections made by the Participant, to pay all benefits in a lump sum following such termination as soon as practicable subject to the limitations prescribed under section 409A of the Code and the regulations thereunder.

10.7. Rules of Interpretation . The titles given to the various sections of this Plan are inserted for convenience of reference only and are not part of this Plan, and they shall not be considered in determining the purpose, meaning or intent of any provision hereof. This Plan shall be construed and this Plan shall be administered to create an unfunded plan providing deferred compensation to a select group of management or highly compensated employees so that it is exempt from the requirements of Parts 2, 3 and 4 of Title I of ERISA and qualifies for a form of simplified, alternative compliance with the reporting and disclosure requirements of Part 1 of Title I of ERISA.

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Exhibit 10-Q

DONALDSON COMPANY, INC.

COMPENSATION PLAN

FOR

NON-EMPLOYEE DIRECTORS

Adopted July 28, 2006

1.	Purpose

The purpose of this Compensation Plan (the “Plan”) is to enable Directors of Donaldson, Company, Inc. (the “Company”) who are not employees of the Company to elect to receive their fees as members of the Board of Directors in a form most advantageous to them. The Plan permits such Directors to elect to receive this compensation in one or more of the following methods:

(a)

In cash on a current basis;

(b)

In cash on a deferred basis (a “Deferred Cash Election”); or

(c)

In Company stock on a deferred basis (a “Deferred Stock Election”).

Notwithstanding the foregoing, thirty percent (30%) of the cash portion of each Director’s annual retainer for Board service shall be automatically deferred in Phantom Shares in accordance with Section 7 below.

2.	Effective Date

The Plan, in its most current amended and restated form, is maintained under a the Company’s 2001 Master Stock Incentive Plan document effective November 16, 2001 (the “Prior Plan Statement”). Effective as of January 1, 2005, the Company hereby amends and restates the Plan in the manner hereinafter set forth. Credits made to the Plan which relate entirely to services performed on or before December 31, 2004 shall continue to be governed under the terms of the Prior Plan Statement. Credits which relate all or in part to services performed on or after January 1, 2005 shall be made subject to the terms of this Plan statement, the terms of which are intended to comply with the deferred compensation provisions in the American Jobs Creation Act of 2004.

3.	Plan Year

The Plan shall operate on a calendar year basis.

4.	Eligibility

All members of the Board of Directors who are not employees of the Company (“Participants”) are eligible for the Plan.

5.	Compensation Covered by the Plan

Director compensation is payable as of the following dates: January 1 (annual retainers); June 30 (meeting attendance fees for meetings held from January 1 through June 30); and December 31 (meeting attendance fees for meetings held from July 1 through December 31). With respect to an individual who becomes a Director during a Plan Year, the Director shall be entitled to a prorated retainer for the Plan Year as of the date the individual becomes a Director.

The Director compensation (hereinafter “Eligible Fees”) covered by the Plan which is eligible to be deferred pursuant to an Annual Deferral Election is as follows:

(a)

For an Annual Deferred Cash Election: the cash portion of the annual retainer and all meeting attendance fees (including committee chair retainers);

(b)

For an Annual Deferred Stock Election: the cash portion of the annual retainer and all meeting attendance fees (including committee chair retainers).

No other compensation or fees otherwise payable to a Director shall be eligible for an election under this Plan.

6.	Election to Defer

A Participant may elect to defer payment of Eligible Fees under Section 7 or 8 of this Plan by filing, no later than the last day of a Plan Year (or by such earlier date as the Administrator shall determine), an irrevocable election with the Administrator on a form provided for that purpose. The Annual Deferral Election shall be effective with respect to the Eligible Fees payable during the following Plan Year. The Deferral Election Form shall specify an amount to be deferred expressed as a percentage of the Participant’s annual retainer and/or meeting fees, as provided in the form attached hereto as Exhibit A .

That portion of Eligible Fees for which a valid form has not been timely received by the Company (other than the portion of the annual retainer subject to an automatic exchange election, as provided in Section 7) will be paid in cash in accordance with the Company’s customary practice of paying such Eligible Fees. Once a Plan Year has commenced, all Deferral Elections under this Plan for such Plan Year shall be irrevocable.

7.	Automatic Receipt of Phantom Shares

In addition to a Director’s voluntary exchange election provided under Section 8(b), if any, thirty percent (30%) of the annual retainer payable to a Director for service on the Board shall be subject to an automatic exchange election, in accordance with the provisions of Section 8(b).

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8.	Voluntary Deferral Election

(a)

Deferred Cash Election .

For Directors who make an Annual Deferred Cash Election, the Company will establish a book-keeping account for cash deferred for that Plan Year (an “Annual Deferred Cash Account”) and will credit to the Annual Deferred Cash Account the amount of the Eligible Fees earned and deferred by him/her as of the date such fees would normally be payable by the Company (the “Credit Date”). Amounts credited to a Participant’s Annual Deferred Cash Account will be adjusted for gains and/or losses to the same extent that equal amounts would have been adjusted if they had been invested in one or more notional investments designated by the Company. The use of notional investments in this Section 8 is solely as a device for computing the amount of benefits to be paid under the Plan, and the Company shall not be required to purchase such investments.

(b)

Deferred Stock Election

Eligible Participants may elect to exchange part or all of their Eligible Fees for a Plan Year for the Company’s commitment to issue to such Participants a fixed number of shares of common stock of the Company at a future date. The Company’s commitment to issue shares shall be referred to as “Phantom Shares” held in an “Annual Deferred Stock Account”.

As of the Credit Date, a Participant shall receive a credit to his or her Annual Deferred Stock Account. The amount of the credit shall be the number of Phantom Shares (rounded to the nearest one-hundredth of a Share) determined by dividing (i) an amount equal to Eligible Fees payable to the Participant on the Credit Date and specified for deferral, by (ii) the Fair Market Value of one share of common stock of the Company on such date.

For purposes of this paragraph (b), the following rules shall apply:

(i)

Fair Market Value

For purposes of converting dollar amounts into shares of common stock of the Company, the Fair Market Value of each share of common stock shall be equal to the closing price of one share of the Company’s common stock on the New York Stock Exchange-Composite Transactions on the last business day as of which Phantom Shares are credited to the Participant’s Deferred Stock Account.

(ii)

No Actual Shares Prior to Distribution

No actual shares of common stock shall be issued until the distribution date described in Section 9 hereof. The Phantom Shares shall not be considered issued and outstanding shares for purposes of shareholder voting rights.

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(iii)

Dividend Credit

Each time a dividend is paid on common stock of the Company, a Participant shall receive a credit to his or her Deferred Stock Account equal to that number of shares of common stock (rounded to the nearest one-hundredth of a share) having a Fair Market Value on the dividend payment date equal to the amount of the dividend payable on the number of Phantom Shares credited to the Participant’s Deferred Stock Account on the dividend record date.

(iv)

Fractional Shares

The Company shall not issue fractional shares; provided, however, that fractional shares will be credited to the Annual Deferred Stock Accounts (rounded to the nearest one-hundredth share). Whenever, under the terms of this Plan, a fractional share would be required to be issued, an amount in lieu thereof shall be paid in cash for such fractional share based upon the same Fair Market Value as was utilized to determine the number of shares of common stock of the Company to be issued on the relevant issue date.

(v)

Restrictions on Phantom Shares

All Phantom Shares issued under and subject to the terms of this Plan will be issued under the Company’s 2001 Master Stock Incentive Plan and/or its successor plans and shall be deemed to be “other stock-based awards” for purposes of such plan.

9.	Distributions of Annual Deferred Accounts

(a)

Timing of Distributions

At the time a Participant’s Annual Deferral Election is made for a Plan Year, each Participant shall specify the time and manner in which his/her Annual Deferred Cash Account and/or Annual Deferred Stock Account shall be distributed. If a Participant does not specify an election for the timing and manner of a distribution, the balance of a Participant’s Annual Deferred Accounts shall be distributed in a lump sum in accordance with option (i) below. The Participant shall be entitled to receive, or to commence receiving, his/her Annual Deferred Accounts as soon as practicable after the following:

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(i)

the first anniversary of his/her separation from service (as that term is defined under Section 409A of the Code) with the Company; or

(ii)

a specified date or specified age set by him/her.

(b)

Manner of Distribution

Each Participant shall be entitled to receive the balance in his/her Annual Deferred Accounts in any one of the following manners:

(i)

in a lump sum; or

(ii)

in annual installments over a period of years stipulated by him/her not to exceed ten (10). The amount of the installments will be determined by annually dividing the value of the benefits in the Account by the number of installments remaining to be paid.

Each Participant’s Annual Deferred Stock Account shall be distributed in common stock of the Company, plus cash in lieu of any fractional share.

(c)

Amendments to Timing or Form of Distribution

A Participant may rescind the initial designation of the timing and manner of distribution made pursuant to this Section 9 by making a new designation on the form attached hereto as Exhibit B , subject to the following limitations:

(i)

Such election must be submitted to and accepted by the Company at least twelve (12) months prior to the date a distribution to the Participant would otherwise have been made or commenced;

(ii)

The election shall have no effect until at least twelve (12) months after the date on which the election is made;

(iii)

The election may change the time when payment shall commence but only if the new date selected by the Participant for commencement shall be a date that is at least five (5) years from the prior date of distribution selected by the Participant;

(iv)

The election may reduce or extend the number of installment payments (subject to the limitations in Section 9(b)) so long as the initial installment is delayed at least five (5) years from the date distribution would have otherwise commenced; and

(v)

If the participant changes the time and/or form of payment under this Section 9(c), payment shall commence as soon as administratively feasible after the earlier of the new date selected by the Participant for commencement or the date of the Participant’s death.

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(d)

Distribution in Event of Death

In the event of the Participant’s death, either before or after commencement of payments, distribution of the Participant’s entire Account balance will be made in a single lump sum to the Beneficiary named by the Participant or to that person who would have a right to receive such distribution by will or by the applicable laws of descent and distribution.

(e)

Distribution to Key Employees

Notwithstanding any other provision in this Plan, in the event that a Participant in this Plan is determined to be a “key employee” (as that term is defined under Section 409A of the Code), any distribution to the Participant on account of the Participant’s separation from service shall be delayed as necessary to comply with the requirements of Section 409A of the Code.

(f)

Distribution in Event of Change of Control

Notwithstanding any other provision of this Plan, in the event of a Change of Control (as defined below), each Participant who separates from service with the Company for any reason during the two (2) year period following such Change of Control shall receive within ten (10) business days after the date of separation the following:

(i)

If a Participant has a balance in an Annual Deferred Cash Account, a lump sum payment of the entire balance contained in his/her Annual Deferred Cash Account, together with applicable earnings adjustment, on the average daily balance in such Deferral Account for the period since the last earnings adjustment through the date of separation; and

(ii)

If a Participant has a balance in an Annual Deferred Stock Account, a distribution of the number of shares represented by the Phantom Shares issued pursuant to such election; and

Notwithstanding paragraph (f)(i) above, with respect to any Participant who separated from service before the date of a Change of Control, the balance of the Annual Deferred Accounts shall be paid at the time and in the manner as elected by the Participant under Section 9 hereof (and shall not be commuted to a lump sum or otherwise accelerated by the Change of Control). For purposes of this Section 9(f), a “Change of Control” shall have the meaning given to such phrase in the Company’s 401(k) Excess Plan, as may be amended from time to time.

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10.

General Provisions

(a)

Unsecured Obligation

The amounts credited to each Participant’s Account shall not be required to be held by the Company in a trust, escrow or similar fiduciary capacity, and neither the Participant, nor any legal representative, shall have any right against the Company with respect to any portion of the Account except as a general unsecured creditor of the Company.

(b)

Administration of the Plan

The Plan shall be administered by the Corporate Governance Committee of the Board of Directors.

(c)

Amendment or Termination

This Plan may be amended or terminated at any time by the Board of Directors or the Corporate Governance Committee of the Board of Directors.

(d)

Cautionary Statement

Participants should be aware that their participation in the Plan involves the following risks, among others:

(i)

Balances in the Accounts represent unfunded, unsecured general obligations of the Company. If the Company is unable to pay its debts as they become due, Participants may not be able to collect the balances in their Accounts.

(ii)

The value of the Phantom Shares credited pursuant to the Plan will depend on the value of the Company’s common stock. An investment in the Company’s common stock involves risk. Participants are encouraged to review the Company’s filings with the U.S. Securities and Exchange Commission for a description of some of the risk factors associated with an investment in the Company’s common stock.

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EXHIBIT A

DONALDSON COMPANY, INC. COMPENSATION PLAN FOR

NONEMPLOYEE DIRECTORS

ANNUAL RETAINER AND MEETING FEE ELECTION FORM

Name: __________________________________________________

Election:

Annual Retainer: I understand that 30% of my annual retainer for Board Service is automatically deferred into a deferred stock account. I elect to receive the remainder of my calendar year _______ annual retainer as follows:

% in Cash: _____________%

% in Deferred Stock: _____________% (Must add up to 100%)

% in Deferred Cash: _____________%

Meeting Fees (including committee chair retainers): I elect to receive my meeting fees as follows:

% in Cash: _____________%

% in Deferred Stock: _____________% (Must add up to 100%)

% in Deferred Cash: _____________%

Deferred Stock Payment Election:

I elect to receive my deferred stock account of shares of company stock beginning on (choose one):

o One year after I cease to be a director

o A Specified Date: _________________

o Specified Occurrence or Age: _____________________

I elect to receive my deferred stock account of shares of company stock in the following form of payment:

o Lump Sum

o Annual Installments for ______ years (maximum of 10 years)

Deferred Cash Payment Election:

I elect to receive my deferred cash account beginning on (choose one):

o One year after I cease to be a director

o A Specified Date: _________________

o Specified Occurrence or Age: _____________________

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I elect to receive my deferred cash account in the following form of payment:

o Lump Sum

o Annual Installments for ______ years (maximum of 10 years)

NOTE:

Changes to the foregoing payment elections, once made effective, may only be made under certain specific circumstances described in the Plan document.

I understand that this Agreement form must be returned to the Company before the beginning of the calendar year in which I wish the Agreement to take effect. I further understand that this Agreement will remain in effect for annual retainer and meeting fees earned in subsequent calendar years unless I modify or revoke my election before the beginning of the calendar year to which the annual retainer and meeting fees relate. Payments pursuant to this agreement shall be reduced for the amount of any applicable tax withholdings. I understand that this Agreement is covered by the terms of the Company’s Deferred Compensation Plan for Non-Employee Directors. I understand that the deferral account shall not be held by the Company in a fiduciary capacity and that I or my representative have no right with respect to such account, except as a general unsecured creditor of the Company.

By:	__________________________________________	Date: __________________
	Participant

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EXHIBIT B

DONALDSON COMPANY, INC. COMPENSATION PLAN FOR

NONEMPLOYEE DIRECTORS

DISTRIBUTION AMENDMENT FORM

Name: __________________________________________________

I, the undersigned, a Director of Donaldson Company, Inc. hereby amend the distribution plan for my Deferred Account for _____________ calendar year maintained pursuant to the Donaldson Company, Inc. Compensation Plan for Non-Employee Directors, as amended, as follows:

Deferred Stock Payment Election:

I elect to receive my deferred stock account of shares of company stock beginning on (choose one):

o One year after I cease to be a director

o A Specified Date: _________________

o Specified Occurrence or Age: _____________________

I elect to receive my deferred stock account of shares of company stock in the following form of payment:

o Lump Sum

o Annual Installments for ______ years (maximum of 10 years)

Deferred Cash Payment Election:

I elect to receive my deferred cash account beginning on (choose one):

o One year after I cease to be a director

o A Specified Date: _________________

o Specified Occurrence or Age: _____________________

I elect to receive my deferred cash account in the following form of payment:

o Lump Sum

o Annual Installments for ______ years (maximum of 10 years)

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I understand that this amendment is only effective for distributions to be made or commence at least 12 months after the date of this Distribution Amendment, and such new distribution must be made or commence at least 5 years after the date of the originally scheduled payment.

By:	_______________________________________	Date: __________________
	Participant

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Exhibit 10-R

DONALDSON COMPANY, INC.

LONG TERM COMPENSATION PLAN

(2006 Restatement)

As Amended and Restated Effective May 23, 2006

DONALDSON COMPANY, INC.

LONG TERM COMPENSATION PLAN

(2006 Restatement)

TABLE OF CONTENTS

Page

SECTION 1.	ESTABLISHMENT AND PURPOSE			1
	1.1.	Establishment
	1.2.	Purpose
	1.3.	Relation to Master Stock Plans
SECTION 2.	DEFINITIONS			2
	2.1.	Affiliate
	2.2.	Award
	2.3.	Award Agreement
	2.4.	Award Matrix
	2.5.	Beneficiary
	2.6.	Board
	2.7.	Change of Control
		2.7.1.	Affiliate
		2.7.2.	Beneficial Owner
		2.7.3.	Exchange Act
		2.7.4.	Person
	2.8.	Committee
	2.9.	Common Stock
	2.10.	Company
	2.11.	Disability, Disabled
	2.12.	Incentive Cycle
	2.13.	Participant
	2.14.	Performance Objective
	2.15.	Performance Unit
	2.16.	Plan
	2.17.	Retirement
	2.18.	Termination of Employment
	2.19.	Vested
SECTION 3.	ELIGIBILITY AND PARTICIPATION			6
	3.1.	Commencement of Participation
	3.2.	Termination of Participation

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SECTION 4.	AWARDS				7
	4.1.	Grant
	4.2.	Adjustment
	4.3.	Performance Objectives Alteration
	4.4.	Vesting
		4.4.1.	Pro Rata Vesting
		4.4.2.	Forfeiture
SECTION 5.	TIME AND MANNER OF PAYMENTS				9
	5.1.	Time of Payment
	5.2.	Manner of Payment
	5.3.	Change in Control Distributions
	5.4.	Death Benefit
	5.5.	Beneficiary Designation
SECTION 6.	FUNDING			11
	6.1.	Funding
	6.2.	Corporate Obligation
SECTION 7.	ADMINISTRATION			12
	7.1.	Authority
	7.2.	Liability
	7.3.	Procedures
	7.4.	Claim for Benefits
	7.5.	Claims Procedure
		7.5.1.	Original Claim
		7.5.2.	Claims Review Procedure
		7.5.3.	General Rules
	7.6.	Payments upon Imposition of Federal or State Taxes
	7.7.	Legal Fees
	7.8.	Errors in Computations
SECTION 8.	MISCELLANEOUS			15
	8.1.	Not an Employment Contract
	8.2.	Nontransferability
	8.3.	Tax Withholding
	8.4.	Expenses
	8.5.	Governing Law
	8.6.	Amendment and Termination
	8.7.	Rules of Interpretation

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DONALDSON COMPANY, INC.

LONG TERM COMPENSATION PLAN

(2006 Restatement)

SECTION 1

ESTABLISHMENT AND PURPOSE

1.1. Establishment . Effective as of May 23, 2006, Donaldson Company, Inc. hereby amends and restates its performance share plan for key employees, known as the “DONALDSON COMPANY, INC. LONG TERM COMPENSATION PLAN.” Except as may be hereinafter specifically provided, this amended and restated Plan document shall not affect any Awards made prior to May 23, 2006. All such awards shall be governed by the plan and performance award documents in effect at the time the Awards were granted.

1.2. Purpose . The purpose of this Plan is to incent key employees of the Company by rewarding them for the Company’s achievement of predetermined levels of long-term performance.

1.3. Relation to Master Plans . The Awards provided by this Plan are intended to qualify as “qualified performance-based compensation” within the meaning of section 162(m) of the Internal Revenue Code and are subject to the terms, conditions and restrictions required by the Donaldson Company, Inc. Qualified Performance-Based Compensation Plan. No awards shall be made under this Plan after the last date on which awards may be granted under the Qualified Performance Based Compensation Plan. In addition, the stock-based Awards provided by this Plan are also subject to the Donaldson Company, Inc. 2001 Master Stock Incentive Plan if they are credited after December 31, 2001, or the Donaldson Company, Inc. 1991 Master Stock Compensation Plan if they are credited on or before December 31, 2001. No awards shall be made under this Plan after the last date on which awards may be granted under the 2001 Master Stock Incentive Plan.

SECTION 2

DEFINITIONS

2.1. Affiliate — a business entity which is under “common control” with the Company or which is a member of an “affiliated service group” that includes the Company, as those terms are defined in section 414(b), (c) and (m) of the Code. A business entity shall also be treated as an Affiliate if, and to the extent that, such treatment is required by regulations under section 414(o) of the Code. In addition to said required treatment, the Committee may, in its discretion, designate as an Affiliate any business entity which is not such a “common control” or “affiliated service group” business entity but which is otherwise affiliated with the Company, subject to such limitations as the Committee may impose.

2.2. Award — the right to receive a specified number of shares of Common Stock, a multiple thereof, or a portion thereof, based upon the satisfaction of Performance Objectives established by the Committee, subject to the terms, conditions and restrictions in this Plan and the Master Stock Plan, as well as those established by the Committee and set forth in the applicable Award Agreement.

2.3. Award Agreement — the agreement entered into between the Company and the Participant setting forth certain terms and conditions applicable to an Award.

2.4. Award Matrix — determines the award percentage for the Incentive Cycle based on the actual net sales growth and average return on investment. The award percentage is multiplied by the number of Performance Units granted, as identified in the Award Agreement, to determine the number of Performance Units payable (subject to any additional adjustment required by the Award, such as for earnings per share consistency).

2.5. Beneficiary — any person or entity designated by the Participant in accordance with Section 5 to receive the amount, if any, payable in connection with the Participant’s Award after the Participant’s death. Designated persons or entities shall not be considered Beneficiaries until the death of the Participant.

2.6. Board — the Board of Directors of the Company.

2.7. Change of Control — a “Change in Control” shall be deemed to have occurred if the event set forth in any one of the following paragraphs shall have occurred:

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(a)

any Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing 25% or more of the combined voting power of the Company’s then outstanding securities, excluding any Person who becomes such a Beneficial Owner in connection with a transaction described in clause (i) of paragraph (c) below; or

(b)

the following individuals cease for any reason to constitute a majority of the number of directors then serving: individuals who, on the date hereof, constitute the Board and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Company) whose appointment or election by the Board or nomination for election by the Company’s stockholders was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors on the date hereof or whose appointment, election or nomination for election was previously so approved or recommended; or

(c)

there is consummated a merger or consolidation of the Company or any direct or indirect subsidiary of the Company with any other corporation, other than (i) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof), in combination with the ownership of any trustee or other fiduciary holding securities under an employee benefit plan of the Company or any subsidiary of the Company, at least 60% of the combined voting power of the securities of the Company or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation, or (ii) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing 25% or more of the combined voting power of the Company’s then outstanding securities; or

(d)

the stockholders of the Company approve a plan of complete liquidation or dissolution of the Company or there is consummated an agreement for the sale or disposition by the Company of all or substantially all of the Company’s assets, other than a sale or disposition by the Company of all or substantially all of the Company’s assets to an entity, at least 60% of the combined voting power of the voting securities of which are owned by stockholders of the Company in substantially the same proportions as their ownership of the Company immediately prior to such sale.

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Notwithstanding the foregoing, a “Change in Control” shall not be deemed to have occurred by virtue of the consummation of any transaction or series of integrated transactions immediately following which the record holders of the common stock of the Company immediately prior to such transaction or series of transactions continue to have substantially the same proportionate ownership in an entity which owns all or substantially all of the assets of the Company immediately following such transaction or series of transactions. Solely for purposes of this Section 2.7, the following words and phrases shall have the following meanings:

2.7.1. Affiliate — an “affiliate” within the meaning of Rule 12b-2 promulgated under Section 12 of the Exchange Act.

2.7.2. Beneficial Owner — a “beneficial owner” within the meaning of Rule 13d-3 under the Exchange Act.

2.7.3. Exchange Act — the Securities Exchange Act of 1934, as amended from time to time.

2.7.4. Person — a “person” within the meaning of Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof, except that such term shall not include (i) the Company or any of its subsidiaries, (ii) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its Affiliates, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities, or (iv) a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company.

2.8. Committee — the Human Resources Committee of the Board of Directors of the Company.

2.9. Common Stock — the common stock of the Company.

2.10. Company — Donaldson Company, Inc. and, except in determining under Section 2.7 hereof whether or not any Change in Control has occurred, shall include any successor by merger, purchase or otherwise.

2.11. Disability, Disabled — a physical or mental impairment which constitutes total and permanent disability and during which the Participant is not receiving any payments of an Early Retirement Pension or a Vested Benefit under the Donaldson Company, Inc. Salaried Employees’ Pension Plan (1997 Restatement), as amended from time to time, and the Participant either:

(a)

is eligible to receive long-term disability benefits under the Company’s separate long-term disability insurance plan (which program shall be administered on a uniform and nondiscriminatory basis); if such separate long-term disability coverage is elected by the Participant, or

-4-

(b)

is eligible to receive and is actually receiving (after the applicable waiting period) benefits under the federal Social Security Act as in effect at the time of the Disability.

2.12. Incentive Cycle — a period of three consecutive plan years designated by the Committee.

2.13. Participant — an employee or former employee of the Company or its Affiliates who has become a Participant as provided in Section 3.1, and who has not ceased to be a Participant as provided in Section 3.2.

2.14. Performance Objective — the goals for after-tax return on investment and compound net sales growth established for an Award by the Committee and set forth in the Participant’s Award Agreement. After-tax return on investment and compound net sales growth shall be as defined and reported in the monthly operating reports published by the Company’s Accounting Department.

2.15. Performance Unit — the portion of an Award that represents the right to receive a single share of Common Stock in the event all applicable Performance Objectives are satisfied at target levels, before any adjustments such as an adjustment to the target award for earnings per share consistency.

2.16. Plan — the Donaldson Company, Inc. Long Term Compensation Plan as set forth herein, and as the same may be amended from time to time.

2.17. Retirement — a Termination of Employment under circumstances that entitle the employee to a Normal or Early Retirement Pension (as defined in the Donaldson Company, Inc. Salaried Employees’ Pension Plan (1997 Restatement), as amended from time to time).

2.18. Termination of Employment — the complete severance of an employee’s employment relationship with the Company and all Affiliates, if any, for any reason other than the employee’s death or Disability.

2.19. Vested — nonforfeitable.

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SECTION 3

ELIGIBILITY AND PARTICIPATION

3.1. Commencement of Participation . An officer or member of senior management shall become a Participant in the Plan when he or she is granted an Award pursuant to Section 4.

3.2. Termination of Participation . A person shall cease to be a Participant as soon as all Awards credited to the Participant have been paid in full or, if deferred, credited to the Participant’s Account under the Donaldson Company, Inc. Deferred Compensation and 401(k) Excess Plan.

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SECTION 4

AWARDS

4.1. Grant . Prior to the start of an Incentive Cycle, or as soon as administratively feasible thereafter, the Committee grants Awards to select employees of the Company that establish:

(a)

the Incentive Cycle for the Award;

(b)

the Performance Objectives applicable to the Award;

(c)

the Award Matrix;

(d)

the number of Performance Units granted; and

(e)

the manner of adjustment, if any, to the number of shares payable based on earnings per share consistency, and any other adjustments or special terms and conditions applicable to the Award.

4.2. Adjustment . In the event of any change in the outstanding shares of common stock of the Company by reason of any stock split or stock dividend in the form of a split, the Committee shall adjust the number of Performance Units in a Participant’s Award so that such number equals the number of Performance Units in the Award prior to the event, multiplied by a fraction, the denominator of which is the number of Performance Units in the Award prior to the event, and the numerator of which is the number of shares of Common Stock the Participant would have had after the event if the Participant had shares of Common Stock immediately prior to the event equal in number to the number of Performance Units in the Participant’s Award immediately prior to the event. In the event of any dividend (other than a stock dividend in the form of a split), recapitalization, merger, consolidation, spinoff, reorganization, combination or exchange of shares or other similar corporate change, then if the Committee, or the board of directors of a successor corporation, shall determine, in its sole discretion, that such change equitably requires an adjustment in the number of Performance Units in the Participant’s Award, such adjustment shall be made by the Committee or said board and shall be conclusive and binding for all purposes of the Plan.

4.3. Performance Objectives Alteration . In the event of an acquisition, disposition or other change which, in the judgment of the Committee, may have a significant effect on particular Performance Objectives, the Committee may adopt such changes in the applicable Performance Objectives as it shall, in its sole discretion, deem equitable and appropriate to achieve the purpose of the Plan.

-7-

4.4. Vesting . Except as otherwise indicated below and in Section 5.3, Awards shall become Vested only at the end of the applicable Incentive Cycle, and then only to the extent determined by the applicable Performance Objectives.

4.4.1. Pro Rata Vesting . In the event that, prior to the end of the Incentive Cycle, the Plan is terminated, the Participant is transferred to an ineligible position, or the Participant ceases to be an employee by reason of Retirement, death, or Disability, the Vested Award will be based on actual results compared to the Performance Objectives at the end of the Incentive Cycle, and multiplied by a fraction whose numerator is the number of months completed in the cycle and denominator is thirty-six.

4.4.2. Forfeiture . If a Participant ceases to be an employee prior to the end of an Incentive Cycle for any reason other than Retirement, Disability or death, the Participant’s Award with respect to that Incentive Cycle shall be forfeited.

-8-

SECTION 5

TIME AND MANNER OF PAYMENTS

5.1. Time of Payment . Payment of a Participant’s Vested Award under the Plan will occur no more than 60 days, and no less than 30 days, after the end of the Incentive Cycle with respect to which the Award was granted. Share certificates are distributed as soon as administratively feasible after the effective date of payment.

5.2. Manner of Payment . A Participant’s Account will be paid to the Participant in a single lump sum. Payment to the Participant shall be made, net of withholding taxes, exclusively in shares of Common Stock. For purposes of determining any tax withholding on a payment, the value of Common Stock will be the market price of such Common Stock on a date no more than 60 days nor less than 30 days after the end of the Incentive Cycle.

5.3. Change in Control Distributions . Notwithstanding any other provision of Section 4.4 or this Section 5 (other than Section 5.5), if a Change in Control occurs prior to the end of the applicable Incentive Cycle, the Participant’s Award shall be immediately Vested and paid in accordance with this Section 5.3 (unless such Award was deferred under the Donaldson Company, Inc. Deferred Compensation and 401(k) Excess Plan, in which case such deferred Award shall be paid under the terms of that plan). The amount payable will be determined as if the applicable Performance Objectives had been met at target levels and as if the conditions for any adjustments (such as for earnings per share consistency) were met for the entire Incentive Cycle to the same extent as they were met through the date of the Change in Control, and then prorated as if the employee retired on the date of the Change in Control. Distribution of the entire amount payable shall be made on the date of the Change in Control. Such distribution shall be made in a single lump sum stock distribution.

5.4. Death Benefit . In the event of a Participant’s death, the Company shall pay the Participant’s unpaid Vested Award (in the amount determined under Section 4.4.1 if Participant’s death occurred prior to the end of the Incentive Cycle) to the Participant’s designated beneficiary. Such payment shall be made at the time prescribed in Section 5.1 above, or as soon as administratively feasible thereafter in a single lump sum stock distribution (and cash for fractional shares).

5.5. Beneficiary Designation . A Participant shall submit to the Company upon initial grant of an Award under the Plan, and at such other times as the Participant desires, on a form provided by the Committee, a written designation of the beneficiary or beneficiaries to whom payment of the Participant’s Vested Award under the Plan shall be made in the event of the Participant’s death. Beneficiary designations shall become effective only when received by the Company. Beneficiary designations first received by the Company after the Participant’s death, and any designations in effect at the time a valid subsequent designation is received by the Company, shall be invalid and have no effect. If a Participant has not designated a Beneficiary, or if no designated Beneficiary is living on the date of distribution, the Participant’s Vested Award shall be distributed to those persons entitled to receive the Participant’s benefit under the Donaldson Company, Inc. Salaried Employees’ Pension Plan (1997 Restatement), as amended from time to time.

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SECTION 6

FUNDING

6.1. Funding . The Company and its Affiliates shall be responsible for paying all benefits due hereunder. For the purpose of facilitating the payment of benefits due hereunder, the Company may (but shall not be required to) establish and maintain a grantor trust pursuant to an Agreement between the Company and a trustee selected by the Company; provided, however, that any such grantor trust must be structured so that it does not result in any federal income tax consequences to any Participant until distributions under Section 5 are actually received. The Company may contribute to a grantor trust thereby created such amounts as it may from time to time determine.

6.2. Corporate Obligation . Neither the officers nor any member of the Board of Directors of the Company or any of its Affiliates in any way secures or guarantees the payment of any benefit or amount which may become due and payable hereunder to or with respect to any Participant. Each Participant and other person entitled at anytime to payments hereunder shall look solely to the assets of the Company and its Affiliates for such payments as an unsecured, general creditor. Nothing herein shall be construed to give a Participant, Beneficiary or any other person or persons any right, title, interest or claim in or to any specific asset, fund, reserve, account or property of any kind whatsoever owned by the Company or in which it may have any right, title or interest now or in the future. After benefits shall have been paid to or with respect to a Participant and such payment purports to cover in full the benefit hereunder, such former Participant or other person or persons, as the case may be, shall have no further right or interest in the other assets of the Company and its Affiliates in connection with this Plan.

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SECTION 7

ADMINISTRATION

7.1. Authority . The Plan shall be administered by the Committee, which shall have full discretionary power and authority to administer and interpret the Plan and to determine all factual and legal questions under the Plan, including but not limited to the entitlement of Participants and Beneficiaries, and the amount of their respective interests.

7.2. Liability . No member of the Committee and no director or member of the management of the Company or its Affiliates shall be liable to any persons for any actions taken under the Plan, or for any failure to effect any of the objective or purposes of the Plan, by reason of insolvency or otherwise.

7.3. Procedures . The Committee may from time to time adopt such rules and procedures as it deems appropriate to assist in the administration of the Plan.

7.4. Claim for Benefits . No employee or other person shall have any claim or right to payment of any amount hereunder until payment has been authorized and directed by the Committee.

7.5. Claims Procedure . Until modified by the Committee, the claims procedure set forth in this Section 7.5 shall be the claims procedure for the resolution of disputes and disposition of claims arising under the Plan.

7.5.1. Original Claim . Any employee, former employee, or Beneficiary of such employee or former employee may, if the employee, former employee or Beneficiary so desires, file with the Committee a written claim for benefits under the Plan. Within ninety (90) days after the filing of such a claim, the Committee shall notify the claimant in writing whether the claim is upheld or denied in whole or in part or shall furnish the claimant a written notice describing specific special circumstances requiring a specified amount of additional time (but not more than one hundred eighty (180) days from the date the claim was filed) to reach a decision on the claim. If the claim is denied in whole or in part, the Committee shall state in writing:

(a)

the specific reasons for the denial,

(b)

the specific references to the pertinent provisions of this Plan on which the denial is based,

(c)

a description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary, and

(d)

an explanation of the claims review procedure set forth in this Section.

-11-

7.5.2. Claims Review Procedure . Within sixty (60) days after receipt of notice that the claim has been denied in whole or in part, the claimant may file with the Committee a written request for a review and may, in conjunction therewith, submit written issues and comments. Within sixty (60) days after the filing of such a request for review, the Committee shall notify the claimant in writing whether, upon review, the claim was upheld or denied in whole or in part or shall furnish the claimant a written notice describing specific special circumstances requiring a specified amount of additional time (but not more than one hundred twenty days (120) from the date the request for review was filed) to reach a decision on the request for review.

7.5.3. General Rules .

(a)

No inquiry or question shall be deemed to be a claim or a request for a review of a denied claim unless made in accordance with the claims procedure. The Committee may require that any claim for benefits and any request for a review of a denied claim be filed on forms to be furnished by the Committee upon request.

(b)

All decisions on original claims shall be made by the Committee and requests for a review of denied claims shall be made by the Committee.

(c)

The Committee may, in its discretion, hold one or more hearings on a claim or a request for a review of a denied claim.

(d)

Claimants may be represented by a lawyer or other representative at their own expense, but the Committee reserves the right to require the claimant to furnish written authorization. A claimant’s representative shall be entitled to copies of all notices given to the claimant.

(e)

The decision of the Committee on an original claim or on a request for a review of a denied claim shall be served on the claimant in writing. If a decision or notice is not received by a claimant within the time specified, the claim or request for a review of a denied claim shall be deemed to have been denied.

(f)

Prior to filing a claim or a request for a review of a denied claim, the claimant or the claimant’s representative shall have a reasonable opportunity to review a copy of this Plan Statement and all other pertinent documents in the possession of the Company and its Affiliates.

7.6. Payments upon Imposition of Federal or State Taxes . If any Participant is determined to be subject to federal or state income tax on any amount accrued on his or her behalf under this Plan prior to the time of payment hereunder, federal or state taxes attributable to the amount determined to be so taxable shall be distributed by the Plan to such Participant.

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An amount accrued on his or her behalf under this Plan shall be determined to be subject to federal income tax upon the earliest of:

(i)

a final determination by the United States Internal Revenue Service addressed to the Participant which is not appealed to the courts;

(ii)

a final determination by the United States Tax Court or any other Federal Court affirming any such determination by the Internal Revenue Service; or

(iii)

an opinion by the Tax Counsel of the Company, addressed to the Company that, by reason of Treasury Regulations, amendments to the Internal Revenue Code, published Internal Revenue Service rulings, court decisions or other substantial precedent, amounts accrued on a Participant’s behalf hereunder are subject to federal or state income tax prior to payment.

The Company shall undertake at its sole expense to defend any tax claims described herein which are asserted by the Internal Revenue Service or by any state revenue authority against any Participant, including attorney fees and costs of appeal, and shall have the sole authority to determine whether or not to appeal any determination made by the Internal Revenue Service, by any state revenue authority or by a lower court. The Company also agrees to reimburse any Participant for any interest or penalties in respect of federal or state tax claims hereunder upon receipt of documentation of same.

7.7. Legal Fees . If the Company does not pay the benefits required under the terms of the Plan for reasons other than the insolvency of the Company, the Company agrees to reimburse any Participant for all legal fees incurred in enforcing his or her claim to benefits under the Plan.

7.8. Errors in Computations . The Committee shall not be liable or responsible for any error in the computation of any benefit payable to or with respect to any Participant resulting from any misstatement of fact made by the Participant or by or on behalf of any Beneficiary to whom such benefit shall be payable, directly or indirectly, to the Committee, and used by the Committee in determining the benefit. The Committee shall not be obligated or required to increase the benefit payable to or with respect to such Participant which, on discovery of the misstatement, is found to be understated as a result of such misstatement of the Participant. However, the benefit of any Participant which is overstated by reason of any such misstatement or any other reason shall be reduced to the amount appropriate in view of the truth (and to recover any prior overpayment).

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SECTION 8

MISCELLANEOUS

8.1. Not an Employment Contract . This Plan is not and shall not be deemed to constitute a contract of employment between the Company and any employee or other person, nor shall anything herein contained be deemed to give any employee or other person any right to be retained in the Company’s employ or in any way limit or restrict the Company’s right or power to discharge any employee or other person at any time and to treat him without regard to the effect which such treatment might have upon the employee as a Participant in the Plan.

8.2. Nontransferability . A Participant’s rights and interest under the Plan, including amounts payable, may not be assigned, alienated, pledged or transferred except, in the event of a Participant’s death to his Beneficiary. No benefit payable under this Plan shall be subject to attachment, garnishment, execution following judgment or other legal process before actual payment to the Participant or Beneficiary.

8.3. Tax Withholding . The Company shall withhold the amount of any federal, state or local income tax or other tax required to be withheld by the Company under applicable law with respect to any amount payable under the Plan. Any cash payable in lieu of fractional shares shall be applied to the payment of tax withholding. The Participant shall not be liable for any tax withholding.

8.4. Expenses . All expenses of administering the Plan shall be borne by the Company.

8.5. Governing Law . Except to the extent that federal law is controlling, the Plan shall be construed and enforced in accordance with and governed by the laws of the State of Minnesota.

8.6. Amendment and Termination . The Company reserves the power to unilaterally amend this Plan at any time, either prospectively or retroactively or both by action of the Committee (with the written concurrence of the Chief Executive Officer of the Company). The Committee may likewise terminate or curtail the benefits of this Plan both with regard to persons expecting to receive benefits in the future and persons already receiving benefits at the time of such action; provided, however, that the Committee may not amend or terminate the Plan with respect to benefits that have accrued and are Vested pursuant to Section 4 in any manner that reduces the amount of such benefits, nor may the Committee, after a Change in Control, as that term is defined in the Master Stock Plan, directly or indirectly alter, amend, suspend, terminate or discontinue the Plan, establish or modify rules, regulations or procedures under the Plan, make any interpretation or determination under the Plan, or exercise any authority or discretion vested in the Committee unless such action is permitted under Section 1.07 of the Master Stock Plan. No modification of the terms of this Plan shall be effective unless it is in writing and signed on behalf of the Company by a person authorized to execute such writing. No oral representation concerning the interpretation or effect of this Plan shall be effective to amend the Plan.

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8.7. Rules of Interpretation . The titles given to the various sections of this Plan are inserted for convenience of reference only and are not part of this Plan, and they shall not be considered in determining the purpose, meaning or intent of any provision hereof.

Date: ______________

DONALDSON COMPANY, INC.

By:

Chief Executive Officer

-15-

Exhibit 10-S

DONALDSON COMPANY, INC.
QUALIFIED PERFORMANCE-BASED COMPENSATION PLAN

Section 1. Establishment and Purpose

The Company has previously established the 2001 Master Stock Incentive Plan (the “Master Stock Plan”) which authorizes the issuance of, among other awards, Performance Awards which are payable upon the achievement of such performance goals as the Committee may establish. In furtherance of that authorization, this Plan is hereby established under the Master Stock Plan for the purpose of authorizing the issuance of Performance Awards specifically intended to qualify as “qualified performance-based compensation” within the meaning of Section 162(m) of the Code. All Performance Awards granted under this Plan are subject to any applicable terms, conditions and restrictions required by the Master Stock Plan, and any successor plans thereto.

Section 2. Definitions

Except as expressly defined herein, capitalized terms used in this Plan shall have the same meanings as appear in the Master Stock Plan.

Section 3. Qualified Performance-Based Compensation under Section 162(m) of the Code

From time to time, the Committee may designate an Award granted pursuant to the Plan as an award of “qualified performance-based compensation” within the meaning of Section 162(m) of the Code (a “Qualified Performance Award”). A Qualified Performance Award granted under the Plan may be payable in cash or in Shares (including, without limitation, Restricted Stock). Notwithstanding any other provision of this Plan or the Master Stock Plan to the contrary, the following additional requirements shall apply to all Qualified Performance Awards made to any Participant under the Plan:

(i) Stockholder Approval of Plan. Any Qualified Performance Award shall be null and void and have no effect whatsoever unless the Plan shall have been approved by the stockholders of the Company at the Company’s November 18, 2005 annual meeting of stockholders. No Qualified Performance Award under this Plan shall be granted more than five years after such meeting of stockholders unless the stockholders have reapproved the Plan to the extent required by Section 162(m) of the Code.

(ii) Business Criteria. Unless and until the Committee proposes for stockholder approval and the Company’s stockholders approve a change in the general business criteria set forth in this section, the attainment of which may determine the amount and/or vesting with respect to Qualified Performance Awards, the business criteria to be used for purposes of establishing performance goals for such Qualified Performance Awards shall be selected from among the following alternatives, each of which may be based on absolute standards or comparisons versus specified companies or groups of companies and may be applied at individual or various organizational levels (e.g., the Company as a whole or identified business units, segments or the like):

•

Earnings per share

•

Return on investment

•

Revenues, including net sales growth

•

Earnings, including net operating profit after taxes

•

Return on equity

•

Profit margins

•

Cost reductions

•

Inventory levels

•

Delivery performance

•

Safety performance

•

Quality performance

A-1

•

Core operating earnings

•

Total stockholder return

•

Cash flow, including operating cash flows, free cash flow, discounted cash flow return on investment, and cash flow in excess of cost of capital

•

Economic value added

•

Stockholder value added

•

Market share

•

Price to earnings ratio

•

Expense ratios

•

Workforce goals

•

Total expenditures

•

Completion of key projects

In the event that Section 162(m) of the Code or applicable tax and/or securities laws change to permit Committee discretion to alter the governing performance measures without disclosing to stockholders and obtaining stockholder approval of such changes and without thereby exposing the Company to potentially adverse tax or other legal consequences, the Committee shall have the sole discretion to make such changes without obtaining stockholder approval.

(iii) Maximum Award. The maximum bonus which may be paid to any Participant pursuant to any Qualified Performance Award with respect to any performance period shall not exceed a value of $5,000,000.

(iv) Payment of Qualified Performance Awards. Qualified Performance Awards shall be paid no later than two and one-half months following the conclusion of the applicable performance period (unless the Participant has elected to have such Award deferred in accordance with the terms of the Donaldson Company, Inc. Deferred Compensation and 401(k) Excess Plan). The Committee may, in its discretion, reduce the amount of a payout otherwise to be made in connection with a Qualified Performance Award, but may not exercise discretion to increase such amount.

(v) Certain Events. If a Participant dies or becomes permanently and totally disabled or has a normal retirement event before the end of a performance period or after the performance period and before a Qualified Performance Award is paid, the Committee may, in its discretion, determine that the Participant shall be paid a prorated portion of the award that the Participant would have received but for such death or disability or normal retirement event.

(vi) Timing of Designations. For a Qualified Performance Award, the Committee shall, not later than 90 days after the beginning of each performance period, (A) designate all Participants for such performance period, and (B) establish the objective performance factors for each Participant for that performance period on the basis of one or more of the criteria set forth in (ii) above.

(vii) Certification. Following the close of each performance period and prior to payment of any amount to a Participant with respect to a Qualified Performance Award, the Committee shall certify in writing as to the attainment of all factors (including the performance factors for a Participant) upon which any payments to a Participant for that performance period are to be based.

(viii) Interpretation. Each of the provisions in this Section 3, and all of the other terms and conditions of the Plan as it applies to any Qualified Performance Award, shall be interpreted in such a fashion as to qualify all compensation paid thereunder as “qualified performance-based compensation” within the meaning of Section 162(m) of the Code. Nothing in this Plan shall be interpreted to limit the Committee’s authority to grant non-qualifying Performance Awards under the terms of the Master Stock Plan.

Section 4. Effective Date of the Plan

The Plan shall be effective as of the date of its approval by the stockholders of the Company.

A-2

Exhibit 10-T

DONALDSON COMPANY, INC.
DEFERRED COMPENSATION AND 401(k) EXCESS PLAN
(2008 Restatement)

As Amended and Restated Effective as of January 1, 2008

DONALDSON COMPANY, INC.
DEFERRED COMPENSATION AND 401(k) EXCESS PLAN
(2008 Restatement)

TABLE OF CONTENTS

Page

SECTION 1.	HISTORY AND PURPOSE		1
	1.1.	History
	1.2.	Purpose
	1.3.	Relation to Master Stock Plans
SECTION 2.	DEFINITIONS		1
	2.1.	Account
		2.1.1. Annual Deferral Account
		2.1.2. Company Credit Account
	2.2.	Affiliate
	2.3.	Base Salary
	2.4.	Beneficiary
	2.5.	Board
	2.6.	Change of Control
	2.7.	Code
	2.8.	Committee
	2.9.	Company
	2.10.	Company Credit
	2.11.	Deferral Credit
	2.12.	Disability, Disabled
	2.13.	Effective Date
	2.14.	Eligible Employee
	2.15.	ERISA
	2.16.	401(k)-ESOP Plan
	2.17.	Incentive Cycle
	2.18.	Participant
	2.19.	Performance Cash
	2.20.	Performance Share
	2.21.	Plan
	2.22.	Plan Year
	2.23.	Post-Termination Bonus Matching Credit
	2.24.	Prior Plan Statement
	2.25.	Profit Sharing Credit

-i-

	2.26.	Restoration Matching Credit
	2.27.	Restricted Stock
	2.28.	Restricted Stock Deferral Credits
	2.29.	Termination of Employment
	2.30.	Valuation Date
	2.31.	Vested
	2.32.	Year of Service
SECTION 3.	PARTICIPATION		7
	3.1.	Eligibility Requirements
	3.2.	Termination of Participation
	3.3.	Overriding Exclusion
SECTION 4.	DEFERRED COMPENSATION AMOUNTS		7
	4.1.	Minimum/Maximum Deferrals
	4.2.	Enrollment and Election to Defer
	4.3.	401(a)(17) Excess Deferral Credits
	4.4.	Performance Share Deferral Credits
	4.5.	Restricted Stock Deferral Credits
	4.6.	Company Credits
	4.7.	Vesting
	4.8.	Reduction for Tax Withholding
SECTION 5.	TIME AND MANNER OF PAYMENTS		11
	5.1.	Time of Payment
	5.2.	Manner of Payment
	5.3.	Changes in Time and Manner of Payment
	5.4.	Hardship Distributions
		5.4.1. When Available
		5.4.2. Purposes
		5.4.3. Suspension
		5.4.4. Limitations
	5.5.	Change of Control Distributions
	5.6.	Death Benefit
	5.7.	Beneficiary Designation
	5.8.	Post-Termination Deferral Credits
SECTION 6.	DEFERRED COMPENSATION ACCOUNT		15
	6.1.	Participant Accounts
	6.2.	Investment of Accounts
	6.3.	Assumption of Risk
	6.4.	Charges Against Accounts

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SECTION 7.	FUNDING		15
	7.1.	Funding
	7.2.	Corporate Obligation
SECTION 8.	FORFEITURE OF BENEFITS		16
SECTION 9.	ADMINISTRATION		16
	9.1.	Authority
	9.2.	Liability
	9.3.	Procedures
	9.4.	Claim for Benefits
	9.5.	Claims Procedure
		9.5.1. Original Claim
		9.5.2. Claims Review Procedure
		9.5.3. General Rules
	9.6.	Legal Fees
	9.7.	Errors in Computations
SECTION 10.	MISCELLANEOUS		19
	10.1.	Not an Employment Contract
	10.2.	Nontransferability
	10.3.	Tax Withholding
	10.4.	Expenses
	10.5.	Governing Law
	10.6.	Amendment and Termination
	10.7.	Rules of Interpretation

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DONALDSON COMPANY, INC.
DEFERRED COMPENSATION AND 401(k) EXCESS PLAN
(2008 Restatement)

Section 1

HISTORY AND PURPOSE

1.1. History . Since December 21, 1997, Donaldson Company, Inc. has maintained an unfunded, nonqualified deferred compensation for a select group of highly compensated employees, known as the “DONALDSON COMPANY, INC. DEFERRED COMPENSATION AND 401(k) EXCESS PLAN.” The Plan, in its most current amended and restated form, is maintained under a document effective January 1, 2005. Effective as of January 1, 2008, Donaldson Company, Inc. hereby amends and restates the Plan in the manner hereinafter set forth to: (i) permanently discontinue future deferrals of restricted stock awards; (ii) permanently discontinue future post-termination bonus matching credits and (iii) adopt miscellaneous changes necessary in order to comply with final Treasury regulations issued under section 409A of the Code.

1.2. Purpose . The purposes of this Plan are to enable the Company to supplement the benefits for a select group of management or highly compensated employees under the Donaldson Company, Inc. Retirement Savings and Employee Stock Ownership Plan which will be reduced because of the compensation limitation under section 401(a)(17) of the Code; to provide a means whereby certain amounts payable by the Company to a select group of management or highly compensated employees may be deferred to some future period; and to attract and retain certain executive employees of outstanding competence.

1.3. Relation to Master Stock Plans . All benefits provided by this Plan that are attributable to Long Term Incentive and Restricted Stock Deferral Credits are subject to any applicable terms, conditions and restrictions required by the Donaldson Company, Inc. 2001 Master Stock Incentive Plan. Benefits attributable to Company Credits which are paid in the form of Common Stock are subject to any applicable terms, conditions and restrictions required by the Donaldson Company, Inc. 2001 Master Stock Incentive Plan.

Section 2

DEFINITIONS

2.1. Account — the deferred compensation account established under this Plan for a Participant pursuant to Section 6.1, which shall be a bookkeeping entry only and shall be utilized solely as a

device for the measurement and determination of the amounts to be paid to a Participant (or designated Beneficiary) pursuant to this Plan, and shall including the following:

2.1.1. Annual Deferral Account — with respect to a Participant, each of the following entries on the records of the Company reflecting Deferral Credits of the Participant for a Plan Year, Incentive Cycle or other performance period as applicable:

	(a)	Annual Base Salary Account — that portion of a Participant’s Base Salary that a Participant defers for any one Plan Year (without regard to whether such amounts are withheld and credited during such Plan Year), plus earnings, gains or losses credited or debited to such amounts pursuant to this Plan, less all distributions made to the Participant or his or her Beneficiary pursuant to this Plan that relate to the Account for such Plan Year.
	(b)	Annual 401(a)(17) Excess Account — that portion of a Participant’s Base Salary or Performance Cash in excess of the dollar limit under section 401(a)(17) of the Code that a Participant defers for any one Plan Year pursuant to Section 4.3 (without regard to whether such amounts are withheld and credited during such Plan Year), plus earnings, gains or losses credited or debited to such amounts pursuant to this Plan, less all distributions made to the Participant or his or her Beneficiary pursuant to this Plan that relate to the Account for such Plan Year.
	(c)	Annual Performance Cash Account — that portion of a Participant’s Performance Cash that a Participant defers for any one performance period (without regard to whether such amounts are withheld and credited during such performance period), plus earnings, gains or losses credited or debited to such amounts pursuant to this Plan, less all distributions made to the Participant or his or her Beneficiary pursuant to this Plan that relate to the Account for such performance period.
	(d)	Annual Performance Share Account — that portion of a Participant’s Performance Shares that a Participant defers for any one Incentive Cycle (without regard to whether such amounts are withheld and credited during such Incentive Cycle), plus earnings, gains or losses credited or debited to such amounts pursuant to this Plan, less all distributions made to the Participant or his or her Beneficiary pursuant to this Plan that relate to the Account for such Incentive Cycle.
	(e)	Annual Restricted Stock Account — that portion of a Participant’s Restricted Stock award that a Participant defers for any one Plan Year (without regard to whether such amounts are withheld and credited during such Plan Year), plus earnings, gains or losses credited or debited to such amounts pursuant to this Plan, less all distributions made to the Participant or his or her Beneficiary pursuant to this Plan that relate to the Account for such Plan Year.

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2.1.2. Company Credit Account — with respect to a Participant, all Company Credits entered on the records of the Company, plus earnings, gains or losses credited or debited to such amounts pursuant to this Plan, less all distributions made to the Participant or his or her Beneficiary pursuant to this Plan that relate to the Account for such Plan Year.

2.2. Affiliate — a business entity which is under “common control” with the Company or which is a member of an “affiliated service group” that includes the Company, as those terms are defined in section 414(b), (c) and (m) of the Code. A business entity shall also be treated as an Affiliate if, and to the extent that, such treatment is required by regulations under section 414(o) of the Code. In addition to said required treatment, the Committee may, in its discretion, designate as an Affiliate any business entity which is not such a “common control” or “affiliated service group” business entity but which is otherwise affiliated with the Company, subject to such limitations as the Committee may impose.

2.3. Base Salary — the annual cash compensation relating to services performed during any calendar year, excluding distributions from nonqualified deferred compensation plans, bonuses, commissions, overtime, fringe benefits, profit sharing contributions, stock options, relocation expenses, incentive payments, non-monetary awards, and automobile and other allowances paid to a Participant for employment services rendered (whether or not such allowances are included in the Employee’s gross income). Base Salary shall be calculated before reduction for compensation voluntarily deferred or contributed by the Participant pursuant to all qualified or nonqualified plans of any Employer and shall be calculated to include amounts not otherwise included in the Participant's gross income under Code Sections 125, 402(e)(3), 402(h), or 403(b) pursuant to plans established by any Employer; provided, however, that all such amounts will be included in compensation only to the extent that had there been no such plan, the amount would have been payable in cash to the Employee. In no event shall Base Salary include any amounts payable to the Participant prior to the commencement of his or her participation in this Plan.

2.4. Beneficiary — any person or entity validly designated by the Participant in accordance with Section 5 to receive the benefits, if any, payable from the Participant’s Account after the Participant’s death. Designated persons or entities shall not be considered Beneficiaries until the death of the Participant.

2.5. Board — the Board of Directors of the Company.

2.6. Change of Control — the occurrence of a “change in the ownership,” “change in effective control,” and/or a “change in the ownership of a substantial portion of the assets,” as defined under Treasury Regulation § 1.409A 3(i)(5), of the Affected Corporation. For this purpose, the “Affected Corporation” is the Participant’s employer, or any corporation (including the Company) in a chain of corporations in which each corporation is a majority shareholder of another corporation in the chain, ending with the Participant’s employer. A “majority shareholder” is a shareholder owning more than 50 percent of the total fair market value and total voting power of such corporation.

2.7. Code — the Internal Revenue Code of 1986, including applicable regulations for the specified section of the Code. Any reference in this Plan Statement to a section of the Code, including the applicable regulation, shall be considered also to mean and refer to any subsequent amendment or replacement of that section or regulation.

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2.8. Committee — the Human Resources Committee of the Board of Directors of the Company.

2.9. Company — Donaldson Company, Inc. and, except in determining under Section 2.6 hereof whether or not any Change of Control has occurred, shall include any successor by merger, purchase or otherwise.

2.10. Company Credit — any amount credited to an Eligible Employee in accordance with Section 4.6. Company Credits include Restoration Matching Credits, Post-Termination Bonus Matching Credits and Profit Sharing Credits.

2.11. Deferral Credit — any amount credited to an Eligible Employee in accordance with Sections 4.1, 4.2, 4.3, 4.4 or 4.5.

2.12. Disability, Disabled — a physical or mental impairment which constitutes total and permanent disability and during which the Eligible Employee is not receiving any payments of an Early Retirement Pension or a Vested Benefit under the Donaldson Company, Inc. Salaried Employees’ Pension Plan (1997 Restatement) (as amended from time to time), and the Eligible Employee either:

	(a)	is, by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, receiving income replacement benefits for a period of not less than three (3) months under an accident and health plan covering employees of the Company; or
	(b)	is eligible to receive and is actually receiving (after the applicable waiting period) benefits under the federal Social Security Act as in effect at the time of the Disability.

Notwithstanding the foregoing, the terms Disability and Disabled shall at all times be interpreted in a manner so as not to violate section 409A of the Internal Revenue Code.

2.13. Effective Date — December 21, 1997, the original effective date of the Plan. Except as otherwise explicitly provided herein, this amended and restated Plan document is effective as of January 1, 2008.

2.14. Eligible Employee — unless the Committee determines otherwise, each individual described in (a) or (b) below shall be an Eligible Employee to the extent and subject to the limitations specified:

	(a)	Officers . Each person who has been designated as an officer of the Company by the Company’s board of directors shall be an Eligible Employee until such person ceases to be such an officer.
	(b)	Executive Employees . For purposes of Sections 4.3 only, each executive employee of the Company or its Affiliates, other than an officer described in (a) above, whose Recognized Compensation for a Plan Year has exceeded the annual compensation limit then in effect under Code section 401(a)(17) for

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such Plan Year shall become an Eligible Employee beginning with the immediately following Plan Year. Such an executive employee shall cease to be an Eligible Employee upon the employee’s Termination of Employment, death or Disability, whichever happens first.

2.15. ERISA — the Employee Retirement Income Security Act of 1974, including applicable regulations for the specified section of ERISA. Any reference in this Plan to a section of ERISA, including the applicable regulation, shall be considered also to mean and refer to any subsequent amendment or replacement of that section or regulation.

2.16. 401(k)-ESOP Plan — the tax-qualified, profit sharing and employee stock ownership plan known as the “Donaldson Company, Inc. Retirement Savings and Employee Stock Ownership Plan (2004 Restatement).”

2.17. Incentive Cycle — the performance period applicable to a Performance Share.

2.18. Participant — an Eligible Employee or a former Eligible Employee of the Company or its Affiliates who has any amount credited to his or her Account in this Plan.

2.19. Performance Cash — any performance-based cash compensation (not including Base Salary) earned by a Participant under any Company’s annual or long-term bonus and incentive plans for services rendered during a performance period of at least 12 months, as further specified on an election form approved by the Committee in its sole discretion.

2.20. Performance Share — any long-term performance share awarded under the Donaldson Company, Inc. Long-Term Compensation Plan and which is subject to the terms, conditions and restrictions required by the Donaldson Company, Inc. Qualified Performance Based Compensation Plan and the Donaldson Company, Inc. 2001 Master Stock Incentive Plan.

2.21. Plan — the Donaldson Company, Inc. Deferred Compensation and 401(k) Excess Plan as set forth herein, and as the same may be amended from time to time.

2.22. Plan Year — the twelve (12) consecutive month period ending on any December 31.

2.23. Post-Termination Bonus Matching Credit — any amount credited to an Eligible Employee in accordance with Section 4.6(b).

2.24. Prior Plan Statement — the series of documents pursuant to which the Plan was established effective December 21, 1997 and operated thereafter until the effective date of this restatement. Credits made to the Plan which relate entirely to services performed on or before December 31, 2005 shall continue to be governed under the terms of the Prior Plan Statement.

2.25. Profit Sharing Credit — any amount credited to an Eligible Employee in accordance with Section 4.6(c).

2.26. Restoration Matching Credit — any amount credited to an Eligible Employee in accordance with Section 4.6(a).

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2.27. Restricted Stock — restricted stock awarded to an Eligible Employee under the Donaldson Company, Inc. 2001 Master Stock Incentive Plan, or any subsequent stock compensation plan maintained by the Company.

2.28. Restricted Stock Deferral Credits — any amount credited to an Eligible Employee in accordance with Section 4.5.

2.29. Termination of Employment — the separation from service (within the meaning of Treas. Regs. § 1.409A-1(h)) with the Company Controlled Group, voluntarily or involuntarily, for any reason other than Disability or death. Whether a separation from service has occurred is determined under section 409A of the Code and Treasury Regulation 1.409A-1(h) ( i.e ., whether the facts and circumstances indicate that the employer and the employee reasonably anticipated that no further services would be performed after a certain date or that the level of bona fide services the employee would perform after such date (whether as an employee or independent contractor) would permanently decrease to no more than twenty percent (20%) of the average level of bona fide services performed (whether as an employee or an independent contractor) over the immediately preceding thirty-six (36) month period (or the full period of services to the employer if the employee has been providing services to the employer less than thirty-six (36) months)). Separation from service shall not be deemed to occur while the employee is on military leave, sick leave or other bona fide leave of absence if the period does not exceed six (6) months or, if longer, so long as the employee retains a right to reemployment with any member of the Company Controlled Group under an applicable statute or by contract. For this purpose, a leave is bona fide only if, and so long as, there is a reasonable expectation that the employee will return to perform services for any member of the Company Controlled Group. Notwithstanding the foregoing, a twenty-nine (29) month period of absence will be substituted for such six (6) month period if the leave is due to any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of no less than six (6) months and that causes the employee to be unable to perform the duties of his or her position of employment. For this purpose, the “Company Controlled Group” is the Participant’s employer and all persons with whom the employer would be considered a single employer under Code sections 414(b) and 414(c); provided that, in applying Code sections 1563(a)(1), (2) and (3) for purposes of determining a controlled group of corporations under Code section 414(b), the language “at least 50 percent” shall be used instead of “at least 80 percent” each place it appears therein, and in applying Treas. Regs. § 1.414(c)-2 for purposes of determining trades or businesses that are under common control for purposes of Code section 414(c), “at least 50 percent” shall be used instead of “at least 80 percent” each place it appears therein.

2.30. Valuation Date — each December 31 and each other day that the New York Stock Exchange is open and conducting business, or such other date or dates as the Committee may establish.

2.31. Vested — nonforfeitable.

2.32. Year of Service — a one-year period of employment with the Company in which the Participant completes at least 1,000 hours of service.

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Section 3

PARTICIPATION

3.1. Eligibility Requirements . Each Eligible Employee who is eligible to participate in the Plan shall commence participation in the Plan only after the Eligible Employee has met all enrollment requirements set forth in this Plan and required by the Committee, including returning all required documents to the Committee within the specified time period.

3.2. Termination of Participation . A person shall cease to be a Participant as soon as all amounts credited to the Participant’s Account have been paid in full.

3.3. Overriding Exclusion . Notwithstanding anything apparently to the contrary in this Plan or in any written communication, summary, resolution or document or oral communication, no individual shall be a Participant in this Plan, develop benefits under this Plan or be entitled to receive benefits under this Plan (either for the employee or his or her survivors) unless such individual is a member of a select group of management or highly compensated employees (as that expression is used in ERISA). If a court of competent jurisdiction, any representative of the U.S. Department of Labor or any other governmental, regulatory or similar body makes any direct or indirect, formal or informal, determination that an individual is not a member of a select group of management or highly compensated employees (as that expression is used in ERISA), such individual shall not be (and shall not have ever been) a Participant in this Plan at any time. If any person not so defined has been erroneously treated as a Participant in this Plan, upon discovery of such error such person’s erroneous participation shall immediately terminate ab initio and upon demand such person shall be obligated to reimburse the Company for all amounts erroneously paid to him or her.

Section 4

DEFERRED COMPENSATION AMOUNTS

4.1. Minimum/Maximum Deferrals . For each Plan Year, an Eligible Employee may elect to defer remuneration in the following minimum and up to the following maximum amounts for each deferral elected:

Cash Compensation	Deferral Amount
Base Salary	1% - 75%
Performance Cash	1% - 100%

Equity Compensation	Deferral Amount
Performance Shares	1% - 100%
Restricted Stock	Discontinued 1-1-08

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If, prior to the beginning of a Plan Year, an Eligible Employee has made an election for less than the stated minimum amounts, or if no election is made, the amount deferred shall be zero. Notwithstanding the foregoing, with respect to an Eligible Employee who first becomes a Participant after the first day of a Plan Year, the maximum deferral shall be limited to the amount of compensation not yet earned by the Participant as of the date the Participant submits an a deferral election to the Committee for acceptance.

4.2. Enrollment and Election to Defer . As a condition to participation, each Eligible Employee who is eligible to participate in the Plan shall complete, execute and return to the Committee an election form and a beneficiary designation form to the Committee. In addition, the Committee may establish from time to time such other enrollment requirements as it determines, in its sole discretion, are necessary.

	(a)	First Plan Year of Eligibility . An Eligible Employee who first becomes eligible to participate in this Plan (including for this purpose all other voluntary deferral plans that would be required to be aggregated with this Plan under Treas. Regs. § 1.409A-1(c)(2)) after the first day of a Plan Year must submit a Base Salary deferral election within 30 days after he or she first becomes eligible to participate in the Plan, or within such other earlier deadline as may be established by the Committee in its discretion, in order to participate for that Plan Year. In such event, such person’s participation in this Plan shall not commence earlier than 30 days after he or she first becomes eligible to participate in the Plan, and such person shall not be permitted to defer under this Plan any portion of his or her Base Salary that is paid with respect to services performed prior to his or her participation commencement date, except to the extent permissible under section 409A of the Code and related Treasury guidance or regulations thereunder. If the Participant is not eligible to enter the Plan within a Plan Year under the aforementioned thirty (30) day rule (because, for example, the Participant was previously eligible to participate in the Plan or another voluntary deferral plan of the Company), then any Base Salary deferral election shall apply for the immediately following Plan Year and shall be made before the end of the Plan Year preceding such Plan Year.
	(b)	Subsequent Plan Years . For each succeeding Plan Year, an irrevocable Base Salary deferral election for that Plan Year, and such other elections as the Committee deems necessary or desirable under the Plan, shall be made by timely delivering a new election form to the Committee, in accordance with the terms of the Plan, before the end of the Plan Year preceding the Plan Year for which the election is made. If no such election form is timely delivered for a Plan Year (including a form canceling a prior election), the deferral election for the preceding Plan Year, if any, shall continue in effect.
	(c)	Performance-Based Compensation . Notwithstanding the foregoing requirements as to the timing of deferral elections with respect to Base Salary, an irrevocable deferral election pertaining to Performance Cash or Performance Shares which qualify as “performance-based compensation” may

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		be made by timely delivering an election form to the Committee, in accordance with the terms of the Plan, no later than six months before the end of the applicable performance period, provided that such compensation is not yet readily ascertainable. “Performance-based compensation” shall be compensation based on services performed over a period of at least twelve (12) months, in accordance with section 409A of the Code and related guidance. (For this purpose, Restricted Stock does not qualify as “performance-based compensation” unless subject to a performance-based vesting condition or as otherwise qualified under section 409A of the Code and related guidance.) If no such election form is timely delivered for a performance period (including a form canceling a prior election), the deferral election for the preceding performance period, if any, shall continue in effect.
	(d)	Restricted Stock Subject to Time-Based Vesting . Effective January 1, 2008, deferral elections made with respect to Restricted Stock shall no longer be accepted. Timely deferral elections made prior to January 1, 2008 under the Prior Plan Statement with respect to Restricted Stock shall continue in full force and effect.

4.3. 401(a)(17) Excess Deferral Credits . In addition to or in lieu of a Base Salary or Performance Cash deferral election, an Eligible Employee may make a separate election (subject to the minimum and maximum limitations in Section 4.1 above) to defer only from the Participant’s Base Salary and Performance Cash in excess of the annual compensation limit in effect for the Plan Year under section 401(a)(17) of the Code. Such election shall be made in accordance with the timing requirements required under Section 4.2 above (including, but not limited to, the requirement under Section 4.2(c) that any deferral of Performance Cash be made no later than six months before the end of the applicable performance period).

4.4. Performance Share Deferral Credits .

	(a)	Stock Units . After the end of the Incentive Cycle, the Participant’s Account shall be credited with a number of Stock Units equal to the number of shares of common stock of the Company (“Common Stock”) deferred by the Participant.
	(b)	Adjustment . In the event of any change in the outstanding shares of Common Stock by reason of any stock split or stock dividend in the form of a split, the Committee shall adjust the number of Stock Units in a Participant’s Account so that such number equals the number of Stock Units in the Account prior to the event, multiplied by a fraction, the denominator of which is the number of Stock Units in the Account prior to the event, and the numerator of which is the number of shares of Common Stock the Participant would have had after the event if the Participant had shares of Common Stock immediately prior to the event equal in number to the number of Stock Units in the Participant’s Account immediately prior to the event. In the event of any dividend (other than a stock dividend in the form of a split), recapitalization, merger, consolidation, spinoff, reorganization, combination or exchange of shares or

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		other similar corporate change, then if the Committee, or the board of directors of a successor corporation, shall determine, in its sole discretion, that such change equitably requires an adjustment in the number of Stock Units then held in the Participant’s Account, such adjustment shall be made by the Committee or said board and shall be conclusive and binding for all purposes of the Plan.
	(c)	Dividend Units . The number of Stock Units in a Participant’s Account shall be automatically increased as of each Common Stock dividend payment date in an amount equal to the number of shares of Common Stock that could be purchased on such dividend payment date with the cash dividends that would be paid on a number of shares of Common Stock equal to the number of Stock Units in the Participant’s Account on the record date for such dividend.

4.5. Restricted Stock Deferral Credits .

	(a)	Stock Units . As of the date on which the restrictions applicable to Restricted Stock would otherwise lapse (the “Lapse Date”), the Eligible Employee’s Account shall be credited with a number of Stock Units equal to the number of shares of Restricted Stock subject to the Eligible Employee’s deferral election made prior to January 1, 2008.
	(b)	Dividends and Adjustments . Stock Units credited to a Participant’s Account under this Section 4.5 shall be increased due to cash dividends and subject to adjustment as provided in subsections (b) and (c) of Section 4.4 above.

4.6. Company Credits .

	(a)	Restoration Matching Credits . An Eligible Employee’s Restoration Matching Credit for any Plan Year shall be the amount necessary to make up for the lost share, if any, of fixed matching contributions (but not elective deferred contributions) under Section 3.2 of the 401(k)-ESOP Plan attributable to the Eligible Employee’s Base Salary and Performance Cash deferrals under this Plan if they would have otherwise been allocated to the account of the Participant under the 401(k)-ESOP Plan for such Plan Year, without regard to the annual compensation limit then in effect under section 401(a)(17) of the Code. The amount so credited to a Participant under this Plan for any Plan Year (i) may be smaller or larger than the amount credited to any other person and (ii) may differ from the amount credited the Eligible Employee in the preceding Plan Year. The Restoration Matching Credit, if any, shall be credited to the Participant’s Annual Account for the applicable Plan Year as soon as administratively practicable after the amount can determined for the applicable Plan Year.
	(b)	Profit Sharing Credits . The Board may, in its sole discretion, cause the Account of an Eligible Employee to be credited with Profit Sharing Credits for a Plan Year. Such Profit Sharing Credits shall not exceed the amount

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necessary to make up for the lost share, if any, of profit sharing contributions under Section 3.4 of the 401(k)-ESOP Plan attributable to the Eligible Employee’s Base Salary and Performance Cash deferrals under this Plan and the annual compensation limit then in effect under Code section 401(a)(17).

4.7. Vesting . Subject to the forfeiture provisions of Section 8, the Accounts of all Participants shall be 100% Vested at all times.

4.8. Reduction for Tax Withholding . Notwithstanding anything in Sections 4.4(a) and 4.5(a) to the contrary, the number of Stock Units credited pursuant to those sections shall be reduced by the number of shares whose aggregate fair market value on the crediting date equals the amount of any taxes that must be withheld at the time of crediting due to the Eligible Employee’s deferral election.

Section 5

TIME AND MANNER OF PAYMENTS

5.1. Time of Payment . Payment of a Participant’s Annual Deferral Accounts and Company Credit Account under the Plan will commence as soon as administratively feasible after (but not later than December 31 of the Plan Year in which occurs, or if later, sixty (60) days following) the earliest of the following events:

(a)	the Participant’s death;
(b)	the Participant’s Disability;
(c)	date that is twenty four (24) months following the Participant’s Termination of Employment; or
(d)	a date of distribution selected by the Participant on a form prescribed by the Committee (1) for each Annual Deferral Account at the time a deferral election is made, and (2) for the Company Credit Account at the time the Participant first becomes eligible to participate in the Plan, which may be:
	(i)	a fixed, specified date ( e.g ., January 1, 2010); or
	(ii)	a date that is a specified number of months after the Participant’s Termination of Employment (not to exceed twenty four (24) months); provided, however, that where payment under this paragraph (d)(ii) is made to any “specified employee” (as defined under section 409A of the Code) on account of Termination of Employment, such payment shall commence no earlier than six (6) months following a Termination of Employment (or upon the death of the employee, if earlier) if required to comply with section 409A of the Code.

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5.2. Manner of Payment . A Participant’s Annual Deferral Accounts and Company Credit Account will be paid to the Participant in either a single lump-sum payment or in annual installments of not more than twenty (20) years. The Participant must elect a manner of payment at the time the Participant elects his or her date of distribution pursuant to Section 5.1(d). Notwithstanding the foregoing, the following special rules shall apply:

	(a)	in the case of the Participant’s death or Disability, payment shall be in a single lump sum;
	(b)	if the Participant’s Account upon commencement of distribution under Section 5.1 is less then Ten Thousand Dollars ($10,000), payment shall be in a single lump sum; and
	(c)	in the event no election was made by the Participant, payment shall be in a single lump sum.

Payment of the portion of a Participant’s Account attributable to Deferral Credits other than Performance Shares and Restricted Stock shall be in cash. Payment to a Participant of the portion of the Participant’s Account attributable to Performance Shares and Restricted Stock shall be made, net of withholding taxes, exclusively in shares of Common Stock. Payment to a Participant on or after the date certified in writing by the Committee or its delegate as the date on which distributions in stock of the portion of the Participant’s Account attributable to Company Credits are administratively feasible shall be made, net of withholding taxes, exclusively in shares of Common Stock. Payment prior to that certified date of such portion of a Participant’s Account shall be in cash. For purposes of determining any tax withholding on a payment, the value of Common Stock will be the market price of such Common Stock as of the close of business on the day prior to the date as of which the payment is made.

5.3. Changes in Time and Manner of Payment . Notwithstanding the foregoing, a Participant who is actively employed by the Company may make a new election that changes the time or form of payment selected pursuant to Section 5.1(d) and Section 5.2, subject to the following limitations:

	(a)	Such election must be submitted to and accepted by the Committee at least twelve (12) months prior to the date a distribution to the Participant would otherwise have been made or commenced;
	(b)	The election shall have no effect until at least twelve (12) months after the date on which the election is made;
	(c)	The election may change the time when payment shall commence but only if the new date selected by the Participant for commencement shall be a date that is at least five (5) years from the prior date of distribution selected by the Participant;
	(d)	The election may reduce or extend the number of installment payments (subject to the limitations in Section 5.2) so long as the initial installment is

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	delayed at least five (5) years from the date distribution would have otherwise commenced; and
(e)	If the participant changes the time and/or form of payment under this Section 5.3, payment shall commence as soon as administratively feasible after (but not later than December 31 of the Plan Year in which occurs, or if later, sixty (60) days following) the earliest of the following events:
	(i)	the Participant’s death;
	(ii)	the Participant’s Disability; or
	(iii)	the new date selected by the Participant for commencement.

5.4. Hardship Distributions .

5.4.1. When Available . A Participant may receive a hardship distribution from the Deferral Credits in his or her Account if the Committee determines that such hardship distribution is for a purpose described in Section 5.4.2 and the conditions in this Section 5.4 have been fulfilled. To receive such a distribution, the Participant must file a written hardship distribution application with the Committee and furnish such documentation as the Committee may require. In the application, the Participant shall specify the basis for the distribution and the dollar amount to be distributed. If such hardship distribution is approved by the Committee, distribution shall be made as soon as administratively feasible (but no more than sixty (60) days) following the approval of a completed application by the Committee. Hardship distributions shall be made in a lump-sum payment of either cash or Common Stock, as required by Section 5.2. The amount of each hardship distribution shall be taken from the portion of the Account attributable to the earliest enrollment (including related earnings) first.

5.4.2. Purposes . Hardship distributions shall be allowed under Section 5.4.1 only if the Participant establishes that the hardship distribution is to be made on account of an unanticipated emergency that is caused by an event beyond the control of the Participant that would result in severe financial hardship to the Participant resulting from (i) a sudden and unexpected illness or accident of the Participant, the Participant’s spouse, or a dependent of the Participant, (ii) a loss of the Participant's property due to casualty, or (iii) such other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant, all as determined in the sole discretion of the Committee.

5.4.3. Suspension . If the Committee approves a Participant’s petition for payout, the Participant’s deferrals under this Plan shall be suspended as of the date of such approval and the Participant shall receive a payout from the Plan within 60 days of the date of such approval.

5.4.4. Limitations . The amount of the hardship distribution shall not exceed the amount of the Participant’s proven immediate and heavy financial need. A hardship distribution shall not be made after the death of the Participant. The amount of approved hardship distribution shall not exceed the value of the Account. Notwithstanding the foregoing, the Committee, as applicable, shall interpret all provisions relating to suspension and/or payout under this Section 5.4 in a manner that is

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consistent with section 409A of the Code and other applicable tax law, including but not limited to guidance issued after the effective date of this Plan.

5.5. Change of Control Distributions . Notwithstanding any other provision of this Plan, in the event of a Change of Control, each Participant who incurs a Termination of Employment with the Company for any reason during the two (2) year period following such Change of Control shall receive within ten (10) business days after the date of termination a lump sum payment of the entire balance contained in the Participant’s Account; provided, however, that with respect to any Participant who separated from service before the date of a Change of Control, the balance of the Participant’s Account shall be paid at the time and in the manner as elected by the Participant under this Section 5 hereof (and shall not be commuted to a lump sum or otherwise accelerated by the Change of Control). Where payment under this Section 5.5 is made to any “specified employee” (as defined under section 409A of the Code) on account of Termination of Employment, such payment shall commence no earlier than six (6) months following a Termination of Employment (or upon the death of the employee, if earlier) if required to comply with section 409A of the Code.

5.6. Death Benefit . In the event of a Participant’s death, the Company shall pay the amount of the Participant’s Account as of the date of death (as adjusted from time to time pursuant to Section 6.2) in a lump-sum to the Participant’s designated Beneficiary as soon as administratively feasible after the Participant’s death (but not later than December 31 of the Plan Year in which the Participant’s death occurs, or if later, sixty (60) days following such death). Payment to a Participant’s designated Beneficiary shall be in cash to the extent the Participant would have been paid in cash, and in Common Stock of the Company (and cash for fractional shares) to the extent the Participant would have been paid in Common Stock.

5.7. Beneficiary Designation . A Participant shall submit to the Company upon initial designation as an Eligible Employee in the Plan, and at such other times as the Participant desires, on a form provided by the Committee, a written designation of the beneficiary or beneficiaries to whom payment of the Participant’s Account under the Plan shall be made in the event of the Participant’s death. Beneficiary designations shall become effective only when received by the Company. Beneficiary designations first received by the Company after the Participant’s death, and any designations in effect at the time a valid subsequent designation is received by the Company, shall be invalid and have no effect. If a Participant has not designated a Beneficiary, or if no designated Beneficiary is living on the date of distribution, the Participant’s Account shall be distributed to those persons entitled to receive the Participant’s benefit under the Donaldson Company, Inc. Salaried Employees’ Pension Plan (1997 Restatement), as amended from time to time.

5.8. Post-Termination Deferral Credits . In the event of a Participant’s Disability, death or Termination of Employment prior to the end of a performance or vesting period to which a Performance Cash, Performance Share or Restricted Stock deferral relates, if the Participant becomes entitled to all or any portion of such performance or stock award upon completion of the performance or vesting period, a Deferral Credit shall be made to the applicable Annual Deferral Account. Payment of such Annual Deferral Account shall commence in the form elected by the Participant under Section 5.2 as of the applicable distribution date under Section 5.1 (subject to any modifications under Section 5.3), or the date the Deferral Credit is made, if later. If payment

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commences upon the Deferral Credit Date (and thereby is delayed beyond the applicable distribution date), there shall be no “catch up” payments.

Section 6

DEFERRED COMPENSATION ACCOUNT

6.1. Participant Accounts . The Committee shall cause a bookkeeping account to be kept in the name of each Participant which shall reflect the value of the Deferral Credits and Company Credits, and any earnings (including Dividend Units) thereon, credited to a Participant. Deferral Credits shall be credited to a Participant’s Account as of the date the amounts deferred otherwise would have become due or payable. Company Credits shall be credited at such times as the Committee shall direct.

6.2. Investment of Accounts . Amounts credited to a Participant’s Account, other than those described in Section 4.4, will be adjusted for gains and losses to the same extent that equal amounts would have been adjusted if they had been invested as directed by the Participant in the subfund or subfunds designated by the Committee. Amounts described in Section 4.4 will be adjusted as set forth in that section.

6.3. Assumption of Risk . The Participant, by electing to make deferrals under this Plan, assumes all risk in connection with any decrease in value of the Participant’s Account.

6.4. Charges Against Accounts . There shall be charged against each Participant’s bookkeeping account any payments made to the Participant or the Participant’s Beneficiary in accordance with Section 5.

Section 7

FUNDING

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herein shall be construed to give a Participant, Beneficiary or any other person or persons any right, title, interest or claim in or to any specific asset, fund, reserve, account or property of any kind whatsoever owned by the Company or in which it may have any right, title or interest now or in the future. After benefits shall have been paid to or with respect to a Participant and such payment purports to cover in full the benefit hereunder, such former Participant or other person or persons, as the case may be, shall have no further right or interest in the other assets of the Company and its Affiliates in connection with this Plan.

Section 8

FORFEITURE OF BENEFITS

All unpaid benefits under this Plan accrued under Section 4.6 shall be permanently forfeited if the Committee determines that the Participant, either before or after the Participant’s Termination of Employment or Disability, or before the Participant’s death:

	(a)	engaged in criminal or fraudulent conduct resulting in a hardship to the Company or an Affiliate; or
	(b)	breached the Participant’s written employment agreement with the Company or an Affiliate.

Section 9

ADMINISTRATION

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9.3. Procedures . The Committee may from time to time adopt such rules and procedures as it deems appropriate to assist in the administration of the Plan.

9.4. Claim for Benefits . No employee or other person shall have any claim or right to payment of any amount hereunder until payment has been authorized and directed by the Committee.

	(a)	the specific reasons for the denial,
	(b)	the specific references to the pertinent provisions of this Plan on which the denial is based,
	(c)	a description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary, and
	(d)	an explanation of the claims review procedure set forth in this Section.

9.5.3. General Rules .

(a)

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	(b)	All decisions on original claims shall be made by the Committee and requests for a review of denied claims shall be made by the Committee.
	(c)	The Committee may, in its discretion, hold one or more hearings on a claim or a request for a review of a denied claim.
	(d)	Claimants may be represented by a lawyer or other representative at their own expense, but the Committee reserves the right to require the claimant to furnish written authorization. A claimant’s representative shall be entitled to copies of all notices given to the claimant.
	(e)	The decision of the Committee on an original claim or on a request for a review of a denied claim shall be served on the claimant in writing. If a decision or notice is not received by a claimant within the time specified, the claim or request for a review of a denied claim shall be deemed to have been denied.
	(f)	Prior to filing a claim or a request for a review of a denied claim, the claimant or the claimant’s representative shall have a reasonable opportunity to review a copy of this Plan Statement and all other pertinent documents in the possession of the Company and its Affiliates.

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Section 10

MISCELLANEOUS

10.3. Tax Withholding . The Company shall withhold the amount of any federal, state or local income tax or other tax required to be withheld by the Company under applicable law with respect to any amount payable under the Plan. Any cash payable in lieu of fractional shares shall be applied to the payment of tax withholding. The Participant shall not be liable for any tax withholding.

10.4. Expenses . All expenses of administering the Plan shall be borne by the Company.

10.5. Governing Law . Except to the extent that federal law is controlling, the Plan shall be construed and enforced in accordance with and governed by the laws of the State of Minnesota.

10.6. Amendment and Termination . The Company reserves the power to unilaterally amend this Plan at any time, either prospectively or retroactively or both by action of the Committee. The Committee may likewise terminate or curtail the benefits of this Plan both with regard to persons expecting to receive benefits in the future and persons already receiving benefits at the time of such action; provided, however, that the Committee may not amend or terminate the Plan with respect to benefits that have accrued and are vested pursuant to Section 4 in any manner that reduces the amount of such benefits or alters the effect of any participant election previously filed with the Company. No modification of the terms of this Plan shall be effective unless it is in writing and signed on behalf of the Company by a person authorized to execute such writing. No oral representation concerning the interpretation or effect of this Plan shall be effective to amend the Plan. To the extent permissible under section 409A of the Code and related Treasury regulations and guidance, including but not limited to such guidance and regulations as may be issued after the effective date of this Plan, if there is a termination of the Plan, the Company shall have the right, in its sole discretion, and notwithstanding any elections made by the Participant, to pay all benefits in a lump sum following such termination as soon as practicable subject to the limitations prescribed under section 409A of the Code and the regulations thereunder.

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determining the purpose, meaning or intent of any provision hereof. This Plan shall be construed and this Plan shall be administered to create an unfunded plan providing deferred compensation to a select group of management or highly compensated employees so that it is exempt from the requirements of Parts 2, 3 and 4 of Title I of ERISA and qualifies for a form of simplified, alternative compliance with the reporting and disclosure requirements of Part 1 of Title I of ERISA.

Date:			DONALDSON COMPANY, INC.

			By

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Exhibit 10-U

DONALDSON COMPANY, INC.
DEFERRED STOCK OPTION GAIN PLAN
(2008 Restatement)

As Amended and Restated Effective as of January 1, 2008

DONALDSON COMPANY, INC.
DEFERRED STOCK OPTION GAIN PLAN
(2008 Restatement)

TABLE OF CONTENTS

Page

SECTION 1.	HISTORY AND PURPOSE		1
	1.1.	History
	1.2.	Purpose
	1.3.	Relation to Master Stock Plans
SECTION 2.	DEFINITIONS		1
	2.1.	Account
	2.2.	Affiliate
	2.3.	Beneficiary
	2.4.	Board
	2.5.	Change of Control
	2.6.	Committee
	2.7.	Common Stock
	2.8.	Company
	2.9.	Deferral Election
	2.10.	Disability, Disabled
	2.11.	Effective Date
	2.12.	Eligible Employee
	2.13.	Exercise Date
	2.14.	Participant
	2.15.	Plan
	2.16.	Plan Year
	2.17.	Stock Units
	2.18.	Termination of Employment
	2.19.	Vested
SECTION 3.	ELIGIBILITY AND PARTICIPATION		4
	3.1.	Eligibility
	3.2.	Commencement of Participation
	3.3.	Termination of Participation
	3.4.	Overriding Exclusion
SECTION 4.	STOCK UNITS		4
	4.1.	Deferral Elections
	4.2.	Stock Units
	4.3.	Adjustment
	4.4.	Dividend Units
	4.5.	Vesting

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SECTION 5.	TIME AND MANNER OF PAYMENTS		6
	5.1.	Time of Payment
	5.2.	Manner of Payment
	5.3.	Changes in Time and Manner of Payment
	5.4.	Change of Control Distributions
	5.5.	Death Benefit
	5.6.	Beneficiary Designation
SECTION 6.	STOCK UNIT ACCOUNTS		8
	6.1.	Participant Accounts
	6.2.	Charges Against Accounts
SECTION 7.	FUNDING		9
	7.1.	Funding
	7.2.	Corporate Obligation
SECTION 8.	ADMINISTRATION		9
	8.1.	Authority
	8.2.	Liability
	8.3.	Procedures
	8.4.	Claim for Benefits
	8.5.	Claims Procedure
		8.5.1. Original Claim
		8.5.2. Claims Review Procedure
		8.5.3. General Rules
	8.6.	Legal Fees
	8.7.	Errors in Computations
SECTION 9.	MISCELLANEOUS		12
	9.1.	Not an Employment Contract
	9.2.	Nontransferability
	9.3.	Tax Withholding
	9.4.	Expenses
	9.5.	Governing Law
	9.6.	Amendment and Termination
	9.7.	Rules of Interpretation

- ii -

DONALDSON COMPANY, INC.
DEFERRED STOCK OPTION GAIN PLAN
(2008 Restatement)

SECTION 1

HISTORY AND PURPOSE

1.1. History . Since July 25, 1997, Donaldson Company, Inc. has maintained an unfunded, nonqualified deferred compensation for a select group of highly compensated employees, known as the “DONALDSON COMPANY, INC. DEFERRED STOCK OPTION GAIN PLAN”. The Plan, in its most current amended and restated form, is maintained under a document effective January 1, 2005 (the “Prior Plan Statement”). Effective as of January 1, 2008, Donaldson Company, Inc. hereby amends and restates the Plan in the manner hereinafter set forth to: (i) permanently discontinue future deferrals of stock option awards; and (ii) adopt miscellaneous changes necessary in order to comply with final Treasury regulations issued under section 409A of the Code.

1.2. Purpose . The purposes of this Plan are to allow a select group of management and highly compensated employees of the Company to defer the receipt of income that would otherwise be subject to income tax upon exercise of stock options granted by the Company and to attract and retain certain executive employees of outstanding competence.

1.3 Relation to Master Stock Plans . All benefits provided by this Plan are subject to any applicable terms, conditions and restrictions required by the Donaldson Company, Inc. 2001 Master Stock Incentive Plan.

SECTION 2

DEFINITIONS

2.1. Account — the deferred compensation account established under this Plan for a Participant pursuant to Section 6.1.

2.3. Beneficiary — any person or entity validly designated by the Participant in accordance with Section 5 to receive the benefits, if any, payable from the Participant’s Account after the Participant’s death. Designated persons or entities shall not be considered Beneficiaries until the death of the Participant.

2.4. Board — the Board of Directors of the Company.

2.5. Change of Control — the occurrence of a “change in the ownership,” “change in effective control,” and/or a “change in the ownership of a substantial portion of the assets,” as defined under Treasury Regulation § 1.409A 3(i)(5), of the Affected Corporation. For this purpose, the “Affected Corporation” is the Participant’s employer, or any corporation (including the Company) in a chain of corporations in which each corporation is a majority shareholder of another corporation in the chain, ending with the Participant’s employer. A “majority shareholder” is a shareholder owning more than 50 percent of the total fair market value and total voting power of such corporation.

2.6. Committee — the Human Resources Committee of the Board of Directors of the Company.

2.7. Common Stock — the common stock of the Company.

2.8. Company — Donaldson Company, Inc. and, except in determining under Section 2.5 hereof whether or not any Change of Control has occurred, shall include any successor by merger, purchase or otherwise.

2.9. Deferral Election — an election to defer the receipt of gain on an option to buy Common Stock made by an Eligible Employee in accordance with Section 4.1.

2.10. Disability, Disabled — a physical or mental impairment which constitutes total and permanent disability and during which the Eligible Employee is not receiving any payments of an Early Retirement Pension or a Vested Benefit under the Donaldson Company, Inc. Salaried Employees’ Pension Plan (1997 Restatement) (as amended from time to time), and the Eligible Employee either:

	(a)	is, by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, receiving income replacement benefits for a period of not less than three (3) months under an accident and health plan covering employees of the Company; or

	(b)	is eligible to receive and is actually receiving (after the applicable waiting period) benefits under the federal Social Security Act as in effect at the time of the Disability.

Notwithstanding the foregoing, the terms Disability and Disabled shall at all times be interpreted in a manner so as not to violate section 409A of the Internal Revenue Code.

2.11. Effective Date — July 25, 1997, the original effective date of the Plan. The amended and restated Plan document as set forth herein is effective as of January 1, 2008.

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2.12. Eligible Employee — an officer of the Company who is selected by the Committee as provided in Section 3.

2.13. Exercise Date — the date on which an Eligible Employee exercises an option to purchase Common Stock that is subject to a Deferral Election; provided however, that such date shall not be deemed to occur prior to the date on which the Participant tenders mature shares of Common Stock in payment of the option exercise price, by attestation to the ownership of shares. For the purpose of this Plan, shares of Common Stock shall be considered mature if they have been held by the Participant for at least six months and have not been used to pay the exercise price for another stock option exercise during the six months prior to their tender.

2.14. Participant — an Eligible Employee or a former Eligible Employee of the Company or its Affiliates who has any amount credited to his Account in this Plan.

2.15. Plan — the Donaldson Company, Inc. Deferred Stock Option Gain Plan as set forth herein, and as the same may be amended from time to time.

2.16. Plan Year — the twelve (12) consecutive month period ending on any December 31.

2.17. Stock Units — the units credited to a Participant’s Account pursuant to Section 4.2.

2.18. Termination of Employment — the separation from service (within the meaning of Treas. Regs. § 1.409A-1(h)) with the Company Controlled Group, voluntarily or involuntarily, for any reason other than Disability or death. Whether a separation from service has occurred is determined under section 409A of the Code and Treasury Regulation 1.409A-1(h) (i.e., whether the facts and circumstances indicate that the employer and the employee reasonably anticipated that no further services would be performed after a certain date or that the level of bona fide services the employee would perform after such date (whether as an employee or independent contractor) would permanently decrease to no more than twenty percent (20%) of the average level of bona fide services performed (whether as an employee or an independent contractor) over the immediately preceding thirty-six (36) month period (or the full period of services to the employer if the employee has been providing services to the employer less than thirty-six (36) months)). Separation from service shall not be deemed to occur while the employee is on military leave, sick leave or other bona fide leave of absence if the period does not exceed six (6) months or, if longer, so long as the employee retains a right to reemployment with any member of the Company Controlled Group under an applicable statute or by contract. For this purpose, a leave is bona fide only if, and so long as, there is a reasonable expectation that the employee will return to perform services for any member of the Company Controlled Group. Notwithstanding the foregoing, a twenty-nine (29) month period of absence will be substituted for such six (6) month period if the leave is due to any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of no less than six (6) months and that causes the employee to be unable to perform the duties of his or her position of employment. For this purpose, the “Company Controlled Group” is the Participant’s employer and all persons with whom the employer would be considered a single employer under Code sections 414(b) and 414(c); provided that, in applying Code sections 1563(a)(1), (2) and (3) for purposes of determining a controlled group of corporations under Code section 414(b), the language “at least 50 percent” shall be used instead of “at least 80 percent” each place it appears therein, and in applying Treas. Regs. § 1.414(c)-2 for purposes of determining

- 3 -

trades or businesses that are under common control for purposes of Code section 414(c), “at least 50 percent” shall be used instead of “at least 80 percent” each place it appears therein.

2.19. Vested — nonforfeitable.

SECTION 3

ELIGIBILITY AND PARTICIPATION

3.1. Eligibility . Any officer of the Company who was affirmatively selected by the Committee as an Eligible Employee prior to January 1, 2008.

3.2. Commencement of Participation . An Eligible Employee shall become a Participant in the Plan when the Eligible Employee is first credited with any amount pursuant to Section 4.

3.3. Termination of Participation . A person shall cease to be a Participant as soon as all amounts credited to the Participant’s Account have been paid in full.

3.4. Overriding Exclusion . Notwithstanding anything apparently to the contrary in this Plan Statement or in any written communication, summary, resolution or document or oral communication, no individual shall be a Participant in this Plan, develop benefits under this Plan or be entitled to receive benefits under this Plan (either for himself or herself or his or her survivors) unless such individual is a member of a select group of management or highly compensated employees (as that expression is used in ERISA). If a court of competent jurisdiction, any representative of the U.S. Department of Labor or any other governmental, regulatory or similar body makes any direct or indirect, formal or informal, determination that an individual is not a member of a select group of management or highly compensated employees (as that expression is used in ERISA), such individual shall not be (and shall not have ever been) a Participant in this Plan at any time. If any person not so defined has been erroneously treated as a Participant in this Plan, upon discovery of such error such person’s erroneous participation shall immediately terminate ab initio and upon demand such person shall be obligated to reimburse the Company for all amounts erroneously paid to him or her.

SECTION 4

STOCK UNITS

4.1. Deferral Elections . Effective for options granted on or after January 1, 2008, deferral elections made with respect to stock options shall no longer be accepted. Timely deferral elections made with respect to options granted prior to January 1, 2008 under the Prior Plan Statement shall continue in full force and effect, subject to the following:

(b)

Deferral Elections are limited to options whose exercise price may be paid in shares of Common Stock, and shall obligate the Eligible Employee making the Deferral Election to pay the exercise price and any tax withholding required at

- 4 -

		the time of exercise by attestation to the ownership of shares of Common Stock that the Eligible Employee has owned for at least six months and that have not been used to exercise another option for at least six months.

	(c)	Each Deferral Election shall specify the time and manner (in accordance with Sections 5.1 and 5.2) in which distribution of the portion of the Participant’s Account attributable to that Deferral Election shall be made.

	(d)	Subject to permitted changes to the time and form of payment described in Sections 5.3, a Deferral Election shall be irrevocable once it has been filed with the Committee.

	(e)	Nothing in this Plan shall be deemed to extend the period during which stock options may be exercised, or to otherwise alter the terms of any stock option; provided, however, that if the Participant has not exercised any option subject to a Deferral Election as of the time of payment specified in the Deferral Election, the option shall be deemed exercised as of the time of payment specified in the Deferral Election (which shall become the Exercise Date), and the Participant’s Account shall be credited with the appropriate number of Stock Units under Section 4.2, if any, immediately prior to payment of the Participant’s Account pursuant to Section 5. In no event shall the Participant’s Exercise Date occur after the time of payment specified in the Participant’s Deferral Election.

4.2. Stock Units . As of each Exercise Date, a Participant’s Account shall be credited with the number of Stock Units equal to the difference between (a) and (b):

	(a)	The number of shares of Common Stock obtained by exercise of the option being exercised; and

	(b)	The number of shares of Common Stock required to pay both the exercise price of the option being exercised and any required tax withholding.

4.3. Adjustment . In the event of any change in the outstanding shares of common stock of the Company by reason of any stock split or stock dividend in the form of a split, the Committee shall adjust the number of Stock Units in a Participant’s Account so that such number equals the number of Stock Units in the Account prior to the event, multiplied by a fraction, the denominator of which is the number of Stock Units in the Account prior to the event, and the numerator of which is the number of shares of Common Stock the Participant would have had after the event if the Participant had shares of Common Stock immediately prior to the event equal in number to the number of Stock Units in the Participant’s Account immediately prior to the event. In the event of any dividend (other than a stock dividend in the form of a split), recapitalization, merger, consolidation, spinoff, reorganization, combination or exchange of shares or other similar corporate change, then if the Committee, or the board of directors of a successor corporation, shall determine, in its sole discretion, that such change equitably requires an adjustment in the number of Stock Units then held in the Participant’s Account, such adjustment shall be made by the Committee or said board and shall be conclusive and binding for all purposes of the Plan.

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4.4. Dividend Units . The number of Stock Units in a Participant’s Account shall be automatically increased as of each Common Stock dividend payment date in an amount equal to the number of shares of Common Stock that could be purchased on such dividend payment date with the cash dividends that would be paid on a number of shares of Common Stock equal to the number of Stock Units in the Participant’s Account on the record date for such dividend.

4.5. Vesting . The Accounts of all Participants shall be 100% Vested at all times.

SECTION 5

TIME AND MANNER OF PAYMENTS

	(a)	the Participant’s death;

	(b)	the Participant’s Disability;

	(c)	date that is twenty four (24) months following the Participant’s Termination of Employment; or

	(d)	a date of distribution selected by the Participant (at the time the Participant first becomes eligible to participate, on a form prescribed by the Committee), which may be:

	(i)	a fixed, specified date (e.g., January 1, 2010); or
	(ii)	a date that is a specified number of months after the Participant’s Termination of Employment (not to exceed twenty four (24) months); provided, however, that where payment under this paragraph (d)(ii) is made to any “specified employee” (as defined under section 409A of the Code) on account of Termination of Employment, such payment shall commence no earlier than a date that is six (6) months and one (1) day following a Termination of Employment (or upon the death of the employee, if earlier) if required to comply with section 409A of the Code.

5.2. Manner of Payment . A Participant’s Account will be paid to the Participant in either a single lump-sum payment or in annual installments over a period of not more than twenty (20) years. The Participant must elect a manner of payment at the time the Participant elects his or her date of distribution pursuant to Section 5.1(d). Notwithstanding the foregoing, the following special rules shall apply:

(a)

in the case of the Participant’s death or Disability, payment shall be in a single lump sum;

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	(b)	if the Participant’s Account upon commencement of distribution under Section 5.1 is less then Ten Thousand Dollars ($10,000), payment shall be in a single lump sum; and

	(c)	in the event no election was made by the Participant, payment shall be in a single lump sum.

Payment to the Participant shall be made, net of withholding taxes, exclusively in shares of Common Stock, one share for each Stock Unit distributed. For purposes of determining any tax withholding on a payment, the value of Common Stock will be the market price of such Common Stock as of the close of business on the day prior to the date as of which the payment is made.

	(a)	Such election must be submitted to and accepted by the Committee at least twelve (12) months prior to the date a distribution to the Participant would otherwise have been made or commenced;

	(b)	The election shall have no effect until at least twelve (12) months after the date on which the election is made;

	(c)	The election may change the time when payment shall commence but only if the new date selected by the Participant for commencement shall be a date that is at least five (5) years from the prior date of distribution selected by the Participant;

	(d)	The election may reduce or extend the number of installment payments (subject to the limitations in Section 5.2) so long as the initial installment is delayed at least five (5) years from the date distribution would have otherwise commenced; and

	(e)	If the participant changes the time and/or form of payment under this Section 5.3, payment shall commence as soon as administratively feasible after (but not later than December 31 of the Plan Year in which occurs, or if later, sixty (60) days following) the earliest of the following events:

		(i)	the Participant’s death;
		(ii)	the Participant’s Disability; or
		(iii)	the new date selected by the Participant for commencement.

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balance contained in the Participant’s Account; provided, however, that with respect to any Participant who separated from service before the date of a Change of Control, the balance of the Participant’s Account shall be paid at the time and in the manner as elected by the Participant under this Section 5 hereof (and shall not be commuted to a lump sum or otherwise accelerated by the Change of Control). Where payment under this Section 5.4 is made to any “specified employee” (as defined under section 409A of the Code) on account of Termination of Employment, such payment shall commence as of a date that is no earlier than six (6) months and one (1) day following a Termination of Employment (or upon the death of the employee, if earlier) if required to comply with section 409A of the Code.

5.5. Death Benefit . In the event of a Participant’s death, the Company shall pay the amount of the Participant’s Account as of the date of death (as adjusted from time to time pursuant to Section 4.4) in a lump-sum to the Participant’s designated Beneficiary as soon as administratively feasible after the Participant’s death (but not later than December 31 of the Plan Year in which the Participant’s death occurs, or if later, sixty (60) days following such death). In the event no election was made by the Participant, payment shall be in a single lump-sum stock distribution (and cash for fractional shares).

5.6. Beneficiary Designation . A Participant shall submit to the Company upon initial designation as an Eligible Employee in the Plan, and at such other times as the Participant desires, on a form provided by the Committee, a written designation of the beneficiary or beneficiaries to whom payment of the Participant’s Account under the Plan shall be made in the event of the Participant’s death. Beneficiary designations shall become effective only when received by the Company. Beneficiary designations first received by the Company after the Participant’s death, and any designations in effect at the time a valid subsequent designation is received by the Company, shall be invalid and have no effect. If a Participant has not designated a Beneficiary, or if no designated Beneficiary is living on the date of distribution, the Participant’s Account shall be distributed to those persons entitled to receive the Participant’s benefit under the Donaldson Company, Inc. Salaried Employees’ Pension Plan (1997 Restatement), as amended from time to time.

SECTION 6

STOCK UNIT ACCOUNTS

6.1. Participant Accounts . The Committee shall cause a bookkeeping account to be kept in the name of each Participant which shall reflect the Stock Units credited to a Participant.

6.2. Charges Against Accounts . There shall be charged against each Participant’s bookkeeping account any payments made to the Participant or the Participant’s Beneficiary in accordance with Section 5.

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SECTION 7

FUNDING

SECTION 8

ADMINISTRATION

8.1. Authority . The Plan shall be administered by the Committee, which shall have full discretionary power and authority to administer and interpret the Plan and to determine all factual and legal questions under the Plan, including but not limited to the entitlement of Participants and Beneficiaries, and the amount of their respective interests. Except where necessary to comply with applicable corporate or securities law, or applicable rules of the New York Stock Exchange (e.g., with respect to executive officers), the Committee may delegate or redelegate to one or more persons, jointly or severally, and whether or not such persons are members of the Committee or employees of the Company, such functions assigned to the Committee hereunder as it may from time to time deem advisable. Until withdrawn or redelegated by the Committee, all of the Committee’s delegable power and authority under this Section 8.1 shall be deemed delegated to the Company’s Vice President in charge of executive compensation, excluding only the power and authority to act in such a way as would materially increase the cost of the Plan.

8.2. Liability . No member of the Committee and no director or member of the management of the Company or its Affiliates shall be liable to any persons for any actions taken under the Plan, or

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for any failure to effect any of the objective or purposes of the Plan, by reason of insolvency or otherwise.

8.3. Procedures . The Committee may from time to time adopt such rules and procedures as it deems appropriate to assist in the administration of the Plan.

8.4. Claim for Benefits . No employee or other person shall have any claim or right to payment of any amount hereunder until payment has been authorized and directed by the Committee.

8.5. Claims Procedure . Until modified by the Committee, the claims procedure set forth in this Section 8.5 shall be the claims procedure for the resolution of disputes and disposition of claims arising under the Plan.

8.5.1. Original Claim . Any employee, former employee, or Beneficiary of such employee or former employee may, if the employee, former employee or Beneficiary so desires, file with the Committee a written claim for benefits under the Plan. Within ninety (90) days after the filing of such a claim, the Committee shall notify the claimant in writing whether the claim is upheld or denied in whole or in part or shall furnish the claimant a written notice describing specific special circumstances requiring a specified amount of additional time (but not more than one hundred eighty (180) days from the date the claim was filed) to reach a decision on the claim. If the claim is denied in whole or in part, the Committee shall state in writing:

	(a)	the specific reasons for the denial,

	(b)	the specific references to the pertinent provisions of this Plan on which the denial is based,

	(c)	a description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary, and

	(d)	explanation of the claims review procedure set forth in this Section.

8.5.2. Claims Review Procedure . Within sixty (60) days after receipt of notice that the claim has been denied in whole or in part, the claimant may file with the Committee a written request for a review and may, in conjunction therewith, submit written issues and comments. Within sixty (60) days after the filing of such a request for review, the Committee shall notify the claimant in writing whether, upon review, the claim was upheld or denied in whole or in part or shall furnish the claimant a written notice describing specific special circumstances requiring a specified amount of additional time (but not more than one hundred twenty days (120) from the date the request for review was filed) to reach a decision on the request for review.

8.5.3. General Rules .

(a)

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		review of a denied claim be filed on forms to be furnished by the Committee upon request.

	(b)	All decisions on original claims shall be made by the Committee and requests for a review of denied claims shall be made by the Committee.

	(c)	The Committee may, in its discretion, hold one or more hearings on a claim or a request for a review of a denied claim.

	(d)	Claimants may be represented by a lawyer or other representative at their own expense, but the Committee reserves the right to require the claimant to furnish written authorization. A claimant’s representative shall be entitled to copies of all notices given to the claimant.

	(e)	The decision of the Committee on an original claim or on a request for a review of a denied claim shall be served on the claimant in writing. If a decision or notice is not received by a claimant within the time specified, the claim or request for a review of a denied claim shall be deemed to have been denied.

	(f)	Prior to filing a claim or a request for a review of a denied claim, the claimant or the claimant’s representative shall have a reasonable opportunity to review a copy of this Plan Statement and all other pertinent documents in the possession of the Company and its Affiliates.

8.6. Legal Fees . If the Company does not pay the benefits required under the terms of the Plan for reasons other than the insolvency of the Company, the Company agrees to reimburse any Participant for all legal fees incurred in enforcing his or her claim to benefits under the Plan. Notwithstanding the foregoing, to the extent required to comply with the provisions of section 409A of the Code, no reimbursement of expenses incurred by the Participant during any taxable year shall be made after the last day of the following taxable year.

8.7. Errors in Computations . The Committee shall not be liable or responsible for any error in the computation of any benefit payable to or with respect to any Participant resulting from any misstatement of fact made by the Participant or by or on behalf of any Beneficiary to whom such benefit shall be payable, directly or indirectly, to the Committee, and used by the Committee in determining the benefit. The Committee shall not be obligated or required to increase the benefit payable to or with respect to such Participant which, on discovery of the misstatement, is found to be understated as a result of such misstatement of the Participant. However, the benefit of any Participant which is overstated by reason of any such misstatement or any other reason shall be reduced to the amount appropriate in view of the truth (and to recover any prior overpayment).

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SECTION 9

MISCELLANEOUS

9.1. Not an Employment Contract . This Plan is not and shall not be deemed to constitute a contract of employment between the Company and any employee or other person, nor shall anything herein contained be deemed to give any employee or other person any right to be retained in the Company’s employ or in any way limit or restrict the Company’s right or power to discharge any employee or other person at any time and to treat him without regard to the effect which such treatment might have upon the employee as a Participant in the Plan.

9.2. Nontransferability . A Participant’s rights and interest under the Plan, including amounts payable, may not be assigned, alienated, pledged or transferred except, in the event of a Participant’s death to his Beneficiary. No benefit payable under this Plan shall be subject to attachment, garnishment, execution following judgment or other legal process before actual payment to the Participant or Beneficiary.

9.3. Tax Withholding . The Company shall withhold the amount of any federal, state or local income tax or other tax required to be withheld by the Company under applicable law with respect to any amount payable under the Plan. Any cash payable in lieu of fractional shares shall be applied to the payment of tax withholding. The Participant shall not be liable for any tax withholding.

9.4. Expenses . All expenses of administering the Plan shall be borne by the Company.

9.5. Governing Law . Except to the extent that federal law or Delaware General Corporation law is controlling, the Plan shall be construed and enforced in accordance with and governed by the laws of the State of Minnesota.

9.6. Amendment and Termination . The Company reserves the power to unilaterally amend this Plan at any time, either prospectively or retroactively or both by action of the Committee. The Committee may likewise terminate or curtail the benefits of this Plan both with regard to persons expecting to receive benefits in the future and persons already receiving benefits at the time of such action; provided, however, that the Committee may not amend or terminate the Plan with respect to benefits that have accrued and are vested pursuant to Section 4 in any manner that reduces the amount of such benefits or alters the effect of any Participant election previously filed with the Company. No modification of the terms of this Plan shall be effective unless it is in writing and signed on behalf of the Company by a person authorized to execute such writing. No oral representation concerning the interpretation or effect of this Plan shall be effective to amend the Plan. To the extent permissible under section 409A of the Code and related Treasury regulations and guidance, including but not limited to such guidance and regulations as may be issued after the effective date of this Plan, if there is a termination of the Plan, the Company shall have the right, in its sole discretion, and notwithstanding any elections made by the Participant, to pay all benefits in a lump sum following such termination as soon as practicable subject to the limitations prescribed under section 409A of the Code and the regulations thereunder.

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9.7. Rules of Interpretation . The titles given to the various sections of this Plan are inserted for convenience of reference only and are not part of this Plan, and they shall not be considered in determining the purpose, meaning or intent of any provision hereof. This Plan shall be construed and this Plan shall be administered to create an unfunded plan providing deferred compensation to a select group of management or highly compensated employees so that it is exempt from the requirements of Parts 2, 3 and 4 of Title I of ERISA and qualifies for a form of simplified, alternative compliance with the reporting and disclosure requirements of Part 1 of Title I of ERISA.

Date:			DONALDSON COMPANY, INC.

			By

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Exhibit 10-V

DONALDSON COMPANY, INC.
EXCESS PENSION PLAN
(2008 Restatement)

As Amended and Restated Effective as of January 1, 2008

DONALDSON COMPANY, INC.
EXCESS PENSION PLAN
(2008 Restatement)

TABLE OF CONTENTS

				Page

SECTION 1.	HISTORY AND PURPOSE			1

	1.1.		History
	1.2.		Purpose

SECTION 2.	DEFINITIONS			1

	2.1.		Account
	2.2.		Affiliate
	2.3.		Beneficiary
	2.4.		Board
	2.5.		Change of Control
	2.6.		Code
	2.7.		Committee
	2.8.		Company
	2.9.		Compensation
	2.10.		Compensation Credit
	2.11.		Deferral Credit
	2.12.		Deferred Compensation Plan
	2.13.		Disability, Disabled
	2.14.		Effective Date
	2.15.		Eligible Employee
	2.16.		ERISA
	2.17.		Participant
	2.18.		Pay Credit
	2.19.		Pension Account Balance
	2.20.		Pension Plan
	2.21.		Plan
	2.22.		Plan Year
	2.23.		Termination of Employment
	2.24.		Vested

SECTION 3.	ELIGIBILITY AND PARTICIPATION			4

	3.1.		Eligibility
	3.2.		Commencement of Participation
	3.3.		Termination of Participation
	3.4.		Overriding Exclusion

SECTION 4.	CREDITED AMOUNTS			5

	4.1.	Compensation Credit
	4.2.	415 Credit
	4.3.	Vesting

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SECTION 5.	TIME AND MANNER OF PAYMENTS			6

	5.1.	Time of Payment
	5.2.	Manner of Payment
	5.3.	Changes in Time and Manner of Payment
	5.4.	Change of Control Distributions
	5.5.	Death Benefit
	5.6.	Beneficiary Designation

SECTION 6.	ACCOUNTS			8

	6.1.	Participant Accounts
	6.2.	Investment of Accounts
	6.3.	Charges Against Accounts

SECTION 7.	FUNDING			9

	7.1.	Funding
	7.2.	Corporate Obligation

SECTION 8.	FORFEITURE OF BENEFITS			9

SECTION 9.	ADMINISTRATION			10

	9.1.	Authority
	9.2.	Liability
	9.3.	Procedures
	9.4.	Claim for Benefits
	9.5.	Claims Procedure
		9.5.1.	Original Claim
		9.5.2.	Claims Review Procedure
		9.5.3.	General Rules
	9.6.	Legal Fees
	9.7.	Errors in Computations

SECTION 10.	MISCELLANEOUS			12

	10.1.	Not an Employment Contract
	10.2.	Nontransferability
	10.3.	Tax Withholding
	10.4.	Expenses
	10.5.	Governing Law
	10.6.	Amendment and Termination
	10.7.	Rules of Interpretation

- ii -

DONALDSON COMPANY, INC.
EXCESS PENSION PLAN
(2008 Restatement)

SECTION 1

HISTORY AND PURPOSE

1.1. History . Since 1987, Donaldson Company, Inc. has maintained an unfunded, nonqualified deferred compensation for a select group of highly compensated employees, originally known as the “DONALDSON COMPANY, INC. EXCESS BENEFIT PLAN” and renamed effective August 31, 1997 as the “DONALDSON COMPANY, INC. EXCESS PENSION PLAN”. The Plan, in its most current amended and restated form, is maintained under a document effective January 1, 2005 (the “Prior Plan Statement”). Effective as of January 1, 2008, Donaldson Company, Inc. hereby amends and restates the Plan in the manner hereinafter set forth to adopt miscellaneous changes necessary in order to comply with final Treasury regulations issued under section 409A of the Code.

1.2. Purpose . The purpose of this Plan is to enable the Company to replace benefits that will not be paid to a select group of management or highly compensated employees under the Donaldson Company, Inc. Salaried Employees’ Pension Plan because of: (i) the limitation on benefits under section 415 of the Code, (ii) the compensation limitation under section 401(a)(17) of the Code, and (iii) the voluntary deferral of compensation under the nonqualified deferred compensation plan maintained by Donaldson Company, Inc. known as the Donaldson Company, Inc. Deferred Compensation and 401(k) Excess Plan and prior nonqualified deferred compensation arrangements.

SECTION 2

DEFINITIONS

2.1. Account — the account established under this Plan for a Participant pursuant to Section 6.1.

business entity but which is otherwise affiliated with the Company, subject to such limitations as the Committee may impose.

2.4. Board — the Board of Directors of the Company.

2.6. Code — the Internal Revenue Code of 1986, including applicable regulations for the specified section of the Code. Any reference in this Plan Statement to a section of the Code, including the applicable regulation, shall be considered also to mean and refer to any subsequent amendment or replacement of that section or regulation.

2.7. Committee — the Human Resources Committee of the Board of Directors of the Company.

2.9. Compensation — the amount of remuneration paid to an Eligible Employee that was treated as “Compensation” for the purpose of calculating Pay Credits.

2.10. Compensation Credit — any amount credited to an Eligible Employee in accordance with Section 4.1.

2.11. Deferral Credit — any amount credited to an Eligible Employee under Section 4.1, 4.2 or 4.3 of the Deferred Compensation Plan.

2.12. Deferred Compensation Plan — the nonqualified deferred compensation plan known as the “Donaldson Company, Inc. Deferred Compensation and 401(k) Excess Plan,” as amended from time to time.

2.13. Disability, Disabled — a physical or mental impairment which constitutes total and permanent disability and during which the Eligible Employee is not receiving any payments of an Early Retirement Pension or a Vested Benefit under the Pension Plan, and the Eligible Employee either:

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	(a)	is, by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, receiving income replacement benefits for a period of not less than three (3) months under an accident and health plan covering employees of the Company; or

	(b)	is eligible to receive and is actually receiving (after the applicable waiting period) benefits under the federal Social Security Act as in effect at the time of the Disability.

Notwithstanding the foregoing, the terms Disability and Disabled shall at all times be interpreted in a manner so as not to violate section 409A of the Internal Revenue Code.

2.14. Effective Date — the amended and restated Plan document as set forth herein is effective as of January 1, 2008.

2.15. Eligible Employee — any executive employee of the Company or its Affiliates who, for the Plan Year at issue, meets all of the requirements of Section 3.1.

2.16. ERISA — the Employee Retirement Income Security Act of 1974, including applicable regulations for the specified section of ERISA. Any reference in this Plan to a section of ERISA, including the applicable regulation, shall be considered also to mean and refer to any subsequent amendment or replacement of that section or regulation.

2.17. Participant — an Eligible Employee or a former Eligible Employee of the Company or its Affiliates who has any amount credited to his or her Account in this Plan.

2.18. Pay Credit — a pay-related amount credited to the Pension Account Balance of a Participant under the Pension Plan.

2.19. Pension Account Balance — the Participant’s “Account Balance” in the Pension Plan, as defined under by Pension Plan.

2.20. Pension Plan — the tax-qualified pension plan known as the “Donaldson Company, Inc. Salaried Employees’ Pension Plan (1997 Restatement),” as amended from time to time.

2.21. Plan — the Donaldson Company, Inc. Excess Pension Plan as set forth herein, and as the same may be amended from time to time.

2.22. Plan Year — the twelve (12) consecutive month period ending on any July 31.

2.23. Termination of Employment — the separation from service (within the meaning of Treas. Regs. § 1.409A-1(h)) with the Company Controlled Group, voluntarily or involuntarily, for any reason other than Disability or death. Whether a separation from service has occurred is determined under section 409A of the Code and Treasury Regulation 1.409A-1(h) ( i.e ., whether the facts and circumstances indicate that the employer and the employee reasonably anticipated that no further services would be performed after a certain date or that the level of bona fide services the employee would perform after such date (whether as an employee or independent contractor) would

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permanently decrease to no more than twenty percent (20%) of the average level of bona fide services performed (whether as an employee or an independent contractor) over the immediately preceding thirty-six (36) month period (or the full period of services to the employer if the employee has been providing services to the employer less than thirty-six (36) months)). Separation from service shall not be deemed to occur while the employee is on military leave, sick leave or other bona fide leave of absence if the period does not exceed six (6) months or, if longer, so long as the employee retains a right to reemployment with any member of the Company Controlled Group under an applicable statute or by contract. For this purpose, a leave is bona fide only if, and so long as, there is a reasonable expectation that the employee will return to perform services for any member of the Company Controlled Group. Notwithstanding the foregoing, a twenty-nine (29) month period of absence will be substituted for such six (6) month period if the leave is due to any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of no less than six (6) months and that causes the employee to be unable to perform the duties of his or her position of employment. For this purpose, the “Company Controlled Group” is the Participant’s employer and all persons with whom the employer would be considered a single employer under Code sections 414(b) and 414(c); provided that, in applying Code sections 1563(a)(1), (2) and (3) for purposes of determining a controlled group of corporations under Code section 414(b), the language “at least 50 percent” shall be used instead of “at least 80 percent” each place it appears therein, and in applying Treas. Regs. § 1.414(c)-2 for purposes of determining trades or businesses that are under common control for purposes of Code section 414(c), “at least 50 percent” shall be used instead of “at least 80 percent” each place it appears therein.

2.24. Vested — nonforfeitable.

SECTION 3

ELIGIBILITY AND PARTICIPATION

3.1. Eligibility . Unless the Committee determines otherwise, an executive employee of the Company or its Affiliates shall be an Eligible Employee for a Plan Year if:

(a)	the employee is entitled to a Pay Credit for the Plan Year and

	(i)	the employee’s rate of Compensation for the Plan Year exceeds the annual compensation limit then in effect under Code section 401(a)(17), or

	(ii)	the employee elects to have a portion of his or her Compensation credited as a “Deferral Credit” under the Deferred Compensation Plan, or

(b)	the employee has a Termination of Employment during the Plan Year, and the Pension Plan benefit payable to the employee at the earliest opportunity

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following such Termination of Employment is limited by reason of the limitation on benefits under Code section 415.

The Committee may discontinue an employee’s active participation in the Plan at any time. In connection with an Eligible Employee’s commencement of participation in the Plan, the Eligible Employee shall elect the time and form of payment of such Participant’s Account as permitted under Section 5, along with such other elections as the Committee deems necessary or desirable under the Plan. For these elections to be valid, the election form must be completed and timely delivered to the Committee and accepted by the Committee within thirty (30) days after the Participant is first credited with any amount pursuant to Section 4.

3.2. Commencement of Participation . An Eligible Employee shall become a Participant in the Plan when the Eligible Employee is first credited with any amount pursuant to Section 4.

3.3. Termination of Participation . A person shall cease to be a Participant as soon as all amounts credited to the Participant’s Account have been paid in full.

3.4. Overriding Exclusion . Notwithstanding anything apparently to the contrary in this Plan or in any written communication, summary, resolution or document or oral communication, no individual shall be a Participant in this Plan, develop benefits under this Plan or be entitled to receive benefits under this Plan (either for the employee or his or her survivors) unless such individual is a member of a select group of management or highly compensated employees (as that expression is used in ERISA). If a court of competent jurisdiction, any representative of the U.S. Department of Labor or any other governmental, regulatory or similar body makes any direct or indirect, formal or informal, determination that an individual is not a member of a select group of management or highly compensated employees (as that expression is used in ERISA), such individual shall not be (and shall not have ever been) a Participant in this Plan at any time. If any person not so defined has been erroneously treated as a Participant in this Plan, upon discovery of such error such person’s erroneous participation shall immediately terminate ab initio and upon demand such person shall be obligated to reimburse the Company for all amounts erroneously paid to him or her.

SECTION 4

CREDITED AMOUNTS

4.1. Compensation Credit . The Account of each employee who is an Eligible Employee for a Plan Year shall be credited with a Compensation Credit for that Plan Year equal to the amount, if any, of the Pay Credits the Eligible Employee did not receive under the Pension Plan, but would have been entitled to receive under the Pension Plan for that Plan Year if:

(a)

the Eligible Employee had not elected to have Deferral Credits credited to his or her account under the Deferred Compensation Plan; and

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(b)

the Eligible Employee’s Compensation for purposes of the Pension Plan was not limited by the annual compensation limit under section 401(a)(17) of the Code.

4.2. 415 Credit . The Eligible Employee’s Account, for the Plan Year in which an Eligible Employee’s Termination of Employment occurs, also shall be credited with a one-time Compensation Credit equal to the difference, if any, between the amount that would be payable to the Eligible Employee under the Pension Plan if the Eligible Employee received his or her entire benefit under the Pension Plan in the form of a single lump-sum distribution at the earliest opportunity following such Termination of Employment, and the amount that would have been so payable if the limitation on benefits under Code section 415 did not apply. In the event a former Participant is rehired after receiving a payment under this Plan and the individual later becomes entitled to another payment from this Plan, the amount credited pursuant to this Section 4.3 shall be reduced (but not to less than zero) by any amounts previously credited under this Section.

4.3. Vesting . Subject to the forfeiture provisions of Section 8, the Account of a Participant shall be 100% Vested at all times after the Participant becomes Vested in his or her benefits under the Pension Plan.

SECTION 5

TIME AND MANNER OF PAYMENTS

	(a)	the Participant’s death;

	(b)	the Participant’s Disability;

	(c)	the date that is twenty four (24) months following the Participant’s Termination of Employment; or

	(d)	a date of distribution selected by the Participant (at the time the Participant first becomes eligible to participate, on a form prescribed by the Committee), which may be a date that is a specified number of months after the Participant’s Termination of Employment (not to exceed twenty four (24) months); provided, however, that where payment under this paragraph (d)(ii) is made to any “specified employee” (as defined under section 409A of the Code) on account of Termination of Employment, such payment shall commence no earlier than six (6) months following a Termination of Employment (or upon the death of the employee, if earlier) if required to comply with section 409A of the Code.

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5.2. Manner of Payment . A Participant’s Account will be paid in cash to the Participant in either a single lump-sum payment or in annual installments over a period of not more than twenty (20) years. The Participant must elect a manner of payment at the time the Participant elects his or her date of distribution pursuant to Section 5.1(d). Notwithstanding the foregoing, the following special rules shall apply:

	(a)	in the case of the Participant’s death or Disability, payment shall be in a single lump sum.

	(b)	if the Participant’s Account upon commencement of distribution under Section 5.1 is less then Ten Thousand Dollars ($10,000), payment shall be in a single lump sum.

	(c)	in the event no election was made by the Participant, payment shall be in a single lump sum.

5.3. Changes in Time and Manner of Payment . Notwithstanding the foregoing, a Participant who is actively employed by the Company may make a new election concerning selection of the time and form of payment authorized pursuant to this Section 5.3, subject to the following limitations:

(a)	Such election must be submitted to and accepted by the Committee at least twelve (12) months prior to the date a distribution to the Participant would otherwise have been made or commenced;

(b)	The election shall have no effect until at least twelve (12) months after the date on which the election is made;

(c)	The election may change the time when payment shall commence but only if the new date selected by the Participant for commencement shall be a date that is at least five (5) years from the prior date of distribution selected by the Participant;

(d)	The election may reduce or extend the number of installment payments (subject to the limitations in Section 5.2) so long as the initial installment is delayed at least five (5) years from the date distribution would have otherwise commenced; and

(e)	If the participant changes the time and/or form of payment under this Section 5.3, payment shall commence as soon as administratively feasible after (but not later than December 31 of the Plan Year in which occurs, or if later, sixty (60) days following) the earliest of the following events:

	(i)	the Participant’s death;

	(ii)	the Participant’s Disability; or

	(iii)	the new date selected by the Participant for commencement.

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5.6. Beneficiary Designation . A Participant shall submit to the Company upon initial designation as an Eligible Employee in the Plan, and at such other times as the Participant desires, on a form provided by the Committee, a written designation of the beneficiary or beneficiaries to whom payment of the Participant’s Account under the Plan shall be made in the event of the Participant’s death. Beneficiary designations shall become effective only when received by the Company. Beneficiary designations first received by the Company after the Participant’s death, and any designations in effect at the time a valid subsequent designation is received by the Company, shall be invalid and have no effect. If a Participant has not designated a Beneficiary, or if no designated Beneficiary is living on the date of distribution, the Participant’s Account shall be distributed to those persons entitled to receive the Participant’s benefit under the Donaldson Company, Inc. Salaried Employees’ Pension Plan (1997 Restatement), as amended from time to time.

SECTION 6

ACCOUNTS

6.1. Participant Accounts . The Committee shall cause a bookkeeping account to be kept in the name of each Participant which shall reflect the value of the Compensation Credits and any Initial Credits, and any earnings thereon, credited to a Participant. Compensation Credits other than the Initial Credit described in Section 4.1 shall be credited to a Participant’s Account as of the last day of the Plan Year to which they relate, or, if the Participant dies or elects to commence distribution of his or her Account prior to such last day, at such time as the Committee shall direct.

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6.2. Investment of Accounts . Amounts credited to a Participant’s Account will be adjusted as of the last day of each Plan Year (beginning July 31, 1998) to the same extent that an equal amount would be adjusted if it was part of the Participant’s Pension Account Balance for the Plan Year.

SECTION 7

FUNDING

SECTION 8

FORFEITURE OF BENEFITS

(a)

engaged in criminal or fraudulent conduct resulting in a hardship to the Company or an Affiliate; or

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(b)

breached the Participant’s written employment agreement with the Company or an Affiliate.

SECTION 9

ADMINISTRATION

9.3. Procedures . The Committee may from time to time adopt such rules and procedures as it deems appropriate to assist in the administration of the Plan.

9.4. Claim for Benefits . No employee or other person shall have any claim or right to payment of any amount hereunder until payment has been authorized and directed by the Committee.

- 10 -

	(a)	the specific reasons for the denial,

	(b)	the specific references to the pertinent provisions of this Plan on which the denial is based,

	(c)	a description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary, and

	(d)	an explanation of the claims review procedure set forth in this Section.

9.5.3. General Rules .

	(a)	No inquiry or question shall be deemed to be a claim or a request for a review of a denied claim unless made in accordance with the claims procedure. The Committee may require that any claim for benefits and any request for a review of a denied claim be filed on forms to be furnished by the Committee upon request.

	(b)	All decisions on original claims shall be made by the Committee and requests for a review of denied claims shall be made by the Committee.

	(c)	The Committee may, in its discretion, hold one or more hearings on a claim or a request for a review of a denied claim.

	(d)	Claimants may be represented by a lawyer or other representative at their own expense, but the Committee reserves the right to require the claimant to furnish written authorization. A claimant’s representative shall be entitled to copies of all notices given to the claimant.

	(d)	The decision of the Committee on an original claim or on a request for a review of a denied claim shall be served on the claimant in writing. If a decision or notice is not received by a claimant within the time specified, the claim or request for a review of a denied claim shall be deemed to have been denied.

	(f)	Prior to filing a claim or a request for a review of a denied claim, the claimant or the claimant’s representative shall have a reasonable opportunity to review

- 11 -


		a copy of this Plan Statement and all other pertinent documents in the possession of the Company and its Affiliates.

SECTION 10

MISCELLANEOUS

10.4. Expenses . All expenses of administering the Plan shall be borne by the Company.

10.5. Governing Law . Except to the extent that federal law is controlling, the Plan shall be construed and enforced in accordance with and governed by the laws of the State of Minnesota.

- 12 -

Date:			DONALDSON COMPANY, INC.


			By:

- 13 -

Exhibit 10-AA

NON-EMPLOYEE DIRECTOR
AUTOMATIC STOCK OPTION GRANT
PROGRAM

The following provisions set forth the terms of the Non-Employee Director Automatic Stock Option Grant Program (the “ Program ”) for eligible directors of Donaldson Company, Inc. (the “ Company ”) under the Company’s 2010 Master Stock Incentive Plan (the “ Plan ”). Options granted under this Program are subject to the terms, conditions, and restrictions set forth in the Plan. In the event of any inconsistency between the terms contained herein and in the Plan, the Plan shall govern. All capitalized terms that are not defined herein have the meanings set forth in the Plan.

SECTION 1. ELIGIBILITY

Each member of the Board of Directors of the Company elected or appointed to the Board who is not otherwise an employee or officer of the Company (an “ Eligible Director ”) shall be eligible to receive the grant of Options set forth in the Program, subject to the terms of the Program.

SECTION 2. OPTION GRANTS

2.1 Option Grants and Timing of Grants

	(a)	Annual Option Grants . On the first day following January 1 that the New York Stock Exchange is open for trading (a “ First Trading Day ”) of 2011 and each First Trading Day thereafter, each Eligible Director shall automatically be granted a Nonqualified Stock Option to purchase 7,200 shares of Common Stock (the “ Annual Option Grant ”).
	(b)	Prorated Grant . With respect to an individual who becomes an Eligible Director after the First Trading Day of a calendar year, such Eligible Director’s Annual Option Grant for that year shall equal that number of shares of Common Stock obtained by multiplying 7,200 by a fraction, the numerator of which is the number of whole calendar months remaining in the calendar year and the denominator of which is twelve. Such grant shall be made upon the first day of the calendar month next following the date such individual becomes an Eligible Director.

2.2 Exercise Price of Options

Options shall be granted under the Program with a per share exercise price equal to the closing price of the Common Stock on the First Trading Day on which such options are granted.

2.3 Option Vesting

Each Annual Option Grant may be exercised by the Eligible Director under the following schedule except as otherwise provided in this Agreement. The Option may not be exercised for a

period of one (1) year from the date of grant. Following that one-year period, the Option vests in equal one-third increments:

― one-third of the shares vest on the one-year anniversary date from the date of grant;

― one-third of the shares vest on the two-year anniversary date from the date of grant;

― one-third of the shares vest on the three-year anniversary date from the date of grant.

The Option may be exercised as to any or all of the shares that are vested. An unvested portion of the Option shall only vest so long as:

	(1)	the Eligible Director remains a Director of the Company on the date that the applicable shares vest,

	(2)	the Eligible Director retires or resigns from service as a Director of the Company in accordance with the age and term limits of the Corporate Governance Guidelines of the Company, or

	(3)	the Eligible Director’s service as a Director of the Company is terminated for any other reason and a majority of the members of the Board of Directors other than the Eligible Director consent to the continued vesting of such portion of the Option in accordance with the original vesting schedule.

The vesting of the Option also is subject to acceleration in the event of a Change in Control of Donaldson as defined in the Non-Employee Director Non-Qualified Stock Option Agreement.

2.4 Term of Options

Annual Option Grants shall remain exercisable until the date that is ten years from the grant date (the “ Option Expiration Date ”), unless sooner terminated in accordance with the terms below. In the event that an Eligible Director separates from service due to death, the Options must be exercised on or before the earlier of (i) three years after the date of such termination and (ii) the Option Expiration Date. If an Eligible Director dies after he separates from service, but while the Option is still exercisable, the Option may be exercised until the earlier of (x) three years after the date of death and (y) the Option Expiration Date.

2.5 Payment of Exercise Price

Options granted under the Program shall be exercised by giving notice to the Company (or a brokerage firm designated or approved by the Company) in such form as required by the Company, stating the number of shares of Common Stock with respect to which the Option is being exercised, accompanied by payment in full for such Common Stock, which payment may be, to the extent permitted by applicable laws and regulations, in whole or in part:

(a)

in cash or by check or wire transfer;

	(b)	by having the Company withhold shares of Common Stock that would otherwise be issued on exercise of the Option that have an aggregate Fair Market Value equal to the aggregate exercise price of the shares being purchased under the Option; or
	(c)	by tendering (either actually or by attestation) shares of Common Stock owned by the Eligible Director that have an aggregate Fair Market Value equal to the aggregate exercise price of the shares being purchased under the Option.

SECTION 3. AMENDMENT, SUSPENSION OR TERMINATION

The Board, or the Human Resources Committee of the Board, may amend, suspend or terminate the Program or any portion of it at any time and in such respects as it deems advisable. Except as provided in the Plan, any such amendment, suspension or termination shall not, without the consent of the Eligible Director, impair or diminish any rights of an Eligible Director under an outstanding Option.

SECTION 4. TRANSFERABILITY OF OPTIONS

Options shall not be transferable otherwise than by will or the laws of descent and distribution and may be exercised during the lifetime of the Eligible Director to whom they are granted only by such Eligible Director; provided, however, that notwithstanding the above, Options shall be transferable by the Eligible Director to family members and related estate planning entities as designated in a transfer document in such form as required by the Company, and to the extent permitted under the Plan.

SECTION 5. EFFECTIVE DATE

The Program shall become effective on the Effective Date of the Plan, and any amendment to this Program shall become effective on the date specified by the Board or the Human Resources Committee of the Board. Provisions of the Plan (including any amendments) that are not discussed above, to the extent applicable to Eligible Directors, shall continue to govern the terms and conditions of Options granted to Eligible Directors.

Exhibit 21

Wholly Owned Subsidiaries and Joint Ventures

Wholly Owned Subsidiaries

Donaldson Australasia Pty. Ltd.
Wyong, Australia

Donaldson Filtration Österreich, GmbH
Vienna, Austria

Donaldson Europe, b.v.b.a.
Donaldson Belgie, b.v.b.a.
Leuven, Belgium

Donaldson do Brasil Equipamentos Industriais Ltda
Atibaia, São Paulo, Brazil

Donaldson Canada, Inc.
Brockville, Ontario, Canada

Donaldson Chile, Ltd.

Santiago, Chile

Donaldson Far East Ltd.
Hong Kong, S.A.R., China

Donaldson (Wuxi) Filters Co., Ltd.
Wuxi, China

Donaldson Czech Republic s.r.o.
Klasterec nad Ohri, Czech Republic

Donaldson Industrial CR - Konzern s.r.o.
Kadan, Czech Republic

Donaldson Filtration CR - Konzern s.r.o.
Prague, Czech Republic

Donaldson Scandinavia a.p.s.
Hørsholm, Denmark

Donaldson, s.a.s.
Domjean, France

Donaldson France, s.a.s.

Le Bozec Filtration et Systèmes, s.a.s.
Paris, France

Ultrafilter s.a.s.
Vigny, France

Donaldson Filtration Deutschland GmbH
Haan, Germany

Ultratroc GmbH
Flensburg, Germany

Donaldson Filtration Magyarorszag Kft.
Budapest, Hungary

Donaldson India Filter Systems Pvt. Ltd.
New Delhi, India

P.T. Donaldson Filtration Indonesia
Jakarta, Indonesia

Donaldson Italia s.r.l.
Ostiglia, Italy

Nippon Donaldson Ltd.
Tachikawa, Tokyo, Japan

DLX Capital S.a.r.l.

Donaldson Overseas Holding S.a.r.l.

Donaldson Luxembourg S.a.r.l
Luxembourg City, Luxembourg

Donaldson Filtration (Malaysia) Sdn. Bhd.
Selangor Darul Ehsan, Malaysia

Donaldson, S.A. de C.V.
Prestadora de Servicios Aguascalientes, S. de R.L. de C.V.
Aguascalientes, Mexico

Donaldson Nederland B.V.
Almere, Netherlands

Donaldson Filtration Norway a.s.
Moss, Norway

Donaldson Filtration (Philippines) Inc.
Muntinlupa, Philippines

Donaldson Polska Sp. z.o.o.
Warsaw, Poland

Donaldson Filtration (Asia Pacific) Pte. Ltd.
Changi, Singapore

Donaldson Filtration Slovensko s.r.o.
Bratislava, Slovakia

Donaldson Filtration Systems (Pty) Ltd.
Cape Town, South Africa

Donaldson Korea Co., Ltd.

Seoul, South Korea

Donaldson Ibèrica Soluciones

en Filtración, S.L.

Barcelona, Spain

Donaldson Schweiz GmbH
Zurich, Switzerland

Donaldson Taiwan Ltd.
Taipei, Taiwan

Donaldson Filtration (Thailand) Ltd.
Nonthaburi, Thailand

Donaldson (Thailand) Ltd.
Rayong, Thailand

Donaldson Filtre Sistemleri
Ticaret Limited Sirketi
Istanbul, Turkey

Donaldson Filter Components Ltd.
Donaldson UK Holding Ltd.
Hull, United Kingdom

Donaldson Filtration (GB) Ltd.

Leicester, United Kingdom

Donaldson Capital, Inc.
ASHC, Inc.
Minneapolis, MN USA

Aerospace Filtration Systems, Inc.

Chesterfield, MO USA

Joint Ventures

Advanced Filtration Systems Inc.

Advanced Filtration Services, Inc.

Champaign, Illinois

AFSI Europe s.r.o.

Most, Czech Republic

Ultrafilter (India) Pvt. Ltd.

Bangalore, India

P.T. Panata Jaya Mandiri

Jakarta, Indonesia

Rashed Al-Rashed & Sons - Donaldson Company Ltd.

Dammam, Saudi Arabia

Exhibit 23

Consent of Independent Registered Public Accounting Firm

We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 333-170729, 333-107444, 333-97771, 333-56027, 33-27086, 2-90488 and 33-44624) of Donaldson Company, Inc. of our report dated September 23, 2011 relating to the financial statements, financial statement schedule and the effectiveness of internal control over financial reporting, which appears in this Annual Report on Form 10-K.

/s/ PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP

Minneapolis, Minnesota
September 23, 2011

Exhibit 24

POWER OF ATTORNEY

The undersigned does hereby constitute and appoint William M. Cook, Norman C. Linnell, or Amy C. Becker the undersigned’s attorneys-in-fact and agents for the purpose of signing in the undersigned’s name and on the undersigned’s behalf as a Director of Donaldson Company, Inc., a report on Form 10-K for the Annual Report for Fiscal Year 2011, pursuant to Section 13 or 15(d) of the Securities Act of 1934, of Donaldson Company, Inc., and any and all amendments thereto, and to deliver on the undersigned’s behalf said report so signed for filing with the Securities and Exchange Commission.

Dated: September 23, 2011

	/s/ F. Guillaume Bastiaens
	Signature

	Guillaume Bastiaens
	Print Name

POWER OF ATTORNEY

Dated: September 23, 2011

	/s/ Janet M. Dolan
	Signature

	Janet M. Dolan
	Print Name

POWER OF ATTORNEY

Dated: September 23, 2011

	/s/ Jack W. Eugster
	Signature

	Jack W. Eugster
	Print Name

POWER OF ATTORNEY

Dated: September 23, 2011

	/s/ John F. Grundhofer
	Signature

	John F. Grundhofer
	Print Name

POWER OF ATTORNEY

Dated: September 23, 2011

	/s/ Michael J. Hoffman
	Signature

	Michael J. Hoffman
	Print Name

POWER OF ATTORNEY

Dated: September 23, 2011

	/s/ Paul David Miller
	Signature

	Paul David Miller
	Print Name

POWER OF ATTORNEY

Dated: September 23, 2011

	/s/ Jeffrey Noddle
	Signature

	Jeffrey Noddle
	Print Name

POWER OF ATTORNEY

Dated: September 23, 2011

	/s/ Willard D. Oberton
	Signature

	Willard D. Oberton
	Print Name

POWER OF ATTORNEY

Dated: September 23, 2011

	/s/ Ajita G. Rajendra
	Signature

	Ajita G. Rajendra
	Print Name

POWER OF ATTORNEY

Dated: September 23, 2011

	/s/ John P. Wiehoff
	Signature

	John P. Wiehoff
	Print Name

Exhibit 31-A

Certification of Chief Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, William M. Cook, certify that:


1.	I have reviewed this annual report on Form 10-K of Donaldson Company, Inc.;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

	a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

	b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

	c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

	d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

	a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

	b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Date:	September 23, 2011	/s/ William M. Cook
		William M. Cook
		Chief Executive Officer

Exhibit 31-B

Certification of Chief Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Thomas R. VerHage, certify that:


1.	I have reviewed this annual report on Form 10-K of Donaldson Company, Inc.;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

	a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

	b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

	c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

	d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

	a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

	b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Date:	September 23, 2011	/s/ Thomas R. VerHage
		Thomas R. VerHage
		Chief Financial Officer

Exhibit 32

Pursuant to 18 U.S.C. Section 1350, as created by Section 906 of the Sarbanes–Oxley Act of 2002, the following certifications are being made to accompany the annual report on Form 10-K for the fiscal year ended July 31, 2011 for Donaldson Company, Inc.:

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, William M. Cook, Chief Executive Officer of Donaldson Company, Inc., certify that:


1.	The Annual Report on Form 10-K of Donaldson Company, Inc. for the fiscal year ended July 31, 2011 (the “Report”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2.	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Donaldson Company, Inc.


Date:	September 23, 2011	/s/ William M. Cook
		William M. Cook
		Chief Executive Officer

CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, Thomas R. VerHage, Chief Financial Officer of Donaldson Company, Inc., certify that:


1.	The Annual Report on Form 10-K of Donaldson Company, Inc. for the fiscal year ended July 31, 2011 (the “Report”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2.	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Donaldson Company, Inc.


Date:	September 23, 2011	/s/ Thomas R. VerHage
		Thomas R. VerHage
		Chief Financial Officer

Exhibit 4-A

DONALDSON COMPANY, INC.

and

WELLS FARGO BANK, N.A. Rights Agent

Rights Agreement

Dated as of January 27, 2006

TABLE OF CONTENTS

EXHIBITS

RIGHTS AGREEMENT

W I T N E S S E T H

FORM OF CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS OF SERIES A JUNIOR PARTICIPATING PREFERRED STOCK OF DONALDSON COMPANY, INC.

[Form of Rights Certificate]

Rights Certificate

DONALDSON COMPANY, INC.

[Form of Reverse Side of Rights Certificate]

FORM OF ASSIGNMENT

Certificate

NOTICE

FORM OF ELECTION TO PURCHASE

Certificate

Exhibit 10-R

DONALDSON COMPANY, INC. QUALIFIED PERFORMANCE-BASED COMPENSATION PLAN

Section 1. Establishment and Purpose

Section 2. Definitions

Section 3. Qualified Performance-Based Compensation under Section 162(m) of the Code

Section 4. Effective Date of the Plan

WELLS FARGO BANK, N.A.
Rights Agent

FORM OF
CERTIFICATE OF DESIGNATION, PREFERENCES
AND RIGHTS OF SERIES A JUNIOR
PARTICIPATING PREFERRED STOCK
OF
DONALDSON COMPANY, INC.

DONALDSON COMPANY, INC.
QUALIFIED PERFORMANCE-BASED COMPENSATION PLAN