Exhibit 10.H


DONALDSON COMPANY, INC.

1998 NONEMPLOYEE DIRECTOR STOCK OPTION PLAN


          1.          Purpose
of the Plan. This plan shall be known as the “Donaldson
Company, Inc. 1998 Nonemployee Director Stock Option Plan” and is hereinafter
referred to as the “Plan.” The purpose
of the Plan is to promote the interests of the Company by enhancing its ability
to attract and retain the services of experienced and knowledgeable
outside directors and by providing additional
incentive for such directors to increase their interest in the Company’s long-term success and progress.


          2.          Definitions.
As used herein, the following definitions shall apply:


                       (a)          “Board”
shall mean the Board of Directors
of the Company.


                       (b)          A
“Change in Control” of the Company shall
have occurred if (i) any “person,” as
such term is used in Sections 13(d) and 14(d) of the Exchange Act (other than Donaldson, any trustee or other fiduciary holding
securities under an employee benefit plan of Donaldson or any corporation owned, directly or indirectly, by the
shareholders of Donaldson in
substantially the same proportions as their ownership of stock of Donaldson),
either is or becomes the “beneficial owner” (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly,
of securities of Donaldson representing 30% or more of the combined voting
power of Donaldson’s then outstanding securities, (ii) during any period of two
consecutive years (not including any
period prior to the effective date of this Plan), individuals who at the
beginning of such period constitute
the Board of Donaldson, and any new Director (other than a Director designated by a person who has entered into an
agreement with Donaldson to effect a transaction described in clause (i), (iii)
or (iv) of this subparagraph) whose election by the Board or nomination
for election by Donaldson’s shareholders was approved by a vote of at least
two- thirds (2/3) of the Directors then
still in office who either were Directors at the beginning of the period or
whose election or nomination for election was previously so approved, cease for
any reason to constitute at least a
majority thereof, unless the approval of the election or nomination for election of such new Directors was in
connection with an actual or threatened election or proxy contest, (iii) the
shareholders of Donaldson approve a merger or consolidation of Donaldson with any other corporation, other than
(A) a merger or consolidation which would result in the voting securities of
Donaldson outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity) more than 80%
of the combined voting power of the voting securities of Donaldson or such
surviving entity outstanding immediately after such merger or consolidation or (B) a merger or consolidation
effected to implement a recapitalization of Donaldson (or similar transaction)
in which no “person” (as defined above) acquires more than 30% of the combined
voting power of Donaldson’s then outstanding securities or (iv) the
shareholders of Donaldson approve a plan of complete liquidation of Donaldson
or an agreement for the sale or disposition by Donaldson of all or substantially
all of Donaldson’s assets or any
transaction having a similar effect.


                       (c)          “Code”
shall mean the Internal Revenue Code of 1986, as amended.










                       (d)          “Common
Stock” shall mean the Common Stock, $5 par value, of the Company.


                       (e)          “Company”
or “Donaldson” shall mean Donaldson Company, Inc. and its Subsidiaries.


                       (f)          “Director”
shall mean a member of the
Board.


                       (g)          “Employee”
shall mean any person, including officers and directors, employed by the
Company or any Subsidiary of the Company. The payment of a Director’s fee by the Company shall not be sufficient in and of
itself to constitute “employment” by the Company.


                       (h)          “Exchange
Act” shall mean the Securities Exchange Act of 1934, as amended.


                       (i)          “Market
Value” of a share of Common Stock shall mean the closing sale price of the
Common Stock on such date on the New York Stock Exchange (or on the principal
exchange on which it is then listed if other than the New York Stock Exchange),
as reported in The Wall Street
Journal, or if there was no sale
on that date, then on the nearest preceding date on which a sale occurred.


                       (j)          “Option”
shall mean a stock option granted pursuant to the Plan.


                       (k)          “Optionee”
shall mean an Outside Director who receives an Option. 


                       (1)          “Outside
Director” shall mean a Director who is not an Employee.


                       (m)          “Subsidiary”
shall mean any corporation or other entity of which a majority of the voting power is owned, directly or indirectly, by
Donaldson, or which is otherwise controlled by Donaldson.


          3.          Administration
of Plan. The Plan shall be administered by a committee
(the “Committee”) of three or more persons appointed by the Board of
Directors of the Company and constituted so as to satisfy the legal requirements,
including any such requirements for nonemployee
directors, imposed by Rule 16b-3 of the Exchange Act. All determinations of the
Committee shall be made by a majority of its members. Grants of Options under
the Plan and the amount and nature of
the awards to be granted shall be automatic as described in Section 7, and
no person shall have any discretion to select which Outside Directors shall be
granted Options or to determine the number of shares of Common Stock to be
covered by Options granted to Outside
Directors. However, all questions of interpretation of the Plan or of any Options
issued under it shall be determined by the Committee, and such determination
shall be final and binding upon all persons
having an interest in the Plan.


          4.          Eligibility.
Each Outside Director of the Company who shall be a member of the Board on December 1 of each year shall be
eligible to participate in the Plan.


          5.          Stock
Subject to the Plan. Subject to adjustment as provided in Section 11
hereof, the maximum aggregate number of shares of Common Stock with
respect to which Options


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may be exercised under the Plan
shall be [200,000]. All shares of
Common Stock issued under this Plan shall either be shares held in the treasury
of the Company or previously issued shares purchased by the Company on the open market. If an Option should expire
or become unexercisable for any reason without having been exercised in
full, the unpurchased shares which were
subject thereto shall, unless the Plan shall have been terminated, become
available for future grant under the Plan. Shares of Common Stock issued upon
the exercise of an Option shall be fully paid and nonassessable. No fractional
shares of Common Stock shall be issued upon exercise of an Option under the
Plan.


          6.          Nonqualified
Stock Options. None of the Options granted hereunder shall qualify
as “incentive stock options” within the meaning of Section 422 of the Code.


          7.          Grants
of Options under the Plan. Each Option granted under this Plan shall be evidenced by a written agreement in such form as
the Committee shall from time to time approve, which agreement shall comply
with and be subject to the following terms and conditions:


	
 

	
 

	
 


	
 

	
             (a)          Annual
Option Grants. An Option to purchase 3,600 shares of Common Stock shall be granted automatically on the
 first business day of December (the “Grant Date”) of each year to each
 eligible Director in office on such Grant Date. All grants of Options hereunder shall be automatic and
 nondiscretionary.


	
 

	
 

	
 


	
 

	
             (b)          Option
Exercise Price. The exercise price per share of Common Stock deliverable upon the exercise of an Option
 shall be the Market Value of the Common Stock on the Grant Date.


	
 

	
 

	
 


	
 

	
             (c)          Period
of Options. Each Option shall terminate upon the expiration
 of 10 years from the date on which
 it was granted.


	
 

	
 

	
 


	
 

	
             (d)          Exercise
of Options.


	
 

	
 

	
 


	
 

	
 

	
                (i)          Options
 granted under the Plan shall vest and may be exercised by the Optionee with respect to 1,200 shares on
 the first day of December of each of
 the first three calendar years following the Grant Date; provided, however,
 that an unvested portion of an Option shall only vest so long as
 (1) the Outside Director remains a Director on the date such portion vests,
 (2) the Outside Director retires or resigns from service as a Director in
 accordance with Bylaw 4 of the Bylaws of the Company or (3) the Outside
 Director’s service is terminated for any other reason and a majority of the
 members of the Board other than the terminating
 Director consent to continued vesting of such portion of the Option in accordance with the original vesting schedule
 therefor; provided, further, that if the Optionee shall die
 prior to the time the Option is fully vested, such Option shall continue to
 vest for a period of two years after the Optionee’s death but shall, in all
 events, terminate upon the expiration of the original term of such Option.


	
 

	
 

	
 


	
 

	
 

	
                (ii)          An
 Optionee electing to exercise an Option shall give written notice to the Company of such election, stating
 the number of shares subject to such
 exercise. The full purchase price of such shares shall be tendered with such





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notice of exercise. Payment of the Option price may
 be made in cash (including check, bank draft or money order) or, with the
 consent of the Committee, in whole or in
 part through the delivery or attestation to ownership of Common Stock
 already owned by the Optionee for at least six months and having a Market Value on the day preceding the date of
 exercise equal to the Option price, subject to the approval of the Committee
 and to such rules as the Committee may adopt.


	
 

	
 

	
 


	
 

	
 

	
                (iii)          An
 Option may not be exercised for a fraction of a share.


	
 

	
 

	
 


	
 

	
             (e)          Reload
Options. Each Optionee shall be granted a new option (a
 “Reload Option”) when the payment
 of the exercise price of any Option is made by the delivery of Common
 Stock owned by the Optionee, which Reload Option: (i) shall be for the number of shares of Common Stock provided as
 consideration upon the exercise of the previously granted Option, (ii)
 shall have an expiration date that is the same as the expiration date of the Option to which it relates, (iii) shall have a
 per share exercise price equal to the Market Value of the Common Stock on the
 date of grant of the Reload Option and (iv) shall be exercisable in
 full as of the date of grant of the Reload Option; provided, however,
 that Reload Options shall only be granted to an Optionee during such
 Optionee’s term as an Outside Director of the Company. A Reload Option shall
 be granted only once with respect
 to any shares acquired upon exercise of the original Option to which
 the Reload Option relates.


	
 

	
 

	
 


	
 

	
             (f)          Options
Non-Transferable. No Option granted under the Plan shall be transferable
 by the Optionee otherwise than by will or by the laws of descent and distribution as provided in Section 7(h) hereof.
 During the lifetime of the Optionee, the Options shall be exercisable
 only by such Optionee. No Option or interest therein may be transferred,
 assigned, pledged or hypothecated by the Optionee during such Optionee’s
 lifetime, whether by operation of law or otherwise, or be made subject to execution, attachment or similar process.


	
 

	
 

	
 


	
 

	
             (g)          Termination
of Status as a
 Director. If an Outside
 Director ceases to serve as a
 Director, he or she may, exercise an Option to the extent that he or she was
 entitled to exercise it at the date of such termination, subject to the
 provisions set forth in Section 7(d)(i)
 for continued vesting. To the extent that the Director was not entitled to
 exercise an Option at the date of
 such termination, or if such Director does not exercise such Option
 (which the Director was entitled to exercise) within the time specified
 herein, the Option shall terminate.


	
 

	
 

	
 


	
 

	
             (h)          Effect
of Death. If the Optionee shall
 die prior to the time the Option is fully exercised, such Option may be
 exercised at any time within two years after his or her death by the personal
 representatives or administrators of the Optionee or by any person or persons to whom the Option is
 transferred by will or the applicable laws of descent and
 distribution, to the extent of the full number of shares the Optionee was entitled to purchase under the Option on the
 date of death, subject to the provisions set forth in Section 7(d)(i)
 for continued vesting and subject to the condition that no Option shall be
 exercisable after the expiration of the term of the Option.





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          8.          Term
of Plan. The Plan shall become effective immediately upon its adoption by the Board and shall continue in effect for a term
of ten (10) years unless sooner terminated under Section 11 of the Plan. No Option may be granted after such
termination, but termination of the Plan shall not, without the consent of the
Optionee, alter or impair any rights or
obligations under any Option theretofore granted. Options granted prior to the
termination of the Plan shall remain
in effect until their exercise or expiration in accordance with their terms.


          9.          Limitation
of Rights.


                       (a)          No
Right to Continue as
Director. Neither the Plan, nor
the granting of an Option nor any
other action taken pursuant to the Plan, shall constitute, or be evidence of,
any agreement or understanding,
express or implied, that the Company will retain a Director for any period of time, or at any particular rate of
compensation, nor shall it interfere in any way with any rights which the
Director or the Company may have to terminate the Director’s membership on the Board.


                       (b)          No
Shareholder
Rights for Options. An Optionee shall have no rights as a shareholder with respect to the shares covered by
Options until the date of the issuance to such Optionee of a stock certificate therefor, and no adjustment will be made
for cash dividends or other rights for which the record date is prior to
the date such certificate is issued.


          10.        Adjustments
Upon Changes in Capitalization or
Change in Control.


                       (a)          In
the event that the number of outstanding shares of Common Stock of the Company
is changed by a stock dividend, stock split, reverse stock split, combination, reclassification or similar change in the capital
structure of the Company, appropriate adjustments in the Plan and
outstanding Options shall be made. In the event of any such changes, adjustments shall include, where
appropriate, changes in the aggregate number of shares subject to the Plan, the number of shares subject to outstanding
Options and the Option exercise
prices thereof in order to prevent dilution or enlargement of Option rights.
Such adjustment shall be made by the
Committee, whose determination in that respect shall be final, binding and conclusive.


                       (b)          In
the event of a Change in Control of the Company, any or all outstanding Options shall, notwithstanding any
contrary terms of the written agreement governing such Option, accelerate and become fully vested and
exercisable and shall remain exercisable
thereafter until they are either exercised or expire by their terms.


          11.        Amendment
and Termination of the Plan. The Board may at any time amend, alter,
suspend, or discontinue the Plan, but no amendment, alteration, suspension, or discontinuance shall be made which would impair the
rights of any Optionee under any grant theretofore made, without his or
her consent. Any such amendment or termination of the Plan shall not affect Options already granted, and such
Options shall remain in full force and effect as if this Plan had not
been amended or terminated, unless mutually agreed otherwise by the Optionee and the Board.


          12.        Conditions
Upon Issuance of Shares. Shares of Common Stock shall not be issued pursuant to the exercise of an Option
unless the exercise of such Option and the issuance


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and delivery of such shares
pursuant thereto shall comply with all relevant provisions of law, including,
without limitation, the Securities Act of 1933, as amended, the Exchange Act,
the rules and regulations promulgated thereunder, state securities laws, and
the requirements of any stock exchange upon
which the shares may then be listed, and shall be further subject to the approval of counsel for the Company with
respect to such compliance. Inability of the Company to obtain authority from any regulatory body having
jurisdiction, which authority is deemed
by the Company’s counsel to be necessary to the lawful issuance and sale of any shares of Common Stock
hereunder, shall relieve the Company of any liability in respect of the failure
to issue or sell such shares as to which
such requisite authority shall not have been obtained.


          13.        Governing
Law. The Plan and all determinations made and actions taken pursuant
hereto shall be governed by the law of the State of Delaware and construed accordingly.


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