UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
For the quarterly period ended June 29, 2001
Commission File Number: 001-9249
--------
GRACO INC.
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Minnesota 41-0285640
- ------------------------ ---------------------------------------
(State of incorporation) (I.R.S. Employer Identification Number)
88 - 11th Avenue N.E.
Minneapolis, Minnesota 55413
- ---------------------------------------- ------------
(Address of principal executive offices) (Zip Code)
(612) 623-6000
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
------ -------
31,109,237 common shares were outstanding as of July 27, 2001.
GRACO INC. AND SUBSIDIARIES
INDEX
Page Number
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Earnings 3
Consolidated Balance Sheets 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6-8
Item 2. Management's Discussion and Analysis
of Financial Condition and
Results of Operations 9-11
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
Graco Inc. Stock Incentive Plan, dated May 1, 2001 Exhibit 10.1
Letter Agreement with President and Chief Executive
Officer, dated June 5, 2001 Exhibit 10.2
Executive Long Term Incentive Agreement. Form of agreement
used for award of restricted stock to one executive
officer, dated June 25, 2001 Exhibit 10.3
Key Employee Agreement between the Company and one
executive officer, dated June 25, 2001 Exhibit 10.4
Stock Option Agreement. Form of agreement used for
award of non-incentive stock options to one executive
officer, dated June 25, 2001 Exhibit 10.5
Computation of Net Earnings per Common Share Exhibit 11
PART I
GRACO INC. AND SUBSIDIARIES
Item I. CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands except per share amounts)
(Unaudited)
Thirteen Weeks Ended Twenty-six Weeks Ended
-------------------- ----------------------
June 29, 2001 June 30, 2000 June 29, 2001 June 30, 2000
------------- ------------- ------------- -------------
Net Sales $130,873 $132,768 $240,687 $254,995
Cost of products sold 66,620 66,666 121,296 126,764
--------- --------- --------- ---------
Gross Profit 64,253 66,102 119,391 128,231
Product development 5,711 4,896 11,998 9,920
Selling, marketing and distribution 20,441 22,360 41,113 46,174
General and administrative 9,597 8,810 17,293 17,454
--------- --------- --------- ---------
Operating Earnings 28,504 30,036 48,987 54,683
Interest expense 355 1,302 805 2,537
Other expense 601 803 814 1,240
--------- --------- --------- ---------
Earnings Before Income Taxes 27,548 27,931 47,368 50,906
Income taxes 9,300 9,600 16,000 17,600
--------- --------- --------- ---------
Net Earnings $ 18,248 $ 18,331 $ 31,368 $ 33,306
========= ========= ========= =========
Basic Net Earnings
Per Common Share $ .59 $ .60 $ 1.02 $ 1.09
========= ========= ========= =========
Diluted Net Earnings
Per Common Share $ .58 $ .59 $ 1.00 $ 1.08
========= ========= ========= =========
See notes to consolidated financial statements.
GRACO INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
June 29, 2001 Dec. 29, 2000
------------- -------------
ASSETS
Current Assets:
Cash and cash equivalents $ 7,215 $ 11,071
Accounts receivable, less allowances
of $4,900 and $4,700 89,555 85,836
Inventories 37,568 33,079
Deferred income taxes 11,286 11,574
Other current assets 2,725 2,182
-------- --------
Total current assets 148,349 143,742
Property, Plant and Equipment:
Cost 196,546 186,872
Accumulated depreciation (107,403) (102,883)
-------- --------
89,143 83,989
Other Assets 20,995 10,245
-------- --------
$258,487 $237,976
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable to banks $ 11,890 $ 15,713
Current portion of long-term debt 1,050 1,310
Trade accounts payable 13,847 12,899
Salaries, wages and commissions 8,715 14,532
Accrued insurance liabilities 11,466 10,622
Income taxes payable 7,505 4,642
Other current liabilities 21,814 22,123
-------- --------
Total current liabilities 76,287 81,841
Long-term Debt, less current portion 11,500 18,050
Retirement Benefits and Deferred Compensation 27,160 27,230
Shareholders' Equity:
Common stock 31,087 20,274
Additional paid-in capital 50,087 39,954
Retained earnings 63,386 50,233
Other, net (1,020) 394
-------- --------
Total shareholders' equity 143,540 110,855
-------- --------
$258,487 $237,976
======== ========
See notes to consolidated financial statements.
GRACO INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Twenty-six Weeks
----------------
June 29, 2001 June 30, 2000
------------- -------------
Cash Flows from Operating Activities:
Net Earnings $31,368 $33,306
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 8,946 7,996
Deferred income taxes 123 (23)
Loss on sale of fixed assets 148 116
Change in:
Accounts receivable (2,520) (7,014)
Inventories (2,013) 697
Trade accounts payable 732 (2,197)
Salaries, wages and commissions (5,716) (1,538)
Retirement benefits and deferred (1,040) (2,035)
compensation
Other accrued liabilities 2,421 674
Other (1,064) (667)
------- -------
31,385 29,315
------- -------
Cash Flows from Investing Activities:
Property, plant and equipment additions (12,084) (5,932)
Proceeds from sale of property, plant and 105 78
equipment
Acquisition of business, net of cash acquired (15,949) -
------- -------
(27,928) (5,854)
------- -------
Cash Flows from (for) Financing Activities:
Borrowings on notes payable and lines of credit 106,130 109,026
Payments on notes payable and lines of credit (109,598) (110,496)
Borrowings on long-term debt 21,000 24,090
Payments on long-term debt (27,810) (31,715)
Common stock issued 10,951 6,949
Retirement of common stock (2,025) (18,966)
Cash dividends paid (6,123) (5,703)
------- -------
(7,475) (26,815)
Effect of exchange rate changes on cash 162 1,133
------- -------
Net increase (decrease) in cash and cash equivalents (3,856) (2,221)
Cash and cash equivalents:
Beginning of year 11,071 6,588
------- -------
End of Period $ 7,215 $ 4,367
======== =======
See notes to consolidated financial statements.
GRACO INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. The consolidated balance sheet of Graco Inc. and Subsidiaries (the
Company) as of June 29, 2001, and the related statements of earnings for
the thirteen and twenty-six weeks ended June 29, 2001 and June 30, 2000,
and cash flows for the twenty-six weeks ended June 29, 2001 and June 30,
2000 have been prepared by the Company without being audited.
In the opinion of management, these consolidated statements reflect all
adjustments (consisting of only normal recurring adjustments) necessary to
present fairly the financial position of Graco Inc. and Subsidiaries as of
June 29, 2001, and the results of operations and cash flows for all
periods presented.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. Therefore, these
statements should be read in conjunction with the financial statements and
notes thereto included in the Company's 2000 Form 10-K.
The results of operations for interim periods are not necessarily
indicative of results that will be realized for the full fiscal year.
2. Major components of inventories were as follows (in thousands):
June 29, 2001 Dec. 29, 2000
------------- -------------
Finished products and components $27,053 $26,812
Products and components in various stages
of completion 21,508 20,153
Raw materials and purchased components 21,837 19,259
------------ ------------
70,398 66,224
Reduction to LIFO cost (32,830) ( 33,145)
------------ ------------
$37,568 $33,079
============= =============
GRACO INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
3. Other assets consist of the following (in thousands):
June 29, 2001 Dec. 29, 2000
------------- -------------
Identifiable intangibles, net of accumulated
amortization of $3,828 and $2,761 $ 7,609 $ 5,576
Goodwill, net of accumulated amortization
of $278 and $67 7,993 52
Prepaid pension 4,541 2,976
Other 852 1,641
------------- -------------
$20,995 $10,245
============= =============
4. The Company has three reportable segments; Industrial/Automotive,
Contractor and Lubrication. The Company does not identify assets by
segment. Sales and operating profit by segment for the thirteen and
twenty-six weeks ended June 29, 2001 and June 30, 2000 were as follows (in
thousands):
Thirteen Weeks Ended Twenty-six Weeks Ended
-------------------- ----------------------
June 29, 2001 June 30, 2000 June 29, 2001 June 30,2000
------------- ------------- ------------- ------------
Net Sales
Industrial/Automotive $ 51,449 $ 55,715 $ 99,098 $112,545
Contractor 66,776 66,036 116,677 120,518
Lubrication 12,648 11,017 24,912 21,932
-------- -------- -------- --------
Consolidated $130,873 $132,768 $240,687 $254,995
======== ======== ======== ========
Operating Earnings
Industrial/Automotive $ 12,114 $ 13,760 $ 21,507 $ 26,267
Contractor 15,537 14,966 24,157 25,452
Lubrication 3,072 2,409 6,028 4,725
Unallocated Corporate
expenses (2,219) (1,099) (2,705) (1,761)
-------- -------- -------- --------
Consolidated Operating
Earnings $ 28,504 $ 30,036 $ 48,987 $ 54,683
======== ======== ======== ========
GRACO INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
5. There have been no significant changes to the components of comprehensive
income from those noted on the 2000 Form 10-K. Total comprehensive income
in 2001 was $17.6 million in the second quarter and $30.0 million
year-to-date. In 2000, comprehensive income was $18.4 million for the
second quarter and $32.6 million for the six-month period.
6. The adoption of Statement of Financial Accounting Standards (SFAS) No.
133, "Accounting for Derivative Instruments and Hedging Activities" on
December 30, 2000, resulted in no transition adjustment. See Note A to
financial statements included in the Company's 2000 Form 10-K for a
description of the Company's use of derivative instruments and hedging
activities.
7. On March 19, 2001, the Company purchased ASM Company, Inc. ("ASM") for $16
million cash. ASM manufactures and markets spray tips, guns, poles and
other accessories for the professional painter, and had sales of
approximately $11 million in 2000.
The Company used the purchase method to account for the acquisition. Based
on the results of an independent appraisal, the purchase price was
allocated to net tangible assets of $5 million (net of assumed liabilities
totaling $2 million), identifiable intangible assets of $3 million and
goodwill of $8 million. Identifiable intangible assets include patents,
proprietary technologies, trade names, trademarks, customer list and a
non-compete agreement. Intangibles and goodwill are being amortized on a
straight-line basis over useful lives ranging from 2 to 10 years.
8. On July 20, 2001, the Financial Accounting Standards Board issued SFAS No.
142, "Goodwill and Other Intangible Assets", which will be effective for
the Company in fiscal year 2002. The Company has not yet determined the
impact of SFAS 142 on its financial position and results of operations.
Item 2. GRACO INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
- ---------------------
For the quarter, lower sales and reduced expenses resulted in net earnings very
close to last year's amount. For the six-month period, net earnings were 6
percent lower on a 6 percent decrease in sales. During the first half of 2001
sales were lower than the same period last year due to reduced demand resulting
from economic weakness and the adverse impacts of foreign currency exchange
rates.
The following table sets forth items from the Company's Consolidated Statements
of Earnings as percentages of net sales:
Thirteen Weeks Ended Twenty-six Weeks Ended
-------------------- ----------------------
June 29, 2001 June 30, 2000 June 29, 2001 June 30, 2000
------------- ------------- ------------- -------------
Net Sales 100.0% 100.0% 100.0% 100.0%
Cost of products sold 50.9 50.2 50.4 49.7
Product development 4.4 3.7 5.0 3.9
Selling, marketing and distribution 15.6 16.9 17.1 18.1
General and administrative 7.3 6.6 7.2 6.8
------------- ------------- ------------- -------------
Operating Earnings 21.8 22.6 20.3 21.5
Interest expense 0.3 1.0 0.3 1.0
Other (income) expense, net 0.5 0.6 0.3 0.5
------------- ------------- ------------- -------------
Earnings Before Income Taxes 21.0 21.0 19.7 20.0
Income taxes 7.1 7.2 6.7 6.9
------------- ------------- ------------- -------------
Net Earnings 13.9% 13.8% 13.0% 13.1%
============= ============= ============= =============
Net Sales
Weak economic conditions in North America led to reduced demand and lower sales
in the Industrial / Automotive segment during the first half of 2001. In the
Contractor segment, a second quarter increase in the paint store channel more
than offset a decrease in home center channel sales, which included more initial
stocking orders in 2000. Sales in the Lubrication segment exceeded 2000 sales
for both the three-month and six-month periods due mostly to large sales to key
customers and increased market share. Price increases have not had a significant
impact on sales during the first half of 2001.
Sales by geographic area were as follows:
Thirteen Weeks Ended Twenty-six Weeks Ended
-------------------- ----------------------
June 29, 2001 June 30, 2000 June 29, 2001 June 30,2000
------------- ------------- ------------- ------------
Americas $ 97,095 $ 98,749 $ 76,088 $189,042
Europe 20,857 21,432 41,579 42,996
Asia Pacific 12,921 12,587 23,020 22,957
------------- ------------- ------------- ------------
Consolidated $130,873 $132,768 $240,687 $254,995
============= ============= ============= ============
Changes in foreign exchange rates have adversely impacted sales in 2001.
Translated at consistent exchange rates, sales would have been about 2 percent
higher for the both the quarter and year-to-date. For the six-month period,
Europe would have shown a 3 percent increase in sales compared to last year and
Asia Pacific region would have shown a 7 percent increase over prior year sales.
Gross Profit
Gross profit as a percentage of quarterly net sales dropped to 49.1 percent from
49.8 percent. For the six-month period, gross profit percentage decreased to
49.6 percent from 50.3 percent. The decrease was due mostly to the negative
impact of changes in exchange rates.
Operating Expenses
Total operating expenses for the quarter and year-to-date were lower than last
year. Product development expenses were up due to spending for significant new
product launches in the first part of the year. The Company has taken actions to
reduce the running rate of product development expense. Selling, marketing and
distribution expenses were down from prior year due in part to lower sales-based
incentives. In addition, the first half of last year included costs related to
the launch of Contractor products in the home center channel. General and
administrative expenses are up due mostly to the acquisition of ASM.
Interest Expense and Other Expense
Interest expense decreased due to reduced debt levels.
Liquidity and Capital Resources
- -------------------------------
The Company generated $31 million of cash flow from operating activities in the
first six months of 2001, compared to $29 million for the same period last year.
Significant uses of cash in 2001 include the construction of expanded
manufacturing, warehouse and office facilities in Minneapolis and the
acquisition of ASM.
The Company plans to move ASM operations from their current location in
California to expanded facilities in Sioux Falls, South Dakota. Estimated
incremental costs associated with the move, that would not benefit continuing
activities, were recognized as liabilities assumed in the acquisition and
included in the allocation of acquisition cost. Additional costs associated with
the move, that will benefit continuing operations, will be expensed as incurred.
The Company also plans to restructure the operations of its German subsidiary,
Graco Verfahrenstechnik (GV), including termination of approximately 50
employees, consolidation of product lines, termination of leases, and relocation
of operations to other Company facilities in Belgium and the U.S. No expense has
been recognized in connection with this plan because the amount of benefits to
be paid to terminating employees has not been established.
The Company estimates the costs of relocating ASM and GV will total
approximately $4 million, of which $1.5 million will be a restructuring charge
in the third quarter, with the remainder charged to operations as incurred over
the next twelve months. These moves are expected to enhance operating profit
beginning in the second half of 2002.
The Company had unused lines of credit available at June 29, 2001 totaling $67
million. The available credit facilities and internally generated funds provide
the Company with the financial flexibility to meet liquidity needs.
Outlook
The Company is concerned about the weak North American economy and an economic
slowdown in Europe. While internal sales growth will be challenged in difficult
economic conditions, the Company remains committed to maintaining a high level
of profitability through efficient manufacturing processes and cost containment.
SAFE HARBOR CAUTIONARY STATEMENT
The information in this 10-Q contains "forward-looking statements" about the
Company's expectations of the future, which are subject to certain risk factors
that could cause actual results to differ materially from those expectations.
These factors include economic conditions in the United States and other major
world economies, currency exchange fluctuations and additional factors
identified in Exhibit 99 to the Company's Report on Form 10-K for fiscal year
2000.
PART II
Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Shareholders held on May 1, 2001, William G. Van Dyke,
Mark H. Rauenhorst and J. Kevin Gilligan were elected to the Office of Director
with the following votes:
FOR WITHHELD
--- --------
William G. Van Dyke 27,817,805 457,062
Mark H. Rauenhorst 27,807,475 467,392
J. Kevin Gilligan 27,805,087 469,778
At the same meeting, the following matters were also voted upon with the votes
as indicated:
The adoption of the Graco Inc. Stock Incentive Plan was approved, with the
following votes:
FOR AGAINST ABSTENTIONS BROKER NON-VOTE
- --- ------- ----------- ---------------
19,118,308 9,007,784 142,025 6,750
The selection of Deloitte & Touche LLP as independent auditors for the current
year was approved and ratified, with the following votes:
FOR AGAINST ABSTENTIONS BROKER NON-VOTE
- --- ------- ----------- ---------------
27,844,282 354,013 76,572 0
No other matters were voted on at the meeting.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Description
------ -----------
10.1 Graco Inc. Stock Incentive Plan, dated May 1, 2001
10.2 Letter Agreement with President and Chief Executive Officer,dated
June 5, 2001
10.3 Executive Long Term Incentive Agreement. Form of agreement used
for award of restricted stock to one executive officer, dated
June 25, 2001
10.4 Key Employee Agreement between the Company and one executive
officer, dated June 25, 2001
10.5 Stock Option Agreement. Form of agreement used for award of
non-incentive stock options to one executive officer, dated
June 25, 2001
11 Computation of Net Earnings per Common Share
(b) No reports on Form 8-K have been filed during the quarter for
which this report is filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GRACO INC.
Date: July 31, 2001 By: /s/David A. Roberts
------------- -------------------
David A. Roberts
Chief Executive Officer
Date: July 31, 2001 By: /s/James A. Graner
------------- ------------------
James A. Graner
Vice President & Controller
("duly authorized officer")
GRACO INC.
STOCK INCENTIVE PLAN
Section 1. Purpose; Effect on Prior Plans.
- ------------------------------------------
(a) Purpose. The purpose of the Plan is to promote the interests of
the Company and its shareholders by aiding the Company in attracting and
retaining employees, officers and non-employee Directors capable of assuring the
future success of the Company, to offer such persons incentives to put forth
maximum efforts for the success of the Company's business and to provide such
persons with opportunities for stock ownership in the Company, thereby aligning
the interests of such persons with the Company's shareholders.
(b) Effect on Prior Plans. After the date of shareholder approval of
this Plan, no awards shall be granted under the Company's Long-Term Stock
Incentive Plan or the Company's Non-Employee Directors Stock Option Plan, but
all outstanding awards granted under either of those two plans prior to or on
the date of shareholder approval of this Plan shall remain outstanding in
accordance with the terms thereof. The Company's Employee Stock Incentive Plan
shall remain in effect, and awards will continue to be granted under that plan.
Section 2. Definitions.
- -----------------------
As used in the Plan, the following terms shall have the meanings set
forth below:
(a) "Affiliate" shall mean (i) any entity that, directly or
indirectly through one or more intermediaries, is controlled by the Company and
(ii) any entity in which the Company has a significant equity interest, in each
case as determined by the Committee.
(b) "Award" shall mean any Option, Stock Appreciation Right,
Restricted Stock, Restricted Stock Unit, Performance Award, Dividend Equivalent
or Other Stock-Based Award granted under the Plan.
(c) "Award Agreement" shall mean any written agreement, contract or
other instrument or document evidencing an Award granted under the Plan. Each
Award Agreement shall be subject to the applicable terms and conditions of the
Plan and any other terms and conditions (not inconsistent with the Plan)
determined by the Committee.
(d) "Board" shall mean the Board of Directors of the Company.
(e) "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time, and any regulations promulgated thereunder.
(f) "Committee" shall mean a committee of Directors designated by
the Board to administer the Plan. The Committee shall be comprised of not less
than such number of Directors as shall be required to permit Awards granted
under the Plan to qualify under Rule 16b-3, and each member of the Committee
shall be a "Non-Employee Director" within the meaning of Rule 16b-3 and an
"outside director" within the meaning of Section 162(m) of the Code. The Company
expects to have the Plan administered in accordance with requirements for the
award of "qualified performance-based compensation" within the meaning of
Section 162(m) of the Code.
(g) "Company" shall mean Graco Inc., a Minnesota corporation, and
any successor corporation.
(h) "Director" shall mean a member of the Board.
(i) "Dividend Equivalent" shall mean any right granted under
Section 6(e) of the Plan.
(j) "Eligible Person" shall mean any employee, officer, consultant,
independent contractor or non-employee Director providing services to the
Company or any Affiliate whom the Committee determines to be an Eligible Person.
(k) "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
(l) "Fair Market Value" shall mean, with respect to any property
(including, without limitation, any Shares or other securities), the fair market
value of such property determined by such methods or procedures as shall be
established from time to time by the Committee. Notwithstanding the foregoing,
unless otherwise determined by the Committee, the Fair Market Value of Shares
for purposes of the Plan shall be the last sale price of the Shares as reported
on the composite tape by the New York Stock Exchange on the date immediately
preceding the date as of which fair market value is being determined or, if
there were no sales of Shares reported on the composite tape on such date, on
the most recent preceding date on which there were sales.
(m) "Incentive Stock Option" shall mean an option granted under
Section 6(a) of the Plan that is intended to meet the requirements of Section
422 of the Code or any successor provision.
(n) "Non-Qualified Stock Option" shall mean an option granted under
Section 6(a) of the Plan that is not intended to be an Incentive Stock Option.
(o) "Option"shall mean an Incentive Stock Option or a Non-Qualified
Stock Option, and shall include Reload Options.
(p) "Other Stock-Based Award" shall mean any right granted under
Section 6(f) of the Plan.
(q) "Participant" shall mean an Eligible Person designated to be
granted an Award under the Plan.
(r) "Performance Award" shall mean any right granted under Section
6(d)of the Plan.
(s) "Person" shall mean any individual, corporation, partnership,
association or trust.
(t) "Plan" shall mean this Graco Inc. Stock Incentive Plan, as
amended from time to time.
(u) "Reload Option" shall mean any Option granted under Section
6(a)(iv)of the Plan.
(v) "Restricted Stock" shall mean any Share granted under Section
6(c) of the Plan.
(w) "Restricted Stock Unit" shall mean any unit granted under
Section 6(c) of the Plan evidencing the right to receive a Share (or a cash
payment equal to the Fair Market Value of a Share) at some future date.
(x) "Rule 16b-3"shall mean Rule 16b-3 promulgated by the Securities
and Exchange Commission under the Exchange Act or any successor rule or
regulation.
(y) "Shares" shall mean shares of Common Stock, par value $1.00 per
share, of the Company or such other securities or property as may become subject
to Awards pursuant to an adjustment made under Section 4(c) of the Plan.
(z) "Stock Appreciation Right" shall mean any right granted under
Section 6(b) of the Plan.
Section 3. Administration.
- --------------------------
(a) Power and Authority of the Committee. The Plan shall be
administered by the Committee. Subject to the express provisions of the Plan and
to applicable law, the Committee shall have full power and authority to: (i)
designate Participants; (ii) determine the type or types of Awards to be granted
to each Participant under the Plan; (iii) determine the number of Shares to be
covered by (or the method by which payments or other rights are to be calculated
in connection with) each Award; (iv) determine the terms and conditions of any
Award or Award Agreement; (v) amend the terms and conditions of any Award or
Award Agreement, provided, however, that except as otherwise provided in Section
4(c) hereof, the Committee shall not adjust or amend the exercise price of
Options or Stock Appreciation Rights previously awarded to any Participant,
whether through amendment, cancellation and replacement grant, or any other
means; (vi) accelerate the exercisability of any Award or the lapse of
restrictions relating to any Award; (vii) determine whether, to what extent and
under what circumstances Awards may be exercised in cash, Shares, promissory
notes, other securities, other Awards or other property, or canceled, forfeited
or suspended; (viii) determine whether, to what extent and under what
circumstances cash, Shares, promissory notes, other securities, other Awards,
other property and other amounts payable with respect to an Award under the Plan
shall be deferred either automatically or at the election of the holder thereof
or the Committee; (ix) interpret and administer the Plan and any instrument or
agreement, including an Award Agreement, relating to the Plan; (x) establish,
amend, suspend or waive such rules and regulations and appoint such agents as it
shall deem appropriate for the proper administration of the Plan; and (xi) make
any other determination and take any other action that the Committee deems
necessary or desirable for the administration of the Plan. Unless otherwise
expressly provided in the Plan, all designations, determinations,
interpretations and other decisions under or with respect to the Plan or any
Award shall be within the sole discretion of the Committee, may be made at any
time and shall be final, conclusive and binding upon any Participant, any holder
or beneficiary of any Award and any employee of the Company or any Affiliate.
(b) Power and Authority of the Board of Directors. Notwithstanding
anything to the contrary contained herein, the Board may, at any time and from
time to time, without any further action of the Committee, exercise the powers
and duties of the Committee under the Plan.
Section 4. Shares Available for Awards.
- ---------------------------------------
(a) Shares Available. Subject to adjustment as provided in Section
4(c) of the Plan, the aggregate number of Shares which may be issued under all
Awards under the Plan shall be 1,500,000; provided, however, that a maximum of
1,500,000 Shares shall be available for issuance pursuant to Awards of
Restricted Stock and Restricted Stock Units. Shares to be issued under the Plan
will be authorized but unissued Shares. If any Shares covered by an Award or to
which an Award relates are not purchased or are forfeited, or if an Award
otherwise terminates without delivery of any Shares, then the number of Shares
counted against the aggregate number of Shares available under the Plan with
respect to such Award, to the extent of any such forfeiture or termination,
shall again be available for granting Awards under the Plan. Notwithstanding the
foregoing, the number of Shares available for granting Incentive Stock Options
under the Plan shall not exceed 1,500,000, subject to adjustment as provided in
the Plan and subject to the provisions of Section 422 or 424 of the Code or any
successor provision.
(b) Accounting for Awards. For purposes of this Section 4, if an
Award entitles the holder thereof to receive or purchase Shares, the number of
Shares covered by such Award or to which such Award relates shall be counted on
the date of grant of such Award against the aggregate number of Shares available
for granting Awards under the Plan.
(c) Adjustments. In the event that the Committee shall determine
that any dividend or other distribution (whether in the form of cash, Shares,
other securities or other property), recapitalization, stock split, reverse
stock split, reorganization, merger, consolidation, split-up, spin-off,
combination, repurchase or exchange of Shares or other securities of the
Company, issuance of warrants or other rights to purchase Shares or other
securities of the Company or other similar corporate transaction or event
affects the Shares such that an adjustment is determined by the Committee to be
appropriate in order to prevent dilution or enlargement of the benefits or
potential benefits intended to be made available under the Plan, then the
Committee shall, in such manner as it may deem equitable, adjust any or all of
(i) the number and type of Shares (or other securities or other property) that
thereafter may be made the subject of Awards, (ii) the number and type of Shares
(or other securities or other property) subject to outstanding Awards and (iii)
the purchase or exercise price with respect to any Award; provided, however,
that the number of Shares covered by any Award or to which such Award relates
shall always be a whole number.
(d) Award Limitations Under the Plan. No Eligible Person may be
granted any Award or Awards under the Plan, the value of which Award or Awards
is based solely on an increase in the value of the Shares after the date of
grant of such Award or Awards, for more than 200,000 Shares (subject to
adjustment as provided in Section 4(c) of the Plan) in the aggregate in any
calendar year. The foregoing annual limitation specifically includes the grant
of any Award or Awards representing "qualified performance-based compensation"
within the meaning of Section 162(m) of the Code.
Section 5. Eligibility.
- -----------------------
Any Eligible Person shall be eligible to be designated a
Participant. In determining which Eligible Persons shall receive an Award and
the terms of any Award, the Committee may take into account the nature of the
services rendered by the respective Eligible Persons, their present and
potential contributions to the success of the Company or such other factors as
the Committee, in its discretion, shall deem relevant. Notwithstanding the
foregoing, an Incentive Stock Option may only be granted to full-time or
part-time employees (which term as used herein includes, without limitation,
officers and Directors who are also employees), and an Incentive Stock Option
shall not be granted to an employee of an Affiliate unless such Affiliate is
also a "subsidiary corporation" of the Company within the meaning of Section
424(f) of the Code or any successor provision.
Section 6. Awards.
- ------------------
(a) Options. The Committee is hereby authorized to grant Options to
Eligible Persons with the following terms and conditions and with such
additional terms and conditions not inconsistent with the provisions of the Plan
as the Committee shall determine:
(i) Exercise Price. The purchase price per Share purchasable
under an Option shall be determined by the Committee; provided, however, that
such purchase price shall not be less than 100% of the Fair Market Value of a
Share on the date of grant of such Option.
(ii) Option Term. The term of each Option shall be fixed by
the Committee.
(iii) Time and Method of Exercise. The Committee shall
determine the time or times at which an Option may be exercised in whole or in
part and the method or methods by which, and the form or forms (including,
without limitation, cash, Shares, promissory notes, other securities, other
Awards or other property, or any combination thereof, having a Fair Market Value
on the exercise date equal to the applicable exercise price) in which, payment
of the exercise price with respect thereto may be made or deemed to have been
made.
(iv) Reload Options. The Committee may grant Reload Options,
separately or together with another Option, pursuant to which, subject to the
terms and conditions established by the Committee, the Participant would be
granted a new Option when the payment of the exercise price of a previously
granted option is made by the delivery of Shares owned by the Participant
pursuant to Section 6(a)(iii) hereof or the relevant provisions of another plan
of the Company, and/or when Shares are tendered or withheld as payment of the
amount to be withheld under applicable income tax laws in connection with the
exercise of an Option, which new Option would be an Option to purchase the
number of Shares not exceeding the sum of (A) the number of Shares so provided
as consideration upon the exercise of the previously granted option to which
such Reload Option relates and (B) the number of Shares, if any, tendered or
withheld as payment of the amount to be withheld under applicable tax laws in
connection with the exercise of the option to which such Reload Option relates
pursuant to the relevant provisions of the plan or agreement relating to such
option. Reload Options may be granted with respect to Options previously granted
under the Plan or any other stock option plan of the Company or may be granted
in connection with any Option granted under the Plan or any other stock option
plan of the Company at the time of such grant. Such Reload Options shall have a
per share exercise price equal to the Fair Market Value of one Share as of the
date of grant of the new Option. Any Reload Option shall be subject to
availability of sufficient Shares for grant under the Plan. Shares surrendered
as part or all of the exercise price of the Option to which it relates that have
been owned by the optionee less than six months will not be counted for
purposes of determining the number of Shares that may be purchased pursuant to
a Reload Option.
(b) Stock Appreciation Rights. The Committee is hereby authorized
to grant Stock Appreciation Rights to Eligible Persons subject to the terms of
the Plan and any applicable Award Agreement. A Stock Appreciation Right granted
under the Plan shall confer on the holder thereof a right to receive upon
exercise thereof the excess of (i) the Fair Market Value of one Share on the
date of exercise (or, if the Committee shall so determine, at any time during a
specified period before or after the date of exercise) over (ii) the grant price
of the Stock Appreciation Right as specified by the Committee, which price shall
not be less than 100% of the Fair Market Value of one Share on the date of grant
of the Stock Appreciation Right. Subject to the terms of the Plan and any
applicable Award Agreement, the grant price, term, methods of exercise, dates of
exercise, methods of settlement and any other terms and conditions of any Stock
Appreciation Right shall be as determined by the Committee. The Committee may
impose such conditions or restrictions on the exercise of any Stock Appreciation
Right as it may deem appropriate.
(c) Restricted Stock and Restricted Stock Units. The Committee is
hereby authorized to grant Awards of Restricted Stock and Restricted Stock Units
to Eligible Persons with the following terms and conditions and with such
additional terms and conditions not inconsistent with the provisions of the Plan
as the Committee shall determine:
(i) Restrictions. Shares of Restricted Stock and Restricted
Stock Units shall be subject to such restrictions as the Committee may impose
(including, without limitation, any limitation on the right to vote a Share of
Restricted Stock or the right to receive any dividend or other right or property
with respect thereto), which restrictions may lapse separately or in combination
at such time or times, in such installments or otherwise as the Committee may
deem appropriate.
(ii) Stock Certificates; Delivery of Shares. Any Restricted
Stock granted under the Plan shall be evidenced by issuance of a stock
certificate or certificates, which certificate or certificates shall be held by
the Company. Such certificate or certificates shall be registered in the name of
the Participant and shall bear an appropriate legend referring to the
restrictions applicable to such Restricted Stock. Stock certificates registered
in the name of the Participant shall be delivered to the Participant promptly
after the applicable restrictions lapse or are waived. In the case of Restricted
Stock Units, no Shares shall be issued at the time such Awards are granted. Upon
the lapse or waiver of restrictions and the restricted period relating to
Restricted Stock Units evidencing the right to receive Shares, such Shares shall
be issued and delivered to the holder of the Restricted Stock Units.
(iii) Forfeiture. Except as otherwise determined by the
Committee, upon a Participant's termination of employment (as determined under
criteria established by the Committee) during the applicable restriction period,
all Shares of Restricted Stock and all Restricted Stock Units held by the
Participant at such time shall be forfeited and reacquired by the Company;
provided, however, that the Committee may, when it finds that a waiver would be
in the best interest of the Company, waive in whole or in part any or all
remaining restrictions with respect to Shares of Restricted Stock or Restricted
Stock Units.
(d) Performance Awards. The Committee is hereby authorized to grant
Performance Awards to Eligible Persons subject to the terms of the Plan and any
applicable Award Agreement. A Performance Award granted under the Plan (i) may
be denominated or payable in cash, Shares (including, without limitation,
Restricted Stock and Restricted Stock Units), other securities, other Awards or
other property and (ii) shall confer on the holder thereof the right to receive
payments, in whole or in part, upon the achievement of such performance goals
during such performance periods as the Committee shall establish. Subject to the
terms of the Plan and any applicable Award Agreement, the performance goals to
be achieved during any performance period, the length of any performance period,
the amount of any Performance Award granted, the amount of any payment or
transfer to be made pursuant to any Performance Award and any other terms and
conditions of any Performance Award shall be determined by the Committee.
(e) Dividend Equivalents. The Committee is hereby authorized to
grant Dividend Equivalents to Eligible Persons under which the Participant shall
be entitled to receive payments (in cash, Shares, other securities, other Awards
or other property as determined in the discretion of the Committee) equivalent
to the amount of cash dividends paid by the Company to holders of Shares with
respect to a number of Shares determined by the Committee. Subject to the terms
of the Plan and any applicable Award Agreement, such Dividend Equivalents may
have such terms and conditions as the Committee shall determine.
(f) Other Stock-Based Awards. The Committee is hereby authorized to
grant to Eligible Persons, subject to the terms of the Plan and any applicable
Award Agreements, such other Awards that are denominated or payable in, valued
in whole or in part by reference to, or otherwise based on or related to, Shares
(including, without limitation, securities convertible into Shares), as are
deemed by the Committee to be consistent with the purpose of the Plan. Shares,
or other securities delivered pursuant to a purchase right granted under this
Section 6(f) shall be purchased for such consideration, which may be paid by
such method or methods and in such form or forms (including, without limitation,
cash, Shares, promissory notes, other securities, other Awards or other
property, or any combination thereof), as the Committee shall determine, the
value of which consideration, as established by the Committee, shall not be less
than 100% of the Fair Market Value of such Shares or other securities as of the
date such purchase right is granted.
(g) General.
(i) No Cash Consideration for Awards. Awards may be granted
for no cash consideration or for such other consideration as may be determined
by the Committee or required by applicable law.
(ii) Awards May Be Granted Separately or Together. Awards may,
in the discretion of the Committee, be granted either alone or in addition to,
in tandem with or in substitution for any other Award or any award granted under
any plan of the Company or any Affiliate other than the Plan. Awards granted in
addition to or in tandem with other Awards or in addition to or in tandem with
awards granted under any such other plan of the Company or any Affiliate may be
granted either at the same time as or at a different time from the grant of such
other Awards or awards.
(iii) Forms of Payment under Awards. Subject to the terms of
the Plan and of any applicable Award Agreement, payments or transfers to be made
by the Company or an Affiliate upon the grant, exercise or payment of an Award
may be made in such form or forms as the Committee shall determine (including,
without limitation, cash, Shares, promissory notes, other securities, other
Awards or other property, or any combination thereof), and may be made in a
single payment or transfer, in installments or on a deferred basis, in each case
in accordance with rules and procedures established by the Committee. Such rules
and procedures may include, without limitation, provisions for the payment or
crediting of reasonable interest on installment or deferred payments or the
grant or crediting of Dividend Equivalents with respect to installment or
deferred payments.
(iv) Limits on Transfer of Awards. No Award (other than
Non-Qualified Stock Options, as hereinafter set forth) and no right under any
such Award shall be transferable by a Participant other than by will or by the
laws of descent and distribution; provided, however, that, if so determined by
the Committee, a Participant may, in the manner established by the Committee,
designate a beneficiary or beneficiaries to exercise the rights of the
Participant and receive any property distributable with respect to any Award
upon the death of the Participant. Each Award or right under any such Award
shall be exercisable during the Participant's lifetime only by the Participant
or, if permissible under applicable law, by the Participant's guardian or legal
representative. No Award or right under any such Award may be pledged,
alienated, attached or otherwise encumbered, and any purported pledge,
alienation, attachment or encumbrance thereof shall be void and unenforceable
against the Company or any Affiliate.
(v) Term of Awards. The term of each Award shall be for such
period as may be determined by the Committee.
(vi) Restrictions; Securities Exchange Listing. All Shares or
other securities delivered under the Plan pursuant to any Award or the exercise
thereof shall be subject to such restrictions as the Committee may deem
advisable under the Plan, applicable federal or state securities laws and
regulatory requirements, and the Committee may cause appropriate entries to be
made or legends to be placed on the certificates for such Shares or other
securities to reflect such restrictions. If the Shares or other securities are
traded on a securities exchange, the Company shall not be required to deliver
any Shares or other securities covered by an Award unless and until such Shares
or other securities have been admitted for trading on such securities exchange.
Section 7. Amendment and Termination; Adjustments.
- --------------------------------------------------
(a) Amendments to the Plan. The Board of Directors of the Company
may amend, alter, suspend, discontinue or terminate the Plan; provided, however,
that, notwithstanding any other provision of the Plan or any Award Agreement,
prior approval of the shareholders of the Company shall be required for any
amendment to the Plan that:
(i) requires shareholder approval under the rules or
regulations of the New York Stock Exchange, any other securities exchange or
the National Association of Securities Dealers, Inc. that are applicable to the
Company;
(ii) permits repricing of Options or Stock Appreciation Rights
which is prohibited by Section 3(a)(v) of the Plan;
(iii) increases the number of shares authorized under the Plan
as specified in Section 4(a);
(iv) permits the award of Options or Stock Appreciation Rights
at a price less than 100% of the Fair Market Value of a Share on the date of
grant of such Option or Stock Appreciation Right, as prohibited by Sections
6(a)(i), 6(a)(iv) and 6(b)(ii) of the Plan; or
(v) without such shareholder approval,would cause the Company
to be unable, under the Code, to grant Incentive Stock Options under the Plan.
(b) Amendments to Awards. Subject to the provisions of the Plan,the
Committee may waive any conditions of or rights of the Company under any
outstanding Award, prospectively or retroactively. Except as otherwise provided
herein or in an Award Agreement, the Committee may not amend, alter, suspend,
discontinue or terminate any outstanding Award, prospectively or retroactively,
if such action would adversely affect the rights of the holder of such Award,
without the consent of the Participant or holder or beneficiary thereof.
(c) Correction of Defects, Omissions and Inconsistencies. The
Committee may correct any defect, supply any omission or reconcile any
inconsistency in the Plan or any Award in the manner and to the extent it shall
deem desirable to carry the Plan into effect.
Section 8. Income Tax Withholding.
- ----------------------------------
In order to comply with all applicable federal, state or local
income tax laws or regulations, the Company may take such action as it deems
appropriate to ensure that all applicable federal, state or local payroll,
withholding, income or other taxes, which are the sole and absolute
responsibility of a Participant, are withheld or collected from such
Participant. In order to assist a Participant in paying all or a portion of the
federal and state taxes to be withheld or collected upon exercise or receipt of
(or the lapse of restrictions relating to) an Award, the Committee, in its
discretion and subject to such additional terms and conditions as it may adopt,
may permit the Participant to satisfy such tax obligation by (a) electing to
have the Company withhold a portion of the Shares otherwise to be delivered upon
exercise or receipt of (or the lapse of restrictions relating to) such Award
with a Fair Market Value equal to the minimum statutory amount of such taxes
required to be withheld by the Company or (b) delivering to the Company Shares
other than Shares issuable upon exercise or receipt of (or the lapse of
restrictions relating to) such Award and owned by the Participant for more than
(6) months with a Fair Market Value equal to the amount of such taxes. The
election, if any, must be made on or before the date that the amount of tax to
be withheld is determined.
Section 9. General Provisions.
- ------------------------------
(a) No Rights to Awards. No Eligible Person, Participant or other
Person shall have any claim to be granted any Award under the Plan, and there is
no obligation for uniformity of treatment of Eligible Persons, Participants or
holders or beneficiaries of Awards under the Plan. The terms and conditions of
Awards need not be the same with respect to any Participant or with respect to
different Participants.
(b) Award Agreements. No Participant shall have rights under an
Award granted to such Participant unless and until an Award Agreement shall have
been duly executed on behalf of the Company and, if requested by the Company,
signed by the Participant.
(c) No Rights of Shareholders. Except with respect to Restricted
Stock, neither a Participant nor the Participant's legal representative shall
be, or have any of the rights and privileges of, a shareholder of the Company
with respect to any Shares issuable upon the exercise or payment of any Award,
in whole or in part, unless and until the Shares have been issued.
(d) No Limit on Other Compensation Plans or Arrangements. Nothing
contained in the Plan shall prevent the Company or any Affiliate from adopting
or continuing in effect other or additional compensation plans or arrangements,
and such plans or arrangements may be either generally applicable or applicable
only in specific cases.
(e) No Right to Employment. The grant of an Award shall not be
construed as giving a Participant the right to be retained as an employee of the
Company or any Affiliate, or a non-employee Director to be retained as a
Director, nor will it affect in any way the right of the Company or an Affiliate
to terminate such employment at any time, with or without cause. In addition,
the Company or an Affiliate may at any time dismiss a Participant from
employment free from any liability or any claim under the Plan or any Award,
unless otherwise expressly provided in the Plan or in any Award Agreement.
(f) Governing Law. The internal law, and not the law of conflicts,
of the State of Minnesota, shall govern all questions concerning the validity,
construction and effect of the Plan or any Award, and any rules and regulations
relating to the Plan or any Award.
(g) Severability. If any provision of the Plan or any Award is or
becomes or is deemed to be invalid, illegal or unenforceable in any jurisdiction
or would disqualify the Plan or any Award under any law deemed applicable by the
Committee, such provision shall be construed or deemed amended to conform to
applicable laws, or if it cannot be so construed or deemed amended without, in
the determination of the Committee, materially altering the purpose or intent of
the Plan or the Award, such provision shall be stricken as to such jurisdiction
or Award, and the remainder of the Plan or any such Award shall remain in full
force and effect.
(h) No Trust or Fund Created. Neither the Plan nor any Award shall
create or be construed to create a trust or separate fund of any kind or a
fiduciary relationship between the Company or any Affiliate and a Participant or
any other Person. To the extent that any Person acquires a right to receive
payments from the Company or any Affiliate pursuant to an Award, such right
shall be no greater than the right of any unsecured general creditor of the
Company or any Affiliate.
(i) No Fractional Shares. No fractional Shares shall be issued or
delivered pursuant to the Plan or any Award, and the Committee shall determine
whether cash shall be paid in lieu of any fractional Share or whether such
fractional Share or any rights thereto shall be canceled, terminated or
otherwise eliminated.
(j) Headings. Headings are given to the Sections and subsections of
the Plan solely as a convenience to facilitate reference. Such headings shall
not be deemed in any way material or relevant to the construction or
interpretation of the Plan or any provision thereof.
Section 10. Effective Date of the Plan.
- ---------------------------------------
The Plan shall be subject to approval by the shareholders of the
Company at the annual meeting of shareholders of the Company to be held in 2001
and the Plan shall be effective as of the date of such shareholder approval.
Section 11. Term of the Plan.
- -----------------------------
Awards shall only be granted under the Plan during a 10-year period
beginning on the effective date of the Plan, unless the Plan is terminated
earlier pursuant to Section 7(a) of the Plan. However, unless otherwise
expressly provided in the Plan or in an applicable Award Agreement, any Award
theretofore granted may extend beyond the end of such 10-year period, and the
authority of the Committee provided for hereunder with respect to the Plan and
any Awards, and the authority of the Board of Directors of the Company to amend
the Plan, shall extend beyond the termination of the Plan.
June 5, 2001
Mr. David A. Roberts
3115 Aviara Court
Naperville, IL 60564
Dear Dave:
On behalf of the Board of Directors, we are extremely pleased to extend to you
the following offer to become the President and Chief Executive Officer of Graco
Inc., as follows:
o Duties: You shall be responsible for the general active management of the
Company, and have other duties as specified in Graco's bylaws.
o Base salary: $36,000 per month. Compensation is reviewed annually by
the Management Organization and Compensation Committee of the Board,
provided that this salary shall not be reduced.
o Annual Bonus: Participation in the Annual Bonus Program, with a maximum
payment for 2001 of 90% of base salary actually paid during the year. The
payment for 2001 will be based on the Company's net sales and net earnings
against established targets, weighted 25% on net sales and 75% on net
earnings. The targets and measurements for 2002 and future years will be
established by the Management Organization and Compensation Committee.
o Stock Options: Under our Stock Incentive Plan, an initial option of 50,000
shares will be granted on the first day of your employment. These are 10 year
non-ISO options at the closing market price on the business day immediately
preceding the date of grant, with 25% vesting on the 1st, 2nd, 3rd and 4th
anniversaries. Future grants will be determined annually by the Management
Organization and Compensation Committee.
o Restricted Stock Grant: Under our Stock Incentive Plan, a grant of 3000
shares of restricted stock will be granted on the first day of your
employment. This grant is being made to compensate you for the current
incentive plan opportunity, retirement and other benefits with your current
employer that you will be foregoing in accepting this position with Graco.
The restrictions on this stock will be removed on the third anniversary of
the date of the grant, provided you are still employed by Graco at that time.
The restrictions will also be removed automatically if your employment is
involuntarily terminated for other than gross and willful misconduct or by
death or disability, all as provided in the restricted stock agreement
covering this grant. During the three-year restriction period, you will not
be able to dispose of the stock, but you will receive dividends and be able
to vote the stock.
o Severance Pay: In the event that your employment is terminated involuntarily
for other than gross and willful misconduct, you will be paid an amount equal
to two years of your then base salary. You will also be entitled to a bonus
under the bonus program in effect for the year the termination occurs, based
on the amount of your base salary earned during your employment and the bonus
percentage paid for that year. The bonus will be paid to you (or in the event
of your death, to your estate) at the time of the bonus payments for that
year. The Company will also reimburse you for any premiums you elect to pay
under COBRA. For purposes of this letter, gross and willful misconduct
includes wrongful appropriation of Company funds, serious violation of
Company policy, breach of fiduciary duty or conviction of a felony. Gross and
willful misconduct shall not include any action or inaction by you contrary
to the direction of the Board with respect to any initiative, strategy or
action of the Company, which action or inaction you believe is in the best
interest of the Company. Your employment will be deemed to be involuntarily
terminated if you resign because of a reduction of your compensation,
perquisites provided in this letter or benefits (other than reductions in
benefits resulting from changes in Graco's employee benefit programs
affecting officers generally), or your responsibilities, duties or position
are diminished.
o Key Employee Agreement: You will be extended a Key Employee Agreement, with
terms no less favorable than similar agreements now in place with other
officers of the Company. Your Key Employee Agreement will be effective on the
first day of employment. It provides for two years of base salary, expected
bonus, and benefits if you are terminated within two years after a change of
control of the Company. Also, all stock options and the restricted stock will
automatically vest upon a change of control.
o Vesting of pension benefits. We will amend the supplemental executive
retirement plan to provide that, if your employment is terminated
involuntarily for other than gross and willful misconduct between the second
and fifth anniversary of your start date, you will receive retirement
benefits under the terms of both plans as if the vesting period of those
plans was two years. This benefit would be paid entirely from the
supplemental plan, which is unfunded and a general obligation of Graco. If
you are still employed after the fifth anniversary of your start date, you
will be vested in both plans in accordance with their normal terms.
o Benefits: You will participate in Graco's comprehensive employee
benefit plans.
o Relocation: You will receive relocation assistance in accordance with Graco's
relocation policy, and will be reimbursed for reasonable commuting expenses
incurred prior to such relocation. Steve Bauman will provide additional
information on this benefit to you.
o Club dues: You will receive payment of your regular dues at the Minneapolis
Club.
o Attorneys' fees. Graco will reimburse you for the reasonable fees of your
attorneys in connection with your consideration of this offer.
o Vacation: You will receive a vacation accrual yielding three weeks per year.
As we discussed, we anticipate that you will start on or before June 25, 2001.
You will be elected to the Board of Directors at the meeting on June 26, 2001.
To accept this offer, please sign the enclosed copy of this letter and return it
to me. There are also some routine tests and checks that must be performed, and
forms to complete, that have been explained to you by Steve Bauman. He has also
provided you with a description of our benefits package.
Dave, we are delighted at the prospect of you joining Graco. We know that with
your experience and track record, you are the right person to lead the company
to even greater success in the years to come.
Yours very truly,
/s/George Aristides /s/Marti Morfitt
George Aristides Marti Morfitt
Chairman and Chief Executive Officer Chair Management Organization &
Compensation Committee
Board of Directors
Agreed and Accepted:
/s/David A. Roberts
- ------------------
David A. Roberts
GRACO EXECUTIVE
LONG TERM INCENTIVE AGREEMENT
(Restricted Stock Award)
This Agreement is made as of the 25th day of June, 2001, between Graco
Inc., a Minnesota corporation (the "Company"), and David A. Roberts ("Mr.
Roberts") pursuant to the Graco Inc. Stock Incentive Plan (the "Plan").
Unless otherwise defined herein, terms used herein shall have the meanings
assigned to them under the Plan.
WITNESSETH:
WHEREAS, upon the commencement of his employment with the Company as
President and Chief Executive Officer, the Board of Directors believes that it
is appropriate to make an award of restricted Common Shares to Mr. Roberts; and
WHEREAS, the Plan contemplates that a restricted stock award should be
evidenced by a written agreement, executed by the Company and Mr. Roberts
containing such restrictions, terms and conditions as may be required by the
Plan and the Committee;
NOW THEREFORE, in consideration of the premises and mutual agreements
hereinafter set forth, Mr. Roberts and the Company hereby agree as follows:
1. Award.
------
The Company, effective as of the date of this Agreement, hereby grants to
Mr. Roberts an award (the "Award") of 3000 Common Shares, $1.00 par value,
of the Company ("Common Shares") subject to the restrictions, terms and
conditions set forth below and in the Plan.
2. Vesting of Stock.
-----------------
(a) The Common Shares awarded by this Agreement shall vest in Mr.
Roberts as of the third anniversary of the date of this Agreement,
except as otherwise provided herein.
(b) In the event of a "Change of Control", the Award shall
immediately vest in full. A "Change of Control" means:
(i) acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act of
1934), (a "Person"), of beneficial ownership (within the
meaning of Rule 13d-3 under the 1934 Act) which results in the
beneficial ownership by such Person of 25% or more of either
A. the then outstanding shares of common stock of the
Company (the "Outstanding Company Common Stock") or
B. the combined voting power of the then outstanding
voting securities of the Company entitled to vote
generally in the election of directors (the
"Outstanding Company Voting Securities");
provided, however, that the following acquisitions will not
result in a Change of Control:
(1) an acquisition directly from the Company,
(2) an acquisition by the Company,
(3) an acquisition by any employee benefit plan (or
related trust) sponsored or maintained by the
Company or any corporation controlled by the
Company,
(4) an acquisition by any Person who is deemed to have
beneficial ownership of the Company common stock
or other Company voting securities owned
immediately after said acquisition by the Trust
Under the Will of Clarissa L. Gray ("Trust
Person"), provided that such acquisition does not
result in the beneficial ownership by such Person
of 32% or more of either the Outstanding Company
Common Stock or the Outstanding Company Voting
Securities, and provided further that for purposes
of this Section 2, a Trust Person shall not be
deemed to have beneficial ownership of the Company
common stock or other Company voting securities
owned by The Graco Foundation or any employee
benefit plan of the Company, including without
limitation the Graco Employee Retirement Plan and
the Graco Employee Stock Ownership Plan,
(5) an acquisition by Mr. Roberts or any group that
includes Mr. Roberts, or
(6) an acquisition by any corporation pursuant to a
transaction that complies with clauses (A), (B)
and (C) of Section 2 (a)(iii) below; and
provided, further, that if any Person's beneficial ownership
of the Outstanding Company Common Stock or Outstanding Company
Voting Securities is 25% or more as a result of a transaction
described in clause (1) or (2) above, and such Person
subsequently acquires beneficial ownership of additional
Outstanding Company Common Stock or Outstanding Company Voting
Securities as a result of a transaction other than that
described in clause (1) or (2) above, such subsequent
acquisition will be treated as an acquisition that causes such
Person to own 25% or more of the Outstanding Company Common
Stock or Outstanding Company Voting Securities and be deemed a
Change of Control; and provided further, that in the event any
acquisition or other transaction occurs which results in the
beneficial ownership of 32% or more of either the Outstanding
Company Common Stock or the Outstanding Company Voting
Securities by any Trust Person, the Incumbent Board may by
majority vote increase the threshold beneficial ownership
percentage to a percentage above 32% for any Trust Person; or
(ii) Individuals who, as of the date hereof, constitute the Board
of Directors of the Company (the "Incumbent Board") cease for
any reason to constitute at least a majority of said Board;
provided, however, that any individual becoming a director
subsequent to the date hereof whose election, or nomination
for election by the Company's shareholders, was approved by a
vote of at least a majority of the directors then comprising
the Incumbent Board will be considered as though such
individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial
membership on the Board occurs as a result of an actual or
threatened election contest with respect to the election or
removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a
Person other than the Board; or
(iii) The commencement or announcement of an intention to make a
tender offer or exchange offer, the consummation of which
would result in the beneficial ownership by a Person of 25% or
more of the Outstanding Company Common Stock or Outstanding
Company Voting Securities; or
(iv) The approval by the shareholders of the Company of a
reorganization, merger, consolidation or statutory exchange of
Outstanding Company Common Stock or Outstanding Company Voting
Securities or sale or other disposition of all or
substantially all of the assets of the Company ("Business
Combination") or, if consummation of such Business Combination
is subject, at the time of such approval by stockholders, to
the consent of any government or governmental agency, the
obtaining of such consent (either explicitly or implicitly by
consummation); excluding, however, such a Business Combination
pursuant to which
A. all or substantially all of the individuals and
entities who were the beneficial owners of the
Outstanding Company Common Stock or Outstanding
Company Voting Securities immediately prior to such
Business Combination beneficially own, directly or
indirectly, more than 80% of, respectively, the then
outstanding shares of common stock and the combined
voting power of the then outstanding voting
securities entitled to vote generally in the election
of directors, as the case may be, of the corporation
resulting from such Business Combination (including,
without limitation, a corporation that as a result of
such transaction owns the Company or all or
substantially all of the Company's assets either
directly or through one or more subsidiaries) in
substantially the same proportions as their
ownership, immediately prior to such Business
Combination of the Outstanding Company Common Stock
or Outstanding Company Voting Securities,
B. no Person [excluding any employee benefit plan (or
related trust) of the Company or such corporation
resulting from such Business Combination]
beneficially owns, directly or indirectly, 25% or
more of the then outstanding shares of common stock
of the corporation resulting from such Business
Combination or the combined voting power of the then
outstanding voting securities of such corporation
except to the extent that such ownership existed
prior to the Business Combination, and
C. at least a majority of the members of the board of
directors of the corporation resulting from such
Business Combination were members of the Incumbent
Board at the time of the execution of the initial
agreement, or of the action of the Board, providing
for such Business Combination; or
(v) approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
(vi) A Change of Control shall not be deemed to have occurred
with respect to Mr. Roberts if:
(A) the acquisition of the 25% or greater interest
referred to in Section 2(b)(i) is by a group, acting
in concert, that includes Mr. Roberts; or
(B) if at least 25% of the then outstanding common stock
or combined voting power of the then outstanding
company voting securities (or voting equity
interests) of the surviving corporation or of any
corporation (or other entity) acquiring all or
substantially all of the assets of the Company shall
be beneficially owned, directly or indirectly,
immediately after a reorganization, merger,
consolidation, statutory share exchange, disposition
of assets, liquidation or dissolution referred to in
subsections (v) and (vi) of this Section 2(b) by a
group, acting in concert, that includes Mr. Roberts.
(c) Until a Common Share vests, Mr. Roberts acknowledges that he may
not, and agrees that he shall not, transfer his rights to such
Common Share. Until a Common Share vests, no attempt to transfer
such Common Share, whether voluntary or involuntary, by operation of
law or otherwise, shall vest the transferee with any interest or
right in or with respect to such Common Share.
3. Termination.
------------
(a) If Mr. Roberts (i) is terminated by the Company for any reason
other than gross and willful misconduct, (ii) quits or resigns
because his compensation or benefits are reduced (other than
reductions in benefits resulting from changes in Graco's employee
benefit programs affecting officers generally), his
responsibilities, duties or position are diminished or (iii) dies
or becomes disabled (as determined under the Company's Long Term
Disability Plan) before the vesting date under Section 2(a), then
Mr. Roberts or his estate shall be entitled to receive the
remaining unvested portion of the Award.
(b) If Mr. Roberts terminates employment with the Company for any
other reason, including a termination by the Company for gross and
willful misconduct, his rights to any unvested portion of this Award
shall be immediately and irrevocably forfeited. For purposes of this
Agreement, gross and willful misconduct includes wrongful
appropriation of Company funds, serious violation of Company policy,
breach of fiduciary duty or conviction of a felony. Gross and
willful misconduct shall not include any action or inaction by Mr.
Roberts contrary to the direction of the Board with respect to any
initiative, strategy or action of the Company, which action or
inaction Mr. Roberts believes is in the best interest of the
Company.
4. Issuance and Custody of Certificate.
------------------------------------
(a) The Company shall cause to be issued one or more stock certificates,
registered in the name of Mr. Roberts evidencing the restricted
Common Shares awarded pursuant to Section 1. Each such certificate
shall bear the following legend:
The shares of stock represented by this certificate are
subject to forfeiture and the transferability of this
certificate and the shares of stock represented hereby are
subject to the restrictions, terms and conditions (including
restrictions against transfer) contained in the Graco Inc.
Stock Incentive Plan and an Agreement entered into between the
registered owner of such shares and Graco Inc. A copy of the
Plan and Agreement is on file in the office of the Secretary
of Graco Inc., 88-11th Avenue NE, Minneapolis, Minnesota.
(b) Each certificate issued pursuant to Section 4(a), together with the
stock powers relating to such Common Shares, shall be deposited by
the Company with the Secretary of the Company or a custodian
designated by such Secretary. The Secretary or such custodian shall
issue a receipt to Mr. Roberts evidencing the certificates held
which are registered in the name of Mr. Roberts.
(c) Promptly after any Common Shares vest pursuant to Section 3 of this
Agreement, the Company shall cause to be issued certificates
evidencing such Common Shares, free of the legend provided in
Section 4(a) and shall cause such certificates to be delivered to
Mr. Roberts (or Mr. Roberts' legal representatives, beneficiaries or
heirs).
(d) Mr. Roberts shall not be deemed for any purpose to be, or have
rights as, a shareholder of the Company by virtue of the Award,
until a stock certificate is issued therefor pursuant to Section
4(a).
5. Agreements of Mr. Roberts.
--------------------------
Mr. Roberts acknowledges that: (a) this Agreement is not a contract of
employment and the terms of Mr. Roberts' employment shall not be affected
in any way by this Agreement except as specifically provided in the
Agreement; (b) the Award made by this Agreement shall not confer any legal
rights upon Mr. Roberts for continuation of employment or interfere with
or limit the right of the Company to terminate Mr. Roberts' employment at
any time; (c) the Board may amend, suspend or terminate the Plan or any
part thereof at any time provided that no amendment, suspension or
termination shall be made or effected which would adversely affect any
right of Mr. Roberts with respect to the Award made by this Agreement
without the written consent of Mr. Roberts unless such amendment,
termination or suspension is required by applicable law; (e) and Mr.
Roberts shall not make an election pursuant to Section 83(b) of the
Internal Revenue Code of 1986, with respect to the Award.
6. Legal Compliance Restrictions.
------------------------------
The Company shall not be obligated to issue or deliver any certificates
evidencing Common Shares awarded by this Agreement unless and until the
Company is advised by its counsel that the issuance and delivery of such
certificates are in compliance with all applicable laws, regulations of
governmental authorities and the requirements of the New York Stock
Exchange or any other exchange upon which Common Shares are traded.
The Company shall not be obligated to register any securities pursuant to
the Securities Act of 1933 (as now in effect or as hereinafter amended) or
to take any other affirmative action in order to cause the issuance and
delivery of such certificates to comply with any such law, regulation or
requirement. The Committee may require, as a condition of the issuance and
delivery of such certificates and in order to ensure compliance with such
laws, regulations and requirements, that Mr. Roberts make such agreements
and representations as the Committee, in its sole discretion, deems
necessary or desirable.
7. Withholding Taxes.
------------------
Mr. Roberts agrees to pay or make arrangements for the payment to the
Company of the amount of any taxes that the Company is required by law to
withhold with respect to the Award made by this Agreement. Such payment
shall be due on the date the Company is required to withhold such taxes.
In the event that such payment is not made when due, the Company shall
have the right (a) to retain, or sell within 10 days notice or such longer
notice as may be required by applicable law, a sufficient number of the
Common Shares subject to any Award made to Mr. Roberts in order to cover
all or part of the amount required to be withheld; (b) to deduct, to the
extent permitted by law, from any payment of any kind otherwise due to
such person from the Company all or a part of the amount required to be
withheld or (c) to pursue any other remedy at law or in equity. Mr.
Roberts may satisfy any such tax obligation, in whole or in part, by (i)
electing to have the Company withhold Common Shares otherwise to be
delivered with a fair market value equal to the amount of such tax
obligation, or (ii) electing to surrender to the Company previously owned
Common Shares with a fair market value equal to the amount of such tax
obligation. The election must be made on or before the date that the
amount of tax to be withheld is determined.
8. Stock Splits, Recapitalizations, Acquisitions, etc.
---------------------------------------------------
(a) In the event of any change in the number of outstanding Common
Shares by reason of any stock dividend or split,
recapitalization, merger, consolidation, combination or exchange
of shares or similar corporate change, the number and kind of
shares subject to this Award shall be appropriately adjusted. If
changes in capitalization of the Company other than those
referred to above shall occur, the Committee may, but need not,
make such adjustments in the number and kind of shares available
under this Award as the Committee may deem appropriate.
To the extent permitted by applicable law, the Award of a Common
Share shall be adjusted so that Mr. Roberts shall have the right to
receive under the Award and subject to the Plan securities and other
property (except regular quarterly cash dividends) with respect to
the Award as a result of any stock dividend or split, special cash
dividend, recapitalization, merger, consolidation, combination of
shares or exchange of shares or similar corporate change or
otherwise substantially similar to that Mr. Roberts would have
received with respect to the Common Shares had Mr. Roberts owned the
Common Shares free and clear of the restrictions under this
Agreement. Unless the Committee otherwise determines, Mr. Roberts'
right in respect of such securities and other property shall not
vest until such Common Share would have vested and no such
securities or other property shall be issued or delivered until such
Common Share would be issued or delivered.
(b) Unless the Committee otherwise determines, any securities and
other property (except regular quarterly cash dividends) received
by Mr. Roberts as a result of a corporate change described in
Section 8(a) or otherwise with respect to a Common Share prior to
the date such Common Share vests shall be promptly deposited with
the Secretary or the custodian designated by the Secretary to be
held in custody in accordance with Section 4(b) as though such
securities and other property were part of such Common Share.
9. Notices.
--------
Any notice which either party hereto or the Committee may be required or
permitted to give to the other with respect to the Plan or this Agreement
shall be in writing, and may be delivered personally or by mail, postage
prepaid, addressed as follows:
(a) if to the Company:
Graco Inc.
P.O. Box 1441
Minneapolis, MN 55440-1441
Attention: Vice President, Human Resources
(b) if to the Committee:
Management Organization and Compensation Committee
c/o Vice President, Human Resources
Graco Inc.
P.O. Box 1441
Minneapolis, MN 55440-1441
(c) if to Mr. Roberts:
Mr. David A. Roberts
Chief Executive Officer
Graco Inc.
P.O. Box 1441
Minneapolis, MN 55440-1441
or to such other address as the person to whom the notice is directed
shall have designated in writing to others.
10. Minnesota Law.
--------------
This Agreement is made and accepted in the State of Minnesota. The laws of
the state of Minnesota shall control the interpretation and performance of
the terms of the Plan and of this Agreement.
11. Binding Effect.
---------------
This Agreement shall be binding upon, and shall inure to the benefit of,
the respective successors, assigns, heirs, executors, administrators and
guardians of the parties hereto.
IN WITNESS WHEREOF, the Company and Mr. Roberts have caused this Agreement
to be executed and delivered, all as of the day and year first above written.
/s/David A. Roberts
-----------------------------
David A. Roberts
GRACO INC.
By /s/George Aristides
--------------------------
George Aristides
Chairman
GRACO INC. KEY EMPLOYEE AGREEMENT
AGREEMENT, by and between Graco Inc., a Minnesota corporation (the "Company")
and David A. Roberts (the "Executive"), dated as of the 25th day of June,
2001.
The Board of Directors of the Company (the "Board"), has determined that it is
in the best interests of the Company and its shareholders to assure that the
Company will have the continued dedication of the Executive, notwithstanding the
possibility, threat or occurrence of a Change of Control (as defined in Section
2 below) of the Company. The Board believes it is imperative to diminish the
inevitable distraction of the Executive by virtue of the personal uncertainties
and risks created by a pending or threatened Change of Control, to encourage the
Executive's full attention and dedication to the Company currently and in the
event of any threatened or pending Change of Control, to provide inducement for
the Executive to remain an employee of the Company in the event of any
threatened or pending Change of Control, and to facilitate an orderly transition
in the event of a Change of Control. Therefore, in order to accomplish these
objectives, the Board has caused the Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Certain Definitions: "Effective Date;" "Change of Control Period;"
"Company;" "Affiliated Companies."
(a) The "Effective Date" shall mean the first date during the Change
of Control Period (as defined in Section l(b)) on which a Change
of Control (as defined in Section 2) occurs. Anything in this
Agreement to the contrary notwithstanding, if a Change of Control
occurs and if the Executive's employment with the Company is
terminated prior to the date on which the Change of Control
occurs, and if it is reasonably demonstrated by the Executive
that such termination of employment (i) was at the request of a
third party who has taken steps reasonably calculated to effect
the Change of Control or (ii) otherwise arose in connection with
or anticipation of the Change of Control, then for all purposes
of this Agreement the "Effective Date" shall mean the date
immediately prior to the date of such termination of employment.
(b) The "Change of Control Period" shall mean the period commencing
on the date hereof and ending on the second anniversary of such
date, provided, however, that commencing on the date one year
after the date hereof, and on each annual anniversary of such
date (such date and each annual anniversary thereof shall be
hereinafter referred to as the "Renewal Date"), the Change of
Control Period shall be automatically extended so as to terminate
two years from such Renewal Date, unless at least 60 days prior
to the Renewal Date the Company shall give notice to the
Executive that the Change of Control Period shall not be so
extended.
(c) The "Company" shall mean the Company as hereinbefore defined and any
successor to its business and/or assets which assumes or agrees to
perform this Agreement by operation of law or otherwise.
(d) As used in this Agreement, the term "affiliated companies" shall
include any company controlled by, controlling or under common
control with the Company.
2. Change of Control. For the purpose of this Agreement
(a) A "Change of Control" means:
(i) acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act of
1934), (a "Person"), of beneficial ownership (within the
meaning of Rule 13d-3 under the 1934 Act) which results in the
beneficial ownership by such Person of 25% or more of either
A. the then outstanding shares of Common Stock of the
Company (the "Outstanding Company Common Stock") or
B. the combined voting power of the then outstanding
voting securities of the Company entitled to vote
generally in the election of directors (the
"Outstanding Company Voting Securities");
provided, however, that the following acquisitions will not
result in a Change of Control:
(1) an acquisition directly from the Company,
(2) an acquisition by the Company,
(3) an acquisition by any employee benefit plan (or
related trust) sponsored or maintained by the
Company or any corporation controlled by the
Company,
(4) an acquisition by any Person who is deemed to have
beneficial ownership of the Company common stock
or other Company voting securities owned
immediately after said acquisition by the Trust
Under the Will of Clarissa L. Gray ("Trust
Person"), provided that such acquisition does not
result in the beneficial ownership by such Person
of 32% or more of either the Outstanding Company
Common Stock or the Outstanding Company Voting
Securities, and provided further that for purposes
of this Section 2, a Trust Person shall not be
deemed to have beneficial ownership of the Company
common stock or other Company voting securities
owned by The Graco Foundation or any employee
benefit plan of the Company, including without
limitation the Graco Employee Retirement Plan and
the Graco Employee Stock Ownership Plan,
(5) an acquisition by the Executive or any group
that includes the Executive, or
(6) an acquisition by any corporation pursuant to a
transaction that complies with clauses (A), (B)
and (C) of Section 2 (a)(iii) below; and
provided, further, that if any Person's beneficial ownership
of the Outstanding Company Common Stock or Outstanding Company
Voting Securities is 25% or more as a result of a transaction
described in clause (1) or (2) above, and such Person
subsequently acquires beneficial ownership of additional
Outstanding Company Common Stock or Outstanding Company Voting
Securities as a result of a transaction other than that
described in clause (1) or (2) above, such subsequent
acquisition will be treated as an acquisition that causes such
Person to own 25% or more of the Outstanding Company Common
Stock or Outstanding Company Voting Securities and be deemed a
Change of Control; and provided further, that in the event any
acquisition or other transaction occurs which results in the
beneficial ownership of 32% or more of either the Outstanding
Company Common Stock or the Outstanding Company Voting
Securities by any Trust Person, the Incumbent Board may by
majority vote increase the threshold beneficial ownership
percentage to a percentage above 32% for any Trust Person; or
(ii) Individuals who, as of the date hereof, constitute the Board
of Directors of the Company (the "Incumbent Board") cease for
any reason to constitute at least a majority of said Board;
provided, however, that any individual becoming a director
subsequent to the date hereof whose election, or nomination
for election by the Company's shareholders, was approved by a
vote of at least a majority of the directors then comprising
the Incumbent Board will be considered as though such
individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial
membership on the Board occurs as a result of an actual or
threatened election contest with respect to the election or
removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a
Person other than the Board, or
(iii) The approval by the shareholders of the Company of a
reorganization, merger, consolidation or statutory exchange of
Outstanding Company Common Stock or Outstanding Company Voting
Securities or sale or other disposition of all or
substantially all of the assets of the Company ("Business
Combination") or, if consummation of such Business Combination
is subject, at the time of such approval by stockholders, to
the consent of any government or governmental agency, the
obtaining of such consent (either explicitly or implicitly by
consummation); excluding, however, such a Business Combination
pursuant to which
A. all or substantially all of the individuals and
entities who were the beneficial owners of the
Outstanding Company Common Stock or Outstanding
Company Voting Securities immediately prior to such
Business Combination beneficially own, directly or
indirectly, more than 80% of, respectively, the then
outstanding shares of common stock and the combined
voting power of the then outstanding voting
securities entitled to vote generally in the election
of directors, as the case may be, of the corporation
resulting from such Business Combination (including,
without limitation, a corporation that as a result of
such transaction owns the Company or all or
substantially all of the Company's assets either
directly or through one or more subsidiaries) in
substantially the same proportions as their
ownership, immediately prior to such Business
Combination of the Outstanding Company Common Stock
or Outstanding Company Voting Securities,
B. no Person [excluding any employee benefit plan (or
related trust) of the Company or such corporation
resulting from such Business Combination]
beneficially owns, directly or indirectly, 25% or
more of the then outstanding shares of common stock
of the corporation resulting from such Business
Combination or the combined voting power of the then
outstanding voting securities of such corporation
except to the extent that such ownership existed
prior to the Business Combination, and
C. at least a majority of the members of the board of
directors of the corporation resulting from such
Business Combination were members of the Incumbent
Board at the time of the execution of the initial
agreement, or of the action of the Board, providing
for such Business Combination; or
(iv) approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
3. Employment Period. For purposes of this Agreement, the term
"Employment Period" shall mean the period commencing on the Effective
Date and ending on the earlier of (i) the termination by the Company or
the Executive of the Executive's employment with the Company, or (ii)
the second anniversary of the Effective Date." As provided in Section
10(f), nothing stated in this Agreement shall restrict the right of the
Company or the Executive at any time to terminate the Executive's
employment with the Company, subject to the obligations of the Company
provided for in this Agreement in the event of such termination.
4. Terms of Employment.
(a) Position and Duties.
(i) During the Employment Period, (A) the Executive's position
(including offices and titles), duties and responsibilities
shall be at least commensurate in all material respects
with the most significant of those held, exercised and
assigned at any time during the 90-day period immediately
preceding the Effective Date and (B) the Executive's
services shall be performed at the location where the
Executive was employed immediately preceding the Effective
Date or any office or location less than 50 miles from such
location.
(ii) Except as otherwise expressly provided in this Agreement,
during the Employment Period, and excluding any periods of
vacation and sick leave to which the Executive is entitled,
the Executive agrees to devote reasonable attention and time
during normal business hours to the business and affairs of
the Company. During the Employment Period it shall not be a
violation of this Agreement for the Executive to (A) serve on
corporate, civic or charitable boards or committees, (B)
deliver lectures, fulfill speaking engagements or teach at
educational institutions and (C) manage personal investments,
so long as such activities do not significantly interfere with
the performance of the Executive's responsibilities as an
employee of the Company in accordance with this Agreement. To
the extent that any such activities have been conducted by the
Executive prior to the Effective Date, the continued conduct
of such activities (or the conduct of activities similar in
nature and scope thereto) subsequent to the Effective Date
shall not thereafter be deemed to interfere with the
performance of the Executive's responsibilities to the
Company.
(b) Compensation.
(i) Base Salary. During the Employment Period, the Executive
shall receive an annual base salary ("Annual Base Salary")
which shall be paid at a monthly rate, at least equal to
twelve times the highest monthly base salary paid or
payable to the Executive by the Company and its affiliated
companies in respect of the twelve-month period immediately
preceding the month in which the Effective Date occurs.
During the Employment Period, the Annual Base Salary shall
be reviewed at least annually and shall be increased at any
time and from time to time as shall be substantially
consistent with increases in base salary generally awarded
in the ordinary course of business to other peer executives
of the Company. The term Annual Base Salary as used in
this Agreement shall refer to Annual Base Salary as so
increased. The Executive's Annual Base Salary shall not be
reduced after any such increase. Any increase in Annual
Base Salary shall not serve to limit or reduce any other
obligation to the Executive under this Agreement.
(ii) Annual Incentive Payments. In addition to Annual Base Salary,
the Executive shall be awarded, for each fiscal year during
the Employment Period, an annual bonus ("Annual Bonus") in
cash, in accordance with the Company's Annual Bonus Plan, or
other plan instituted in lieu of the Annual Bonus Plan which
provides for an annual incentive payment in addition to Annual
Base Salary ("Substitute Plan"). The Executive shall
participate in the Annual Bonus Plan or Substitute Plan at the
same level at which the Executive participated immediately
prior to the Effective Date, or if more favorable, at the
level of other peer executives of the Company and its
affiliated companies. Any Substitute Plan instituted by the
Company after the Effective Date shall be at least as
favorable, in the aggregate, as the most favorable Annual
Bonus Plan or Substitute Plan in effect at any time during the
90-day period immediately preceding the Effective Date
(iii) Savings and Retirement Plans. During the Employment Period,
the Executive shall be entitled to participate in all savings
and retirement plans, practices, policies and programs
applicable generally to other peer executives of the Company
and its affiliated companies, but in no event shall such
plans, practices, policies and programs provide the Executive
with savings opportunities and retirement benefit
opportunities, in each case, less favorable, in the aggregate,
than the most favorable of those provided by the Company and
its affiliated companies for the Executive under such plans,
practices, policies and programs as in effect at anytime
during the 90-day period immediately preceding the Effective
Date or, if more favorable to the Executive, those provided
generally at any time after the Effective Date to other peer
executives of the Company and its affiliated companies.
(iv) Welfare Benefit Plans. During the Employment Period, the
Executive and/or the Executive's family, as the case maybe,
shall be eligible for participation in and shall receive all
benefits under welfare benefit plans, practices, policies and
programs provided by the Company and its affiliated companies
(including, without limitation, medical, prescription, dental,
disability, salary continuance, employee life, group life,
accidental death and travel accident insurance plans and
programs) to the extent applicable generally to other peer
executives of the Company and its affiliated companies, but in
no event shall such plans, practices, policies and programs
provide the Executive with benefits which are less favorable,,
in the aggregate, than the most favorable of such plans,
practices, policies and programs in effect for the Executive
at anytime during the 90-day period immediately preceding the
Effective Date or, if more favorable to the Executive, those
provided generally at any time after the Effective Date to
other peer executives of the Company and its affiliated
companies.
(v) Expenses. During the Employment Period, the Executive shall
be entitled to receive prompt reimbursement for all
reasonable expenses incurred by the Executive in accordance
with the most favorable policies, practices and procedures
of the Company and its affiliated companies in effect for
the Executive at any time during the 90-day period
immediately preceding the Effective Date or, if more
favorable to the Executive, as in effect generally at any
time thereafter with respect to other peer executives of
the Company and its affiliated companies.
(vi) Perquisites. During the Employment Period, the Executive shall
be entitled to perquisites in accordance with the most
favorable plans, practices, programs and policies of the
Company and its affiliated companies in effect for the
Executive at any time during the 90-day period immediately
preceding the Effective Date or, if more favorable to the
Executive, as in effect generally at any time thereafter with
respect to other peer executives of the Company and its
affiliated companies.
(vii) Office and Support Staff. During the Employment Period, the
Executive shall be entitled to an office or offices of a size
and with furnishings and other appointments, and to
secretarial and other assistance, at least equal to the most
favorable of the foregoing provided to the Executive by the
Company at any time during the 90-day period immediately
preceding the Effective Date or, if more favorable to the
Executive, as provided generally at any time thereafter with
respect to other peer executives of the Company.
(viii)Vacation. During the Employment Period, the Executive shall
be entitled to paid vacations in accordance with the most
favorable plans, policies, programs and practices of the
Company and its affiliated companies as in effect for the
Executive at any time during the 90-day period immediately
preceding the Effective Date or, if more favorable to the
Executive, as in effect generally at any time thereafter with
respect to other peer Executives of the Company and its
affiliated companies.
5. Termination of Employment.
(a) Death or Disability. The Executive's employment shall terminate
automatically upon the Executive's death during the Employment
Period. If the Company determines in good faith that the
Disability of the Executive has occurred during the Employment
Period (pursuant to the definition of Disability set forth
below), it may give to the Executive written notice in accordance
with Section 10(b) of this Agreement of its intention to
terminate the Executive's employment. In such event, the
Executive's employment with the Company shall terminate effective
on the 30th day after receipt of such notice by the Executive
(the "Disability Effective Date"), provided that, within the 30
days after such receipt, the Executive shall not have returned to
full-time performance of the Executive's duties. For purposes of
this Agreement, "Disability" shall mean the absence of the
Executive from the Executive's duties with the Company on a
full-time basis for 180 consecutive days as a result of
incapacity due to mental or physical illness which is determined
to be total and permanent by a physician selected by the Company
or its insurers and acceptable to the Executive or the
Executive's legal representative (such agreement as to
acceptability not to be withheld unreasonably).
(b) Cause. The Company may terminate the Executive's employment
during the Employment Period for Cause. For purposes of this
Agreement, "Cause" shall mean (i) repeated violations by the
Executive of the Executive's obligations under Section 4(a) of
this Agreement (other than as a result of incapacity due to
physical or mental illness) which are demonstrably willful and
deliberate on the Executive's part, which are committed in bad
faith or without the belief on the part of the Executive that
such violations are in the best interests of the Company and
which are not remedied in a reasonable period of time after
receipt of written notice from the Company specifying such
violations or (ii) the conviction of the Executive of a felony
involving moral turpitude.
(c) Good Reason. The Executive's employment may be terminated by the
Executive for Good Reason. For purposes of this Agreement, "Good
Reason" shall mean:
(i) the assignment to the Executive of any duties materially
inconsistent in any respect with the Executive's position
(including offices and titles), duties or responsibilities
as contemplated by Section 4(a) of this Agreement, or any
other action by the Company which results in a material
diminution in such position, duties or responsibilities,
excluding for this purpose an isolated, insubstantial and
inadvertent action not taken in bad faith and which is
remedied by the Company promptly after receipt of notice
thereof given by the Executive;
(ii) any failure by the Company to comply with any of the
provisions of Section 4(b) of this Agreement, other than an
isolated, insubstantial and inadvertent failure not occurring
in bad faith and which is remedied by the Company promptly
after receipt of notice thereof given by the Executive;
(iii) the Company's requiring the Executive to be based at any
office or location other than that described in Section
4(a)(i)(B) hereof or the Company's requiring the Executive to
travel on Company business to a substantially greater extent
than required immediately prior to the Effective Date;
(iv) any purported termination by the Company of the Executive's
employment otherwise than as expressly permitted by this
Agreement; or
(v) any failure by the Company to comply with and satisfy
Section 9(c) of this Agreement.
For purposes of this Section 5(c), any good faith determination of "Good Reason"
made by the Executive shall be conclusive.
(d) Notice of Termination. Any termination by the Company for Cause,
or by the Executive for Good Reason, shall be communicated by
Notice of Termination to the other party hereto given in
accordance with Section 10(b) of this Agreement. For purposes of
this Agreement, a "Notice of Termination" means a written notice
which (i) indicates the specific termination provision in this
Agreement relied upon, (ii) to the extent applicable, sets forth
in reasonable detail the facts and circumstances claimed to
provide a basis for termination of the Executive's employment
under the provision so indicated and (iii) if the Date of
Termination (as defined below) is other than the date of receipt
of such notice, specifies the termination date (which date shall
be not more than fifteen days after the giving of such notice).
The failure by the Executive or the Company to set forth in the
Notice of Termination any fact or circumstance which contributes
to a showing of Good Reason or Cause shall not waive any right of
the Executive or the Company hereunder or preclude the Executive
or the Company from asserting such fact or circumstance in
enforcing the Executive's or the Company's rights hereunder.
(e) Date of Termination. "Date of Termination" means (i) if the
Executive's employment is terminated by the Company for Cause, or
by the Executive for Good Reason, the date of receipt of the
Notice of Termination or any later date specified therein, as the
case may be, (ii) if the Executive's employment is terminated by
the Company other than for Cause or Disability or death, the Date
of Termination shall be the date on which the Company notifies
the Executive of such termination and (iii) if the Executive's
employment is terminated by reason of death or Disability, the
Date of Termination shall be the date of death of the Executive
or the Disability Effective Date, as the case may be.
6. Obligations of the Company upon Termination.
(a) Good Reason; Other Than for Cause, Death or Disability. If, within
two years after the Effective Date, the Company shall terminate the
Executive's employment other than for Cause, death or Disability, or
the Executive shall terminate employment for Good Reason, in lieu of
further payments pursuant to Section 4(b) with respect to periods
following the Date of Termination:
(i) except as provided in Section 6(e) below, the Company shall
pay to the Executive, in a lump sum in cash, within 30 days
(except as provided in subsection 6(a)(i)A below) after the
Date of Termination, the aggregate of the following amounts
(such aggregate shall be hereinafter referred to as the
"Special Termination Amount"):
A. the sum of (1) the Executive's Annual Base Salary
through the Date of Termination to the extent not
theretofore paid, and, (2) the product of (x) the
higher of (I) the midpoint between the minimum and
the maximum bonus payment under the Annual Bonus Plan
or Substitute Plan applicable to the Executive for
the fiscal year in which the Date of Termination
occurs, or (II) the amount that would be payable to
the Executive for the fiscal year in which the Date
of Termination occurs under the Annual Bonus Plan or
Substitute Plan had the termination not so occurred
(which amount shall be payable pursuant to this
clause 2 within 30 days after it is calculated), and
(y) a fraction, the numerator of which is the number
of days in the current fiscal year through the Date
of Termination, and the denominator of which is 365
(the sum of the amounts described in clauses (1) and
(2) shall be hereinafter referred to as the "Accrued
Obligations"); and
B. the amount equal to the product of (1) two and (2) the
sum of (x) the Executive's Annual Base Salary and (y)
the midpoint between the maximum and minimum bonus
payment applicable to the Executive for the fiscal year
in which the Date of Termination occurs under the Annual
Bonus Plan or Substitute Plan; and
(ii) for two years following the Date of Termination or such longer
period as any plan, program, practice or policy may provide,
the Company shall continue benefits to the Executive and/or
the Executive's family at least equal to those which would
have been provided to them in accordance with the plans
programs, practices and policies described in Section 4(b)(iv)
of this Agreement if the Executive's employment had not been
terminated, in accordance with the most favorable plans,
practices, programs or policies of the Company and its
affiliated companies applicable generally to other peer
executives and their families during the 90-day period
immediately preceding the Effective Date or, if more favorable
to the Executive, as in effect generally at any time
thereafter with respect to other peer executives of the
Company and its affiliated companies and their families,
provided, however, that if the Executive becomes re-employed
with another employer and is eligible to receive medical or
disability welfare benefits under another employer provided
plan, the medical and disability welfare benefits described
herein shall cease upon the Executive and the Executive's
family becoming eligible under such other plan. For purposes
of determining eligibility of the Executive for retiree
benefits pursuant to such plans, practices, programs and
policies, the Executive shall be considered to have remained
employed until two years after the Date of Termination and to
have retired two years after the Date of Termination.
(b) Death. If the Executive's employment is terminated by reason of
the Executive's death within two years after the Effective Date,
this Agreement shall terminate without further obligations to the
Executive's legal representatives under this Agreement, other
than for payment of the Accrued Obligations. The Accrued
Obligations shall be paid to the Executive's estate or
beneficiary, as applicable, in a lump sum in cash within 30 days
of the Date of Termination, or as otherwise provided in Section
6(a)(i)(A). In addition, the Executive's family shall be entitled
to receive benefits at least equal to the most favorable benefits
provided by the Company and any of its affiliated companies to
surviving families of deceased peer executives of the Company and
such affiliated companies under such plans, programs, practices
and policies relating to family death benefits, if any, as in
effect with respect to other deceased peer executives and their
families at any time during the 90-day period immediately
preceding the Effective Date or, if more favorable to the
Executive and/or the Executive's family, as in effect on the date
of the Executive's death with respect to other deceased peer
executives of the Company and its affiliated companies and their
families.
(c) Disability. If the Executive's employment is terminated by reason
of the Executive's Disability within two years after the
Effective Date, this Agreement shall terminate without further
obligations to the Executive, other than for payment of the
Accrued Obligations. The Accrued Obligations shall be paid to the
Executive in a lump sum in cash within 30 days of the Date of
Termination or as otherwise provided in Section 6(a)(i)(A). In
addition, the Executive shall be entitled after the Disability
Effective Date to receive disability and other benefits at least
equal to the most favorable of those generally provided by the
Company and its affiliated companies to disabled executives
and/or their families in accordance with such plans, programs,
practices, and policies relating to disability, if any, as in
effect generally with respect to other disabled peer executives
and their families at any time during the 90-day period
immediately preceding the Effective Date or, if more favorable to
the Executive and/or the Executive's family, as in effect at any
time thereafter generally with respect to other disabled peer
executives of the Company and its affiliated companies and their
families.
(d) Cause; Other than for Good Reason. If the Executive's employment
shall be terminated for Cause within two years after the
Effective Date, this Agreement shall terminate without further
obligations to the Executive other than the obligation to pay to
the Executive Annual Base Salary through the Date of Termination
plus the amount of any compensation previously deferred by the
Executive, in each case to the extent theretofore unpaid. If the
Executive voluntarily terminates employment within two years
after the Effective Date, excluding a termination for Good
Reason, this Agreement shall terminate without further
obligations to the Executive, other than Annual Base Salary
through the Date of Termination plus the amount of any
compensation previously deferred by the Executive, in each case
to the extent theretofore unpaid, and any payment that may be due
under the terms of the Annual Bonus Plan or any Successor Plan.
In such case, all such amounts shall be paid to the Executive in
a lump sum in cash within 30 days of the Date of Termination or,
in the case of any payment under the Annual Bonus Plan or any
Successor Plan, pursuant to the terms thereof.
(e) Possible Payment Reduction.
(i) Notwithstanding any provision to the contrary contained in this
Agreement, if the lump sum cash payment due and the other benefits
to which the Executive shall become entitled under Section 6(a)
hereof, either alone or together with other payments in the nature
of compensation to the Executive which are contingent on a change in
the ownership or effective control of the Company or in the
ownership of a substantial portion of the assets of the Company or
otherwise, would constitute a "parachute payment" (as defined in
Section 280G of the Internal Revenue Code of 1986, as amended (the
"Code") or any successor provision thereto), such lump sum payment
shall be reduced (but not below zero) to the largest aggregate
amount as will result in no portion thereof being subject to the
excise tax imposed under Section 4999 of the Code (or any successor
provision thereto) or being non-deductible to the Company for
Federal Income Tax purposes pursuant to Section 280G of the Code (or
any successor provision thereto), provided, however, that no such
reduction shall occur, and this Section 6(e) shall not apply, in the
event that the amount of such reduction would be more than $25,000.
The Executive in good faith shall determine the amount of any
reduction to be made pursuant to this Section 6(e) and shall select
from among the foregoing benefits and payments those which shall be
reduced. No modification of, or successor provision to, Section 280G
or Section 4999 subsequent to the date of this Agreement shall,
however, reduce the benefits to which the Executive would be
entitled under this Agreement in the absence of this Section 6(e) to
a greater extent than they would have been reduced if Section 280G
and Section 4999 had not been modified or superseded subsequent to
the date of this Agreement, notwithstanding anything to the contrary
provided in the first sentence of this Section 6(e)(i).
(f) Certain Additional Payments by the Company.
(i) Anything in this Agreement to the contrary notwithstanding, in
the event it shall be determined that Section 6(e) above does not
apply and any payment or distribution by the Company to or for the
benefit of the Executive (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement, any stock
option, restricted stock agreement or otherwise, but determined
without regard to any additional payments required under this
Section 16(f)) (a "Payment") would be subject to the excise tax
imposed by Section 4999 of the Internal Revenue Code of 1986, as
amended (the "Code") or any interest or penalties are incurred by
the Executive with respect to such excise tax (such excise tax,
together with any such interest and penalties, are hereinafter
collectively referred to as the "Excise Tax"), then the Executive
shall be entitled to receive an additional payment (a "Gross-Up
Payment") in an amount such that after payment by the Executive of
all taxes (including any interest or penalties imposed with respect
to such taxes), including, without limitation, any income taxes (and
any interest and penalties imposed with respect thereto) and Excise
Tax imposed upon the Gross-Up Payment, the Executive retains an
amount of the Gross-Up Payment equal to the Excise Tax imposed upon
the Payments.
(ii) Subject to the provisions of Section 6(f)(iii), all
determinations required to be made under this Section 6(f),
including whether and when a Gross-Up Payment is required and the
amount of such Gross-Up Payment and the assumptions to be utilized
in arriving at such determination, shall be made by Deloitte and
Touche LLP or such other certified public accounting firm as may be
designated by the Executive (the "Accounting Firm") which shall
provide detailed supporting calculations both to the Company and the
Executive within 15 business days of the receipt of notice from the
Executive that there has been a Payment, or such earlier time as is
requested by the Company. In the event that the Accounting Firm is
serving as accountant or auditor for the individual, entity or group
effecting the Change of Control, the Executive shall appoint another
nationally recognized accounting firm to make the determinations
required hereunder (which accounting firm shall then be referred to
as the Accounting Firm hereunder). All fees and expenses of the
Accounting Firm shall be borne solely by the Company. Any Gross-Up
Payment, as determined pursuant to this Section 6(f), shall be paid
by the Company to the Executive within five days of the receipt of
the Accounting Firm's determination. If the Accounting Firm
determines that no Excise Tax is payable by the Executive, it shall
furnish the Executive with a written opinion that failure to report
the Excise Tax on the Executive's applicable federal income tax
return would not result in the imposition of a negligence or similar
penalty. Any determination by the Accounting Firm shall be binding
upon the Company and the Executive. As a result of the uncertainty
in the application of Section 4999 of the Code at the time of the
initial determination by the Accounting Firm hereunder, it is
possible that Gross-Up Payments which will not have been made by the
Company should have been made ("Underpayment"), consistent with the
calculations required to be made hereunder. In the event that the
Company exhausts its remedies pursuant to Section 6(f)(iii) and the
Executive thereafter is required to make a payment of any Excise
Tax, the Accounting Firm shall determine the amount of the
Underpayment that has occurred and any such Underpayment shall be
promptly paid by the Company to or for the benefit of the Executive.
(iii) The Executive shall notify the Company in writing of
any claim by the Internal Revenue Service that, if successful, would
require the payment by the Company of the Gross-Up Payment. Such
notification shall be given as soon as practicable but no later than
ten business days after the Executive is informed in writing of such
claim (provided that any delay in so informing the Company within
such ten business day period shall not affect the obligations of the
Company under this Section 6(f) except to the extent that such delay
materially and adversely affects the Company) and shall apprise the
Company of the nature of such claim and the date on which such claim
is requested to be paid. The Executive shall not pay such claim
prior to the expiration of the 30-day period following the date on
which it gives such notice to the Company (or such shorter period
ending on the date that any payment of taxes with respect to such
claim is due). If the Company notifies the Executive in writing
prior to the expiration of such period that it desires to contest
such claim, the Executive shall:
(A) give the Company any information reasonably requested
by the Company relating to such claim,
(B) take such action in connection with contesting such claim as
the Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation with
respect to such claim by an attorney reasonably selected by the
Company,
(C) cooperate with the Company in good faith in order
to effectively contest such claim, and
(D) permit the Company to participate in any proceedings relating
to such claim;
provided, however, that the Company shall bear and
pay directly all costs and expenses (including additional interest
and penalties) incurred in connection with such contest and shall
indemnify and hold the Executive harmless, on an after-tax basis,
for any Excise Tax or income tax (including interest and penalties
with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing
provisions of this Section 6(f)(iii), the Company shall control all
proceedings taken in connection with such contest and, at its sole
option, may pursue or forgo any and all administrative appeals,
proceedings, hearings and conferences with the taxing authority in
respect of such claim and may, at its sole option, either direct the
Executive to pay the tax claimed and sue for a refund or contest the
claim in any permissible manner, and the Executive agrees to
prosecute such contest to a determination before any administrative
tribunal, in a court of initial jurisdiction and in one or more
appellate courts, as the Company shall determine; provided, however,
that if the Company directs the Executive to pay such claim and sue
for a refund, the Company shall advance the amount of such payment
to the Executive, on an interest-free basis, and shall indemnify and
hold the Executive harmless, on an after-tax basis, from any Excise
Tax or income tax (including interest or penalties with respect
thereto) imposed with respect to such advance or with respect to any
imputed income with respect to such advance; and further provided
that any extension of the statute of limitations relating to payment
of taxes for the taxable year of the Executive with respect to which
such contested amount is claimed to be due is limited solely to such
contested amount. Furthermore, the Company's control of the contest
shall be limited to issues with respect to which a Gross-Up Payment
would be payable hereunder and the Executive shall be entitled to
settle or contest, as the case may be, any other issue raised by the
Internal Revenue Service or any other taxing authority.
(iv) If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 6(f)(iii), the Executive
becomes entitled to receive any refund with respect to such claim,
the Executive shall (subject to the Company's complying with the
requirements of Section 6(f)(iii)) promptly pay to the Company the
amount of such refund (together with any interest paid or credited
thereon after taxes applicable thereto). If, after the receipt by
the Executive of an amount advanced by the Company pursuant to
Section 6(f)(iii), a determination is made that the Executive shall
not be entitled to any refund with respect to such claim and the
Company does not notify the Executive in writing of its intent to
contest such denial of refund prior to the expiration of 30 days
after such determination, then such advance shall be forgiven and
shall not be required to be repaid and the amount of such advance
shall offset, to the extent thereof, the amount of Gross-Up Payment
required to be paid.
7. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or
limit the Executive's continuing or future participation in any plan,
program, policy or practice provided by the Company or any of its
affiliated companies and for which the Executive may qualify, nor shall
anything herein limit or otherwise affect such rights as the Executive
may have under any contract or agreement with the Company or any of its
affiliated companies. Amounts which are vested benefits or which the
Executive is otherwise entitled to receive under any plan, policy,
practice or program of or any contract or agreement with the Company or
any of its affiliated companies at or subsequent to the Date of
Termination shall be payable in accordance with such plan, policy,
practice or program or contract or agreement except as explicitly
modified by this Agreement.
8. Full Settlement; No Mitigation; Legal Fees. The Company's obligation
to make the payments provided for in this Agreement and otherwise to
perform its obligations hereunder shall not be affected by any set-off,
counterclaim, recoupment, defense or other claim, right or action which
the Company may have against the Executive or others. In no event shall
the Executive be obligated to seek other employment or take any other
action by way of mitigation of the amounts payable to the Executive
under any of the provisions of this Agreement and such amounts shall
not be reduced whether or not the Executive obtains other employment.
The Company agrees to pay, to the full extent permitted by law, all
legal fees and expenses which the Executive may reasonably incur as a
result of any contest (regardless of the outcome thereof) by the
Company, the Executive or others of the validity or enforceability of,
or liability under, any provision of this Agreement or any guarantee of
performance thereof (including as a result of any contest by the
Executive about the amount of any payment pursuant to this Agreement),
plus in each case interest on any delayed payment at the applicable
Federal rate provided for in Section 7872(f)(2)(A) of the Internal
Revenue Code of 1986, as amended (the "Code").
9. Successors.
(a) This Agreement is personal to the Executive and without the prior
written consent of the Company shall not be assignable by the
Executive otherwise than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be
enforceable by the Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon the
Company and its successors and assigns.
(c) The Company will require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to
assume expressly and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to
perform it if no such succession had taken place.
10. Miscellaneous.
(a) This Agreement shall be governed by and construed in accordance with
the laws of the State of Minnesota, without reference to principles
of conflict of laws. The captions of this Agreement are not part of
the provisions hereof and shall have no force or effect. This
Agreement may not be amended or modified otherwise than by a written
agreement executed by the parties hereto or their respective
successors and legal representatives.
(b) All notices and other communications hereunder shall be in writing
and shall be given by hand delivery to the other party or by
registered or certified mail, return receipt requested, postage
prepaid, addressed as follows:
If to the Executive:
Mr. David Roberts
c/o Graco Inc.
88 11th Ave. N.E.
Minneapolis, Mn. 55413
If to the Company:
Graco Inc.
88 11th Ave. N.E.
Minneapolis, Mn. 55413
Attention: Vice President, Human Resources
or to such other address as either party shall have furnished to the
other in writing in accordance herewith. Notice and communications
shall be effective when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any
other provision of this Agreement.
(d) The Company may withhold from any amounts payable under this
Agreement such Federal, state or local taxes as shall be required to
be withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon strict
compliance with any provision hereof or any other provision of
this Agreement or the failure to assert any right the Executive
or the Company may have hereunder, including, without limitation,
the right of the Executive to terminate employment for Good
Reason pursuant to Section 5(c)(i)(v) of this Agreement, shall
not be deemed to be a waiver of such provision or right or any
other provision or right of this Agreement.
(f) The Executive and the Company acknowledge that, except as may
otherwise be provided under any other written agreement between
the Executive and the Company, the employment of the Executive by
the Company may be terminated by either the Executive or the
Company at any time prior to the Effective Date or, subject to
the obligations of the Company provided for in this Agreement in
the event of a termination after the Effective Date, at anytime
on or after the Effective Date. Moreover, if prior to the
Effective Date, the Executive's employment with the Company
terminates, then the Executive shall have no further rights under
this Agreement. From and after the Effective Date, this Agreement
shall supersede any other agreement between the parties with
respect to the subject matter hereof.
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and,
pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf.
Executive Graco Inc.
/s/David A. Roberts /s/ George Aristides
By: George Aristides,
David A. Roberts Chairman
STOCK OPTION AGREEMENT
(NON-ISO)
THIS AGREEMENT, made this 25th day of June , 2001, by and between
Graco Inc., a Minnesota corporation (the "Company") and David A. Roberts,
(the "Employee").
WITNESSETH THAT:
WHEREAS, the Company pursuant to its Stock Incentive Plan wishes to grant
this stock option to Employee;
NOW THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, the parties hereto hereby agree as follows:
1. Grant of Option
---------------
The Company hereby grants to Employee, the right and option
(hereinafter called the "option") to purchase all or any part of an
aggregate of fifty thousand (50,000) shares of Common Stock of the
Company, par value $1.00 per share, at the price of $31.20 per share
on the terms and conditions set forth herein.
2. Duration and Exercisability
---------------------------
A. This option may not be exercised by Employee until the expiration
of one (1) year from the date of grant, and this option shall in
all events terminate ten (10) years after the date of grant.
During the first year from the date of grant of this option, no
portion of this option may be exercised. Thereafter this option
shall become exercisable in four cumulative installments of 25% as
follows:
Total Portion of Option
Date Which is Exercisable
---- --------------------
One Year after Date of Grant 25%
Two Years after Date of Grant 50%
Three Years after Date of Grant 75%
Four Years after Date of Grant 100%
In the event that Employee does not purchase in any one year the
full number of shares of Common Stock of the Company to which he
is entitled under this option, he may, subject to the terms and
conditions of Section 3 hereof, purchase such shares of Common
Stock in any subsequent year during the term of this option.
B. During the lifetime of the Employee, the option shall be
exercisable only by him/her and shall not be assignable or
transferable by him/her otherwise than by will or the laws of
descent and distribution.
3. Effect of Termination of Employment
-----------------------------------
A. In the event that Employee shall cease to be employed by the
Company or its subsidiaries for any reason other than his (i)
gross and willful misconduct, (ii) death, (iii) retirement (as
defined in Section 3.D. below), or (iv) disability (as defined in
Section 3. D. below), Employee shall have the right to exercise
the option at any time within three (3) months after such
termination of employment to the extent of the full number of
shares he was entitled to purchase under the option on the date of
termination, subject to the condition that no option shall be
exercisable after the expiration of the term of the option.
B. In the event that Employee shall cease to be employed by the
Company or its subsidiaries by reason of his gross and willful
misconduct during the course of his employment, the option granted
hereunder shall be terminated as of the date of the misconduct.
For purposes of this letter, gross and willful misconduct
includes wrongful appropriation of Company funds, serious
violation of Company policy, breach of fiduciary duty or
conviction of a felony. Gross and willful misconduct shall not
include any action or inaction by Mr. Roberts contrary to the
direction of the Board with respect to any initiative, strategy
or action of the Company, which action or inaction Mr. Roberts
believes is in the best interest of the Company.
C. If the Employee shall die while in the employ of the Company or a
subsidiary or within one month after termination of employment for
any reason other than gross and willful misconduct and shall not
have fully exercised the option, all remaining shares shall become
immediately exercisable and such option may be exercised at any
time within twelve months after his/her death by the executors or
administrators of the Employee or by any person or persons to whom
the option is transferred by will or the applicable laws of
descent and distribution, and subject to the condition that no
option shall be exercisable after the expiration of the term of
the option.
D. If the Employee's termination of employment is due to retirement
(either after attaining age 55 with 10 years of service, or
attaining age 65), or due to disability within the meaning of
the provisions of the Graco Long-Term Disability Plan, subject
to the condition that no option shall be exercisable after the
expiration of the terms of the option, all remaining shares
shall become immediately exercisable and the option may be
exercised by the Employee at any time within three years of the
Employee's retirement, subject to the condition that no option
shall be exercisable after the expiration of the term of the
option. In the event of the death of the Employee within the
three-year period after retirement, the option may be exercised
at any time within twelve months after his/her death by the
executors or administrators of the Employee 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 he was entitled to purchase under the
option on the date of death, and subject to the condition that
no option shall be exercisable after the expiration of the term
of the option.
4. Manner of Exercise
------------------
A. The option can be exercised only by Employee or other proper
party within the option period delivering written notice to the
Company at its principal office in Minneapolis, Minnesota,
stating the number of shares as to which the option is being
exercised and, except as provided in Section 4. C., accompanied
by payment-in-full of the option price for all shares
designated in the notice.
B. The Employee may, at Employee's election, pay the option price
either by check (bank check, certified check, or personal check)
or by delivering to the Company for cancellation shares of Common
Stock of the Company which have been held by the Employee for not
less than six (6) months with a fair market value equal to the
option price. For these purposes, the fair market value of the
Company's Common Stock shall be the closing price of the Common
Stock on the date of exercise on the New York Stock Exchange (the
"NYSE") or on the principal national securities exchange on which
such shares are traded if the shares are not then traded on the
NYSE. If there is not a quotation available for such day, then the
closing price on the next preceding day for which such a quotation
exists shall be determinative of fair market value. If the shares
are not then traded on an exchange, the fair market value shall be
the average of the closing bid and asked prices of the Common
Stock as reported by the National Association of Securities
Dealers Automated Quotation System. If the Common Stock is not
then traded on NASDAQ or on an exchange, then the fair market
value shall be determined in such manner as the Company shall deem
reasonable.
C. The Employee may, with the consent of the Company, pay the option
price by arranging for the immediate sale of some or all of the
shares issued upon exercise of the option by a securities dealer
and the payment to the Company by the securities dealer of the
option exercise price.
5. Payment of Withholding Taxes
----------------------------
Upon exercise of any portion of this option, Employee shall pay to the
Company an amount sufficient to satisfy any federal, state, or local
withholding tax requirements which arise as a result of the exercise
of the option or provide the Company with satisfactory indemnification
for such payment. Such amount may be paid by the Employee by
delivering to the Company for cancellation shares of Common Stock of
the Company with a fair market value equal to the minimum amount of
such withholding tax requirement by (i) electing to have the Company
withhold common shares otherwise to be delivered with a fair market
value equal to the minimum statutory amount of such taxes required to
be withheld by the Company, or (ii) electing to surrender to the
Company previously owned common shares with a fair market value equal
to the amount of such minimum tax obligation.
6. Change of Control
-----------------
A. Notwithstanding Section 2(a) hereof, the entire option shall
become immediately and fully exercisable on the day following a
"Change of Control" and shall remain fully exercisable until
either exercised or expiring by its terms. A "Change of Control"
means:
(1) acquisition by any individual, entity, or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act
of 1934), (a "Person"), of beneficial ownership (within the
meaning of Rule 13d-3 under the 1934 Act) which results in
the beneficial ownership by such Person of 25% or more of
either
(a) the then outstanding shares of Common Stock of the
Company (the "Outstanding Company Common Stock") or
(b) the combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in
the election of directors (the "Outstanding Company
Voting Securities");
provided, however, that the following acquisitions will
not result in a Change of Control:
(i) an acquisition directly from the Company,
(ii)an acquisition by the Company,
(iii) an acquisition by an employee benefit plan (or
related trust) sponsored or maintained by the
Company or any corporation controlled by the
Company,
(iv)an acquisition by any Person who is deemed to have
beneficial ownership of the Company common stock or
other Company voting securities owned by the Trust
Under the Will of Clarissa L. Gray ("Trust Person"),
provided that such acquisition does not result in
the beneficial ownership by such Person of 32% or
more of either the Outstanding Company Common Stock
or the Outstanding Company Voting Securities, and
provided further that for purposes of this Section
6, a Trust Person shall not be deemed to have
beneficial ownership of the Company common stock or
other Company voting securities owned by The Graco
Foundation or any employee benefit plan of the
Company, including, without limitations, the Graco
Employee Retirement Plan and the Graco Employee
Stock Ownership Plan,
(v) an acquisition by the Employee or any group that
includes the Employee, or
(vi)an acquisition by any corporation pursuant to a
transaction that complies with clauses (a), (b), and
(c) of subsection (4) below; and
provided, further, that if any Person's beneficial ownership
of the Outstanding Company Common Stock or Outstanding
Company Voting Securities is 25% or more as a result of a
transaction described in clause (i) or (ii) above, and such
Person subsequently acquires beneficial ownership of
additional Outstanding Company Common Stock or Outstanding
Company Voting Securities as a result of a transaction other
than that described in clause (i) or (ii) above, such
subsequent acquisition will be treated as an acquisition that
causes such Person to own 25% or more of the Outstanding
Company Common Stock or Outstanding Company Voting Securities
and be deemed a Change of Control; and provided further, that
in the event any acquisition or other transaction occurs
which results in the beneficial ownership of 32% or more of
either the Outstanding Company Common Stock or the
Outstanding Company Voting Securities by any Trust Person,
the Incumbent Board may by majority vote increase the
threshold beneficial ownership percentage to a percentage
above 32% for any Trust Person; or
(2) Individuals who, as of the date hereof, constitute the Board
of Directors of the Company (the "Incumbent Board") cease for
any reason to constitute at least a majority of said Board;
provided, however, that any individual becoming a director
subsequent to the date hereof whose election, or nomination
for election by the Company's shareholders, was approved by a
vote of at least a majority of the directors then comprising
the Incumbent Board will be considered as though such
individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose
initial membership on the Board occurs as a result of an
actual or threatened election contest with respect to the
election or removal of directors or other actual or
threatened solicitation of proxies or consents by or on
behalf of a Person other than the Board; or
(3) The commencement or announcement of an intention to make a
tender offer or exchange offer, the consummation of which
would result in the beneficial ownership by a Person of 25%
or more of the Outstanding Company Common Stock or
Outstanding Company Voting Securities; or
(4) The approval by the shareholders of the Company of a
reorganization, merger, consolidation, or statutory exchange
of Outstanding Company Common Stock or Outstanding Company
Voting Securities or sale or other disposition of all or
substantially all of the assets of the Company ("Business
Combination") or, if consummation of such Business
Combination is subject, at the time of such approval by
stockholders, to the consent of any government or
governmental agency, the obtaining of such consent (either
explicitly or implicitly by consummation) excluding, however,
such a Business combination pursuant to which
(a) all or substantially all of the individuals and entities
who were the beneficial owners of the Outstanding
Company Common Stock or Outstanding Company Voting
Securities immediately prior to such Business
Combination beneficially own, directly or indirectly,
more than 80% of, respectively, the then outstanding
shares of common stock and the combined voting power of
the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may
be, of the corporation resulting from such Business
Combination (including, without limitation, a
corporation that as a result of such transaction owns
the Company or all or substantially all of the Company's
assets either directly or through one or more
subsidiaries) in substantially the same proportions as
their ownership, immediately prior to such Business
Combination of the Outstanding Company Common Stock or
Outstanding Company Voting Securities,
(b) no Person [excluding any employee benefit plan (or
related trust) of the Company or such corporation
resulting from such Business Combination] beneficially
owns, directly or indirectly, 25% or more of the then
outstanding shares of common stock of the corporation
resulting from such Business Combination or the combined
voting power of the then outstanding voting securities
of such corporation except to the extent that such
ownership existed prior to the Business Combination, and
(c) at least a majority of the members of the board of
directors of the corporation resulting from such
Business Combination were members of the Incumbent Board
at the time of the execution of the initial Agreement,
or of the action of the Board, providing for such
Business Combination; or
(5) approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
B. A Change of Control shall not be deemed to have occurred with
respect to an Employee if:
(1) the acquisition of the 25% or greater interest referred to in
subparagraph A.(1) of this Section 6 is by a group, acting in
concert, that includes the Employee or
(2) if at least 25% of the then outstanding common stock or
combined voting power of the then outstanding Company voting
securities (or voting equity interests) of the surviving
corporation or of any corporation (or other entity) acquiring
all or substantially all of the assets of the Company shall
be beneficially owned, directly or indirectly, immediately
after a reorganization, merger, consolidation, statutory
share exchange, disposition of assets, liquidation or
dissolution referred to in subsections (4) or (5) of this
section by a group, acting in concert, that includes that
Employee.
7. Adjustments
-----------
If there shall be any change in the number or character of the Common
Stock of the Company through merger, consolidation, reorganization,
recapitalization, dividend in the form of stock (of whatever amount),
stock split or other change in the corporate structure of the Company,
and all or any portion of the option shall then be unexercised and not
yet expired, appropriate adjustments in the outstanding option shall
be made by the Company, in order to prevent dilution or enlargement of
option rights. Such adjustments shall include, where appropriate,
changes in the number of shares of Common Stock and the price per
share subject to the outstanding option.
8. Miscellaneous
-------------
A. This option is issued pursuant to the Company's Stock Incentive
Plan and is subject to its terms. A copy of the Plan has been
given to the Employee. The terms of the Plan are also available
for inspection during business hours at the principal offices of
the Company.
B. This Agreement shall not confer on Employee any right with respect
to continuance of employment by the Company or any of its
subsidiaries, nor will it interfere in any way with the right of
the Company to terminate such employment at any time. Employee
shall have none of the rights of a shareholder with respect to
shares subject to this option until such shares shall have been
issued to him/her upon exercise of this option.
C. The Company shall at all times during the term of the option
reserve and keep available such number of shares as will be
sufficient to satisfy the requirements of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the day and year first above written.
GRACO INC.
---------
By:/s/George Aristide
------------------------
George Aristides
Chairman of the Board
/s/David A. Roberts
---------------------------
Employee
EXHIBIT 11
GRACO INC. AND SUBSIDIARIES
COMPUTATION OF NET EARNINGS PER COMMON SHARE
(Unaudited)
Thirteen Weeks Ended Twenty-six Weeks Ended
-------------------------- --------------------------
June 29, June 30, June 29, June 30,
2001 2000 2001 2000
------------ ----------- ------------ ------------
(in thousands except per share amounts)
Net earnings applicable to common
shareholders for basic and
diluted earnings per share $18,248 $18,331 $31,368 $33,306
Weighted average shares outstanding
for basic earnings per share 30,853 30,369 30,707 30,480
Dilutive effect of stock options
computed using the treasury
stock method and the average
market price 592 486 580 482
Weighted average shares outstanding
for diluted earnings per share 31,445 30,855 31,287 30,962
Basic earnings per share $ 0.59 $ 0.60 $ 1.02 $ 1.09
Diluted earnings per share $ 0.58 $ 0.59 $ 1.00 $ 1.08
