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 28, 2002
Commission File Number: 001-9249
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GRACO INC.
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(Exact name of Registrant as specified in its charter)
Minnesota 41-0285640
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(State of incorporation) (I.R.S. Employer Identification Number)
88 - 11th Avenue N.E.
Minneapolis, Minnesota 55413
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(Address of principal executive offices) (Zip Code)
(612) 623-6000
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(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
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47,583,000 common shares were outstanding as of July 26, 2002.
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 6-9
Item 2. Management's Discussion and Analysis
of Financial Condition and
Results of Operations 10-12
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of
Security Holders 13
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
EXHIBITS
Restated Bylaws as amended June 13, 2002 Exhibit 3
Executive Long Term Incentive Agreement. Form of
agreement used for award of restricted stock to
executive officers under the Graco Inc. Stock
Incentive Plan with schedule of awards current
as of June 28, 2002. Exhibit 10
Executive Group Long-Term Disability Policy Exhibit 10.1
Computation of Net Earnings per Common Share Exhibit 11
Certification of Chief Executive Officer Exhibit 99
Certification of Vice President & Treasurer Exhibit 99.1
PART I
GRACO INC. AND SUBSIDIARIES
Item I. CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(In thousands except per share amounts)
Thirteen Weeks Ended Twenty-six Weeks Ended
----------------------------- -----------------------------
June 28, 2002 June 29, 2001 June 28, 2002 June 29, 2001
------------- ------------- ------------- -------------
Net Sales $132,796 $130,873 $240,653 $240,687
Cost of products sold 65,655 66,620 118,349 121,296
------------- ------------- ------------- -------------
Gross Profit 67,141 64,253 122,304 119,391
Product development 4,527 5,711 8,688 11,998
Selling, marketing and distribution 22,096 20,441 41,888 41,113
General and administrative 8,785 9,597 16,502 17,293
------------- ------------- ------------- -------------
Operating Earnings 31,733 28,504 55,226 48,987
Interest expense 110 355 260 805
Other expense 207 601 204 814
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Earnings Before Income Taxes 31,416 27,548 54,762 47,368
Income taxes 9,900 9,300 17,700 16,000
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Net Earnings $ 21,516 $ 18,248 $ 37,062 $ 31,368
============= ============= ============= =============
Basic Net Earnings
Per Common Share $ .45 $ .39 $ .78 $ .68
============= ============= ============= =============
Diluted Net Earnings
Per Common Share $ .44 $ .39 $ .77 $ .67
============= ============= ============= =============
See notes to consolidated financial statements.
GRACO INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)
June 28, 2002 Dec. 28, 2001
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ASSETS
Current Assets
Cash and cash equivalents $ 63,866 $ 26,531
Accounts receivable, less allowances
of $5,700 and $4,500 97,197 85,440
Inventories 28,657 30,333
Deferred income taxes 12,349 11,710
Prepaid expenses 1,833 1,483
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Total current assets 203,902 155,497
Property, Plant and Equipment:
Cost 213,744 211,523
Accumulated depreciation (119,356) (112,579)
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94,388 98,944
Intangible Assets, net 13,009 14,274
Other Assets 8,159 7,398
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$ 319,458 $ 276,113
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Notes payable to banks $ 9,649 $ 9,512
Current portion of long-term debt 500 550
Trade accounts payable 12,284 10,676
Salaries, wages and commissions 9,857 10,620
Accrued insurance liabilities 10,467 10,380
Accrued warranty and service liabilities 6,234 6,091
Income taxes payable 4,894 6,014
Other current liabilities 17,752 19,410
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Total current liabilities 71,637 73,253
Retirement Benefits and Deferred Compensation 28,297 27,359
Deferred Income Taxes 1,765 1,761
Shareholders' Equity
Common stock 47,643 31,113
Additional paid-in capital 69,485 54,269
Retained earnings 102,405 89,155
Other, net (1,774) (797)
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Total shareholders' equity 217,759 173,740
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$ 319,458 $ 276,113
============= =============
See notes to consolidated financial statements.
GRACO INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Twenty-six Weeks
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June 28, 2002 June 29, 2001
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Cash Flows from Operating Activities
Net Earnings $37,062 $31,368
Adjustments to reconcile net earnings to net
cash provided by operating activities
Depreciation and amortization 9,416 8,946
Deferred income taxes (719) 123
Tax benefit related to stock options exercised 3,300 -
Change in:
Accounts receivable (9,197) (2,520)
Inventories 1,677 (2,013)
Trade accounts payable 1,551 732
Salaries, wages and commissions (970) (5,716)
Retirement benefits and deferred (189) (1,040)
compensation
Other accrued liabilities (2,886) 2,421
Other (275) (916)
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38,770 31,385
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Cash Flows from Investing Activities
Property, plant and equipment additions (3,926) (12,084)
Proceeds from sale of property, plant and equipment 271 105
Acquisition of business, net of cash acquired - (15,949)
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(3,655) (27,928)
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Cash Flows from Financing Activities
Borrowings on notes payable and lines of credit 11,736 106,130
Payments on notes payable and lines of credit (12,329) (109,598)
Borrowings on long-term debt - 21,000
Payments on long-term debt (50) (27,810)
Common stock issued 11,567 10,951
Common stock retired (1,028) (2,025)
Cash dividends paid (6,905) (6,123)
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2,991 (7,475)
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Effect of exchange rate changes on cash (771) 162
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Net increase (decrease) in cash and cash equivalents 37,335 (3,856)
Cash and cash equivalents
Beginning of year 26,531 11,071
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End of period $ 63,866 $ 7,215
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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 28, 2002, and the related statements of earnings for the
thirteen and twenty-six weeks ended June 28, 2002 and June 29, 2001, and
cash flows for the twenty-six weeks ended June 28, 2002 and June 29, 2001
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 28, 2002, 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 2001 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 28, 2002 Dec. 28, 2001
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Finished products and components $26,351 $23,863
Products and components in various stages
of completion 16,506 18,827
Raw materials and purchased components 16,833 18,899
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59,690 61,589
Reduction to LIFO cost (31,033) (31,256)
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$28,657 $30,333
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3. The Company has three reportable segments; Industrial/Automotive,
Contractor and Lubrication. The Company does not identify assets by
segment. Sales and operating earnings by segment for the thirteen and
twenty-six weeks ended June 28, 2002 and June 29, 2001 were as follows (in
thousands):
Thirteen Weeks Ended Twenty-six Weeks Ended
----------------------------- ----------------------------
June 28, 2002 June 29, 2001 June 28, 2002 June 29,2001
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Net Sales
Industrial/Automotive $ 50,759 $ 51,449 $ 96,862 $ 99,098
Contractor 68,593 66,776 119,728 116,677
Lubrication 13,444 12,648 24,063 24,912
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Consolidated $132,796 $130,873 $240,653 $240,687
============= ============= ============= ============
Operating Earnings
Industrial/Automotive $ 13,223 $ 12,114 $ 24,960 $ 21,507
Contractor 17,243 15,537 28,108 24,157
Lubrication 3,129 3,072 5,521 6,028
Unallocated Corporate expenses (1,862) (2,219) (3,363) (2,705)
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Consolidated Operating Earnings $ 31,733 $ 28,504 $ 55,226 $ 48,987
============= ============= ============= ============
4. Total comprehensive income in 2002 was $21.5 million in the second quarter
and $37.1 million year-to-date. In 2001, comprehensive income was $17.6
million for the second quarter and $30.0 million for the six-month period.
There have been no significant changes to the components of comprehensive
income from those noted on the 2001 Form 10-K except as described in note 6
below, with respect to translation gains and losses.
5. Effective at the beginning of fiscal year 2002, the Company adopted
Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill and
Other Intangible Assets." Upon adoption of SFAS No. 142, amortization of
goodwill ceased, and results of initial goodwill impairment testing
indicated no impairment. Had SFAS No. 142 been effective at the beginning
of 2001, the non-amortization provisions would have increased net earnings
for the second quarter and six months ended June 29, 2001 by $140,000.
GRACO INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Components of intangible assets were (in thousands):
June 28, 2002 Dec. 28, 2001
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Goodwill $ 7,939 $ 7,939
Other identifiable intangibles, net of
accumulated amortization of $7,700 and
$6,400 5,070 6,335
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$13,009 $14,274
============= =============
Amortization of intangibles was $624,000 in the second quarter of 2002 and
$1,266,000 year-to-date. Estimated annual amortization is as follows:
$2,400,000 in 2002, $1,600,000 in 2003, $800,000 in 2004, $400,000 in 2005
and $300,000 in 2006.
6. During the third quarter of 2001, the Company announced plans to relocate
the operations of its German subsidiary, Graco Verfahrenstechnik (GV) to
other Company facilities in Belgium and the U.S. This included termination
of approximately 50 employees, termination of leases and consolidation of
product lines.
General and administrative expense in the third quarter of 2001 included a
$1.4 million charge to establish a restructuring accrual for incremental
costs associated with relocating GV operations. Through the end of the
second quarter of 2002, there were no significant payments charged against
the accrual, but the Company expects that all amounts accrued will be paid
by the end of 2002.
The economic facts and circumstances considered in determining the
functional currency of GV changed as a result of relocating GV operations.
Consequently, the Company determined that the functional currency of GV
changed from the euro to the U.S. dollar. Effective at the beginning of
2002, adjustments resulting from the translation of GV financial statements
into U.S. dollars are no longer charged or credited to shareholders'
equity, but are now included in other expense (income).
7. Statement of Financial Accounting Standards (SFAS) No. 144, "Accounting for
the Impairment or Disposal of Long-Lived Assets" was effective for the
Company at the beginning of fiscal year 2002. This standard provides for a
single accounting model to be used for long-lived assets to be disposed of,
and broadens the presentation of discontinued operations to include more
disposal transactions. The adoption of SFAS No. 144 had no effect on the
Company's 2002 financial position or operating results.
8. On May 7, 2002, the Board of Directors declared a three-for-two split of
the Company's common stock, distributed on June 6, 2002 to shareholders of
record on May 21, 2002. Share and per share amounts for all periods
presented reflect the stock split.
Also on May 7, 2002, the Company issued 36,750 shares of restricted common
stock to key employees under the Stock Incentive Plan. Compensation cost
totaling $1,069,000 related to the restricted shares will be charged to
operations over the three-year vesting period.
Item 2. GRACO INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
- ---------------------
Increased sales, improved gross profit rate and lower expenses resulted in
higher net earnings for the second quarter. Year-to-date, sales are flat
compared to last year, but improved gross profit rate and lower expenses
resulted in increased net earnings.
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 28, 2002 June 29, 2001 June 28, 2002 June 29, 2001
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Net Sales 100.0% 100.0% 100.0% 100.0%
Cost of products sold 49.4 50.9 49.2 50.4
Product development 3.4 4.4 3.6 5.0
Selling, marketing and distribution 16.7 15.6 17.4 17.1
General and administrative 6.6 7.3 6.9 7.2
------------- ------------- ------------- -------------
Operating Earnings 23.9 21.8 22.9 20.3
Interest expense 0.1 0.3 0.1 0.3
Other (income) expense, net 0.1 0.5 - 0.3
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Earnings Before Income Taxes 23.7 21.0 22.8 19.7
Income taxes 7.5 7.1 7.4 6.7
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Net Earnings 16.2% 13.9% 15.4% 13.0%
============= ============= ============= =============
Net Sales
Sales in the Industrial / Automotive segment have yet to recover from weak
economic conditions in the U.S. and Japan. Sales in the Contractor segment were
higher due to increased sales in the home center channel. Sales in the
Lubrication segment improved in the second quarter, but were still lower than
last year's year-to-date sales, which included large sales to key customers.
Sales by geographic area were as follows:
Thirteen Weeks Ended Twenty-six Weeks Ended
----------------------------- ----------------------------
June 28, 2002 June 29, 2001 June 28, 2002 June 29,2001
------------- ------------- ------------- ------------
Americas $ 97,220 $ 97,095 $175,798 $176,088
Europe 22,942 20,857 42,744 41,579
Asia Pacific 12,634 12,921 22,111 23,020
------------- ------------- ------------- ------------
Consolidated $132,796 $130,873 $240,653 $240,687
============= ============= ============= ============
For the second quarter, the strengthening of the euro versus the dollar had a
small favorable effect on the Company's profits. Sales in Europe increased 10
percent but would have been only 6 percent higher than last year if translated
at consistent exchange rates. Changes in exchange rates had no significant
impact on sales reported for the quarter in Asia Pacific. Year-to-date, changes
in exchange rates had no significant impact on the translation of
euro-denominated sales in Europe, but sales in Asia Pacific decreased 4 percent
and would have decreased only 1 percent if translated at consistent exchange
rates.
Gross Profit
High factory productivity, product cost improvements, product mix and price
increases all contributed to higher gross profit rates compared to the same
periods last year.
Operating Expenses
Product development expenses were down as a result of actions taken last year.
Selling, marketing and distribution expenses increased compared to last year due
in part to increased sales incentives and marketing programs. Efforts to control
costs have been successful in most general and administrative areas, with the
largest decrease coming from information systems.
Year-to-date operations include a $.5 million pension credit related to the
Company's U.S. defined benefit pension plan, compared to a $1.7 million credit
in the same period last year. These credits resulted from recognition of
investment gains attributable to pension plan assets, and are included in cost
of products sold and operating expenses based on salaries and wages.
Interest Expense and Other Expense
Interest expense decreased due to reduced debt levels and interest income
(included in Other Expense) increased due to higher interest-bearing cash
balances.
Liquidity and Capital Resources
Cash generated from operations in the first six months of 2002 increased cash
and cash equivalents by $37 million. Accounts receivable increased in 2002 due
to extended terms on selected accounts and higher sales in the second quarter.
Issuance of common stock (from stock options exercised and employee stock
purchase plan) was a significant source of cash. In 2001, significant uses of
cash included the construction of expanded manufacturing, warehouse and office
facilities in Minneapolis, Minnesota and Sioux Falls, South Dakota, the
acquisition of ASM, and reduction of debt.
The Company had unused lines of credit available at June 28, 2002 totaling $37
million. The available credit facilities, cash balances of $64 million at June
28, 2002, and internally generated funds provide the Company with the financial
flexibility to meet liquidity needs.
Outlook
Contractor Equipment segment sales continue to benefit from the introduction of
new products and a strong housing market. Even though sales in the Industrial /
Automotive segment have yet to recover from economic weakness, management
believes that the segment is well positioned to benefit from a recovery in North
American capital equipment spending. While internal sales growth may be
challenged by continued difficult economic conditions, management remains
committed to high profitability while funding the Company's long-term growth
strategies of introducing new products, entering new markets, expanding
distribution coverage and pursuing strategic acquisitions. Management is
cautiously optimistic that 2002 will be a year of higher net earnings for the
Company.
SAFE HARBOR CAUTIONARY STATEMENT
A forward-looking statement is any statement made in this report and other
reports that the Company files periodically with the Securities and Exchange
Commission, as well as in press or earnings releases, analyst briefings and
conference calls, which reflects the Company's current thinking on market trends
and the Company's future financial performance at the time they are made. All
forecasts and projections are forward-looking statements.
The Company desires to take advantage of the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995 by making cautionary statements
concerning any forward-looking statements made by or on behalf of the Company.
The Company cannot give any assurance that the results forecasted in any
forward-looking statement will actually be achieved. Future results could differ
materially from those expressed, due to the impact of changes in various
factors. These risk factors include, but are not limited to: economic conditions
in the United States and other major world economies, currency fluctuations,
political instability, changes in laws and regulations, and changes in product
demand. Please refer to Exhibit 99 to the Company's Annual Report on Form 10-K
for fiscal year 2001 for a more comprehensive discussion of these and other risk
factors.
PART II
Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Shareholders held on May 7, 2002, David A. Koch, Lee R.
Mitau, James H. Moar, Martha A.M. Morfitt and David A. Roberts were elected to
the Office of Director with the following votes (prior to stock split):
FOR WITHHELD
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David A. Koch 27,998,318 1,038,713
Lee R. Mitau 20,715,895 8,321,136
James H. Moar 28,548,656 488,375
Martha A.M. Morfitt 28,566,460 470,571
David A. Roberts 21,502,764 7,534,267
At the same meeting, the selection of Deloitte & Touche LLP as independent
auditors for the current year was approved and ratified, with the following
votes (prior to stock split):
FOR AGAINST ABSTENTIONS BROKER NON-VOTE
---------- --------- ----------- ---------------
27,707,199 1,302,366 27,466 0
No other matters were voted on at the meeting.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3 Restated Bylaws as amended June 13, 2002
10 Executive Long Term Incentive Agreement. Form of agree-
ment used for award of restricted stock to executive
officers under the Graco Inc. Stock Incentive Plan with
schedule of awards current as of June 28, 2002
10.1 Executive Group Long-Term Disability Policy
11 Computation of Net Earnings per Common Share
99 Certification of Chief Executive Officer
99.1 Certification of Vice President and Treasurer
(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: August 1, 2002 By: /s/David A. Roberts
-------------------------------- -----------------------------------
David A. Roberts
President & Chief Executive Officer
Date: July 30, 2002 By: /s/James A. Graner
-------------------------------- -----------------------------------
James A. Graner
Vice President & Controller
Date: July 30, 2002 By: /s/Mark W. Sheahan
-------------------------------- -----------------------------------
Mark W. Sheahan
Vice President & Treasurer
RESTATED BYLAWS
GRACO INC.
(Adopted June 13, 2002)
ARTICLE I.
OFFICES, CORPORATE SEAL
Section 1.01. Offices. The principal executive office of the corporation
shall be at 88 - 11th Avenue NE, Minneapolis, Minnesota 55413. The corporation
may have such other offices, within or without the State of Minnesota, as the
directors shall, from time to time, determine.
Section 1.02. Corporate Seal. The corporate seal shall be circular in form
and shall have inscribed thereon the name of the corporation and the word
"Minnesota" and the words "Corporate Seal".
ARTICLE II.
MEETINGS OF SHAREHOLDERS
Section 2.01. Place of Meetings. Meetings of the shareholders shall be held
at the principal executive office of the corporation or at such other place as
may be designated by the directors, except that any meeting called by or at the
demand of a shareholder shall be held in the county in which the principal
executive office of the corporation is located.
Section 2.02. Regular Meetings. A regular meeting of the shareholders shall
be held on an annual basis on such date and at such time as the Board of
Directors shall by resolution establish. At a regular meeting the shareholders
shall elect qualified successors for directors whose terms have expired or are
due to expire within six months after the date of the meeting and shall transact
such other business as may properly come before them.
Section 2.03. Special Meetings. Special meetings of the shareholders may be
held at any time and for any purpose and may be called by the chief executive
officer, the chief financial officer, two or more directors or a shareholder or
shareholders holding 10% or more of the voting power of all shares entitled to
vote, except that a special meeting called by a shareholder or shareholders for
the purpose of considering any action to directly or indirectly facilitate or
effect a business combination, including any action to change or otherwise
affect the composition of the Board of Directors for that purpose, must be
called by a shareholder or shareholders holding 25% or more of the voting power
of all shares entitled to vote. A shareholder or shareholders holding the
requisite percentage of the voting power may demand a special meeting of the
shareholders by written notice given to the chief executive officer or chief
financial officer of the corporation stating the purposes of the meeting. Within
30 days after receipt of such a demand by one of those officers, the Board of
Directors shall cause a special meeting of shareholders to be called and held on
notice not later than 90 days after receipt of the demand, at the expense of the
corporation. Special meetings shall be held on the date and at the time and
place fixed by the chief executive officer, the chief financial officer or the
Board of Directors, except that a special meeting called by or at demand of a
shareholder or shareholders shall be held in the county where the principal
executive office is located. The business transacted at a special meeting shall
be limited to the purposes stated in the notice of the meeting.
Section 2.04. Quorum, Action by Shareholders. The holders of a majority of
the shares entitled to vote shall constitute a quorum for the transaction of
business at any regular or special meeting. All questions shall be decided by a
majority vote of the number of shares entitled to vote and represented at the
meeting at the time of the vote unless otherwise required by statute, the
Articles of Incorporation, or these Bylaws.
Section 2.05. Adjourned Meetings. In case a quorum shall not be present at
a meeting, those present may adjourn the meeting to such day as they shall, by
majority vote, agree upon, and a notice of such adjournment and the date and
time at which such meeting shall be reconvened shall be mailed to each
shareholder entitled to vote at least 5 days before such adjourned meeting. If a
quorum is present, a meeting may be adjourned from time to time without notice
other than announcement at the meeting. At adjourned meetings at which a quorum
is present, any business may be transacted which might have been transacted at
the meeting as originally noticed. If a quorum is present, the shareholders may
continue to transact business until adjournment notwithstanding the withdrawal
of enough shareholders to leave less than a quorum.
Section 2.06. Voting. At each meeting of the shareholders every shareholder
having the right to vote shall be entitled to vote either in person or by proxy.
Each shareholder shall have one vote for each share having voting power
registered in such shareholder's name on the books of the corporation. Jointly
owned shares may be voted by any joint owner unless the corporation receives
written notice from any one of them denying the authority of that person to vote
the shares. Upon the demand of any shareholder, the vote upon any question
before the meeting shall be by ballot.
Section 2.07. Closing of Books. The Board of Directors may fix a date not
more than 60 days preceding the date of any meeting of shareholders, as the date
(the "record date") for the determination of the shareholders entitled to notice
of, and to vote at, such meeting. When a record date is so fixed, only
shareholders as of that date are entitled to notice of and permitted to vote at
that meeting of shareholders.
Section 2.08. Notice of Meetings. Except as otherwise specified in Section
2.05 or required by law, written notice of each meeting of the shareholders,
stating the date, time and place and, in the case of a special meeting, the
purpose or purposes, shall be given at least ten days and not more than sixty
days prior to the meeting to every holder of shares entitled to vote at such
meeting. The business transacted at a special meeting of shareholders is limited
to the purposes stated in the notice of the meeting.
Section 2.09. Waiver of Notice. Notice of any regular or special meeting
may be waived by any shareholder either before, at or after such meeting orally
or in a writing signed by such shareholder or a representative entitled to vote
the shares of such shareholder. Attendance by a shareholder, at any meeting of
shareholders, is a waiver of notice of such meeting, except where the
shareholder objects at the beginning of the meeting to the transaction of
business because the meeting is not lawfully called or convened or the item may
not lawfully be considered at that meeting and the shareholder does not
participate in the consideration of the item at that meeting.
Section 2.10. Advance Notice of Shareholder Proposals. As provided in
Section 2.03, the business conducted at any special meeting of shareholders of
the corporation shall be limited to the purposes stated in the notice of the
special meeting pursuant to Section 2.08. At any regular meeting of shareholders
of the corporation, only such business (other than the nomination and election
of directors, which shall be subject to Section 3.15) may be conducted as shall
be appropriate for consideration at the meeting of shareholders and shall have
been brought before the meeting (i) by or at the direction of the Board of
Directors, or (ii) by any shareholder of the corporation entitled to vote at the
meeting who complies with the notice procedures hereinafter set forth in this
section.
(a) Timing of Notice. For such business to be properly brought before any
regular meeting by a shareholder, the shareholder must have given
timely notice thereof in writing to the secretary of the corporation.
To be timely, a shareholder's notice of any such business to be
conducted at an annual shareholders meeting must be delivered to the
secretary of the corporation, or mailed and received at the principal
executive office of the corporation, not less than 90 days before the
first anniversary of the date of the preceding year's annual
shareholders meeting of shareholders. If, however, the date of the
annual shareholders meeting of shareholders is more than 30 days
before or after such anniversary date, notice by a shareholder shall
be timely only if so delivered or so mailed and received not less than
90 days before such annual shareholders meeting or, if later, within
10 days after the first public announcement of the date of such annual
shareholders meeting. To be timely, a shareholder's notice of any such
business to be conducted at a regular meeting other than an annual
shareholders meeting must be delivered to the secretary of the
corporation, or mailed and received at the principal executive office
of the corporation, not less than 90 days before such regular meeting
or, if later, within 10 days after the first public announcement of
the date of such regular meeting. Except to the extent otherwise
required by law, the adjournment of a regular meeting of shareholders
shall not commence a new time period for the giving of a shareholder's
notice as required above.
(b) Content of Notice. A shareholder's notice to the corporation shall set
forth as to each matter the shareholder proposes to bring before the
regular meeting (i) a brief description of the business desired to be
brought before the meeting and the reasons for conducting such
business at the meeting, (ii) the name and address, as they appear on
the corporation's books, of the shareholder proposing such business,
(iii) the class of series (if any) and number of shares of the
corporation that are beneficially owned by the shareholder, (iv) any
material interest of the shareholder in such business, and (v) a
representation that the shareholder is a holder of record of shares
entitled to vote at the meeting and intends to appear in person or by
proxy at the meeting to make the proposal.
(c) Consequences of Failure to Give Timely Notice. Notwithstanding
anything in these Bylaws to the contrary, no business (other than the
nomination and election of directors) shall be conducted at any
regular meeting except in accordance with the procedures set forth in
this Section. The officer of the corporation chairing the meeting
shall, if the facts warrant, determine and declare to the meeting that
business was not properly brought before the meeting in accordance
with the procedures described in this Section and, if such officer
should so determine, such officer shall so declare to the meeting, and
any such business not properly brought before the meeting shall not be
transacted. Nothing in this Section shall be deemed to preclude
discussion by any shareholder of any business properly brought before
the meeting in accordance with these Bylaws.
(d) Public Announcement. For purposes of this Section and Section 3.15,
"public announcement" means disclosure (i) when made in a press
release reported by the Dow Jones News Service, Associated Press, or
comparable national news service, (ii) when filed in a document
publicly filed by the corporation with the Securities and Exchange
Commission pursuant to Section 13, 14, or 15(d) of the Securities
Exchange Act of 1934, as amended, or (iii) when mailed as the notice
of the meeting pursuant to Section 2.08.
(e) Compliance with Law. Notwithstanding the foregoing provisions of this
Section, a shareholder shall also comply with all applicable
requirements of Minnesota law and the Securities Exchange Act of 1934,
as amended, and the rules and regulations thereunder with respect to
the matters set forth in this Section.
ARTICLE III.
DIRECTORS
Section 3.01. General Powers. The business and affairs of the corporation
shall be managed by or under the direction of the Board of Directors.
Section 3.02. Number, Qualification and Term of Office. The number of
directors shall initially be ten and, thereafter, shall be fixed from time to
time by the Board of Directors or by the affirmative vote of the holders of
two-thirds of the voting power of the outstanding capital stock of the
corporation, voting together as a single class. The directors shall be divided
into three classes, as nearly equal in number as reasonably possible, with the
term of office of the first class to expire at the 1988 annual meeting of
shareholders, the term of office of the second class to expire at the 1989
annual meeting of shareholders and the term of office of the third class to
expire at the 1990 annual meeting of shareholders. At each annual meeting of
shareholders following such initial classification and election, directors
elected to succeed those directors whose terms expire shall be elected for a
term of office to expire at the third succeeding annual meeting of shareholders
after their election.
Section 3.03. Board Meetings. Meetings of the Board of Directors may be
held from time to time at such time and place as may be designated in the notice
of such meeting.
Section 3.04. Calling Meetings; Notice. Meetings of the Board of Directors
may be called by the chief executive officer by giving at least twenty-four
hours' notice, or by any other director by giving at least five day's notice, of
the date, time and place thereof to each director by mail, telephone, telegram
or in person. If the day or date, time and place of a Board meeting have been
announced at a previous meeting of the Board, no notice is required. Notice of
an adjourned meeting need not be given other than by announcement at the meeting
at which adjournment is taken of the date, time and place at which the meeting
will be reconvened.
Section 3.05. Waiver of Notice. Notice of any meeting of the Board of
Directors may be waived by any director either before, at, or after such meeting
orally or in a writing signed by such director. A director, by his attendance at
any meeting of the Board of Directors, shall be deemed to have waived notice of
such meeting, except where the director objects at the beginning of the meeting
to the transaction of business because the meeting is not lawfully called or
convened and does not participate thereafter in the meeting.
Section 3.06. Quorum. A majority of the directors holding office
immediately prior to a meeting of the Board of Directors shall constitute a
quorum for the transaction of business at such meeting.
Section 3.07. Absent Directors. A director may give advance written consent
or opposition to a proposal to be acted on at a meeting of the Board of
Directors. If such director is not present at the meeting, consent or opposition
to a proposal does not constitute presence for purposes of determining the
existence of a quorum, but consent or opposition shall be counted as a vote in
favor of or against the proposal and shall be entered in the minutes or other
record of action at the meeting, if the proposal acted on at the meeting is
substantially the same or has substantially the same effect as the proposal to
which the director has consented or objected.
Section 3.08. Conference Communications. Any or all directors may
participate in any meeting or conference of the Board of Directors, or of any
duly constituted committee thereof, by any means of communication through which
the directors may simultaneously hear each other during such meeting. For the
purposes of establishing a quorum and taking any action, such directors
participating pursuant to this Section 3.08 shall be deemed present in person at
the meeting.
Section 3.09. Vacancies. Subject to the rights of the holders of any series
of Preferred Stock then outstanding, newly created directorships resulting from
any increase in the authorized number of directors or any vacancies in the Board
of Directors resulting from death, resignation, retirement, disqualification,
removal from office or other cause may be filled by a majority vote of the
directors then in office though less than a quorum, and directors so chosen
shall hold office for a term expiring at the next annual meeting of
shareholders. No decrease in the number of directors constituting the Board of
Directors shall shorten the term of any incumbent director.
Section 3.10. Removal. Any directors, or the entire Board of Directors, may
be removed from office at any time, but only for cause and only by the
affirmative vote of the holders of the proportion or number of the voting power
of the shares of the classes or series the director represents sufficient to
elect them.
Section 3.11. Committees. A resolution approved by the affirmative vote of
a majority of the Board of Directors may establish committees having the
authority of the Board in the management of the business of the corporation to
the extent provided in the resolution. A committee shall consist of one or more
persons, who need not be directors, appointed by affirmative vote of a majority
of the directors present. Committees are subject to the direction and control
of, and vacancies in the membership thereof shall be filled by, the Board of
Directors, except as provided by Section 3.12 and by Minnesota Statutes Section
302A.243. A majority of the members of the committee holding office immediately
prior to a meeting of the committee shall constitute a quorum for the
transaction of business, unless a larger or smaller proportion or number is
provided in the resolution establishing the committee.
Section 3.12. Committee of Disinterested Persons. Pursuant to the procedure
set forth in Section 3.11, the Board may establish a committee composed of two
or more disinterested directors or other disinterested persons to determine
whether it is in the best interests of the corporation to pursue a particular
legal right or remedy of the corporation and whether to cause the dismissal or
discontinuance of a particular proceeding that seeks to assert a right or remedy
on behalf of the corporation. The committee, once established, is not subject to
the direction or control of, or termination by, the Board. A vacancy on the
committee may be filled by a majority of the remaining committee members. The
good faith determinations of the committee are binding upon the corporation and
its directors, officers and shareholders. The committee terminates when it
issues a written report of its determination to the Board.
Section 3.13. Written Action. Any action which might be taken at a meeting
of the Board of Directors, or any duly constituted committee thereof, may be
taken without a meeting if done in writing and signed by all of the directors or
committee members, unless the Articles provide otherwise and the action need not
be approved by the shareholders.
Section 3.14. Compensation. The Board may fix the compensation, if any, of
directors.
Section 3.15. Nomination of Director Candidates. Only persons who are
nominated in accordance with the procedures set forth in this Section 3.15 shall
be eligible for election as directors. Nominations of persons for election to
the Board of Directors of the corporation may be made at a meeting of
shareholders (i) by or at the direction of the Board of Directors, or (ii) by
any shareholder of the corporation entitled to vote for the election of
directors at the meeting who complies with the notice procedures hereinafter set
forth in this Section.
(a) Timing of Notice. Nominations by shareholders shall be made pursuant
to timely notice in writing to the secretary of the corporation. To be
timely, a shareholder's notice of nominations to be made at an annual
shareholders meeting of shareholders must be delivered to the
secretary of the corporation, or mailed and received at the principal
executive office of the corporation, not less than 90 days before the
first anniversary date of the preceding year's annual shareholders
meeting of shareholders. If, however, the date of the annual
shareholders meeting of shareholders is more than 30 days before or
after such anniversary date, notice by a shareholder shall be timely
only if so delivered or so mailed and received not less than 90 days
before such annual shareholders meeting or, if later, within 10 days
after the first public announcement of the date of such annual
shareholders meeting. If a special meeting of shareholders of the
corporation is called in accordance with Section 2.03 for the purpose
of electing one or more directors to the Board of Directors or if a
regular meeting other than an annual shareholders meeting is held, for
a shareholder's notice of nominations to be timely it must be
delivered to the secretary of the corporation, or mailed and received
at the principal executive office of the corporation, not less than 90
days before such special meeting or such regular meeting or, if later,
within 10 days after the first public announcement of the date of such
special meeting or such regular meeting. Except to the extent
otherwise required by law, the adjournment of a regular or special
meeting of shareholders shall not commence a new time period for the
giving of a shareholder's notice as described above.
(b) Content of Notice. A shareholder's notice to the corporation of
nominations for a regular or special meeting of shareholders shall set
forth (x) as to each person whom the shareholder proposes to nominate
for election or re-election as a director: (i) such person's name,
age, business address and residence address and principal occupation
or employment, (ii) all other information relating to such person that
is required to be disclosed in solicitations of proxies for election
of directors, or that is otherwise required, pursuant to Regulation
14A under the Securities Exchange Act of 1934, as amended, and (iii)
such person's written consent to being named in the proxy statement as
a nominee and to serving as a director if elected; and (y) as to the
shareholder giving the notice: (i) the name and address, as they
appear on the corporation's books, or such shareholder, (ii) the class
or series (if any) and number of shares of the corporation that are
beneficially owned by such shareholder, and (iii) a representation
that the shareholder is a holder of record of shares of the
corporation entitled to vote for the election of directors and intends
to appear in person or by proxy at the meeting to nominate the person
or persons specified in the notice. At the request of the Board of
Directors, any person nominated by the Board of Directors for election
as a director shall furnish to the secretary of the corporation the
information required to be set forth in a shareholder's notice of
nomination that pertains to a nominee.
(c) Consequences of Failure to Give Timely Notice. Notwithstanding
anything in these Bylaws to the contrary, no person shall be eligible
for election as a director of the corporation unless nominated in
accordance with the procedures set forth in this Section. The officer
of the corporation chairing the meeting shall, if the facts warrant,
determine and declare to the meeting that a nomination was not made in
accordance with the procedures prescribed in this Section and, if such
officer should so determine, such officer shall so declare to the
meeting, and the defective nomination shall be disregarded.
ARTICLE IV.
OFFICERS
Section 4.01. Number and Designation. The corporation shall have one or
more natural persons exercising the functions of the offices of chief executive
officer and chief financial officer. The Board of Directors may elect or appoint
such other officers or agents as it deems necessary for the operation and
management of the corporation, with such powers, rights, duties and
responsibilities as may be determined by the Board, including, without
limitation, a Chairman of the Board, a President, one or more Vice Presidents, a
Secretary, A Treasurer, and such assistant officers or other officers as may
from time to time, be elected or appointed by the Board. Each such officer shall
have the powers, rights, duties and responsibilities set forth in these Bylaws
unless otherwise determined by the Board. Any number of offices may be held by
the same person.
Section 4.02. Chief Executive Officer. Either the Chairman of the Board,
the President or another officer of the corporation may be designated from time
to time by the Board to be the chief executive officer of the corporation.
Unless provided otherwise by a resolution adopted by the Board of Directors, the
chief executive officer (a) shall have general active management of the business
of the corporation; (b), shall, when present, preside at all meetings of the
shareholders; (c) shall see that all orders and resolutions of the Board are
carried into effect; (d) shall sign and deliver in the name of the corporation
any deeds, mortgages, bonds, contracts or other instruments pertaining to the
business of the corporation, except in cases in which the authority to sign and
deliver is required by law to be exercised by another person or is expressly
delegated by these Bylaws or the Board to some other officer or agent of the
corporation; (e) may maintain records of and certify proceedings of the Board
and shareholders; and (f) shall perform such other duties as may from time to
time be assigned to him by the Board.
Section 4.03. Chief Operating Officer. The chief operating officer (if one
is elected by the Board) shall be either the President or a Vice President. He
shall be responsible for the management of all of the operations of the
corporation's business and shall have such other authority and duties as the
Board of Directors or the chief executive officer from time to time may
prescribe. He shall report to the chief executive officer and be responsible to
him. He may also execute and deliver in the name of the corporation any
instruments or documents pertaining to the business of the corporation which
could be executed by the chief executive officer.
Section 4.04. Chief Financial Officer. Unless provided otherwise by a
resolution adopted by the Board of Directors, the chief financial officer (a)
shall keep accurate financial records for the corporation; (b) shall deposit all
monies, drafts and checks in the name of and to the credit of the corporation in
such banks and depositories as the Board of Directors shall designate from time
to time; (c) shall endorse for deposit all notes, checks and drafts received by
the corporation as ordered by the Board, making proper vouchers therefor; (d)
shall disburse corporate funds and issue checks and drafts in the name of the
corporation, as ordered by the Board; (e) shall render to the chief executive
officer and the Board of Directors, whenever requested, an account of all of his
transactions as chief financial officer and of the financial condition of the
corporation; and (f) shall perform such other duties as may be prescribed by the
Board of Directors or the chief executive officer from time to time.
Section 4.05. Chairman of the Board. The Chairman of the Board, if one is
elected, shall preside at all meetings of the directors and shall have such
other duties as may be prescribed, from time to time, by the Board of Directors.
Section 4.06. President. Unless otherwise determined by the Board, the
President shall be the chief executive officer of the corporation and shall
supervise and control the business affairs of the corporation. If an officer
other than the President is designated chief executive officer, the President
shall perform such duties as may from time to time be assigned to him by the
Board.
Section 4.07. Vice President. The Board of Directors may designate one or
more Vice Presidents, who shall have such designations and powers and shall
perform such duties as prescribed by the Board of Directors or by the President.
In the event of the absence or disability of the President, Vice Presidents
shall succeed to his power and duties in the order designated by the Board of
Directors.
Section 4.08. Secretary. The Secretary shall be secretary of and shall
attend all meetings of the shareholders and Board of Directors and shall record
all proceedings of such meetings in the minute book of the corporation. Except
as otherwise required or permitted by statute or by these Bylaws, the Secretary
shall give notice of meetings of shareholders and directors. The Secretary shall
perform such other duties as may, from time to time, be prescribed by the Board
of Directors or by the chief executive officer.
Section 4.09. Treasurer. Unless otherwise determined by the Board, the
Treasurer shall be the Chief Financial Officer of the Corporation. If an officer
other than the Treasurer is designated Chief Financial Officer, the Treasurer
shall perform such duties as may from time to time be assigned to him by the
Board.
Section 4.10. Authority and Duties. In addition to the foregoing authority
and duties, all officers of the corporation shall respectively have such
authority and perform such duties in the management of the business of the
corporation as may be determined from time to time by the Board of Directors.
Unless prohibited by a resolution of the Board of Directors, an officer elected
or appointed by the Board may, without specific approval of the Board, delegate
some or all of the duties and powers of an office to other persons.
Section 4.11. Removal and Vacancies. Any officer may be removed from his
office by the Board of Directors at any time, with or without cause. Such
removal, however, shall be without prejudice to the contract rights of the
person so removed. If there be a vacancy among the officers of the corporation
by reason of death, resignation or otherwise, such vacancy shall be filled for
the unexpired term by the Board of Directors.
Section 4.12. Compensation. The officers of this corporation shall receive
such compensation for their services as may be determined by or in accordance
with resolutions of the Board of Directors.
ARTICLE V.
SHARES AND THEIR TRANSFER
Section 5.01. Certificated and Uncertificated Shares. Shares of the
Corporation's stock may be certificated or uncertificated, as provided under
Minnesota law. All certificates of stock of the Corporation shall be numbered
and shall be entered in the books of the Corporation as they are issued. They
shall exhibit the holder's name and number of shares and shall be signed, in the
name of the corporation, by the President or any Vice President and by the
Secretary or an Assistant Secretary or by such officers as the Board of
Directors may designate. Any or all of the signatures on the certificate may be
a facsimile.
Section 5.02. Transfer of Stock. Transfers of stock shall be made on the
books of the Corporation only by the record holder of such stock, or the record
holder's legal representative, or the record holder's duly authorized
attorney-in-fact, and in the case of stock represented by a certificate, upon
surrender of the certificate. The Corporation may treat as the absolute owner of
shares of the Corporation, the person or persons in whose name the shares are
recorded on the books of the Corporation. The Board of Directors may appoint one
or more transfer agents and registrars to maintain the share records of the
Corporation and to effect share transfers on its behalf.
Section 5.03. Loss of Certificates. Any shareholder claiming a certificate
for shares to be lost, stolen or destroyed shall make an affidavit of that fact
in such form as the Board of Directors shall require and shall, if the Board of
Directors so requires, give the corporation a bond of indemnity in form, in an
amount, and with one or more sureties satisfactory to the Board of Directors, to
indemnify the corporation against any claim which may be made against it on
account of the reissue of such certificate, whereupon a new certificate may be
issued in the same tenor and for the same number of shares as the one alleged to
have been lost, stolen or destroyed.
ARTICLE VI.
DIVIDENDS, RECORD DATE
Section 6.01. Dividends. The Board of Directors shall have the authority to
declare dividends and other distributions upon shares to the extent permitted by
law.
Section 6.02. Record Date. The Board of Directors may fix a date not
exceeding 60 days preceding the date fixed for the payment of any dividend as
the record date for the determination of the shareholders entitled to receive
payment of the dividend and, in such case, only shareholders of record on the
date so fixed shall be entitled to receive payment of such dividend.
ARTICLE VII.
SECURITIES OF OTHER CORPORATIONS.
Section 7.01. Voting Securities Held by the Corporation. The chief
executive officer shall have full power and authority on behalf of the
corporation (a) to attend any meeting of security holders of other corporations
in which the corporation may hold securities and to vote such securities on
behalf of this corporation; (b) to execute any proxy for such meeting on behalf
of the corporation; or (c) to execute a written action in lieu of a meeting of
such other corporation on behalf of this corporation. At such meeting, the chief
executive officer shall possess and may exercise any and all rights and powers
incident to the ownership of such securities that the corporation possesses. The
Board of Directors or the chief executive officer may, from time to time, confer
or delegate such powers to one or more other persons.
Section 7.02. Purchase and Sale of Securities. The chief executive officer
shall have full power and authority on behalf of the corporation to purchase,
sell, transfer or encumber any and all securities of any other corporation owned
by the corporation, and may execute and deliver such documents as may be
necessary to effectuate such purchase, sale, transfer or encumbrance. The Board
of Directors or the chief executive officer may, from time to time, confer or
delegate such powers to one or more other persons.
ARTICLE VIII.
INDEMNIFICATION OF CERTAIN PERSONS
Section 8.01. The corporation shall indemnify officers and directors, for
such expenses and liabilities, in such manner, under such circumstances, and to
such extent as permitted by Minnesota Statutes Section 302A.521, as now enacted
or hereafter amended.
ARTICLE IX.
AMENDMENTS
Section 9.01. These Bylaws may be amended or altered by the Board of
Directors at any meeting if notice of such proposed amendment shall have been
given in the notice of such meeting. Such authority in the Board of Directors is
subject to (a) the limitations imposed by Minnesota Statutes Section 302A.181,
as now enacted or hereafter amended, or other applicable law and (b) the power
of the shareholders to change or repeal such Bylaws by a majority vote of the
shareholders present or represented at any meeting of shareholders called for
such purpose.
GRACO EXECUTIVE
LONG TERM INCENTIVE AGREEMENT
RESTRICTED STOCK AWARD
This Agreement is made as of the 7th day of May, 2002, between Graco Inc.,
a Minnesota corporation (the "Company"), and (the "Employee")
------------------
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, the Management Organization and Compensation Committee of the
Board of Directors (the "Committee"), in order to provide further incentive to
the Employee to continue his service to the Company and to more closely align
his interests with those of the shareholders, believes that it is appropriate to
make an award of restricted Common Shares to the Employee; and
WHEREAS, the Plan contemplates that a restricted stock award should be
evidenced by a written agreement, executed by the Company and the Employee
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, the Employee and the Company hereby agree as follows:
1. Award.
------
The Company, effective as of the date of this Agreement, hereby grants to
the Employee an award (the "Award") of 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 the Employee
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 the Employee or any group that
includes the Employee, 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 The Employee_ 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 The Employee; 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 the Employee.
(c) Until the Common Shares awarded hereunder vest, the Employee
acknowledges that he may not, and agrees that he shall not, transfer
his rights to such Common Shares. Until Common Shares awarded
hereunder vest, no attempt to transfer such Common Shares, 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 Shares.
3. Termination.
------------
(a) If the Employee: (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 substantially diminished; (iii) retires in accordance
with Section 3(c) below; or (iv) dies or becomes disabled (as
determined under the Company's Long Term Disability Plan) before the
vesting date under Section 2(a), then upon such event the Common Stock
awarded by this Agreement shall vest.
(b) If the Employee 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.
(c) If the Employee chooses to terminate his/her employment by retirement,
which for purposes of this Agreement is defined as a voluntary
termination after attaining age 55 with 10 years of service with the
Company or after attaining age 65, the Common Stock award granted by
this Agreement shall vest only in the event that: (i) the Employee has
given written notice to the Chief Executive Officer of said intention
to retire not less than six (6) months prior to the date of his/her
proposed retirement; and (ii) the Chief Executive Officer, in his/her
sole discretion and judgement, determines that termination of
employment by retirement of the Employee is in the best interests of
the Company. If the Chief Executive Officer does not so determine, the
retirement shall be considered a termination subject to Section 3(b)
above. If the Chief Executive Officer does so determine, he/she may
allow, in his/her sole judgement and discretion, the termination by
retirement to occur prior to the end of the six (6) month notice
period.
4. Issuance and Custody of Certificate.
------------------------------------
(a) The Company shall cause to be issued one or more stock certificates,
registered in the name of the Employee 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. Long Term 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 Ave. N.E., Minneapolis, MN. 55413.
(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 the Employee evidencing the certificates held which are registered
in the name of the Employee.
(c) Promptly after any Common Shares vest pursuant to 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 the Employee (or he Employee's
legal representatives, beneficiaries or heirs).
(d) The Employee 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 The Employee.
---------------------------
The Employee acknowledges and agrees that: (a) this Agreement is not a
contract of employment and the terms of the Employee's 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 the Employee for continuation of employment or interfere
with or limit the right of the Company to terminate he Employee's
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 the Employee with respect to the Award made by this Agreement
without the written consent of the Employee unless such amendment,
termination or suspension is required by applicable law; and (e) the
Employee 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 the Employee make such agreements
and representations as the Committee, in its sole discretion, deems
necessary or desirable.
7. Withholding Taxes.
------------------
The Employee agrees to pay, or make arrangements reasonably satisfactory to
the Company 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 the
Employee 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. The Employee 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 the Employee 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 the Employee would have received with
respect to the Common Shares had the Employee owned the Common Shares
free and clear of the restrictions under this Agreement. Unless the
Committee otherwise determines, the Employee's right in respect of
such securities and other property shall not vest until such Common
Shares would have vested and no such securities or other property
shall be issued or delivered until such Common Shares would be issued
or delivered.
(b) Unless the Committee otherwise determines, any securities and other
property (except regular quarterly cash dividends) received by the
Employee 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 The Employee:
Mr.
---------------------
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 the Employee have caused this Agreement
to be executed and delivered, all as of the day and year first above written.
GRACO INC. EMPLOYEE
By:
---------------------------------- ----------------------------------------
David A. Roberts (print name)
President and Chief Executive Officer
Schedule Identifying Restricted Stock Award Agreements Executed and
Material Details in which Executed Agreements Differ from Agreement Copy Filed
Current as of June 28, 2002
DATE NAME SHARES
----------- ----------------- ------
May 7, 2002 Steven Bauman 1500
May 7, 2002 Dan Christian 1500
May 7, 2002 James Graner 2500
May 7, 2002 Dale Johnson 2500
May 7, 2002 D. Christian Koch 2500
May 7, 2002 David Lowe 2500
May 7, 2002 Robert Mattison 1500
May 7, 2002 Patrick McHale 2500
May 7, 2002 Charles Rescorla 2500
May 7, 2002 Mark Sheahan 2500
May 7, 2002 Fred Sutter 2500
G.O. # 806
Satellite # 719
THE PAUL REVERE LIFE INSURANCE COMPANY
Worcester, Massachusetts 01608
Amendment No. PD8-1
Group Policy Number: G-42326
Policyholder: GRACO INC.
Effective Date of Revision: April 1, 1995
It is hereby understood and agreed upon that the above group policy or policies
issued by the Paul Revere Life Insurance Company shall be amended as follows:
Said group policy with any of its amendments is deleted and the attached group
policy is substituted therefore.
This amendment is hereby incorporated into and made a part of the said group
policy or policies.
THE PAUL REVERE LIFE INSURANCE COMPANY
January 23, 1996
- ----------------
Date of Issue
/s/John H. Budd /s/Charles E. Soula
- --------------- -------------------
Secretary President
AMD 94-3
The Paul Revere Life
Insurance Company
Group Policy Number: 42326
Policyholder: GRACO INC.
Effective Date: March 1, 1993
State of Issue: Minnesota
Revision Date: April 1, 1995
THE PAUL REVERE LIFE INSURANCE COMPANY agrees to pay the Group Insurance
Benefits set forth in this Policy. This Policy provides long term disability
insurance benefits for the replacement of income loss due to Disability.
Benefits are paid to or on behalf of all Employees of the policyholder who
become insured according to the provisions of this Policy. This Policy is based
upon yearly renewable term products. The duration of this Policy, subject to
Termination and all other Policy provisions, is shown in the Duration Rider.
The premium for the benefits provided by this Policy shall be paid by the
policyholder. All premiums are computed according to the provisions of this
Policy. The first premium is due on the date this Policy begins. All other
premiums due while this Policy is in force are to be paid in advance monthly on
the premium due date.
The provisions on the following pages are part of this Policy.
Signed by the officers of The Paul Revere Life Insurance Company at Worcester,
Massachusetts.
/s/John H. Budd /s/Charles E. Soula
--------------- -------------------
Secretary President
GROUP INSURANCE POLICY
NON-PARTICIPATING
PD8FACE 93-6
POLICYHOLDER SUBSIDIARIES AND AFFILIATES APPROVED FOR COVERAGE
Application to add an affiliate or subsidiary must be made in writing on an
approved application form. All agreements made between the policyholder and Us
are binding on all Employers. The list of approved affiliates and/or
subsidiaries is shown below.
The policyholder acts for and on behalf of all accepted Employers. All
agreements made between the policyholder and Us are binding on all Employers. No
other Employer may discontinue, modify, reduce or terminate this Policy.
PD8-A/S 93-8
TABLE OF CONTENTS
SCHEDULE OF BENEFITS .........................................................SB
GENERAL PROVISIONS ............................................................1
Definitions/Employees Eligible/Waiting Period/Effective Dates/Changes in
Amounts of Insurance/Policyholder Requests for Plan Changes/Termination of
Employee Insurance/Leave of Absence/Recurrent Disability
LONG TERM DISABILITY INCOME BENEFIT ...........................................2
Benefit/Rehabilitation Benefit/Period of Time Before Benefits Begin to
Accrue/Calculation/Maximum Benefit Period/Return to Work Benefit/Residual
Benefit/Family Survivor Income Benefit/Adjustable Cost of Living
Benefit/Conversion Privilege
BENEFIT REDUCTIONS ............................................................3
Integration Method/Income Sources That Will Reduce Our Benefit/Estimated
Social Security Benefits/Workers' Compensation Benefits
EXCLUSIONS AND LIMITATIONS ....................................................4
Exclusions/Pre-Existing Condition Limitation/Exception to Pre-Existing
Condition Limitation/PECL for Revisions/Other Limitations
PREMIUMS ......................................................................5
Payment of Premiums/The Grace Period/Amount of Premiums/Waiver of
Premium/Charges for Changes/Premium Credits/Simplified Accounting/
Inaccurate Census and Premium/Schedule of Premium Rates
CLAIMS ........................................................................6
Notice of Claim/Forms/Proof of Loss/Time Limits/Exams/Proof of Financial
Loss/How We Pay Benefits/Choice of Doctor/Legal Actions and Limitations
TERMINATION OF POLICY .........................................................7
MISCELLANEOUS PROVISIONS ......................................................8
Entire Contract/Time Limits for Certain Defenses/Agency/Misstatement/
Misrepresentation/Rescission/Certificates of Insurance/Insurance
Information/Changes in This Policy/Clerical Errors or Delays/Assignment
of Benefits/Workers' Compensation
DURATION AND RATE RIDER ...................................................RIDER
Duration of the Policy/Rate Guarantee
PD8TOC 93-8
SCHEDULE OF BENEFITS
Classification of Eligible Employees:
Class 1 - Corporate Officers and Executive Officers earning a minimum base
salary of $105,000; Sales Directors whose base salary and on-plan bonus
together total $105,000 or more; and, other Managing Directors earning
a minimum base salary of $105,000.
Amount of Disability Income Benefit:
- ------------------------------------
33.33% of the first $12,000.00 of Monthly Earnings and
67% of the remaining Monthly Earnings:
Maximum Benefit: $17,500.00 per month.
Minimum Benefit: 15% of basic monthly earnings,
up to a maximum of $100.00
Non-Evidence Limit: $16,000.00 Maximum Monthly Benefit
- ------------------
Maximum Benefit Period:
- -----------------------
Insured's Age When
Disability Begins Maximum Benefit Period
- ----------------- ----------------------
Less than Age 60 To Age 65
Age 60 5 Years
Age 61 4 Years
Age 62 42 Months
Age 63 36 Months
Age 64 30 Months
Age 65 24 Months
Age 66 21 Months
Age 67 18 Months
Age 68 15 Months
Age 69 and over 12 Months
Elimination Period: 180 Days
- ------------------
PD8-SOB SB 93-8
GENERAL PROVISIONS
DEFINITIONS
Here are some of the terms used in this Policy. Other terms are defined where
used in this Policy. All defined terms are important in describing rights under
this Policy. Please refer back to these meanings as you read. Defined terms are
presented with capital letters to help identify them as such. Masculine pronouns
used in this Policy apply to both sexes.
ACTIVELY AT WORK or ACTIVE WORK means that an Employee
1. is present at the Employer's place of business or a work site other than
the Employee's home, as designated by the Employer; and
2. is performing the duties of his job; and
3. is producing the work product required by his job.
DISABLED OR DISABILITY -- these terms mean either Total Disability or Residual
Disability. The definitions of these terms are presented in the Long Term
Disability Benefit (Section 2). One or more may apply to the Employee.
DOCTOR means a person, other than the insured, who is licensed to practice the
healing arts and who is practicing within the scope of his license. The term
covers only a licensed medical practitioner whose services are required to be
covered by the law of the jurisdiction where the treatment is rendered. See the
CLAIMS section for the provision on CHOICE OF DOCTOR.
DOCTOR'S CARE means the regular and personal care of a Doctor that, under
prevailing medical standards, is appropriate for the condition causing the
Disability.
EARNINGS (SALES DIRECTORS) means, for purposes of determining an Employee's
total disability benefit, the Employee's basic annual, monthly or weekly pay
based on a Work week of not more than 40 hours, prior to becoming disabled and
as last reported to Us in writing by the Employer and verified by Us. It
includes earnings from Incentive Bonuses, but not overtime or other special pay.
Incentive Bonuses are averaged for the lesser of the 24 month period immediately
prior to the date disability begins or the period of employment. Earnings from
sources other than the Employer are not included in determining total disability
benefits.
PD81000 SECTION 1 93-8
GENERAL PROVISIONS
DEFINITIONS
EARNINGS (ALL OTHER EMPLOYEES) means, for purposes of determining an Employee's
total disability benefit, the Employee's basic annual, monthly or weekly pay
based on a work week of not more than 40 hours, prior to becoming disabled and
as last reported to Us in writing by the Employer and verified by Us.
Commissions, bonuses, overtime or other special pay is not included. Earnings
from sources other than the Employer are not included in determining total
disability benefits.
PD81000 SECTION 1 93-8
GENERAL PROVISIONS
DEFINITIONS
EMPLOYEE means any person who works Full-time for the Employer. An Employee must
be paid by the Employer for work done at the Employer's usual place of business
or some other location that is usual for the Employee's particular duties.
For the purposes of this long term disability benefit, the term Employee does
not include any person performing services for the Employer
o pursuant to a contractual relationship with the Employer;
o subject to the terms of a leasing agreement between the Employer and a leasing
organization; or
o who receives income which is reported by the Employer on IRS Form 1099.
EMPLOYER means the policyholder or a branch or a division of the policyholder,
and any company legally affiliated with or subsidiary to the policyholder that
has been approved by Us.
A SUBSIDIARY is an entity with controlling stock ownership (51 % or more) held
by the Employer who is the policyholder.
An AFFILIATE is a company whose business is controlled by the policyholder
through stock ownership, contract, common officers or otherwise.
EVIDENCE OF INSURABILITY means written proof given to Us that an Employee is
insurable. This proof must be based on medical and financial information and
must be acceptable to Us.
FULL-TIME means, for an Employee, his Employer's normal work week of at least 30
hours. For Employees whose work weeks vary above and below this number, We will
determine eligibility by averaging the hours worked during weeks in the month.
IMPORTANT DUTIES means, with respect to an Employee's occupation, the material
and substantial duties of that occupation.
INCURRED DATE OF DISABILITY means the first date the Employee satisfies the
required definition of Disability. This date is determined by Us.
INJURY means accidental bodily loss or harm incurred while insured under this
Policy.
MONTHLY EARNINGS means the Employee's annualized Earnings divided by twelve
(12).
NON-EVIDENCE LIMIT means the greatest amount of insurance an Employee may have
without providing Evidence of Insurability.
1. The Employee may be eligible for more than this amount initially; or
2. the amount of existing insurance may be increased to an amount in excess of
any NonEvidence Limit; or
3. the amount of insurance currently in excess of the Non-Evidence Limit may be
further increased.
In any of these situations, the Employee must send Us Evidence of Insurability.
If We do not approve the Evidence of Insurability, the Employee's insurance is
limited, but in no event will the Employee's insurance be less than the lowest
amount shown in the Non-Evidence Limit provision of the Schedule of Benefits.
PERIOD OF DISABILITY means a continuous period of time during which an Employee
is Disabled as the result of Injury or Sickness whether from one or more causes.
PD81100-MN SECTION 1 93-8
GENERAL PROVISIONS
DEFINITIONS
PRIOR PLAN means the Employer's group long term disability insurance program in
effect the day before the effective date of this Policy. This Policy replaces
that plan or a portion of it.
RETIREMENT PLAN means, for the purpose of determining benefit reductions, a plan
that provides retirement benefits to employees. It also includes any retirement
plan for which the insured is eligible as a result of his job with the Employer,
including any plan that is part of any federal, state, county, municipal or
association retirement system.
The term does not include:
1. Profit Sharing Plans as defined in 401 (a);
2. Thrift plans (e.g., 401 (k)s);
3. Individual Retirement Accounts (IRAs);
4. Tax Sheltered Annuities (TSAs); or
5. Stock Ownership Plans as defined in Internal Revenue Code section 4975.
When used in this Policy, the term "Retirement Benefits" means the following
benefits payable from a Retirement Plan:
1. retirement benefits payable from the Employer's Retirement Plan upon early
or normal retirement; or
2. disability benefits payable from the Employer's Retirement Plan.
SICKNESS means an illness or disease. It also includes pregnancy.
WE, US or OUR means The Paul Revere Life Insurance Company.
PD81200 SECTION 1 93-8
GENERAL PROVISIONS
BECOMING ELIGIBLE FOR EMPLOYEE INSURANCE
An Employee is eligible for insurance if he is a member of an eligible class
listed in the Schedule of Benefits and is not excluded in the list shown below.
No Employee is eligible
1. who is scheduled to work less than six months in any twelve month period;
or
2. who works less than the required number of hours as defined in the
definition of "Full-time;" or
3. who is employed as an airline pilot, co-pilot or crew member unless
specifically mentioned in the Classification of Eligible Employees found on
the Schedule of Benefits.
An Employee who is not a citizen of the United States must be a permanent
resident of the United States, Canada or Puerto Rico in order to be an eligible
Employee. An Employee who is not a citizen is considered not eligible for
insurance if he leaves the United States, Canada or Puerto Rico for 180 or more
consecutive days.
SERVICE WAITING PERIOD
The service waiting period is a period of active Full-time employment the
Employee must complete before becoming eligible for insurance.
An Employee is eligible for insurance on the later of the Effective Date of this
Policy or the date the Employee begins work for the Employer on an active
Full-time basis.
CHANGING CLASSES
An Employee becomes eligible for insurance when he transfers from an ineligible
class to an eligible class. For the purposes of this provision, he is considered
to be a new Employee at that time. We use all past periods of Full-time work for
the Employer to determine the Employee's eligibility date. Any period of
part-time work does not count. An Employee cannot become eligible for insurance
before moving into an eligible class.
RE-HIRED EMPLOYEES
A re-hired Employee is treated as a new Employee and must satisfy a new service
waiting period. However, if an Employee is re-hired within one year from the
date of ineligibility for insurance, We use all past periods of Full-time work
for the Employer to determine the date the Employee satisfies the waiting
period. If an Employee is re-hired after one year, any past periods of work will
not count when We determine the date the Employee satisfies the waiting period.
An Employee cannot become eligible for insurance before the last date re-hired.
REINSTATEMENT
If an Employee requests Us to reinstate insurance that terminated while he was
still eligible to be insured by this Policy, We must first approve Evidence of
Insurability. Evidence must be given at the Employee's expense. The Employee's
insurance does not begin until the date We specify after approving the evidence.
PD81300 SECTION 1 93-8
GENERAL PROVISIONS
EFFECTIVE DATE OF EMPLOYEE INSURANCE
The Employee must be Actively At Work on the date his insurance goes into
effect. If the effective date occurs on a vacation, holiday or weekend, the
Employee must have been Actively At Work on the last scheduled working day. If
an Employee is absent from work for any other reason, including absence due to
Injury, Sickness or leave of absence, insurance does not become effective until
return to Full-time work.
NON-CONTRIBUTORY INSURANCE means that the Employer pays all of the cost of the
insurance. All eligible Employees must be enrolled unless they were eligible for
insurance but not covered under the Prior Plan. Insurance will become effective
on the date the Employee is eligible for insurance and Actively At Work.
If the amount of insurance exceeds the Non-Evidence Limit, the amount of an
Employee's insurance in excess of the Non-Evidence Limit will become effective
when:
1. the Employee becomes eligible for insurance; and
2. We approve the Employee's Evidence of Insurability. Evidence for amounts
over the Non-Evidence Limit is submitted at Our expense.
OTHER PROVISIONS
Application to add an affiliate or subsidiary must be made in writing. All
agreements made between the Policyholder and Us are binding on all Employers.
The list of approved affiliates and/or subsidiaries is shown on the policy page
before the Table of Contents.
If an Employer is a partnership or a sole proprietorship, a partner or
proprietor must also qualify as an Employee to be eligible for insurance.
Earnings definitions for owners of such entities will be applied.
PD81400 SECTION 1 93-8
GENERAL PROVISIONS
CHANGE IN AMOUNTS OF INSURANCE FOR INDIVIDUAL EMPLOYEES
The amount of insurance for which an Employee is eligible is shown in the
Schedule of Benefits. The benefits offered and the amounts of those benefits may
vary by class.
Benefits may increase or decrease due to a change in class or Earnings. The
Employer must notify Us in writing of any change in class or Earnings. This
notification must be received before the Employee ceases active, Full-time
employment.
Any change in an Employee's amount of insurance becomes effective on the date
the Employee is eligible for the change.
Any amount of the change that exceeds the Non-Evidence Limit will become
effective on the later of the date We approve the Employee's Evidence of
Insurability or the date the Employee becomes eligible for the increase.
The Employee must be Actively At Work on the date a change in the amount of
insurance becomes effective. If the effective date of the change occurs on a
vacation, holiday or weekend, the Employee must have been Actively At Work on
the last scheduled working day. If an Employee is absent from work for any other
reason, including absence due to Injury, Sickness or leave of absence, a change
does not become effective until return to Full-time work.
POLICYHOLDER REQUESTS FOR PLAN CHANGES
Any revisions to:
1. change benefits;
2. add affiliated or subsidiary employers;
3. change contribution basis; or
4. make other plan changes
must be requested in writing by the Policyholder and will not be effective
before the later of:
1. the applicant's signature date; or
2. the date The Paul Revere approves the change(s).
If this Policy is revised to increase or decrease benefits after its effective
date, an eligible Employee becomes insured for the revised benefits on the
effective date of the revision, subject to the Actively At Work requirement and
to the applicable pre-existing condition limitation.
PD81500 SECTION 1 93-8
GENERAL PROVISIONS
TERMINATION OF EMPLOYEE INSURANCE
An Employee's insurance terminates on the earliest of:
1. the date this Policy terminates;.
2. the first day for which the Employee fails or refuses to make any required
premium payment;
3. the first day for which premium on behalf of the Employee is not made;
4. the date the Employee no longer works in an eligible class; or
5. the date the Employee no longer works for the Employer.
Termination of insurance will not affect any claim incurred before the date of
termination.
LEAVE OF ABSENCE
Coverage may be continued when an Employee is on an unpaid leave under the
Federal Family and Medical Leave Act (FMLA) for any of the following reasons:
1. to provide care after the birth or adoption of a son or daughter; or
2. to provide care after the placement of a foster child; or
3. to provide care to a spouse, son, daughter, or parent due to serious
illness.
Upon approval by the Employer of an Employee's leave of absence for the above
reasons, coverage will be continued, subject to premium payments, for up to
three (3) months from the date the leave of absence began or, if sooner, until
Employee termination. If an Employee becomes Disabled while on leave, benefits
will be based upon Earnings as last reported to Us immediately prior to the
beginning of the leave.
PD81600 SECTION 1 93-8
GENERAL PROVISIONS
RECURRENT DISABILITY -- SAME INJURY OR SICKNESS
If, after the end of a Disability, the Employee becomes Disabled from the same
or related causes, We will deem it a separate Disability subject to a new
Elimination Period and a new Maximum Benefit Period. However, if such recurrence
occurs within 6 months of the end of the prior period, We will deem it a
continuation of the prior Disability. However, no benefit is payable for any day
the Employee is not Disabled, and no benefit period is extended by time not
Disabled. The gross amount payable prior to any adjustments as outlined in this
Policy would be the amount determined at the original date of Disability. A
recurrent Disability ends on the first to occur of the following dates:
1. the last day of 6 consecutive months during which the Employee was not
Disabled by the same Sickness or Injury.
2. the first day the Employee ceases to be disabled by the same Injury or
Sickness, even if immediately disabled by a different Injury or Sickness,
3. the date the last benefit for the Injury or Sickness becomes due.
The recurrent Disability provision applies only to Disabilities that began under
this Policy. If the Employee becomes eligible for coverage under any other group
long term disability policy, this recurrent disability section will cease to
apply to him.
CONCURRENT DISABILITY
If a Disability is caused by more than one Injury or Sickness, or from both, We
will pay benefits as if the Disability were caused by only one Injury or
Sickness. We will not pay more than one Disability benefit for the same period.
We will pay the larger benefit.
PD81700 SECTION 1 93-8
LONG TERM DISABILITY INCOME BENEFIT
WHAT WE PAY
We pay monthly disability benefits to an Employee who satisfies the following
definitions. The maximum amount We pay is shown in the Schedule of Benefits.
Benefit payments may be reduced if the Employee receives income from other
sources. When and how this occurs is described in the provision entitled Benefit
Reductions.
Own Occupation Benefit with Residual Disability
- -----------------------------------------------
TOTAL DISABILITY or TOTALLY DISABLED FROM THE EMPLOYEE'S OWN OCCUPATION means
that until he reaches the end of his Maximum Benefit Period, the Employee:
1. is unable to perform the important duties of his own occupation on a
Full-time or part-time basis because of an Injury or Sickness that started
while insured under this Policy; and
2. does not work at all; and
3. is under Doctor's Care.
If the Employee is employed and is earning wages or a salary, he will be
considered Residually Disabled as defined below.
RESIDUAL DISABILITY or RESIDUALLY DISABLED means, as a result of Injury or
Sickness, the Employee is unable to perform the important duties of his own
occupation on a Full-time basis, but:
1. he is able to perform one or more of the important duties of his own
occupation, or any other occupation, on a Full-time or part-time basis; and
2. he is earning less than 80% of his Prior Earnings.
To qualify for the Own Occupation Benefit with Residual Disability, the
Employee:
1. must satisfy the Elimination Period with the required number of days of
Total and/or Residual Disability as defined in this Policy; and
2. must be receiving Doctor's Care. We will waive the Doctor's Care
requirement if We receive written proof acceptable to Us that further
Doctor's Care would be of no benefit to the Employee.
PD82000 SECTION 2 93-8
LONG TERM DISABILITY INCOME BENEFIT
SPECIAL PROVISIONS RELATING TO DISABILITY
The loss of a professional or occupational license for any reason does not, in
itself, constitute Disability.
An Employee's Disability is determined relative to his ability or inability to
work. It is not determined by the availability of a suitable position with his
Employer.
WHEN WE PAY BENEFITS
Benefits begin to accrue on the first day after the Employee completes the
Elimination Period shown in the Schedule of Benefits. Benefits are paid monthly
while the Employee is Disabled,
PARTIAL MONTH PAYMENT
For any day a Disability benefit is payable in a period of less than a whole
month, We pay one thirtieth of the applicable monthly benefit.
RECOVERY OF OVERPAYMENTS
If the monthly benefit for any month is overpaid, We have the right to recover
the amount overpaid. We may deduct the amount overpaid from any future payments.
REHABILITATION BENEFIT
We will pay for the cost of services incurred in connection with a program of
vocational rehabilitation if:
1. We enter into a written agreement with the Employee on both the program and
the services; and
2. the cost of the services is not covered by another plan or program.
Participating in such a program will not affect the Employee's eligibility for
benefits under this Policy.
PD82100 SECTION 2 93-8
LONG TERM DISABILITY INCOME BENEFIT
PERIOD OF TIME BEFORE BENEFITS BEGIN TO ACCRUE
Before benefits begin to accrue, the Employee must be Totally or Residually
Disabled for a certain number of days.
ELIMINATION PERIOD means the length of time that the Employee must be Totally or
Residually Disabled before benefits begin. The length of the Employee's
Elimination Period is shown in the Schedule of Benefits. The Employee must
satisfy the Elimination Period before the Accumulation Period ends.
ACCUMULATION PERIOD means the period of time from the Incurred Date of
Disability during which the Employee must satisfy the Elimination Period. The
Elimination Period is shown on the Schedule of Benefits. The Accumulation Period
is equal to two times the Elimination Period. If the Employee does not satisfy
the Elimination Period within the Accumulation Period, or if the Employee
returns to work for 180 consecutive days, a new Period of Disability begins.
For purposes of the Elimination Period provision, INCURRED DATE OF DISABILITY
means the first date the Employee satisfies the definition of Total or Residual
Disability. This date is determined by Us.
BENEFIT CALCULATION FOR TOTAL DISABILITY
The amount of an Employee's Total Disability benefit is the least of:
1. the Employee's Monthly Earnings multiplied by the benefit percent less all
other income benefits as shown in the provision entitled Benefit
Reductions; or
2. the maximum monthly benefit; or
3. the Non-Evidence Limit, if Evidence of Insurability has not been approved
by Us for a higher maximum.
The benefit percent, the maximum monthly benefit and the Non-Evidence Limit are
shown on the Schedule of Benefits.
MAXIMUM BENEFIT PERIOD FOR TOTAL DISABILITY
The maximum benefit period is shown in the Schedule of Benefits. It is the
maximum length of time for which We pay benefits. It applies to all Periods of
Disability whether from one or more causes. In no case do We pay benefits after
the earliest of:
1. the date the Employee is no longer Totally Disabled; or
2. the end of the Maximum Benefit Period shown in the Schedule of Benefits; or
3. the date the Employee dies; or
4. the date benefits would cease according to any exclusion or limitation
contained in this Policy; or
5. the date benefits equaling or exceeding the long term disability benefit
become payable to the Employee under the Employer's Retirement Plan.
If the maximum benefit period is limited to a certain number of years or months
rather than age, the full benefit period may be restored after the Employee has
worked Full-time for six consecutive months.
PD82200 SECTION 2 93-6
LONG TERM DISABILITY INCOME BENEFIT
RETURN TO WORK ADJUSTMENT BENEFIT FOR RESIDUAL DISABILITY
When an Employee returns to work from any continuous Period of Disability
immediately following completion of the Employee's Elimination Period but before
the end of the benefit period, We pay the Employee a monthly benefit for each
whole month following return to work.
WHAT WE PAY
During the first 24 months that an Employee returns to work for any employer
during any continuous Period of Disability and while continuing to meet the
applicable definitions pertaining to Residual Disability:
1. We will not apply the requirement that the Employee's Loss of Earnings must
exceed 20% for Residual Disability benefits; and
2. in lieu of the Disability benefit, We will pay a special Return to Work
Adjustment Benefit.
The amount of the Return to Work Adjustment Benefit will be the amount of the
Total Disability benefit otherwise payable after reduction for other income
sources. The Return to Work Adjustment Benefit will be further reduced to the
extent that the sum of the benefit plus the Employee's earnings from any
employer plus other income sources (as defined in the Benefit Reduction section)
would exceed 100% of the Employee's Prior Earnings.
INDEXATION OF PRIOR EARNINGS
After 12 monthly Disability benefits have been paid, the amount of Prior
Earnings used to calculate the Employee's Return to Work Adjustment Benefit will
be increased by 7%. The initial Prior Earnings amount will, be increased on each
anniversary of the Employee's completing the Elimination Period.
MAXIMUM BENEFIT PERIOD
The Return to Work Adjustment Benefits are not paid beyond the first to occur
of:
1. the date the 24th monthly Return to Work Adjustment Benefit is paid during
any continuous Period of Disability; or
2. the date the Employee is no longer Residually Disabled; or
3. the end of the Maximum Benefit Period shown in the Schedule of Benefits; or
4. the date the Employee dies; or
5. the date benefits would cease according to any exclusion or limitation
contained in this Policy; or
6. the date benefits become payable under any other employer's group long term
disability insurance plan; or
7. the date benefits equaling or exceeding the long term disability benefit
become payable to the Employee under the Employer's Retirement Plan.
PD82300 SECTION 2 93-6
LONG TERM DISABILITY INCOME BENEFIT
BENEFIT CALCULATION FOR RESIDUAL DISABILITY
DEFINITIONS
The following are terms used within the Residual Disability Benefit and the
Return to Work Adjustment Benefit.
INITIAL TOTAL DISABILITY BENEFIT means the benefit that would have been payable
immediately following the completion of the Elimination Period after integration
with Social Security and/or other income sources.
LOSS OF EARNINGS means the Employee's Prior Earnings minus the Employee's Actual
Monthly Residual Earnings for the month the benefit is due. The difference must
be due to the Injury or Sickness causing the Residual Disability.
ACTUAL MONTHLY RESIDUAL EARNINGS means the Employee's salary, wages,
commissions, bonuses, fees, and income earned for services performed. If the
Employee owns any portion of a business or profession, it means the following:
Sole Proprietor earnings means the net profit of the business for federal income
- ---------------
tax purposes. Net profit is defined as gross business revenues less deductible
operating expenses.
Partner earnings means the partner's proportionate share of the partnership net
- -------
profit as reported for federal income tax purposes. The partnership's net
profit is defined as gross partnership revenues less deductible operating
expenses.
Employee/Shareholder earnings means the total gross salary, pension/profit
- --------------------
sharing plan contributions made on behalf of the individual, and the
proportionate share of the current year corporate net profit.
PRIOR EARNINGS means the greater of:
1. the Employee's average monthly earnings from all employment for the 12
whole calendar months immediately preceding his last regular day of active
Full-time work; or
2. the Employee's highest average monthly earnings from all employment for any
period of 2 successive years during the 5 year period immediately preceding
his last regular day of active Full-time work.
PD82400 SECTION 2 93-6
LONG TERM DISABILITY INCOME BENEFIT
BENEFIT CALCULATION FOR RESIDUAL DISABILITY (Continued)
In any continuous Period of Disability, immediately following completion of the
Employee's Elimination Period but before the end of the benefit period, We pay
the Employee a monthly Residual Disability benefit for each whole month while
the Employee is Residually Disabled, as defined.
During the first 24 months, We will pay a monthly benefit according to the
Return to Work Adjustment Benefit provisions. After the first 24 months of
Residual Disability and for the remainder of any continuous Period of
Disability, the Employee's Residual Disability benefit is proportionate to his
Total Disability benefit. The proportion depends on the actual amount of
earnings the Employee earns from work. To determine the monthly Residual
Disability benefit, We use the following formula:
Loss of Earnings X The Initial Total = The Employee's Residual
- ---------------- Disability Benefit Disability Benefit
Prior Earnings
If the Loss of Earnings for any month is 80% or more of Prior Earnings, We will
pay the Total Disability benefit. However, if the Loss of Earnings is less than
20% of Prior Earnings, then no Residual Disability benefit is payable.
INDEXATION OF PRIOR EARNINGS
After 12 monthly Disability benefits have been paid, the amount of Prior
Earnings used to calculate the Employee's Residual Disability benefit will be
increased by 7%. The initial Prior Earnings amount will be increased on each
anniversary of the Employee's completing the Elimination Period.
MAXIMUM BENEFIT PERIOD FOR RESIDUAL DISABILITY
Residual Disability benefits are not paid beyond the first to occur of the
following:
1. The date the Employee is no longer Residually Disabled; or
2. The end of the Maximum Benefit Period shown in the Schedule of Benefits; or
3. The date the Employee dies; or
4. The date benefits become payable under any employer's long term disability
insurance plan; or
5. The date the Employee is earning more than 80% of his indexed Prior
Earnings; or
6. The date benefits would cease according to any exclusion or limitation
contained in this Policy; or
7. The date benefits equaling or exceeding the long term disability benefit
become payable to the Employee under the Employer's Retirement Plan.
PD82500 SECTION 2 93-6
LONG TERM DISABILITY INCOME BENEFIT
FAMILY SURVIVOR INCOME BENEFIT
WHAT WE PAY
We pay a Family Survivor Income Benefit when We receive proof that all the
following conditions have been satisfied:
1. the Employee becomes Totally Disabled while insured for this benefit;
2. Disability benefits have been payable to the Employee; and
3. the Employee dies while Disabled and while in the maximum benefit period.
WHOM WE PAY
Benefits are payable to the Employee's lawful spouse, if living and mentally
competent. If the spouse is not living at the time benefits are payable, they
are paid in equal shares to each Child. If the spouse is not mentally competent,
We will pay according to applicable state law.
We decide to whom Payments are made. After We make payment, We have no further
liability,
CHILD means the Employee's natural born, step-child, adopted Child, and any
Child for whom the Employee is the legal guardian. Each Child must be unmarried
and under the age of twenty-one in order to be eligible to receive this benefit.
Unmarried children under the age of twenty-five are also eligible if they are
enrolled in a school as full-time students. Students who, by reason of illness,
injury, or physical or mental disability as documented by a Doctor, are unable
to carry a full-time course load will be covered, provided that the course load
is at least 60% of what is considered to be full-time.
HOW WE PAY
We pay a single lump sum benefit equal to three times the Disability benefit
payable to the Employee, after benefit reduction, for the last full calendar
month before the Employee's death. If the Employee dies before a full calendar
month's benefit has been paid, the survivor benefit will be based on the
Disability benefit that would have been paid at the end of the first month after
satisfying the Elimination Period.
ASSIGNMENT
This benefit may not be assigned, attached or applied to the debts of the
survivor unless required by law.
PD82600-1-MN SECTION 2 93-6
LONG TERM DISABILITY INCOME BENEFIT
ADJUSTABLE COST OF LIVING BENEFIT
If we pay the employee total or residual disability benefits for 12 months in
any continuous period of disability, and if further benefits are payable in the
continuous period of disability for months after the 12th month, we will
increase further these total or residual disability benefits by a cost of living
factor annually to the end of the Maximum Benefit Period in which benefits are
payable under this Adjustable Cost of Living Benefit. We First Calculated the
employee's adjusted monthly benefit, considering all benefits from other
sources, other income and any benefit adjustments other than prior cost of
living adjustments. We then increase the employee's adjusted monthly total or
residual disability benefit payment by the applicable cost of living factor
according to the CPl on each Review Data as follows:
LET:
A = the CPI for the most recent Index Month;
B = the CPI for the First Index Month;
THEN:
A - B = Cost of Living Factor
-----
B
The cost of living adjustment factor uses to determine the Adjusted Monthly
Benefit payment will be a minimum of four percent, and a maximum of ten percent.
CPI means the Consumer Price Index for All Urban Consumers. It is published by
the United States Department of Labor. If this index is discontinued or if the
method for computing it is materially changed, We may choose another index. We
will choose an index which in out opinion most accurately reflects the rate of
change in the cost of living in the United States. CPI would then mean the index
we choose.
INDEX MONTH means the calendar month four months prior to the calendar month in
which a Review Date occurs. However, the first Index Month will be the calendar
month four months prior to the month in which Disability payments began.
REVIEW DATE means the date that occurs after each twelve month Period of
Disability in which benefits are payable.
DL8PLR042326
PD8COLA-1 SECTION 2 93-6
LONG TERM DISABILITY INCOME BENEFIT
CONVERSION PRIVILEGE
An insured Employee whose insurance terminates because employment with the
Employer terminates may be eligible to convert all or some of his Group Long
Term Disability Insurance. To be eligible for conversion, the Employee:
1. must have been insured for Long Term Disability (LTD) benefits under the
plan for at least 12 consecutive months; and
2. must submit a completed conversion application and the first premium to The
Paul Revere within 31 days of the date his employment terminates.
The Employee will not be eligible for conversion if:
1. employment terminates coincident with termination of this Policy; or
2. the Employee is eligible to receive Total or Residual Disability benefits
under this Policy; or
3. the Employee is in an Elimination Period for Total or Residual Disability
benefits under this Policy; or
4. the Employee is not receiving benefits but is in a Period of Disability; or
5. the Employee is no longer in a class of Employees eligible for conversion;
or
6. the Employee becomes insured for other group long term disability benefits
within 31 days of the date of termination; or
7. the Employee retires or ceases to be actively employed; or
8. the coverage would, in our opinion, result in over insurance.
If the Employee is eligible for conversion and applies and pays the first
premium within 31 days of the date his employment terminates, We will issue him
a certificate of insurance. The certificate:
1. will be effective on the day after the day his Group LTD Insurance would
otherwise terminate; and
2. will be on one of the standard certificate forms then being offered by The
Paul Revere for the class of risk to which the Employee will belong after
his employment with the Employer terminates.
The certificate will be issued without medical Evidence of Insurability.
The premium will be determined by:
1. the certificate form issued;
2. the amount of insurance;
3. the class of risk to which the Employee will belong after his current
employment terminates; and
4. the Employee's age.
PD8CONV SECTION 2 93-6
LONG TERM DISABILITY INCOME BENEFIT
BENEFIT REDUCTIONS
While an Employee is Disabled, he may be eligible for benefits from other
sources. If so, We reduce our benefit by the amount of such other benefits paid
or payable.
Listed below are other income sources that will reduce our benefit.
1. Social Security benefits, including: Primary Social Security and Family
Social Security benefits received by an Employee or an Employee's
dependents because of the Employee's Disability or retirement. If an
Employee fails to apply for Social Security benefits, We determine the
amount he was eligible to receive, and, for the purposes of this insurance,
he will be considered to receive that amount.
Any general cost of living adjustment received from the Federal Social
Security Act, the Railroad Retirement Act, any Veteran's Disability
Compensation and Survivor Benefits Act, Workers Compensation or any similar
federal or state law which takes effect after long term disability benefits
become payable to an Employee is not used to reduce the Employee's benefit.
2. Other disability benefits from:
a. Statutory Disability ("Cash Sickness") Plans, where applicable;
b. Canadian Federal or Provincial Disability Benefits;
c. Railroad Retirement Act Disability Benefits;
d. Disability benefits with which We are required by law to
integrate.
3. Workers' Compensation benefits;
4. That portion of any sick pay or other salary continuation (other than
vacation pay) paid to the Employee by the Employer which, when added to the
amount of the Employee's benefit, exceeds 100% of the Employee's Earnings
as reported prior to Disability and as verified by Us;
5. Total, residual, or partial disability benefits from another group
disability plan provided by the Employer;
6. Group disability benefits from the following plans, but only if the plan is
Employer-sponsored:
a. Association Plans;
b. Fraternal Benefit Plans; or
c. Union Plans.
Employer-sponsored means a plan that is endorsed, promoted, or facilitated
by the Employer. For example, if the Employer made payroll deductions for
the plan, or permitted solicitation or enrollment of the plan on company
premises and/or company time, We would consider the plan to be
Employer-sponsored, even if the Employee pays the entire premium.
7. No fault disability benefits; or
8. Loss of Time awards or settlements involving liability insurance or court
actions; or
9. Disability benefits which are part of the Employer's Retirement Plan.
10. Retirement benefits attributable to Employer contributions. For benefits
that are paid or payable under an Employer's Retirement Plan, We will end
benefits under this Policy if retirement benefits are equal to or greater
than our long term disability benefit.
If the Employee's retirement benefit is a lump sum instead of a monthly benefit,
We will use the monthly benefit calculated for a lifetime annuity of that lump
sum amount. If the Plan requires the Employee to take the lump sum distribution
instead of leaving it in the Retirement Plan and he elects to roll the sum into
a Qualified vehicle such as an IRA, We will defer the integration until monthly
benefits can be received by the Employee without tax penalties.
If any of these benefits, except a retirement benefit, is paid in other than a
monthly sum, We divide the amount paid into equal monthly amounts in order to
reduce the monthly benefit. The number of monthly amounts depends on the length
of time the benefit award covers. If no length of time is stated in the benefit
award, We divide the amount paid into sixty equal payments. If any of these
benefits is paid on a retroactive basis, We may adjust our monthly payments in
order to offset any overpayment which results.
PD83000-MN,PD83100-MN SECTION 3 93-6
LONG TERM DISABILITY INCOME BENEFIT
BENEFIT REDUCTIONS (Continued)
Listed below are other income sources that will not reduce our benefit.
1. Individual disability insurance;
2. General Cost of Living increases from federal or state disability or
retirement programs that become effective after benefits become payable to
the Employee.
3. Non-Qualified Deferred Compensation plans;
4. Whether individually purchased or provided or sponsored by the Employer,
savings and investment accounts such as:
a. Individual Retirement Accounts (IRAs);
b. Internal Revenue Code Section 4975 Employee Stock Option Plans;
c. Thrift Plans (401 k)
d. 401 (a) Profit Sharing Plans; or
e. Tax Sheltered Annuities.
5. Disability benefits from the following plans, (including Franchise Plans),
purchased as individual coverage:
a. Association Plans;
b. Fraternal Benefit Plans; or
c. Union Plans.
6. Government or military pensions; or
7. Disabled veterans' benefits; or
8. Retirement benefits attributable to the Employee's contributions.
PD83000-MN,PD83100-MN SECTION 3 93-6
LONG TERM DISABILITY INCOME BENEFIT
ESTIMATED SOCIAL SECURITY BENEFITS
For the purpose of this section, the term Social Security benefits means
unreduced disability or retirement benefits that the Employee, his spouse or any
of his dependents are entitled to receive because of his disability under:
1. the United States Social Security Act;
2. the Canada Pension Plan;
3. the Quebec Pension Plan; or
4. any similar law, plan or act.
As part of an Employee's proof of loss, We require that the Employee furnish Us
evidence that he has duly applied for all other income sources for which he is
or may become eligible. In the case of Social Security benefits, this includes:
1. making due application for such benefits; and
2. if the Employee's initial application is denied, and if We so recommend,
making any and all available appeals.
Until the Employee has given Us written proof that all available appeals have
been exhausted, We may:
1. estimate the Employee's monthly Social Security benefit; and
2. reduce our monthly benefit to the Employee by that amount.
If We reduce the Employee's benefits on this basis, and if all of his appeals
are denied, We restore the reduced amounts to the Employee in one payment.
If the Employee signs our Social Security Reimbursement Agreement, We agree not
to reduce his benefits by estimated Social Security benefits while the
Employee's appeals are pending. In the Social Security Reimbursement Agreement,
the Employee promises to pay Us back for any overpayment of his long term
disability claim that results from a retroactive award of Social Security
benefits. If the Employee does not pay Us back, We have the right to recover our
overpayment from any future benefits that may be due him.
With proper authorization from the Employee and his Doctor, We will give the
Employee or his legal representative information from our claim file to assist
in any appeal of denied Social Security benefits.
PD83200 SECTION 3 93-6
LONG TERM DISABILITY INCOME BENEFIT
WORKERS' COMPENSATION BENEFITS
If an Employee is disabled due to an employment-related Injury, he should file
for workers' compensation benefits. Receipt of workers' compensation benefits
will reduce Disability benefits under this Policy.
As part of an Employee's proof of loss, We require that the Employee furnish Us
evidence that he has duly applied for all other income sources for which he is
or may become eligible. In the case of workers' compensation benefits, this
includes:
1. making due application for such benefits; and
2. if the Employee's initial application is denied, and if We so recommend,
making any and all available appeals.
We must receive written proof that all available appeals have been exhausted.
PD83300-MN SECTION 3 93-6
LONG TERM DISABILITY INCOME BENEFIT
EXCLUSIONS
WHAT WE DO NOT PAY
We do not pay benefits for any disabilities that result from:
1. war, whether declared or not, or any act or accident of war, or armed or
unarmed military or paramilitary conflict;
2. active participation in a riot;
3. the Employee's commission or attempt to commit a felony; or
4. an intentionally self-inflicted injury.
We do not pay benefits during any period in which an Employee is incarcerated.
PD84000 SECTION 4 93-6
LONG TERM DISABILITY INCOME BENEFIT
LIMITATIONS
PRE-EXISTING CONDITIONS LIMITATION
This Policy will not cover any Disability:
1. caused by, or contributed to by a Pre-Existing Condition; or
2. resulting from a Pre-Existing Condition.
PRE-EXISTING CONDITION means any Injury or Sickness that causes the Employee,
during the three (3) months just before becoming insured under this Policy, to:
1. consult a doctor;
2. seek diagnosis or medical advice or receive medical care or treatment;
3. undergo hospital admission or doctor's visits for testing or for
diagnostic studies; or
4. obtain services, supplies, prescription drugs or medicines.
However, this Policy will cover that Disability if it begins after the insured
Employee has performed the important duties of his own occupation:
1. on a Full-time basis;
2. for at least twelve (12) months.
In no event will this limitation be applied to loss incurred or disabilities
commencing after the Employee has been insured for twenty-four consecutive
months, notwithstanding any other eligibility provisions to the contrary.
PD84100-MN SECTION 4 93-6
LONG TERM DISABILITY INCOME BENEFIT
LIMITATIONS
EXCEPTION TO PRE-EXISTING CONDITIONS LIMITATION
An Employee insured under the prior group policy on the day before the effective
date of this Policy is eligible for coverage under this Policy on its effective
date regardless of Actively At Work conditions.
Benefits for a Disability caused by a Pre-Existing Condition
- ------------------------------------------------------------
Benefits for a Disability classified as due to a Pre-Existing Condition may be
payable to the insured Employee provided:
1. the condition would have been covered under the prior group policy had that
policy remained in force; or
2. on the Incurred Date of Disability the Employee has been insured and
working Full-time for twelve (12) months under any combination of this
Policy and the prior group policy.
If the above conditions are met, the benefit We pay will be the lesser of:
1. the monthly benefit payable under this Policy; or
2. the monthly benefit which would have been paid under the prior group
policy, taking into consideration all provisions of the prior group policy.
Any payment We make is reduced by any payments made for the same Disability
under the prior group policy.
In no event will We make payment beyond the first to occur of:
1. the date benefits cease under this Policy; or
2. the date benefits would have ceased under the prior group policy.
PD84200-D&R SECTION 4 93-6
LONG TERM DISABILITY INCOME BENEFIT
EXCEPTION TO PRE-EXISTING CONDITIONS LIMITATION DOES NOT APPLY TO INCREASED
BENEFITS
The exception to the pre-existing conditions limitation will not apply for the
amount of benefits in excess of the benefit provided by the prior group policy
on the day before this Policy became effective. The portion equal to the
increased amount of benefit will be subject to the preexisting conditions
limitation.
PD84200-D&R SECTION 4 93-6
LONG TERM DISABILITY INCOME BENEFIT
LIMITATIONS
PRE-EXISTING CONDITIONS LIMITATION APPLIES TO REVISED BENEFITS
After its effective date, this Policy may be revised to increase the amount or
duration of the long term disability benefit payable, to decrease the
Elimination Period, or to otherwise increase the terms under which benefits are
paid. In that event, benefits for a Disability due to a pre-existing condition
will be paid according to the policy terms in effect prior to the effective date
of the revision.
For the purposes of this provision, PRE-EXISTING CONDITION means any Injury or
Sickness that causes the Employee, during the three (3) months just before the
revision effective date, to:
1. consult a doctor;
2. seek diagnosis or medical advice or receive medical care or treatment;
3. undergo hospital admission or doctor's visits for testing or for
diagnostic studies; or
4. obtain services, supplies, prescription drugs or medicines.
This limitation does not apply to Disabilities that begin after the Employee has
been insured while working Full-time for twelve (12) months after the revision
effective date.
In no event will this limitation be applied to loss incurred or disabilities
commencing after the Employee has been insured for twenty-four (24) consecutive
months, notwithstanding any other eligibility provisions to the contrary.
PD84300-MN SECTION 4 93-8
PREMIUMS
PAYMENT OF PREMIUMS
All premiums are to be paid monthly in advance. The payment is due on or before
the premium due date. Make premium payment to The Paul Revere Life Insurance
Company and send it to the address requested by Us.
THE GRACE PERIOD
After the initial premium payment, a grace period of thirty-one days is allowed
for all late premiums. This Policy automatically terminates if premium payments
have not been made at the end of the grace period. Insurance is in force during
this grace period, and premiums are charged.
AMOUNT OF PREMIUMS
The premium due each month is the total of the current rates for all insured
Employees. The initial premium rates are shown in the Schedule of Premium Rates.
We have the right to charge new rates effective on any premium due date, unless
a Rate Guarantee Rider is in force. Before We can make a change, We must give
written notice at least thirty-one days before the new rates take effect.
WAIVER OF PREMIUM
After the Employee becomes insured, premium is due for that Employee while he is
Actively At Work and during his Elimination Period. Premium for the Employee is
waived while benefits are payable to him during any continuous Period of
Disability. Provided this Policy is in force when the Employee's continuous
Period of Disability ends, the Employee will remain insured if he returns to
active Full-time work in an eligible class and premium payments for the Employee
resume.
PREMIUM CHARGES FOR POLICY PLAN OR BENEFIT CHANGES
When premium rates are changed because of a change in plan or benefits on other
than a premium due date, the new premiums are charged on a pro-rata basis from
the effective date of the change to the next monthly premium due date. Full
monthly premiums are charged thereafter.
PREMIUM CREDITS
If We receive notice of an Employee's termination or decrease in amount of
insurance, We allow a full premium credit for that Employee from the effective
date of the change.
PD85000 SECTION 5 93-8
PREMIUMS
SIMPLIFIED ACCOUNTING FOR INDIVIDUAL EMPLOYEE CHANGES
When insurance for an Employee is added on other than a premium due date, his
premium is charged beginning from the next monthly due date.
When insurance for an Employee is terminated on other than a premium due date,
his premium is charged up to the next monthly premium due date. This method of
charging premiums is for accounting purposes only and will not extend insurance
coverage beyond the date of termination as described in the provision entitled
Termination of Employee Insurance.
When an Employee's insurance changes on other than a premium due date, the
premium is charged beginning from the next monthly premium due date.
INACCURATE CENSUS AND PREMIUM
Enrollment before the effective date could result inadvertently in premium being
paid for a person enrolled but not Actively At Work since before the policy
effective date. If this should occur, premium will be refunded as soon as We are
notified of the situation.
SCHEDULE OF PREMIUM RATES
The initial premium rates are:
Class 1 - 0.770% of the first $31,857 of Basic Monthly Earnings.
PD851 00 SECTION 5 93-8
CLAIMS
WE MUST BE NOTIFIED OF INTENT TO FILE A CLAIM
Written notice of a claim for Disability must be given to Us by the Employer or
claimant. The notice must be in writing and must be filed at Our Home Office in
Worcester, Massachusetts. Any claim will be based on the written notice. The
notice must be received by Us within thirty days after the end of the
Elimination Period. If We do not receive notice within thirty days, the claim
may be reduced or invalidated. If it can be shown that it was not reasonably
possible to submit notice within the thirty day period and it is shown that
notice was given as soon as possible, the claim will not be reduced or
invalidated.
WE FURNISH PROOF OF LOSS FORMS
After We receive written notice of claim, We provide a proof of loss form. This
form should be furnished within fifteen days after We receive written notice. If
We fail to furnish this form within fifteen days, the claimant can meet the time
period shown below by submitting written proof that explains the reason for the
claim. Written proof should establish facts about the claim such as occurrence,
nature and extent of the Disability involved. A supply of forms is included in
the Employer's administration kit.
WHEN TO FILE PROOF OF LOSS
The claimant must file written proof of the loss within ninety days of the end
of the Elimination Period. We have the right to require additional written proof
to verify the continuance of any Disability. We may request this additional
proof as often as We feel is necessary, within reason.
If proof of loss is not submitted and received by Us within the required time
period, the claim may be reduced or invalidated. If it can be shown that it was
not reasonably possible to submit proof within the time period and it is shown
that the proof was filed as soon as possible, the claim will not be reduced or
invalidated. However, proof of loss may not be submitted more than one year
after the time proof is otherwise required.
WE MAY EXTEND TIME LIMITS
If the time limit that We allow for giving notice of claim or for submitting
proof of loss is less than the law permits in the state where the claimant
lives, We extend Our time limit to agree with the minimum period specified by
law. The law must exist at the time this Policy is issued.
OUR RIGHT TO REQUIRE EXAMS
We have the right to require an exam of any claimant as often as it may be
required reasonably. The examination may be performed by a physician or
vocational expert of Our choice. Any such exam will be at Our own expense.
PD86000 SECTION 6 93-8
CLAIMS
OUR RIGHT TO REQUIRE PROOF OF FINANCIAL LOSS
We have the right to require written proof of financial loss. This includes, but
is not limited to:
1. statements of pre-disability income;
2. statements of income received from all sources while disabled;
3. evidence that due application has been made for all other available
benefits;
4. tax returns, tax statements, and accountants' statements; and
5. any other proof We reasonably may require.
We may perform financial audits at Our own expense as often as We reasonably may
require. Payment of benefits may be contingent upon the proof of financial loss
being satisfactory to Us.
HOW WE PAY BENEFITS
Any accrued benefits payable are subject to Our receiving proof of loss. Any
unpaid balance at the end of Our period of liability is paid within a reasonable
length of time after Our receiving proof of loss.
TO WHOM WE PAY BENEFITS
In the case of death, any unpaid accrued benefits are paid, at Our option, to
the Employee's estate or to one or more of the Employee's surviving relatives
based on Our selection.
All other benefits payable under this Policy are paid to the Employee. After We
have made payment, Our obligation with respect to the amount paid ends.
CHOICE OF DOCTOR
For treatment purposes, the Employee is free to select any Doctor. For purposes
of Disability certification, the Employee must select a Doctor who is not
related by blood or marriage and who is not an Employee of the policyholder.
LEGAL ACTIONS AND LIMITATIONS
No action at law or in equity may be brought to recover under this Policy unless
proof of loss has been filed according to the terms of this Policy. In addition,
the claimant must wait sixty days after filing proof of loss before taking
action. If any action is to be taken, it must be taken within three years from
the end of the sixty day time period. If any time limit in this Policy is less
than the law specifies in the state where the claimant lives at the time this
Policy is issued, We extend the time limit to agree with the minimum period
specified by such law.
PD86100 SECTION 6 93-8
TERMINATION
This Policy automatically terminates at the end of the 31 day grace period if
premium payments have not been made.
We have the right to terminate this Policy if:
1. less than one hundred percent (100%) of Employees eligible are insured for
any noncontributory benefit; or
2. less than seventy-five percent (75%) of the eligible Employees are insured
for any contributory benefit; or
3. fewer than ten (10) Employees are insured; or
4. the policyholder does not report all Employees who are eligible for
insurance under this Policy; or
5. the policyholder fails, at any time:
a. to furnish promptly any information We reasonably may require; or
b. to perform any other obligations pertaining to this Policy.
We may specify in advance written notice to the policyholder a date of
termination. We must give the policyholder notice of termination at least thirty
(30) days before the termination. It is not our responsibility to notify the
Employees.
The Duration Rider includes the date this Policy terminates without renewal. If
mutual agreement of renewal conditions cannot be reached, We will provide to the
policyholder thirty (30) days advance written notice.
The policyholder may terminate the entire contract or may terminate certain
affiliates and/or subsidiaries and their Employees at any time. In either case,
the policyholder must send Us written notice and include the date the insurance
will end. However, no termination of this Policy may take place during a period
for which the premiums have been paid. The termination takes effect on the later
of:
1. the date given in the notice; or
2. the date We receive the notice.
The policyholder must send Us any unpaid premiums for any insurance We provide
while this Policy was in force, even if notice of termination had been given to
Us. We determine the portion of premium to be paid for any period between the
premium due date and the date of termination.
PD87000 SECTION 7 93-8
MISCELLANEOUS PROVISIONS
ENTIRE CONTRACT
The entire contract is made up of this Policy, the application of the
policyholder, applications of the Participating Employers, and application by
each Employee. A copy of the policyholder's application is attached to this
Policy; each Employee retains a copy of his own application.
STATEMENTS
In the absence of fraud, all application statements made by the policyholder or
by an Employee are considered representations not warranties. This means that
the statements are made in good faith. No statement voids this Policy, reduces
the benefits We provide or is used as defense to a claim unless it is contained
in a written application and a copy is furnished to the Employee.
TIME LIMIT FOR CERTAIN DEFENSES
After two years from the effective date of this Policy, no misstatement made by
the Policyholder, except a fraudulent misstatement made in the application, may
be used to void this Policy. After two years from the effective date of the
Employer's participation in this Policy, no misstatement made by the Employer,
except a fraudulent misstatement made in the application, may be used to void
the Employer's participation in this Policy. After two years, no misstatement or
omission made by the Employee, except a fraudulent misstatement made in an
application, may be used to deny a claim for any Disability that begins after
the end of the two year period.
If any time limit in this Policy is other than that specified by the law of the
state where the claimant lives, We amend the time limit to agree with the period
specified by such law.
MISREPRESENTATION/RESCISSION
Certain amounts of insurance or increases in insurance may be subject to
Evidence of Insurability.
1. If an Employee makes a representation on his application for such an
amount; and
2. if such representation or omission was material to Our approval of his
application; and
3. if We discover within two (2) years of the effective date of the insurance
or the increase that the material fact or omission was a misrepresentation,
then We may, at Our option, rescind that amount or increase. This means that the
amount or increase will never have been in effect. All premium paid for
insurance that is rescinded will be refunded.
MISSTATEMENT OF FACT
If any important facts about an individual in relation to his insurance are
found to be misstated, We adjust Our premium to the correct amount. If the
misstatement affects the amount of insurance, the true facts are used to
determine the correct amount of insurance. Delay in reporting changes is not
considered a misstatement.
PD88000 SECTION 8 93-8
MISCELLANEOUS PROVISIONS
AGENCY
The Employer acts on his own behalf or as an agent of the Employees. The
Employer is not an agent of The Paul Revere.
WE PROVIDE CERTIFICATES OF INSURANCE
We issue certificates of insurance for each insured Employee. These are
delivered to the Employer to be given to the Employee. The certificate states
what the insurance coverage is and to whom We pay benefits. If the terms of this
Policy and the Employee's certificate differ, this Policy governs.
INSURANCE INFORMATION
The Employer will provide Us with the information We need to administer this
insurance contract and compute the premium.
This information will include:
1. that relative to Employees:
a. who newly qualify;
b. whose class changes;
c. whose Earnings amount changes;
d. whose insurance terminates;
e. who are on leaves of absence;
f. full census data as requested; and
2. any other information about this Policy that reasonably may be requested.
We have the right to verify this information. Employer records that may be
relevant, in Our opinion, will be open for inspection by Us at any reasonable
time.
CHANGES IN THIS POLICY
We may change the terms of this Policy if We receive a written request from the
policyholder. All changes that are made are stated in riders or amendments to
this Policy. These documents must be signed by Our President and Secretary. The
Employee's consent is not needed to make a policy change.
We may change this Policy if there is a change in the Federal Social Security
Act that affects Our liability. The change will take effect as of the date the
Federal Social Security Act changes. We may make other changes mandated by state
or Federal law.
CLERICAL ERRORS OR DELAYS
Clerical errors or omissions do not result in the denial of insurance. If there
is any delay in posting the date of any termination of insurance, the delay does
not extend any insurance provided by this Policy.
PD88100 SECTION 8 93-8
MISCELLANEOUS PROVISIONS
ASSIGNMENT OF BENEFITS
The Employee may not assign the right, title or interest of this long term
disability benefit to a third party.
WORKERS' COMPENSATION
This Policy does not affect or take the place of Workers' Compensation
insurance.
PD88200 SECTION 8 93-8
THE PAUL REVERE LIFE INSURANCE COMPANY
Worcester, Massachusetts 01608
DURATION AND RATE GUARANTEE RIDER
This Rider is attached to and forms a part of Group Policy G-42326
Effective Date of this Rider: April 1, 1995
DURATION OF THE ATTACHED GROUP POLICY
Subject to the conditions set forth in the TERMINATION OF THIS POLICY provision
of the attached Group Policy, the Group Policy and this Rider are in effect from
April 1, 1995, through February 28, 1996. Shortly before the expiration date,
the group will be reviewed for renewal. Mutual acceptance of renewal conditions
will result in our issuing an updated Duration and Rate Guarantee Rider.
If We decide not to renew this Policy, We will provide to the policyholder 30
days advance written notice.
RATE GUARANTEE
The Amount of Premiums provision of the Group Policy to which this Rider is
attached is amended as follows:
Premium rates in effect on the effective date of this Rider will not be changed
until the earliest of the following dates:
1. the date this Rider expires; or
2. the date the Group Policy is amended to change eligibility provisions or
benefits or to add or drop insurance on any affiliated or subsidiary
Employer; or
3. the date the total number of insured Employees changes by more than
twenty-five percent from the number of Employees insured on the effective
date of this Rider.
If any of the events described in 1, 2, or 3 above occur, the Rate Guarantee
portion of this Rider ceases to operate. Any subsequent changes in premium rates
under the Group Policy are made in accordance with the section of the Group
Policy entitled Premiums.
THE PAUL REVERE LIFE INSURANCE COMPANY
/s/John H. Budd /s/Charles E. Soula
Secretary President
PD8-R&D RIDER 93-8
NOTICE CONCERNING POLICYHOLDER RIGHTS IN AN
INSOLVENCY UNDER THE MINNESOTA LIFE AND HEALTH
INSURANCE GUARANTY ASSOCIATION LAW
If the insurer that issued your life, annuity, or health insurance policy
becomes impaired or insolvent, you are entitled to compensation for your policy
from the assets of that insurer. The amount you recover will depend on the
financial condition of the insurer.
In addition, residents of Minnesota who purchase life insurance, annuities, or
health insurance from insurance companies authorized to do business in Minnesota
are protected, SUBJECT TO LIMITS AND EXCLUSIONS, in the event the insurer
becomes financially impaired or insolvent. This protection is provided by the
Minnesota Life and Health Insurance Guaranty Association.
Minnesota Life & Health Insurance Guaranty Association
750 Norwest Center
55 East 5th Street
St. Paul, Minnesota 55101
(612) 222-2799
The maximum amount the guaranty association will pay for all policies issued on
one life by the same insurer is limited to $300,000. Subject to this $300,000
limit, the Guaranty Association will pay up to $300,000 in life insurance death
benefits, $100,000 in net cash surrender and net cash withdrawal values for life
insurance, $300,000 in health insurance benefits, including any net cash
surrender and net cash withdrawal values, $100,000 in annuity net cash surrender
and net cash withdrawal values, $300,000 in present value of annuity benefits
for annuities which are part of a structured settlement or for annuities in
regard to which periodic annuity benefits, for a period of not less than the
annuitant's lifetime or for a period certain of not less than ten years, have
begun to be paid on or before the date of impairment or insolvency, or if no
coverage limit has been specified for a covered policy or benefit, the coverage
limit shall be $300,000 in present value. Unallocated annuity contracts issued
to retirement plans, other than defined benefit plans, established under section
401, 403(b), or 457 of the Internal Revenue Code of 1986, as amended through
December 31, 1992, are covered up to $100,000 in net cash surrender and net cash
withdrawal values, for Minnesota residents covered by the plan provided,
however, that the association shall not be responsible for more than $7,500,000
in claims from all Minnesota residents covered by the plan. If total claims
exceed $7,500,000, the $7,500,000 shall be prorated among all claimants. These
are the maximum claim amounts.
Coverage by the Guaranty Association is also subject to other substantial
limitations and exclusions and requires continued residency in Minnesota. If
your claim exceeds the Guaranty Association's limits, you may still recover a
part or all of that amount from the proceeds of the liquidation of the insolvent
insurer, if any exist. Funds to pay claims may not be immediately available. The
Guaranty Association assesses insurers licensed to sell life and health
insurance in Minnesota after the insolvency occurs. Claims are paid from this
assessment.
PD8GAA-MN-1
NOTICE CONCERNING POLICYHOLDER RIGHTS IN AN
INSOLVENCY UNDER THE MINNESOTA LIFE AND HEALTH
INSURANCE GUARANTY ASSOCIATION LAW
THE COVERAGE PROVIDED BY THE GUARANTY ASSOCIATION IS NOT A SUBSTITUTE FOR USING
CARE IN SELECTING INSURANCE COMPANIES THAT ARE WELL MANAGED AND FINANCIALLY
STABLE. IN SELECTING AN INSURANCE COMPANY OR POLICY, YOU SHOULD NOT RELY ON
COVERAGE BY THE GUARANTY ASSOCIATION.
THIS NOTICE IS REQUIRED BY MINNESOTA STATE LAW TO ADVISE POLICYHOLDERS OF LIFE,
ANNUITY OR HEALTH INSURANCE POLICIES OF THEIR RIGHTS IN THE EVENT THEIR
INSURANCE CARRIER BECOMES FINANCIALLY INSOLVENT. THIS NOTICE IN NO WAY IMPLIES
THAT THE COMPANY CURRENTLY HAS ANY TYPE OF FINANCIAL PROBLEMS. ALL LIFE, ANNUITY
AND HEALTH INSURANCE POLICIES ARE REQUIRED TO PROVIDE THIS NOTICE.
PD8GAA-MN-2
EXHIBIT 11
GRACO INC. AND SUBSIDIARIES
COMPUTATION OF NET EARNINGS PER COMMON SHARE
(Unaudited)
Thirteen Weeks Ended Twenty-six Weeks Ended
----------------------------- -----------------------------
June 28, 2002 June 29, 2001 June 28, 2002 June 29, 2001
------------- ------------- ------------- -------------
(in thousands except per share amounts)
Net earnings applicable to common
shareholders for basic and
diluted earnings per share $21,516 $18,248 $37,062 $31,368
Weighted average shares outstanding
for basic earnings per share 47,563 46,280 47,261 46,061
Dilutive effect of stock options
computed using the treasury
stock method and the average
market price 811 888 866 870
Weighted average shares outstanding
for diluted earnings per share 48,374 47,168 48,127 46,931
Basic earnings per share $ 0.45 $ 0.39 $ 0.78 $ 0.68
Diluted earnings per share $ 0.44 $ 0.39 $ 0.77 $ 0.67
All share and per share amounts reflect the three-for-two stock split on June 6,
2002.
Exhibit 99
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Graco Inc. (the "Company") on Form
10-Q for the period ending June 28, 2002 as filed with the Securities and
Exchange Commission on the date hereof (the "Report"), I, David A. Roberts,
Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. (S) 1350,
as adopted pursuant to (S) 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d)
of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
/s/David A. Roberts
- -----------------------
David A. Roberts
Chief Executive Officer
August 1, 2002
Exhibit 99.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Graco Inc. (the "Company") on Form
10-Q for the period ending June 28, 2002 as filed with the Securities and
Exchange Commission on the date hereof (the "Report"), I, Mark W. Sheahan, Vice
President and Treasurer of the Company, certify, pursuant to 18 U.S.C. (S) 1350,
as adopted pursuant to (S) 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Company.
/s/Mark W. Sheahan
- ----------------------------
Mark W. Sheahan
Vice President and Treasurer
August 1, 2002
