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 27, 1997
Commission File Number: 1-9249
GRACO INC.
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Minnesota 41-0285640
- ------------------------ ---------------------------------------
(State of incorporation) (I.R.S. Employer Identification Number)
4050 Olson Memorial Highway
Golden Valley, Minnesota (55422)
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(612) 623-6000
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
------ ------
17,063,799 common shares were outstanding as of July 31, 1997.
GRACO INC. AND SUBSIDIARIES
INDEX
Page Number
-----------
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Earnings 4
Consolidated Balance Sheets 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis
of Financial Condition and
Results of Operations 8-11
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
Restated Bylaws Exhibit 3
Seventh Amendment to Credit Agreement dated May 27, 1997 Exhibit 4
between the Company and First Bank National Association.
Key Employee Agreement. Form of agreement with officers Exhibit 10.1
and other key employees, dated April 2, 1997.
First Amendment of Graco Inc. Deferred Compensation Exhibit 10.2
Plan Restated, effective September 1, 1996.
2
INDEX (cont.)
Long Term Stock Incentive Plan as amended May 6, 1997. Exhibit 10.3
Nonemployee Director Stock Plan as amended May 6, 1997. Exhibit 10.4
Nonemployee Director Stock Option Plan as amended May 6, 1997. Exhibit 10.5
Stock Option Agreement Amendment. Form of amendment, Exhibit 10.6
dated April 14, 1997, used to add change of control
provision to non-incentive stock options
to executive officers dated May 2, 1994,
March 1, 1995 and March 1, 1996.
Stock Option Agreement Amendment. Form of amendment, Exhibit 10.7
dated April 14, 1997, used to add change of control
provision to non-incentive stock options
to selected officers dated December 15, 1994.
Stock Option Agreement Amendment. Form of amendment, Exhibit 10.8
dated April 14, 1997, used to add change of control
provision to non-incentive stock options
to one executive officer dated December 15, 1995.
Stock Option Agreement. Form of agreement used for Exhibit 10.9
award of non-incentive stock option to one executive
officer, dated April 23, 1997.
Stock Option Agreement. Form of agreement used for Exhibit 10.10
award of nonstatutory stock options to nonemployee
directors, dated May 6, 1997.
Executive Long Term Incentive Agreement. Form of Exhibit 10.11
restricted stock award agreement used for award to
one executive officer, dated May 6, 1997.
Stock Option Agreement. Form of agreement used for Exhibit 10.12
non-incentive stock option to two executive officers,
dated May 6, 1997.
Computation of Net Earnings per Common Share Exhibit 11
Financial Data Schedule Exhibit 27
3
PART I
GRACO INC. AND SUBSIDIARIES
Item I. CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
Thirteen Weeks Ended Twenty-Six Weeks Ended
-------------------- ----------------------
June 27, 1997 June 28, 1996 June 27, 1997 June 28,1996
------------- ------------- ------------- ------------
(In thousands except per share amounts)
Net Sales ............................................. $ 111,721 $ 97,099 $ 203,820 $ 187,252
Cost of products sold .............................. 58,322 47,677 105,888 92,993
------------- ------------- ------------- ------------
Gross Profit .......................................... 53,399 49,422 97,932 94,259
Product development ................................ 4,828 4,623 9,653 8,852
Selling ............................................ 23,764 21,240 45,397 41,090
General and administrative ......................... 8,284 10,005 16,839 21,680
------------- ------------- ------------- ------------
Operating Profit ...................................... 16,523 13,554 26,043 22,637
Interest expense ................................... 240 345 447 577
Other (income) expense, net ........................ 615 (1,323) 247 (757)
------------- ------------- ------------- ------------
Earnings Before Income Taxes .......................... 15,668 14,532 25,349 22,817
Income taxes ....................................... 5,250 4,500 8,750 7,200
------------- ------------- ------------- ------------
Net Earnings .......................................... $ 10,418 $ 10,032 $ 16,599 $ 15,617
============= ============= ============= ============
Net Earnings Per Common and
Common Equivalent Share ............................ $ .60 $ .57 $ .95 $ .89
============= ============= ============= ============
Cash Dividend Per Common Share ........................ $ .14 $ .12 $ .28 $ .24
============= ============= ============= ============
See notes to consolidated financial statements.
4
GRACO INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
June 27, 1997 December 27, 1996
------------- -----------------
ASSETS (Unaudited)
Current Assets:
Cash and cash equivalents $2,258 $6,535
Accounts receivable, less allowances
of $4,224 and $4,700 89,903 83,474
Inventories 43,405 41,531
Deferred income taxes 12,306 11,633
Other current assets 1,536 1,321
--------- ---------
Total current assets 149,408 144,494
Property, Plant and Equipment:
Cost 191,600 183,085
Accumulated depreciation (92,078) (88,913)
---------- ---------
99,522 94,172
Other Assets 9,398 9,148
--------- ---------
$258,328 $247,814
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable to banks $12,321 $3,813
Current portion of long-term debt 1,827 1,845
Trade accounts payable 14,589 13,854
Salaries, wages & commissions 12,990 14,808
Accrued insurance liabilities 11,692 10,925
Income taxes payable 7,086 4,647
Other current liabilities 20,897 30,718
--------- ---------
Total current liabilities 81,402 80,610
Long-term Debt, less current portion 7,222 8,075
Retirement Benefits and Deferred Compensation 34,161 33,079
Shareholders' Equity:
Common stock 17,064 17,047
Additional paid-in capital 21,106 22,254
Retained earnings 95,856 85,232
Other, net 1,517 1,517
--------- ---------
135,543 126,050
--------- ---------
$258,328 $247,814
========= =========
See notes to consolidated financial statements.
5
GRACO INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Twenty-Six Weeks
----------------
June 27, 1997 June 28, 1996
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES: (In thousands)
Net Earnings $16,599 $15,617
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 7,284 6,563
Deferred income taxes (1,715) 841
Change in:
Accounts receivable (8,832) (3,358)
Inventories (3,042) (5,779)
Trade accounts payable 950 (1,025)
Retirement benefits and deferred
compensation 1,286 628
Other accrued liabilities (7,633) 1,786
Other (1,055) (774)
--------- ---------
3,842 14,499
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property, plant and equipment additions (12,881) (9,600)
Proceeds from sale of property, plant,
and equipment 1,555 6
--------- ---------
(11,326) (9,594)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowing on notes payable and lines of credit 37,420 12,657
Payments on notes payable and lines of credit (28,805) (11,650)
Borrowing on long-term debt - 142
Payments on long-term debt (714) (1,028)
Common stock issued 2,850 2,309
Retirement of common stock (5,145) (3,540)
Cash dividends paid (4,836) (4,221)
--------- ---------
770 (5,331)
--------- ---------
Effect of exchange rate changes on cash 2,437 1,123
--------- ---------
Net increase (decrease) in cash and cash equivalents (4,277) 697
Cash and cash equivalents:
Beginning of year 6,535 1,643
--------- ---------
End of period $2,258 $2,340
========= =========
See notes to consolidated financial statements.
6
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 27, 1997 and the related statements of earnings for the thirteen and
twenty-six weeks ended June 27, 1997, and June 28, 1996, and cash flows for the
twenty-six weeks ended June 27, 1997, and June 28, 1996, have been prepared by
the Company without being audited.
In the opinion of management, these consolidated statements reflect all
adjustments necessary to present fairly the financial position of Graco Inc. and
Subsidiaries as of June 27, 1997, 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 1996 Form 10-K.
The results of operations for interim periods are not necessarily
indicative of results which will be realized for the full fiscal year.
2. Major components of inventories were as follows (in thousands):
June 27, 1997 Dec 28, 1996
------------- ------------
Finished products and components $43,349 $38,707
Products and components in various
stages of completion 25,708 24,691
Raw materials 12,382 15,192
------------- ------------
81,439 78,590
Reduction to LIFO cost (38,034) (37,059)
------------- ------------
$43,405 $41,531
============= ============
3. Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share," was issued in February, 1997 and requires adoption for annual periods
ending after December 15, 1997. Earnings per Share determined in accordance with
SFAS No. 128 are not materially different than the current disclosure under APB
Opinion No. 15.
7
Item 2. GRACO INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
- ---------------------
Net earnings of $10.4 million for the quarter ended June 27, 1997 increased 4
percent over the second quarter of 1996 earnings of $10.0 million. For the six
months ended June 27, 1997, net earnings of $16.6 million were 6 percent over
1996 earnings of $15.6 million. The quarterly earnings improvement was driven by
higher sales. A decrease in gross profit margins, a slight increase in operating
expenses, exchange losses due to currency fluctuations and a higher effective
tax rate partially offset the enhanced sales results. Also, the second quarter
of 1996 includes the receipt of a $1.5 million pretax settlement of a lawsuit.
The following table sets forth items from the Company's Consolidated Statements
of Earnings as percentages of net sales:
Second Quarter Six Months
(13 weeks) Ended (26 weeks) Ended
------------------- -------------------
June 27 June 28 June 27 June 28
1997 1996 1997 1996
------- ------- ------- -------
Net Sales 100.0% 100.0% 100.0% 100.0%
------- ------- ------- -------
Cost of Products Sold 52.2 49.1 52.0 49.7
Product Development 4.3 4.8 4.7 4.7
Selling 21.3 21.8 22.3 21.9
General and Administrative 7.4 10.3 8.3 11.6
------- ------- ------- -------
Operating Profit 14.8 14.0 12.7 12.1
------- ------- ------- -------
Interest Expense (.2) (.4) (.2) (.3)
------- ------- ------- -------
Other Income(Expense), Net (.6) 1.4 (.1) .4
------- ------- ------- -------
Earnings Before Income Taxes 14.0 15.0 12.4 12.2
Income Taxes 4.7 4.7 4.3 3.9
------- ------- ------- -------
Net Earnings 9.3% 10.3% 8.1% 8.3%
======= ======= ======= =======
Net Sales
Net sales in the second quarter of $111.7 million were 15 percent higher than
the same period last year. Year-to-date sales of $203.8 million were 9 percent
higher than the first six months of 1996. The improved sales level was achieved
despite a negative currency impact, which reduced sales by 3 percent for the
quarter and 2 percent for the six month period.
8
Industrial/Automotive Division sales improved 9 percent to $57.2 million, driven
by strong demand for industrial products in the Americas and Europe as well as
automotive systems in Europe. Sales for the six month period ended June 27, 1997
in Industrial/Automotive of $107.4 million were 7 percent higher than 1996.
Second quarter Contractor Division sales of $42.1 million were 27 percent higher
than last year due primarily to new product introductions. Additionally, a new
pricing structure in the Contractor Division implemented in 1997 is resulting in
a seasonal change in demand from 1996 when price promotions forced more activity
into the first quarter. Year-to-date sales in the Contractor division were up 11
percent to $73.4 million. Lubrication Division quarterly sales increased 9
percent to $12.4 million, reflecting a healthy North American economy and an
increased key distributor base. Sales of $23.0 million for the first six months
in Lubrication were up 8 percent over the same period last year.
Geographically, sales in the Americas (North, South and Central) increased 19
percent to $75.9 million for the quarter primarily due to strong Contractor
activity, partially offset by sluggish automotive systems activity. Year-to-date
sales in the Americas of $138.5 million are up 10 percent over the same period
last year. European quarterly sales of $21.9 million were 29 percent higher than
last year (including a 10 percent decline due to exchange rates). European sales
for the six months ended June 27, 1997 of $38.8 million improved 18 percent from
the same period last year (including an 8 percent decline due to exchange
rates). The growth in Europe was attributable primarily to strong automotive
systems activity and improved results in the Contractor Division. Asia Pacific
sales of $13.9 million were 13 percent lower than last year's second quarter
(including an 8 percent decline due to exchange rates). Poor sales performance
in Japan contributed to the decline. Sales in Asia Pacific for six months of
$26.5 million were 7 percent lower than last year (a 1 percent volume increase,
offset by an 8 percent decline due to exchange rates).
Gross Profit
Gross profit as a percentage of net sales declined to 47.8 percent in the second
quarter, compared to 50.9 percent for the same period last year. Gross profit
margin for six months of 48.0 percent dropped 2.3 percentage points from the
1996 rate. The decreases for the quarter and six months were primarily the
result of a shift in the product mix within the Contractor Division to an
upgraded product line which generates a lower margin than other products and an
increase in automotive systems activity. The strengthening of the U.S. dollar
also reduced the gross margin as a greater proportion of the Company's sales are
denominated in currencies other than the U.S. dollar than are costs.
Operating Expenses
Second quarter operating expenses of $36.9 million increased 3 percent from the
second quarter of 1996. Operating expenses of $71.9 million for the first six
months were at the 1996 level. Quarterly product development expense increased 4
percent over 1996, reflecting the Company's commitment to expanding sales
through the development of new products. Selling expenses were 12 percent higher
than the same quarter last year, largely due to increased sales levels,
distributor training programs and sales force automation costs. General and
administrative costs declined 17 percent from the second quarter of 1996 as a
result of lower compensation and benefit accruals and reduced information system
development costs.
9
Other Income (Expense)
Other expense was $.6 million in the second quarter, compared to $1.3 million of
income for the same period last year. The second quarter of 1997 was unfavorably
affected by foreign exchange rate changes, while 1996 was favorably impacted by
the receipt of a $1.5 million pretax lawsuit settlement. Other expense for the
six months ended June 27, 1997 was $.2 million, compared to $.8 million of
income in the same period of 1996.
Income Taxes
The quarterly and six month effective income tax rates increased to 33.5 percent
and 34.5 percent, respectively compared to 31.0 percent and 31.5 percent for the
same periods last year. The higher rates in 1997 were principally due to higher
effective rates on foreign earnings.
Liquidity and Capital Resources
- -------------------------------
The Company generated $3.8 million of cash flow from operating activities in the
first six months of 1997, compared to $14.5 million for the same period last
year. Significant uses of operating cash flow in 1997 resulted from an increase
in accounts receivable balances, attributable to higher sales levels, and a
reduction in other accrued liabilities, most significantly the reserve
established in the prior year for the relocation of the Company's Franklin Park,
Illinois operations. Operating cash flow was also used to fund an increase in
inventory levels which was driven by higher engineered systems activity in the
foreign operations and anticipated demand for the upgraded product line in the
Contractor Division. Available cash and borrowing on lines of credit of $37.4
million were used to fund short-term operating needs, finance capital
expenditures of $12.9 million and pay dividends of $4.8 million. The Company had
unused lines of credit available at June 27, 1997 totaling $65.0 million. The
available credit facilities and internally-generated funds provide the Company
with the financial flexibility to meet liquidity needs.
Outlook
The Company is optimistic about the balance of the year, but does not expect to
record double digit sales increases in the third and fourth quarters. Backlog at
June 27, 1997 stands at $25.3 million, up $6.1 million since the beginning of
the year. The Company has introduced a number of new products in 1997 and
believes that its marketing strategies and continued investments in product
development and manufacturing should have a positive impact on the Company in
1997 and its long-term ability to grow profitably.
10
SAFE HARBOR CAUTIONARY STATEMENT
The information in this 10Q contains "forward-looking statements" about the
Company's expectations of the future, which are subject to certain risk factors
that could cause actual results to differ materially from those expectations.
These factors include economic conditions in the United States and other major
world economies, currency exchange fluctuations, and additional factors
identified in Exhibit 99 to the Company's Report on Form 10-K for fiscal year
1996.
11
PART II
Item 4. Submission of Matters to a Vote of Security Holders.
At the Annual Meeting of Shareholders held on May 6, 1997, George Aristides and
Ronald O. Baukol were elected to the Office of Director with the following
votes:
FOR WITHHELD
---------- --------
George Aristides 15,872,873 35,497
Ronald O. Baukol 15,885,568 22,802
At the same meeting, the following matters were also voted upon with the votes
as indicated:
An amendment to the Long Term Stock Incentive Plan to include an annual per
person aggregate limit was approved, with the following votes:
For Against Abstentions Broker Non-Vote
- ---------- ------- ----------- ---------------
15,697,160 152,531 58,679 0
The selection of Deloitte & Touche as independent auditors for the current year
was approved and ratified, with the following votes:
For Against Abstentions Broker Non-Vote
- ---------- ------- ----------- ---------------
15,838,196 25,831 44,343 0
No other matters were voted on at the meeting.
12
PART II (cont.)
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Restated Bylaws Exhibit 3
Seventh Amendment to Credit Agreement dated May 27, Exhibit 4
1997 between the Company and First Bank National
Association.
Key Employee Agreement. Form of agreement with Exhibit 10.1
officers and other key employees, dated April 2, 1997.
First Amendment of Graco Inc. Deferred Compensation Exhibit 10.2
Plan Restated, effective September 1, 1996.
Long Term Stock Incentive Plan as amended May 6, 1997. Exhibit 10.3
Nonemployee Director Stock Plan as amended May 6, 1997. Exhibit 10.4
Nonemployee Director Stock Option Plan as amended May 6, 1997. Exhibit 10.5
Stock Option Agreement Amendment. Form of amendment, Exhibit 10.6
dated April 14, 1997, used to add change of control
provision to non-incentive stock options to executive
officers dated May 2, 1994, March 1, 1995 and March 1, 1996.
Stock Option Agreement Amendment. Form of amendment, Exhibit 10.7
dated April 14, 1997, used to add change of control
provision to non-incentive stock options
to selected officers dated December 15, 1994.
Stock Option Agreement Amendment. Form of amendment, Exhibit 10.8
dated April 14, 1997, used to add change of control
provision to non-incentive stock options
to one executive officer dated December 15, 1995.
Stock Option Agreement. Form of agreement used for Exhibit 10.9
award of non-incentive stock option to one executive
officer, dated April 23, 1997.
Stock Option Agreement. Form of agreement used for Exhibit 10.10
award of nonstatutory stock options to nonemployee
directors, dated May 6, 1997.
Executive Long Term Incentive Agreement. Form of Exhibit 10.11
restricted stock award agreement used for award to
one executive officer, dated May 6, 1997.
Stock Option Agreement. Form of agreement used for Exhibit 10.12
award of non-incentive stock option to two executive
officers, dated May 6, 1997
Statement of Computation of Per Share Earnings Exhibit 11
Financial Data Schedule Exhibit 27
(b) No reports on Form 8-K have been filed during the quarter for which this
report is filed.
13
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 7, 1997 By:/s/George Aristides
George Aristides
Chief Executive Officer
Date: August 7, 1997 By:/s/James A. Graner
James A. Graner
Vice President & Controller
("duly authorized officer")
RESTATED BYLAWS
GRACO INC.
(Adopted May 6, 1997)
ARTICLE I.
OFFICES, CORPORATE SEAL
Section 1.01. Offices. The principal executive office of the corporation
shall be at 4050 Olson Memorial Highway, Golden Valley, Minnesota 55422. 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.
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. Nominations of candidates
for election to the Board of Directors of the corporation at any annual meeting
of the shareholders may be made only by or at the direction of the Board of
Directors or by a shareholder entitled to vote at such annual meeting. All such
nominations, except those made by or at the direction of the Board of Directors,
shall be made pursuant to timely notice in writing to the secretary of the
corporation. To be timely, any such notice must be received at the principal
executive offices of the corporation not less than sixty days prior to the date
of such annual meeting and must set forth (i) the name, age, business address
and residence address and the principal occupation or employment of each nominee
proposed in such notice, (ii) the name and address of the shareholder giving the
notice as the same appears in the corporation's stock register, (iii) the number
of shares of capital stock of the corporation which are beneficially owned by
each such nominee and by such shareholder and (iv) such other information
concerning each such nominee as would be required, under the rules of the
Securities and Exchange Commission, in a proxy statement soliciting proxies for
the election of such nominee. Such notice must also include a signed consent of
each such nominee to serve as a director of the corporation, if elected. If the
officer of the corporation presiding at an annual meeting of the shareholders
determines that a director nomination was not made in accordance with the
foregoing procedures, such nomination shall be void and shall be disregarded for
all purposes.
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. Certificates for Shares. All shares of the corporation shall
be certificated shares. Every owner of shares of the corporation shall be
entitled to a certificate, to be in such form as shall be prescribed by the
Board of Directors, certifying the number of shares of the corporation owned by
such shareholder. The certificates for such shares shall be numbered in the
order in which they shall be issued 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.
If the certificate is signed by a transfer agent or registrar, such signatures
of the corporate officers may be facsimiles, engraved or printed. Every
certificate surrendered to the corporation for exchange or transfer shall be
canceled, and no new certificate or certificates shall be issued in exchange for
any existing certificate until such existing certificate shall have been so
canceled, except in cases provided for in Section 5.03.
Section 5.02. Transfer of Shares. Transfer of shares on the books of the
corporation may be authorized only by the shareholder named in the certificate,
or the shareholder's legal representative, or the shareholder's duly authorized
attorney-in-fact, and upon surrender of the certificate or the certificates for
such shares. The corporation may treat as the absolute owner of shares of the
corporation, the person or persons in whose name shares are registered 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.
SEVENTH AMENDMENT TO CREDIT AGREEMENT
THIS SEVENTH AMENDMENT (this "Amendment") dated as of May 27, 1997, amends
and modifies that certain Credit Agreement, dated as of October 1, 1990, as
amended pursuant to Amendments dated as of June 12, 1992, December 31, 1992,
November 8, 1993, February 8, 1994, April 10, 1995, and September 27, 1996 (as
so amended, the "Credit Agreement"), between GRACO INC., a Minnesota corporation
(the "Company") and FIRST BANK NATIONAL ASSOCIATION (the "Bank"). Terms not
otherwise expressly defined herein shall have the meanings set forth in the
Credit Agreement.
FOR VALUE RECEIVED, the Company and the Bank agree that the Credit
Agreement is amended as follows:
ARTICLE I - AMENDMENTS TO THE CREDIT AGREEMENT
1.1 Defined Terms. Section 1.01 is amended as follows:
(a) The definition of "Maturity Date" is amended to read as follows:
"`Maturity Date': June 29, 1998."
1.2 Note. The Loans shall continue to be evidenced by the Note date April
10, 1995 in the principal amount of $25,000,000.
ARTICLE II - REPRESENTATIONS AND WARRANTIES
To induce the Bank to enter into this Amendment and to make and maintain
the Loans under the Credit Agreement as amended hereby, the Company hereby
warrants and represents to the Bank that it is duly authorized to execute and
deliver this Amendment, and to perform its obligations under the Credit
Agreement as amended hereby, and that this Amendment constitutes the legal,
valid and binding obligation of the Company, enforceable in accordance with its
terms.
ARTICLE II - CONDITIONS PRECEDENT
This Agreement shall become effective on the date first set forth above,
provided, however, that the effectiveness of this Amendment is subject to the
satisfaction of each of the following conditions precedent:
2.1 Warranties. Before and after giving effect to this Amendment, the
representations and warranties in Section 6 of the Credit Agreement shall be
true and correct as thought made on the date hereof, except for changes that are
permitted by the terms of the Credit Agreement. The execution by the Company of
this Agreement shall be deemed a representation that the Company has complied
with the foregoing condition.
2.2 Defaults. Before and after giving effect to this Amendment, no Event of
Default and no Unmarred Event of Default shall have occurred and be continuing
under the Credit Agreement. The execution by the Company of this Agreement shall
be deemed a representation that the Company has complied with the foregoing
condition.
2.3 Documents. The Company shall have delivered this Amendment and
certified copies of resolutions of the Board of Directors of the Company
authorizing or ratifying the execution, delivery and performance, respectively,
of this Amendment, together with an incumbency certificate of officers executing
this Amendment.
ARTICLE III - GENERAL
3.1 Expenses. The Company agrees to reimburse the Bank upon demand for all
reasonable expenses, including reasonable fees of attorneys (who may be
employees of the Bank) and legal expenses incurred by the Bank in the
preparation, negotiation and execution of this Amendment and any other document
required to be furnished herewith, and in enforcing the obligations of the
Company hereunder, and to pay and save the Bank harmless from all liability for,
any taxes which may be payable with respect to the execution or delivery of this
Agreement, which obligations of the Company shall survive any termination of the
Credit Agreement.
3.2 Counterparts. This Agreement may be executed in as many counterparts as
may be deemed necessary or convenient, and by the different parties hereto on
separate counterparts, each of which, when so executed, shall be deemed an
original but all such counterparts shall constitute but one and the same
instrument.
3.3 Severability. Any provision of this Amendment which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition of unenforceability without invalidating the
remaining portions hereof or affecting the validity or enforceability of such
provisions in any other jurisdiction.
3.4 Law. This Amendment shall be a contract made under the laws of the
State of Minnesota, which laws shall govern all the rights and duties hereunder.
3.5 Successors; Enforceability. This Amendment shall be binding upon the
Company and the Bank and their respective successors and assigns, and shall
inure to the benefit of the Company and the Bank and the successors and assigns
of the Bank. Except as hereby amended, the Credit Agreement shall remain in full
force and effect and is hereby ratified and confirmed in all respects.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed at Minneapolis, Minnesota by their respective officers thereunto duly
authorized as of the date first written above.
GRACO INC.
By: /s/ Mark W.Sheahan
Title: Treasurer
FIRST BANK NATIONAL ASSOCIATION
By: /s/ Michael S. Harter
Title: Commercial Banking Officer
GRACO INC. KEY EMPLOYEE AGREEMENT
AGREEMENT, by and between Graco Inc., a Minnesota corporation (the "Company")
and ________________________________ (the "Executive"), dated as of the ______
day of ______________,_______.
The Board of Directors of the Company (the "Board"), has determined that it is
in the best interests of the Company and its shareholders to assure that the
Company will have the continued dedication of the Executive, notwithstanding the
possibility, threat or occurrence of a Change of Control (as defined in Section
2 below) of the Company. The Board believes it is imperative to diminish the
inevitable distraction of the Executive by virtue of the personal uncertainties
and risks created by a pending or threatened Change of Control, to encourage the
Executive's full attention and dedication to the Company currently and in the
event of any threatened or pending Change of Control, to provide inducement for
the Executive to remain an employee of the Company in the event of any
threatened or pending Change of Control, and to facilitate an orderly transition
in the event of a Change of Control. Therefore, in order to accomplish these
objectives, the Board has caused the Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Certain Definitions: "Effective Date;" "Change of Control Period;"
"Company;" "Affiliated Companies."
(a) The "Effective Date" shall mean the first date during the Change of
Control Period (as defined in Section l(b)) on which a Change of
Control (as defined in Section 2) occurs. Anything in this Agreement
to the contrary notwithstanding, if a Change of Control occurs and if
the Executive's employment with the Company is terminated prior to the
date on which the Change of Control occurs, and if it is reasonably
demonstrated by the Executive that such termination of employment (i)
was at the request of a third party who has taken steps reasonably
calculated to effect the Change of Control or (ii) otherwise arose in
connection with or anticipation of the Change of Control, then for all
purposes of this Agreement the "Effective Date" shall mean the date
immediately prior to the date of such termination of employment.
(b) The "Change of Control Period" shall mean the period commencing on the
date hereof and ending on the second anniversary of such date,
provided, however, that commencing on the date one year after the date
hereof, and on each annual anniversary of such date (such date and
each annual anniversary thereof shall be hereinafter referred to as
the "Renewal Date"), the Change of Control Period shall be
automatically extended so as to terminate two years from such Renewal
Date, unless at least 60 days prior to the Renewal Date the Company
shall give notice to the Executive that the Change of Control Period
shall not be so extended.
(c) The "Company" shall mean the Company as hereinbefore defined and any
successor to its business and/or assets which assumes or agrees to
perform this Agreement by operation of law or otherwise.
(d) As used in this Agreement, the term "affiliated companies" shall
include any company controlled by, controlling or under common control
with the Company.
2. Change of Control. For the purpose of this Agreement
(a) A "Change of Control" means:
(i) acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act of
1934), (a "Person"), of beneficial ownership (within the meaning
of Rule 13d-3 under the 1934 Act) which results in the beneficial
ownership by such Person of 25% or more of either
A. the then outstanding shares of Common Stock of the Company
(the "Outstanding Company Common Stock") or
B. the combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in the
election of directors (the "Outstanding Company Voting
Securities"); provided, however, that the following
acquisitions will not result in a Change of Control:
(1) an acquisition directly from the Company,
(2) an acquisition by the Company,
(3) an acquisition by any employee benefit plan (or related
trust) sponsored or maintained by the Company or any
corporation controlled by the Company,
(4) an acquisition by any Person who is deemed to have
beneficial ownership of the Company common stock or
other Company voting securities owned immediately after
said acquisition by the Trust Under the Will of
Clarissa L. Gray ("Trust Person"), provided that such
acquisition does not result in the beneficial ownership
by such Person of 32% or more of either the Outstanding
Company Common Stock or the Outstanding Company Voting
Securities, and provided further that for purposes of
this Section 2, a Trust Person shall not be deemed to
have beneficial ownership of the Company common stock
or other Company voting securities owned by The Graco
Foundation or any employee benefit plan of the Company,
including without limitation the Graco Employee
Retirement Plan and the Graco Employee Stock Ownership
Plan,
(5) an acquisition by the Executive or any group that
includes the Executive, or
(6) an acquisition by any corporation pursuant to a
transaction that complies with clauses (A), (B) and (C)
of Section 2 (a)(iii) below; and provided, further,
that if any Person's beneficial ownership of the
Outstanding Company Common Stock or Outstanding Company
Voting Securities is 25% or more as a result of a
transaction described in clause (1) or (2) above, and
such Person subsequently acquires beneficial ownership
of additional Outstanding Company Common Stock or
Outstanding Company Voting Securities as a result of a
transaction other than that described in clause (1) or
(2) above, such subsequent acquisition will be treated
as an acquisition that causes such Person to own 25% or
more of the Outstanding Company Common Stock or
Outstanding Company Voting Securities and be deemed a
Change of Control; and provided further, that in the
event any acquisition or other transaction occurs which
results in the beneficial ownership of 32% or more of
either the Outstanding Company Common Stock or the
Outstanding Company Voting Securities by any Trust
Person, the Incumbent Board may by majority vote
increase the threshold beneficial ownership percentage
to a percentage above 32% for any Trust Person; or
(ii) Individuals who, as of the date hereof, constitute the Board of
Directors of the Company (the "Incumbent Board") cease for any
reason to constitute at least a majority of said Board; provided,
however, that any individual becoming a director subsequent to
the date hereof whose election, or nomination for election by the
Company's shareholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board
will be considered as though such individual were a member of the
Incumbent Board, but excluding, for this purpose, any such
individual whose initial membership on the Board occurs as a
result of an actual or threatened election contest with respect
to the election or removal of directors or other actual or
threatened solicitation of proxies or consents by or on behalf of
a Person other than the Board, or
(iii)The approval by the shareholders of the Company of a
reorganization, merger, consolidation or statutory exchange of
Outstanding Company Common Stock or Outstanding Company Voting
Securities or sale or other disposition of all or substantially
all of the assets of the Company ("Business Combination") or, if
consummation of such Business Combination is subject, at the time
of such approval by stockholders, to the consent of any
government or governmental agency, the obtaining of such consent
(either explicitly or implicitly by consummation); excluding,
however, such a Business Combination pursuant to which
A. all or substantially all of the individuals and entities who
were the beneficial owners of the Outstanding Company Common
Stock or Outstanding Company Voting Securities immediately
prior to such Business Combination beneficially own,
directly or indirectly, more than 80% of, respectively, the
then outstanding shares of common stock and the combined
voting power of the then outstanding voting securities
entitled to vote generally in the election of directors, as
the case may be, of the corporation resulting from such
Business Combination (including, without limitation, a
corporation that as a result of such transaction owns the
Company or all or substantially all of the Company's assets
either directly or through one or more subsidiaries) in
substantially the same proportions as their ownership,
immediately prior to such Business Combination of the
Outstanding Company Common Stock or Outstanding Company
Voting Securities,
B. no Person [excluding any employee benefit plan (or related
trust) of the Company or such corporation resulting from
such Business Combination] beneficially owns, directly or
indirectly, 25% or more of the then outstanding shares of
common stock of the corporation resulting from such Business
Combination or the combined voting power of the then
outstanding voting securities of such corporation except to
the extent that such ownership existed prior to the Business
Combination, and
C. at least a majority of the members of the board of directors
of the corporation resulting from such Business Combination
were members of the Incumbent Board at the time of the
execution of the initial agreement, or of the action of the
Board, providing for such Business Combination; or
(v) approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
3. Employment Period. For purposes of this Agreement, the term "Employment
Period" shall mean the period commencing on the Effective Date and ending
on the earlier of (i) the termination by the Company or the Executive of
the Executive's employment with the Company, or (ii) the second anniversary
of the Effective Date." As provided in Section 10(f), nothing stated in
this Agreement shall restrict the right of the Company or the Executive at
any time to terminate the Executive's employment with the Company, subject
to the obligations of the Company provided for in this Agreement in the
event of such termination.
4. Terms of Employment.
(a) Position and Duties.
(i) During the Employment Period, (A) the Executive's position
(including offices and titles), duties and responsibilities shall
be at least commensurate in all material respects with the most
significant of those held, exercised and assigned at any time
during the 90-day period immediately preceding the Effective Date
and (B) the Executive's services shall be performed at the
location where the Executive was employed immediately preceding
the Effective Date or any office or location less than 50 miles
from such location.
(ii) Except as otherwise expressly provided in this Agreement, during
the Employment Period, and excluding any periods of vacation and
sick leave to which the Executive is entitled, the Executive
agrees to devote reasonable attention and time during normal
business hours to the business and affairs of the Company. During
the Employment Period it shall not be a violation of this
Agreement for the Executive to (A) serve on corporate, civic or
charitable boards or committees, (B) deliver lectures, fulfill
speaking engagements or teach at educational institutions and (C)
manage personal investments, so long as such activities do not
significantly interfere with the performance of the Executive's
responsibilities as an employee of the Company in accordance with
this Agreement. To the extent that any such activities have been
conducted by the Executive prior to the Effective Date, the
continued conduct of such activities (or the conduct of
activities similar in nature and scope thereto) subsequent to the
Effective Date shall not thereafter be deemed to interfere with
the performance of the Executive's responsibilities to the
Company.
(b) Compensation.
(i) Base Salary. During the Employment Period, the Executive shall
receive an annual base salary ("Annual Base Salary") which shall
be paid at a monthly rate, at least equal to twelve times the
highest monthly base salary paid or payable to the Executive by
the Company and its affiliated companies in respect of the
twelve-month period immediately preceding the month in which the
Effective Date occurs. During the Employment Period, the Annual
Base Salary shall be reviewed at least annually and shall be
increased at any time and from time to time as shall be
substantially consistent with increases in base salary generally
awarded in the ordinary course of business to other peer
executives of the Company. The term Annual Base Salary as used in
this Agreement shall refer to Annual Base Salary as so increased.
The Executive's Annual Base Salary shall not be reduced after any
such increase. Any increase in Annual Base Salary shall not serve
to limit or reduce any other obligation to the Executive under
this Agreement.
(ii) Annual Incentive Payments. In addition to Annual Base Salary, the
Executive shall be awarded, for each fiscal year during the
Employment Period, an annual bonus ("Annual Bonus") in cash, in
accordance with the Company's Annual Bonus Plan, or other plan
instituted in lieu of the Annual Bonus Plan which provides for an
annual incentive payment in addition to Annual Base Salary
("Substitute Plan"). The Executive shall participate in the
Annual Bonus Plan or Substitute Plan at the same level at which
the Executive participated immediately prior to the Effective
Date, or if more favorable, at the level of other peer executives
of the Company and its affiliated companies. Any Substitute Plan
instituted by the Company after the Effective Date shall be at
least as favorable, in the aggregate, as the most favorable
Annual Bonus Plan or Substitute Plan in effect at any time during
the 90-day period immediately preceding the Effective Date
(iii)Savings and Retirement Plans. During the Employment Period, the
Executive shall be entitled to participate in all savings and
retirement plans, practices, policies and programs applicable
generally to other peer executives of the Company and its
affiliated companies, but in no event shall such plans,
practices, policies and programs provide the Executive with
savings opportunities and retirement benefit opportunities, in
each case, less favorable, in the aggregate, than the most
favorable of those provided by the Company and its affiliated
companies for the Executive under such plans, practices, policies
and programs as in effect at anytime during the 90-day period
immediately preceding the Effective Date or, if more favorable to
the Executive, those provided generally at any time after the
Effective Date to other peer executives of the Company and its
affiliated companies.
(iv) Welfare Benefit Plans. During the Employment Period, the
Executive and/or the Executive's family, as the case maybe, shall
be eligible for participation in and shall receive all benefits
under welfare benefit plans, practices, policies and programs
provided by the Company and its affiliated companies (including,
without limitation, medical, prescription, dental, disability,
salary continuance, employee life, group life, accidental death
and travel accident insurance plans and programs) to the extent
applicable generally to other peer executives of the Company and
its affiliated companies, but in no event shall such plans,
practices, policies and programs provide the Executive with
benefits which are less favorable,, in the aggregate, than the
most favorable of such plans, practices, policies and programs in
effect for the Executive at anytime during the 90-day period
immediately preceding the Effective Date or, if more favorable to
the Executive, those provided generally at any time after the
Effective Date to other peer executives of the Company and its
affiliated companies.
(v) Expenses. During the Employment Period, the Executive shall be
entitled to receive prompt reimbursement for all reasonable
expenses incurred by the Executive in accordance with the most
favorable policies, practices and procedures of the Company and
its affiliated companies in effect for the Executive at any time
during the 90-day period immediately preceding the Effective Date
or, if more favorable to the Executive, as in effect generally at
any time thereafter with respect to other peer executives of the
Company and its affiliated companies.
(vi) Perquisites. During the Employment Period, the Executive shall be
entitled to perquisites in accordance with the most favorable
plans, practices, programs and policies of the Company and its
affiliated companies in effect for the Executive at any time
during the 90-day period immediately preceding the Effective Date
or, if more favorable to the Executive, as in effect generally at
any time thereafter with respect to other peer executives of the
Company and its affiliated companies.
(vii)Office and Support Staff. During the Employment Period, the
Executive shall be entitled to an office or offices of a size and
with furnishings and other appointments, and to secretarial and
other assistance, at least equal to the most favorable of the
foregoing provided to the Executive by the Company at any time
during the 90-day period immediately preceding the Effective Date
or, if more favorable to the Executive, as provided generally at
any time thereafter with respect to other peer executives of the
Company.
(viii)Vacation. During the Employment Period, the Executive shall be
entitled to paid vacations in accordance with the most favorable
plans, policies, programs and practices of the Company and its
affiliated companies as in effect for the Executive at any time
during the 90-day period immediately preceding the Effective Date
or, if more favorable to the Executive, as in effect generally at
any time thereafter with respect to other peer Executives of the
Company and its affiliated companies.
5. Termination of Employment.
(a) Death or Disability. The Executive's employment shall terminate
automatically upon the Executive's death during the Employment Period.
If the Company determines in good faith that the Disability of the
Executive has occurred during the Employment Period (pursuant to the
definition of Disability set forth below), it may give to the
Executive written notice in accordance with Section 10(b) of this
Agreement of its intention to terminate the Executive's employment. In
such event, the Executive's employment with the Company shall
terminate effective on the 30th day after receipt of such notice by
the Executive (the "Disability Effective Date"), provided that, within
the 30 days after such receipt, the Executive shall not have returned
to full-time performance of the Executive's duties. For purposes of
this Agreement, "Disability" shall mean the absence of the Executive
from the Executive's duties with the Company on a full-time basis for
180 consecutive days as a result of incapacity due to mental or
physical illness which is determined to be total and permanent by a
physician selected by the Company or its insurers and acceptable to
the Executive or the Executive's legal representative (such agreement
as to acceptability not to be withheld unreasonably).
(b) Cause. The Company may terminate the Executive's employment during the
Employment Period for Cause. For purposes of this Agreement, "Cause"
shall mean (i) repeated violations by the Executive of the Executive's
obligations under Section 4(a) of this Agreement (other than as a
result of incapacity due to physical or mental illness) which are
demonstrably willful and deliberate on the Executive's part, which are
committed in bad faith or without the belief on the part of the
Executive that such violations are in the best interests of the
Company and which are not remedied in a reasonable period of time
after receipt of written notice from the Company specifying such
violations or (ii) the conviction of the Executive of a felony
involving moral turpitude.
(c) Good Reason. The Executive's employment may be terminated by the
Executive for Good Reason. For purposes of this Agreement, "Good
Reason" shall mean:
(i) the assignment to the Executive of any duties materially
inconsistent in any respect with the Executive's position
(including offices and titles), duties or responsibilities as
contemplated by Section 4(a) of this Agreement, or any other
action by the Company which results in a material diminution in
such position, duties or responsibilities, excluding for this
purpose an isolated, insubstantial and inadvertent action not
taken in bad faith and which is remedied by the Company promptly
after receipt of notice thereof given by the Executive;
(ii) any failure by the Company to comply with any of the provisions
of Section 4(b) of this Agreement, other than an isolated,
insubstantial and inadvertent failure not occurring in bad faith
and which is remedied by the Company promptly after receipt of
notice thereof given by the Executive;
(iii)the Company's requiring the Executive to be based at any office
or location other than that described in Section 4(a)(i)(B)
hereof or the Company's requiring the Executive to travel on
Company business to a substantially greater extent than required
immediately prior to the Effective Date;
(iv) any purported termination by the Company of the Executive's
employment otherwise than as expressly permitted by this
Agreement; or
(v) any failure by the Company to comply with and satisfy Section
9(c) of this Agreement.
For purposes of this Section 5(c), any good faith determination of "Good Reason"
made by the Executive shall be conclusive.
(d) Notice of Termination. Any termination by the Company for Cause, or by
the Executive for Good Reason, shall be communicated by Notice of
Termination to the other party hereto given in accordance with Section
10(b) of this Agreement. For purposes of this Agreement, a "Notice of
Termination" means a written notice which (i) indicates the specific
termination provision in this Agreement relied upon, (ii) to the
extent applicable, sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the
Executive's employment under the provision so indicated and (iii) if
the Date of Termination (as defined below) is other than the date of
receipt of such notice, specifies the termination date (which date
shall be not more than fifteen days after the giving of such notice).
The failure by the Executive or the Company to set forth in the Notice
of Termination any fact or circumstance which contributes to a showing
of Good Reason or Cause shall not waive any right of the Executive or
the Company hereunder or preclude the Executive or the Company from
asserting such fact or circumstance in enforcing the Executive's or
the Company's rights hereunder.
(e) Date of Termination. "Date of Termination" means (i) if the
Executive's employment is terminated by the Company for Cause, or by
the Executive for Good Reason, the date of receipt of the Notice of
Termination or any later date specified therein, as the case may be,
(ii) if the Executive's employment is terminated by the Company other
than for Cause or Disability or death, the Date of Termination shall
be the date on which the Company notifies the Executive of such
termination and (iii) if the Executive's employment is terminated by
reason of death or Disability, the Date of Termination shall be the
date of death of the Executive or the Disability Effective Date, as
the case may be.
6. Obligations of the Company upon Termination.
(a) Good Reason; Other Than for Cause, Death or Disability. If, within two
years after the Effective Date, the Company shall terminate the
Executive's employment other than for Cause, death or Disability, or
the Executive shall terminate employment for Good Reason, in lieu of
further payments pursuant to Section 4(b) with respect to periods
following the Date of Termination:
(i) except as provided in Section 6(e) below, the Company shall pay
to the Executive, in a lump sum in cash, within 30 days (except
as provided in subsection 6(a)(i)A below) after the Date of
Termination, the aggregate of the following amounts (such
aggregate shall be hereinafter referred to as the "Special
Termination Amount"):
A. the sum of (1) the Executive's Annual Base Salary through
the Date of Termination to the extent not theretofore paid,
and, (2) the product of (x) the higher of (I) the midpoint
between the minimum and the maximum bonus payment under the
Annual Bonus Plan or Substitute Plan applicable to the
Executive for the fiscal year in which the Date of
Termination occurs, or (II) the amount that would be payable
to the Executive for the fiscal year in which the Date of
Termination occurs under the Annual Bonus Plan or Substitute
Plan had the termination not so occurred (which amount shall
be payable pursuant to this clause 2 within 30 days after it
is calculated), and (y) a fraction, the numerator of which
is the number of days in the current fiscal year through the
Date of Termination, and the denominator of which is 365
(the sum of the amounts described in clauses (1) and (2)
shall be hereinafter referred to as the "Accrued
Obligations"); and
B. the amount equal to the product of (1) two and (2) the sum
of (x) the Executive's Annual Base Salary and (y) the
midpoint between the maximum and minimum bonus payment
applicable to the Executive for the fiscal year in which the
Date of Termination occurs under the Annual Bonus Plan or
Substitute Plan; and
(ii) for two years following the Date of Termination or such longer
period as any plan, program, practice or policy may provide, the
Company shall continue benefits to the Executive and/or the
Executive's family at least equal to those which would have been
provided to them in accordance with the plans programs, practices
and policies described in Section 4(b)(iv) of this Agreement if
the Executive's employment had not been terminated, in accordance
with the most favorable plans, practices, programs or policies of
the Company and its affiliated companies applicable generally to
other peer executives and their families during the 90-day period
immediately preceding the Effective Date or, if more favorable to
the Executive, as in effect generally at any time thereafter with
respect to other peer executives of the Company and its
affiliated companies and their families, provided, however, that
if the Executive becomes re-employed with another employer and is
eligible to receive medical or disability welfare benefits under
another employer provided plan, the medical and disability
welfare benefits described herein shall cease upon the Executive
and the Executive's family becoming eligible under such other
plan. For purposes of determining eligibility of the Executive
for retiree benefits pursuant to such plans, practices, programs
and policies, the Executive shall be considered to have remained
employed until two years after the Date of Termination and to
have retired two years after the Date of Termination.
(b) Death. If the Executive's employment is terminated by reason of the
Executive's death within two years after the Effective Date, this
Agreement shall terminate without further obligations to the
Executive's legal representatives under this Agreement, other than for
payment of the Accrued Obligations. The Accrued Obligations shall be
paid to the Executive's estate or beneficiary, as applicable, in a
lump sum in cash within 30 days of the Date of Termination, or as
otherwise provided in Section 6(a)(i)(A). In addition, the Executive's
family shall be entitled to receive benefits at least equal to the
most favorable benefits provided by the Company and any of its
affiliated companies to surviving families of deceased peer executives
of the Company and such affiliated companies under such plans,
programs, practices and policies relating to family death benefits, if
any, as in effect with respect to other deceased peer executives and
their families at any time during the 90-day period immediately
preceding the Effective Date or, if more favorable to the Executive
and/or the Executive's family, as in effect on the date of the
Executive's death with respect to other deceased peer executives of
the Company and its affiliated companies and their families.
(c) Disability. If the Executive's employment is terminated by reason of
the Executive's Disability within two years after the Effective Date,
this Agreement shall terminate without further obligations to the
Executive, other than for payment of the Accrued Obligations. The
Accrued Obligations shall be paid to the Executive in a lump sum in
cash within 30 days of the Date of Termination or as otherwise
provided in Section 6(a)(i)(A). In addition, the Executive shall be
entitled after the Disability Effective Date to receive disability and
other benefits at least equal to the most favorable of those generally
provided by the Company and its affiliated companies to disabled
executives and/or their families in accordance with such plans,
programs, practices, and policies relating to disability, if any, as
in effect generally with respect to other disabled peer executives and
their families at any time during the 90-day period immediately
preceding the Effective Date or, if more favorable to the Executive
and/or the Executive's family, as in effect at any time thereafter
generally with respect to other disabled peer executives of the
Company and its affiliated companies and their families.
(d) Cause; Other than for Good Reason. If the Executive's employment shall
be terminated for Cause within two years after the Effective Date,
this Agreement shall terminate without further obligations to the
Executive other than the obligation to pay to the Executive Annual
Base Salary through the Date of Termination plus the amount of any
compensation previously deferred by the Executive, in each case to the
extent theretofore unpaid. If the Executive voluntarily terminates
employment within two years after the Effective Date, excluding a
termination for Good Reason, this Agreement shall terminate without
further obligations to the Executive, other than Annual Base Salary
through the Date of Termination plus the amount of any compensation
previously deferred by the Executive, in each case to the extent
theretofore unpaid, and any payment that may be due under the terms of
the Annual Bonus Plan or any Successor Plan. In such case, all such
amounts shall be paid to the Executive in a lump sum in cash within 30
days of the Date of Termination or, in the case of any payment under
the Annual Bonus Plan or any Successor Plan, pursuant to the terms
thereof.
(e) Possible Payment Reduction. Notwithstanding any provision to the
contrary contained in this Agreement, if the lump sum cash payment due
and the other benefits to which the Executive shall become entitled
under Section 6(a) hereof, either alone or together with other
payments in the nature of compensation to the Executive which are
contingent on a change in the ownership or effective control of the
Company or in the ownership of a substantial portion of the assets of
the Company or otherwise, would constitute a "parachute payment" as
defined in Section 280G of the Internal Revenue Code of 1986, as
amended (the "Code") or any successor provision thereto, such lump sum
payment and/or such other benefits and payments shall be reduced (but
not below zero) to the largest aggregate amount as will result in no
portion thereof being subject to the excise tax imposed under Section
4999 of the Code (or any successor provision thereto) or being
non-deductible to the Company for Federal Income Tax purposes pursuant
to Section 280G of the Code (or any successor provision thereto). The
Executive in good faith shall determine the amount of any reduction to
be made pursuant to this Section 6(e) and shall select from among the
foregoing benefits and payments those which shall be reduced. No
modification of, or successor provision to, Section 280G or Section
4999 subsequent to the date of this Agreement shall, however, reduce
the benefits to which the Executive would be entitled under this
Agreement in the absence of this Section 6(e) to a greater extent than
they would have been reduced if Section 280G and Section 4999 had not
been modified or superseded subsequent to the date of this Agreement,
notwithstanding anything to the contrary provided in the first
sentence of this Section 6(e).
7. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or limit
the Executive's continuing or future participation in any plan, program,
policy or practice provided by the Company or any of its affiliated
companies and for which the Executive may qualify, nor shall anything
herein limit or otherwise affect such rights as the Executive may have
under any contract or agreement with the Company or any of its affiliated
companies. Amounts which are vested benefits or which the Executive is
otherwise entitled to receive under any plan, policy, practice or program
of or any contract or agreement with the Company or any of its affiliated
companies at or subsequent to the Date of Termination shall be payable in
accordance with such plan, policy, practice or program or contract or
agreement except as explicitly modified by this Agreement.
8. Full Settlement; No Mitigation; Legal Fees. The Company's obligation to
make the payments provided for in this Agreement and otherwise to perform
its obligations hereunder shall not be affected by any set-off,
counterclaim, recoupment, defense or other claim, right or action which the
Company may have against the Executive or others. In no event shall the
Executive be obligated to seek other employment or take any other action by
way of mitigation of the amounts payable to the Executive under any of the
provisions of this Agreement and such amounts shall not be reduced whether
or not the Executive obtains other employment. The Company agrees to pay,
to the full extent permitted by law, all legal fees and expenses which the
Executive may reasonably incur as a result of any contest (regardless of
the outcome thereof) by the Company, the Executive or others of the
validity or enforceability of, or liability under, any provision of this
Agreement or any guarantee of performance thereof (including as a result of
any contest by the Executive about the amount of any payment pursuant to
this Agreement), plus in each case interest on any delayed payment at the
applicable Federal rate provided for in Section 7872(f)(2)(A) of the
Internal Revenue Code of 1986, as amended (the "Code").
9. Successors.
(a) This Agreement is personal to the Executive and without the prior
written consent of the Company shall not be assignable by the
Executive otherwise than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be
enforceable by the Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon the
Company and its successors and assigns.
(c) The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially
all of the business and/or assets of the Company to assume expressly
and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such
succession had taken place.
10. Miscellaneous.
(a) This Agreement shall be governed by and construed in accordance with
the laws of the State of Minnesota, without reference to principles of
conflict of laws. The captions of this Agreement are not part of the
provisions hereof and shall have no force or effect. This Agreement
may not be amended or modified otherwise than by a written agreement
executed by the parties hereto or their respective successors and
legal representatives.
(b) All notices and other communications hereunder shall be in writing and
shall be given by hand delivery to the other party or by registered or
certified mail, return receipt requested, postage prepaid, addressed
as follows:
If to the Executive:
------------------------------------
------------------------------------
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If to the Company:
Graco Inc.
4050 Olson Memorial Highway
Golden Valley, MN 55422
Attention: Vice President, Human Resources
or to such other address as either party shall have furnished to the
other in writing in accordance herewith. Notice and communications
shall be effective when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision
of this Agreement.
(d) The Company may withhold from any amounts payable under this Agreement
such Federal, state or local taxes as shall be required to be withheld
pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon strict
compliance with any provision hereof or any other provision of this
Agreement or the failure to assert any right the Executive or the
Company may have hereunder, including, without limitation, the right
of the Executive to terminate employment for Good Reason pursuant to
Section 5(c)(i)(v) of this Agreement, shall not be deemed to be a
waiver of such provision or right or any other provision or right of
this Agreement.
(f) The Executive and the Company acknowledge that, except as may
otherwise be provided under any other written agreement between the
Executive and the Company, the employment of the Executive by the
Company may be terminated by either the Executive or the Company at
any time prior to the Effective Date or, subject to the obligations of
the Company provided for in this Agreement in the event of a
termination after the Effective Date, at anytime on or after the
Effective Date. Moreover, if prior to the Effective Date, the
Executive's employment with the Company terminates, then the Executive
shall have no further rights under this Agreement. From and after the
Effective Date, this Agreement shall supersede any other agreement
between the parties with respect to the subject matter hereof.
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and,
pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.
Executive Graco Inc.
By
- ----------------------------- -----------------------------
Name Name and title
FIRST AMENDMENT
OF
GRACO INC.
DEFERRED COMPENSATION PLAN RESTATED
The Graco Inc. Deferred Compensation Plan Restated ("Plan"), which was
adopted and approved by the Board of Directors of Graco Inc. effective December
1, 1992, is hereby amended as follows:
1. AMENDMENT. Effective September 1, 1996, Section 2.1 of the Plan is amended
to read in full as follows:
2.1. Participation by Eligible Employees. Each employee that is
classified in a salary grade level identified in Appendix B shall be
eligible to become a Participant in this Plan as follows:
(a) Any eligible employee who is employed on the Effective Date
of the Plan shall became a Participant within thirty-one days after
the Effective Date if the eligible employee enters into a Salary
Reduction Agreement with the Employer during July or August, 1988 to
be effective September 1, 1988, which provides for salary deferrals
under the Plan.
(b) Thereafter, an eligible employee shall become a Participant
if, during the Annual Enrollment Period, such Participant enters into
a Salary Reduction Agreement with the Employer which provides for
salary deferrals under the Plan. The Annual Enrollment period shall
occur during the month of December each year and any Salary Reduction
Agreement shall be effective as of January 1 of the next following
year applicable to Compensation earned by such Participant during such
year.
(c) Notwithstanding the provisions of Section 2.1.(b), a
Participant who was scheduled to receive during 1996 a refund of
excess employee contributions to the Graco Employee Investment Plan
pursuant to the Employee Plans Voluntary Compliance Resolution ("VCR")
with the Internal Revenue Service and a special payment of an amount
equal to the employer match on the excess employee contributions may
defer an amount equal to the amount of the employee contributions
scheduled to be refunded plus the amount calculated for the special
payment, if the Participant has executed a Special Deferred
Compensation Plan Election, which shall be considered to be equivalent
to a salary reduction agreement for purposes of the Plan, prior to
receipt of such refund and special payment.
2. AMENDMENT. Effective for any amendment adopted after May 6, 1997, Section
7.1 of the Plan is amended to read in full as follows:
7.1. Amendment. The Employer, hereby reserves the power to amend this
Plan prospectively or retroactively or both:
(a) In any respect by action of its Board of Directors; and
(b) In any respect that does not materially increase the cost of the
Plan or significantly alter in scope, nature or degree the benefits
accruing to the Participants, by action of the Management Organization and
Compensation Committee of the Board of Directors; provided, however, that
no amendment shall have the effect of amending this section 7 or of
reducing or cancelling the accrued rights and benefits of present
Participants.
3. SAVINGS CLAUSE. Save and except as herein above expressly amended, the Plan
shall continue in full force and effect.
IN WITNESS WHEREOF, each of the parties hereto has caused these presents to
be executed, all as of May 6, 1997.
GRACO INC.
By /s/Clyde W. Hansen
Clyde W. Hansen
Vice President
By /s/Robert M. Mattison
Robert M. Mattison
Vice President
May 6, 1997
LONG TERM STOCK INCENTIVE PLAN
1. Purpose. The purpose of the Graco Inc. Long Term Stock Incentive Plan
(the "Plan") is to further the growth in earnings and market appreciation of
Graco Inc. (the "Company"). The Plan provides substantial contributions to the
Company through ability, performance, industry and invention. The Company
intends that the Plan will thereby facilitate securing, retaining and motivating
officers and key employees of high caliber and good potential.
2. Administration. The Plan shall be administered by a committee (the
"Committee") selected by the Board of Directors of the Company (the "Board").
The Committee shall consist of three or more members who (a) need not be members
of the Board of Directors or officers of the Company, (b) who shall be appointed
by the Board and (c) who shall be "disinterested persons" within the meaning of
Rule 16b-3 under the Securities Act of 1934 (the "Act"). No member of the
Committee shall be eligible or receive awards under the Plan while serving on
the Committee, and no member of the Committee shall have been eligible to
receive awards for one year prior to serving on the Committee.
The Committee shall have full and final authority in its discretion to
interpret the provisions of the Plan and to decide all questions of fact arising
in its application; to determine the employees to whom awards shall be made
under the Plan; to determine the type of award to be made and the amount, size,
terms and conditions of each such award; to determine and establish additional
terms and conditions not inconsistent with the Plan and for any agreements
entered into with participants in connection with the Plan; to determine the
time when awards will be granted and when rights may be exercised, which may be
after termination of employment; and to make all other determinations necessary
or advisable for the administration of the Plan.
The Committee shall select one of its members as its Chairman and shall
hold its meetings at such times and places as it may determine. A majority of
its members shall constitute a quorum. All determinations of the Committee shall
be made by not less than a majority of its members. Any decision or
determination reduced to writing and signed by all of the members of the
Committee shall be fully effective as if it had been made by a majority vote at
a meeting duly called and held. The granting of a stock option or restricted
stock award pursuant to the Plan shall be effective only if a written agreement
shall have been duly executed and delivered by and on behalf of the Company and,
in the case of a restricted stock award, by the employee to whom such right is
granted. The Committee may appoint a Secretary and may make such rules and
regulations for the conduct of its business as it shall deem advisable.
3. Participants. Persons eligible to participate in the Plan shall be those
officers and key employees of the Company or its subsidiaries who are in
positions in which their decisions, actions and counsel significantly impact the
performance of the Company or its subsidiaries. Directors of the Company who are
not otherwise salaried employees of the Company shall not be eligible to receive
awards under the Plan. For the purpose of awards of incentive stock options (as
hereinafter defined) made under the Plan, the term "subsidiary" shall have the
meaning given to it by Section 424 of the Internal Revenue Code of 1986, as
amended (the "Code"). For the purpose of all other awards made under the Plan,
the term "subsidiary" shall have the meaning given to it by Rule 405 promulgated
under the Securities Act of 1933, as amended. References to "the Company" in
this Plan or in any option or other award granted pursuant to the Plan shall be
deemed references to a subsidiary if appropriate.
4. Awards under the Plan. Awards by the Committee under the Plan may be in
the form of stock options intended to qualify as "incentive stock options" under
the provision of Section 422 of the Code, stock options which do not qualify for
special tax treatment under Section 422, restricted stock and other stock awards
pursuant to such bonus and incentive plans as the Committee may deem
appropriate.
4.1 Award Limitation. In any calendar year beginning with January 31,
1997, the Committee may not award stock options or stock appreciation rights on
more than 200,000 Shares in the aggregate to any Participant who is an employee
of the Company at the time of such award. This award limit may be adjusted in
accordance with the provisions of Section 15. This limitation is intended to
qualify the award of options and stock appreciation rights as performance-based
compensation within the meaning of Section 162(m) of the Code.
5. Shares Subject to Plan. The shares that may be issued under the Plan
shall not exceed in the aggregate 3,475,000 common shares, $1.00 par value, of
the Company. Except as otherwise provided herein, any shares subject to an
option or right or other awards which for any reason expires or terminates
without issuance or final vesting of such shares shall again be available under
the Plan. No fractional shares shall be issued under the Plan.
6. Stock Options. Stock options shall be evidenced by stock option
agreements in such form not inconsistent with the Plan as the Committee shall
approve from time to time, which agreements shall contain in substance the
following terms and conditions.
6.1. Option Price. The purchase price per common share deliverable
upon the exercise of an option shall not be less than 100% of the fair market
value of the stock on the day the option is granted, as determined by the
Committee.
6.2. Exercise of Option. Each stock option agreement shall state the
period or periods of time within which the option may be exercised by the
participant, in whole or in part, which shall be such period or periods of time
as may be determined by the Committee, provided that the option period shall not
end later than ten years after the date of the grant of the option.
6.3. Payment of Shares. An optionee electing to exercise an option
shall give written notice to the Company of such election and of the number of
shares subject to such exercise. The full purchase price of such shares shall be
tendered with such notice of exercise or, at the discretion of the Committee,
pursuant to any arrangements satisfactory to the Committee which provide that
the Company will be paid at the time the shares are delivered to the optionee or
his designee. Payment shall be made either in cash (including check, bank draft
or money order) or, at the discretion of the Committee, (i) by delivering the
Company's common shares already owned by the optionee having a fair market value
equal to the full purchase price of the shares, or (ii) a combination of cash
and such shares.
6.4. Special Rule for Incentive Stock Options. The aggregate fair
market value (determined as of the time the option is granted) of the common
shares with respect to which all incentive stock options granted after January
1, 1987 are exercisable for the first time by any individual during any calendar
year (under all option plans of the Company and its parent and subsidiary
corporations) shall not exceed $100,000.
7. Restricted Stock Awards. Restricted stock awards shall be evidenced by
restricted stock agreements in such form not inconsistent with the Plan as the
Committee shall approve from time to time, which agreements shall contain in
substance the following terms and conditions.
7.1. Restriction Period. Shares awarded pursuant to restricted stock
awards shall be subject to such conditions, terms and restrictions (including
continued employment, achievement of performance targets, forfeiture and
transfer) and for such period or periods as shall be determined by the
Committee. The Committee shall have the power, in its discretion, to permit an
acceleration of the expiration of the applicable restriction period with respect
to any part of all of the shares awarded to a participant.
7.2 Restrictions Upon Transfer. The common shares subject to an award,
may not be sold, assigned, transferred, exchanged, pledged, hypothecated, or
otherwise encumbered, except as herein provided, during the restriction period
applicable to such shares, but a participant shall have all the other rights of
a stockholder, including the right to receive cash dividends and the right to
vote such shares, until such time as the restrictions have lapsed or the shares
have been forfeited.
7.3 Certificates. Each certificate issued in respect of common shares
awarded to a participant shall be deposited with the Company, or its designee,
and shall bear an appropriate legend noting the existence of restrictions upon
the transfer of such Common Stock.
7.4 Lapse of Restrictions. The agreement governing the awards shall
specify the conditions and terms upon which any restrictions upon shares awarded
under the Plan shall lapse, as determined by the Committee. Upon lapse of such
restrictions, common shares free of any restrictive legend, other than as may be
required under Section 9 hereof, shall be issued and delivered to the
participant of his legal representative.
8. Fair Market Value. The fair market value of the Company's common shares
for purposes of the Plan shall be the last sale price of the common shares as
reported on the New York Stock Exchange on the business day as of which the fair
market value is being determined or if no sale occurred on that date, the last
sale on the most recent date for which a sale is reported. If the Company's
common shares are not then traded on the New York Stock Exchange, the Committee
may determine fair market value in some other reasonable way.
9. General Restrictions. Each award under the Plan shall be subject to the
requirement that, if at anytime the Committee shall determine that (a) the
listing, registration or qualification of the common shares subject or related
thereto upon any securities exchange or under any state or federal law, or (b)
the consent or approval of any government regulatory body, or (c) an agreement
by the recipient of an award with respect to the disposition of common shares,
is necessary or desirable in connection with, the granting of such award or the
issue or purchase of common shares thereunder, such award may not be consummated
in whole or in part unless such listing, registration, qualification, consent,
approval or agreement shall have been effected or obtained free of any
conditions not acceptable to the Committee. A participant shall agree, as a
condition of receiving any award under the Plan, to execute any documents, make
any representations, agree to restrictions on stock transferability and take any
actions which in the opinion of legal counsel to the Company is required by any
applicable law, ruling or regulation.
10. Rights of a Shareholder. The recipient of any award under the Plan,
unless otherwise provided by the Plan, shall have no rights as a shareholder
with respect thereto unless and until certificates for common shares are issued
to the recipient.
11. Right to Terminate Employment. Nothing in the Plan or in any agreement
entered into pursuant to the Plan shall confer upon any participant the right to
continue in the employment of the Company or its subsidiaries, or affect any
right which the Company or such subsidiaries may have to terminate the
employment of the participant.
12. Withholding.
12.1. Payment of Withholding Taxes. Whenever the Company proposes or
is required to issue or transfer common shares under the Plan, the Company shall
have the right to require the recipient to remit to the Company, or provide
indemnification satisfactory to the Company for, an amount sufficient to satisfy
any federal, state or local withholding tax requirements prior to the issuance
or delivery of any certificate or certificates for such shares.
12.2. Use of Common Shares to Satisfy Tax Obligation. In order to
assist an optionee or grantee in paying all federal, state and local taxes to be
withheld or collected upon exercise of an option or the grant of a stock award
or the lapse of restrictions relating to a restricted stock award hereunder, the
Committee in its sole discretion and subject to such rules as it may adopt, may
permit the optionee or grantee to satisfy 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.
13. Non-Assignability. No award under the Plan shall be assignable or
transferable by the participant except by will or by laws of descent and
distribution. During the life of a participant, such award shall be exercisable
only by the participant or by the participant's guardian or legal
representative.
14. Non-Uniform Determinations. The Committee's determinations under the
Plan (including, without limitation, determinations of the persons to receive
awards, the form, amount and timing of such awards, the terms and provisions of
awards and the agreements evidencing the awards, and the establishment of values
and performance targets) need not be uniform and may be made by it selectively
among persons who receive, or are eligible to receive, awards under the Plan
whether or not such persons are similarly situated.
15. Adjustments in Shares. In the event of any change in the outstanding
common shares of the Company by reason of a stock dividend or distribution,
recapitalization, merger, consolidation, split-up, combination, exchange of
shares or otherwise, the Board shall adjust the number of shares which may be
issued under the Plan and the Board shall provide for an equitable adjustment of
any shares issuable pursuant to awards outstanding under the Plan.
16. Adoption, Amendment and Termination.
16.1. Adoption. This Plan was originally adopted in February 1982 as
the Graco Inc. Incentive Stock Option Plan. The Plan was amended and restated as
the Graco Inc. Long Term Stock Incentive Plan by the Board of Directors on March
4, 1988 and was further amended by the Board on December 13, 1991, February 21,
1992, February 23, 1996 and May 7, 1996, which amendments requiring shareholder
approval were approved by the shareholders on May 5, 1992 and May 7, 1996,
respectively.
16.2 Amendment. The Board may amend, suspend, or terminate the Plan at
any time, but without shareholder approval, no amendment shall materially
increase the maximum number of shares which may be issued under the Plan (other
than increases pursuant to Section 15 hereof), materially increase the benefits
accruing to participants under the Plan, materially modify the requirements as
to eligibility for participation, or extend the term of the Plan.
16.3. Termination. Unless the Plan shall have been discontinued at an
earlier date, the Plan shall terminate on December 13, 2001. No option,
restricted stock award or stock awards may be granted after such termination,
but termination of the Plan shall not, without the consent of the optionee or
grantee, alter or impair any rights or obligations under any award theretofore
granted.
May 6, 1997
GRACO INC.
NONEMPLOYEE DIRECTOR STOCK PLAN
("PLAN")
1. Purpose of the Plan. The purpose of the Graco Inc. Nonemployee Director
Stock Plan (the "Plan") is to provide an opportunity for nonemployee members of
the Board of Directors (the "Board") of Graco Inc. ("Graco" or the "Company") to
increase their ownership of Graco Common Stock ("Common Stock") and thereby
align their interest in the long-term success of the Company with that of the
other shareholders. Each nonemployee director may elect to receive all or a
portion of his or her retainer in the form of shares of Common Stock or defer
the receipt of such shares until a later date pursuant to an election made under
the Plan.
2. Eligibility. Directors of the Company who are not also officers or other
employees of the Company or its subsidiaries are eligible to participate in the
Plan ("Eligible Directors").
3. Administration. The Plan will be administered by the Secretary of the
Company (the "Administrator"). Since the issuance of shares of Common Stock
pursuant to the Plan is based on elections made by Eligible Directors, the
Administrator's duties under the Plan will be limited to matters of
interpretation and administrative oversight. All questions of interpretation of
the Plan will be determined by the Administrator, and each determination,
interpretation or other action that the Administrator makes or takes pursuant to
the provisions of the Plan will be conclusive and binding for all purposes and
on all persons. The Administrator will not be liable for any action or
determination made in good faith with respect to the Plan.
4. Election to Receive Stock and Stock Issuance.
4.1. Election to Receive Stock/Credit in Lieu of Cash. On forms
provided by the Company, each Eligible Director may irrevocably elect
("Stock Election") in lieu of cash, (i) to be issued shares of Common Stock
or (ii) to have credited to an account ("Deferred Stock Account") the
number of shares of Common Stock having a Fair Market Value, as defined in
Section 4.3, equal to 25%, 50%, 75% or 100% of the annual cash retainer
(the "Retainer") payable to that director for services rendered as a
director ("Participating Director"). A Stock Election shall apply only to
the Retainer and not to any fees payable for attendance at Board or
Committee meetings. Eligible Directors are customarily paid the Retainer in
quarterly installments in arrears at the end of each fiscal quarter. Any
Stock Election must be received by the Company before the commencement of
the fiscal quarter with respect to which such election is made. Any Stock
Election may only be amended or revoked ("Amended Stock Election") in
accordance with the procedure set forth in Section 4.4.
4.2. Issuance of Stock/Application of Credit in Lieu of Cash. If the
Stock Election is for the issuance of shares of Common Stock, shares of
Common Stock having a Fair Market Value equal to the amount of the Retainer
so elected shall be issued to each Participating Director when each
quarterly installment of the Retainer is customarily paid. The Company
shall not issue fractional shares, but in lieu thereof shall pay cash of
equivalent value using the same Fair Market Value used to determine the
number of Shares to be issued on the relevant issue date. If the Stock
Election is for a credit to a Deferred Stock Account, the number of shares
of Common Stock (rounded to the nearest hundredth of a share) having a Fair
Market Value equal to the amount of the Retainer so elected shall be
credited to the Participating Director's Deferred Stock Account when each
quarterly installment of the Retainer is customarily paid. In the event
that a Participating Director elects to receive less than 100% of each
quarterly installment of the Retainer in shares of Common Stock, either
issued or credited, he shall receive the balance of the quarterly
installment in cash.
4.3 Fair Market Value. For purposes of converting dollar amounts into
shares of Common Stock, the Fair Market Value of each share of Common Stock
shall be equal to the closing price of one share of the Company's Common
Stock on the New York Stock Exchange-Composite Transactions on the last
business day of the fiscal quarter for which such shares are issued or
credited.
4.4. Change in Election. Each Participating Director may irrevocably
elect in writing to change an earlier Stock Election, either to elect to be
issued shares of Common Stock or to have credited to the Participating
Director's Deferred Stock Account, a number of shares of Common Stock
having a Fair Market Value equal to a percentage of the Participating
Director's Retainer different from the percentage previously elected or to
receive the entire Retainer in cash (an "Amended Stock Election"). An
Amended Stock Election shall not become effective until the commencement of
the first full fiscal quarter after the date of receipt of such Amended
Stock Election by the Company.
4.5 Termination of Service as a Director. If a Participating Director
leaves the Board before the conclusion of any fiscal quarter, he or she
will be paid the quarterly installment of the Retainer entirely in cash,
notwithstanding that a Stock Election or Amended Stock Election is on file
with the Company. The date of termination of a Participating Director's
service as a director of the Company will be deemed to be the date of
termination recorded on the personnel or other records of the Company.
4.6 Dividend Credit. Each time a dividend is paid on the Common Stock,
each Participating Director who has a Deferred Stock Account shall receive
a credit to his or her Deferred Stock Account equal to that number of
shares of Common Stock (rounded to the nearest one-hundredth of a share)
having a Fair Market Value on the dividend payment date equal to the amount
of the dividend payable on the number of shares of Common Stock credited to
the Participating Director's Deferred Stock Account on the dividend record
date.
5. Shares Available for Issuance.
5.1. Maximum Number of Shares Available. The maximum number of shares
of the Company's Common Stock, par value $1.00 per share, that will be
available for issuance under the Plan will be 150,000 shares, subject to
any adjustments made in accordance with the provisions of Section 5.2. At
the election of the Administrator, the shares of Common Stock available for
issuance under the Plan may be either authorized but unissued shares or
treasury shares. If treasury shares are used, all references in the Plan to
the issuance of shares will be deemed to mean the transfer of shares from
treasury.
5.2. Adjustments to Shares. In the event of any reorganization,
merger, consolidation, recapitalization, liquidation, reclassification,
stock dividend, stock split, combination of shares, rights offering,
divestiture or extraordinary dividend, an appropriate adjustment will be
made in the number and/or kind of securities available for issuance under
the Plan to prevent either the dilution or the enlargement of the rights of
the Eligible and Participating Directors.
6. Deferral Payment
6.1 Deferral Payment Election. At the time of making the Stock
Election in which the Participating Director elects to have a Deferred
Stock Account credited in accordance with the provisions of Section 4.1,
the Participating Director will also elect the manner and timing for
payment of the amounts credited to his or her Deferred Stock Account
("Deferral Payment Election") from the alternatives described in Section
6.2. The Participating Director may change the manner and timing for
payment of amounts to be credited to his or her Deferred Stock Account by
executing another Deferral Payment Election; provided, however, that the
previously made Deferral Payment Election will be irrevocable as to all
amounts credited to the Participating Director's Deferred Stock Account
prior to receipt by the Company of a new Deferral Payment Election.
6.2 Payment from Deferred Stock Accounts. A Participating Director may
elect to receive payment from his or her Deferred Stock Account in a lump
sum or installments. Payments, whether in a lump sum or by installments,
shall be made in shares of Common Stock plus cash in lieu of any fractional
share. Unless the Participating Director elects to receive payment in
installments, credits to a Participating Director's Deferred Stock Account
shall be payable in full on January 10 of the year following the
Participating Director's termination of service on the Board, or the first
business day thereafter, or such other date as elected by the Participating
Director pursuant to Section 6.1. If the Participating Director elects to
receive payment from his or her Deferred Stock Account in installments,
each installment payment will be made annually on January 10 of each year,
or the first business day thereafter, and the amount of each payment will
be computed by multiplying the number of shares credited to the Deferred
Stock Account as of January 10 of each year by a fraction, the numerator of
which is one and the denominator of which is the total number of
installments elected (not to exceed fifteen) minus the number of
installments previously paid. Amounts paid prior to the final installment
payment will be rounded to the nearest whole number of shares; the final
installment payment shall be for the whole number of shares remaining
credited to the Deferred Stock Account, plus cash in lieu of any fractional
share.
6.3 Change of Control. Notwithstanding the foregoing, in the event of
a Change of Control (as defined in Section 11), the number of shares
credited to the Deferred Stock Account of a Participating Director as of
the business day immediately prior to the effective date of the transaction
constituting the Change of Control, shall be paid in full to the
Participating Director or the Participating Director's beneficiary or
estate, as the case may be, in whole shares of Common Stock plus cash in
lieu of any fractional share on the tenth business day following the
effective date of the transaction constituting the Change of Control.
7. Limitation on Rights of Eligible and Participating Directors.
7.1. Service as a Director. Nothing in the Plan will interfere with or
limit in any way the right of the Company's Board or its shareholders to
remove an Eligible or Participating Director from the Board. Neither the
Plan nor any action taken pursuant to it will constitute or be evidence of
any agreement or understanding, express or implied, that the Company's
Board or its shareholders have retained or will retain an Eligible or
Participating Director for any period of time or at any particular rate of
compensation.
7.2. Nonexclusivity of the Plan. Nothing contained in the Plan is
intended to effect, modify or rescind any of the Company's existing
compensation plans or programs or to create any limitations on the Board's
power or authority to modify or adopt compensation arrangements as the
Board may from time to time deem necessary or desirable.
8. Plan Amendment, Modification and Termination. The Board may suspend or
terminate the Plan at any time. The Board may amend the Plan from time to time
in such respects as the Board may deem advisable in order that the Plan will
conform to any change in applicable laws or regulations or in any other respect
that the Board may deem to be in the Company's best interests; provided,
however, that no amendments to the Plan will be effective without approval of
the Company's shareholders, if shareholder approval of the amendment is then
required pursuant to Rule 16b-3 (or any successor rule) under the Securities
Exchange Act of 1934, as amended, (the "Exchange Act") or the rules of the New
York Stock Exchange. In addition, the Plan may not be amended more than once
every six months other than to conform it with changes in the Internal Revenue
Code, as amended, the Employee Retirement Income Security Act of 1974, as
amended, or the rules thereunder.
9. Effective Date and Duration of the Plan. The Plan shall become effective
as of the date the Company's shareholders approve it and will terminate on
December 31, 2003, unless earlier terminated by the Company's Board.
10. Participants are General Creditors of the Company. The Participating
Directors and beneficiaries thereof shall be general, unsecured creditors of the
Company with respect to any payments to be made pursuant to the Plan and shall
not have any preferred interest by way of trust, escrow, lien or otherwise in
any specific assets of the Company. If the Company shall, in fact, elect to set
aside monies or other assets to meet its obligations hereunder (there being no
obligation to do so), whether in a grantor's trust or otherwise, the same shall,
nevertheless, be regarded as part of the general assets of the Company subject
to the claims of its general creditors, and neither any Participating Director
nor any beneficiary thereof shall have a legal, beneficial or security interest
therein.
11. Change of Control
11.1 A "Change of Control" means any one of the following events:
(1) acquisition by any individual, entity or group (within the meaning
of Section 13(d)(3) or 14(d)(2) of the Exchange Act), (a "Person"), of
beneficial ownership (within the meaning of Rule 13d-3 under the Exchange
Act) which results in the beneficial ownership by such Person of 25% or
more of either
(a) the then outstanding shares of Common Stock of the Company
(the "Outstanding Company Common Stock") or
(b) the combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in the election
of directors (the "Outstanding Company Voting Securities"); provided,
however, that the following acquisitions will not result in a Change
of Control:
(i) an acquisition directly from the Company,
(ii) an acquisition by the Company,
(iii) an acquisition by any employee benefit plan (or
related trust) sponsored or maintained by the Company or any
corporation controlled by the Company,
(iv) an acquisition by any Person who is deemed to have
beneficial ownership of the Common Stock or other voting
securities of the Company owned by the Trust Under the Will of
Clarissa L. Gray ("Trust Person"), provided that such acquisition
does not result in the beneficial ownership by such Person of 32%
or more of either the Outstanding Company Common Stock or the
Outstanding Company Voting Securities, and provided further that
for purposes of this Section 11, a Trust Person shall not be
deemed to have beneficial ownership of the Common Stock or other
voting securities of the Company owned by The Graco Foundation or
any employee benefit plan of the Company, including the Graco
Employee Retirement Plan and the Graco Employee Stock Ownership
Plan,
(v) an acquisition by the Participating Director or any
group that includes the Participating Director, or
(vi) an acquisition by any corporation pursuant to a
transaction that complies with clauses (a), (b) and (c) of
subsection (4) below; and provided, further, that if any Person's
beneficial ownership of the Outstanding Company Common Stock or
Outstanding Company Voting Securities is 25% or more as a result
of a transaction described in clause (i) or (ii) above, and such
Person subsequently acquires beneficial ownership of additional
Outstanding Company Common Stock or Outstanding Company Voting
Securities as a result of a transaction other than that described
in clause (i) or (ii) above, such subsequent acquisition will be
treated as an acquisition that causes such Person to own 25% or
more of the Outstanding Company Common Stock or Outstanding
Company Voting Securities and be deemed a Change of Control; and
provided further, that in the event any acquisition or other
transaction occurs which results in the beneficial ownership of
32% or more of either the Outstanding Company Common Stock or the
Outstanding Company Voting Securities by any Trust Person, the
Incumbent Board, as defined below, may by majority vote increase
the threshold beneficial ownership percentage to a percentage
above 32% for any Trust Person; or
(2) individuals who, as of the date hereof, constitute the Board of
Directors of the Company (the "Incumbent Board") cease for any reason to
constitute at least a majority of said Board; provided, however, that any
individual becoming a director subsequent to the date hereof whose
election, or nomination for election by the Company's shareholders, was
approved by a vote of at least a majority of the directors then comprising
the Incumbent Board will be considered as though such individual were a
member of the Incumbent Board, but excluding, for this purpose, any such
individual whose initial membership on the Board occurs as a result of an
actual or threatened election contest with respect to the election or
removal of directors or other actual or threatened solicitation of proxies
or consents by or on behalf of a Person other than the Board, or
(3) the commencement or announcement of an intention to make a tender
offer or exchange offer, the consummation of which would result in the
beneficial ownership by a Person of 25% or more of the Outstanding Company
Common Stock or Outstanding Company Voting Securities; or
(4) the approval by the shareholders of the Company of a
reorganization, merger, consolidation or statutory exchange of Outstanding
Company Common Stock or Outstanding Company Voting Securities or sale or
other disposition of all or substantially all of the assets of the Company
("Business Combination") or, if consummation of such Business Combination
is subject, at the time of such approval by shareholders, to the consent of
any government or governmental agency, the obtaining of such consent
(either explicitly or implicitly by consummation); excluding, however, such
a Business Combination pursuant to which
(a) all or substantially all of the individuals and entities who
were the beneficial owners of the Outstanding Company Common Stock or
Outstanding Company Voting Securities immediately prior to such
Business Combination beneficially own, directly or indirectly, more
than 80% of, respectively, the then outstanding shares of common stock
and the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of directors, as
the case may be, of the corporation resulting from such Business
Combination (including, without limitation, a corporation that as a
result of such transaction owns the Company or all or substantially
all of the Company's assets either directly or through one or more
subsidiaries) in substantially the same proportions as their
ownership, immediately prior to such Business Combination of the
Outstanding Company Common Stock or Outstanding Company Voting
Securities,
(b) no Person (excluding any employee benefit plan, or related
trust, of the Company or such corporation resulting from such Business
Combination) beneficially owns, directly or indirectly, 25% or more of
the then outstanding shares of common stock of the corporation
resulting from such Business Combination or the combined voting power
of the then outstanding voting securities of such corporation, except
to the extent that such ownership existed prior to the Business
Combination, and
(c) at least a majority of the members of the board of directors
of the corporation resulting from such Business Combination were
members of the Incumbent Board at the time of the execution of the
initial agreement, or of the action of the Board, providing for such
Business Combination; or
(5) approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
11.2 A Change of Control shall not be deemed to have occurred with
respect to a Participating Director if:
(1) the acquisition of the 25% or greater interest referred to in
subparagraph 11.1(1) of this Section 11 is by a group, acting in concert,
that includes the Participating Director or
(2) if at least 25% of the then outstanding common stock or combined
voting power of the then outstanding company voting securities (or voting
equity interests) of the surviving corporation or of any corporation (or
other entity) acquiring all or substantially all of the assets of the
Company shall be beneficially owned, directly or indirectly, immediately
after a reorganization, merger, consolidation, statutory share exchange,
disposition of assets, liquidation or dissolution referred to in
subparagraph 11.1(4) or (5) of this Section by a group, acting in concert,
that includes that Participating Director.
12. Miscellaneous.
12.1 Securities Law and Other Restrictions. Notwithstanding any other
provision of the Plan or any Stock Election or Amended Stock Election
delivered pursuant to the Plan, the Company will not be required to issue
any shares of Common Stock under the Plan and a Participating Director may
not sell, assign, transfer or otherwise dispose of shares of Common Stock
issued pursuant to the Plan, unless:
(a) there is in effect with respect to such shares a registration
statement under the Securities Act of 1933, as amended (the
"Securities Act") and any applicable state securities laws or an
exemption from such registration under the Securities Act and
applicable state securities laws, and
(b) there has been obtained any other consent, approval or permit
from any other regulatory body that the Administrator, in his or her
sole discretion, deems necessary or advisable. The Company may
condition such issuance, sale or transfer upon the receipt of any
representations or agreements from the parties involved, and the
placement of any legends on certificates representing shares of Common
Stock, as may be deemed necessary or advisable by the Company, in
order to comply with such securities law or other restriction.
12.2. Governing Law. The validity, construction, interpretation,
administration and effect of the Plan and any rules, regulations and
actions relating to the Plan will be governed by and construed exclusively
in accordance with the laws of the State of Minnesota.
May 6, 1997
GRACO INC. NONEMPLOYEE DIRECTOR STOCK OPTION PLAN
1. Purpose
The purpose of the Graco Inc. Nonemployee Director Stock Option Plan (the
"Plan") is to secure for Graco Inc. (the "Company") and its shareholders
the benefits of the long-term incentives inherent in increased common stock
ownership by the members of the Board of Directors (the "Board") of the
Company who are not employees of the Company or its Affiliates, by
strengthening the identification of Nonemployee Directors with the
interests of all Graco shareholders.
2. Definitions
The terms defined in this Section 2 shall have the following meanings,
unless the context otherwise requires.
a. Affiliate shall mean any corporation, partnership, joint venture or
other entity in which the Company holds an equity, profit or voting
interest of more than fifty percent (50%).
b. Annual Meeting of Shareholders shall mean the annual meeting of
shareholders of the Company held each calendar year.
c. Code shall mean the Internal Revenue Code of 1986, as amended to date
and as it may be amended from time to time.
d. Company shall mean Graco Inc., a Minnesota corporation.
e. ERISA shall mean the Employee Retirement Income Security Act of 1974,
as amended to date and as it may be amended from time to time.
f. Fair Market Value per Share shall mean as of any day
(1) The fair market value of a share of the Company's common stock is
the last sale price reported on the composite tape by the New
York Stock Exchange on the business day immediately preceding the
date as of which fair market value is being determined or, if
there were no sales of shares of the Company's common stock
reported on the composite tape on such day, on the most recently
preceding day on which there were sales, or
(2) if the shares of the Company's stock are not listed or admitted
to trading on the New York Stock Exchange on the day as of which
the determination is made, the amount determined by the Board or
its delegate to be the fair market value of a share on such day.
g. Nonemployee Director shall mean a member of the Board of Directors of
the Company who is not also an officer or other employee of the
Company or an Affiliate.
h. Nonstatutory Stock Option ("NSO") shall mean a stock option, which
does not qualify for special tax treatment under Sections 421 or 422
of the Internal Revenue Code.
i. Option shall mean either a First Option or an Annual Option granted
pursuant to the provisions of Section 4 of this Plan.
j. Participant shall mean any person who holds an Option granted under
this Plan.
k. Plan shall mean this Graco Inc. Nonemployee Director Stock Option
Plan.
3. Administration
a. The Plan shall be administered by the Board. The Board may, by
resolution, delegate part or all of its administrative powers with
respect to the Plan.
b. The Board shall have all of the powers vested in it by the terms of
the Plan, such powers to include the authority, within the limits
prescribed herein, to establish the form of the agreement embodying
grants of Options made under the Plan.
c. The Board shall, subject to the provisions of the Plan, have the power
to construe the Plan, to determine all questions arising thereunder
and to adopt and amend such rules and regulations for the
administration of the Plan as it may deem desirable, such
administrative decisions of the Board to be final and conclusive.
d. The Board shall have no discretion to select the Nonemployee Directors
to receive Option grants under the Plan, to determine the number of
shares of the Company's common stock subject to the Plan or to each
grant, nor the exercise price of the Options granted pursuant to the
Plan.
e. The Board may authorize any one or more of their number or the
Secretary or any other officer of the Company to execute and deliver
documents on behalf of the Board. The Board hereby authorizes the
Secretary to execute and deliver all documents to be delivered by the
Board pursuant to the Plan.
f. The expenses of the Plan shall be borne by the Company.
4. Automatic Grants to Nonemployee Directors
a. As of the date of adoption of this Plan by the shareholders of the
Company, each Nonemployee Director shall be granted an option to
purchase two thousand (2,000) shares of the Company's common stock
under the Plan (the "First Option"). Thereafter, as of the day upon
which shareholders vote to elect directors at each annual meeting of
the Company, each Nonemployee Director of the Board shall be granted
an additional option to purchase fifteen hundred (1,500) shares of the
Company's common stock under the Plan (the "Annual Option"); provided,
however, that a Nonemployee Director who has not previously been
elected as a member of the Board of Directors of the Company shall
also be granted a First Option; i.e., an option to purchase two
thousand (2,000) shares of the Company's common stock under the Plan,
on the first business day of the Nonemployee Director's election to
the Board, including election by the Board of Directors to fill a
vacancy on the Board.
b. The automatic grants to Nonemployee Directors shall not be subject to
the discretion of any person.
c. Each Option granted under the Plan shall be evidenced by a written
Agreement. Each Agreement shall be subject to, and incorporate, by
reference or otherwise, the applicable terms of this Plan.
d. During the lifetime of a Participant, each Option shall be exercisable
only by the Participant. No Option granted under the Plan shall be
assignable or transferable by the Participant, except by will or by
the laws of descent and distribution.
5. Shares of Stock Subject to the Plan
a. Subject to adjustment as provided in Section 11 of the Plan, an
aggregate of two hundred thousand (200,000) shares of the Company's
common stock, $1.00 par value, shall be available for issuance to
Nonemployee Directors under the Plan. No fractional shares shall be
issued.
b. First Option Grants and Annual Option Grants shall reduce the shares
available for issuance under the Plan by the number of shares subject
thereto. The shares deliverable upon exercise of any First Option
Grant or Annual Option Grant may be made available from authorized but
unissued shares or shares reacquired by the Company, including shares
purchased in the open market or in private transactions. If any
unexercised First Option Grant or Annual Option Grant shall terminate
for any reason, the shares subject to, but not delivered under, such
First Option Grant or Annual Option Grant shall be available for other
First Option Grants or Annual Option Grants.
6. Nonstatutory Options.
a. All Options granted to Nonemployee Directors pursuant to the Plan
shall be NSOs.
7. Exercise Price.
a. The price per share of the shares of the Company's common stock which
may be purchased upon exercise of an Option ("Exercise Price") shall
be one hundred percent (100%) of the Fair Market Value per Share on
the date the Option is granted and shall be payable in full at the
time the Option is exercised as follows:
(1) in cash or by certified check,
(2) by delivery of shares of common stock to the Company which shall
have been owned for at least six (6) months and have a Fair
Market Value per Share on the date of surrender equal to the
exercise price, or
(3) by delivery to the Company of a properly executed exercise notice
together with irrevocable instructions to a broker to promptly
deliver to the Company from sale or loan proceeds the amount
required to pay the exercise price.
b. Such price shall be subject to adjustment as provided in Section 11
hereof.
8. Duration and Vesting of Options.
a. The term of each Option granted to a Nonemployee Director shall be for
ten (10) years from the date of grant, unless terminated earlier
pursuant to the provisions of Section 10 hereof.
b. Each Option shall vest and become exercisable according to the
following schedule:
(1) twenty-five percent (25%) of the total number of shares covered
by the Option shall become exercisable beginning with the first
anniversary date of the grant of the Option;
(2) thereafter twenty-five percent (25%) of the total number of
shares covered by the Option shall become exercisable on each
subsequent anniversary date of the grant of the Option until the
fourth anniversary date of the grant of the Option upon which the
total number of shares covered by Option shall become
exercisable.
9. Change of Control
a. Notwithstanding Section 8b(1) and (2) hereof, all outstanding Options
not yet exercisable shall become immediately and fully exercisable on
the day following a "Change of Control" and shall remain fully
exercisable until either exercised or expiring by their terms. A
"Change of Control" means:
(1) acquisition by any individual, entity, or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act of
1934), (a "Person"), of beneficial ownership (within the meaning
of Rule 13d-3 under the 1934 Act) which results in the beneficial
ownership by such Person of 25% or more of either
(a) the then outstanding shares of common stock of the Company
(the "Outstanding Company Common Stock") or
(b) the combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in the
election of directors (the "Outstanding Company Voting
Securities");
provided, however, that the following acquisitions will not
result in a Change of Control:
(i) an acquisition directly from the Company,
(ii) an acquisition by the Company,
(iii)an acquisition by an employee benefit plan (or related
trust) sponsored or maintained by the Company or any
corporation controlled by the Company,
(iv) an acquisition by any Person who is deemed to have
beneficial ownership of the Company common stock or
other Company voting securities owned by the Trust
Under the Will of Clarissa L. Gray ("Trust Person"),
provided that such acquisition does not result in the
beneficial ownership by such Person of 32% or more of
either the Outstanding Company Common Stock or the
Outstanding Company Voting Securities, and provided
further that for purposes of this Section 9, a Trust
Person shall not be --- deemed to have beneficial
ownership of the Company common stock or other Company
voting securities owned by The Graco Foundation or any
employee benefit plan of the Company, including,
without limitations, the Graco Employee Retirement Plan
and the Graco Employee Stock Ownership Plan,
(v) an acquisition by the Nonemployee Director or any group
that includes the Nonemployee Director, or
(vi) an acquisition by any corporation pursuant to a
transaction that complies with clauses (a), (b), and
(c) of subsection (4) below; and provided, further,
that if any Person's beneficial ownership of the
Outstanding Company Common Stock or Outstanding Company
Voting Securities is 25% or more as a result of a
transaction described in clause (i) or (ii) above, and
such Person subsequently acquires beneficial ownership
of additional Outstanding Company Common Stock or
Outstanding Company Voting Securities as a result of a
transaction other than that described in clause (i) or
(ii) above, such subsequent acquisition will be treated
as an acquisition that causes such Person to own 25% or
more of the Outstanding Company Common Stock or
Outstanding Company Voting Securities and be deemed a
Change of Control; and provided further, that in the
event any acquisition or other transaction occurs which
results in the beneficial ownership of 32% or more of
either the Outstanding Company Common Stock or the
Outstanding Company Voting Securities by any Trust
Person, the Incumbent Board may by majority vote
increase the threshold beneficial ownership percentage
to a percentage above 32% for any Trust Person; or
(2) Individuals who, as of the date hereof, constitute the Board of
Directors of the Company (the "Incumbent Board") cease for any
reason to constitute at least a majority of said Board; provided,
however, that any individual becoming a director subsequent to
the date hereof whose election, or nomination for election by the
Company's shareholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board
will be considered as though such individual were a member of the
Incumbent Board, but excluding, for this purpose, any such
individual whose initial membership on the Board occurs as a
result of an actual or threatened election contest with respect
to the election or removal of directors or other actual or
threatened solicitation of proxies or consents by or on behalf of
a Person other than the Board; or
(3) The commencement or announcement of an intention to make a tender
offer or exchange offer, the consummation of which would result
in the beneficial ownership by a Person of 25% or more of the
Outstanding Company Common Stock or Outstanding Company Voting
Securities; or
(4) The approval by the shareholders of the Company of a
reorganization, merger, consolidation, or statutory exchange of
Outstanding Company Common Stock or Outstanding Company Voting
Securities or sale or other disposition of all or substantially
all of the assets of the Company ("Business Combination") or, if
consummation of such Business Combination is subject, at the time
of such approval by stockholders, to the consent of any
government or governmental agency, the obtaining of such consent
(either explicitly or implicitly by consummation) excluding,
however, such a Business combination pursuant to which
(a) all or substantially all of the individuals and entities who
were the beneficial owners of the Outstanding Company Common
Stock or Outstanding Company Voting Securities immediately
prior to such Business Combination beneficially own,
directly or indirectly, more than 80% of, respectively, the
then outstanding shares of common stock and the combined
voting power of the then outstanding voting securities
entitled to vote generally in the election of directors, as
the case may be, of the corporation resulting from such
Business Combination (including, without limitation, a
corporation that as a result of such transaction owns the
Company or all or substantially all of the Company's assets
either directly or through one or more subsidiaries) in
substantially the same proportions as their ownership,
immediately prior to such Business Combination of the
Outstanding Company Common Stock or Outstanding Company
Voting Securities,
(b) no Person [excluding any employee benefit plan (or related
trust) of the Company or such corporation resulting from
such Business Combination] beneficially owns, directly or
indirectly, 25% or more of the then outstanding shares of
common stock of the corporation resulting from such Business
Combination or the combined voting power of the then
outstanding voting securities of such corporation except to
the extent that such ownership existed prior to the Business
Combination, and
(c) at least a majority of the members of the board of directors
of the corporation resulting from such Business Combination
were members of the Incumbent Board at the time of the
execution of the initial agreement, or of the action of the
Board, providing for such Business Combination; or
(5) approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
b. A Change of Control shall not be deemed to have occurred with respect
to a Nonemployee Director if:
(1) the acquisition of the 25% or greater interest referred to in
subsection a(1) of this Section 9 is by a group, acting in
concert, that includes the Nonemployee Director or
(2) if at least 25% of the then outstanding common stock or combined
voting power of the then outstanding company voting securities
(or voting equity interests) of the surviving corporation or of
any corporation (or other entity) acquiring all or substantially
all of the assets of the Company shall be beneficially owned,
directly or indirectly, immediately after a reorganization,
merger, consolidation, statutory share exchange, disposition of
assets, liquidation or dissolution referred to in subsections (4)
or (5) of this section by a group, acting in concert, that
includes that Nonemployee Director.
10. Effect of Termination of Membership on the Board.
a. The right to exercise an Option granted to a Nonemployee Director
shall be limited as follows, provided the actual date of exercise is
in no event after the expiration of the term of the Option:
(1) If a Nonemployee Director ceases being a director of the Company
for any reason other than the reasons identified in subparagraph
(2) of this Section 10, the Nonemployee Director shall have the right
to exercise the Options as follows, subject to the condition that
no Option shall be exercisable after the expiration of the term
of the Option:
(a) If the Nonemployee Director was a member of the Board of
Directors of the Company for five (5) or more years, all
outstanding Options become immediately exercisable upon the
date the Nonemployee Director ceases being a director. The
Nonemployee Director may exercise the Options for a period
of thirty-six months (36) from the date the Nonemployee
Director ceased being a director, provided that if the
Nonemployee Director dies before the thirty-six (36) month
period has expired, the Options may be exercised by the
Nonemployee Director's legal representative or any person
who acquires the right to exercise an Option by reason of
the Nonemployee Director's death for a period of twelve (12)
months from the date of the Nonemployee Director's death.
(b) If the Nonemployee Director was a member of the Board of
Directors of the Company for less than five (5) years, the
Nonemployee Director may exercise the Options, to the extent
they were exercisable at the date the Nonemployee Director
ceases being a member of the Board, for a period of thirty
(30) days following the date the Nonemployee Director ceased
being a director, provided that, if the Nonemployee Director
dies before the thirty (30) day period has expired, the
Options may be exercised by the Nonemployee Director's legal
representative, or any person who acquires the right to
exercise an Option by reason of the Nonemployee Director's
death, for a period of twelve (12) months from the date of
the Nonemployee Director's death.
(c) If the Nonemployee Director dies while a member of the
Board, the Options, to the extent exercisable by the
Nonemployee Director at the date of death, may be exercised
by the Nonemployee Director's legal representative, or any
person who acquires the right to exercise an Option by
reason of the Nonemployee Director's death, for a period of
twelve (12) months from the date of the Nonemployee
Director's death.
(d) In the event any Option is exercised by the executors,
administrators, legatees, or distributees of the estate of a
deceased optionee, the Company shall be under no obligation
to issue stock thereunder unless and until the Company is
satisfied that the person or persons exercising the Option
are the duly appointed legal representatives of the deceased
optionee's estate or the proper legatees or distributees
thereof.
(2) If a Nonemployee Director ceases being a director of the Company
due to an act of
(a) fraud or intentional misrepresentation or
(b) embezzlement, misappropriation or conversion of assets or
opportunities of the Company or any Affiliate of the Company
or
(c) any other gross or willful misconduct as determined by the
Board, in its sole and conclusive discretion, all Options
granted to such Nonemployee Director shall immediately be
forfeited as of the date of the misconduct.
11. Adjustments and Changes in the Stock
a. If there is any change in the common stock of the Company by reason of
any stock dividend, stock split, spin-off, split-up, merger,
consolidation, recapitalization, reclassification, combination or
exchange of shares, or any other similar corporate event, the
aggregate number of shares available under the Plan, the number and
the price of shares of common stock subject to outstanding Options and
the number of shares referenced by the terms, "First Option" and
"Annual Option", respectively, in Section 4a hereof, shall be
appropriately adjusted automatically.
b. No right to purchase fractional shares shall result from any
adjustment in Options pursuant to this Section 11. In case of any such
adjustment, the shares subject to the Option shall be rounded down to
the nearest whole share.
c. Notice of any adjustment shall be given by the Company to each holder
of any Option which shall have been so adjusted and such adjustment
(whether or not such notice is given) shall be effective and binding
for all purposes of the Plan.
12. Effective Date of the Plan
a. The Plan shall become effective on the date it is approved by the
shareholders of the Company.
b. Any amendment to the Plan shall become effective when adopted by the
Board, unless specified otherwise, but no Option granted under any
increase in shares authorized to be issued under this Plan shall be
exercisable until the increase is approved in the manner prescribed in
Section 13 of this Plan.
13. Amendment of the Plan
a. The Board of Directors may amend, suspend or terminate the Plan at any
time, but without shareholder approval, no amendment shall materially
increase the maximum number of shares which may be issued under the
Plan (other than adjustments pursuant to Section 11 hereof),
materially increase the benefits accruing to Participants under the
Plan, materially modify the requirements as to eligibility for
participation or extend the term of the Plan. Approval of the
shareholders may be obtained, at a meeting of shareholders duly called
and held, by the affirmative vote of a majority of the holders of the
Company's voting stock who are present or represented by proxy and are
entitled to vote on the Plan.
b. It is intended that the Plan meet the requirements of Rule 16b-3 or
any successor thereto promulgated by the Securities and Exchange
Commission under the Securities Exchange Act of 1934, as amended,
including any applicable requirements regarding shareholder approval.
Amendments to the Plan shall be subject to approval by the
shareholders of the Company to the extent determined by the Board of
Directors to be necessary to satisfy such requirements as in effect
from time to time.
c. Rights and obligations under any Option granted before any amendment
of this Plan shall not be materially and adversely affected by
amendment of the Plan, except with the consent of the person who holds
the Option, which consent may be obtained in any manner that the Board
or its delegate deems appropriate.
d. The Board of Directors may not amend the provisions of Sections 4, 6,
7, 8 and 10 hereof more than once every six (6) months, other than to
comport with changes in the Code, ERISA, or the rules thereunder.
14. Termination of the Plan
a. The Plan, unless sooner terminated, shall terminate at the end of ten
(10) years from the date the Plan is approved by the shareholders of
the Company. No Option may be granted under the Plan while the Plan is
suspended or after it is terminated.
b. Rights or obligations under any Option granted while the Plan is in
effect, including the maximum duration and vesting provisions, shall
not be altered or impaired by suspension or termination of the Plan,
except with the consent of the person who holds the Option, which
consent may be obtained in any manner that the Board or its delegate
deems appropriate.
15. Registration, Listing, Qualification, Approval of Stock and Options
a. If the Board shall determine, in its discretion, that it is necessary
or desirable that the shares of common stock subject to any Option
(1) be registered, listed or qualified on any securities exchange or
under any applicable law, or
(2) be approved by any governmental regulatory body, or
(3) approved by the shareholders of the Company, as a condition of,
or in connection with, the granting of such Option, or the
issuance or purchase of shares upon exercise of the Option, the
Option may not be exercised in whole or in part unless such
registration, listing, qualification or approval has been
obtained free of any condition not acceptable to the Board of
Directors.
16. No Right to Option or as Shareholder
a. No Nonemployee Director or other person shall have any claim or right
to be granted an Option under the Plan, except as expressly provided
herein. Neither the Plan nor any action taken hereunder shall be
construed as giving any Nonemployee Director any right to be retained
in the service of the Company.
b. Neither a Nonemployee Director, the Nonemployee Director's legal
representative, nor any person who acquires the right to exercise an
Option by reason of the Nonemployee Director's death shall be, or have
any of the rights or privileges of, a shareholder of the Company in
respect of any shares of common stock receivable upon the exercise of
any Option granted under this Plan, in whole or in part, unless and
until certificates for such shares shall have been issued.
17. Governing Law
The validity, construction, interpretation, administration and effect of
this Plan and any rules, regulations and actions relating to this Plan will
be governed by and construed exclusively in accordance with the laws of the
State of Minnesota.
AMENDMENT TO
STOCK OPTION AGREEMENT
(NON-ISO)
This Amendment made this 14th day of April, 1997, by and between Graco
Inc., a Minnesota corporation (the "Company") and ____________________ (the
"Employee").
Whereas, the Employee and the Company entered into a Stock Option Agreement
(NON-ISO) on _______ ("Agreement") which Agreement granted stock options to the
Employee under the Graco Inc. Long-Term Stock Incentive Plan;
Whereas, the parties to the Agreement wish to amend it to incorporate
language which will accelerate the vesting of all unvested stock options in the
event of a change in control as defined in said amendment;
Now, therefore, the parties hereby mutually agree, for One Dollar and other
good and valuable consideration, to amend the Agreement by inserting the
attached Section 6, entitled "Change of Control" into the Agreement after
Section 5 entitled "Payment of Withholding Taxes" and by renumbering Section 6
and 7 in the Agreement as Section 7 and 8, respectively.
In Witness Whereof, the parties have caused this Amendment to be executed
as of the day and year first above written.
GRACO INC.
By
--------------------------
Its: President and CEO
EMPLOYEE
--------------------------
--------------------------
Print Full Name of Employee
NEW PARAGRAPH FOR STOCK OPTION AGREEMENTS inserted after Paragraph 5
6. Change of Control
A. Notwithstanding Section 2(a) hereof, the entire option shall become
immediately and fully exercisable on the day following a "Change of
Control" and shall remain fully exercisable until either exercised or
expiring by its terms. A "Change of Control" means:
(1) acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act of
1934), (a "Person"), of beneficial ownership (within the meaning
of Rule 13d-3 under the 1934 Act) which results in the beneficial
ownership by such Person of 25% or more of either
(a) the then outstanding shares of Common Stock of the Company
(the "Outstanding Company Common Stock") or
(b) the combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in the
election of directors (the "Outstanding Company Voting
Securities");
provided, however, that the following acquisitions will not
result in a Change of Control:
(i) an acquisition directly from the Company,
(ii) an acquisition by the Company,
(iii)an acquisition by any employee benefit plan (or
related trust) sponsored or maintained by the Company
or any corporation controlled by the Company,
(iv) an acquisition by any Person who is deemed to have
beneficial ownership of the Common Shares or other
voting securities of the Company owned by the Trust
Under the Will of Clarissa L. Gray ("Trust Person"),
provided that such acquisition does not result in the
beneficial ownership by such Person of 32% or more of
either the Outstanding Company Common Stock or the
Outstanding Company Voting Securities, and provided
further that for purposes of this Section 6, a Trust
Person shall not be deemed to have beneficial ownership
of the Common Shares or other voting securities of the
Company owned by The Graco Foundation or any employee
benefit plan of the Company, including the Graco
Employee Retirement Plan and the Graco Employee Stock
Ownership Plan,
(v) an acquisition by the Employee or any group that
includes the Employee, or
(vi) an acquisition by any corporation pursuant to a
transaction that complies with clauses (a), (b) and (c)
of subsection (4) below; and
provided, further, that if any Person's beneficial ownership of
the Outstanding Company Common Stock or Outstanding Company
Voting Securities is 25% or more as a result of a transaction
described in clause (i) or (ii) above, and such Person
subsequently acquires beneficial ownership of additional
Outstanding Company Common Stock or Outstanding Company Voting
Securities as a result of a transaction other than that described
in clause (i) or (ii) above, such subsequent acquisition will be
treated as an acquisition that causes such Person to own 25% or
more of the Outstanding Company Common Stock or Outstanding
Company Voting Securities and be deemed a Change of Control; and
provided further, that in the event any acquisition or other
transaction occurs which results in the beneficial ownership of
32% or more of either the Outstanding Company Common Stock or the
Outstanding Company Voting Securities by any Trust Person, the
Incumbent Board may by majority vote increase the threshold
beneficial ownership percentage to a percentage above 32% for any
Trust Person; or
(2) Individuals who, as of the date hereof, constitute the Board of
Directors of the Company (the "Incumbent Board") cease for any
reason to constitute at least a majority of said Board; provided,
however, that any individual becoming a director subsequent to
the date hereof whose election, or nomination for election by the
Company's shareholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board
will be considered as though such individual were a member of the
Incumbent Board, but excluding, for this purpose, any such
individual whose initial membership on the Board occurs as a
result of an actual or threatened election contest with respect
to the election or removal of directors or other actual or
threatened solicitation of proxies or consents by or on behalf of
a Person other than the Board, or
(3) the commencement or announcement of an intention to make a tender
offer or exchange offer, the consummation of which would result
in the beneficial ownership by a Person of 25% or more of the
Outstanding Company Common Stock or Outstanding Company Voting
Securities.
(4) The approval by the shareholders of the Company of a
reorganization, merger, consolidation or statutory exchange of
Outstanding Company Common Stock or Outstanding Company Voting
Securities or sale or other disposition of all or substantially
all of the assets of the Company ("Business Combination") or, if
consummation of such Business Combination is subject, at the time
of such approval by stockholders, to the consent of any
government or governmental agency, the obtaining of such consent
(either explicitly or implicitly by consummation); excluding,
however, such a Business Combination pursuant to which
(a) all or substantially all of the individuals and entities who
were the beneficial owners of the Outstanding Company Common
Stock or Outstanding Company Voting Securities immediately
prior to such Business Combination beneficially own,
directly or indirectly, more than 80% of, respectively, the
then outstanding shares of common stock and the combined
voting power of the then outstanding voting securities
entitled to vote generally in the election of directors, as
the case may be, of the corporation resulting from such
Business Combination (including, without limitation, a
corporation that as a result of such transaction owns the
Company or all or substantially all of the Company's assets
either directly or through one or more subsidiaries) in
substantially the same proportions as their ownership,
immediately prior to such Business Combination of the
Outstanding Company Common Stock or Outstanding Company
Voting Securities,
(b) no Person [excluding any employee benefit plan (or related
trust) of the Company or such corporation resulting from
such Business Combination] beneficially owns, directly or
indirectly, 25% or more of the then outstanding shares of
common stock of the corporation resulting from such Business
Combination or the combined voting power of the then
outstanding voting securities of such corporation except to
the extent that such ownership existed prior to the Business
Combination, and
(c) at least a majority of the members of the board of directors
of the corporation resulting from such Business Combination
were members of the Incumbent Board at the time of the
execution of the initial agreement, or of the action of the
Board, providing for such Business Combination; or
(5) approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
B. A Change of Control shall not be deemed to have occurred with respect
to an Employee if:
(1) the acquisition of the 25% or greater interest referred to in
subparagraph A.(1) of this Section 6 is by a group, acting in
concert, that includes the Employee or
(2) if at least 25% of the then outstanding common stock or combined
voting power of the then outstanding company voting securities
(or voting equity interests) of the surviving corporation or of
any corporation (or other entity) acquiring all or substantially
all of the assets of the Company shall be beneficially owned,
directly or indirectly, immediately after a reorganization,
merger, consolidation, statutory share exchange, disposition of
assets, liquidation or dissolution referred to in subparagraph
(4) and (5) of this Section by a group, acting in concert, that
includes that Employee.
C. In the event of a Change of Control, a Employee shall vest in all
shares of Restricted Stock and Restricted Stock Units, effective as of
the date of such Change of Control.
AMENDMENT TO
STOCK OPTION AGREEMENT
(NON-ISO)
This Amendment made this 14th day of April, 1997, by and between Graco
Inc., a Minnesota corporation (the "Company") and ____________________ (the
"Employee").
Whereas, the Employee and the Company entered into a Stock Option Agreement
(NON-ISO) on _______ ("Agreement") which Agreement granted stock options to the
Employee under the Graco Inc. Long-Term Stock Incentive Plan;
Whereas, the parties to the Agreement wish to amend it to incorporate
language which will accelerate the vesting of all unvested stock options in the
event of a change in control as defined in said amendment;
Now, therefore, the parties hereby mutually agree, for One Dollar and other
good and valuable consideration, to amend the Agreement by inserting the
attached Section 6, entitled "Change of Control" into the Agreement after
Section 5 entitled "Payment of Withholding Taxes" and by renumbering Section 6
and 7 in the Agreement as Section 7 and 8, respectively.
In Witness Whereof, the parties have caused this Amendment to be executed
as of the day and year first above written.
GRACO INC.
By
--------------------------
Its: President and CEO
EMPLOYEE
--------------------------
--------------------------
Print Full Name of Employee
NEW PARAGRAPH FOR STOCK OPTION AGREEMENTS inserted after Paragraph 5
6. Change of Control
A. Notwithstanding Section 2(a) hereof, the entire option shall become
immediately and fully exercisable on the day following a "Change of
Control" and shall remain fully exercisable until either exercised or
expiring by its terms. A "Change of Control" means:
(1) acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act of
1934), (a "Person"), of beneficial ownership (within the meaning
of Rule 13d-3 under the 1934 Act) which results in the beneficial
ownership by such Person of 25% or more of either
(a) the then outstanding shares of Common Stock of the Company
(the "Outstanding Company Common Stock") or
(b) the combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in the
election of directors (the "Outstanding Company Voting
Securities");
provided, however, that the following acquisitions will not
result in a Change of Control:
(i) an acquisition directly from the Company,
(ii) an acquisition by the Company,
(iii)an acquisition by any employee benefit plan (or
related trust) sponsored or maintained by the Company
or any corporation controlled by the Company,
(iv) an acquisition by any Person who is deemed to have
beneficial ownership of the Common Shares or other
voting securities of the Company owned by the Trust
Under the Will of Clarissa L. Gray ("Trust Person"),
provided that such acquisition does not result in the
beneficial ownership by such Person of 32% or more of
either the Outstanding Company Common Stock or the
Outstanding Company Voting Securities, and provided
further that for purposes of this Section 6, a Trust
Person shall not be deemed to have beneficial ownership
of the Common Shares or other voting securities of the
Company owned by The Graco Foundation or any employee
benefit plan of the Company, including the Graco
Employee Retirement Plan and the Graco Employee Stock
Ownership Plan,
(v) an acquisition by the Employee or any group that
includes the Employee, or
(vi) an acquisition by any corporation pursuant to a
transaction that complies with clauses (a), (b) and (c)
of subsection (4) below; and
provided, further, that if any Person's beneficial ownership of
the Outstanding Company Common Stock or Outstanding Company
Voting Securities is 25% or more as a result of a transaction
described in clause (i) or (ii) above, and such Person
subsequently acquires beneficial ownership of additional
Outstanding Company Common Stock or Outstanding Company Voting
Securities as a result of a transaction other than that described
in clause (i) or (ii) above, such subsequent acquisition will be
treated as an acquisition that causes such Person to own 25% or
more of the Outstanding Company Common Stock or Outstanding
Company Voting Securities and be deemed a Change of Control; and
provided further, that in the event any acquisition or other
transaction occurs which results in the beneficial ownership of
32% or more of either the Outstanding Company Common Stock or the
Outstanding Company Voting Securities by any Trust Person, the
Incumbent Board may by majority vote increase the threshold
beneficial ownership percentage to a percentage above 32% for any
Trust Person; or
(2) Individuals who, as of the date hereof, constitute the Board of
Directors of the Company (the "Incumbent Board") cease for any
reason to constitute at least a majority of said Board; provided,
however, that any individual becoming a director subsequent to
the date hereof whose election, or nomination for election by the
Company's shareholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board
will be considered as though such individual were a member of the
Incumbent Board, but excluding, for this purpose, any such
individual whose initial membership on the Board occurs as a
result of an actual or threatened election contest with respect
to the election or removal of directors or other actual or
threatened solicitation of proxies or consents by or on behalf of
a Person other than the Board, or
(3) the commencement or announcement of an intention to make a tender
offer or exchange offer, the consummation of which would result
in the beneficial ownership by a Person of 25% or more of the
Outstanding Company Common Stock or Outstanding Company Voting
Securities.
(4) The approval by the shareholders of the Company of a
reorganization, merger, consolidation or statutory exchange of
Outstanding Company Common Stock or Outstanding Company Voting
Securities or sale or other disposition of all or substantially
all of the assets of the Company ("Business Combination") or, if
consummation of such Business Combination is subject, at the time
of such approval by stockholders, to the consent of any
government or governmental agency, the obtaining of such consent
(either explicitly or implicitly by consummation); excluding,
however, such a Business Combination pursuant to which
(a) all or substantially all of the individuals and entities who
were the beneficial owners of the Outstanding Company Common
Stock or Outstanding Company Voting Securities immediately
prior to such Business Combination beneficially own,
directly or indirectly, more than 80% of, respectively, the
then outstanding shares of common stock and the combined
voting power of the then outstanding voting securities
entitled to vote generally in the election of directors, as
the case may be, of the corporation resulting from such
Business Combination (including, without limitation, a
corporation that as a result of such transaction owns the
Company or all or substantially all of the Company's assets
either directly or through one or more subsidiaries) in
substantially the same proportions as their ownership,
immediately prior to such Business Combination of the
Outstanding Company Common Stock or Outstanding Company
Voting Securities,
(b) no Person [excluding any employee benefit plan (or related
trust) of the Company or such corporation resulting from
such Business Combination] beneficially owns, directly or
indirectly, 25% or more of the then outstanding shares of
common stock of the corporation resulting from such Business
Combination or the combined voting power of the then
outstanding voting securities of such corporation except to
the extent that such ownership existed prior to the Business
Combination, and
(c) at least a majority of the members of the board of directors
of the corporation resulting from such Business Combination
were members of the Incumbent Board at the time of the
execution of the initial agreement, or of the action of the
Board, providing for such Business Combination; or
(5) approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
B. A Change of Control shall not be deemed to have occurred with respect
to an Employee if:
(1) the acquisition of the 25% or greater interest referred to in
subparagraph A.(1) of this Section 6 is by a group, acting in
concert, that includes the Employee or
(2) if at least 25% of the then outstanding common stock or combined
voting power of the then outstanding company voting securities
(or voting equity interests) of the surviving corporation or of
any corporation (or other entity) acquiring all or substantially
all of the assets of the Company shall be beneficially owned,
directly or indirectly, immediately after a reorganization,
merger, consolidation, statutory share exchange, disposition of
assets, liquidation or dissolution referred to in subparagraph
(4) and (5) of this Section by a group, acting in concert, that
includes that Employee.
C. In the event of a Change of Control, a Employee shall vest in all
shares of Restricted Stock and Restricted Stock Units, effective as of
the date of such Change of Control.
AMENDMENT TO
STOCK OPTION AGREEMENT
(NON-ISO)
This Amendment made this 14th day of April, 1997, by and between Graco
Inc., a Minnesota corporation (the "Company") and ____________________ (the
"Employee").
Whereas, the Employee and the Company entered into a Stock Option Agreement
(NON-ISO) on _______ ("Agreement") which Agreement granted stock options to the
Employee under the Graco Inc. Long-Term Stock Incentive Plan;
Whereas, the parties to the Agreement wish to amend it to incorporate
language which will accelerate the vesting of all unvested stock options in the
event of a change in control as defined in said amendment;
Now, therefore, the parties hereby mutually agree, for One Dollar and other
good and valuable consideration, to amend the Agreement by inserting the
attached Section 6, entitled "Change of Control" into the Agreement after
Section 5 entitled "Payment of Withholding Taxes" and by renumbering Section 6
and 7 in the Agreement as Section 7 and 8, respectively.
In Witness Whereof, the parties have caused this Amendment to be executed
as of the day and year first above written.
GRACO INC.
By
--------------------------
Its: President and CEO
EMPLOYEE
--------------------------
--------------------------
Print Full Name of Employee
NEW PARAGRAPH FOR STOCK OPTION AGREEMENTS inserted after Paragraph 5
6. Change of Control
A. Notwithstanding Section 2(a) hereof, the entire option shall become
immediately and fully exercisable on the day following a "Change of
Control" and shall remain fully exercisable until either exercised or
expiring by its terms. A "Change of Control" means:
(1) acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act of
1934), (a "Person"), of beneficial ownership (within the meaning
of Rule 13d-3 under the 1934 Act) which results in the beneficial
ownership by such Person of 25% or more of either
(a) the then outstanding shares of Common Stock of the Company
(the "Outstanding Company Common Stock") or
(b) the combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in the
election of directors (the "Outstanding Company Voting
Securities");
provided, however, that the following acquisitions will not
result in a Change of Control:
(i) an acquisition directly from the Company,
(ii) an acquisition by the Company,
(iii)an acquisition by any employee benefit plan (or
related trust) sponsored or maintained by the Company
or any corporation controlled by the Company,
(iv) an acquisition by any Person who is deemed to have
beneficial ownership of the Common Shares or other
voting securities of the Company owned by the Trust
Under the Will of Clarissa L. Gray ("Trust Person"),
provided that such acquisition does not result in the
beneficial ownership by such Person of 32% or more of
either the Outstanding Company Common Stock or the
Outstanding Company Voting Securities, and provided
further that for purposes of this Section 6, a Trust
Person shall not be deemed to have beneficial ownership
of the Common Shares or other voting securities of the
Company owned by The Graco Foundation or any employee
benefit plan of the Company, including the Graco
Employee Retirement Plan and the Graco Employee Stock
Ownership Plan,
(v) an acquisition by the Employee or any group that
includes the Employee, or
(vi) an acquisition by any corporation pursuant to a
transaction that complies with clauses (a), (b) and (c)
of subsection (4) below; and
provided, further, that if any Person's beneficial ownership of
the Outstanding Company Common Stock or Outstanding Company
Voting Securities is 25% or more as a result of a transaction
described in clause (i) or (ii) above, and such Person
subsequently acquires beneficial ownership of additional
Outstanding Company Common Stock or Outstanding Company Voting
Securities as a result of a transaction other than that described
in clause (i) or (ii) above, such subsequent acquisition will be
treated as an acquisition that causes such Person to own 25% or
more of the Outstanding Company Common Stock or Outstanding
Company Voting Securities and be deemed a Change of Control; and
provided further, that in the event any acquisition or other
transaction occurs which results in the beneficial ownership of
32% or more of either the Outstanding Company Common Stock or the
Outstanding Company Voting Securities by any Trust Person, the
Incumbent Board may by majority vote increase the threshold
beneficial ownership percentage to a percentage above 32% for any
Trust Person; or
(2) Individuals who, as of the date hereof, constitute the Board of
Directors of the Company (the "Incumbent Board") cease for any
reason to constitute at least a majority of said Board; provided,
however, that any individual becoming a director subsequent to
the date hereof whose election, or nomination for election by the
Company's shareholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board
will be considered as though such individual were a member of the
Incumbent Board, but excluding, for this purpose, any such
individual whose initial membership on the Board occurs as a
result of an actual or threatened election contest with respect
to the election or removal of directors or other actual or
threatened solicitation of proxies or consents by or on behalf of
a Person other than the Board, or
(3) the commencement or announcement of an intention to make a tender
offer or exchange offer, the consummation of which would result
in the beneficial ownership by a Person of 25% or more of the
Outstanding Company Common Stock or Outstanding Company Voting
Securities.
(4) The approval by the shareholders of the Company of a
reorganization, merger, consolidation or statutory exchange of
Outstanding Company Common Stock or Outstanding Company Voting
Securities or sale or other disposition of all or substantially
all of the assets of the Company ("Business Combination") or, if
consummation of such Business Combination is subject, at the time
of such approval by stockholders, to the consent of any
government or governmental agency, the obtaining of such consent
(either explicitly or implicitly by consummation); excluding,
however, such a Business Combination pursuant to which
(a) all or substantially all of the individuals and entities who
were the beneficial owners of the Outstanding Company Common
Stock or Outstanding Company Voting Securities immediately
prior to such Business Combination beneficially own,
directly or indirectly, more than 80% of, respectively, the
then outstanding shares of common stock and the combined
voting power of the then outstanding voting securities
entitled to vote generally in the election of directors, as
the case may be, of the corporation resulting from such
Business Combination (including, without limitation, a
corporation that as a result of such transaction owns the
Company or all or substantially all of the Company's assets
either directly or through one or more subsidiaries) in
substantially the same proportions as their ownership,
immediately prior to such Business Combination of the
Outstanding Company Common Stock or Outstanding Company
Voting Securities,
(b) no Person [excluding any employee benefit plan (or related
trust) of the Company or such corporation resulting from
such Business Combination] beneficially owns, directly or
indirectly, 25% or more of the then outstanding shares of
common stock of the corporation resulting from such Business
Combination or the combined voting power of the then
outstanding voting securities of such corporation except to
the extent that such ownership existed prior to the Business
Combination, and
(c) at least a majority of the members of the board of directors
of the corporation resulting from such Business Combination
were members of the Incumbent Board at the time of the
execution of the initial agreement, or of the action of the
Board, providing for such Business Combination; or
(5) approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
B. A Change of Control shall not be deemed to have occurred with respect
to an Employee if:
(1) the acquisition of the 25% or greater interest referred to in
subparagraph A.(1) of this Section 6 is by a group, acting in
concert, that includes the Employee or
(2) if at least 25% of the then outstanding common stock or combined
voting power of the then outstanding company voting securities
(or voting equity interests) of the surviving corporation or of
any corporation (or other entity) acquiring all or substantially
all of the assets of the Company shall be beneficially owned,
directly or indirectly, immediately after a reorganization,
merger, consolidation, statutory share exchange, disposition of
assets, liquidation or dissolution referred to in subparagraph
(4) and (5) of this Section by a group, acting in concert, that
includes that Employee.
C. In the event of a Change of Control, a Employee shall vest in all
shares of Restricted Stock and Restricted Stock Units, effective as of
the date of such Change of Control.
STOCK OPTION AGREEMENT
(NON-ISO)
THIS AGREEMENT, made this day of _______________________, 199__, by and
between Graco Inc., a Minnesota corporation (the "Company") and (the
"Employee").
WITNESSETH THAT:
WHEREAS, the Company pursuant to it's Long-Term Incentive Stock Plan wishes
to grant this stock option to Employee;
NOW THEREFORE, in consideration of the premises and of the mutual covenants
herein contained, the parties hereto hereby agree as follows:
1. Grant of Option
The Company hereby grants to Employee, the right and option
(hereinafter called the "option") to purchase all or any part of an
aggregate of ________ Common Shares, par value $1.00 per share, at the
price of $________ per share on the terms and conditions set forth
herein.
2. Duration and Exercisability
A. This option may not be exercised by Employee until the expiration
of two (2) years from the date of grant, and this option shall in
all events terminate ten (10) years after the date of grant.
During the first two years from the date of grant of this option,
no portion of this option may be exercised. Thereafter this
option shall become exercisable in four cumulative installments
of 25% as follows:
Total Portion of Option
Date Which is Exercisable
---- --------------------
Two Years after Date of Grant 25%
Three Years after Date of Grant 50%
Four Years after Date of Grant 75%
Five Years after Date of Grant 100%
In the event that Employee does not purchase in any one year the
full number of shares of Common Stock of the Company to which
he/she is entitled under this option, he/she may, subject to the
terms and conditions of Section 3 hereof, purchase such shares of
Common Stock in any subsequent year during the term of this
option.
B. During the lifetime of the Employee, the option shall be
exercisable only by him/her and shall not be assignable or
transferable by him/her otherwise than by will or the laws of
descent and distribution.
3. Effect of Termination of Employment
A. In the event that Employee shall cease to be employed by the
Company or its subsidiaries for any reason other than his/her
gross and willful misconduct, death, retirement (as defined in
Section 3(d) below), or disability (as defined in Section 3(d)
below), Employee shall have the right to exercise the option at
any time within one month after such termination of employment to
the extent of the full number of shares he/she was entitled to
purchase under the option on the date of termination, subject to
the condition that no option shall be exercisable after the
expiration of the term of the option.
B. In the event that Employee shall cease to be employed by the
Company or its subsidiaries by reason of his/her gross and
willful misconduct during the course of his/her employment,
including but not limited to wrongful appropriation of Company
funds or the commission of a felony, the option shall be
terminated as of the date of the misconduct.
C. If the Employee shall die while in the employ of the Company or a
subsidiary or within one month after termination of employment
for any reason other than gross and willful misconduct and shall
not have fully exercised the option, all remaining shares shall
become immediately exercisable and such option may be exercised
at any time within twelve months after his/her death by the
executors or administrators of the Employee or by any person or
persons to whom the option is transferred by will or the
applicable laws of descent and distribution, and subject to the
condition that no option shall be exercisable after the
expiration of the term of the option.
D. If the Employee's termination of employment is due to retirement
(either after attaining age 55 with 10 years of service, or
attaining age 65, or due to disability within the meaning of the
provisions of the Graco Long-Term Disability Plan), all remaining
shares shall become immediately exercisable and the option may be
exercised by the Employee at any time within three years of the
employee's retirement, or in the event of the death of the
Employee within the three-year period after retirement, the
option may be exercised at any time within twelve months after
his/her death by the executors or administrators of the Employee
or by any person or persons to whom the option is transferred by
will or the applicable laws of descent and distribution, to the
extent of the full number of shares he/she was entitled to
purchase under the option on the date of death, and subject to
the condition that no option shall be exercisable after the
expiration of the term of the option.
4. Manner of Exercise
A. The option can be exercised only by Employee or other proper
party within the option period delivering written notice to the
Company at its principal office in Minneapolis, Minnesota,
stating the number of shares as to which the option is being
exercised and, except as provided in Section 4(c), accompanied by
payment-in-full of the option price for all shares designated in
the notice.
B. The Employee may, at Employee's election, pay the option price
either by check (bank check, certified check, or personal check)
or by delivering to the Company for cancellation Common Shares of
the Company with a fair market value equal to the option price.
For these purposes, the fair market value of the Company's Common
Shares shall be the closing price of the Common Shares on the
date of exercise on the New York Stock Exchange (the "NYSE") or
on the principal national securities exchange on which the shares
are traded if the shares are not then traded on the NYSE. If
there is not a quotation available for such day, then the closing
price on the next preceding day for which such a quotation exists
shall be determinative of fair market value. If the shares are
not then traded on an exchange, the fair market value shall be
the average of the closing bid and asked prices of the Common
Shares as reported by the National Association of Securities
Dealers Automated Quotation System. If the Common Shares are not
then traded on NASDAQ or on an exchange, then the fair market
value shall be determined in such manner as the Company shall
deem reasonable.
C. The Employee may, with the consent of the Company, pay the option
price by arranging for the immediate sale of some or all of the
shares issued upon exercise of the option by a securities dealer
and the payment to the Company by the securities dealer of the
option exercise price.
5. Payment of Withholding Taxes
Upon exercise of any portion of this option, Employee shall pay to the
Company an amount sufficient to satisfy any federal, state, or local
withholding tax requirements which arise as a result of the exercise
of the option or provide the Company with satisfactory indemnification
for such payment.
6. Change of Control
A. Notwithstanding Section 2(a) hereof, the entire option shall
become immediately and fully exercisable on the day following a
"Change of Control" and shall remain fully exercisable until
either exercised or expiring by its terms. A "Change of Control"
means:
(1) acquisition by any individual, entity, or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act
of 1934), (a "Person"), of beneficial ownership (within the
meaning of Rule 13d-3 under the 1934 Act) which results in
the beneficial ownership by such Person of 25% or more of
either
(a) the then outstanding shares of Common Stock of the
Company (the "Outstanding Company Common Stock") or
(b) the combined voting power of the then outstanding
voting securities of the Company entitled to vote
generally in the election of directors (the
"Outstanding Company Voting Securities");
provided, however, that the following acquisitions will not
result in a Change of Control:
(i) an acquisition directly from the Company,
(ii) an acquisition by the Company,
(iii)an acquisition by an employee benefit plan (or
related trust) sponsored or maintained by the
Company or any corporation controlled by the
Company,
(iv) an acquisition by any Person who is deemed to have
beneficial ownership of the Company common stock
or other Company voting securities owned by the
Trust Under the Will of Clarissa L. Gray ("Trust
Person"), provided that such acquisition does not
result in the beneficial ownership by such Person
of 32% or more of either the Outstanding Company
Common Stock or the Outstanding Company Voting
Securities, and provided further that for purposes
of this Section 6, a Trust Person shall not be
deemed to have beneficial ownership of the Company
common stock or other Company voting securities
owned by The Graco Foundation or any employee
benefit plan of the Company, including, without
limitations, the Graco Employee Retirement Plan
and the Graco Employee Stock Ownership Plan,
(v) an acquisition by the Employee or any group that
includes the Employee, or
(vi) an acquisition by any corporation pursuant to a
transaction that complies with clauses (a), (b),
and (c) of subsection (4) below; and
provided, further, that if any Person's beneficial ownership
of the Outstanding Company Common Stock or Outstanding
Company Voting Securities is 25% or more as a result of a
transaction described in clause (i) or (ii) above, and such
Person subsequently acquires beneficial ownership of
additional Outstanding Company Common Stock or Outstanding
Company Voting Securities as a result of a transaction other
than that described in clause (i) or (ii) above, such
subsequent acquisition will be treated as an acquisition
that causes such Person to own 25% or more of the
Outstanding Company Common Stock or Outstanding Company
Voting Securities and be deemed a Change of Control; and
provided further, that in the event any acquisition or other
transaction occurs which results in the beneficial ownership
of 32% or more of either the Outstanding Company Common
Stock or the Outstanding Company Voting Securities by any
Trust Person, the Incumbent Board may by majority vote
increase the threshold beneficial ownership percentage to a
percentage above 32% for any Trust Person; or
(2) Individuals who, as of the date hereof, constitute the Board
of Directors of the Company (the "Incumbent Board") cease
for any reason to constitute at least a majority of said
Board; provided, however, that any individual becoming a
director subsequent to the date hereof whose election, or
nomination for election by the Company's shareholders, was
approved by a vote of at least a majority of the directors
then comprising the Incumbent Board will be considered as
though such individual were a member of the Incumbent Board,
but excluding, for this purpose, any such individual whose
initial membership on the Board occurs as a result of an
actual or threatened election contest with respect to the
election or removal of directors or other actual or
threatened solicitation of proxies or consents by or on
behalf of a Person other than the Board; or
(3) The commencement or announcement of an intention to make a
tender offer or exchange offer, the consummation of which
would result in the beneficial ownership by a Person of 25%
or more of the Outstanding Company Common Stock or
Outstanding Company Voting Securities; or
(4) The approval by the shareholders of the Company of a
reorganization, merger, consolidation, or statutory exchange
of Outstanding Company Common Stock or Outstanding Company
Voting Securities or sale or other disposition of all or
substantially all of the assets of the Company ("Business
Combination") or, if consummation of such Business
Combination is subject, at the time of such approval by
stockholders, to the consent of any government or
governmental agency, the obtaining of such consent (either
explicitly or implicitly by consummation) excluding,
however, such a Business combination pursuant to which
(a) all or substantially all of the individuals and
entities who were the beneficial owners of the
Outstanding Company Common Stock or Outstanding Company
Voting Securities immediately prior to such Business
Combination beneficially own, directly or indirectly,
more than 80% of, respectively, the then outstanding
shares of common stock and the combined voting power of
the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may
be, of the corporation resulting from such Business
Combination (including, without limitation, a
corporation that as a result of such transaction owns
the Company or all or substantially all of the
Company's assets either directly or through one or more
subsidiaries) in substantially the same proportions as
their ownership, immediately prior to such Business
Combination of the Outstanding Company Common Stock or
Outstanding Company Voting Securities,
(b) no Person [excluding any employee benefit plan (or
related trust) of the Company or such corporation
resulting from such Business Combination] beneficially
owns, directly or indirectly, 25% or more of the then
outstanding shares of common stock of the corporation
resulting from such Business Combination or the
combined voting power of the then outstanding voting
securities of such corporation except to the extent
that such ownership existed prior to the Business
Combination, and
(c) at least a majority of the members of the board of
directors of the corporation resulting from such
Business Combination were members of the Incumbent
Board at the time of the execution of the initial
agreement, or of the action of the Board, providing for
such Business Combination; or
(5) approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
B. A Change of Control shall not be deemed to have occurred with
respect to an Employee if:
(1) the acquisition of the 25% or greater interest referred to
in subparagraph A.(1) of this Section 6 is by a group,
acting in concert, that includes the Employee or
(2) if at least 25% of the then outstanding common stock or
combined voting power of the then outstanding company voting
securities (or voting equity interests) of the surviving
corporation or of any corporation (or other entity)
acquiring all or substantially all of the assets of the
Company shall be beneficially owned, directly or indirectly,
immediately after a reorganization, merger, consolidation,
statutory share exchange, disposition of assets, liquidation
or dissolution referred to in subsections (4) or (5) of this
section by a group, acting in concert, that includes that
Employee.
7. Adjustments
If Employee exercises all or any portion of the option subsequent to
any change in the number or character of the Common Shares of the
Company (through merger, consolidation, reorganization,
recapitalization, stock dividend, or otherwise), Employee shall then
receive for the aggregate price paid by him/her on such exercise of
the option, the number and type of securities or other consideration
which he/she would have received if such option had been exercised
prior to the event changing the number or character of outstanding
shares.
8. Miscellaneous
A. This option is issued pursuant to the Company's Long-Term
Incentive Stock Plan and is subject to its terms. A copy of the
Plan has been given to the Employee. The terms of the Plan are
also available for inspection during business hours at the
principal offices of the company.
B. This Agreement shall not confer on Employee any right with respect
to continuance of employment by the Company or any of its
subsidiaries, nor will it interfere in any way with the right of
the Company to terminate such employment at any time. Employee
shall have none of the rights of a shareholder with respect to
shares subject to this option until such shares shall have been
issued to him upon exercise of this option.
C. The Company shall at all times during the term of the option
reserve and keep available such number of shares as will be
sufficient to satisfy the requirements of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed on the day and year first above written.
GRACO INC.
By
-------------------------------------------
Its: Chief Executive Officer
---------------------------------------------
Employee
NONEMPLOYEE DIRECTOR
NONSTATUTORY STOCK OPTION AGREEMENT
(NSO)
THIS AGREEMENT, made this ______ day of __________________________, 199_ by
and between Graco Inc., a Minnesota corporation (the "Company") and
_______________________________ (the "Nonemployee Director").
WITNESSETH THAT:
WHEREAS, the Company pursuant to its Nonemployee Director Stock Option Plan
wishes to grant this stock option to Nonemployee Director.
NOW THEREFORE, in consideration of the premises and of the mutual covenants
herein contained, the parties hereto hereby agree as follows:
1. Grant of Option
The Company hereby grants to Nonemployee Director, the right and
option (the "Option") to purchase all or any part of an aggregate of
________ common shares, par value $1.00 per share, at the price of
$________ per share on the terms and conditions set forth herein. This
is a nonstatutory stock Option which does not qualify for special tax
treatment under Sections 421 or 422 of the Internal Revenue Code.
2. Duration and Exercisability
a. This Option may not be exercised by Employee until the expiration
of one (1) year from the date of grant, and this Option shall in
all events terminate ten (10) years after the date of Grant.
During the first year from the date of grant of this Option, no
portion of this Option may be exercised. Thereafter this Option
shall become exercisable in four cumulative installments of 25%
as follows:
Total Portion of
Date Option Which is Exercisable
---- ---------------------------
One Year after Date of Grant 25%
Two Years after Date of Grant 50%
Three Years after Date of Grant 75%
Four Years after Date of Grant 100%
In the event that Nonemployee Director does not purchase in any
one year the full number of shares of common stock of the Company
to which he/she is entitled under this Option, he/she may,
subject to the terms and conditions of Section 3 hereof, purchase
such shares of common stock in any subsequent year during the
term of this Option.
b. During the lifetime of the Nonemployee Direction, the Option
shall be exercisable only by him/her and shall not be assignable
or transferable by him/her otherwise than by will or the laws of
descent and distribution.
3. Effect of Termination of Membership on the Board
a. In the event a Nonemployee Director ceases being a director of
the Company for any reason other than the reasons identified in
section 3b below, the Nonemployee Director shall have the right
to exercise the Option as follows, subject to the condition that
no Option shall be exercisable after the expiration of the term
of the Option:
(1) If the Nonemployee Director was a member of the Board of
Directors of the Company for five (5) or more years, the
option becomes immediately exercisable upon the date the
Nonemployee Director ceases being a director. The
Nonemployee Director may exercise the Option for a period of
thirty six (36) months from the date the Nonemployee
Director ceased being a director, provided that if the
Nonemployee Director dies before the thirty-six (36) month
period has expired, the Option may be exercised by the
Nonemployee Director's legal representative or any person
who acquires the right to exercise an Option by reason of
the Nonemployee Director's death for a period of twelve (12)
months from the date of the Nonemployee Director's death.
(2) If the Nonemployee Director was a member of the Board of
Directors of the Company for less than five (5) years, the
Nonemployee Director may exercise the Option, to the extent
the Option was exercisable at the date the Nonemployee
Director ceases being a member of the Board, for a period of
thirty (30) days following the date the Nonemployee Director
ceased being a director, provided that, if the Nonemployee
Director dies before the thirty (30) day period has expired,
the Option may be exercised by the Nonemployee Director's
legal representative, or any person who acquires the right
to exercise an Option by reason of the Nonemployee
Director's death, for a period of twelve (12) months from
the date of the Nonemployee Director's death.
(3) If the Nonemployee Director dies while a member of the Board
of Directors of the Company, the Option, to the extent
exercisable by the Nonemployee Director at the date of
death, may be exercised by the Nonemployee Director's legal
representative, or any person who acquires the right to
exercise an Option by reason of the Nonemployee Director's
death, for a period of twelve (12) months from the date of
the Nonemployee Director's death.
(4) In the event the Option is exercised by the executors,
administrators, legatees, or distributees of the estate of a
deceased optionee, the Company shall be under no obligation
to issue stock thereunder unless and until the Company is
satisfied that the person or persons exercising the Option
are the duly appointed legal representatives of the deceased
optionee's estate or the proper legatees or distributees
thereof.
b. If a Nonemployee Director ceases being a director of the Company
due to an act of (a) fraud or intentional misrepresentation or
(b) embezzlement, misappropriation or conversion of assets or
opportunities of the Company or any Affiliate of the Company or
(c) any other gross or willful misconduct, as determined by the
Board, in its sole and conclusive discretion, the Option granted
to such Nonemployee Director shall immediately be forfeited as of
the date of the misconduct.
4. Manner of Exercise
a. The Option can be exercised only by Nonemployee Director or other
proper party within the Option period by delivering written
notice to the Company at its principal office in Minneapolis,
Minnesota, stating the number of shares as to which the Option is
being exercised and, except as provided in sections 4b(2) and
4b(3) below, accompanied by payment in full of one hundred
percent (100%) of the Option price.
b. The Nonemployee Director may, at his/her election, pay the Option
price as follows:
(1) by cash or by certified check,
(2) by delivery of shares of common stock to the Company, which
shall have been owned for at least six (6) months and have a
fair market value per share on the date of surrender equal
to the exercise price, or
(3) by delivery to Company of a properly executed exercise
notice together with irrevocable instructions to a broker to
promptly deliver to the Company from sale or loan proceeds
the amount required to pay the exercise price.
For purposes of subsection 4b(2) hereunder, the fair market value
per share is the last sale price reported on the composite tape
by the New York Stock Exchange on the business day immediately
preceding the date as of which fair market value is being
determined or, if there were no sales of shares of the Company's
common stock reported on the composite tape on such day, on the
most recently preceding day on which there were sales, or if the
shares of the Company's stock are not listed or admitted to
trading on the New York Stock Exchange on the day as of which the
determination is made, the amount determined by the Board or its
delegate to be the fair market value of a share on such day.
c. Such Option price shall be subject to adjustment as provided in
Section 6 hereof.
5. Change of Control
a. Notwithstanding Section 2(a) hereof, all outstanding Options not
yet exercisable shall become immediately and fully exercisable on
the day following a "Change of Control" and shall remain fully
exercisable until either exercised or expiring by their terms. A
"Change of Control" means:
(1) acquisition by any individual, entity, or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act
of 1934), (a "Person"), of beneficial ownership (within the
meaning of Rule 13d-3 under the 1934 Act) which results in
the beneficial ownership by such Person of 25% or more of
either
(a) the then outstanding shares of common stock of the
Company (the "Outstanding Company Common Stock") or
(b) the combined voting power of the then outstanding
voting securities of the Company entitled to vote
generally in the election of directors (the
"Outstanding Company Voting Securities");
provided, however, that the following acquisitions will not
result in a Change of Control:
(i) an acquisition directly from the Company,
(ii) an acquisition by the Company,
(iii)an acquisition by an employee benefit plan (or
related trust) sponsored or maintained by the
Company or any corporation controlled by the
Company,
(iv) an acquisition by any Person who is deemed to have
beneficial ownership of the Company common stock
or other Company voting securities owned by the
Trust Under the Will of Clarissa L. Gray ("Trust
Person"), provided that such acquisition does not
result in the beneficial ownership by such Person
of 32% or more of either the Outstanding Company
Common Stock or the Outstanding Company Voting
Securities, and provided further that for purposes
of this Section 9, a Trust Person shall not be
deemed to have beneficial ownership of the Company
common stock or other Company voting securities
owned by The Graco Foundation or any employee
benefit plan of the Company, including, without
limitations, the Graco Employee Retirement Plan
and the Graco Employee Stock Ownership Plan,
(v) an acquisition by the Nonemployee Director or any
group that includes the Nonemployee Director, or
(vi) an acquisition by any corporation pursuant to a
transaction that complies with clauses (a), (b),
and (c) of subsection (4) below; and
provided, further, that if any Person's beneficial ownership
of the Outstanding Company Common Stock or Outstanding
Company Voting Securities is 25% or more as a result of a
transaction described in clause (i) or (ii) above, and such
Person subsequently acquires beneficial ownership of
additional Outstanding Company Common Stock or Outstanding
Company Voting Securities as a result of a transaction other
than that described in clause (i) or (ii) above, such
subsequent acquisition will be treated as an acquisition
that causes such Person to own 25% or more of the
Outstanding Company Common Stock or Outstanding Company
Voting Securities and be deemed a Change of Control; and
provided further, that in the event any acquisition or other
transaction occurs which results in the beneficial ownership
of 32% or more of either the Outstanding Company Common
Stock or the Outstanding Company Voting Securities by any
Trust Person, the Incumbent Board may by majority vote
increase the threshold beneficial ownership percentage to a
percentage above 32% for any Trust Person; or
(2) Individuals who, as of the date hereof, constitute the Board
of Directors of the Company (the "Incumbent Board") cease
for any reason to constitute at least a majority of said
Board; provided, however, that any individual becoming a
director subsequent to the date hereof whose election, or
nomination for election by the Company's shareholders, was
approved by a vote of at least a majority of the directors
then comprising the Incumbent Board will be considered as
though such individual were a member of the Incumbent Board,
but excluding, for this purpose, any such individual whose
initial membership on the Board occurs as a result of an
actual or threatened election contest with respect to the
election or removal of directors or other actual or
threatened solicitation of proxies or consents by or on
behalf of a Person other than the Board; or
(3) The commencement or announcement of an intention to make a
tender offer or exchange offer, the consummation of which
would result in the beneficial ownership by a Person of 25%
or more of the Outstanding Company Common Stock or
Outstanding Company Voting Securities; or
(4) The approval by the shareholders of the Company of a
reorganization, merger, consolidation, or statutory exchange
of Outstanding Company Common Stock or Outstanding Company
Voting Securities or sale or other disposition of all or
substantially all of the assets of the Company ("Business
Combination") or, if consummation of such Business
Combination is subject, at the time of such approval by
stockholders, to the consent of any government or
governmental agency, the obtaining of such consent (either
explicitly or implicitly by consummation) excluding,
however, such a Business combination pursuant to which
(a) all or substantially all of the individuals and
entities who were the beneficial owners of the
Outstanding Company Common Stock or Outstanding Company
Voting Securities immediately prior to such Business
Combination beneficially own, directly or indirectly,
more than 80% of, respectively, the then outstanding
shares of common stock and the combined voting power of
the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may
be, of the corporation resulting from such Business
Combination (including, without limitation, a
corporation that as a result of such transaction owns
the Company or all or substantially all of the
Company's assets either directly or through one or more
subsidiaries) in substantially the same proportions as
their ownership, immediately prior to such Business
Combination of the Outstanding Company Common Stock or
Outstanding Company Voting Securities,
(b) no Person [excluding any employee benefit plan (or
related trust) of the Company or such corporation
resulting from such Business Combination] beneficially
owns, directly or indirectly, 25% or more of the then
outstanding shares of common stock of the corporation
resulting from such Business Combination or the
combined voting power of the then outstanding voting
securities of such corporation except to the extent
that such ownership existed prior to the Business
Combination, and
(c) at least a majority of the members of the board of
directors of the corporation resulting from such
Business Combination were members of the Incumbent
Board at the time of the execution of the initial
agreement, or of the action of the Board, providing for
such Business Combination; or
(5) approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
b. A Change of Control shall not be deemed to have occurred with
respect to a Nonemployee Director if:
(1) the acquisition of the 25% or greater interest referred to
in subsection a(1) of this Section 5 is by a group, acting
in concert, that includes the Nonemployee Director or
(2) if at least 25% of the then outstanding common stock or
combined voting power of the then outstanding company voting
securities (or voting equity interests) of the surviving
corporation or of any corporation (or other entity)
acquiring all or substantially all of the assets of the
Company shall be beneficially owned, directly or indirectly,
immediately after a reorganization, merger, consolidation,
statutory share exchange, disposition of assets, liquidation
or dissolution referred to in subsections (4) or (5) of this
section by a group, acting in concert, that includes that
Nonemployee Director.
6. Adjustments and Changes in the Stock
a. If Nonemployee Director exercises all or any portion of the
Option subsequent to any change in the common stock of the
Company by reason of any stock dividend, stock split, spin-off,
split-up, merger, consolidation, recapitalization,
reclassification, combination or exchange of shares, or any other
similar corporate event, the aggregate number of shares available
under the Plan, and the number and the price of shares of common
stock subject to outstanding Options shall be appropriately
adjusted automatically.
b. No right to purchase fractional shares shall result from any
adjustment in the Option pursuant to sub section 5a of this
Agreement. In case of any such adjustment, the shares subject to
the Option shall be rounded down to the nearest whole share.
c. Notice of any adjustment shall be given by the Company to
Nonemployee Director for the Option which shall have been so
adjusted and such adjustment (whether or not such notice is
given) shall be effective and binding for all purposes of the
Plan.
7. Miscellaneous
a. This Option is issued pursuant to the Company's Nonemployee
Director Stock Option Plan and is subject to its terms. A copy of
the Plan has been given to the Nonemployee Director. The terms of
the Plan are also available for inspection during business hours
at the principal offices of the Company.
b. This Agreement shall not confer on Nonemployee Director or other
person any claim or right to be granted an Option under the Plan,
except as expressly provided in the Plan. Neither the Plan nor
any action taken hereunder shall be construed as giving
Nonemployee Director any right to be retained in the service of
the Company.
c. Neither Nonemployee Director, the Nonemployee Director's legal
representative, nor any person who acquires the right to exercise
this Option by reason of the Nonemployee Director's death shall
be or have any of the rights or privileges of, a shareholder of
the Company in respect of any shares of common stock receivable
upon the exercise of this Option, in whole or in part, unless and
until certificates for such shares shall have been issued upon
exercise of this Option.
d. The Company shall at all times during the term of the Option
reserve and keep available such number of shares as will be
sufficient to satisfy the requirements of this Agreement.
e. This Agreement will be governed by and constructed exclusively in
accordance with the laws of the State of Minnesota.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the day and year first above written.
GRACO INC.
By
------------------------------------------
Its
--------------------------------------------
Nonemployee Director
GRACO EXECUTIVE
LONG TERM INCENTIVE AGREEMENT
(Restricted Stock Award)
This Agreement is made as of the 6th day of May, 1997, between Graco Inc.,
a Minnesota corporation (the "Company"), and George Aristides ("Mr. Aristides")
pursuant to the Graco Inc. Long Term Stock Incentive Plan (the "Plan"). Unless
otherwise defined herein, terms used herein shall have the meanings assigned to
them under the Plan.
WITNESSETH:
WHEREAS, in view of the key role Mr. Aristides has played in the success of
the Company, and the desire of the Board of Directors that he continue to serve
as Chief Executive Officer, the Management Organization and Compensation
Committee (the "Committee") now believes that it is appropriate to make an award
of restricted Common Shares to Mr. Aristides; and
WHEREAS, the Plan contemplates that a restricted stock award should be
evidenced by a written agreement, executed by the Company and Mr. Aristides
containing such restrictions, terms and conditions as may be required by the
Plan and the Committee;
NOW THEREFORE, in consideration of the premises and mutual agreements
hereinafter set forth, Mr. Aristides and the Company hereby agree as follows:
1. Award.
The Company, effective as of the date of this Agreement, hereby grants to
Mr. Aristides an award (the "Award") of 45,000 Common Shares $1.00 par
value, of the Company ("Common Shares") subject to the restrictions, terms
and conditions set forth below and in the Plan.
2. Vesting of Stock.
(a) The Common Shares awarded by this Agreement shall vest in Mr.
Aristides as follows: 10,000 shares on March 31, 1998; 15,000 shares
on March 31, 1999; and 20,000 shares on March 31, 2000. If Mr.
Aristides remains continuously employed by the Company until each of
the vesting dates set forth above, then the Common Shares designated
to vest on such vesting date shall so vest.
(b) In the event of a "Change of Control", any unvested portion of the
Award shall vest. A "Change of Control" means:
(i) acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act of
1934), (a "Person"), of beneficial ownership (within the meaning
of Rule 13d-3 under the 1934 Act) which results in the beneficial
ownership by such Person of 25% or more of either
A. the then outstanding shares of common stock of the Company
(the "Outstanding Company Common Stock") or
B. the combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in the
election of directors (the "Outstanding Company Voting
Securities");
provided, however, that the following acquisitions will not
result in a Change of Control:
(1) an acquisition directly from the Company,
(2) an acquisition by the Company,
(3) an acquisition by any employee benefit plan (or related
trust) sponsored or maintained by the Company or any
corporation controlled by the Company,
(4) an acquisition by any Person who is deemed to have
beneficial ownership of the Company common stock or
other Company voting securities owned immediately after
said acquisition by the Trust Under the Will of
Clarissa L. Gray ("Trust Person"), provided that such
acquisition does not result in the beneficial ownership
by such Person of 32% or more of either the Outstanding
Company Common Stock or the Outstanding Company Voting
Securities, and provided further that for purposes of
this Section 2, a Trust Person shall not be deemed to
have beneficial ownership of the Company common stock
or other Company voting securities owned by The Graco
Foundation or any employee benefit plan of the Company,
including without limitation the Graco Employee
Retirement Plan and the Graco Employee Stock Ownership
Plan,
(5) an acquisition by Mr. Aristides or any group that
includes Mr. Aristides, or
(6) an acquisition by any corporation pursuant to a
transaction that complies with clauses (A), (B) and (C)
of Section 2 (a)(iii) below; and
provided, further, that if any Person's beneficial ownership of
the Outstanding Company Common Stock or Outstanding Company
Voting Securities is 25% or more as a result of a transaction
described in clause (1) or (2) above, and such Person
subsequently acquires beneficial ownership of additional
Outstanding Company Common Stock or Outstanding Company Voting
Securities as a result of a transaction other than that described
in clause (1) or (2) above, such subsequent acquisition will be
treated as an acquisition that causes such Person to own 25% or
more of the Outstanding Company Common Stock or Outstanding
Company Voting Securities and be deemed a Change of Control; and
provided further, that in the event any acquisition or other
transaction occurs which results in the beneficial ownership of
32% or more of either the Outstanding Company Common Stock or the
Outstanding Company Voting Securities by any Trust Person, the
Incumbent Board may by majority vote increase the threshold
beneficial ownership percentage to a percentage above 32% for any
Trust Person; or
(ii) Individuals who, as of the date hereof, constitute the Board of
Directors of the Company (the "Incumbent Board") cease for any
reason to constitute at least a majority of said Board; provided,
however, that any individual becoming a director subsequent to
the date hereof whose election, or nomination for election by the
Company's shareholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board
will be considered as though such individual were a member of the
Incumbent Board, but excluding, for this purpose, any such
individual whose initial membership on the Board occurs as a
result of an actual or threatened election contest with respect
to the election or removal of directors or other actual or
threatened solicitation of proxies or consents by or on behalf of
a Person other than the Board; or
(iii)The commencement or announcement of an intention to make a
tender offer or exchange offer, the consummation of which would
result in the beneficial ownership by a Person of 25% or more of
the Outstanding Company Common Stock or Outstanding Company
Voting Securities; or
(iv) The approval by the shareholders of the Company of a
reorganization, merger, consolidation or statutory exchange of
Outstanding Company Common Stock or Outstanding Company Voting
Securities or sale or other disposition of all or substantially
all of the assets of the Company ("Business Combination") or, if
consummation of such Business Combination is subject, at the time
of such approval by stockholders, to the consent of any
government or governmental agency, the obtaining of such consent
(either explicitly or implicitly by consummation); excluding,
however, such a Business Combination pursuant to which
A. all or substantially all of the individuals and entities who
were the beneficial owners of the Outstanding Company Common
Stock or Outstanding Company Voting Securities immediately
prior to such Business Combination beneficially own,
directly or indirectly, more than 80% of, respectively, the
then outstanding shares of common stock and the combined
voting power of the then outstanding voting securities
entitled to vote generally in the election of directors, as
the case may be, of the corporation resulting from such
Business Combination (including, without limitation, a
corporation that as a result of such transaction owns the
Company or all or substantially all of the Company's assets
either directly or through one or more subsidiaries) in
substantially the same proportions as their ownership,
immediately prior to such Business Combination of the
Outstanding Company Common Stock or Outstanding Company
Voting Securities,
B. no Person [excluding any employee benefit plan (or related
trust) of the Company or such corporation resulting from
such Business Combination] beneficially owns, directly or
indirectly, 25% or more of the then outstanding shares of
common stock of the corporation resulting from such Business
Combination or the combined voting power of the then
outstanding voting securities of such corporation except to
the extent that such ownership existed prior to the Business
Combination, and
C. at least a majority of the members of the board of directors
of the corporation resulting from such Business Combination
were members of the Incumbent Board at the time of the
execution of the initial agreement, or of the action of the
Board, providing for such Business Combination; or
(v) approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
(vi) A Change of Control shall not be deemed to have occurred with
respect to Mr. Aristides if:
(A) the acquisition of the 25% or greater interest referred to
in Section 2(b)(i) is by a group, acting in concert, that
includes Mr. Aristides; 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 (iv) and (v) of
this Section 2(b) by a group, acting in concert, that
includes Mr. Aristides.
(c) Any unvested portion of the Award shall vest in the event that the
employment of Mr. Aristides is terminated:
(i) by the Board of Directors other than "for cause" (as defined in
Section 3(b) below);
(ii) as a result of the mutual agreement of Mr. Aristides and the
Board of Directors that the continuation of such employment is
not appropriate; or
(iii)by Mr. Aristides if the Board takes action to prevent the
implementation, or fails to take action to enable the
implementation, of an initiative, action or strategy that Mr.
Aristides believes is necessary or appropriate for the Company to
fulfill its mission or achieve its vision.
(d) Until a Common Share vests, Mr. Aristides acknowledges that he may
not, and agrees that he shall not, transfer his rights to such Common
Share. Until a Common Share vests, no attempt to transfer such Common
Share, whether voluntary or involuntary, by operation of law or
otherwise, shall vest the transferee with any interest or right in or
with respect to such Common Share.
3. Termination.
(a) If Mr. Aristides ceases to be an employee by reason of disability (as
determined under the Company's Long Term Disability Plan) or death
prior to the last vesting date, then Mr. Aristides or his estate shall
be entitled to receive the remaining then unvested portion of the
Award. No transfer, by will or by the laws of descent and
distribution, of the Common Shares which vest by reason of Mr.
Aristides' death shall be effective to bind the Company unless the
Committee shall have been furnished with (i) written notice thereof
and a copy of the will and/or such other evidence as the Committee may
deem necessary to establish the validity of the transfer and (ii) an
agreement by the transferee to comply with the terms and conditions of
this Agreement that were or would have been applicable to Mr.
Aristides.
(b) If Mr. Aristides ceases to be employee of the Company prior to the
last vesting date because of his voluntary resignation or retirement
(other than as set forth in Section 2(c)(iii) above), termination for
cause (as defined below), or otherwise other than by reason of
disability or death, Mr. Aristides' rights to any unvested portion of
this Award shall be immediately and irrevocably forfeited. As used in
this Agreement, the term "for cause" shall mean as a result of gross
or willful misconduct, a knowing breach of fiduciary duty, or
conviction of a felony involving moral turpitude.
4. Issuance and Custody of Certificate.
(a) The Company shall cause to be issued one or more stock certificates,
registered in the name of Mr. Aristides 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., 4050 Olson Memorial Highway, Golden Valley, Minnesota.
(b) Each certificate issued pursuant to Section 4(a), together with the
stock powers relating to such Common Shares, shall be deposited by the
Company with the Secretary of the Company or a custodian designated by
such Secretary. The Secretary or such custodian shall issue a receipt
to Mr. Aristides evidencing the certificates held which are registered
in the name of Mr. Aristides.
(c) Promptly after any Common Shares vest pursuant to Section 3 of this
Agreement, the Company shall cause to be issued certificates
evidencing such Common Shares, free of the legend provided in Section
4(a) and shall cause such certificates to be delivered to Mr.
Aristides (or Mr. Aristides' legal representatives, beneficiaries or
heirs).
(d) Mr. Aristides shall not be deemed for any purpose to be, or have
rights as, a shareholder of the Company by virtue of the Award, until
a stock certificate is issued therefor pursuant to Section 4(a).
5. Agreements of Mr. Aristides.
Mr. Aristides acknowledges that: (a) this Agreement is not a contract of
employment and the terms of Mr. Aristides' employment shall not be affected
in any way by this Agreement except as specifically provided in the
Agreement; (b) the Award made by this Agreement shall not confer any legal
rights upon Mr. Aristides for continuation of employment or interfere with
or limit the right of the Company to terminate Mr. Aristides' employment at
any time; (c) the Board may amend, suspend or terminate the Plan or any
part thereof at any time provided that no amendment, suspension or
termination shall be made or effected which would adversely affect any
right of Mr. Aristides with respect to the Award made by this Agreement
without the written consent of Mr. Aristides unless such amendment,
termination or suspension is required by applicable law; (e) and Mr.
Aristides shall not make an election pursuant to Section 83(b) of the
Internal Revenue Code of 1986, with respect to the Award.
6. Legal Compliance Restrictions.
The Company shall not be obligated to issue or deliver any certificates
evidencing Common Shares awarded by this Agreement unless and until the
Company is advised by its counsel that the issuance and delivery of such
certificates are in compliance with all applicable laws, regulations of
governmental authorities and the requirements of the New York Stock
Exchange or any other exchange upon which Common Shares are traded.
The Company shall not be obligated to register any securities pursuant to
the Securities Act of 1933 (as now in effect or as hereinafter amended) or
to take any other affirmative action in order to cause the issuance and
delivery of such certificates to comply with any such law, regulation or
requirement. The Committee may require, as a condition of the issuance and
delivery of such certificates and in order to ensure compliance with such
laws, regulations and requirements, that Mr. Aristides make such agreements
and representations as the Committee, in its sole discretion, deems
necessary or desirable.
7. Withholding Taxes.
Mr. Aristides agrees to pay or make arrangements for the payment to the
Company of the amount of any taxes that the Company is required by law to
withhold with respect to the Award made by this Agreement. Such payment
shall be due on the date the Company is required to withhold such taxes. In
the event that such payment is not made when due, the Company shall have
the right (a) to retain, or sell within 10 days notice or such longer
notice as may be required by applicable law, a sufficient number of the
Common Shares subject to any Award made to Mr. Aristides 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 fro 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 Committee, in
its sole discretion and subject to such rules as it may adopt, may allow
Mr. Aristides to 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 by the Committee. If changes in capitalization
of the Company other than those referred to above shall occur, the
Committee may, but need not, make such adjustments in the number and
kind of shares available under this Award as the Committee may deem
appropriate.
To the extent permitted by applicable law, the Award of a Common Share
shall be adjusted so that Mr. Aristides shall have the right to
receive under the Award and subject to the Plan securities and other
property (except regular quarterly cash dividends) with respect to the
Award as a result of any stock dividend or split, special cash
dividend, recapitalization, merger, consolidation, combination of
shares or exchange of shares or similar corporate change or otherwise
substantially similar to that Mr. Aristides would have received with
respect to the Common Shares had Mr. Aristides owned the Common Shares
free and clear of the restriction of the Plan. Unless the Committee
otherwise determines, Mr. Aristides' right in respect of such
securities and other property shall not vest until such Common Share
would have vested and no such securities or other property shall be
issued or delivered until such Common Share would be issued or
delivered.
(b) Unless the Committee otherwise determines, any securities and other
property (except regular quarterly cash dividends) received by Mr.
Aristides as a result of a corporate change described in Section 8(a)
or otherwise with respect to a Common Share prior to the date such
Common Share vests shall be promptly deposited with the Secretary or
the custodian designated by the Secretary to be held in custody in
accordance with Section 4(b) as though such securities and other
property were part of such Common Share.
9. Notices.
Any notice which either party hereto or the Committee may be required or
permitted to give to the other with respect to the Plan or this Agreement
shall be in writing, and may be delivered personally or by mail, postage
prepaid, addressed as follows:
(a) if to the Company:
Graco Inc.
P.O. Box 1441
Minneapolis, MN 55440-1441
Attention: Vice President, Human Resources
(b) if to the Committee:
Management Organization and Compensation Committee
c/o Vice President, Human Resources
Graco Inc.
P.O. Box 1441
Minneapolis, MN 55440-1441
(c) if to Mr. Aristides:
Mr. George Aristides
Chief Executive Officer
Graco Inc.
P.O. Box 1441
Minneapolis, MN 55440-1441
or to such other address as the person to whom the notice is directed shall
have designated in writing to others.
10. Minnesota Law.
This Agreement is made and accepted in the State of Minnesota. The laws of
the State of Minnesota shall control the interpretation and performance of
the terms of the Plan and of this Agreement.
11. Binding Effect.
This Agreement shall be binding upon, and shall inure to the benefit of,
the respective successors, assigns, heirs, executors, administrators and
guardians of the parties hereto.
IN WITNESS WHEREOF, the Company and Mr. Aristides have caused this
Agreement to be executed and delivered, all as of the day and year first above
written.
---------------------------------------------
George Aristides
GRACO INC.
By
-------------------------------------------
David A. Koch
Chairman
STOCK OPTION AGREEMENT
(NON-ISO)
THIS AGREEMENT, made this ______ day of ___________, 199__, by and between
Graco Inc., a Minnesota corporation (the "Company") and (the "Employee").
WITNESSETH THAT:
WHEREAS, the Company pursuant to it's Long-Term Incentive Stock Plan wishes
to grant this stock option to Employee;
NOW THEREFORE, in consideration of the premises and of the mutual covenants
herein contained, the parties hereto hereby agree as follows:
1. Grant of Option
The Company hereby grants to Employee, the right and option
(hereinafter called the "option") to purchase all or any part of an
aggregate of _____________ Common Shares, par value $1.00 per share,
at the price of $___________ per share on the terms and conditions set
forth herein.
2. Duration and Exercisability
A. This option may not be exercised by Employee until the expiration
of two (2) years from the date of grant, and this option shall in
all events terminate ten (10) years after the date of grant.
During the first two years from the date of grant of this option,
no portion of this option may be exercised. Thereafter this
option shall become exercisable in four cumulative installments
of 25% as follows:
Total Portion of Option
Date Which is Exercisable
---- --------------------
Two Years after Date of Grant 25%
Three Years after Date of Grant 50%
Four Years after Date of Grant 75%
Five Years after Date of Grant 100%
In the event that Employee does not purchase in any one year the
full number of shares of Common Stock of the Company to which
he/she is entitled under this option, he/she may, subject to the
terms and conditions of Section 3 hereof, purchase such shares of
Common Stock in any subsequent year during the term of this
option.
B. During the lifetime of the Employee, the option shall be
exercisable only by him/her and shall not be assignable or
transferable by him/her otherwise than by will or the laws of
descent and distribution.
3. Effect of Termination of Employment
A. In the event that Employee shall cease to be employed by the
Company or its subsidiaries for any reason other than his/her
gross and willful misconduct, death, retirement (as defined in
Section 3(d) below), or disability (as defined in Section 3(d)
below), Employee shall have the right to exercise the option at
any time within one month after such termination of employment to
the extent of the full number of shares he/she was entitled to
purchase under the option on the date of termination, subject to
the condition that no option shall be exercisable after the
expiration of the term of the option.
B. In the event that Employee shall cease to be employed by the
Company or its subsidiaries by reason of his/her gross and
willful misconduct during the course of his/her employment,
including but not limited to wrongful appropriation of Company
funds or the commission of a felony, the option shall be
terminated as of the date of the misconduct.
C. If the Employee shall die while in the employ of the Company or a
subsidiary or within one month after termination of employment
for any reason other than gross and willful misconduct and shall
not have fully exercised the option, all remaining shares shall
become immediately exercisable and such option may be exercised
at any time within twelve months after his/her death by the
executors or administrators of the Employee or by any person or
persons to whom the option is transferred by will or the
applicable laws of descent and distribution, and subject to the
condition that no option shall be exercisable after the
expiration of the term of the option.
D. If the Employee's termination of employment is due to retirement
(either after attaining age 55 with 10 years of service, or
attaining age 65, or due to disability within the meaning of the
provisions of the Graco Long-Term Disability Plan), all remaining
shares shall become immediately exercisable and the option may be
exercised by the Employee at any time within three years of the
employee's retirement, or in the event of the death of the
Employee within the three-year period after retirement, the
option may be exercised at any time within twelve months after
his/her death by the executors or administrators of the Employee
or by any person or persons to whom the option is transferred by
will or the applicable laws of descent and distribution, to the
extent of the full number of shares he/she was entitled to
purchase under the option on the date of death, and subject to
the condition that no option shall be exercisable after the
expiration of the term of the option.
4. Manner of Exercise
A. The option can be exercised only by Employee or other proper
party within the option period delivering written notice to the
Company at its principal office in Minneapolis, Minnesota,
stating the number of shares as to which the option is being
exercised and, except as provided in Section 4(c), accompanied by
payment-in-full of the option price for all shares designated in
the notice.
B. The Employee may, at Employee's election, pay the option price
either by check (bank check, certified check, or personal check)
or by delivering to the Company for cancellation Common Shares of
the Company with a fair market value equal to the option price.
For these purposes, the fair market value of the Company's Common
Shares shall be the closing price of the Common Shares on the
date of exercise on the New York Stock Exchange (the "NYSE") or
on the principal national securities exchange on which the shares
are traded if the shares are not then traded on the NYSE. If
there is not a quotation available for such day, then the closing
price on the next preceding day for which such a quotation exists
shall be determinative of fair market value. If the shares are
not then traded on an exchange, the fair market value shall be
the average of the closing bid and asked prices of the Common
Shares as reported by the National Association of Securities
Dealers Automated Quotation System. If the Common Shares are not
then traded on NASDAQ or on an exchange, then the fair market
value shall be determined in such manner as the Company shall
deem reasonable.
C. The Employee may, with the consent of the Company, pay the option
price by arranging for the immediate sale of some or all of the
shares issued upon exercise of the option by a securities dealer
and the payment to the Company by the securities dealer of the
option exercise price.
5. Payment of Withholding Taxes
Upon exercise of any portion of this option, Employee shall pay to the
Company an amount sufficient to satisfy any federal, state, or local
withholding tax requirements which arise as a result of the exercise
of the option or provide the Company with satisfactory indemnification
for such payment.
6. Change of Control
A. Notwithstanding Section 2(a) hereof, the entire option shall
become immediately and fully exercisable on the day following a
"Change of Control" and shall remain fully exercisable until
either exercised or expiring by its terms. A "Change of Control"
means:
(1) acquisition by any individual, entity, or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act
of 1934), (a "Person"), of beneficial ownership (within the
meaning of Rule 13d-3 under the 1934 Act) which results in
the beneficial ownership by such Person of 25% or more of
either
(a) the then outstanding shares of Common Stock of the
Company (the "Outstanding Company Common Stock") or
(b) the combined voting power of the then outstanding
voting securities of the Company entitled to vote
generally in the election of directors (the
"Outstanding Company Voting Securities");
provided, however, that the following acquisitions will not
result in a Change of Control:
(i) an acquisition directly from the Company,
(ii) an acquisition by the Company,
(iii)an acquisition by an employee benefit plan (or
related trust) sponsored or maintained by the
Company or any corporation controlled by the
Company,
(iv) an acquisition by any Person who is deemed to have
beneficial ownership of the Company common stock
or other Company voting securities owned by the
Trust Under the Will of Clarissa L. Gray ("Trust
Person"), provided that such acquisition does not
result in the beneficial ownership by such Person
of 32% or more of either the Outstanding Company
Common Stock or the Outstanding Company Voting
Securities, and provided further that for purposes
of this Section 6, a Trust Person shall not be
deemed to have beneficial ownership of the Company
common stock or other Company voting securities
owned by The Graco Foundation or any employee
benefit plan of the Company, including, without
limitations, the Graco Employee Retirement Plan
and the Graco Employee Stock Ownership Plan,
(v) an acquisition by the Employee or any group that
includes the Employee, or
(vi) an acquisition by any corporation pursuant to a
transaction that complies with clauses (a), (b),
and (c) of subsection (4) below; and
provided, further, that if any Person's beneficial ownership
of the Outstanding Company Common Stock or Outstanding
Company Voting Securities is 25% or more as a result of a
transaction described in clause (i) or (ii) above, and such
Person subsequently acquires beneficial ownership of
additional Outstanding Company Common Stock or Outstanding
Company Voting Securities as a result of a transaction other
than that described in clause (i) or (ii) above, such
subsequent acquisition will be treated as an acquisition
that causes such Person to own 25% or more of the
Outstanding Company Common Stock or Outstanding Company
Voting Securities and be deemed a Change of Control; and
provided further, that in the event any acquisition or other
transaction occurs which results in the beneficial ownership
of 32% or more of either the Outstanding Company Common
Stock or the Outstanding Company Voting Securities by any
Trust Person, the Incumbent Board may by majority vote
increase the threshold beneficial ownership percentage to a
percentage above 32% for any Trust Person; or
(2) Individuals who, as of the date hereof, constitute the Board
of Directors of the Company (the "Incumbent Board") cease
for any reason to constitute at least a majority of said
Board; provided, however, that any individual becoming a
director subsequent to the date hereof whose election, or
nomination for election by the Company's shareholders, was
approved by a vote of at least a majority of the directors
then comprising the Incumbent Board will be considered as
though such individual were a member of the Incumbent Board,
but excluding, for this purpose, any such individual whose
initial membership on the Board occurs as a result of an
actual or threatened election contest with respect to the
election or removal of directors or other actual or
threatened solicitation of proxies or consents by or on
behalf of a Person other than the Board; or
(3) The commencement or announcement of an intention to make a
tender offer or exchange offer, the consummation of which
would result in the beneficial ownership by a Person of 25%
or more of the Outstanding Company Common Stock or
Outstanding Company Voting Securities; or
(4) The approval by the shareholders of the Company of a
reorganization, merger, consolidation, or statutory exchange
of Outstanding Company Common Stock or Outstanding Company
Voting Securities or sale or other disposition of all or
substantially all of the assets of the Company ("Business
Combination") or, if consummation of such Business
Combination is subject, at the time of such approval by
stockholders, to the consent of any government or
governmental agency, the obtaining of such consent (either
explicitly or implicitly by consummation) excluding,
however, such a Business combination pursuant to which
(a) all or substantially all of the individuals and
entities who were the beneficial owners of the
Outstanding Company Common Stock or Outstanding Company
Voting Securities immediately prior to such Business
Combination beneficially own, directly or indirectly,
more than 80% of, respectively, the then outstanding
shares of common stock and the combined voting power of
the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may
be, of the corporation resulting from such Business
Combination (including, without limitation, a
corporation that as a result of such transaction owns
the Company or all or substantially all of the
Company's assets either directly or through one or more
subsidiaries) in substantially the same proportions as
their ownership, immediately prior to such Business
Combination of the Outstanding Company Common Stock or
Outstanding Company Voting Securities,
(b) no Person [excluding any employee benefit plan (or
related trust) of the Company or such corporation
resulting from such Business Combination] beneficially
owns, directly or indirectly, 25% or more of the then
outstanding shares of common stock of the corporation
resulting from such Business Combination or the
combined voting power of the then outstanding voting
securities of such corporation except to the extent
that such ownership existed prior to the Business
Combination, and
(c) at least a majority of the members of the board of
directors of the corporation resulting from such
Business Combination were members of the Incumbent
Board at the time of the execution of the initial
agreement, or of the action of the Board, providing for
such Business Combination; or
(5) approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
B. A Change of Control shall not be deemed to have occurred with
respect to an Employee if:
(1) the acquisition of the 25% or greater interest referred to
in subparagraph A.(1) of this Section 6 is by a group,
acting in concert, that includes the Employee or
(2) if at least 25% of the then outstanding common stock or
combined voting power of the then outstanding company voting
securities (or voting equity interests) of the surviving
corporation or of any corporation (or other entity)
acquiring all or substantially all of the assets of the
Company shall be beneficially owned, directly or indirectly,
immediately after a reorganization, merger, consolidation,
statutory share exchange, disposition of assets, liquidation
or dissolution referred to in subparagraph (4) and (5) of
this section by a group, acting in concert, that includes
that Employee.
7. Adjustments
If Employee exercises all or any portion of the option subsequent to
any change in the number or character of the Common Shares of the
Company (through merger, consolidation, reorganization,
recapitalization, stock dividend, or otherwise), Employee shall then
receive for the aggregate price paid by him/her on such exercise of
the option, the number and type of securities or other consideration
which he/she would have received if such option had been exercised
prior to the event changing the number or character of outstanding
shares.
8. Miscellaneous
A. This option is issued pursuant to the Company's Long-Term
Incentive Stock Plan and is subject to its terms. A copy of the
Plan has been given to the Employee. The terms of the Plan are
also available for inspection during business hours at the
principal offices of the company.
B. This Agreement shall not confer on Employee any right with
respect to continuance of employment by the Company or any of its
subsidiaries, nor will it interfere in any way with the right of
the Company to terminate such employment at any time. Employee
shall have none of the rights of a shareholder with respect to
shares subject to this option until such shares shall have been
issued to him upon exercise of this option.
C. The Company shall at all times during the term of the option
reserve and keep available such number of shares as will be
sufficient to satisfy the requirements of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed on the day and year first above written.
GRACO INC.
By
------------------------------------------
Its: Chief Executive Officer
--------------------------------------------
Employee
EXHIBIT 11
GRACO INC. AND SUBSIDIARIES
COMPUTATION OF NET EARNINGS PER COMMON SHARE
(Unaudited)
Thirteen Weeks Ended Twenty-Six Weeks Ended
-------------------- ----------------------
June 27, 1997 June 28, 1996 June 27, 1997 June 28, 1996
------------- ------------- ------------- -------------
(In thousands except per share amounts)
Net earnings applicable to common stock:
Net earnings .................................................. $10,418 $10,032 $16,599 $15,617
============= ============= ============= =============
Average number of common and common equivalent shares outstanding:
Average number of common
shares outstanding .......................................... 17,134 17,349 17,120 17,333
Dilutive effect of stock options
computed on the treasury
stock method ................................................ 358 239 375 238
------------- ------------- ------------- -------------
17,492 17,588 17,495 17,571
============= ============= ============= =============
Net earnings per common
and common equivalent share ................................. $ .60 $ .57 $ .95 $ .89
============= ============= ============= =============
Primary and fully diluted earnings per share are substantially the same.
5
0000042888
GRACO INC.
1,000
U.S. DOLLARS
6-MOS
DEC-27-1997
MAR-29-1997
JUN-27-1997
1
2,258
0
89,903
4,224
43,405
149,408
191,600
92,078
258,328
81,402
12,321
0
0
17,064
118,479
258,328
203,820
203,820
105,888
105,888
72,583
(69)
447
25,349
8,750
16,599
0
0
0
16,599
.95
.95
