SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
(Amendment No. )
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[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
GRACO INC.
(Name of Registrant as Specified in its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
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or Item 22(a)(2) of Schedule 14A.
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14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
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___________________________________________________________________
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pursuant to Exchange Act Rule O-11 (Set forth the amount on which the
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[LOGO]
GRACO INC.
4050 Olson Memorial Highway
Golden Valley, Minnesota 55422-5332
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
Dear Shareholder:
Please join us on Tuesday, May 2, 1995, at 3:30 p.m. for Graco's Annual
Meeting of Shareholders in the first floor auditorium of the Russell J.
Gray Technical Center, 88-11th Avenue N.E., Minneapolis, Minnesota.
At this meeting, shareholders will consider the following matters:
1. Election of three directors to serve for three-year terms.
2. Ratification of the selection of independent auditors for the current
year.
3. Transaction of such other business as may properly come before the
meeting.
Shareholders of record at the close of business on March 6, 1995, are
entitled to vote at this meeting or any adjournment.
We encourage you to join us and participate in the meeting. If you are
unable to do so, a Proxy Card is enclosed for your use. When marked and
returned, it will authorize us to vote your shares according to your
instructions.
If you do not return the Proxy Card and do not vote your shares in person
at the meeting, you will lose your right to vote on matters which are
important to you as a shareholder. Accordingly, if you do not plan to
attend the meeting, please execute and return the enclosed Proxy Card
promptly. This will not prevent you from voting in person if you decide to
attend the meeting.
Sincerely,
/s/ David A. Koch /s/ Robert M. Mattison
David A. Koch Robert M. Mattison
Chairman And Secretary
Chief Executive Officer
March 29, 1995
Golden Valley, Minnesota
YOUR VOTE IS IMPORTANT
We urge you to mark, date and sign the enclosed Proxy Card and
return it in the accompanying envelope as soon as possible. If
you attend the meeting, you may still revoke your proxy and vote
in person if you wish.
TABLE OF CONTENTS
Page
Election of Directors 2
Nominees and Other Directors 2
Meetings and Committees of the Board of Directors;
Nomination of Directors 3
Executive Compensation 4
Report of the Management Organization and Compensation
Committee 4
Comparative Stock Performance Graph 6
Summary Compensation Table 7
Option/SAR Grants Table (Last Fiscal Year) 8
Aggregated Option/SAR Exercises In Last Fiscal Year and
Fiscal Year-End Option/SAR Values 9
Barry A. Calhoon Retirement Agreement 9
Retirement Arrangements 9
Directors' Fees 10
Beneficial Ownership of Shares 10
Principal Shareholders 11
Section 16 Compliance 11
Ratification of Appointment of Independent Public Auditors 12
Other Matters 12
Shareholder Proposals 12
A copy of the 1994 Graco Inc. Annual Report on Form 10-K,
including the Financial Statements and the Financial Statement
Schedule, can be obtained free of charge by calling (612) 623-
6672 or writing:
Treasurer
Graco Inc.
P.O. Box 1441
Minneapolis, Minnesota
55440-1441
[LOGO]
GRACO INC.
4050 Olson Memorial Highway
Golden Valley, Minnesota 55422-5332
PROXY STATEMENT
FOR ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 2, 1995
Your proxy, represented by the accompanying Proxy Card, is solicited by
the Board of Directors of Graco Inc. in connection with the Annual Meeting
of the Shareholders of the Company to be held on May 2, 1995, and any
adjournments of that meeting.
The costs of the solicitation, including the cost of preparing and
mailing the Notice of Meeting and this Proxy Statement, will be paid by the
Company. Solicitation will be primarily by mailing this Proxy Statement to
all shareholders entitled to vote at the meeting. Proxies may be solicited
by officers of the Company personally, but at no compensation in addition
to their regular compensation as officers. The Company may reimburse
brokers, banks and others holding shares in their names for third parties,
for the cost of forwarding proxy material to, and obtaining proxies from,
third parties. The Proxy Statement and accompanying Proxy Card will be
first mailed to shareholders on or about March 29, 1995.
Proxies may be revoked at any time prior to being voted by giving written
notice of revocation to the Secretary of the Company. All properly
executed proxies received by management will be voted in the manner set
forth in this Proxy Statement or as otherwise specified by the shareholder
giving the proxy.
Shares voted as abstentions on any matter (or a "withhold vote for" as to
directors) will be counted as shares that are present and entitled to vote
for purposes of determining the presence of a quorum at the meeting and as
unvoted, although present and entitled to vote, for purposes of determining
the approval of each matter as to which the shareholder has abstained. If
a broker submits a proxy which indicates that the broker does not have
discretionary authority as to certain shares to vote on one or more
matters, those shares will be counted as shares that are present and
entitled to vote for purposes of determining the presence of a quorum at
the meeting, but will not be considered as present and entitled to vote
with respect to such matters.
Only shareholders of record as of the close of business on March 6, 1995,
may vote at the meeting or at any adjournment. As of that date, there were
issued and outstanding 11,377,904 common shares of the Company, the only
class of securities entitled to vote at the meeting. Each share registered
to a shareholder of record is entitled to one vote. Cumulative voting is
not permitted.
1
<PAGE>
(Proposal 1) ELECTION OF DIRECTORS
NOMINEES AND OTHER DIRECTORS
The Board of Directors of the Company consists of ten members, two of
whom are executive officers of the Company. Members of the Board of
Directors serve for three-year terms, with either three or four of the
directors being elected each year. Vacancies that occur during a term may
be filled by a majority vote of the directors then in office, though less
than a quorum, and directors so chosen hold office for a term expiring at
the next Annual Meeting of Shareholders.
At the forthcoming Annual Meeting, three persons are to be elected to the
Company's Board of Directors. The Board has nominated Dale R. Olseth,
Charles M. Osborne and William G. Van Dyke for three-year terms expiring in
1998. One nominee, Dale R. Olseth, has previously been elected as a
director of the Company by the shareholders.
Two current directors, John W. Lacey and Curtis B. Thompson, will not
stand for re-election at the forthcoming Annual Meeting.
Unless otherwise instructed not to vote for the election of directors,
proxies will be voted to elect the nominees. A director candidate must
receive the vote of a majority of the voting power of the shares present in
order to be elected.
The following information, as of March 6, 1995, is given as to the
nominees for election and as to the seven directors whose terms of office
will continue after the Annual Meeting. Except as noted below, each of the
nominees and directors has held the same position, or another executive
position with the same employer, for the past five years.
Nominees for election at this meeting to terms expiring in 1998:
Dale R. Olseth
Mr. Olseth, 64, is Chairman and Chief Executive Officer of BSI
Corporation, a biotechnical company specializing in the modification of
material surfaces. Mr. Olseth has been a director of Graco since 1972
and is a director of The Toro Company.
Charles M. Osborne
Mr. Osborne, 41, is Senior Vice President - Administration/Finance and
Chief Financial Officer of Deluxe Corporation, a printer of checks and
business forms and a supplier of electronic processing services to the
financial payments industry. Mr. Osborne is a director of Computer
Petroleum Corporation.
William G. Van Dyke
Mr. Van Dyke, 49, is President and Chief Operating Officer of Donaldson
Company, Inc., a diversified manufacturer of air and liquid filtration
products. Mr. Van Dyke is also a director of Donaldson Company, Inc.
Directors whose terms continue until 1996:
David A. Koch
Mr. Koch, 64, is Chairman and Chief Executive Officer, Graco Inc., and
has been a director since 1962. Mr. Koch is a director of ReliaStar
Financial Corp.
Richard D. McFarland
Mr. McFarland, 65, is Chairman, Inter-Regional Financial Group, Inc., a
diversified financial services company. Dain Bosworth Incorporated, a
subsidiary of Inter-Regional Financial Group, Inc., has performed
investment banking services for Graco in the past and this relationship
is expected to continue. Mr. McFarland has been a director of Graco
since 1969.
Lee R. Mitau
Mr. Mitau, 46, Attorney at Law, is a Partner of Dorsey & Whitney.
Dorsey & Whitney has provided legal services to Graco in the past and
continues to provide such services. Mr. Mitau has been a director of
Graco since May 1990.
2
<PAGE>
Directors whose terms continue until 1997:
George Aristides
Mr. Aristides, 59, is President and Chief Operating Officer, Graco Inc.
He was formerly Executive Vice President from March to June 1993 and
Vice President, Manufacturing Operations and Controller from 1985 to
March 1993. Mr. Aristides has been a director of Graco since June 1993.
Ronald O. Baukol
Mr. Baukol, 57, is Vice President, Asia Pacific, Canada and Latin
America, 3M, a diversified manufacturer of industrial, commercial,
consumer and health care products. Mr. Baukol has been a director of
Graco since May 1989.
Joe R. Lee
Mr. Lee, 54, is Vice Chairman, General Mills, Inc., a diversified
marketer of packaged food products and operator of restaurants. Mr. Lee
has been a director of Graco since February 1994 and is a director of
General Mills, Inc.
Gerard C. Planchon
Mr. Planchon, 63, is retired. Prior to June 1992, he was Executive Vice
President, Global Business, Medtronic, Inc., a developer and
manufacturer of biomedical devices. Mr. Planchon has been a director of
Graco since May 1991.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS; NOMINATION OF DIRECTORS
The Board of Directors has an Audit Committee, a Management Organization
and Compensation Committee, a Quality and Technology Committee, and a Board
Structure and Policy Committee.
The Audit Committee was created by the Board of Directors to review the
accounting, control and legal compliance policies and procedures of the
Company. The Committee currently consists of four independent, nonemployee
members of the Board of Directors, who are Messrs. Lacey, Mitau, Olseth,
and Planchon. Three meetings of this Committee were held during 1994.
The Management Organization and Compensation Committee currently consists
of four independent nonemployee members of the Board of Directors, who are
Messrs. Baukol, Lacey, McFarland and Thompson. This Committee develops the
Company's philosophy on executive compensation, determines the compensation
of the executive officers and administers the Company's stock option and
incentive plans. Three meetings of this Committee were held in 1994.
The Quality and Technology Committee reviews and evaluates the Company's
technology and manufacturing programs, policies, practices, personnel and
investments, and assesses its technical resources and level of proprietary
protection. Current members of this Committee are Messrs. Aristides,
Baukol, Koch, Planchon and Thompson. One meeting of this Committee was
held in 1994.
The Board Structure and Policy Committee evaluates policies related to
Board membership and procedure, reviews and makes recommendations on fees
and benefits for directors, and recommends to the Board of Directors
nominees for the position of director. Current members of this Committee
are Messrs. Aristides, Koch, Mitau, and Olseth. Two meetings of this
Committee were held in 1994. The Committee will consider shareholders'
recommendations for nomination of directors. Any recommendations should be
made in writing and addressed to the Committee in care of the Secretary of
the Company at the Company's corporate headquarters.
In addition, shareholders may nominate candidates for election to the
Board of Directors. The By-laws provide that timely notice must be
received by the Secretary of the Company at the Company's corporate
headquarters not less than 60 days prior to the date of the Annual Meeting
of Shareholders. The nominations must set forth (i) the name, age, business
and residential addresses and principal occupation or employment of each
nominee proposed in such notice; (ii) the name and address of the
shareholder giving the notice, as it appears in the Company's stock
register; (iii) the number of shares of capital stock of the Company 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 Company, if elected.
During 1994, the Board of Directors met six times. Attendance of the
Company's directors at all Board and Committee meetings averaged 91
percent. During 1994, each director, with the exception of Ronald O.
Baukol, attended at least 75 percent of the aggregate number of meetings of
the Board and of all committees of the Board on which he served.
3
<PAGE>
EXECUTIVE COMPENSATION
Report of the Management Organization and Compensation Committee
Overview
The Management Organization and Compensation Committee of the Board of
Directors (hereafter called "the Committee") is responsible for developing
the Company's philosophy on executive compensation. Consistent with this
philosophy, the Committee develops compensation programs for the Chief
Executive Officer and each of the other executive officers of the Company.
Compensation plans which provide for grants or awards of Company stock are
approved by the Board of Directors and the shareholders of the Company. On
an annual basis, the Committee determines the compensation to be paid to
the Chief Executive Officer and other executive officers, based on the
provisions of the compensation plans. The Committee is composed of four
independent nonemployee directors.
Executive Compensation Philosophy and Program
It is the Company's philosophy to set its executive compensation
structure at levels which are competitive with those of durable goods
manufacturers of comparable size. These levels are determined by
consulting a variety of independent third party executive compensation
surveys. Executive compensation is then delivered through:
o base salaries which recognize the experience and performance of
individual executives;
o aggressive, performance-driven incentives which:
- enhance shareholder value,
- balance annual and long-term corporate objectives, and
- provide meaningful amounts of company stock; and
o competitive benefits.
The specific components of the executive compensation program are
described below:
Base salary ranges are established by the Committee, using the fiftieth
percentile salary and trend data for comparably-sized durable goods
manufacturers, as published in a variety of independent third party
executive compensation surveys. The actual base salary of each officer,
within the range, is determined by the executive's performance, which is
evaluated annually by the Chief Executive Officer and the President and
reviewed and approved by the Committee. Both financial and management
factors are considered in the evaluation.
The Annual Bonus Plan, available in 1994 to 10 executive officers and 58
other management employees, is structured to encourage growth in earnings
by the Company. The Plan determines individual awards for executive
officers by measuring Company performance compared to corporate net
earnings growth targets established by the Committee in the first quarter
of each year. Net earnings targets are always set to exceed prior year
earnings results. The Annual Bonus Plan provides an award ranging from 0
to 80 percent of base salary for the Chief Executive Officer, 0 to 70
percent of base salary for the President, 0 to 60 percent of base salary
for each Vice President who is a Board-elected officer, and 0 to 50 percent
of base salary for each Vice President appointed by management. The
competitive target award for the Annual Bonus Plan is 40 percent of base
salary for the Chief Executive Officer, 35 percent of base salary for the
President, 30 percent of base salary for each Vice President who is a Board-
elected Officer, and 25 percent of base salary for each Vice President who
is appointed by management. The actual Annual Bonus Plan award is
determined by company performance against pre-established financial
objectives. Due principally to strong performance by the operating
divisions in North America and significant success in the control of
expenses, earnings growth performance targets were exceeded in 1994. As a
result, awards were made to executive officers under the 1994 Annual Bonus
Plan. Under the Chairman's Award Program, the Chief Executive Officer is
also able to grant a total of $100,000 in individual discretionary awards
to recognize significant contributions by selected executive officers and
other management employees.
The Executive Long Term Incentive Program is structured to align
interests of executive officers with those of all Graco shareholders, by
providing both the risks and rewards of stock ownership. The Long Term
Incentive program for 1994 consisted of stock options granted to the
executive officers. The number of stock options granted to each executive
officer was determined using competitive data for comparably-sized durable
goods manufacturers, as reflected in independent third party long-term
incentive surveys. These options were non-incentive stock options with a
10-year duration and a vesting schedule of: 25 percent after 2 years, with
25 percent additional vesting after years 3, 4 and 5. Additional stock
4
<PAGE>
options were awarded to selected executive officers as a one-time special
recognition for their efforts to reduce ongoing operating costs and improve
business structure and processes. The value of the restricted shares
remaining to be vested under the 1991-1993 Executive Long Term Incentive
program was considered in determining stock option awards made during 1994.
Executive officers are eligible to participate in the employee benefit
programs available to all Graco employees.
Compensation of the Chief Executive Officer
On an annual basis, the Committee is responsible for reviewing the
individual performance of the Chief Executive Officer, David A. Koch, and
determining appropriate adjustments in base pay and award opportunities
under the Annual Bonus Plan and Executive Long Term Incentive Program.
In reviewing Mr. Koch's performance, the Committee considered a number of
positive changes within the Company during the past year, including (a)
increased focus on growing the Company's core businesses on a worldwide
basis; (b) commitment to new product development; (c) continuing progress
in the development of cellular manufacturing; (d) the Company's ongoing
business process improvements through the ISO 9000 quality management
system; (e) re-engineering efforts focused on increased efficiency and cost
reductions in the Company's sales processes and the industrial systems
business; and (f) corporate-wide cost control and expense management. It
is the Committee's belief that these actions position the Company to take
advantage of continued resurgence in domestic markets and renewed growth in
international markets. The Committee and the Board of Directors are
supportive of these changes and Mr. Koch's overall strategic direction and
management of the business.
The Committee believes that the Company's earnings performance improved
significantly in 1994 due to the positive changes cited above and
particularly to expense reduction and cost control throughout the Company.
Graco's total return to shareholders significantly exceeded the S&P 500 and
the Dow Jones Factory Index during the past year. (See Five Year
Comparative Stock Performance Graph below.) The Committee believes that
the Company's performance will continue to improve as the world's economies
recover.
In recognition of the factors noted above, the Committee increased Mr.
Koch's salary from $350,000 to $365,000 per year, effective January 1,
1995.
The Members of the Committee
Mr. Ronald O. Baukol Mr. John W. Lacey
Mr. Richard D. McFarland Mr. Curtis B. Thompson
5
<PAGE>
Comparative Stock Performance Graph
The graph below compares the cumulative total shareholder return on the
common stock of the Company for the last five fiscal years with the
cumulative total return of the S&P 500 Index and of the Dow Jones Factory
Equipment Index over the same period (assuming the value of investment in
Graco common stock and each index was 100 on December 30, 1989, and all
dividends were reinvested).
Five Year* Cumulative Total Shareholder Returns
[GRAPH-Table Below Lists Data Points Included in Graph]
<TABLE>
Five Year* Cummulative Total Shareholder Returns
<CAPTION>
Dow Jones
Year Graco Inc. S&P 500 Factory Equipment
<S> <C> <C> <C>
1989 $100 $100 $100
1990 131 97 83
1991 151 126 104
1992 144 136 117
1993 227 150 137
1994 238 152 130
*Fiscal Year Ended Last Friday in December
</TABLE>
6
<PAGE>
Summary Compensation Table
The following table shows both annual and long-term compensation awarded
to or earned by the Chief Executive Officer and by the four most highly
compensated executive officers of the Company whose total annual salary and
bonus for 1994 exceeded $100,000.
<TABLE>
<CAPTION>
Long Term Compensation
-----------------------------------------
Annual Compensation Awards Payouts
------------------------------------------------- ----------------------------- -------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other Restricted Securities All Other
Annual Stock Underlying LTIP Compen-
Name and Salary Bonus Compen- Award(s) Options/ Payouts sation
Principal Position Year ($)<F1><F2> ($)<F1><F3> sation ($) ($)<F4><F5> SARs (#)<F5> ($)<F4> ($)<F6>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
David A. Koch 1994 $352,808 $232,596 0 0 6,628 0 $2,766
Chairman and Chief 1993 323,866 0 0 0 0 0 3,876
Executive Officer 1992 323,866 91,539 0 0 0 0 2,195
George Aristides 1994 281,800 187,817 0 0 10,420 0 2,407
President and Chief 1993 251,800 25,000 0 0 45,000 0 1,928
Operating Officer 1992 226,800 69,039 0 0 0 0 1,780
Roger L. King 1994 173,696 86,227 0 0 4,532 0 2,631
Sr. Vice President 1993 165,696 15,000 0 0 22,500 0 3,796
and General Manager, 1992 158,696 44,436 0 0 0 0 1,780
International
Operations
Barry A. Calhoon 1994 202,956 88,719 0 0 5,298 0 3,076
Sr. Vice President 1993 171,800 0 $33,010<F7> 0 0 0 3,127
and General Manager, 1992 165,873 34,872 0 0 0 0 2,136
Industrial/Automotive
Equipment Division
John L. Heller 1994 174,800 86,227 0 0 12,404 0 2,631
Sr. Vice President 1993 161,383 0 0 0 0 0 3,438
and General Manager, 1992 146,800 31,603 0 0 0 0 2,633
Contractor Equipment
Division
<FN>
<F1>
(1) Deferred compensation is included in Salary and Bonus in the year
earned.
<F2>
(2) In addition to base salary, the reported figure includes amounts
attributable to (a) the imputed value of the group term life insurance
benefit for each of the named executive officers, (b) for 1992 and 1993,
one week of pay in lieu of vacation time for Mr. Koch due to his long
tenure with the Company, a benefit available to all Graco employees, (c)
reimbursements for relocation expenses paid to Mr. Calhoon in 1992, and (d)
the balance of vacation due Mr. Calhoon upon his December 31, 1994
retirement (see footnote 6 and Retirement Agreement below).
<F3>
(3) Bonus includes any awards under the Annual Bonus Plan and a $25,000
Chairman's Award for 1994 to Mr. Aristides under the Chairman's Award
Program described in the Management Organization and Compensation Committee
Report; and special bonuses in 1993 of $25,000 to Mr. Aristides and $15,000
to Mr. King, in connection with the change in their responsibilities within
the Company.
<F4>
(4) Under the prior Graco Executive Long Term Incentive Program,
participants were eligible to receive restricted stock awards and
performance-based cash payouts. Restricted stock grants made in 1991
vested over six years (one-sixth per year), except that the unvested
balance of the award had the potential to vest at the end of three years if
certain financial goals were met. Since the financial goals for 1991-1993
were not met, the balance of the 1991 restricted stock grant did not vest
at the end of 1993 and no cash awards were made under the program. One
third of the remaining restricted shares will vest in 1995 and the balance
will vest over the succeeding two years. As of December 30, 1994, the
market value and number of the unvested restricted share holdings were: Mr.
Koch, $479,479 (22,045 shares); Mr. Aristides, $197,903 (9,099 shares); Mr.
King, $142,702 (6,561 shares); Mr. Calhoon, $122,735 (5,643 shares); and
Mr. Heller, $119,886 (5,512 shares).
7
<PAGE>
Quarterly dividends are paid on the restricted shares. The $2.70 one-time
special dividend paid on March 21, 1994, to shareholders of record on March
7, 1994, will be held in custody by the Company with a portion of the
dividend released to each executive as, and if, the corresponding shares
vest over the next three years. Interest will be credited on the dividends
at 4 percent per year, which is the U.S. Treasury bill rate for the average
length of time before shares and dividends will be released to the
executives.
<F5>
(5) On December 17, 1993, the Board of Directors approved a three-for-two
stock split, effected in the form of a stock dividend, payable February 2,
1994, to shareholders of record on January 5, 1994. The number of
restricted shares and the number of options in footnote 4 and shown on this
table, as well as the exercise price for options shown in the Aggregated
Option/SAR Exercises Table, have been restated to reflect the split.
<F6>
(6) The compensation reported includes the Company contributions under the
Graco Employee Investment Plan (excluding employee contributions), plus
Company contributions under the Graco Employee Stock Ownership Plan. For
1994, the Company contributions accrued under the Graco Employee Investment
Plan were as follows: $2,406 for Mr. Koch; $2,047 for Mr. Aristides;
$2,271 for Mr. King; $2,716 for Mr. Calhoon; and $2,271 for Mr. Heller. In
1994, Company contributions under the Graco Employee Stock Ownership Plan
had a fair market value of $360 for each eligible executive officer.
The compensation reported for Mr. Calhoon does not include the payments
which will be made during 1995 pursuant to his Retirement Agreement,
including a lump sum payment of $178,000, retirement supplement payments
totaling $10,884, and retiree medical premium payments of $2,314.
<F7>
(7) This figure represents a tax equalization payment, attributable to a
prior international assignment of Mr. Calhoon.
</FN>
</TABLE>
Option/SAR Grants Table (Last Fiscal Year)
The following table shows the stock options granted to the named
executives during 1994, their exercise price and their grant date present
value.
<TABLE>
<CAPTION>
Individual Grant Grant Date Value<F4>
------------------------------------------------------------ ----------------
(a) (b) (c) (d) (e) (f)
Number of % of Total
Securities Options/SARs Exercise Grant
Underlying Granted to or Base Date
Options/SARs Employees in Price Expiration Present
Name Granted (#) Fiscal Year ($/Sh) Date Value ($)
<S> <C> <C> <C> <C> <C>
David A. Koch 6,628<F1> 2.6% $22.625 05/01/04 $44,076
George Aristides 10,420<F1> 4.0% 22.625 05/01/04 69,293
Roger L. King 4,532<F1> 1.8% 22.625 05/01/04 30,138
Barry A. Calhoon 5,298<F2> 2.1% 22.625 12/30/97 35,232
John L. Heller 5,404<F1> 2.1% 22.625 05/01/04 35,937
John L. Heller 7,000<F3> 2.7% 18.875 12/14/04 37,100
<FN>
<F1>
(1) Non-incentive stock options were granted on May 2, 1994, in the
amounts shown on the table. The options have a ten-year duration and may
be exercised as follows: one-fourth after two years, one-fourth after
three years, one-fourth after four years, and one-fourth after five years.
<F2>
(2) As a result of Mr. Calhoon's retirement, the stock options granted to
him on May 2, 1994, became exercisable on December 31, 1994, and will
expire on December 30, 1997.
<F3>
(3) Non-incentive stock options were granted on December 15, 1994, in the
amount shown on the table. The options have a ten-year duration and may be
exercised as follows: one-fourth after two years, one-fourth after three
years, one-fourth after four years, and one-fourth after five years.
<F4>
(4) The Black-Scholes option pricing model has been used to determine the
grant date present value of the grants. Annual volatility was calculated
using monthly returns for 36 months prior to the grant date, the interest
rate was set using U.S. Treasury securities of similar duration to the
option period as of the grant date, and dividend yield was established as
the yield on the grant date. A 10 percent discount for nontransferability
and a 3 percent discount to reflect possibility of forfeiture over a two-
year period were applied. For grants expiring on May 1, 2004, the
assumptions used in the model were annual volatility of 21.33 percent,
interest rate of 7.04 percent, dividend yield of 2.5 percent, and time to
exercise of 10 years. For grants expiring on December 14, 2004, the
assumptions used in the model were volatility of 19.47 percent, interest
rate of 7.9 percent, dividend yield of 3.0 percent and time to exercise of
10 years.
</FN>
</TABLE>
8
<PAGE>
Aggregated Option/SAR Exercises In Last Fiscal Year And Fiscal Year-End
Option/SAR Values
The following table shows options exercised during 1994 by Mr. Aristides,
as well as the value of outstanding in-the-money options at the end of the
fiscal year for the named executive officers.
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SARs Options/SARs
at FY-End (#) at FY-End ($)<F2><F3>
Shares Value
Acquired On Realized Exercisable/ Exercisable/
Name Exercise (#) ($)<F1> Unexercisable Unexercisable
<S> <C> <C> <C> <C>
David A. Koch 0/6,628 $0/$0
George Aristides 20,000 $53,330 10,000/25,420 $28,330/$52,080
Roger L. King 15,000/12,032 $52,080/$26,040
Barry A. Calhoon 0/5,298 $0/$0
John L. Heller 0/12,404 $0/$20,125
<FN>
<F1>
(1) "Value realized" is the difference between the closing price of the
Company's common stock on the day of exercise and the option price of the
options multiplied by the number of shares received.
<F2>
(2) "Value at fiscal year-end" is the difference between the closing price
of the Company's common stock on December 30, 1994, and the option price
multiplied by the number of shares subject to option.
<F3>
(3) Options where the closing price of the Company's common stock on
December 30, 1994, is lower than the option price are valued at zero in
this column.
</FN>
</TABLE>
Barry A. Calhoon Retirement Agreement
Mr. Calhoon retired from the Company effective December 31, 1994. The
Company entered into a Retirement Agreement with Mr. Calhoon in which the
Company agreed to provide a lump sum payment of $178,000 upon his
retirement, a supplemental retirement benefit of $907 per month payable for
Mr. Calhoon's lifetime, and retiree medical coverage without cost for a
period of two years.
Based on the retirement provision of the prior Executive Long Term
Incentive program, Mr. Calhoon will receive on March 1, 1995, 1,881 of his
remaining unvested restricted shares, the balance of which will revert to
the Company.
Retirement Arrangements
The Company has an Employee Retirement Plan which provides pension
benefits for eligible regular, full- and part-time employees. Benefits
under the Retirement Plan consist of a fixed benefit which is designed to
provide retirement income at age 65 of 43.5 percent of average monthly
compensation, less 18 percent of Social Security-covered compensation
(calculated in a life annuity option) for an employee with 30 or more years
of service. Average monthly compensation is defined as the average of the
five consecutive highest years' salary during the last ten years of
service, including base salary and Annual Bonus Plan awards, but excluding
Executive Long Term Incentive Program awards. Benefits under the Graco
Employee Retirement Plan vest upon five years of benefit service.
Federal tax laws limit the annual benefits that may be paid from a tax-
qualified plan such as the Graco Employee Retirement Plan. The Company has
adopted an unfunded plan to restore benefits to executive officer retirees
impacted by the benefit limits, so that they will receive, in aggregate,
the benefits they would have been entitled to receive under the Graco
Employee Retirement Plan had the limits imposed by the tax laws not been in
effect.
The following table shows the estimated aggregate annual benefits payable
under the Graco Employee Retirement Plan and the restoration plan for the
earnings and years of service specified. The years of benefit service for
the Chief Executive Officer and the executive officers listed in the
Summary Compensation Table are: Mr. Koch, 38 years; Mr. Aristides, 21
years; Mr. King, 24 years; Mr. Calhoon, 24 years; and Mr. Heller, 22 years.
A maximum of 30 years is counted in the pension benefit calculation.
9
<PAGE>
<TABLE>
<CAPTION>
Estimated Aggregate Annual Retirement Benefit
Final Average 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years
Compensation Service Service Service Service Service Service
<S> <C> <C> <C> <C> <C> <C>
$200,000 $13,771 $27,541 $41,312 $55,083 $68,853 $82,624
300,000 21,021 42,041 63,062 84,083 105,103 126,124
400,000 28,271 56,541 84,812 113,083 141,353 169,624
500,000 35,521 71,041 106,562 142,083 177,603 213,124
600,000 42,771 85,541 128,312 171,083 213,853 256,624
</TABLE>
From time to time, the Company has entered into deferred compensation
agreements with its executive officers, including those named in the
Summary Compensation Table. The agreements provide for the payment per
year of $10,000 deferred compensation to each executive officer for ten
years after retirement, or to a beneficiary in the event of death prior to
the expiration of the ten year period. These agreements also include
provisions for non-competition and the payment of $5,000 per year in the
event the officer becomes disabled prior to age 65. The $5,000 per year
disability payments cease upon the attainment of age 65.
Directors' Fees
During 1994, the Company paid each director, except directors who also
served as officers, an annual retainer of $15,000, plus a meeting fee of
$900 for each Board meeting and $700 for each Committee meeting attended.
Upon cessation of service, nonemployee directors who have served for five
full years will receive quarterly payments for five years at a rate equal
to the director's annual retainer in effect on the director's last day of
service on the Board.
In 1994, shareholders approved a Nonemployee Director Stock Plan. Under
this Plan, a nonemployee director may elect to receive all or part of the
director's annual retainer in the form of shares of the Company's common
stock instead of cash. Three directors have elected to receive part of
their annual retainer in Company stock under this Plan.
BENEFICIAL OWNERSHIP OF SHARES
The following information, furnished as of March 6, 1995, indicates
beneficial ownership of the common shares of the Company by each director,
each nominee for election as director, the executive officers listed in the
Summary Compensation Table who are still executive officers on that date,
and by all directors and executive officers as a group. Except as
otherwise indicated, the persons listed have sole voting and investment
power.
<TABLE>
<CAPTION>
Percent of
Amount and Nature of Common Stock
Name of Beneficial Owner Beneficial Ownership<F1><F2> Outstanding*
<S> <C> <C>
D. A. Koch<F2><F3><F4> 3,264,641 28.7%
G. Aristides<F2> 79,369
R. O. Baukol<F4> 1,500
J. L. Heller 33,897
R. L. King 40,110
J. W. Lacey<F2> 1,148
J. R. Lee 1,000
R. D. McFarland<F2><F4> 40,264
L. R. Mitau<F4> 528
D. R. Olseth 4,500
C. M. Osborne 500
G. C. Planchon 150
C. B. Thompson<F2> 1,348
W. G. Van Dyke 200
All directors and
executive officers as a
group (23 persons)<F3><F4><F5> 3,500,623 30.8%
* Less than one 1 percent, if no percentage is given.
<FN>
<F1>
(1) All share data has been restated for the three-for-two stock split paid
February 2, 1994.
10
<PAGE>
<F2>
(2) Includes the following shares owned by spouses of directors and named
executive officers as to which the director or executive officer may be
deemed to share voting and investment power: Mr. Aristides, 30,932; Mr.
Koch, 29,996; Mr. Lacey, 574; Mr. McFarland, 10,264; and Mr. Thompson, 843
shares.
<F3>
(3) Includes 3,019,397 shares held by the Clarissa L. Gray Trust, of which
Mr. Koch's wife, Barbara Gray Koch, and their children are the
beneficiaries and as to which Mr. Koch shares voting and investment power
as trustee. See "Principal Shareholders."
<F4>
(4) Excludes the following shares as to which beneficial ownership is
disclaimed: (i) 301,237 shares owned by the Graco Employee Retirement Plan
and 89,866 unallocated shares held by the Graco Employee Stock Ownership
Plan, as to which Messrs. Koch, McFarland, Lee and Mitau and certain
executive officers of the Company share voting and investment power as
members of the Company's Investment Committee; (ii) 18,587 shares held by
The Graco Foundation; and (iii) 155,000 shares held by the Greycoach
Foundation as to which Mr. Koch shares voting and investment power as a
director.
<F5>
(5) If the shares referred to in footnote 4 above, as to which one or more
directors and designated executive officers share voting power, were
included, the number of shares beneficially owned by all directors,
nominees for election as director and executive officers would be 4,065,313
shares, or 35.7 percent of the outstanding shares.
</FN>
</TABLE>
The Company also has 14,740 preferred shares outstanding, of which 3,793
shares (25.7 percent of the class) are held by Mrs. Koch and by a trust for
which Mr. Koch serves as trustee.
Principal Shareholders
The following table identifies each person or group known to the Company
to beneficially own more than 5 percent of the outstanding common shares of
the Company, the only class of security entitled to vote at the Annual
Meeting:
<TABLE>
<CAPTION>
Beneficial Percent
Ownership<F1> of Class
<S> <C> <C>
Trust under the Will of Clarissa L. Gray,
and David A. Koch<F2> 3,264,641 shares 28.7%
State of Wisconsin Investment Board<F3> 818,000 shares 7.19%
Mitchell Hutchins Institutional Investors Inc.<F4> 1,030,300 shares 9.06%
<FN>
<F1>
(1) All share data has been restated for the three-for-two stock split
paid February 2, 1994.
<F2>
(2) Includes 3,019,397 shares owned by the Clarissa L. Gray Trust. Mr.
Koch is one of the trustees of the Trust and the beneficiaries of the Trust
are Mrs. Koch and their children. The other trustees are Maynard B.
Hasselquist, a former director of the Company, and First Bank of South
Dakota, N.A., Sioux Falls, South Dakota. The Trustees share voting and
dispositive power. Also includes 245,244 shares owned by David A. Koch or
Mrs. Koch.
<F3>
(3) Ownership information is as of December 31, 1994. A Schedule 13G
filed by this independent agency of the State of Wisconsin indicates that
the agency has sole voting and dispositive power.
<F4>
(4) Ownership information is as of December 31, 1994. A Schedule 13G
filed by Mitchell Hutchins, an investment advisor, indicates that the
investment advisor has shared power to vote and direct the disposition of
the shares.
</FN>
</TABLE>
Section 16 Compliance
The Company's executive officers, directors and 10 percent shareholders
are required under the Securities Exchange Act of 1934 and regulations
promulgated thereunder to file initial reports of ownership of the
Company's securities and reports of changes in that ownership with the
Securities and Exchange Commission. Copies of these reports must also be
provided to the Company.
Based upon its review of the reports and any amendments made thereto
furnished to the Company, or written representations that no reports were
required, the Company believes that all reports were filed on a timely
basis by reporting persons during and with respect to 1994, except for an
inadvertent late filing by Lee R. Mitau who purchased 28 shares in July,
1994.
11
<PAGE>
(Proposal 2) PROPOSAL TO RATIFY THE APPOINTMENT OF INDEPENDENT PUBLIC
AUDITORS
Deloitte & Touche has acted as independent auditors for the Company since
1962. The Board of Directors recommends ratification of the selection of
Deloitte & Touche as independent auditors for the current year. If the
shareholders do not ratify the selection of Deloitte & Touche, the
selection of the independent auditors will be reconsidered by the Board of
Directors. A representative of Deloitte & Touche will be present at the
meeting and will have the opportunity to make a statement if so desired.
Such representative will also be available at the meeting to respond to any
shareholder questions.
OTHER MATTERS
The Board of Directors is not aware of any matter, other than those
stated above, which will or may properly be presented for action at the
meeting. If any other matters properly come before the meeting, it is the
intention of the persons named in the enclosed form of proxy to vote the
shares represented by such proxies in accordance with their best judgment.
SHAREHOLDER PROPOSALS
The Company did not receive any request from shareholders relating to
matters to be submitted for a vote at the 1995 Annual Meeting. Any
shareholder wishing to have any matter considered for submission at the
next Annual Meeting must request such submission in writing, directed to
the Secretary of the Company at the address shown on page 1 of this
statement, not later than November 22, 1995.
YOU ARE RESPECTFULLY REQUESTED TO EXERCISE YOUR RIGHT TO VOTE BY FILLING IN
AND SIGNING THE ENCLOSED PROXY CARD AND RETURNING IT PROMPTLY IN THE
ENVELOPE ENCLOSED FOR YOUR CONVENIENCE. In the event that you attend the
meeting, you may revoke your proxy and vote your shares in person if you
wish.
For the Board of Directors
/s/ Robert M. Mattison
Robert M. Mattison
Secretary
Dated: March 29, 1995
c 1995 Graco Inc. 3/95 6.5M Printed in U.S.A.
12
<PAGE>
GRACO INC.
4050 Olson Memorial Highway
Golden Valley,
Minnesota 55422
This Proxy is Solicited by the Board of Directors for use at the
Graco Inc. Annual Meeting on Tuesday, May 2, 1995.
The shares of common stock of Graco Inc. which you are entitled to
vote on March 6, 1995, will be voted as you specify on this card.
By signing this proxy, you revoke all prior proxies and appoint David A.
Koch and David M. Lowe as Proxies, each with full power of substitution, to
vote your shares as specified on this card and on any other business which
may properly come before the Annual Meeting or any adjournment thereof.
Item 1. Election of Directors __ FOR ALL __ WITHHOLD FOR ALL
NOMINEES: Dale R. Olseth Charles M. Osborne William G. Van Dyke
(INSTRUCTION: To withhold authority to vote for any individual nominee,
strike a line through the nominee's name in the list above)
Item 2. Ratification of __ FOR __ AGAINST __ ABSTAIN
Appointment of
Deloitte & Touche as
Independent Auditors
PLEASE SIGN AND DATE THE REVERSE SIDE BEFORE MAILING
In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting. This proxy properly
executed will be voted in the manner directed by the undersigned. If no
choice is specified, this proxy will be voted "FOR" Items 1 and 2.
Please sign exactly as your name(s) appears at left. In the case of joint
owners, each should sign. If signing as an executor, trustee, guardian or
in any other representative capacity or as an officer of a corporation,
please indicate your full title.
Dated:_____________, 1995
_________________________
Signature
_________________________
Signature
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY
CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
