UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
For the quarterly period ended June 28, 1996
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
----- -----
17,261,240 common shares were outstanding as of July 26, 1996.
<PAGE>
GRACO INC. AND SUBSIDIARIES
INDEX
Page Number
-----------
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Earnings 3
Consolidated Balance Sheets 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis
of Financial Condition and
Results of Operations 7-8
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 9
Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURES 11
1996 Corporate and Business Unit Annual Bonus Plan Exhibit 10.1
Long Term Stock Incentive Plan, as amended through
May 7, 1996 Exhibit 10.2
Nonemployee Director Stock Option Plan Exhibit 10.3
Form of agreement used for award of nonstatutory stock
options to nonemployee directors, dated May 7, 1996 Exhibit 10.4
Computation of Net Earnings per Common Share Exhibit 11
Financial Data Schedule Exhibit 27
2
<PAGE>
<TABLE>
<CAPTION>
PART I
GRACO INC. AND SUBSIDIARIES
Item I. CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
Thirteen Weeks Ended Twenty-Six Weeks Ended
-------------------- ----------------------
June 28, 1996 June 30, 1995 June 28, 1996 June 30,1995
------------- ------------- ------------- ------------
(In thousands except per share amounts)
<S> <C> <C> <C> <C>
Net Sales ....................................... $ 97,099 $ 103,402 $ 187,252 $ 198,929
Cost of products sold .......................... 47,677 51,987 92,993 100,987
--------- --------- --------- ---------
Gross Profit .................................... 49,422 51,415 94,259 97,942
Product development ............................ 4,623 3,941 8,852 7,862
Selling ........................................ 21,240 22,068 41,090 43,758
General and administrative ..................... 10,005 10,982 21,680 22,082
--------- --------- --------- ---------
Operating Profit ................................ 13,554 14,424 22,637 24,240
Interest expense ............................... 345 745 577 1,429
Other (income) expense, net .................... (1,323) (53) (757) 343
--------- --------- --------- ---------
Earnings Before Income Taxes .................... 14,532 13,732 22,817 22,468
Income taxes ................................... 4,500 5,200 7,200 8,500
--------- --------- --------- ---------
Net Earnings .................................... $ 10,032 $ 8,532 $ 15,617 $ 13,968
========= ========= ========= =========
Net Earnings Per Common and
Common Equivalent Share ........................ $ .57 $ .49 $ .89 $ .80
========= ========= ========= =========
Cash Dividend Per Common Share .................. $ .12 $ .11 $ .24 $ .22
========= ========= ========= =========
See notes to consolidated financial statements.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
GRACO INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
June 28, 1996 December 29, 1995
------------- -----------------
ASSETS (Unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents ................................................ $ 2,340 $ 1,643
Accounts receivable, less allowances
of $5,036 and $4,856 .................................................. 74,357 73,205
Inventories .............................................................. 47,024 41,693
Deferred income taxes .................................................... 10,634 10,608
Other current assets ..................................................... 2,019 1,333
--------- ---------
Total current assets ............................................... 136,374 128,482
Property, Plant and Equipment:
Cost ..................................................................... 165,026 156,168
Accumulated depreciation ................................................. (85,175) (79,310)
--------- ---------
79,851 76,858
Other Assets ................................................................... 11,264 12,493
--------- ---------
$ 227,489 $ 217,833
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable to banks ................................................... $ 5,734 $ 5,051
Current portion of long-term debt ........................................ 1,865 1,935
Trade accounts payable ................................................... 12,490 13,849
Dividends payable ........................................................ 2,071 2,072
Income taxes payable ..................................................... 3,612 4,229
Other current liabilities ................................................ 45,763 44,447
--------- ---------
Total current liabilities .......................................... 71,535 71,583
Long-term Debt, less current portion ........................................... 9,117 10,074
Retirement Benefits and Deferred Compensation .................................. 32,971 32,605
Shareholders' Equity:
Common stock ............................................................. 17,261 17,265
Additional paid-in capital ............................................... 19,170 20,397
Retained earnings ........................................................ 76,346 64,949
Other, net ............................................................... 1,089 960
--------- ---------
113,866 103,571
--------- ---------
$ 227,489 $ 217,833
========= =========
See notes to consolidated financial statements.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
GRACO INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Twenty-Six Weeks
----------------
June 28, 1996 June 30, 1995
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES: (In thousands)
<S> <C> <C>
Net Earnings ............................................................................... $ 15,617 $ 13,968
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization ........................................................ 6,563 6,381
Deferred income taxes ................................................................ 841 321
Change in:
Accounts receivable ................................................................ (3,358) (2,623)
Inventories ........................................................................ (5,779) (1,542)
Trade accounts payable ............................................................. (1,025) (2,125)
Retirement benefits and deferred
compensation ...................................................................... 628 1,950
Other accrued liabilities .......................................................... 4,096 (5,438)
Other .............................................................................. (3,084) (121)
-------- --------
14,499 10,771
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property, plant and equipment additions ................................................. (9,600) (11,189)
Proceeds from sale of property, plant,
and equipment ........................................................................ 6 260
-------- --------
(9,594) (10,929)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowing on notes payable and lines of credit .......................................... 2,907 92,331
Payments on notes payable and lines of credit ........................................... (1,901) (89,041)
Borrowing on long-term debt ............................................................. 9,892 --
Payments on long-term debt .............................................................. (10,778) (410)
Common stock issued ..................................................................... 2,309 2,157
Retirement of common and preferred stock ................................................ (3,540) 0
Cash dividends paid ..................................................................... (4,221) (3,765)
-------- --------
(5,331) 1,272
-------- --------
Effect of exchange rate changes on cash .................................................... 1,123 (2,421)
-------- --------
Net increase (decrease) in cash and cash equivalents ....................................... 697 (1,307)
Cash and cash equivalents:
Beginning of year ....................................................................... 1,643 2,444
-------- --------
End of period ........................................................................... $ 2,340 $ 1,137
======== ========
See notes to consolidated financial statements
</TABLE>
5
<PAGE>
GRACO INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. The consolidated balance sheet of Graco Inc. and Subsidiaries (the
Company) as of June 28, 1996 and the related statements of earnings and
cash flows for the twenty-six weeks ended June 28, 1996, and June 30,
1995, 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 28, 1996, 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 1995 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 28, 1996 Dec 29, 1995
------------- ------------
Finished products and components ......... $ 45,081 $ 40,335
Products and components in various
stages of completion ................. 25,691 22,597
Raw materials ............................ 11,858 13,152
-------- --------
82,630 76,084
Reduction to LIFO cost ................... (35,606) (34,391)
-------- --------
$ 47,024 $ 41,693
======== ========
6
<PAGE>
Item 2. GRACO INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
- - ---------------------
Net earnings of $10.0 million for the quarter ended June 28, 1996 increased $1.5
million, or 18 percent, over the same period last year. Net earnings of $15.6
million for the six months ended June 28, 1996 increased $1.6 million, or 12
percent, over the first six months of 1995. The earnings improvement came
primarily as a result of reduced operating expenses, a $1.5 million pretax
settlement of a lawsuit involving an escrow deposit dating back to 1986, lower
interest expense resulting from lower debt balances, and a lower effective tax
rate, partially offset by a decrease in sales.
Sales for the quarter of $97.1 million were $6.3 million, or 6 percent, lower
than the second quarter of 1995. Year-to-date sales of $187.3 million were $11.7
million, or 6 percent, lower than 1995. The decline in sales can be attributed
primarily to economic softness in the European markets and currency
fluctuations.
Sales in the Americas were at the 1995 level for the quarter at $64.0 million
and slightly lower than the 1995 six month level at $125.8 million. European
sales continue to lag behind last year with quarterly and year-to-date sales of
$17.0 million and $32.8 million, respectively. Europe's second quarter sales
performance is 19 percent lower than the same period of 1995 (a 16 percent
volume decrease, and a 3 percent loss due to exchange rates) and is 12 percent
lower than 1995 for the first six months (entirely a volume decrease). In Asia
Pacific, sales decreased 13 percent from last year's second quarter to $16.1
million (a 3 percent volume decrease, and a 10 percent loss due to exchange
rates). For the six month period ended June 28, 1996, Asia Pacific sales of
$28.6 million were 12 percent lower than 1995 (a 6 percent volume decrease and a
6 percent loss due to exchange rates).
Worldwide, Industrial/Automotive Equipment sales declined 11 percent to $52.6
million from last year's second quarter of $59.4 million, Contractor Equipment
sales declined 1 percent to $33.2 million from $33.6 million, and Lubrication
Equipment sales increased 9 percent to $11.3 million from $10.4 million. For
1996's first six months, Industrial/Automotive Equipment sales of $99.9 million
were 11 percent lower than the same period last year, Contractor Equipment sales
of $66.0 million were 1 percent lower, and Lubrication Equipment sales of $21.3
million were 6 percent higher. The Company believes that increased levels of
automotive activity should provide opportunities for top line growth in the
second half of the year.
The gross profit margin percentage for the quarter increased 1 percentage point
over a year ago to 51 percent. The year-to-date gross profit margin of 50
percent is also 1 percentage point over last year. The improvement in gross
profit margins is due to manufacturing efficiencies, favorable product sourcing
in Japan, pricing and product mix.
Operating expenses of $35.9 million for the quarter and $71.6 million for the
first six months are both 3 percent lower than the same periods last year. While
investments in product development increased substantially, close control of
selling and general and administrative costs have kept operating expenses below
1995 levels.
7
<PAGE>
Interest expense of $0.3 million is $0.4 million, or 54 percent, lower than the
second quarter of 1995. Year-to-date interest expense of $0.6 million is $0.9
million, or 60 percent lower. The decreases in interest expense result from
lower debt balances at June 28, 1996 as compared to June 30, 1995.
The effective tax rates for the quarter and for the six month period are 31.0
percent and 31.5 percent, respectively. These rates are lower than 1995's
quarterly and six month effective rates of 37.9 percent and 37.8 percent,
respectively. The decline in the effective tax rate in 1996 results from lower
effective tax rates on foreign earnings.
Liquidity and Capital Resources
- - -------------------------------
The Company generated cash from operations of $14.5 million for the first six
months of 1996 as compared to $10.8 million for the same period last year.
Significant uses of cash include purchases of property, plant and equipment,
payments of cash dividends and repurchases of common stock. Working capital
increased $7.9 million, or 14 percent, to $64.8 million at June 28, 1996 from
$56.9 million at December 29, 1995. The Company plans on spending approximately
$17.0 million in 1996 for the construction of a 325,000 square foot world-class
manufacturing facility and global distribution center in Rogers, Minnesota
(approximately 20 miles northwest of Minneapolis). This expenditure will be
funded primarily with cash generated through operations. The Company has unused
lines of credit available at June 28, 1996 totaling $70.2 million.
8
<PAGE>
PART II
Item 4. Submission of Matters to a Vote of Security Holders.
At the Annual Meeting of Shareholders held on May 7, 1996, David A. Koch,
Richard D. McFarland, Lee R. Mitau, and Martha A. M. Morfitt were elected to the
Office of Director with the following votes:
FOR WITHHELD
---------- --------
David A. Koch 15,160,399 124,918
Richard D. McFarland 15,247,269 38,048
Lee R. Mitau 15,157,343 127,974
Martha A. M. Morfitt 15,251,335 33,982
At the same meeting, the following matters were also voted upon with the votes
as indicated:
An amendment to the Employee Stock Purchase Plan to authorize the sale of an
additional 750,000 common shares pursuant to the Plan was approved, with the
following votes:
For Against Abstentions Broker Non-Vote
--- ------- ----------- ---------------
12,947,200 1,446,348 53,841 837,928
An amendment to the Long Term Stock Incentive Plan to authorize the issuance of
an additional 1,000,000 common shares pursuant to the Plan was approved, with
the following votes:
For Against Abstentions Broker Non-Vote
--- ------- ----------- ---------------
12,042,788 2,138,843 64,260 1,239,426
The Graco Inc. Nonemployee Director Stock Option Plan was approved, with the
following votes:
For Against Abstentions Broker Non-Vote
--- ------- ----------- ---------------
13,387,592 750,522 107,777 1,039,426
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
--- ------- ----------- ---------------
15,186,565 27,721 71,031 0
No other matters were voted on at the meeting.
9
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
1996 Corporate and Business Unit
Annual Bonus Plan Exhibit 10.1
Long Term Stock Incentive Plan, as Exhibit 10.2
amended through May 7, 1996
Nonemployee Director Stock Option Plan Exhibit 10.3
Form of Agreement used for award of Exhibit 10.4
nonstatutory stock options to nonemployee
directors, dated May 7, 1996
Statement on Computation Exhibit 11
of Per Share Earnings
Financial Data Schedule Exhibit 27
(b) No reports on Form 8-K have been filed during the quarter for
which this report is filed.
10
<PAGE>
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 9, 1996 By:/S/James A. Graner
---------------------------
James A. Graner
Vice President & Controller
("duly authorized officer")
Date: August 9, 1996 By:/S/David M. Lowe
----------------------------
David M. Lowe
Treasurer
(Principal Financial Officer)
11
<PAGE>
GRACO INC.
1996 CORPORATE
&
BUSINESS UNIT
ANNUAL BONUS PLAN
Effective January 1, 1996
Human Resources
1996 EXECUTIVE CORPORATE & SBU BONUS PLAN
-----------------------------------------
Objectives
- - ----------
- - - To create shareholder value through achievement of annual financial
objectives.
- - - To motivate and retain those key executives and managers who work in
positions where they can impact the Company's annual financial objectives.
Plan Design
- - -----------
The Plan links the size of each individual's award to specific financial
objectives. These objectives are tailored for the Corporation and for each
Business Unit. These objectives are:
- - - Corporation
- Corporate earnings
- - - Business Units
- Profitability objective
Eligibility Requirements
- - ------------------------
Only those positions which carry clear managerial responsibility for directly
contributing to Graco's Corporate earnings objective and Business Unit
profitability and sales objectives are eligible to be included in this Plan.
Only those individuals in eligible positions who have demonstrated and are
maintaining a performance level that meets the supervisor's normal expectations
for that position are eligible for annual participation in this Plan as well as
the receipt of any annual Bonus Payments.
Participation
- - -------------
The top executive in each organizational unit may nominate managers for
participation in this Plan when the established position and individual
eligibility requirements have been met.
The Management Organization and Compensation Committee of the Graco Inc. Board
of Directors has sole authority to approve the participation of the Chief
Executive Officer in the Plan.
The Chief Executive Officer of Graco Inc. has sole authority to select and
approve all other Plan participants.
Bonus Maximum
- - -------------
Taken in conjunction with base salary market comparisons, bonus maximum for all
positions will be:
- - - Commensurate with the position's ability to impact the annual Corporate
earnings objective and Business Unit profitability and sales objectives.
- - - Consistent with total compensation levels prevalent for similar positions
in the market place.
Based on these criteria, bonus maximums ranging from 10% to 80% have been
established for each individual.
Bonus Payment
- - -------------
The determination of a participant's annual Bonus Payment will be calculated by
adding the bonus results attained for Corporate earnings performance (expressed
in percent) to the bonus results attained for any applicable Business Unit's
contribution or margin growth performance (expressed in percent). These bonus
results are then multiplied by the participant's Maximum Bonus Percentage and
then multiplied by the participant's Base Salary for the Plan Year, to determine
the total Bonus Payment.
Example:
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
|------------------ --------------------|
|Annual Annual | Participant's Participant's
|Corporate Business | Maximum Annual
|Performance + Unit Performance | x Bonus x Base = Bonus
|Results Results | Salary Salary
| (if applicable) |
| |
| % % | $ $ $
|------------------ --------------------|
</TABLE>
Administration
- - --------------
The following rules have been established to insure equitable administration of
Graco's Annual Bonus Plan (the Plan):
1. The Plan will be administered by the Management Organization and
Compensation Committee of the Board of Directors. The Committee may cancel
the Plan and interpret the Plan.
2. The Management Organization and Compensation Committee shall establish the
annual corporate bonus plan financial objectives. Within the basic
framework of the Plan, the Chief Executive Officer may establish the annual
bonus plan financial objectives for individual Business Units. The CEO may
also establish deadlines for filing administrative forms and adopt other
administrative rules.
The CEO has established the Bonus Administrative Committee consisting of
the President, the Vice President, Human Resources, and the Compensation
Manager. This Committee is responsible for making approval recommendations
on all Annual Bonus Program administrative matters, such as participation
award payments, performance measures, and performance results. All requests
for adjustments or exceptions are to be formally submitted to this
Committee for review through the Compensation Manager.
3. Key executives and managers selected to participate in the Plan after its
annual effective date (January 1st) may be included on a pro-rata basis.
4. Participation in the Plan one year does not necessarily assure
participation in subsequent years. Eligibility requirements for both the
position and individual performance must be met continually.
5. Participation continues during any paid time off such as short term
disability (up to six months). Participation ceases with retirement, death,
or long term disability (over six months). In the event participation
ceases due to retirement, death, or long term disability, the Participant
will be eligible for a Bonus Payment, calculated using the Maximum Bonus
Percent and Base Salary up to the time of retirement, death, or long term
disability and the annual performance results for the year in which
retirement, death, or long term-disability occurs.
6. A participant who transfers to a position not eligible for inclusion in the
Plan will be eligible for a pro-rata award based on the actual time
employed in the eligible position during the year. The pro-rated award will
be paid as described in Administrative Rule #11.
7. A participant who resigns or is terminated effective during the Plan Year
is ineligible for a bonus.
Participants must maintain satisfactory performance throughout the Plan
year in order to be eligible to receive a bonus award payment.
In addition, a participant whose employment termination has been requested
due to performance or otherwise for cause will be ineligible for a bonus
payment even though the participant is still employed at year-end.
8. Corporate earnings calculations will include such effects as those created
by foreign exchange gain/loss translation and income tax rate changes.
9. Corporate earnings calculations will be based on actual exchange rates, not
plan rates.
10. Acquisitions and divestitures not included in the annual business plan for
the Plan Year will be excluded from the corporate earnings calculations.
11. Significant changes in historical FASB accounting practices or income tax
rates will be included in corporate earnings calculations at the discretion
of the Management Organization and Compensation Committee of the Board of
Directors.
12. Payments will be made by March 15th of the year following each successive
Corporate and Business Unit performance year.
May 7, 1996
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 consistent 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 provisions 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.
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.
GRACO INC.
Nonemployee Director Stock Option Plan
THIS DOCUMENT CONSTITUTES PART OF A PROSPECTUS COVERING
SECURITIES THAT HAVE BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION NOR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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 10 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 10
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 9 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. 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 9, 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.
10. 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, 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 Options pursuant to this Section 10. 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.
11. 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 12 of this Plan.
12. 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 10 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 9 hereof more than once every six (6) months, other than to
comport with changes in the Code, ERISA, or the rules thereunder.
13. 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.
14. 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.
15. 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.
16. 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.
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 5 hereof.
5. 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.
6. 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
<TABLE>
<CAPTION>
GRACO INC. AND SUBSIDIARIES
COMPUTATION OF NET EARNINGS PER COMMON SHARE
(Unaudited)
Thirteen Weeks Ended Twenty Six Weeks Ended
-------------------- ----------------------
June 28, 1996 June 30, 1995 June 28, 1996 June 30, 1995
------------- ------------- ------------- -------------
(In thousands except per share amounts)
<S> <C> <C> <C> <C>
Net earnings applicable to common stock:
Net earnings ............................................ $10,032 $ 8,532 $15,617 $13,968
$10,279
Less dividends on preferred stock ....................... -- 19 -- 37
------- ------- ------- -------
$10,032 $ 8,513 $15,617 $13,931
======= ======= ======= =======
Average number of common and common
equivalent shares outstanding:
Average number of common
shares outstanding ................................... 17,349 17,234 17,333 17,180
Dilutive effect of stock options
computed on the treasury
stock method ......................................... 239 220 238 172
------- ------- ------- -------
17,588 17,454 17,571 17,352
======= ======= ======= =======
Net earnings per common
and common equivalent share .......................... $ .57 $ .49 $ .89 $ .80
======= ======= ======= =======
Primary and fully diluted earnings per share are
substantially the same.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Graco
Inc. and subsidiaries consoldiated statements of earnings and consolidataed
balance sheets for the quarterly period ending June 28, 1996 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000042888
<NAME> GRACO INC.
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> Dec-27-1996
<PERIOD-START> Mar-30-1996
<PERIOD-END> Jun-28-1996
<EXCHANGE-RATE> 1
<CASH> 2,340
<SECURITIES> 0
<RECEIVABLES> 74,357
<ALLOWANCES> 5,036
<INVENTORY> 47,024
<CURRENT-ASSETS> 136,374
<PP&E> 165,026
<DEPRECIATION> 85,175
<TOTAL-ASSETS> 227,489
<CURRENT-LIABILITIES> 71,535
<BONDS> 10,982
0
0
<COMMON> 17,261
<OTHER-SE> 96,605
<TOTAL-LIABILITY-AND-EQUITY> 227,489
<SALES> 187,252
<TOTAL-REVENUES> 187,252
<CGS> 92,993
<TOTAL-COSTS> 92,993
<OTHER-EXPENSES> 71,442
<LOSS-PROVISION> 67
<INTEREST-EXPENSE> 577
<INCOME-PRETAX> 22,817
<INCOME-TAX> 7,200
<INCOME-CONTINUING> 15,617
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,617
<EPS-PRIMARY> .89
<EPS-DILUTED> .89
</TABLE>
