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 March 31, 2000
Commission File Number: 001-9249
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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
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20,294,457 common shares were outstanding as of April 24, 2000
<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 6-7
Item 2. Management's Discussion and Analysis
of Financial Condition and
Results of Operations 8-10
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
Restated Bylaws as amended February 25, 2000. Exhibit 3
Rights Agreement dated February 25, 2000 between the Exhibit 4
Company and Norwest Bank Minnesota, National
Association, as Rights Agent, including as
Exhibit A the form of the Certificate of
Designation, Preferences and Rights of Series A
Junior Participating Preferred Stock. (Incorporated
by reference to Exhibit 4 to the Company's Report
on Form 8-K dated February 25, 2000.)
2000 Corporate and Business Unit Annual Bonus Plan. Exhibit 10
Stock Option Agreement. Form of agreement used under
the Long Term Stock Incentive Plan dated
December 12, 1997. Exhibit 10.1
Stock Option Agreement. Form of agreement used for
award of non-incentive stock options to one
executive officer, dated February 9, 2000. Exhibit 10.2
Stock Option Agreement. Form of agreement used for
award of non-incentive stock options to one
executive officer, dated February 24, 2000. Exhibit 10.3
Computation of Net Earnings per Common Share Exhibit 11
Financial Data Schedule (EDGAR filing only) Exhibit 27
<PAGE>
PART I
GRACO INC. AND SUBSIDIARIES
Item I. CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
Thirteen Weeks Ended
----------------------------------
March 31, 2000 March 26, 1999
-------------- --------------
(In thousands except per share
amounts)
Net Sales $120,227 $103,241
Cost of products sold 58,098 50,384
-------------- --------------
Gross Profit 62,129 52,857
Product development 5,024 4,754
Selling, marketing and distribution 23,814 19,305
General and administrative 8,644 9,524
-------------- --------------
Operating Profit 24,647 19,274
Interest expense 1,235 1,953
Other (income) expense, net 437 320
-------------- --------------
Earnings Before Income Taxes 22,975 17,001
Income taxes 8,000 5,800
-------------- --------------
Net Earnings $ 14,975 $ 11,201
============== ==============
Basic Net Earnings Per Common Share $ .73 $ .56
============== ==============
Diluted Net Earnings Per Common Share $ .72 $ .54
============== ==============
See notes to consolidated financial statements.
<PAGE>
GRACO INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)
March 31, 2000 Dec. 31, 1999
-------------- -------------
ASSETS
Current Assets:
Cash and cash equivalents $ 2,834 $ 6,588
Accounts receivable, less allowances
of $4,700 and $4,400 88,011 79,696
Inventories 41,640 37,702
Deferred income taxes 12,096 12,357
Other current assets 1,506 1,646
------------- ------------
Total current assets 146,087 137,989
Property, Plant and Equipment:
Cost 184,764 182,156
Accumulated depreciation (99,068) (95,663)
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85,696 86,493
Other Assets 10,881 11,551
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$242,664 $236,033
============= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable to banks $ 12,362 $ 14,640
Current portion of long-term debt 1,215 1,215
Trade accounts payable 15,379 13,500
Salaries, wages & commissions 9,424 12,832
Accrued insurance liabilities 11,387 10,332
Income taxes payable 9,035 2,323
Other current liabilities 20,812 23,421
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Total current liabilities 79,614 78,263
Long-term Debt, less current portion 68,430 65,695
Retirement Benefits and Deferred Compensation 28,941 29,135
Shareholders' Equity:
Common stock 20,293 20,416
Additional paid-in capital 37,234 31,755
Retained earnings 7,374 9,279
Other, net 778 1,490
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Total shareholders' equity 65,679 62,940
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$242,664 $236,033
============= ============
See notes to consolidated financial statements.
<PAGE>
GRACO INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Thirteen Weeks
------------------------------
March 31, 2000 March 26, 1999
-------------- -------------
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Earnings $14,975 $11,201
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 4,005 3,773
Deferred income taxes 127 (69)
Change in:
Accounts receivable (9,733) (2,204)
Inventories (4,255) (731)
Trade accounts payable 1,941 471
Salaries, wages and commissions (3,283) (4,396)
Retirement benefits and deferred
Compensation 124 380
Other accrued liabilities 5,267 3,573
Other (356) 183
------------- ------------
8,812 12,181
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CASH FLOWS FROM INVESTING ACTIVITIES:
Property, plant and equipment additions (2,968) (2,015)
Proceeds from sale of property, plant
and equipment 58 220
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(2,910) (1,795)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on notes payable and
lines of credit 47,979 38,992
Payments on notes payable and lines
of credit (49,939) (42,397)
Borrowings on long-term debt 20,000 2,000
Payments on long-term debt (17,265) (10,632)
Common stock issued 6,632 3,579
Retirement of common stock (15,300) -
Cash dividends paid (2,862) (2,212)
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(10,755) (10,670)
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Effect of exchange rate changes on cash 1,099 933
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Net increase (decrease) in cash and cash (3,754) 649
equivalents
Cash and cash equivalents:
Beginning of year 6,588 3,555
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End of Period $ 2,834 $ 4,204
============= ============
See notes to consolidated financial statements.
<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 March 31, 2000, and the related statements of earnings and
cash flows for the thirteen weeks then ended, have been prepared by the
Company without being audited.
In the opinion of management, these consolidated statements reflect all
adjustments (consisting of only normal recurring adjustments) necessary to
present fairly the financial position of Graco Inc. and Subsidiaries as of
March 31, 2000, 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 1999 Form 10-K.
The results of operations for interim periods are not necessarily
indicative of results that will be realized for the full fiscal year.
2. Major components of inventories were as follows (in thousands):
Mar. 31, 2000 Dec. 31, 1999
------------- -------------
Finished products and components $32,327 $25,748
Products and components in various
stages of completion 22,368 23,560
Raw materials 20,844 21,961
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75,539 71,269
Reduction to LIFO cost (33,899) (33,567)
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$41,640 $37,702
============ =============
<PAGE>
GRACO INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
3. The Company has three reportable segments; Industrial/Automotive,
Contractor and Lubrication. Assets of the Company are not tracked along
reportable segment lines. Sales and operating profit by segment for the
thirteen weeks ended March 31, 2000 and March 26, 1999 are as follows (in
thousands):
Mar. 31, 2000 Mar. 26,1999
------------- ------------
Net Sales
Industrial/Automotive $ 55,989 $ 50,748
Contractor 53,587 41,694
Lubrication 10,651 10,799
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Total $120,227 $103,241
============= ============
Operating Profit
Industrial/Automotive $ 12,507 $ 9,745
Contractor 10,486 8,899
Lubrication 2,316 2,288
Unallocated Corporate expenses (662) (1,658)
------------- ------------
Consolidated Operating Profit $ 24,647 $ 19,274
============= ============
4. There have been no changes to the components of comprehensive income from
those noted on the 1999 Form 10K.
5. In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which will be effective for the
Company in fiscal year 2001. SFAS No. 133 requires that all derivatives
are recognized in the financial statements as either assets or liabilities
measured at fair value and also specifies new methods of accounting for
hedging transactions. The Company has not yet determined the impact of FAS
133, if any.
<PAGE>
Item 2. GRACO INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
- ---------------------
Graco's net earnings of $15.0 million for the quarter ended March 31, 2000
increased 34 percent from first quarter 1999 earnings of $11.2 million. Diluted
earnings per share of $0.72 for the quarter were up 33 percent over diluted
earnings per share of $0.54 in the first quarter of 1999. The quarterly
performance was driven by strong sales and gross profit growth partially offset
by increased expenses.
The following table sets forth items from the Company's Consolidated Statements
of Earnings as percentages of net sales:
Three Months
(13 weeks) Ended
--------------------
March March
31, 2000 26, 1999
-------- --------
Net Sales 100.0% 100.0%
Cost of products sold 48.3 48.8
Product development 4.2 4.6
Selling, marketing and distribution 19.8 18.7
General and administrative 7.2 9.2
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Operating Profit 20.5 18.7
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Interest expense 1.0 2.0
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Other (income) expense, net 0.4 0.3
-------- --------
Earnings Before Income Taxes 19.1 16.4
Income taxes 6.6 5.6
-------- --------
Net Earnings 12.5% 10.8%
======== ========
<PAGE>
Net Sales
Net sales in the first quarter of $120.2 million were up 16 percent from the
first quarter of 1999. Industrial/Automotive Equipment segment sales were up 10
percent, as sales improved across all Industrial product groups in North
America. Sales for the quarter include $3 million of products from the
acquisition of Bollhoff Verfahrenstechnik in May of 1999. First quarter
Contractor Equipment segment sales were 29 percent higher than last year due to
new product releases and strong demand in North America. Graco introduced its
new Magnum sprayers in the first quarter of 2000. These units are being sold
primarily in the home center channel but are available to customers in the other
sales channels. The initial stocking of approximately 65% of The Home Depot
locations contributed to the sales increase in the quarter. Lubrication
Equipment segment sales decreased 1 percent from the first quarter 1999 to $10.7
million as slightly improved sales in the Americas were offset by lower demand
in Europe and in Asia Pacific.
Geographically, sales in the Americas increased 18 percent to $88.7 million for
the quarter due to strong Contractor and Industrial/Automotive sales. European
quarterly sales of $21.3 million were 11 percent higher than last year;
translating at consistent exchange rates, sales would have been up 24%. Asia
Pacific sales of $10.2 million were 10 percent higher than last year's first
quarter as sales improved throughout the region, excluding Japan.
Gross Profit
Gross profit as a percentage of net sales improved to 51.7 percent in the first
quarter, up 0.5 percentage points from the same period last year. The increase
was due primarily to higher production levels, improved manufacturing
efficiencies and enhanced pricing. The strengthening of the US dollar has
decreased gross margins as a greater proportion of the Company's sales are
denominated in currencies other than the US dollar than are cost of goods sold.
Operating Expenses
First quarter operating expenses of $37.5 million increased 12 percent from the
first quarter of 1999. Selling, marketing and distribution expenses were up 23
percent and included increased spending related to the introduction of new
products in the first quarter of 2000. General and administrative expenses were
down 9 percent due in part to reduced information system spending. Product
development spending was substantial at $5.0 million and $4.8 in the first
quarters of 2000 and 1999.
Other Income (Expense)
Other expense was $0.4 million and $0.3 million in the first quarter of 2000 and
1999.
Income Taxes
The effective tax rate increased to 35 percent in the first quarter compared to
34 percent for the same period last year.
<PAGE>
Liquidity and Capital Resources
- -------------------------------
The Company generated $8.8 million of cash flow from operating activities in the
first three months of 2000, compared to $12.2 million for the same period last
year. Significant uses of operating cash flow in 2000 included the increase of
accounts receivable and inventory in support of higher sales. Cash flow from
operations combined with the proceeds of common stock issuances upon the
exercise of employee stock options, were used to repurchase 473,400 common
shares for $15.3 million. The Company had unused lines of credit available at
March 31, 2000 totaling $78 million. The available credit facilities and
internally generated funds provide the Company with the financial flexibility to
meet liquidity needs.
Outlook
While the Company is off to a good start in 2000, we remain uncertain about the
global industrial growth for 2000. However, we continue to plan for higher sales
and earnings per share growth for fiscal 2000.
SAFE HARBOR CAUTIONARY STATEMENT
The information in this 10-Q contains "forward-looking statements" about the
Company's expectations of the future, which are subject to certain risk factors
that could cause actual results to differ materially from those expectations.
These factors include economic conditions in the United States and other major
world economies, currency exchange fluctuations and additional factors
identified in Exhibit 99 to the Company's Report on Form 10-K for fiscal year
1999.
<PAGE>
PART II
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Restated Bylaws as amended February 25,2000. Exhibit 3
2000 Corporate and Business Unit Annual
Bonuses Plan Exhibit 10
Stock Option Agreement. Form of agreement Exhibit 10.1
under the Long Term Stock Incentive Plan dated
December 12, 1997.
Stock Option Agreement. Form of agreement used for Exhibit 10.2
award of non-incentive stock options to one
executive officer dated February 9, 2000.
Stock Option Agreement. Form of agreement used for Exhibit 10.3
award of non-incentive stock options to one
executive officer dated February 24, 2000.
Computation of Net Earnings per Common Share Exhibit 11
Financial Data Schedule (EDGAR filing only) Exhibit 27
(b) Reports on Form 8-K
Rights Agreement dated February 25, 2000 between 4
the Exhibit Company and Norwest Bank Minnesota,
National Association, as Rights Agent, including
as Exhibit A the form of the Certificate of
Designation, Preferences and Rights of Series A
Junior Participating Preferred Stock. (Incorporated
by reference to Exhibit 4 to the Company's Report
on Form 8-K dated February 25, 2000.)
<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: 04/27/2000 By: /s/George Aristides
-------------------------------
George Aristides
Chief Executive Officer
Date: 04/27/2000 By: /s/James A. Graner
-------------------------------
James A. Graner
Vice President & Controller
("duly authorized officer")
RESTATED BYLAWS
GRACO INC.
(Adopted February 25, 2000)
ARTICLE I.
OFFICES, CORPORATE SEAL
Section 1.01. Offices. The principal executive office of the corporation
shall be at 4050 Olson Memorial Highway, Golden Valley, Minnesota 55422. The
corporation may have such other offices, within or without the State of
Minnesota, as the directors shall, from time to time, determine.
Section 1.02. Corporate Seal. The corporate seal shall be circular in form
and shall have inscribed thereon the name of the corporation and the word
"Minnesota" and the words "Corporate Seal".
ARTICLE II.
MEETINGS OF SHAREHOLDERS
Section 2.01. Place of Meetings. Meetings of the shareholders shall be held
at the principal executive office of the corporation or at such other place as
may be designated by the directors, except that any meeting called by or at the
demand of a shareholder shall be held in the county in which the principal
executive office of the corporation is located.
Section 2.02. Regular Meetings. A regular meeting of the shareholders shall
be held on an annual basis on such date and at such time as the Board of
Directors shall by resolution establish. At a regular meeting the shareholders
shall elect qualified successors for directors whose terms have expired or are
due to expire within six months after the date of the meeting and shall transact
such other business as may properly come before them.
Section 2.03. Special Meetings. Special meetings of the shareholders may be
held at any time and for any purpose and may be called by the chief executive
officer, the chief financial officer, two or more directors or a shareholder or
shareholders holding 10% or more of the voting power of all shares entitled to
vote, except that a special meeting called by a shareholder or shareholders for
the purpose of considering any action to directly or indirectly facilitate or
effect a business combination, including any action to change or otherwise
affect the composition of the Board of Directors for that purpose, must be
called by a shareholder or shareholders holding 25% or more of the voting power
of all shares entitled to vote. A shareholder or shareholders holding the
requisite percentage of the voting power may demand a special meeting of the
shareholders by written notice given to the chief executive officer or chief
financial officer of the corporation stating the purposes of the meeting. Within
30 days after receipt of such a demand by one of those officers, the Board of
Directors shall cause a special meeting of shareholders to be called and held on
notice not later than 90 days after receipt of the demand, at the expense of the
corporation. Special meetings shall be held on the date and at the time and
place fixed by the chief executive officer, the chief financial officer or the
Board of Directors, except that a special meeting called by or at demand of a
shareholder or shareholders shall be held in the county where the principal
executive office is located. The business transacted at a special meeting shall
be limited to the purposes stated in the notice of the meeting.
Section 2.04. Quorum, Action by Shareholders. The holders of a majority of
the shares entitled to vote shall constitute a quorum for the transaction of
business at any regular or special meeting. All questions shall be decided by a
majority vote of the number of shares entitled to vote and represented at the
meeting at the time of the vote unless otherwise required by statute, the
Articles of Incorporation, or these Bylaws.
Section 2.05. Adjourned Meetings. In case a quorum shall not be present at
a meeting, those present may adjourn the meeting to such day as they shall, by
majority vote, agree upon, and a notice of such adjournment and the date and
time at which such meeting shall be reconvened shall be mailed to each
shareholder entitled to vote at least 5 days before such adjourned meeting. If a
quorum is present, a meeting may be adjourned from time to time without notice
other than announcement at the meeting. At adjourned meetings at which a quorum
is present, any business may be transacted which might have been transacted at
the meeting as originally noticed. If a quorum is present, the shareholders may
continue to transact business until adjournment notwithstanding the withdrawal
of enough shareholders to leave less than a quorum.
Section 2.06. Voting. At each meeting of the shareholders every shareholder
having the right to vote shall be entitled to vote either in person or by proxy.
Each shareholder shall have one vote for each share having voting power
registered in such shareholder's name on the books of the corporation. Jointly
owned shares may be voted by any joint owner unless the corporation receives
written notice from any one of them denying the authority of that person to vote
the shares. Upon the demand of any shareholder, the vote upon any question
before the meeting shall be by ballot.
Section 2.07. Closing of Books. The Board of Directors may fix a date not
more than 60 days preceding the date of any meeting of shareholders, as the date
(the "record date") for the determination of the shareholders entitled to notice
of, and to vote at, such meeting. When a record date is so fixed, only
shareholders as of that date are entitled to notice of and permitted to vote at
that meeting of shareholders.
Section 2.08. Notice of Meetings. Except as otherwise specified in Section
2.05 or required by law, written notice of each meeting of the shareholders,
stating the date, time and place and, in the case of a special meeting, the
purpose or purposes, shall be given at least ten days and not more than sixty
days prior to the meeting to every holder of shares entitled to vote at such
meeting. The business transacted at a special meeting of shareholders is limited
to the purposes stated in the notice of the meeting.
Section 2.09. Waiver of Notice. Notice of any regular or special meeting
may be waived by any shareholder either before, at or after such meeting orally
or in a writing signed by such shareholder or a representative entitled to vote
the shares of such shareholder. Attendance by a shareholder, at any meeting of
shareholders, is a waiver of notice of such meeting, except where the
shareholder objects at the beginning of the meeting to the transaction of
business because the meeting is not lawfully called or convened or the item may
not lawfully be considered at that meeting and the shareholder does not
participate in the consideration of the item at that meeting.
Section 2.10. Advance Notice of Shareholder Proposals. As provided in
Section 2.03, the business conducted at any special meeting of shareholders of
the corporation shall be limited to the purposes stated in the notice of the
special meeting pursuant to Section 2.08. At any regular meeting of shareholders
of the corporation, only such business (other than the nomination and election
of directors, which shall be subject to Section 3.15) may be conducted as shall
be appropriate for consideration at the meeting of shareholders and shall have
been brought before the meeting (i) by or at the direction of the Board of
Directors, or (ii) by any shareholder of the corporation entitled to vote at the
meeting who complies with the notice procedures hereinafter set forth in this
section.
(a) Timing of Notice. For such business to be properly brought before any
regular meeting by a shareholder, the shareholder must have given
timely notice thereof in writing to the secretary of the corporation.
To be timely, a shareholder's notice of any such business to be
conducted at an annual shareholders meeting must be delivered to the
secretary of the corporation, or mailed and received at the principal
executive office of the corporation, not less than 90 days before the
first anniversary of the date of the preceding year's annual
shareholders meeting of shareholders. If, however, the date of the
annual shareholders meeting of shareholders is more than 30 days
before or after such anniversary date, notice by a shareholder shall
be timely only if so delivered or so mailed and received not less than
90 days before such annual shareholders meeting or, if later, within
10 days after the first public announcement of the date of such annual
shareholders meeting. To be timely, a shareholder's notice of any such
business to be conducted at a regular meeting other than an annual
shareholders meeting must be delivered to the secretary of the
corporation, or mailed and received at the principal executive office
of the corporation, not less than 90 days before such regular meeting
or, if later, within 10 days after the first public announcement of
the date of such regular meeting. Except to the extent otherwise
required by law, the adjournment of a regular meeting of shareholders
shall not commence a new time period for the giving of a shareholder's
notice as required above.
(b) Content of Notice. A shareholder's notice to the corporation shall set
forth as to each matter the shareholder proposes to bring before the
regular meeting (i) a brief description of the business desired to be
brought before the meeting and the reasons for conducting such
business at the meeting, (ii) the name and address, as they appear on
the corporation's books, of the shareholder proposing such business,
(iii) the class of series (if any) and number of shares of the
corporation that are beneficially owned by the shareholder, (iv) any
material interest of the shareholder in such business, and (v) a
representation that the shareholder is a holder of record of shares
entitled to vote at the meeting and intends to appear in person or by
proxy at the meeting to make the proposal.
(c) Consequences of Failure to Give Timely Notice. Notwithstanding
anything in these Bylaws to the contrary, no business (other than the
nomination and election of directors) shall be conducted at any
regular meeting except in accordance with the procedures set forth in
this Section. The officer of the corporation chairing the meeting
shall, if the facts warrant, determine and declare to the meeting that
business was not properly brought before the meeting in accordance
with the procedures described in this Section and, if such officer
should so determine, such officer shall so declare to the meeting, and
any such business not properly brought before the meeting shall not be
transacted. Nothing in this Section shall be deemed to preclude
discussion by any shareholder of any business properly brought before
the meeting in accordance with these Bylaws.
(d) Public Announcement. For purposes of this Section and Section 3.15,
"public announcement" means disclosure (i) when made in a press
release reported by the Dow Jones News Service, Associated Press, or
comparable national news service, (ii) when filed in a document
publicly filed by the corporation with the Securities and Exchange
Commission pursuant to Section 13, 14, or 15(d) of the Securities
Exchange Act of 1934, as amended, or (iii) when mailed as the notice
of the meeting pursuant to Section 2.08.
(e) Compliance with Law. Notwithstanding the foregoing provisions of this
Section, a shareholder shall also comply with all applicable
requirements of Minnesota law and the Securities Exchange Act of 1934,
as amended, and the rules and regulations thereunder with respect to
the matters set forth in this Section.
ARTICLE III.
DIRECTORS
Section 3.01. General Powers. The business and affairs of the corporation
shall be managed by or under the direction of the Board of Directors.
Section 3.02. Number, Qualification and Term of Office. The number of
directors shall initially be ten and, thereafter, shall be fixed from time to
time by the Board of Directors or by the affirmative vote of the holders of
two-thirds of the voting power of the outstanding capital stock of the
corporation, voting together as a single class. The directors shall be divided
into three classes, as nearly equal in number as reasonably possible, with the
term of office of the first class to expire at the 1988 annual meeting of
shareholders, the term of office of the second class to expire at the 1989
annual meeting of shareholders and the term of office of the third class to
expire at the 1990 annual meeting of shareholders. At each annual meeting of
shareholders following such initial classification and election, directors
elected to succeed those directors whose terms expire shall be elected for a
term of office to expire at the third succeeding annual meeting of shareholders
after their election.
Section 3.03. Board Meetings. Meetings of the Board of Directors may be
held from time to time at such time and place as may be designated in the notice
of such meeting.
Section 3.04. Calling Meetings; Notice. Meetings of the Board of Directors
may be called by the chief executive officer by giving at least twenty-four
hours' notice, or by any other director by giving at least five day's notice, of
the date, time and place thereof to each director by mail, telephone, telegram
or in person. If the day or date, time and place of a Board meeting have been
announced at a previous meeting of the Board, no notice is required. Notice of
an adjourned meeting need not be given other than by announcement at the meeting
at which adjournment is taken of the date, time and place at which the meeting
will be reconvened.
Section 3.05. Waiver of Notice. Notice of any meeting of the Board of
Directors may be waived by any director either before, at, or after such meeting
orally or in a writing signed by such director. A director, by his attendance at
any meeting of the Board of Directors, shall be deemed to have waived notice of
such meeting, except where the director objects at the beginning of the meeting
to the transaction of business because the meeting is not lawfully called or
convened and does not participate thereafter in the meeting.
Section 3.06. Quorum. A majority of the directors holding office
immediately prior to a meeting of the Board of Directors shall constitute a
quorum for the transaction of business at such meeting.
Section 3.07. Absent Directors. A director may give advance written consent
or opposition to a proposal to be acted on at a meeting of the Board of
Directors. If such director is not present at the meeting, consent or opposition
to a proposal does not constitute presence for purposes of determining the
existence of a quorum, but consent or opposition shall be counted as a vote in
favor of or against the proposal and shall be entered in the minutes or other
record of action at the meeting, if the proposal acted on at the meeting is
substantially the same or has substantially the same effect as the proposal to
which the director has consented or objected.
Section 3.08. Conference Communications. Any or all directors may
participate in any meeting or conference of the Board of Directors, or of any
duly constituted committee thereof, by any means of communication through which
the directors may simultaneously hear each other during such meeting. For the
purposes of establishing a quorum and taking any action, such directors
participating pursuant to this Section 3.08 shall be deemed present in person at
the meeting.
Section 3.09. Vacancies. Subject to the rights of the holders of any series
of Preferred Stock then outstanding, newly created directorships resulting from
any increase in the authorized number of directors or any vacancies in the Board
of Directors resulting from death, resignation, retirement, disqualification,
removal from office or other cause may be filled by a majority vote of the
directors then in office though less than a quorum, and directors so chosen
shall hold office for a term expiring at the next annual meeting of
shareholders. No decrease in the number of directors constituting the Board of
Directors shall shorten the term of any incumbent director.
Section 3.10. Removal. Any directors, or the entire Board of Directors, may
be removed from office at any time, but only for cause and only by the
affirmative vote of the holders of the proportion or number of the voting power
of the shares of the classes or series the director represents sufficient to
elect them.
Section 3.11. Committees. A resolution approved by the affirmative vote of
a majority of the Board of Directors may establish committees having the
authority of the Board in the management of the business of the corporation to
the extent provided in the resolution. A committee shall consist of one or more
persons, who need not be directors, appointed by affirmative vote of a majority
of the directors present. Committees are subject to the direction and control
of, and vacancies in the membership thereof shall be filled by, the Board of
Directors, except as provided by Section 3.12 and by Minnesota Statutes Section
302A.243. A majority of the members of the committee holding office immediately
prior to a meeting of the committee shall constitute a quorum for the
transaction of business, unless a larger or smaller proportion or number is
provided in the resolution establishing the committee.
Section 3.12. Committee of Disinterested Persons. Pursuant to the procedure
set forth in Section 3.11, the Board may establish a committee composed of two
or more disinterested directors or other disinterested persons to determine
whether it is in the best interests of the corporation to pursue a particular
legal right or remedy of the corporation and whether to cause the dismissal or
discontinuance of a particular proceeding that seeks to assert a right or remedy
on behalf of the corporation. The committee, once established, is not subject to
the direction or control of, or termination by, the Board. A vacancy on the
committee may be filled by a majority of the remaining committee members. The
good faith determinations of the committee are binding upon the corporation and
its directors, officers and shareholders. The committee terminates when it
issues a written report of its determination to the Board.
Section 3.13. Written Action. Any action which might be taken at a meeting
of the Board of Directors, or any duly constituted committee thereof, may be
taken without a meeting if done in writing and signed by all of the directors or
committee members, unless the Articles provide otherwise and the action need not
be approved by the shareholders.
Section 3.14. Compensation. The Board may fix the compensation, if any, of
directors.
Section 3.15. Nomination of Director Candidates. Only persons who are
nominated in accordance with the procedures set forth in this Section 3.15 shall
be eligible for election as directors. Nominations of persons for election to
the Board of Directors of the corporation may be made at a meeting of
shareholders (i) by or at the direction of the Board of Directors, or (ii) by
any shareholder of the corporation entitled to vote for the election of
directors at the meeting who complies with the notice procedures hereinafter set
forth in this Section.
(a) Timing of Notice. Nominations by shareholders shall be made pursuant
to timely notice in writing to the secretary of the corporation. To be
timely, a shareholder's notice of nominations to be made at an annual
shareholders meeting of shareholders must be delivered to the
secretary of the corporation, or mailed and received at the principal
executive office of the corporation, not less than 90 days before the
first anniversary date of the preceding year's annual shareholders
meeting of shareholders. If, however, the date of the annual
shareholders meeting of shareholders is more than 30 days before or
after such anniversary date, notice by a shareholder shall be timely
only if so delivered or so mailed and received not less than 90 days
before such annual shareholders meeting or, if later, within 10 days
after the first public announcement of the date of such annual
shareholders meeting. If a special meeting of shareholders of the
corporation is called in accordance with Section 2.03 for the purpose
of electing one or more directors to the Board of Directors or if a
regular meeting other than an annual shareholders meeting is held, for
a shareholder's notice of nominations to be timely it must be
delivered to the secretary of the corporation, or mailed and received
at the principal executive office of the corporation, not less than 90
days before such special meeting or such regular meeting or, if later,
within 10 days after the first public announcement of the date of such
special meeting or such regular meeting. Except to the extent
otherwise required by law, the adjournment of a regular or special
meeting of shareholders shall not commence a new time period for the
giving of a shareholder's notice as described above.
(b) Content of Notice. A shareholder's notice to the corporation of
nominations for a regular or special meeting of shareholders shall set
forth (x) as to each person whom the shareholder proposes to nominate
for election or re-election as a director: (i) such person's name,
age, business address and residence address and principal occupation
or employment, (ii) all other information relating to such person that
is required to be disclosed in solicitations of proxies for election
of directors, or that is otherwise required, pursuant to Regulation
14A under the Securities Exchange Act of 1934, as amended, and (iii)
such person's written consent to being named in the proxy statement as
a nominee and to serving as a director if elected; and (y) as to the
shareholder giving the notice: (i) the name and address, as they
appear on the corporation's books, or such shareholder, (ii) the class
or series (if any) and number of shares of the corporation that are
beneficially owned by such shareholder, and (iii) a representation
that the shareholder is a holder of record of shares of the
corporation entitled to vote for the election of directors and intends
to appear in person or by proxy at the meeting to nominate the person
or persons specified in the notice. At the request of the Board of
Directors, any person nominated by the Board of Directors for election
as a director shall furnish to the secretary of the corporation the
information required to be set forth in a shareholder's notice of
nomination that pertains to a nominee.
(c) Consequences of Failure to Give Timely Notice. Notwithstanding
anything in these Bylaws to the contrary, no person shall be eligible
for election as a director of the corporation unless nominated in
accordance with the procedures set forth in this Section. The officer
of the corporation chairing the meeting shall, if the facts warrant,
determine and declare to the meeting that a nomination was not made in
accordance with the procedures prescribed in this Section and, if such
officer should so determine, such officer shall so declare to the
meeting, and the defective nomination shall be disregarded.
ARTICLE IV.
OFFICERS
Section 4.01. Number and Designation. The corporation shall have one or
more natural persons exercising the functions of the offices of chief executive
officer and chief financial officer. The Board of Directors may elect or appoint
such other officers or agents as it deems necessary for the operation and
management of the corporation, with such powers, rights, duties and
responsibilities as may be determined by the Board, including, without
limitation, a Chairman of the Board, a President, one or more Vice Presidents, a
Secretary, A Treasurer, and such assistant officers or other officers as may
from time to time, be elected or appointed by the Board. Each such officer shall
have the powers, rights, duties and responsibilities set forth in these Bylaws
unless otherwise determined by the Board. Any number of offices may be held by
the same person.
Section 4.02. Chief Executive Officer. Either the Chairman of the Board,
the President or another officer of the corporation may be designated from time
to time by the Board to be the chief executive officer of the corporation.
Unless provided otherwise by a resolution adopted by the Board of Directors, the
chief executive officer (a) shall have general active management of the business
of the corporation; (b), shall, when present, preside at all meetings of the
shareholders; (c) shall see that all orders and resolutions of the Board are
carried into effect; (d) shall sign and deliver in the name of the corporation
any deeds, mortgages, bonds, contracts or other instruments pertaining to the
business of the corporation, except in cases in which the authority to sign and
deliver is required by law to be exercised by another person or is expressly
delegated by these Bylaws or the Board to some other officer or agent of the
corporation; (e) may maintain records of and certify proceedings of the Board
and shareholders; and (f) shall perform such other duties as may from time to
time be assigned to him by the Board.
Section 4.03. Chief Operating Officer. The chief operating officer (if one
is elected by the Board) shall be either the President or a Vice President. He
shall be responsible for the management of all of the operations of the
corporation's business and shall have such other authority and duties as the
Board of Directors or the chief executive officer from time to time may
prescribe. He shall report to the chief executive officer and be responsible to
him. He may also execute and deliver in the name of the corporation any
instruments or documents pertaining to the business of the corporation which
could be executed by the chief executive officer.
Section 4.04. Chief Financial Officer. Unless provided otherwise by a
resolution adopted by the Board of Directors, the chief financial officer (a)
shall keep accurate financial records for the corporation; (b) shall deposit all
monies, drafts and checks in the name of and to the credit of the corporation in
such banks and depositories as the Board of Directors shall designate from time
to time; (c) shall endorse for deposit all notes, checks and drafts received by
the corporation as ordered by the Board, making proper vouchers therefor; (d)
shall disburse corporate funds and issue checks and drafts in the name of the
corporation, as ordered by the Board; (e) shall render to the chief executive
officer and the Board of Directors, whenever requested, an account of all of his
transactions as chief financial officer and of the financial condition of the
corporation; and (f) shall perform such other duties as may be prescribed by the
Board of Directors or the chief executive officer from time to time.
Section 4.05. Chairman of the Board. The Chairman of the Board, if one is
elected, shall preside at all meetings of the directors and shall have such
other duties as may be prescribed, from time to time, by the Board of Directors.
Section 4.06. President. Unless otherwise determined by the Board, the
President shall be the chief executive officer of the corporation and shall
supervise and control the business affairs of the corporation. If an officer
other than the President is designated chief executive officer, the President
shall perform such duties as may from time to time be assigned to him by the
Board.
Section 4.07. Vice President. The Board of Directors may designate one or
more Vice Presidents, who shall have such designations and powers and shall
perform such duties as prescribed by the Board of Directors or by the President.
In the event of the absence or disability of the President, Vice Presidents
shall succeed to his power and duties in the order designated by the Board of
Directors.
Section 4.08. Secretary. The Secretary shall be secretary of and shall
attend all meetings of the shareholders and Board of Directors and shall record
all proceedings of such meetings in the minute book of the corporation. Except
as otherwise required or permitted by statute or by these Bylaws, the Secretary
shall give notice of meetings of shareholders and directors. The Secretary shall
perform such other duties as may, from time to time, be prescribed by the Board
of Directors or by the chief executive officer.
Section 4.09. Treasurer. Unless otherwise determined by the Board, the
Treasurer shall be the Chief Financial Officer of the Corporation. If an officer
other than the Treasurer is designated Chief Financial Officer, the Treasurer
shall perform such duties as may from time to time be assigned to him by the
Board.
Section 4.10. Authority and Duties. In addition to the foregoing authority
and duties, all officers of the corporation shall respectively have such
authority and perform such duties in the management of the business of the
corporation as may be determined from time to time by the Board of Directors.
Unless prohibited by a resolution of the Board of Directors, an officer elected
or appointed by the Board may, without specific approval of the Board, delegate
some or all of the duties and powers of an office to other persons.
Section 4.11. Removal and Vacancies. Any officer may be removed from his
office by the Board of Directors at any time, with or without cause. Such
removal, however, shall be without prejudice to the contract rights of the
person so removed. If there be a vacancy among the officers of the corporation
by reason of death, resignation or otherwise, such vacancy shall be filled for
the unexpired term by the Board of Directors.
Section 4.12. Compensation. The officers of this corporation shall receive
such compensation for their services as may be determined by or in accordance
with resolutions of the Board of Directors.
ARTICLE V.
SHARES AND THEIR TRANSFER
Section 5.01. Certificates for Shares. All shares of the corporation shall
be certificated shares. Every owner of shares of the corporation shall be
entitled to a certificate, to be in such form as shall be prescribed by the
Board of Directors, certifying the number of shares of the corporation owned by
such shareholder. The certificates for such shares shall be numbered in the
order in which they shall be issued and shall be signed, in the name of the
corporation, by the President or any Vice President and by the Secretary or an
Assistant Secretary or by such officers as the Board of Directors may designate.
If the certificate is signed by a transfer agent or registrar, such signatures
of the corporate officers may be facsimiles, engraved or printed. Every
certificate surrendered to the corporation for exchange or transfer shall be
canceled, and no new certificate or certificates shall be issued in exchange for
any existing certificate until such existing certificate shall have been so
canceled, except in cases provided for in Section 5.03.
Section 5.02. Transfer of Shares. Transfer of shares on the books of the
corporation may be authorized only by the shareholder named in the certificate,
or the shareholder's legal representative, or the shareholder's duly authorized
attorney-in-fact, and upon surrender of the certificate or the certificates for
such shares. The corporation may treat as the absolute owner of shares of the
corporation, the person or persons in whose name shares are registered on the
books of the corporation. The Board of Directors may appoint one or more
transfer agents and registrars to maintain the share records of the corporation
and to effect share transfers on its behalf.
Section 5.03. Loss of Certificates. Any shareholder claiming a certificate
for shares to be lost, stolen or destroyed shall make an affidavit of that fact
in such form as the Board of Directors shall require and shall, if the Board of
Directors so requires, give the corporation a bond of indemnity in form, in an
amount, and with one or more sureties satisfactory to the Board of Directors, to
indemnify the corporation against any claim which may be made against it on
account of the reissue of such certificate, whereupon a new certificate may be
issued in the same tenor and for the same number of shares as the one alleged to
have been lost, stolen or destroyed.
ARTICLE VI.
DIVIDENDS, RECORD DATE
Section 6.01. Dividends. The Board of Directors shall have the authority to
declare dividends and other distributions upon shares to the extent permitted by
law.
Section 6.02. Record Date. The Board of Directors may fix a date not
exceeding 60 days preceding the date fixed for the payment of any dividend as
the record date for the determination of the shareholders entitled to receive
payment of the dividend and, in such case, only shareholders of record on the
date so fixed shall be entitled to receive payment of such dividend.
ARTICLE VII.
SECURITIES OF OTHER CORPORATIONS.
Section 7.01. Voting Securities Held by the Corporation. The chief
executive officer shall have full power and authority on behalf of the
corporation (a) to attend any meeting of security holders of other corporations
in which the corporation may hold securities and to vote such securities on
behalf of this corporation; (b) to execute any proxy for such meeting on behalf
of the corporation; or (c) to execute a written action in lieu of a meeting of
such other corporation on behalf of this corporation. At such meeting, the chief
executive officer shall possess and may exercise any and all rights and powers
incident to the ownership of such securities that the corporation possesses. The
Board of Directors or the chief executive officer may, from time to time, confer
or delegate such powers to one or more other persons.
Section 7.02. Purchase and Sale of Securities. The chief executive officer
shall have full power and authority on behalf of the corporation to purchase,
sell, transfer or encumber any and all securities of any other corporation owned
by the corporation, and may execute and deliver such documents as may be
necessary to effectuate such purchase, sale, transfer or encumbrance. The Board
of Directors or the chief executive officer may, from time to time, confer or
delegate such powers to one or more other persons.
ARTICLE VIII.
INDEMNIFICATION OF CERTAIN PERSONS
Section 8.01. The corporation shall indemnify officers and directors, for
such expenses and liabilities, in such manner, under such circumstances, and to
such extent as permitted by Minnesota Statutes Section 302A.521, as now enacted
or hereafter amended.
ARTICLE IX.
AMENDMENTS
Section 9.01. These Bylaws may be amended or altered by the Board of
Directors at any meeting if notice of such proposed amendment shall have been
given in the notice of such meeting. Such authority in the Board of Directors is
subject to (a) the limitations imposed by Minnesota Statutes Section 302A.181,
as now enacted or hereafter amended, or other applicable law and (b) the power
of the shareholders to change or repeal such Bylaws by a majority vote of the
shareholders present or represented at any meeting of shareholders called for
such purpose.
Graco Inc.
2000 Corporate &
Business Unit
Annual Bonus Plan
Effective January 1, 2000
Human Resources
2000 EXECUTIVE CORPORATE & SBU BONUS PLAN
Objectives
- ----------
o To create shareholder value through achievement of annual financial
objectives.
o 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:
o Corporation
o Corporate Sales and/or Net Earnings objectives
o Business Units
o Sales and/or Contribution Growth objectives
Eligibility Requirements
- ------------------------
Only those positions which carry clear managerial responsibility for directly
contributing to Graco's Corporate Sales and/or Net Earnings objective and
Business Unit Sales and/or Contribution Growth 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:
o Commensurate with the position's ability to impact the annual Corporate
Sales and/or Net Earnings objective and Business Unit Sales and/or
Contribution Growth objectives.
o Consistent with total compensation levels prevalent for similar positions
in the market place.
Based on these criteria, bonus maximums ranging from 10% to 90% 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 Sales and/or Net Earnings
performance (expressed in percent) to the bonus results attained for any
applicable Business Unit's Sales and/or Contribution 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:
- -------------- ---------------
|Annual Annual | Participant's Participant's
|Corporate Business | Maximum Annual
|Performance + Unit | x Bonus X Base = Bonus
|Results Performance | Salary Salary
| Results |
| % (if | $ $
| applicable) |
| % |
| |
- -------------- ---------------
Administration
- --------------
The following rules have been established to ensure 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 CEO, the Director, 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 (e.g. through job posting or job
elimination) that is 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.
If, due to unique skills possessed by a participant, the company requests
that the participant accept a transfer to a non-bonus eligible position,
the participant will remain on the Plan. The participant's eligibility will
be reviewed annually as noted in Administrative Rule #4.
7. A participant must be an employee in good standing on 12/31 of the Plan
Year in order to receive a bonus. 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 job elimination, performance or otherwise for cause will be
ineligible for a bonus payment even though the participant is still
employed at year-end.
8. All matrix calculations will include such effects as those created by
foreign exchange gain/loss translation and income tax rate changes.
9. All matrix 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 Sales and/or Net 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.
These Administrative Rules indicate Gracos intent. Situations may arise which
are not specifically covered by these rules and will require the use of judgment
and discretion. Final responsibility for interpretation of these Administrative
Rules rests solely with the Director, Human Resources.
Exhibit 10.1
STOCK OPTION AGREEMENT
(NON-ISO)
THIS AGREEMENT, made this 24th day of February, 2000, by and between Graco
Inc., a Minnesota corporation (the "Company") and -First_Name- -Last_Name- (the
"Employee").
WITNESSETH THAT:
WHEREAS, the Company pursuant to it's Long-Term Incentive Stock Plan wishes
to grant this stock option to Employee;
NOW THEREFORE, in consideration of the premises and of the mutual covenants
herein contained, the parties hereto hereby agree as follows:
1. Grant of Option
---------------
The Company hereby grants to Employee, the right and option
(hereinafter called the "option") to purchase all or any part of an
aggregate of -Shares- shares of Common Stock of the Company, par value
$1.00 per share, at the price of $ per share on the terms and
conditions set forth herein.
2. Duration and Exercisability
---------------------------
A. This option may not be exercised by Employee until the expiration
of one (1) year from the date of grant, and this option shall in
all events terminate ten (10) years after the date of grant.
During the first year from the date of grant of this option, no
portion of this option may be exercised. Thereafter this option
shall become exercisable in four cumulative installments of 25%
as follows:
Total Portion of Option
Date Which is Exercisable
---- -----------------------
One Year after Date of Grant 25%
Two Years after Date of Grant 50%
Three Years after Date of Grant 75%
Four Years after Date of Grant 100%
In the event that Employee does not purchase in any one year the
full number of shares of Common Stock of the Company to which
he/she is entitled under this option, he/she may, subject to the
terms and conditions of Section 3 hereof, purchase such shares of
Common Stock in any subsequent year during the term of this
option.
B. During the lifetime of the Employee, the option shall be
exercisable only by him/her and shall not be assignable or
transferable by him/her otherwise than by will or the laws of
descent and distribution.
3. Effect of Termination of Employment
-----------------------------------
A. In the event that Employee shall cease to be employed by the
Company or its subsidiaries for any reason other than his/her
gross and willful misconduct, death, retirement (as defined in
Section 3. D. below), or disability (as defined in Section 3. D.
below), Employee shall have the right to exercise the option at
any time within one month after such termination of employment to
the extent of the full number of shares he/she was entitled to
purchase under the option on the date of termination, subject to
the condition that no option shall be exercisable after the
expiration of the term of the option.
B. In the event that Employee shall cease to be employed by the
Company or its subsidiaries by reason of his/her gross and
willful misconduct during the course of his/her employment,
including but not limited to wrongful appropriation of Company
funds or the commission of a felony, the option shall be
terminated as of the date of the misconduct.
C. If the Employee shall die while in the employ of the Company or a
subsidiary or within one month after termination of employment
for any reason other than gross and willful misconduct and shall
not have fully exercised the option, all remaining shares shall
become immediately exercisable and such option may be exercised
at any time within twelve months after his/her death by the
executors or administrators of the Employee or by any person or
persons to whom the option is transferred by will or the
applicable laws of descent and distribution, and subject to the
condition that no option shall be exercisable after the
expiration of the term of the option.
D. If the Employee's termination of employment is due to retirement
(either after attaining age 55 with 10 years of service, or
attaining age 65), or due to disability within the meaning of the
provisions of the Graco Long-Term Disability Plan subject to the
conditions that no option shall be exercisable after the
expiration of the terms of the option, all remaining shares shall
become immediately exercisable and the option may be exercised by
the Employee at any time within three years of the Employee's
retirement, subject to the condition that no option shall be
exercisable after the expiration of the term of the option. In
the event of the death of the Employee within the three-year
period after retirement, the option may be exercised at any time
within twelve months after his/her death by the executors or
administrators of the Employee or by any person or persons to
whom the option is transferred by will or the applicable laws of
descent and distribution, to the extent of the full number of
shares he/she was entitled to purchase under the option on the
date of death, and subject to the condition that no option shall
be exercisable after the expiration of the term of the option.
E. Notwithstanding anything to the contrary contained in this
Section 3, if the Employee chooses to terminate his/her
employment by retirement (as defined in Section 3. D. above) and
has not given the Company written notice, by correspondence to
his/her immediate supervisor and the Chief Executive Officer, of
said intention to retire not less than six (6) months prior to
the date of his/her retirement, then in such event for purposes
of this Agreement said termination of employment shall be deemed
to be not a retirement but a termination subject to the
provisions of Section 3. A. above, provided, however, that in the
event that the Chief Executive Officer, in his/her sole
discretion and judgement, determines that termination of
employment by retirement of the Employee without six (6) months
prior written notice is in the best interests of the Company,
then such retirement shall be subject to Section 3. D. above.
4. Manner of Exercise
------------------
A. The option can be exercised only by Employee or other proper
party within the option period delivering written notice to the
Company at its principal office in Minneapolis, Minnesota,
stating the number of shares as to which the option is being
exercised and, except as provided in Section 4. C., accompanied
by payment-in-full of the option price for all shares designated
in the notice.
B. The Employee may, at Employee's election, pay the option price
either by check (bank check, certified check, or personal check)
or by delivering to the Company for cancellation shares of Common
Stock of the Company with a fair market value equal to the option
price. For these purposes, the fair market value of the Company's
Common Stock shall be the closing price of the Common Stock on
the date of exercise on the New York Stock Exchange (the "NYSE")
or on the principal national securities exchange on which such
shares are traded if the shares are not then traded on the NYSE.
If there is not a quotation available for such day, then the
closing price on the next preceding day for which such a
quotation exists shall be determinative of fair market value. If
the shares are not then traded on an exchange, the fair market
value shall be the average of the closing bid and asked prices of
the Common Stock as reported by the National Association of
Securities Dealers Automated Quotation System. If the Common
Stock is not then traded on NASDAQ or on an exchange, then the
fair market value shall be determined in such manner as the
Company shall deem reasonable.
C. The Employee may, with the consent of the Company, pay the option
price by arranging for the immediate sale of some or all of the
shares issued upon exercise of the option by a securities dealer
and the payment to the Company by the securities dealer of the
option exercise price.
5. Payment of Withholding Taxes
----------------------------
Upon exercise of any portion of this option, Employee shall pay to the
Company an amount sufficient to satisfy any federal, state, or local
withholding tax requirements which arise as a result of the exercise
of the option or provide the Company with satisfactory indemnification
for such payment.
6. Change of Control
-----------------
A. Notwithstanding Section 2(a) hereof, the entire option shall
become immediately and fully exercisable on the day following a
"Change of Control" and shall remain fully exercisable until
either exercised or expiring by its terms. A "Change of Control"
means:
(1) Acquisition by any individual, entity, or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act
of 1934), (a "Person"), of beneficial ownership (within the
meaning of Rule 13d-3 under the 1934 Act) which results in
the beneficial ownership by such Person of 25% or more of
either
(a) The then outstanding shares of Common Stock of the
Company (the "Outstanding Company Common Stock") or
(b) The combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in the
election of directors (the "Outstanding Company Voting
Securities"); provided, however, that the following
acquisitions will not result in a Change of Control:
(i) an acquisition directly from the Company,
(ii) an acquisition by the Company,
(iii) an acquisition by an employee benefit plan (or
related trust) sponsored or maintained by the
Company or any corporation controlled by the
Company,
(iv) an acquisition by any Person who is deemed to
have beneficial ownership of the Company common
stock or other Company voting securities owned
by the Trust Under the Will of Clarissa L. Gray
("Trust Person"), provided that such acquisition
does not result in the beneficial ownership by
such Person of 32% or more of either the
Outstanding Company Common Stock or the Out-
standing Company Voting Securities, and provided
further that for purposes of this Section 6, a
Trust Person shall not be deemed to have
beneficial ownership of the Company common stock
or other Company voting securities owned by The
Graco Foundation or any employee benefit plan of
the Company, including, without limitations, the
Graco Employee Retirement Plan and the Graco
Employee Stock Ownership Plan,
(v) An acquisition by the Employee or any group that
includes the Employee, or
(vi) An acquisition by any corporation pursuant to a
transaction that complies with clauses (a), (b),
and (c) of subsection (4) below; and provided,
further, that if any Person's beneficial owner-
ship of the Outstanding Company Common Stock or
Outstanding Company Voting Securities is 25% or
more as a result of a transaction described in
clause (i) or (ii) above, and such Person sub-
sequently acquires beneficial ownership of
additional Outstanding Company Common Stock or
Outstanding Company Voting Securities as a result
of a transaction other than that described in
clause (i) or (ii) above, such subsequent
acquisition will be treated as an acquisition
that causes such Person to own 25% or more of the
Outstanding Company Common Stock or Outstanding
Company Voting Securities and be deemed a Change
of Control; and provided further, that in the
event any acquisition or other transaction occurs
which results in the beneficial ownership of 32%
or more of either the Outstanding Company Common
Stock or the Outstanding Company Voting
Securities by any Trust Person, the Incumbent
Board may by majority vote increase the threshold
beneficial ownership percentage to a percentage
above 32% for any Trust Person; or
(2) Individuals who, as of the date hereof, constitute the Board
of Directors of the Company (the "Incumbent Board") cease
for any reason to constitute at least a majority of said
Board; provided, however, that any individual becoming a
director subsequent to the date hereof whose election, or
nomination for election by the Company's shareholders, was
approved by a vote of at least a majority of the directors
then comprising the Incumbent Board will be considered as
though such individual were a member of the Incumbent Board,
but excluding, for this purpose, any such individual whose
initial membership on the Board occurs as a result of an
actual or threatened election contest with respect to the
election or removal of directors or other actual or
threatened solicitation of proxies or consents by or on
behalf of a Person other than the Board; or
(3) The commencement or announcement of an intention to make a
tender offer or exchange offer, the consummation of which
would result in the beneficial ownership by a Person of 25%
or more of the Outstanding Company Common Stock or
Outstanding Company Voting Securities; or
(4) The approval by the shareholders of the Company of a
reorganization, merger, consolidation, or statutory exchange
of Outstanding Company Common Stock or Outstanding Company
Voting Securities or sale or other disposition of all or
substantially all of the assets of the Company ("Business
Combination") or, if consummation of such Business
Combination is subject, at the time of such approval by
stockholders, to the consent of any government or
governmental agency, the obtaining of such consent (either
explicitly or implicitly by consummation) excluding,
however, such a Business combination pursuant to which
(a) All or substantially all of the individuals and
entities who were the beneficial owners of the
Outstanding Company Common Stock or Outstanding Company
Voting Securities immediately prior to such Business
Combination beneficially own, directly or indirectly,
more than 80% of, respectively, the then outstanding
shares of common stock and the combined voting power of
the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may
be, of the corporation resulting from such Business
Combination (including, without limitation, a
corporation that as a result of such transaction owns
the Company or all or substantially all of the
Company's assets either directly or through one or more
subsidiaries) in substantially the same proportions as
their ownership, immediately prior to such Business
Combination of the Outstanding Company Common Stock or
Outstanding Company Voting Securities,
(b) No Person [excluding any employee benefit plan (or
related trust) of the Company or such corporation
resulting from such Business Combination] beneficially
owns, directly or indirectly, 25% or more of the then
outstanding shares of common stock of the corporation
resulting from such Business Combination or the
combined voting power of the then outstanding voting
securities of such corporation except to the extent
that such ownership existed prior to the Business
Combination, and
(c) At least a majority of the members of the board of
directors of the corporation resulting from such
Business Combination were members of the Incumbent
Board at the time of the execution of the initial
Agreement, or of the action of the Board, providing for
such Business Combination; or
(5) Approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
B. A Change of Control shall not be deemed to have occurred with
respect to an Employee if:
(1) The acquisition of the 25% or greater interest referred to
in subparagraph A.(1) of this Section 6 is by a group,
acting in concert, that includes the Employee or
(2) If at least 25% of the then outstanding common stock or
combined voting power of the then outstanding Company voting
securities (or voting equity interests) of the surviving
corporation or of any corporation (or other entity)
acquiring all or substantially all of the assets of the
Company shall be beneficially owned, directly or indirectly,
immediately after a reorganization, merger, consolidation,
statutory share exchange, disposition of assets, liquidation
or dissolution referred to in subsections (4) or (5) of this
section by a group, acting in concert, that includes that
Employee.
7. Adjustments
-----------
If there shall be any change in the number or character of the Common
Stock of the Company through merger, consolidation, reorganization,
recapitalization, dividend in the form of stock (of whatever amount),
stock split or other change in the corporate structure of the Company,
and all or any portion of the option shall then be unexercised and not
yet expired, appropriate adjustments in the outstanding option shall
be made by the Company, in order to prevent dilution or enlargement of
option rights. Such adjustments shall include, where appropriate,
changes in the number of shares of Common Stock and the price per
share subject to the outstanding option.
8. Miscellaneous
-------------
A. This option is issued pursuant to the Company's Long-Term
Incentive Stock Plan and is subject to its terms. A copy of the
Plan has been given to the Employee. The terms of the Plan are
also available for inspection during business hours at the
principal offices of the Company.
B. This Agreement shall not confer on Employee any right with
respect to continuance of employment by the Company or any of its
subsidiaries, nor will it interfere in any way with the right of
the Company to terminate such employment at any time. Employee
shall have none of the rights of a shareholder with respect to
shares subject to this option until such shares shall have been
issued to him/her upon exercise of this option.
C. The Company shall at all times during the term of the option
reserve and keep available such number of shares as will be
sufficient to satisfy the requirements of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the day and year first above written.
GRACO INC.
By Its Chief Executive Officer:
Employee:
___________________________
Exhibit 10.2
STOCK OPTION AGREEMENT
(NON-ISO)
THIS AGREEMENT, made this 9th day of February, 2000, by and between Graco
Inc., a Minnesota corporation (the "Company") and George Aristides, (the
(Employee).
WITNESSETH THAT:
WHEREAS, the Company pursuant to it's Long-Term Incentive Stock Plan wishes
to grant this stock option to Employee;
NOW THEREFORE, in consideration of the premises and of the mutual covenants
herein contained, the parties hereto hereby agree as follows:
1. Grant of option
---------------
The Company hereby grants to Employee, the right and option
(hereinafter called the "option") to purchase all or any part of an
aggregate of 40,000 Common Shares, par value $1.00 per share, at the
price of $30.69 per share on the terms and conditions set forth
herein.
2. Duration and Exercisability
---------------------------
A. This option may be exercised by Employee immediately upon grant,
and this option shall in all events terminate ten (10) years
after the date of grant.
In the event that Employee does not purchase in any one year the
full number of shares of Common Stock of the Company to which
he/she is entitled under this option, he/she may, subject to the
terms and conditions of Section 3 hereof, purchase such shares of
Common Stock in any subsequent year during the term of this
option.
B. During the lifetime of the Employee, the option shall be
exercisable only by him/her and shall not be assignable or
transferable by him/her otherwise than by will or the laws of
descent and distribution.
3. Effect of Termination of Employment
-----------------------------------
A. In the event that Employee shall cease to be employed by the
Company or its subsidiaries for any reason other than his/her
gross and willful misconduct, death, retirement (as defined in
Section 3(d) below), or disability (as defined in Section 3(d)
below), Employee shall have the right to exercise the option at
any time within one month after such termination of employment to
the extent of the full number of shares he/she was entitled to
purchase under the option on the date of termination, subject to
the condition that no option shall be exercisable after the
expiration of the term of the option.
B. In the event that Employee shall cease to be em ployed by the
Company or its subsidiaries by reason of his/her gross and
willful misconduct during the course of his/her employment,
including but not limited to wrongful appropriation of Company
funds or the commission of a felony, the option shall be
terminated as of the date of the misconduct.
C. If the Employee shall die while in the employ of the Company or a
subsidiary or within one month after termination of employment
for any reason other than gross and willful misconduct and shall
not have fully exercised the option, all remaining shares shall
become immediately exercisable and such option may be exercised
at any time within twelve months after his/her death by the
executors or administrators of the Employee or by any person or
persons to whom the option is transferred by will or the
applicable laws of descent and distribution, and subject to the
condition that no option shall be exercisable after the
expiration of the term of the option.
D. If the Employee's termination of employment is due to retirement
(either after attaining age 55 with 10 years of service, or
attaining age 65, or due to disability within the meaning of the
provisions of the Graco Long-Term Disability Plan), all remaining
shares shall become immediately exercisable and the option may be
exercised by the Employee at any time within three years of the
employee's retirement, or in the event of the death of the
Employee within the three-year period after retirement, the
option may be exercised at any time within twelve months after
his/her death by the executors or administrators of the Employee
or by any person or persons to whom the option is transferred by
will or the applicable laws of descent and distribution, to the
extent of the full number of shares he/she was entitled to
purchase under the option on the date of death, and subject to
the condition that no option shall be exercisable after the
expiration of the term of the option.
4. Manner of Exercise
------------------
A. The option can be exercised only by Employee or other proper
party within the option period delivering written notice to the
Company at its principal office in Minneapolis, Minnesota,
stating the number of shares as to which the option is being
exercised and, except as provided in Section 4(c), accompanied by
payment-in-full of the option price for all shares designated in
the notice.
B. The Employee may, at Employee's election, pay the option price
either by check (bank check, certified check, or personal check)
or by delivering to the Company for cancellation Common Shares of
the Company with a fair market value equal to the option price.
For these purposes, the fair market value of the Company's Common
Shares shall be the closing price of the Common Shares on the
date of exercise on the New York Stock Exchange (the "NYSE") or
on the principal national securities exchange on which the shares
are traded if the shares are not then traded on the NYSE. If
there is not a quotation available for such day, then the closing
price on the next preceding day for which such a quotation exists
shall be determinative of fair market value. If the shares are
not then traded on an exchange, the fair market value shall be
the average of the closing bid and asked prices of the Common
Shares as reported by the National Association of Securities
Dealers Automated Quotation System. If the Common Shares are not
then traded on NASDAQ or on an exchange, then the fair market
value shall be determined in such manner as the Company shall
deem reasonable.
C. The Employee may, with the consent of the Company, pay the option
price by arranging for the immediate sale of some or all of the
shares issued upon exercise of the option by a securities dealer
and the payment to the Company by the securities dealer of the
option exercise price.
5. Payment of Withholding Taxes
----------------------------
Upon exercise of any portion of this option, Employee shall pay to the
Company an amount sufficient to satisfy any federal, state, or local
withholding tax requirements which arise as a result of the exercise
of the option or provide the Company with satisfactory indemnification
for such payment.
6. Change of Control
-----------------
A. Notwithstanding Section 2(a) hereof, the entire option shall
become immediately and fully exercisable on the day following a "
Change of Control" and shall remain fully exercisable until
either exercised or expiring by its terms. A " Change of Control"
means:
(1) acquisition by any individual, entity, or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act
of 1934), (a "Person"), of beneficial ownership (within the
meaning of Rule l3d-3 under the 1934 Act) which results in
the beneficial ownership by such Person of 25 % or more of
either
(a) the then outstanding shares of Common Stock of the
Company (the "Outstanding Company Common Stock") or
(b) the combined voting power of the then outstanding
voting securities of the Company entitled to vote
generally in the election of directors (the
"Outstanding Company Voting Securities");
provided, however, that the, following acquisitions will not
result in a Change of Control:
(i) an acquisition directly from the Company,
(ii) an acquisition by the Company,
(iii)an acquisition by an employee benefit plan (or
related trust) sponsored or maintained by the
Company or any corporation controlled by the
Company,
(iv) an acquisition by any Person who is deemed to have
beneficial ownership of the Company common stock
or other Company voting securities owned by the
Trust Under the Will of Clarissa L. Gray ("Trust
Person"), provided that such acquisition does not
result in the beneficial ownership by such Person
of 32% or more of either the Outstanding Company
Common Stock or the Outstanding Company Voting
Securities, and provided further that for purposes
of this Section 6, a Trust Person shall not be
deemed to have beneficial ownership of the Company
common stock or other Company voting securities
owned by The Graco Foundation or any employee
benefit plan of the Company, including, without
limitations, the Graco Employee Retirement Plan
and the Graco Employee Stock Ownership Plan,
(v) an acquisition by the Employee or any group that
includes the Employee, or
(vi) an acquisition by any corporation pursuant to a
transaction that complies with clauses (a), (b),
and (c) of subsection (4) below; and
provided, further, that if any Person's beneficial ownership
of the Outstanding Company Common Stock or Outstanding
Company Voting Securities is 25% or more as a result of a
transaction described in clause (i) or (ii) above, and such
Person subsequently acquires beneficial ownership of
additional Outstanding Company Common Stock or Outstanding
Company Voting Securities as a result of a transaction other
than that described in clause (i) or (ii) above, such
subsequent acquisition will be treated as an acquisition
that causes such Person to own 25% or more of the
Outstanding Company Common Stock or Outstanding Company
Voting Securities and be deemed a Change of Control; and
provided further, that in the event any acquisition or other
transaction occurs which results in the beneficial ownership
of 32 % or more of either the Outstanding Company Common
Stock or the Outstanding Company Voting Securities by any
Trust Person, the Incumbent Board may by majority vote
increase the threshold beneficial ownership percentage to a
percentage above 32 % for any Trust Person; or
(2) Individuals who, as of the date hereof, constitute the Board
of Directors of the Company (the "Incumbent Board") cease
for any reason to constitute at least a majority of said
Board; provided, however, that any individual becoming a
director subsequent to the date hereof whose election, or
nomination for election by the Company's shareholders, was
approved by a vote of at least a majority of the directors
then comprising the Incumbent Board will be considered as
though such individual were a member of the Incumbent Board,
but excluding, for this purpose, any such individual whose
initial membership on the Board occurs as a result of an
actual or threatened election contest with respect to the
election or removal of directors or other actual or
threatened solicitation of proxies or consents by or on
behalf of a Person other than the Board; or
(3) The commencement or announcement of an intention to make a
tender offer or exchange offer, the consummation of which
would result in the beneficial ownership by a Person of 25 %
or more of the Outstanding Company Common Stock or
Outstanding Company Voting Securities; or
(4) The approval by the shareholders of the Company of a
reorganization, merger, consolidation, or statutory exchange
of Outstanding Company Common Stock or Outstanding Company
Voting Securities or sale or other disposition of all or
substantially all of the assets of the Company ("Business
Combination") or, if consummation of such Business
Combination is subject, at the time of such approval by
stockholders, to the consent of any government or
governmental agency, the obtaining of such consent (either
explicitly or implicitly by consummation) excluding,
however, such a Business combination pursuant to which
(a) all or substantially all of the individuals and
entities who were the beneficial owners of the
Outstanding Company Common Stock or Outstanding Company
Voting Securities immediately prior to such Business
Combination beneficially own, directly or indirectly,
more than 80% of, respectively, the then outstanding
shares of common stock and the combined voting power of
the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may
be, of the corporation resulting from such Business
Combination (including, without limitation, a
corporation that as a result of such transaction owns
the Company or all or substantially all of the
Company's assets either directly or through one or more
subsidiaries) in substantially the same proportions as
their ownership, immediately prior to such Business
Combination of the Outstanding Company Common Stock or
Outstanding Company Voting Securities,
(b) no Person [excluding any employee benefit plan (or
related trust) of the Company or such corporation
resulting from such Business Combination] beneficially
owns, directly or indirectly, 25 % or more of the then
outstanding shares of common stock of the corporation
resulting from such Business Combination or the
combined voting power of the then outstanding voting
securities of such corporation except to the extent
that such ownership existed prior to the Business
Combination, and
(c) at least a majority of the members of the board of
directors of the corporation resulting from such
Business Combination were members of the Incumbent
Board at the time of the execution of the initial
agreement, or of the action of the Board, providing for
such Business Combination; or
(5) approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
B. A Change of Control shall not be deemed to have occurred with
respect to an Employee if
(1) the acquisition of the 25% or greater interest referred to
in subparagraph A.(1) of this Section 6 is by a group,
acting in concert, that includes the Employee or
(2) if at least 25 % of the then outstanding common stock or
combined voting power of the then outstanding company voting
securities (or voting equity interests) of the surviving
corporation or of any corporation (or other entity)
acquiring all or substantially all of the assets of the
Company shall be beneficially owned, directly or indirectly,
immediately after a reorganization, merger, consolidation,
statutory share exchange, disposition of assets, liquidation
or dissolution referred to in subsections (4) or (5) of this
section by a group, acting in concert, that includes that
Employee.
7. Adjustments
-----------
If Employee exercises all or any portion of the option subsequent to
any change in the number or character of the Common Shares of the
Company (through merger, consolidation, reorganization,
recapitalization, stock dividend, or otherwise), Employee shall then
receive for the aggregate price paid by him/her on such exercise of
the option, the number and type of securities or other consideration
which he/she would have received if such option had been exercised
prior to the event changing the number or character of outstanding
shares.
8. Miscellaneous
-------------
A. This option is issued pursuant to the Company's Long-Term
Incentive Stock Plan and is subject to its terms. A copy of the
Plan has been given to Employee. The terms of the Plan are also
available for inspection during business hours at the principal
offices of the company.
B. This Agreement shall not confer on Employee any right with
respect to continuance of employment by the Company or any of its
subsidiaries, nor will it interfere in any way with the right of
the Company to terminate such employment at any time. Employee
shall have none of the rights of a shareholder with respect to
shares subject to this option until such shares shall have been
issued to him upon exercise of this option.
C. The Company shall at all times during the term of the option
reserve and keep available such number of shares as will be
sufficient to satisfy the requirements of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the day and year first above written.
GRACO INC.
By:
David A. Koch, Chairman of the Board
/s/George Aristides
Employee
Exhibit 10.3
STOCK OPTION AGREEMENT
(NON-ISO)
THIS AGREEMENT, made this 24th day of February, 2000, by and between Graco
Inc., a Minnesota corporation (the "Company") and David Lowe, (the "Employee").
WITNESSETH THAT:
WHEREAS, the Company pursuant to it's Long-Term Incentive Stock Plan wishes
to grant this stock option to Employee;
NOW THEREFORE, in consideration of the premises and of the mutual covenants
herein contained, the parties hereto hereby agree as follows:
1. Grant of Option
---------------
The Company hereby grants to Employee, the right and option
(hereinafter called the "option") to purchase all or any part of an
aggregate of 7,500 shares of Common Stock of the Company, par value
$1.00 per share, at the price of $30.6875 per share on the terms and
conditions set forth herein.
2. Duration and Exercisability
---------------------------
A. This option may not be exercised by Employee until the expiration
of three(3) years from the date of grant, and this option shall
in all events terminate ten (10) years after the date of grant.
During the two (2) years from the date of grant of this option,
no portion of this option may be exercised. Thereafter this
entire option shall become exercisable as follows:
Total Portion of Option
Date Which is Exercisable
---- -----------------------
One Year after Date of Grant 0%
Two Years after Date of Grant 0%
Three Years after Date of Grant 100%
In the event that Employee does not purchase in any one year the
full number of shares of Common Stock of the Company to which
he/she is entitled under this option, he/she may, subject to the
terms and conditions of Section 3 hereof, purchase such shares of
Common Stock in any subsequent year during the term of this
option.
B. During the lifetime of the Employee, the option shall be
exercisable only by him/her and shall not be assignable or
transferable by him/her otherwise than by will or the laws of
descent and distribution.
3. Effect of Termination of Employment
-----------------------------------
A. In the event that Employee shall cease to be employed by the
Company or its subsidiaries for any reason other than his/her
gross and willful misconduct, death, retirement (as defined in
Section 3. D. below), or disability (as defined in Section 3. D.
below), Employee shall have the right to exercise the option at
any time within one month after such termination of employment to
the extent of the full number of shares he/she was entitled to
purchase under the option on the date of termination, subject to
the condition that no option shall be exercisable after the
expiration of the term of the option.
B. In the event that Employee shall cease to be employed by the
Company or its subsidiaries by reason of his/her gross and
willful misconduct during the course of his/her employment,
including but not limited to wrongful appropriation of Company
funds or the commission of a felony, the option shall be
terminated as of the date of the misconduct.
C. If the Employee shall die while in the employ of the Company or a
subsidiary or within one month after termination of employment
for any reason other than gross and willful misconduct and shall
not have fully exercised the option, all remaining shares shall
become immediately exercisable and such option may be exercised
at any time within twelve months after his/her death by the
executors or administrators of the Employee or by any person or
persons to whom the option is transferred by will or the
applicable laws of descent and distribution, and subject to the
condition that no option shall be exercisable after the
expiration of the term of the option.
D. If the Employee's termination of employment is due to retirement
(either after attaining age 55 with 10 years of service, or
attaining age 65), or due to disability within the meaning of the
provisions of the Graco Long-Term Disability Plan subject to the
conditions that no option shall be exercisable after the
expiration of the terms of the option, all remaining shares shall
become immediately exercisable and the option may be exercised by
the Employee at any time within three years of the Employee's
retirement, subject to the condition that no option shall be
exercisable after the expiration of the term of the option. In
the event of the death of the Employee within the three-year
period after retirement, the option may be exercised at any time
within twelve months after his/her death by the executors or
administrators of the Employee or by any person or persons to
whom the option is transferred by will or the applicable laws of
descent and distribution, to the extent of the full number of
shares he/she was entitled to purchase under the option on the
date of death, and subject to the condition that no option shall
be exercisable after the expiration of the term of the option.
E. Notwithstanding anything to the contrary contained in this
Section 3, if the Employee chooses to terminate his/her
employment by retirement (as defined in Section 3. D. above) and
has not given the Company written notice, by correspondence to
his/her immediate supervisor and the Chief Executive Officer, of
said intention to retire not less than six (6) months prior to
the date of his/her retirement, then in such event for purposes
of this Agreement said termination of employment shall be deemed
to be not a retirement but a termination subject to the
provisions of Section 3. A. above, provided, however, that in the
event that the Chief Executive Officer, in his/her sole
discretion and judgement, determines that termination of
employment by retirement of the Employee without six (6) months
prior written notice is in the best interests of the Company,
then such retirement shall be subject to Section 3. D. above.
4. Manner of Exercise
------------------
A. The option can be exercised only by Employee or other proper
party within the option period delivering written notice to the
Company at its principal office in Minneapolis, Minnesota,
stating the number of shares as to which the option is being
exercised and, except as provided in Section 4. C., accompanied
by payment-in-full of the option price for all shares designated
in the notice.
B. The Employee may, at Employee's election, pay the option price
either by check (bank check, certified check, or personal check)
or by delivering to the Company for cancellation shares of Common
Stock of the Company with a fair market value equal to the option
price. For these purposes, the fair market value of the Company's
Common Stock shall be the closing price of the Common Stock on
the date of exercise on the New York Stock Exchange (the "NYSE")
or on the principal national securities exchange on which such
shares are traded if the shares are not then traded on the NYSE.
If there is not a quotation available for such day, then the
closing price on the next preceding day for which such a
quotation exists shall be determinative of fair market value. If
the shares are not then traded on an exchange, the fair market
value shall be the average of the closing bid and asked prices of
the Common Stock as reported by the National Association of
Securities Dealers Automated Quotation System. If the Common
Stock is not then traded on NASDAQ or on an exchange, then the
fair market value shall be determined in such manner as the
Company shall deem reasonable.
C. The Employee may, with the consent of the Company, pay the option
price by arranging for the immediate sale of some or all of the
shares issued upon exercise of the option by a securities dealer
and the payment to the Company by the securities dealer of the
option exercise price.
5. Payment of Withholding Taxes
----------------------------
Upon exercise of any portion of this option, Employee shall pay to the
Company an amount sufficient to satisfy any federal, state, or local
withholding tax requirements which arise as a result of the exercise
of the option or provide the Company with satisfactory indemnification
for such payment.
6. Change of Control
-----------------
A. Notwithstanding Section 2(a) hereof, the entire option shall
become immediately and fully exercisable on the day following a
"Change of Control" and shall remain fully exercisable until
either exercised or expiring by its terms. A "Change of Control"
means:
(1) Acquisition by any individual, entity, or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act
of 1934), (a "Person"), of beneficial ownership (within the
meaning of Rule 13d-3 under the 1934 Act) which results in
the beneficial ownership by such Person of 25% or more of
either
(a) The then outstanding shares of Common Stock of the
Company (the "Outstanding Company Common Stock") or
(b) The combined voting power of the then outstanding
voting securities of the Company entitled to vote
generally in the election of directors (the
"Outstanding Company Voting Securities");provided,
however, that the following acquisitions will not
result in a Change of Control:
(i) an acquisition directly from the Company,
(ii) an acquisition by the Company,
(iii) an acquisition by an employee benefit plan
(or related trust) sponsored or maintained
by the Company or any corporation controlled
by the Company,
(iv) an acquisition by any Person who is deemed
to have beneficial ownership of the Company
common stock or other Company voting
securities owned by the Trust Under the Will
of Clarissa L. Gray ("Trust Person"),
provided that such acquisition does not
result in the beneficial ownership by such
Person of 32% or more of either the Out-
standing Company Common Stock or the
Outstanding Company Voting Securities, and
provided further that for purposes of this
Section 6, a Trust Person shall not be
deemed to have beneficial ownership of the
Company common stock or other Company voting
securities owned by The Graco Foundation or
any employee benefit plan of the Company,
including, without limitations, the Graco
Employee Retirement Plan and the Graco
Employee Stock Ownership Plan,
(v) An acquisition by the Employee or any group
that includes the Employee, or
(vi) An acquisition by any corporation pursuant
to a transaction that complies with clauses
(a), (b), and (c) of subsection (4) below;
and provided, further, that if any Person's
beneficial ownership of the Outstanding
Company Common Stock or Outstanding Company
Voting Securities is 25% or more as a
result of a transaction described in clause
(i) or (ii) above, and such Person
subsequently acquires beneficial ownership
of additional Outstanding Company Common
Stock or Outstanding Company Voting
Securities as a result of a transaction
other than that described in clause (i) or
(ii) above, such subsequent acquisition will
be treated as an acquisition that causes
such Person to own 25% or more of the Out-
standing Company Common Stock or Outstanding
Company Voting Securities and be deemed a
Change of Control; and provided further,
that in the event any acquisition or other
transaction occurs which results in the
beneficial ownership of 32% or more of
either the Outstanding Company Common Stock
or the Outstanding Company Voting Securities
by any Trust Person, the Incumbent Board may
by majority vote increase the threshold
beneficial ownership percentage to a
percentage above 32% for any Trust Person;
or
(2) Individuals who, as of the date hereof, constitute the Board
of Directors of the Company (the "Incumbent Board") cease
for any reason to constitute at least a majority of said
Board; provided, however, that any individual becoming a
director subsequent to the date hereof whose election, or
nomination for election by the Company's shareholders, was
approved by a vote of at least a majority of the directors
then comprising the Incumbent Board will be considered as
though such individual were a member of the Incumbent Board,
but excluding, for this purpose, any such individual whose
initial membership on the Board occurs as a result of an
actual or threatened election contest with respect to the
election or removal of directors or other actual or
threatened solicitation of proxies or consents by or on
behalf of a Person other than the Board; or
(3) The commencement or announcement of an intention to make a
tender offer or exchange offer, the consummation of which
would result in the beneficial ownership by a Person of 25%
or more of the Outstanding Company Common Stock or
Outstanding Company Voting Securities; or
(4) The approval by the shareholders of the Company of a
reorganization, merger, consolidation, or statutory exchange
of Outstanding Company Common Stock or Outstanding Company
Voting Securities or sale or other disposition of all or
substantially all of the assets of the Company ("Business
Combination") or, if consummation of such Business
Combination is subject, at the time of such approval by
stockholders, to the consent of any government or
governmental agency, the obtaining of such consent (either
explicitly or implicitly by consummation) excluding,
however, such a Business combination pursuant to which
(a) All or substantially all of the individuals and
entities who were the beneficial owners of the
Outstanding Company Common Stock or Outstanding Company
Voting Securities immediately prior to such Business
Combination beneficially own, directly or indirectly,
more than 80% of, respectively, the then outstanding
shares of common stock and the combined voting power of
the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may
be, of the corporation resulting from such Business
Combination (including, without limitation, a
corporation that as a result of such transaction owns
the Company or all or substantially all of the
Company's assets either directly or through one or more
subsidiaries) in substantially the same proportions as
their ownership, immediately prior to such Business
Combination of the Outstanding Company Common Stock or
Outstanding Company Voting Securities,
(b) No Person [excluding any employee benefit plan (or
related trust) of the Company or such corporation
resulting from such Business Combination] beneficially
owns, directly or indirectly, 25% or more of the then
outstanding shares of common stock of the corporation
resulting from such Business Combination or the
combined voting power of the then outstanding voting
securities of such corporation except to the extent
that such ownership existed prior to the Business
Combination, and
(c) At least a majority of the members of the board of
directors of the corporation resulting from such
Business Combination were members of the Incumbent
Board at the time of the execution of the initial
Agreement, or of the action of the Board, providing for
such Business Combination; or
(5) Approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
B. A Change of Control shall not be deemed to have occurred with
respect to an Employee if:
(1) The acquisition of the 25% or greater interest referred to
in subparagraph A.(1) of this Section 6 is by a group,
acting in concert, that includes the Employee or
(2) If at least 25% of the then outstanding common stock or
combined voting power of the then outstanding Company voting
securities (or voting equity interests) of the surviving
corporation or of any corporation (or other entity)
acquiring all or substantially all of the assets of the
Company shall be beneficially owned, directly or indirectly,
immediately after a reorganization, merger, consolidation,
statutory share exchange, disposition of assets, liquidation
or dissolution referred to in subsections (4) or (5) of this
section by a group, acting in concert, that includes that
Employee.
7. Adjustments
-----------
If there shall be any change in the number or character of the Common
Stock of the Company through merger, consolidation, reorganization,
recapitalization, dividend in the form of stock (of whatever amount),
stock split or other change in the corporate structure of the Company,
and all or any portion of the option shall then be unexercised and not
yet expired, appropriate adjustments in the outstanding option shall
be made by the Company, in order to prevent dilution or enlargement of
option rights. Such adjustments shall include, where appropriate,
changes in the number of shares of Common Stock and the price per
share subject to the outstanding option.
8. Miscellaneous
-------------
A. This option is issued pursuant to the Company's Long-Term
Incentive Stock Plan and is subject to its terms. A copy of the
Plan has been given to the Employee. The terms of the Plan are
also available for inspection during business hours at the
principal offices of the Company.
B. This Agreement shall not confer on Employee any right with
respect to continuance of employment by the Company or any of its
subsidiaries, nor will it interfere in any way with the right of
the Company to terminate such employment at any time. Employee
shall have none of the rights of a shareholder with respect to
shares subject to this option until such shares shall have been
issued to him/her upon exercise of this option.
C. The Company shall at all times during the term of the option
reserve and keep available such number of shares as will be
sufficient to satisfy the requirements of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the day and year first above written.
GRACO INC.
By Its Chief Executive Officer:
/s/George Aristides
Employee:
/s/David M. Lowe
EXHIBIT 11
GRACO INC. AND SUBSIDIARIES
COMPUTATION OF NET EARNINGS PER COMMON SHARE
(Unaudited)
Thirteen Weeks Ended
--------------------
March 31, 2000 March 26, 1999
-------------- --------------
(In thousands except
per share amounts)
Net earnings applicable to common shareholders
for basic and diluted earnings per share $14,975 $11,201
-------------- --------------
Weighted average shares outstanding for
basic earnings per share 20,393 20,104
Dilutive effect of stock options computed
using the treasury stock method and the
average market price 319 502
Weighted average shares outstanding for diluted
earnings per share 20,712 20,606
Basic earnings per share $ .73 $ .56
-------------- --------------
Diluted earnings per share $ .72 $ .54
-------------- --------------
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Graco
Inc. and subsidiaries consolidated balance sheets for the quarterly period
ending March 31, 2000 and is qualified in its entirety by reference to such
statements.
</LEGEND>
<CIK> 0000042888
<NAME> Graco Inc
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-29-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<EXCHANGE-RATE> 1
<CASH> 2,834
<SECURITIES> 0
<RECEIVABLES> 92,711
<ALLOWANCES> 4,700
<INVENTORY> 41,640
<CURRENT-ASSETS> 146,087
<PP&E> 187,764
<DEPRECIATION> 99,068
<TOTAL-ASSETS> 242,664
<CURRENT-LIABILITIES> 79,614
<BONDS> 69,645
0
0
<COMMON> 20,293
<OTHER-SE> 45,386
<TOTAL-LIABILITY-AND-EQUITY> 242,664
<SALES> 120,227
<TOTAL-REVENUES> 120,227
<CGS> 58,098
<TOTAL-COSTS> 58,098
<OTHER-EXPENSES> 39,154
<LOSS-PROVISION> 124
<INTEREST-EXPENSE> 1,235
<INCOME-PRETAX> 22,975
<INCOME-TAX> 8,000
<INCOME-CONTINUING> 14,975
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,975
<EPS-BASIC> 0.73
<EPS-DILUTED> 0.72
</TABLE>
