AMENDMENT TO
GRACO INC. KEY EMPLOYEE AGREEMENT
AMENDMENT AGREEMENT, by and between Graco Inc., a Minnesota corporation (the
"Company") and __________________ (the "Executive"), dated as of the 9th day of
January, 1998.
WHEREAS, the Executive and the Company have entered into an agreement entitled
Graco Inc. Key Employee Agreement, dated March, 1997 (the "Key Employee
Agreement"); and
WHEREAS, the parties wish to amend the Key Employee Agreement as set forth below
in order to assure that the purposes of said Key Employee Agreement, as set
forth in the premises thereto, are fulfilled;
Now, therefore, the parties agree as follows:
1. Section 6(e) of the Key Employee Agreement is hereby amended to read as set
forth below, and a new Section 6(f), as set forth below, is hereby added to the
Key Employee Agreement:
6(e) Possible Payment Reduction.
(i) Notwithstanding any provision to the contrary contained in
this Agreement, if the lump sum cash payment due and the other
benefits to which the Executive shall become entitled under Section
6(a) hereof, either alone or together with other payments in the
nature of compensation to the Executive which are contingent on a
change in the ownership or effective control of the Company or in the
ownership of a substantial portion of the assets of the Company or
otherwise, would constitute a "parachute payment" (as defined in
Section 280G of the Internal Revenue Code of 1986, as amended (the
"Code") or any successor provision thereto), such lump sum payment
shall be reduced (but not below zero) to the largest aggregate amount
as will result in no portion thereof being subject to the excise tax
imposed under Section 4999 of the Code (or any successor provision
thereto) or being non-deductible to the Company for Federal Income Tax
purposes pursuant to Section 280G of the Code (or any successor
provision thereto), provided, however, that no such reduction shall
occur, and this Section 6(e) shall not apply, in the event that the
amount of such reduction would be more than $25,000. The Executive in
good faith shall determine the amount of any reduction to be made
pursuant to this Section 6(e) and shall select from among the
foregoing benefits and payments those which shall be reduced. No
modification of, or successor provision to, Section 280G or Section
4999 subsequent to the date of this Agreement shall, however, reduce
the benefits to which the Executive would be entitled under this
Agreement in the absence of this Section 6(e) to a greater extent than
they would have been reduced if Section 280G and Section 4999 had not
been modified or superseded subsequent to the date of this Agreement,
notwithstanding anything to the contrary provided in the first
sentence of this Section 6(e)(i).
6(f) Certain Additional Payments by the Company.
(i) Anything in this Agreement to the contrary notwithstanding,
in the event it shall be determined that Section 6(e) above does not
apply and any payment or distribution by the Company to or for the
benefit of the Executive (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement, any stock
option, restricted stock agreement or otherwise, but determined
without regard to any additional payments required under this Section
6(f)) (a "Payment") would be subject to the excise tax imposed by
Section 4999 of the Internal Revenue Code of 1986, as amended (the
"Code") or any interest or penalties are incurred by the Executive
with respect to such excise tax (such excise tax, together with any
such interest and penalties, are hereinafter collectively referred to
as the "Excise Tax"), then the Executive shall be entitled to receive
an additional payment (a "Gross-Up Payment") in an amount such that
after payment by the Executive of all taxes (including any interest or
penalties imposed with respect to such taxes), including, without
limitation, any income taxes (and any interest and penalties imposed
with respect thereto) and Excise Tax imposed upon the Gross-Up
Payment, the Executive retains an amount of the Gross-Up Payment equal
to the Excise Tax imposed upon the Payments.
(ii) Subject to the provisions of Section 6(f)(iii), all
determinations required to be made under this Section 6(f), including
whether and when a Gross-Up Payment is required and the amount of such
Gross-Up Payment and the assumptions to be utilized in arriving at
such determination, shall be made by Deloitte and Touche LLP or such
other certified public accounting firm as may be designated by the
Executive (the "Accounting Firm") which shall provide detailed
supporting calculations both to the Company and the Executive within
15 business days of the receipt of notice from the Executive that
there has been a Payment, or such earlier time as is requested by the
Company. In the event that the Accounting Firm is serving as
accountant or auditor for the individual, entity or group effecting
the Change of Control, the Executive shall appoint another nationally
recognized accounting firm to make the determinations required
hereunder (which accounting firm shall then be referred to as the
Accounting Firm hereunder). All fees and expenses of the Accounting
Firm shall be borne solely by the Company. Any Gross-Up Payment, as
determined pursuant to this Section 6(f), shall be paid by the Company
to the Executive within five days of the receipt of the Accounting
Firm's determination. If the Accounting Firm determines that no Excise
Tax is payable by the Executive, it shall furnish the Executive with a
written opinion that failure to report the Excise Tax on the
Executive's applicable federal income tax return would not result in
the imposition of a negligence or similar penalty. Any determination
by the Accounting Firm shall be binding upon the Company and the
Executive. As a result of the uncertainty in the application of
Section 4999 of the Code at the time of the initial determination by
the Accounting Firm hereunder, it is possible that Gross-Up Payments
which will not have been made by the Company should have been made
("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that the Company exhausts its remedies
pursuant to Section 6(f)(iii) and the Executive thereafter is required
to make a payment of any Excise Tax, the Accounting Firm shall
determine the amount of the Underpayment that has occurred and any
such Underpayment shall be promptly paid by the Company to or for the
benefit of the Executive.
(iii) The Executive shall notify the Company in writing of any
claim by the Internal Revenue Service that, if successful, would
require the payment by the Company of the Gross-Up Payment. Such
notification shall be given as soon as practicable but no later than
ten business days after the Executive is informed in writing of such
claim (provided that any delay in so informing the Company within such
ten business day period shall not affect the obligations of the
Company under this Section 6(f) except to the extent that such delay
materially and adversely affects the Company) and shall apprise the
Company of the nature of such claim and the date on which such claim
is requested to be paid. The Executive shall not pay such claim prior
to the expiration of the 30-day period following the date on which it
gives such notice to the Company (or such shorter period ending on the
date that any payment of taxes with respect to such claim is due). If
the Company notifies the Executive in writing prior to the expiration
of such period that it desires to contest such claim, the Executive
shall:
(A) give the Company any information reasonably requested by the
Company relating to such claim,
(B) take such action in connection with contesting such claim as
the Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation with
respect to such claim by an attorney reasonably selected by the
Company,
(C) cooperate with the Company in good faith in order to
effectively contest such claim, and
(D) permit the Company to participate in any proceedings relating
to such claim; provided, however, that the Company shall bear and pay
directly all costs and expenses (including additional interest and
penalties) incurred in connection with such contest and shall
indemnify and hold the Executive harmless, on an after-tax basis, for
any Excise Tax or income tax (including interest and penalties with
respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing
provisions of this Section 6(f)(iii), the Company shall control all
proceedings taken in connection with such contest and, at its sole
option, may pursue or forgo any and all administrative appeals,
proceedings, hearings and conferences with the taxing authority in
respect of such claim and may, at its sole option, either direct the
Executive to pay the tax claimed and xxx for a refund or contest the
claim in any permissible manner, and the Executive agrees to prosecute
such contest to a determination before any administrative tribunal, in
a court of initial jurisdiction and in one or more appellate courts,
as the Company shall determine; provided, however, that if the Company
directs the Executive to pay such claim and xxx for a refund, the
Company shall advance the amount of such payment to the Executive, on
an interest-free basis, and shall indemnify and hold the Executive
harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with
respect to such advance or with respect to any imputed income with
respect to such advance; and further provided that any extension of
the statute of limitations relating to payment of taxes for the
taxable year of the Executive with respect to which such contested
amount is claimed to be due is limited solely to such contested
amount. Furthermore, the Company's control of the contest shall be
limited to issues with respect to which a Gross-Up Payment would be
payable hereunder and the Executive shall be entitled to settle or
contest, as the case may be, any other issue raised by the Internal
Revenue Service or any other taxing authority.
(iv) If, after the receipt by the Executive of an amount advanced
by the Company pursuant to Section 6(f)(iii), the Executive becomes
entitled to receive any refund with respect to such claim, the
Executive shall (subject to the Company's complying with the
requirements of Section 6(f)(iii)) promptly pay to the Company the
amount of such refund (together with any interest paid or credited
thereon after taxes applicable thereto). If, after the receipt by the
Executive of an amount advanced by the Company pursuant to Section
6(f)(iii), a determination is made that the Executive shall not be
entitled to any refund with respect to such claim and the Company does
not notify the Executive in writing of its intent to contest such
denial of refund prior to the expiration of 30 days after such
determination, then such advance shall be forgiven and shall not be
required to be repaid and the amount of such advance shall offset, to
the extent thereof, the amount of Gross-Up Payment required to be
paid.
3. The Key Employee Agreement shall in all other respects stay in full
force and effect in accordance with its terms.
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and,
pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.
Executive Graco Inc.
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_____________________________ ________________________________
Xxxxxx Xxxxxxxxx
Chief Executive Officer
