STOCK OPTION AGREEMENT
(NON-ISO)
THIS AGREEMENT, made this 23nd day of February, 2001, by and between Graco
Inc., a Minnesota corporation (the "Company") and Xxxxxx Xxxxxxxxx (the
"Employee").
WITNESSETH THAT:
WHEREAS, the Company pursuant to its Long-Term Stock Incentive 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
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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 shares of Common Stock of the Company, par value
$1.00 per share, at the price of $26.35 per share on the terms and
conditions set forth herein.
2. Duration and Exercisability
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A. This option may not be exercised by Employee until the expiration
of one (1) year from the date of grant (except as provided in
Section 2B(ii) below). On the first anniversary of the date of
grant, 25% of the option shall become exercisable. This option
shall in all events terminate ten (10) years after the date of
grant.
B. If (i) on May 6, 2002, Employee is a member of the Board of
Directors, (ii) Employee resigns from the Board of Directors
prior to May 6, 2002, pursuant to a request of the Board of
Directors by resolution that the Employee resign from the Board
of Directors, or (iii) Employee dies while a member of the Board
of Directors, the option shall become fully exercisable if it has
not already become fully exercisable under Section 3C hereof, and
shall remain exercisable for a period equal to the duration of
the option (i.e., 10 years from the date of grant)
notwithstanding anything to the contrary in Section 3B or 3C
hereof.
C. 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
is entitled under this option, he 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.
During the lifetime of the Employee, the option shall be
exercisable only by him and shall not be assignable or
transferable by him otherwise than by will or the laws of descent
and distribution.
3. Effect of Termination of Employment or Board Membership
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A. In the event that Employee shall cease to be employed by the
Company or its subsidiaries, or ceases to be a member of the
Board of Directors, by reason of his gross and willful
misconduct, 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.
B. If the Employee shall die while in the employ of the Company 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 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.
C. If the Employee's termination of employment is due to retirement
or due to disability within the meaning of the provisions of the
Graco Long-Term Disability Plan, subject to the condition 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 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 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.
D. In the event of the death of the Employee prior to the option
becoming fully exercisable pursuant to Section 2B above, if the
Employee at the time of his death is a member of the Board of
Directors, the periods for exercisability of the option in the
event of death in Sections 3B and 3C shall be the term of the
option - i.e., 10 years from the date of grant.
4. Manner of Exercise
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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 which have been held by the Employee for not
less than six (6) months 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
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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. If the Committee, as defined in the Company's Long
Term Stock Incentive Plan, has in its discretion determined that the
Employee may do so, such amount may be paid by the Employee by
delivering to the Company for cancellation shares of Common Stock of
the Company with a fair market value equal to the minimum amount of
such withholding tax requirement by (i) electing to have the Company
withhold common shares otherwise to be delivered with a fair market
value equal to the amount of such tax obligation, or (ii) electing to
surrender to the Company previously owned common shares with a fair
market value equal to the amount of such minimum tax obligation.
6. Change of Control
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A. Notwithstanding Section 2 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 0000 Xxx) 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 Xxxxxxxx X. Xxxx ("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 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
Stock Incentive 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:
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/S/XXXXXX XXXXXXXXX
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Employee
