GRACO INC. KEY EMPLOYEE AGREEMENT
AGREEMENT, by and between Graco Inc., a Minnesota corporation (the "Company")
and Xxxxx X. Xxxxxxx (the "Executive"), dated as of the 25th day of June,
2001.
The Board of Directors of the Company (the "Board"), has determined that it is
in the best interests of the Company and its shareholders to assure that the
Company will have the continued dedication of the Executive, notwithstanding the
possibility, threat or occurrence of a Change of Control (as defined in Section
2 below) of the Company. The Board believes it is imperative to diminish the
inevitable distraction of the Executive by virtue of the personal uncertainties
and risks created by a pending or threatened Change of Control, to encourage the
Executive's full attention and dedication to the Company currently and in the
event of any threatened or pending Change of Control, to provide inducement for
the Executive to remain an employee of the Company in the event of any
threatened or pending Change of Control, and to facilitate an orderly transition
in the event of a Change of Control. Therefore, in order to accomplish these
objectives, the Board has caused the Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Certain Definitions: "Effective Date;" "Change of Control Period;"
"Company;" "Affiliated Companies."
(a) The "Effective Date" shall mean the first date during the Change
of Control Period (as defined in Section l(b)) on which a Change
of Control (as defined in Section 2) occurs. Anything in this
Agreement to the contrary notwithstanding, if a Change of Control
occurs and if the Executive's employment with the Company is
terminated prior to the date on which the Change of Control
occurs, and if it is reasonably demonstrated by the Executive
that such termination of employment (i) was at the request of a
third party who has taken steps reasonably calculated to effect
the Change of Control or (ii) otherwise arose in connection with
or anticipation of the Change of Control, then for all purposes
of this Agreement the "Effective Date" shall mean the date
immediately prior to the date of such termination of employment.
(b) The "Change of Control Period" shall mean the period commencing
on the date hereof and ending on the second anniversary of such
date, provided, however, that commencing on the date one year
after the date hereof, and on each annual anniversary of such
date (such date and each annual anniversary thereof shall be
hereinafter referred to as the "Renewal Date"), the Change of
Control Period shall be automatically extended so as to terminate
two years from such Renewal Date, unless at least 60 days prior
to the Renewal Date the Company shall give notice to the
Executive that the Change of Control Period shall not be so
extended.
(c) The "Company" shall mean the Company as hereinbefore defined and any
successor to its business and/or assets which assumes or agrees to
perform this Agreement by operation of law or otherwise.
(d) As used in this Agreement, the term "affiliated companies" shall
include any company controlled by, controlling or under common
control with the Company.
2. Change of Control. For the purpose of this Agreement
(a) A "Change of Control" means:
(i) 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:
(1) an acquisition directly from the Company,
(2) an acquisition by the Company,
(3) an acquisition by any employee benefit plan (or
related trust) sponsored or maintained by the
Company or any corporation controlled by the
Company,
(4) an acquisition by any Person who is deemed to have
beneficial ownership of the Company common stock
or other Company voting securities owned
immediately after said acquisition 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 2, 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
limitation the Graco Employee Retirement Plan and
the Graco Employee Stock Ownership Plan,
(5) an acquisition by the Executive or any group
that includes the Executive, or
(6) an acquisition by any corporation pursuant to a
transaction that complies with clauses (A), (B)
and (C) of Section 2 (a)(iii) 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 (1) or (2) 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 (1) or (2) 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
(ii) 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
(iii) 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
(iv) approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
3. Employment Period. For purposes of this Agreement, the term
"Employment Period" shall mean the period commencing on the Effective
Date and ending on the earlier of (i) the termination by the Company or
the Executive of the Executive's employment with the Company, or (ii)
the second anniversary of the Effective Date." As provided in Section
10(f), nothing stated in this Agreement shall restrict the right of the
Company or the Executive at any time to terminate the Executive's
employment with the Company, subject to the obligations of the Company
provided for in this Agreement in the event of such termination.
4. Terms of Employment.
(a) Position and Duties.
(i) During the Employment Period, (A) the Executive's position
(including offices and titles), duties and responsibilities
shall be at least commensurate in all material respects
with the most significant of those held, exercised and
assigned at any time during the 90-day period immediately
preceding the Effective Date and (B) the Executive's
services shall be performed at the location where the
Executive was employed immediately preceding the Effective
Date or any office or location less than 50 miles from such
location.
(ii) Except as otherwise expressly provided in this Agreement,
during the Employment Period, and excluding any periods of
vacation and sick leave to which the Executive is entitled,
the Executive agrees to devote reasonable attention and time
during normal business hours to the business and affairs of
the Company. During the Employment Period it shall not be a
violation of this Agreement for the Executive to (A) serve on
corporate, civic or charitable boards or committees, (B)
deliver lectures, fulfill speaking engagements or teach at
educational institutions and (C) manage personal investments,
so long as such activities do not significantly interfere with
the performance of the Executive's responsibilities as an
employee of the Company in accordance with this Agreement. To
the extent that any such activities have been conducted by the
Executive prior to the Effective Date, the continued conduct
of such activities (or the conduct of activities similar in
nature and scope thereto) subsequent to the Effective Date
shall not thereafter be deemed to interfere with the
performance of the Executive's responsibilities to the
Company.
(b) Compensation.
(i) Base Salary. During the Employment Period, the Executive
shall receive an annual base salary ("Annual Base Salary")
which shall be paid at a monthly rate, at least equal to
twelve times the highest monthly base salary paid or
payable to the Executive by the Company and its affiliated
companies in respect of the twelve-month period immediately
preceding the month in which the Effective Date occurs.
During the Employment Period, the Annual Base Salary shall
be reviewed at least annually and shall be increased at any
time and from time to time as shall be substantially
consistent with increases in base salary generally awarded
in the ordinary course of business to other peer executives
of the Company. The term Annual Base Salary as used in
this Agreement shall refer to Annual Base Salary as so
increased. The Executive's Annual Base Salary shall not be
reduced after any such increase. Any increase in Annual
Base Salary shall not serve to limit or reduce any other
obligation to the Executive under this Agreement.
(ii) Annual Incentive Payments. In addition to Annual Base Salary,
the Executive shall be awarded, for each fiscal year during
the Employment Period, an annual bonus ("Annual Bonus") in
cash, in accordance with the Company's Annual Bonus Plan, or
other plan instituted in lieu of the Annual Bonus Plan which
provides for an annual incentive payment in addition to Annual
Base Salary ("Substitute Plan"). The Executive shall
participate in the Annual Bonus Plan or Substitute Plan at the
same level at which the Executive participated immediately
prior to the Effective Date, or if more favorable, at the
level of other peer executives of the Company and its
affiliated companies. Any Substitute Plan instituted by the
Company after the Effective Date shall be at least as
favorable, in the aggregate, as the most favorable Annual
Bonus Plan or Substitute Plan in effect at any time during the
90-day period immediately preceding the Effective Date
(iii) Savings and Retirement Plans. During the Employment Period,
the Executive shall be entitled to participate in all savings
and retirement plans, practices, policies and programs
applicable generally to other peer executives of the Company
and its affiliated companies, but in no event shall such
plans, practices, policies and programs provide the Executive
with savings opportunities and retirement benefit
opportunities, in each case, less favorable, in the aggregate,
than the most favorable of those provided by the Company and
its affiliated companies for the Executive under such plans,
practices, policies and programs as in effect at anytime
during the 90-day period immediately preceding the Effective
Date or, if more favorable to the Executive, those provided
generally at any time after the Effective Date to other peer
executives of the Company and its affiliated companies.
(iv) Welfare Benefit Plans. During the Employment Period, the
Executive and/or the Executive's family, as the case maybe,
shall be eligible for participation in and shall receive all
benefits under welfare benefit plans, practices, policies and
programs provided by the Company and its affiliated companies
(including, without limitation, medical, prescription, dental,
disability, salary continuance, employee life, group life,
accidental death and travel accident insurance plans and
programs) to the extent applicable generally to other peer
executives of the Company and its affiliated companies, but in
no event shall such plans, practices, policies and programs
provide the Executive with benefits which are less favorable,,
in the aggregate, than the most favorable of such plans,
practices, policies and programs in effect for the Executive
at anytime during the 90-day period immediately preceding the
Effective Date or, if more favorable to the Executive, those
provided generally at any time after the Effective Date to
other peer executives of the Company and its affiliated
companies.
(v) Expenses. During the Employment Period, the Executive shall
be entitled to receive prompt reimbursement for all
reasonable expenses incurred by the Executive in accordance
with the most favorable policies, practices and procedures
of the Company and its affiliated companies in effect for
the Executive at any time during the 90-day period
immediately preceding the Effective Date or, if more
favorable to the Executive, as in effect generally at any
time thereafter with respect to other peer executives of
the Company and its affiliated companies.
(vi) Perquisites. During the Employment Period, the Executive shall
be entitled to perquisites in accordance with the most
favorable plans, practices, programs and policies of the
Company and its affiliated companies in effect for the
Executive at any time during the 90-day period immediately
preceding the Effective Date or, if more favorable to the
Executive, as in effect generally at any time thereafter with
respect to other peer executives of the Company and its
affiliated companies.
(vii) Office and Support Staff. During the Employment Period, the
Executive shall be entitled to an office or offices of a size
and with furnishings and other appointments, and to
secretarial and other assistance, at least equal to the most
favorable of the foregoing provided to the Executive by the
Company at any time during the 90-day period immediately
preceding the Effective Date or, if more favorable to the
Executive, as provided generally at any time thereafter with
respect to other peer executives of the Company.
(viii)Vacation. During the Employment Period, the Executive shall
be entitled to paid vacations in accordance with the most
favorable plans, policies, programs and practices of the
Company and its affiliated companies as in effect for the
Executive at any time during the 90-day period immediately
preceding the Effective Date or, if more favorable to the
Executive, as in effect generally at any time thereafter with
respect to other peer Executives of the Company and its
affiliated companies.
5. Termination of Employment.
(a) Death or Disability. The Executive's employment shall terminate
automatically upon the Executive's death during the Employment
Period. If the Company determines in good faith that the
Disability of the Executive has occurred during the Employment
Period (pursuant to the definition of Disability set forth
below), it may give to the Executive written notice in accordance
with Section 10(b) of this Agreement of its intention to
terminate the Executive's employment. In such event, the
Executive's employment with the Company shall terminate effective
on the 30th day after receipt of such notice by the Executive
(the "Disability Effective Date"), provided that, within the 30
days after such receipt, the Executive shall not have returned to
full-time performance of the Executive's duties. For purposes of
this Agreement, "Disability" shall mean the absence of the
Executive from the Executive's duties with the Company on a
full-time basis for 180 consecutive days as a result of
incapacity due to mental or physical illness which is determined
to be total and permanent by a physician selected by the Company
or its insurers and acceptable to the Executive or the
Executive's legal representative (such agreement as to
acceptability not to be withheld unreasonably).
(b) Cause. The Company may terminate the Executive's employment
during the Employment Period for Cause. For purposes of this
Agreement, "Cause" shall mean (i) repeated violations by the
Executive of the Executive's obligations under Section 4(a) of
this Agreement (other than as a result of incapacity due to
physical or mental illness) which are demonstrably willful and
deliberate on the Executive's part, which are committed in bad
faith or without the belief on the part of the Executive that
such violations are in the best interests of the Company and
which are not remedied in a reasonable period of time after
receipt of written notice from the Company specifying such
violations or (ii) the conviction of the Executive of a felony
involving moral turpitude.
(c) Good Reason. The Executive's employment may be terminated by the
Executive for Good Reason. For purposes of this Agreement, "Good
Reason" shall mean:
(i) the assignment to the Executive of any duties materially
inconsistent in any respect with the Executive's position
(including offices and titles), duties or responsibilities
as contemplated by Section 4(a) of this Agreement, or any
other action by the Company which results in a material
diminution in such position, duties or responsibilities,
excluding for this purpose an isolated, insubstantial and
inadvertent action not taken in bad faith and which is
remedied by the Company promptly after receipt of notice
thereof given by the Executive;
(ii) any failure by the Company to comply with any of the
provisions of Section 4(b) of this Agreement, other than an
isolated, insubstantial and inadvertent failure not occurring
in bad faith and which is remedied by the Company promptly
after receipt of notice thereof given by the Executive;
(iii) the Company's requiring the Executive to be based at any
office or location other than that described in Section
4(a)(i)(B) hereof or the Company's requiring the Executive to
travel on Company business to a substantially greater extent
than required immediately prior to the Effective Date;
(iv) any purported termination by the Company of the Executive's
employment otherwise than as expressly permitted by this
Agreement; or
(v) any failure by the Company to comply with and satisfy
Section 9(c) of this Agreement.
For purposes of this Section 5(c), any good faith determination of "Good Reason"
made by the Executive shall be conclusive.
(d) Notice of Termination. Any termination by the Company for Cause,
or by the Executive for Good Reason, shall be communicated by
Notice of Termination to the other party hereto given in
accordance with Section 10(b) of this Agreement. For purposes of
this Agreement, a "Notice of Termination" means a written notice
which (i) indicates the specific termination provision in this
Agreement relied upon, (ii) to the extent applicable, sets forth
in reasonable detail the facts and circumstances claimed to
provide a basis for termination of the Executive's employment
under the provision so indicated and (iii) if the Date of
Termination (as defined below) is other than the date of receipt
of such notice, specifies the termination date (which date shall
be not more than fifteen days after the giving of such notice).
The failure by the Executive or the Company to set forth in the
Notice of Termination any fact or circumstance which contributes
to a showing of Good Reason or Cause shall not waive any right of
the Executive or the Company hereunder or preclude the Executive
or the Company from asserting such fact or circumstance in
enforcing the Executive's or the Company's rights hereunder.
(e) Date of Termination. "Date of Termination" means (i) if the
Executive's employment is terminated by the Company for Cause, or
by the Executive for Good Reason, the date of receipt of the
Notice of Termination or any later date specified therein, as the
case may be, (ii) if the Executive's employment is terminated by
the Company other than for Cause or Disability or death, the Date
of Termination shall be the date on which the Company notifies
the Executive of such termination and (iii) if the Executive's
employment is terminated by reason of death or Disability, the
Date of Termination shall be the date of death of the Executive
or the Disability Effective Date, as the case may be.
6. Obligations of the Company upon Termination.
(a) Good Reason; Other Than for Cause, Death or Disability. If, within
two years after the Effective Date, the Company shall terminate the
Executive's employment other than for Cause, death or Disability, or
the Executive shall terminate employment for Good Reason, in lieu of
further payments pursuant to Section 4(b) with respect to periods
following the Date of Termination:
(i) except as provided in Section 6(e) below, the Company shall
pay to the Executive, in a lump sum in cash, within 30 days
(except as provided in subsection 6(a)(i)A below) after the
Date of Termination, the aggregate of the following amounts
(such aggregate shall be hereinafter referred to as the
"Special Termination Amount"):
A. the sum of (1) the Executive's Annual Base Salary
through the Date of Termination to the extent not
theretofore paid, and, (2) the product of (x) the
higher of (I) the midpoint between the minimum and
the maximum bonus payment under the Annual Bonus Plan
or Substitute Plan applicable to the Executive for
the fiscal year in which the Date of Termination
occurs, or (II) the amount that would be payable to
the Executive for the fiscal year in which the Date
of Termination occurs under the Annual Bonus Plan or
Substitute Plan had the termination not so occurred
(which amount shall be payable pursuant to this
clause 2 within 30 days after it is calculated), and
(y) a fraction, the numerator of which is the number
of days in the current fiscal year through the Date
of Termination, and the denominator of which is 365
(the sum of the amounts described in clauses (1) and
(2) shall be hereinafter referred to as the "Accrued
Obligations"); and
B. the amount equal to the product of (1) two and (2) the
sum of (x) the Executive's Annual Base Salary and (y)
the midpoint between the maximum and minimum bonus
payment applicable to the Executive for the fiscal year
in which the Date of Termination occurs under the Annual
Bonus Plan or Substitute Plan; and
(ii) for two years following the Date of Termination or such longer
period as any plan, program, practice or policy may provide,
the Company shall continue benefits to the Executive and/or
the Executive's family at least equal to those which would
have been provided to them in accordance with the plans
programs, practices and policies described in Section 4(b)(iv)
of this Agreement if the Executive's employment had not been
terminated, in accordance with the most favorable plans,
practices, programs or policies of the Company and its
affiliated companies applicable generally to other peer
executives and their families during the 90-day period
immediately preceding the Effective Date or, if more favorable
to the Executive, as in effect generally at any time
thereafter with respect to other peer executives of the
Company and its affiliated companies and their families,
provided, however, that if the Executive becomes re-employed
with another employer and is eligible to receive medical or
disability welfare benefits under another employer provided
plan, the medical and disability welfare benefits described
herein shall cease upon the Executive and the Executive's
family becoming eligible under such other plan. For purposes
of determining eligibility of the Executive for retiree
benefits pursuant to such plans, practices, programs and
policies, the Executive shall be considered to have remained
employed until two years after the Date of Termination and to
have retired two years after the Date of Termination.
(b) Death. If the Executive's employment is terminated by reason of
the Executive's death within two years after the Effective Date,
this Agreement shall terminate without further obligations to the
Executive's legal representatives under this Agreement, other
than for payment of the Accrued Obligations. The Accrued
Obligations shall be paid to the Executive's estate or
beneficiary, as applicable, in a lump sum in cash within 30 days
of the Date of Termination, or as otherwise provided in Section
6(a)(i)(A). In addition, the Executive's family shall be entitled
to receive benefits at least equal to the most favorable benefits
provided by the Company and any of its affiliated companies to
surviving families of deceased peer executives of the Company and
such affiliated companies under such plans, programs, practices
and policies relating to family death benefits, if any, as in
effect with respect to other deceased peer executives and their
families at any time during the 90-day period immediately
preceding the Effective Date or, if more favorable to the
Executive and/or the Executive's family, as in effect on the date
of the Executive's death with respect to other deceased peer
executives of the Company and its affiliated companies and their
families.
(c) Disability. If the Executive's employment is terminated by reason
of the Executive's Disability within two years after the
Effective Date, this Agreement shall terminate without further
obligations to the Executive, other than for payment of the
Accrued Obligations. The Accrued Obligations shall be paid to the
Executive in a lump sum in cash within 30 days of the Date of
Termination or as otherwise provided in Section 6(a)(i)(A). In
addition, the Executive shall be entitled after the Disability
Effective Date to receive disability and other benefits at least
equal to the most favorable of those generally provided by the
Company and its affiliated companies to disabled executives
and/or their families in accordance with such plans, programs,
practices, and policies relating to disability, if any, as in
effect generally with respect to other disabled peer executives
and their families at any time during the 90-day period
immediately preceding the Effective Date or, if more favorable to
the Executive and/or the Executive's family, as in effect at any
time thereafter generally with respect to other disabled peer
executives of the Company and its affiliated companies and their
families.
(d) Cause; Other than for Good Reason. If the Executive's employment
shall be terminated for Cause within two years after the
Effective Date, this Agreement shall terminate without further
obligations to the Executive other than the obligation to pay to
the Executive Annual Base Salary through the Date of Termination
plus the amount of any compensation previously deferred by the
Executive, in each case to the extent theretofore unpaid. If the
Executive voluntarily terminates employment within two years
after the Effective Date, excluding a termination for Good
Reason, this Agreement shall terminate without further
obligations to the Executive, other than Annual Base Salary
through the Date of Termination plus the amount of any
compensation previously deferred by the Executive, in each case
to the extent theretofore unpaid, and any payment that may be due
under the terms of the Annual Bonus Plan or any Successor Plan.
In such case, all such amounts shall be paid to the Executive in
a lump sum in cash within 30 days of the Date of Termination or,
in the case of any payment under the Annual Bonus Plan or any
Successor Plan, pursuant to the terms thereof.
(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).
(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 16(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.
7. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or
limit the Executive's continuing or future participation in any plan,
program, policy or practice provided by the Company or any of its
affiliated companies and for which the Executive may qualify, nor shall
anything herein limit or otherwise affect such rights as the Executive
may have under any contract or agreement with the Company or any of its
affiliated companies. Amounts which are vested benefits or which the
Executive is otherwise entitled to receive under any plan, policy,
practice or program of or any contract or agreement with the Company or
any of its affiliated companies at or subsequent to the Date of
Termination shall be payable in accordance with such plan, policy,
practice or program or contract or agreement except as explicitly
modified by this Agreement.
8. Full Settlement; No Mitigation; Legal Fees. The Company's obligation
to make the payments provided for in this Agreement and otherwise to
perform its obligations hereunder shall not be affected by any set-off,
counterclaim, recoupment, defense or other claim, right or action which
the Company may have against the Executive or others. In no event shall
the Executive be obligated to seek other employment or take any other
action by way of mitigation of the amounts payable to the Executive
under any of the provisions of this Agreement and such amounts shall
not be reduced whether or not the Executive obtains other employment.
The Company agrees to pay, to the full extent permitted by law, all
legal fees and expenses which the Executive may reasonably incur as a
result of any contest (regardless of the outcome thereof) by the
Company, the Executive or others of the validity or enforceability of,
or liability under, any provision of this Agreement or any guarantee of
performance thereof (including as a result of any contest by the
Executive about the amount of any payment pursuant to this Agreement),
plus in each case interest on any delayed payment at the applicable
Federal rate provided for in Section 7872(f)(2)(A) of the Internal
Revenue Code of 1986, as amended (the "Code").
9. Successors.
(a) This Agreement is personal to the Executive and without the prior
written consent of the Company shall not be assignable by the
Executive otherwise than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be
enforceable by the Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon the
Company and its successors and assigns.
(c) The Company will require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to
assume expressly and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to
perform it if no such succession had taken place.
10. Miscellaneous.
(a) This Agreement shall be governed by and construed in accordance with
the laws of the State of Minnesota, without reference to principles
of conflict of laws. The captions of this Agreement are not part of
the provisions hereof and shall have no force or effect. This
Agreement may not be amended or modified otherwise than by a written
agreement executed by the parties hereto or their respective
successors and legal representatives.
(b) All notices and other communications hereunder shall be in writing
and shall be given by hand delivery to the other party or by
registered or certified mail, return receipt requested, postage
prepaid, addressed as follows:
If to the Executive:
Mr. Xxxxx Xxxxxxx
c/o Graco Inc.
00 00xx Xxx. X.X.
Xxxxxxxxxxx, Xx. 00000
If to the Company:
Graco Inc.
00 00xx Xxx. X.X.
Xxxxxxxxxxx, Xx. 00000
Attention: Vice President, Human Resources
or to such other address as either party shall have furnished to the
other in writing in accordance herewith. Notice and communications
shall be effective when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any
other provision of this Agreement.
(d) The Company may withhold from any amounts payable under this
Agreement such Federal, state or local taxes as shall be required to
be withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon strict
compliance with any provision hereof or any other provision of
this Agreement or the failure to assert any right the Executive
or the Company may have hereunder, including, without limitation,
the right of the Executive to terminate employment for Good
Reason pursuant to Section 5(c)(i)(v) of this Agreement, shall
not be deemed to be a waiver of such provision or right or any
other provision or right of this Agreement.
(f) The Executive and the Company acknowledge that, except as may
otherwise be provided under any other written agreement between
the Executive and the Company, the employment of the Executive by
the Company may be terminated by either the Executive or the
Company at any time prior to the Effective Date or, subject to
the obligations of the Company provided for in this Agreement in
the event of a termination after the Effective Date, at anytime
on or after the Effective Date. Moreover, if prior to the
Effective Date, the Executive's employment with the Company
terminates, then the Executive shall have no further rights under
this Agreement. From and after the Effective Date, this Agreement
shall supersede any other agreement between the parties with
respect to the subject matter hereof.
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.
Executive Graco Inc.
/s/Xxxxx X. Xxxxxxx /s/ Xxxxxx Xxxxxxxxx
By: Xxxxxx Xxxxxxxxx,
Xxxxx X. Xxxxxxx Chairman
