February 23, 2001
GRACO INC. NONEMPLOYEE DIRECTOR STOCK OPTION PLAN
1. Purpose
The purpose of the Graco Inc. Nonemployee Director Stock Option Plan (the
"Plan") is to secure for Graco Inc. (the "Company") and its shareholders
the benefits of the long-term incentives inherent in increased common
stock ownership by the members of the Board of Directors (the "Board") of
the Company who are not employees of the Company or its Affiliates, by
strengthening the identification of Nonemployee Directors with the
interests of all Graco shareholders.
2. Definitions
The terms defined in this Section 2 shall have the following meanings,
unless the context otherwise requires.
a. Affiliate shall mean any corporation, partnership, joint venture or
other entity in which the Company holds an equity, profit or voting
interest of more than fifty percent (50%).
b. Annual Meeting of Shareholders shall mean the annual meeting of
shareholders of the Company held each calendar year.
c. Code shall mean the Internal Revenue Code of 1986, as amended to date
and as it may be amended from time to time.
d. Company shall mean Graco Inc., a Minnesota corporation.
e. ERISA shall mean the Employee Retirement Income Security Act of 1974,
as amended to date and as it may be amended from time to time.
f. Fair Market Value per Share shall mean as of any day
(1) The fair market value of a share of the Company's common stock is
the last sale price reported on the composite tape by the New
York Stock Exchange on the business day immediately preceding the
date as of which fair market value is being determined or, if
there were no sales of shares of the Company's common stock
reported on the composite tape on such day, on the most recently
preceding day on which there were sales, or
(2) if the shares of the Company's stock are not listed or admitted
to trading on the New York Stock Exchange on the day as of which
the determination is made, the amount determined by the Board or
its delegate to be the fair market value of a share on such day.
g. Nonemployee Director shall mean a member of the Board of Directors of
the Company who is not also an officer or other employee of the
Company or an Affiliate.
h. Nonstatutory Stock Option ("NSO") shall mean a stock option, which
does not qualify for special tax treatment under Sections 421 or 422
of the Internal Revenue Code.
i. Option shall mean either a First Option or an Annual Option granted
pursuant to the provisions of Section 4 of this Plan.
j. Participant shall mean any person who holds an Option granted under
this Plan.
k. Plan shall mean this Graco Inc. Nonemployee Director Stock Option
Plan.
3. Administration
a. The Plan shall be administered by the Board. The Board may, by
resolution, delegate part or all of its administrative powers with
respect to the Plan.
b. The Board shall have all of the powers vested in it by the terms of
the Plan, such powers to include the authority, within the limits
prescribed herein, to establish the form of the agreement embodying
grants of Options made under the Plan.
c. The Board shall, subject to the provisions of the Plan, have the power
to construe the Plan, to determine all questions arising thereunder
and to adopt and amend such rules and regulations for the
administration of the Plan as it may deem desirable, such
administrative decisions of the Board to be final and conclusive.
d. The Board shall have no discretion to select the Nonemployee Directors
to receive Option grants under the Plan, to determine the number of
shares of the Company's common stock subject to the Plan or to each
grant, nor the exercise price of the Options granted pursuant to the
Plan.
e. The Board may authorize any one or more of their number or the
Secretary or any other officer of the Company to execute and deliver
documents on behalf of the Board. The Board hereby authorizes the
Secretary to execute and deliver all documents to be delivered by the
Board pursuant to the Plan.
f. The expenses of the Plan shall be borne by the Company.
4. Automatic Grants to Nonemployee Directors
a. As of the day upon which shareholders vote to elect directors at each
annual meeting of the Company, each Nonemployee Director of the Board
shall be granted an option to purchase two thousand five hundred
(2,500) shares of the Company's common stock under the Plan (the
"Annual Option"); and a Nonemployee Director who has not previously
been elected as a member of the Board of Directors of the Company
shall be granted a First Option; i.e., an option to purchase three
thousand (3,000) shares of the Company's common stock under the Plan,
on the first business day of the Nonemployee Director's election to
the Board, including election by the Board of Directors to fill a
vacancy on the Board.
b. The automatic grants to Nonemployee Directors shall not be subject to
the discretion of any person.
c. Each Option granted under the Plan shall be evidenced by a written
Agreement. Each Agreement shall be subject to, and incorporate, by
reference or otherwise, the applicable terms of this Plan.
d. During the lifetime of a Participant, each Option shall be exercisable
only by the Participant. No Option granted under the Plan shall be
assignable or transferable by the Participant, except by will or by
the laws of descent and distribution.
5. Shares of Stock Subject to the Plan
a. Subject to adjustment as provided in Section 11 of the Plan, an
aggregate of four hundred fifty thousand (450,000) shares of the
Company's common stock, $1.00 par value, shall be available for
issuance to Nonemployee Directors under the Plan. No fractional shares
shall be issued.
b. First Option Grants and Annual Option Grants shall reduce the shares
available for issuance under the Plan by the number of shares subject
thereto. The shares deliverable upon exercise of any First Option
Grant or Annual Option Grant may be made available from authorized but
unissued shares or shares reacquired by the Company, including shares
purchased in the open market or in private transactions. If any
unexercised First Option Grant or Annual Option Grant shall terminate
for any reason, the shares subject to, but not delivered under, such
First Option Grant or Annual Option Grant shall be available for other
First Option Grants or Annual Option Grants.
6. Nonstatutory Options.
a. All Options granted to Nonemployee Directors pursuant to the Plan
shall be NSOs.
7. Exercise Price.
a. The price per share of the shares of the Company's common stock which
may be purchased upon exercise of an Option ("Exercise Price") shall
be one hundred percent (100%) of the Fair Market Value per Share on
the date the Option is granted and shall be payable in full at the
time the Option is exercised as follows:
(1) in cash or by certified check,
(2) by delivery of shares of common stock to the Company which shall
have been owned for at least six (6) months and have a Fair
Market Value per Share on the date of surrender equal to the
exercise price, or
(3) by delivery to the Company of a properly executed exercise notice
together with irrevocable instructions to a broker to promptly
deliver to the Company from sale or loan proceeds the amount
required to pay the exercise price.
b. Such price shall be subject to adjustment as provided in Section 11
hereof.
8. Duration and Vesting of Options.
a. The term of each Option granted to a Nonemployee Director shall be for
ten (10) years from the date of grant, unless terminated earlier
pursuant to the provisions of Section 10 hereof.
b. Each Option shall vest and become exercisable according to the
following schedule:
(1) twenty-five percent (25%) of the total number of shares covered
by the Option shall become exercisable beginning with the first
anniversary date of the grant of the Option;
(2) thereafter twenty-five percent (25%) of the total number of
shares covered by the Option shall become exercisable on each
subsequent anniversary date of the grant of the Option until the
fourth anniversary date of the grant of the Option upon which the
total number of shares covered by Option shall become
exercisable.
9. Change of Control
a. Notwithstanding Section 8b(1) and (2) hereof, all outstanding Options
not yet exercisable 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 their 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
Outstanding Company Voting Securities, and provided
further that for purposes of this Section 9, 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 Nonemployee Director or any group
that includes the Nonemployee Director, 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 a Nonemployee Director if:
(1) the acquisition of the 25% or greater interest referred to in
subsection a(1) of this Section 9 is by a group, acting in
concert, that includes the Nonemployee Director 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 Nonemployee Director.
10. Effect of Termination of Membership on the Board.
a. The right to exercise an Option granted to a Nonemployee Director
shall be limited as follows, provided the actual date of exercise is
in no event after the expiration of the term of the Option:
(1) If a Nonemployee Director ceases being a director of the Company
for any reason other than the reasons identified in subparagraph
(2) of this Section 10, the Nonemployee Director shall have the
right to exercise the Options as follows, subject to the
condition that no Option shall be exercisable after the
expiration of the term of the Option:
(a) If the Nonemployee Director was a member of the Board of
Directors of the Company for five (5) or more years, all
outstanding Options become immediately exercisable upon the
date the Nonemployee Director ceases being a director. The
Nonemployee Director may exercise the Options for a period
of thirty-six months (36) from the date the Nonemployee
Director ceased being a director, provided that if the
Nonemployee Director dies before the thirty-six (36) month
period has expired, the Options may be exercised by the
Nonemployee Director's legal representative or any person
who acquires the right to exercise an Option by reason of
the Nonemployee Director's death for a period of twelve (12)
months from the date of the Nonemployee Director's death.
(b) If the Nonemployee Director was a member of the Board of
Directors of the Company for less than five (5) years, the
Nonemployee Director may exercise the Options, to the extent
they were exercisable at the date the Nonemployee Director
ceases being a member of the Board, for a period of thirty
(30) days following the date the Nonemployee Director ceased
being a director, provided that, if the Nonemployee Director
dies before the thirty (30) day period has expired, the
Options may be exercised by the Nonemployee Director's legal
representative, or any person who acquires the right to
exercise an Option by reason of the Nonemployee Director's
death, for a period of twelve (12) months from the date of
the Nonemployee Director's death.
(c) If the Nonemployee Director dies while a member of the
Board, the Options, to the extent exercisable by the
Nonemployee Director at the date of death, may be exercised
by the Nonemployee Director's legal representative, or any
person who acquires the right to exercise an Option by
reason of the Nonemployee Director's death, for a period of
twelve (12) months from the date of the Nonemployee
Director's death.
(d) In the event any Option is exercised by the executors,
administrators, legatees, or distributees of the estate of a
deceased optionee, the Company shall be under no obligation
to issue stock thereunder unless and until the Company is
satisfied that the person or persons exercising the Option
are the duly appointed legal representatives of the deceased
optionee's estate or the proper legatees or distributees
thereof.
(2) If a Nonemployee Director ceases being a director of the Company
due to an act of
(a) fraud or intentional misrepresentation or
(b) embezzlement, misappropriation or conversion of assets or
opportunities of the Company or any Affiliate of the Company
or
(c) any other gross or willful misconduct
as determined by the Board, in its sole and conclusive
discretion, all Options granted to such Nonemployee Director
shall immediately be forfeited as of the date of the misconduct.
11. Adjustments and Changes in the Stock
a. If there is any change in the common stock of the Company by reason of
any stock dividend, stock split, spin-off, split-up, merger,
consolidation, recapitalization, reclassification, combination or
exchange of shares, or any other similar corporate event, the
aggregate number of shares available under the Plan, and the number
and the price of shares of common stock subject to outstanding
Options, shall be appropriately adjusted automatically.
b. No right to purchase fractional shares shall result from any
adjustment in Options pursuant to this Section 11. In case of any such
adjustment, the shares subject to the Option shall be rounded down to
the nearest whole share.
c. Notice of any adjustment shall be given by the Company to each holder
of any Option which shall have been so adjusted and such adjustment
(whether or not such notice is given) shall be effective and binding
for all purposes of the Plan.
12. Effective Date of the Plan
a. The Plan shall become effective on the date it is approved by the
shareholders of the Company.
b. Any amendment to the Plan shall become effective when adopted by the
Board, unless specified otherwise, but no Option granted under any
increase in shares authorized to be issued under this Plan shall be
exercisable until the increase is approved in the manner prescribed in
Section 13 of this Plan.
13. Amendment of the Plan
a. The Board of Directors may amend, suspend or terminate the Plan at any
time, but without shareholder approval, no amendment shall materially
increase the maximum number of shares which may be issued under the
Plan (other than adjustments pursuant to Section 11 hereof),
materially increase the benefits accruing to Participants under the
Plan, materially modify the requirements as to eligibility for
participation or extend the term of the Plan. Approval of the
shareholders may be obtained, at a meeting of shareholders duly called
and held, by the affirmative vote of a majority of the holders of the
Company's voting stock who are present or represented by proxy and are
entitled to vote on the Plan.
b. It is intended that the Plan meet the requirements of Rule 16b-3 or
any successor thereto promulgated by the Securities and Exchange
Commission under the Securities Exchange Act of 1934, as amended,
including any applicable requirements regarding shareholder approval.
Amendments to the Plan shall be subject to approval by the
shareholders of the Company to the extent determined by the Board of
Directors to be necessary to satisfy such requirements as in effect
from time to time.
c. Rights and obligations under any Option granted before any amendment
of this Plan shall not be materially and adversely affected by
amendment of the Plan, except with the consent of the person who holds
the Option, which consent may be obtained in any manner that the Board
or its delegate deems appropriate.
14. Termination of the Plan
a. The Plan, unless sooner terminated, shall terminate at the end of ten
(10) years from the date the Plan is approved by the shareholders of
the Company. No Option may be granted under the Plan while the Plan is
suspended or after it is terminated.
b. Rights or obligations under any Option granted while the Plan is in
effect, including the maximum duration and vesting provisions, shall
not be altered or impaired by suspension or termination of the Plan,
except with the consent of the person who holds the Option, which
consent may be obtained in any manner that the Board or its delegate
deems appropriate.
15. Registration, Listing, Qualification, Approval of Stock and Options
a. If the Board shall determine, in its discretion, that it is necessary
or desirable that the shares of common stock subject to any Option
(1) be registered, listed or qualified on any securities exchange or
under any applicable law, or
(2) be approved by any governmental regulatory body, or
(3) approved by the shareholders of the Company,
as a condition of, or in connection with, the granting of such Option,
or the issuance or purchase of shares upon exercise of the Option, the
Option may not be exercised in whole or in part unless such
registration, listing, qualification or approval has been obtained
free of any condition not acceptable to the Board of Directors.
16. No Right to Option or as Shareholder
a. No Nonemployee Director or other person shall have any claim or right
to be granted an Option under the Plan, except as expressly provided
herein. Neither the Plan nor any action taken hereunder shall be
construed as giving any Nonemployee Director any right to be retained
in the service of the Company.
b. Neither a Nonemployee Director, the Nonemployee Director's legal
representative, nor any person who acquires the right to exercise an
Option by reason of the Nonemployee Director's death shall be, or have
any of the rights or privileges of, a shareholder of the Company in
respect of any shares of common stock receivable upon the exercise of
any Option granted under this Plan, in whole or in part, unless and
until certificates for such shares shall have been issued.
17. Governing Law
The validity, construction, interpretation, administration and effect of
this Plan and any rules, regulations and actions relating to this Plan will
be governed by and construed exclusively in accordance with the laws of the
State of Minnesota.