NONEMPLOYEE DIRECTOR
NONSTATUTORY STOCK OPTION AGREEMENT
(NSO)
THIS AGREEMENT, made this ______ day of __________________________, 199_ by
and between Graco Inc., a Minnesota corporation (the "Company") and
_______________________________ (the "Nonemployee Director").
WITNESSETH THAT:
WHEREAS, the Company pursuant to its Nonemployee Director Stock Option Plan
wishes to grant this stock option to Nonemployee Director.
NOW THEREFORE, in consideration of the premises and of the mutual covenants
herein contained, the parties hereto hereby agree as follows:
1. Grant of Option
The Company hereby grants to Nonemployee Director, the right and
option (the "Option") to purchase all or any part of an aggregate of
________ common shares, par value $1.00 per share, at the price of
$________ per share on the terms and conditions set forth herein. This
is a nonstatutory stock Option which does not qualify for special tax
treatment under Sections 421 or 422 of the Internal Revenue Code.
2. Duration and Exercisability
a. This Option may not be exercised by Employee until the expiration
of one (1) year from the date of grant, and this Option shall in
all events terminate ten (10) years after the date of Grant.
During the first year from the date of grant of this Option, no
portion of this Option may be exercised. Thereafter this Option
shall become exercisable in four cumulative installments of 25%
as follows:
Total Portion of
Date Option Which is Exercisable
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One Year after Date of Grant 25%
Two Years after Date of Grant 50%
Three Years after Date of Grant 75%
Four Years after Date of Grant 100%
In the event that Nonemployee Director does not purchase in any
one year the full number of shares of common stock of the Company
to which he/she is entitled under this Option, he/she may,
subject to the terms and conditions of Section 3 hereof, purchase
such shares of common stock in any subsequent year during the
term of this Option.
b. During the lifetime of the Nonemployee Direction, the Option
shall be exercisable only by him/her and shall not be assignable
or transferable by him/her otherwise than by will or the laws of
descent and distribution.
3. Effect of Termination of Membership on the Board
a. In the event a Nonemployee Director ceases being a director of
the Company for any reason other than the reasons identified in
section 3b below, the Nonemployee Director shall have the right
to exercise the Option as follows, subject to the condition that
no Option shall be exercisable after the expiration of the term
of the Option:
(1) If the Nonemployee Director was a member of the Board of
Directors of the Company for five (5) or more years, the
option becomes immediately exercisable upon the date the
Nonemployee Director ceases being a director. The
Nonemployee Director may exercise the Option for a period of
thirty six (36) months 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 Option 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.
(2) 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 Option, to the extent
the Option was 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 Option 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.
(3) If the Nonemployee Director dies while a member of the Board
of Directors of the Company, the Option, 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.
(4) In the event the 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.
b. 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, the Option granted
to such Nonemployee Director shall immediately be forfeited as of
the date of the misconduct.
4. Manner of Exercise
a. The Option can be exercised only by Nonemployee Director or other
proper party within the Option period by 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 sections 4b(2) and
4b(3) below, accompanied by payment in full of one hundred
percent (100%) of the Option price.
b. The Nonemployee Director may, at his/her election, pay the Option
price as follows:
(1) by 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 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.
For purposes of subsection 4b(2) hereunder, the fair market value
per share 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 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.
c. Such Option price shall be subject to adjustment as provided in
Section 6 hereof.
5. Change of Control
a. Notwithstanding Section 2(a) 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 5 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.
6. Adjustments and Changes in the Stock
a. If Nonemployee Director exercises all or any portion of the
Option subsequent to 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 the Option pursuant to sub section 5a of this
Agreement. 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
Nonemployee Director for the 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.
7. Miscellaneous
a. This Option is issued pursuant to the Company's Nonemployee
Director Stock Option Plan and is subject to its terms. A copy of
the Plan has been given to the Nonemployee Director. 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 Nonemployee Director or other
person any claim or right to be granted an Option under the Plan,
except as expressly provided in the Plan. Neither the Plan nor
any action taken hereunder shall be construed as giving
Nonemployee Director any right to be retained in the service of
the Company.
c. Neither Nonemployee Director, the Nonemployee Director's legal
representative, nor any person who acquires the right to exercise
this 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 this Option, in whole or in part, unless and
until certificates for such shares shall have been issued upon
exercise of this Option.
d. 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.
e. This Agreement will be governed by and constructed exclusively in
accordance with the laws of the State of Minnesota.
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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Its
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Nonemployee Director