GRACO INC.
NONEMPLOYEE DIRECTOR
NONSTATUTORY STOCK OPTION AGREEMENT
(NSO)
THIS AGREEMENT, made this 5th day of September, 1997 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
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 subsection 6a 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