December 12, 1997
LONG TERM STOCK INCENTIVE PLAN
1. Purpose. The purpose of the Graco Inc. Long Term Stock Incentive Plan
(the "Plan") is to further the growth in earnings and market appreciation of
Graco Inc. (the "Company"). The Plan provides substantial contributions to the
Company through ability, performance, industry and invention. The Company
intends that the Plan will thereby facilitate securing, retaining and motivating
officers and key employees of high caliber and good potential.
2. Administration. The Plan shall be administered by a committee (the
"Committee") selected by the Board of Directors of the Company (the "Board").
The Committee shall consist of two or more members who are members of the Board
and who are "Non-Employee Directors" within the meaning of Rule 16b-3
promulgated by the Securities and Exchange Commission under the Securities and
Exchange Act of 1934, as amended (the "Exchange Act"), which term "Non-Employee
Director" is defined in this paragraph for purposes of describing the members of
the Committee only and is not intended to define such term as it may be used
elsewhere in the Plan. The Committee may delegate to one or more officers of the
Company or a committee of such officers the authority, subject to such terms and
limitations as the Committee shall determine to grant awards to employees of the
Company who are not officers or directors of the Company for purposes of Section
16 of the Exchange Act.
The Committee shall have full and final authority, in its discretion, to
interpret the provisions of the Plan and to decide all questions of fact arising
in its application; to determine the employees to whom awards shall be made
under the Plan; to determine the type of award to be made and the amount, size,
terms and conditions of each such award; to determine and establish additional
terms and conditions not inconsistent with the Plan and for any agreements
entered into with participants in connection with the Plan; to determine the
time when awards will be granted and when rights may be exercised, which may be
after termination of employment; and to make all other determinations necessary
or advisable for the administration of the Plan.
The Committee shall select one of its members as its Chairman and shall
hold its meetings at such times and places as it may determine. A majority of
its members shall constitute a quorum. All determinations of the Committee shall
be made by not less than a majority of its members. Any decision or
determination reduced to writing and signed by all of the members of the
Committee shall be fully effective as if it had been made by a majority vote at
a meeting duly called and held. The granting of a stock option or restricted
stock award pursuant to the Plan shall be effective only if a written agreement
shall have been duly executed and delivered by and on behalf of the Company and,
in the case of a restricted stock award, by the employee to whom such right is
granted. The Committee may appoint a Secretary and may make such rules and
regulations for the conduct of its business as it shall deem advisable.
3. Participants. Persons eligible to participate in the Plan shall be those
officers and key employees of the Company or its subsidiaries who are in
positions in which their decisions, actions and counsel significantly impact the
performance of the Company or its subsidiaries. Directors of the Company who are
not otherwise salaried employees of the Company shall not be eligible to receive
awards under the Plan. For the purpose of awards of incentive stock options (as
hereinafter defined) made under the Plan, the term "subsidiary" shall have the
meaning given to it by Section 424 of the Internal Revenue Code of 1986, as
amended (the "Code"). For the purpose of all other awards made under the Plan,
the term "subsidiary" shall have the meaning given to it by Rule 405 promulgated
under the Securities Act of 1933, as amended. References to "the Company" in
this Plan or in any option or other award granted pursuant to the Plan shall be
deemed references to a subsidiary if appropriate.
4. Awards under the Plan. Awards by the Committee under the Plan may be in
the form of stock options intended to qualify as "incentive stock options" under
the provision of Section 422 of the Code, stock options which do not qualify for
special tax treatment under Section 422, restricted stock and other stock awards
pursuant to such bonus and incentive plans as the Committee may deem
appropriate.
4.1 Award Limitation. In any calendar year beginning with January 31,
1997, the Committee may not award stock options or stock appreciation
rights on more than 300,000 Shares in the aggregate to any Participant who
is an employee of the Company at the time of such award. This award limit
may be adjusted in accordance with the provisions of Section 15. This
limitation is intended to qualify the award of options and stock
appreciation rights as performance-based compensation within the meaning of
Section 162(m) of the Code.
5. Shares Subject to Plan. The shares that may be issued under the Plan
shall not exceed in the aggregate 5,212,500 common shares, $1.00 par value, of
the Company. Except as otherwise provided herein, any shares subject to an
option or right or other awards which for any reason expires or terminates
without issuance or final vesting of such shares shall again be available under
the Plan. No fractional shares shall be issued under the Plan.
6. Stock Options. Stock options shall be evidenced by stock option
agreements in such form not inconsistent with the Plan as the Committee shall
approve from time to time, which agreements shall contain in substance the
following terms and conditions.
6.1. Option Price. The purchase price per common share deliverable
upon the exercise of an option shall not be less than 100% of the fair
market value of the stock on the day the option is granted, as determined
by the Committee.
6.2. Exercise of Option. Each stock option agreement shall state the
period or periods of time within which the option may be exercised by the
participant, in whole or in part, which shall be such period or periods of
time as may be determined by the Committee, provided that the option period
shall not end later than ten years after the date of the grant of the
option.
6.3. Payment of Shares. An optionee electing to exercise an option
shall give written notice to the Company of such election and of the number
of shares subject to such exercise. The full purchase price of such shares
shall be tendered with such notice of exercise or, at the discretion of the
Committee, pursuant to any arrangements satisfactory to the Committee which
provide that the Company will be paid at the time the shares are delivered
to the optionee or his designee. Payment shall be made either in cash
(including check, bank draft or money order) or, at the discretion of the
Committee, (i) by delivering the Company's common shares already owned by
the optionee having a fair market value equal to the full purchase price of
the shares, or (ii) a combination of cash and such shares.
6.4. Special Rule for Incentive Stock Options. The aggregate fair
market value (determined as of the time the option is granted) of the
common shares with respect to which all incentive stock options granted
after January 1, 1987 are exercisable for the first time by any individual
during any calendar year (under all option plans of the Company and its
parent and subsidiary corporations) shall not exceed $100,000.
7. Restricted Stock Awards. Restricted stock awards shall be evidenced by
restricted stock agreements in such form not inconsistent with the Plan as the
Committee shall approve from time to time, which agreements shall contain in
substance the following terms and conditions.
7.1. Restriction Period. Shares awarded pursuant to restricted stock
awards shall be subject to such conditions, terms and restrictions
(including continued employment, achievement of performance targets,
forfeiture and transfer) and for such period or periods as shall be
determined by the Committee. The Committee shall have the power, in its
discretion, to permit an acceleration of the expiration of the applicable
restriction period with respect to any part of all of the shares awarded to
a participant.
7.2 Restrictions Upon Transfer. The common shares subject to an award,
may not be sold, assigned, transferred, exchanged, pledged, hypothecated,
or otherwise encumbered, except as herein provided, during the restriction
period applicable to such shares, but a participant shall have all the
other rights of a stockholder, including the right to receive cash
dividends and the right to vote such shares, until such time as the
restrictions have lapsed or the shares have been forfeited.
7.3 Certificates. Each certificate issued in respect of common shares
awarded to a participant shall be deposited with the Company, or its
designee, and shall bear an appropriate legend noting the existence of
restrictions upon the transfer of such Common Stock.
7.4 Lapse of Restrictions. The agreement governing the awards shall
specify the conditions and terms upon which any restrictions upon shares
awarded under the Plan shall lapse, as determined by the Committee. Upon
lapse of such restrictions, common shares free of any restrictive legend,
other than as may be required under Section 9 hereof, shall be issued and
delivered to the participant of his legal representative.
8. Fair Market Value. The fair market value of the Company's common shares
for purposes of the Plan shall be the last sale price of the common shares as
reported on the New York Stock Exchange on the business day as of which the fair
market value is being determined or if no sale occurred on that date, the last
sale on the most recent date for which a sale is reported. If the Company's
common shares are not then traded on the New York Stock Exchange, the Committee
may determine fair market value in some other reasonable way.
9. General Restrictions. Each award under the Plan shall be subject to the
requirement that, if at anytime the Committee shall determine that (a) the
listing, registration or qualification of the common shares subject or related
thereto upon any securities exchange or under any state or federal law, or (b)
the consent or approval of any government regulatory body, or (c) an agreement
by the recipient of an award with respect to the disposition of common shares,
is necessary or desirable in connection with, the granting of such award or the
issue or purchase of common shares thereunder, such award may not be consummated
in whole or in part unless such listing, registration, qualification, consent,
approval or agreement shall have been effected or obtained free of any
conditions not acceptable to the Committee. A participant shall agree, as a
condition of receiving any award under the Plan, to execute any documents, make
any representations, agree to restrictions on stock transferability and take any
actions which in the opinion of legal counsel to the Company is required by any
applicable law, ruling or regulation.
10. Rights of a Shareholder. The recipient of any award under the Plan,
unless otherwise provided by the Plan, shall have no rights as a shareholder
with respect thereto unless and until certificates for common shares are issued
to the recipient.
11. Right to Terminate Employment. Nothing in the Plan or in any agreement
entered into pursuant to the Plan shall confer upon any participant the right to
continue in the employment of the Company or its subsidiaries, or affect any
right which the Company or such subsidiaries may have to terminate the
employment of the participant.
12. Withholding.
12.1. Payment of Withholding Taxes. Whenever the Company proposes or
is required to issue or transfer common shares under the Plan, the Company
shall have the right to require the recipient to remit to the Company, or
provide indemnification satisfactory to the Company for, an amount
sufficient to satisfy any federal, state or local withholding tax
requirements prior to the issuance or delivery of any certificate or
certificates for such shares.
12.2. Use of Common Shares to Satisfy Tax Obligation. In order to
assist an optionee or grantee in paying all federal, state and local taxes
to be withheld or collected upon exercise of an option or the grant of a
stock award or the lapse of restrictions relating to a restricted stock
award hereunder, the Committee in its sole discretion and subject to such
rules as it may adopt, may permit the optionee or grantee to satisfy such
tax obligation, in whole or in part, by (i) electing to have the Company
withhold common shares otherwise to be delivered with a fair market value
equal to the amount of such tax obligation, or (ii) electing to surrender
to the Company previously owned common shares with a fair market value
equal to the amount of such tax obligation. The election must be made on or
before the date that the amount of tax to be withheld is determined.
13. Non-Assignability. No award under the Plan shall be assignable or
transferable by the participant except by will or by laws of descent and
distribution. During the life of a participant, such award shall be exercisable
only by the participant or by the participant's guardian or legal
representative.
14. Non-Uniform Determinations. The Committee's determinations under the
Plan (including, without limitation, determinations of the persons to receive
awards, the form, amount and timing of such awards, the terms and provisions of
awards and the agreements evidencing the awards, and the establishment of values
and performance targets) need not be uniform and may be made by it selectively
among persons who receive, or are eligible to receive, awards under the Plan
whether or not such persons are similarly situated.
15. Adjustments in Shares. In the event of any change in the outstanding
common shares of the Company by reason of a stock dividend or distribution,
recapitalization, merger, consolidation, split-up, combination, exchange of
shares or otherwise, the Board shall adjust the number of shares which may be
issued under the Plan and the Board shall provide for an equitable adjustment of
any shares issuable pursuant to awards outstanding under the Plan.
16. Adoption, Amendment and Termination.
16.1. Adoption. This Plan was originally adopted in February 1982 as
the Graco Inc. Incentive Stock Option Plan. The Plan was amended and
restated as the Graco Inc. Long Term Stock Incentive Plan by the Board of
Directors on March 4, 1988 and was further amended by the Board on December
13, 1991, February 21, 1992, February 23, 1996 and May 7, 1996, which
amendments requiring shareholder approval were approved by the shareholders
on May 5, 1992 and May 7, 1996, respectively.
16.2 Amendment. The Board 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 increases pursuant to Section 15 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.
16.3. Termination. Unless the Plan shall have been discontinued at an
earlier date, the Plan shall terminate on December 13, 2001. No option,
restricted stock award or stock awards may be granted after such
termination, but termination of the Plan shall not, without the consent of
the optionee or grantee, alter or impair any rights or obligations under
any award theretofore granted.