EXHIBIT A
GRACO INC. KEY EMPLOYEE AGREEMENT
AGREEMENT, by and between Graco Inc., a Minnesota corporation (the "Company")
and ________________________________ (the "Executive"), dated as of the ______
day of ______________,_______.
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 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:
(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 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 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 sue 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 sue
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:
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If to the Company:
Graco Inc.
4050 Olson Memorial Highway
Golden Valley, MN 55422
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, all as of the
day and year first above written.
Executive Graco Inc.
By
Name Name and title