TABLE OF CONTENTS
INTRODUCTION AND DEFINITIONS
1.1. Preamble. Effective May 1, 2005, Graco Inc., a Minnesota corporation, established this nonqualified, unfunded, deferred compensation plan under section 409A of the Internal Revenue Code for the benefit of a select group of management or highly compensated employees of Graco Inc. and related Employers.
1.2. Definitions. When the following terms are used herein with initial capital letters, they shall have the following meanings:
1.2.1. Account — the separate bookkeeping account established for each Participant which represents the separate unfunded and unsecured general obligation of the Employers established with respect to each individual who is a Participant in the Plan to track credits and the investment return on those credits.
1.2.2. Affiliate — a business entity which is not an Employer but which is part of a “controlled group” with the Employer or under “common control” with the Employer or which is a member of an “affiliated service group” that includes an Employer, as those terms are defined in section 414(b), (c) and (m) of the Code. A business entity which is a predecessor to the Employer shall be treated as an Affiliate if the Employer maintains a plan of such predecessor business entity or if, and to the extent that, such treatment is otherwise required by regulations under section 414(a) of the Code. A business entity shall also be treated as an Affiliate if, and to the extent that, such treatment is required by regulations under section 414(o) of the Code. In addition to said required treatment, the Vice President of Human Resources may designate as an Affiliate any business entity which is not such a “controlled group,” “common control,” “affiliated service group” or “predecessor” business entity but which is otherwise affiliated with an Employer, subject to such limitations as the Vice President of Human Resources may impose.
1.2.3. Annual Valuation Date — each December 31.
1.2.4. Beneficiary — a person designated by a Participant (or automatically by operation of this Plan Statement) to receive all or a part of the Participant’s Account in the event of the Participant’s death prior to full distribution thereof. A person so designated shall not be considered a Beneficiary until the death of the Participant.
1.2.5. Board of Directors — the board of directors of Graco or of its successor. “Board of Directors” also shall mean and refer to any properly authorized committee of the directors.
1.2.6. Code — the Internal Revenue Code of 1986, including applicable regulations for the specified section of the Code. Any reference in this Plan Statement to a section of the Code, including the applicable regulation, shall be considered also to mean and refer to any subsequent amendment or replacement of that section or regulation.
1.2.7. Committee — the Compensation Committee of the Board of Directors.
1.2.8. Compensation — a Participant’s Compensation shall consist of the following:
Items described in (a), (b), (c) or (d). above shall not be considered Compensation until they are earned by the Participant.
1.2.9. Deferred Compensation Agreement — the written agreement made by a Participant pursuant to which the Participant agrees to accept a reduction in Compensation and the Employer agrees to credit the amount of such reduction to the Participant’s Account.
1.2.10. Disabled or Disability — an impairment which renders a Participant unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months. A Disability must be evidenced by (i) a certification by a doctor of medicine, or (ii) the official written determination that the individual will be eligible for disability benefits under the federal Social Security Act.
1.2.11. Effective Date — May 1, 2005.
1.2.12. Employer — each of the following employers:
The name of each Employer, the effective date of its adoption of the Plan, and a specification of whether an employee’s pre-adoption service with such Employer will be included in determining the Participant’s initial eligibility to enroll as a Participant in the Plan shall be set forth in Schedule I to this Plan Statement.
1.2.13. ERISA — the Employee Retirement Income Security Act of 1974, including applicable regulations for the specified section of ERISA. Any reference in this Plan Statement to a section of ERISA, including the applicable regulation, shall be considered also to mean and refer to any subsequent amendment or replacement of that section or regulation.
1.2.14. Graco — Graco Inc., a Minnesota corporation, and any successor thereof.
1.2.15. Participant — an employee of the Employer who is selected for participation in the Plan. An employee who has become a Participant shall continue as a Participant in the Plan until the date of the Participant’s death or, if earlier, the date upon which the Participant has received a distribution of the Participant’s entire Account under the Plan.
1.2.16. Plan — the nonqualified, unfunded, deferred compensation plan of the Employer established for the benefit of employees eligible to participate therein, as first set forth in this Plan Statement. (As used herein, “Plan” refers to the legal entity established by the Employer and not to the documents pursuant to which the Plan is maintained. Those documents are referred to herein as the “Plan Statement.”) The Plan shall be referred to as the “Graco Deferred Compensation Plan.”
1.2.17. Plan Statement — this document entitled “Graco Deferred Compensation Plan (2005 Statement),” as the same may be amended from time to time.
1.2.18. Plan Year — the twelve (12) consecutive month period ending on any Annual Valuation Date.
1.2.19. Separation from Service — a separation from service for the purposes of section 409A of the Code.
1.2.20. Valuation Date — any day that the U.S. securities markets are open and conducting business.
1.2.21. Vested — nonforfeitable.
1.2.22. Vice President of Human Resources — the individual who is the Vice President of Human Resources of Graco or such person as designated by the Chief Executive Officer of Graco.
1.3. Rules of Interpretation. An individual shall be considered to have attained a given age on the individual’s birthday for that age (and not on the day before). The birthday of any individual born on a February 29 shall be deemed to be February 28 in any year that is not a leap year. Whenever appropriate, words used herein in the singular may be read in the plural, or words used herein in the plural may be read in the singular; the masculine may include the feminine; and the words “hereof,” “herein” or “hereunder” or other similar compounds of the word “here”shall mean and refer to the entire Plan Statement and not to any particular paragraph or section of this Plan Statement unless the context clearly indicates to the contrary. The titles given to the various sections of this Plan Statement are inserted for convenience of reference only and are not part of this Plan Statement, and they shall not be considered in determining the purpose, meaning or intent of any a provision hereof. Any reference in this Plan Statement to a statute or regulation shall be considered also to mean and refer to any subsequent amendment or replacement of that statute or regulation. This Plan Statement has been executed and shall, except to the extent that federal law is controlling, be construed and enforced in accordance with the laws of the State of Minnesota. Notwithstanding any other provision of this Plan Statement or any election or designation made under the Plan, any individual who feloniously and intentionally kills a Participant or Beneficiary shall be deemed for all purposes of the Plan and all elections and designations made under the Plan to have died before such Participant or Beneficiary. For purposes of this section, an individual will be found to have feloniously and intentionally killed a Participant or Beneficiary, only if a final judgment of conviction of felonious and intentional killing of such Participant or Beneficiary has been entered against such individual by the trial court. Notwithstanding anything to the contrary, the Vice President of Human Resources may deny any request for a distribution pending a determination under this section.
2.1. General Eligibility Rule. An employee of an Employer who satisfies the following three conditions:
shall be eligible to become a Participant. An employee shall become a Participant as of the January 1 next following the acceptance and approval of such individual’s properly completed Deferred Compensation Agreement by the Vice President of Human Resources.
2.2. Selection for Participation in the Plan . Only employees who are selected for participation in the Plan by the Vice President of Human Resources shall be eligible to become a participant in the Plan. The Vice President of Human Resources shall not select any employee for participation unless the Vice President of Human Resources determines that such employee is a member of a select group of management or highly compensated employees (as that expression is used in ERISA).
2.3. Deferred Compensation Agreement.
2.3.1. Amount of Deferrals . Subject to the following rules and any rules adopted by the Vice President of Human Resources, a Participant by entering into a Deferred Compensation Agreement may make elective contributions through a pay reduction equal to but not less than (i) one percent (1%) nor more than fifty percent (50%) (in whole percentages) of the portion of the Participant’s Base Salary and Advance Sales Incentives, and (ii) one percent (1%) nor more than one hundred percent (100%) (in whole percentages) of the portion of the Participant’s Annual Bonus Awards and Year-End Sales Incentive Awards. The Vice President of Human Resources may, from time to time under rules, change the minimum and maximum allowable elective contributions, although such changes shall not take effect until the following Plan Year. Salary deferrals will begin as soon as administratively practicable following the January 1 on which the Employee becomes a Participant. The Deferred Compensation Agreement shall remain in effect for the remainder of the Plan Year (unless terminated upon a Participant’s death or Separation from Service).
2.3.2. Initial and Annual Elections . Employees selected to participate and Participants may enter into a Deferred Compensation Agreement to defer compensation, or increase or decrease the amount of deferred compensation, during the period beginning on November 1 and ending on December 31 of each year for the subsequent Plan Year.
2.3.3. Effective Date of Elections . The Participant’s Deferred Compensation Agreement will be effective as of the January 1 following the date of the Participant’s election.
2.3.4. Evergreen Elections . The Participant’s Deferred Compensation Agreement shall remain in effect until the Participant timely completes a new Deferred Compensation Agreement during a subsequent period described in Section 2.3.2 (unless terminated as provided in Section 2.3.5 or Section 2.3.6).
2.3.5. Ineligible to Defer Compensation . The Deferred Compensation Agreement of a Participant who is determined to be no longer eligible to defer compensation shall terminate as of the last day of the Plan Year in which the Employer makes the determination that the Participant is longer eligible to defer compensation.
2.3.6. Separation from Service . The Deferred Compensation Agreement of a Participant shall be terminated automatically as of the date of the Participant’s Separation from Service.
3.1. Deferred Compensation Agreement Contributions .
3.1.1. Amount . The Employer shall cause to be credited to the Account of each Participant the amount, if any, of such Participant’s elective deferrals under the Deferred Compensation Agreement.
3.1.2. Allocation . The portion of the contribution made with respect to each Participant shall be allocated to that Participant’s Account for the Plan Year with respect to which it is made and, for the purposes of this section, shall be credited as soon as practicable after it is deducted from the Participant’s Compensation.
3.2. Employer Contributions . An Employer may, in its sole discretion, make employer discretionary contributions to a Participant’s Account.
4.1. Designation of Measuring Investments . Measuring investments are specified solely as a device for computing the amount of benefits to be paid by the Employer under the Plan, and the Employer is not required to purchase such investments. The measuring investments are listed in Schedule III to this Plan Statement.
4.2. Operational Rules for Measuring Investments . The Vice President of Human Resources shall adopt rules specifying the circumstances under which a particular measuring investment may be elected, or shall be automatically utilized, the minimum or maximum amount or percentage of an Account which may be allocated to a measuring investment, the procedures for making or changing measuring investment elections, the extent (if any) to which Beneficiaries of deceased Participants may make measuring investment elections and the effect of a Participant’s or Beneficiary’s failure to make an effective measuring investment election with respect to all or any portion of an Account.
4.3. Investment Direction of Participants .
4.3.1. Rights of Participants . A Participant shall direct the Vice President of Human Resources as to the measuring investments which shall be the standard by which the value of the Participant’s Account shall be measured.
4.3.2. Transmission of Investment Directions . Through a voice response system (or other written or electronic means) approved by the Vice President of Human Resources, each Participant shall designate the measuring investments that shall be used to determine the value of such Participant’s Account (until changed as provided herein): (i) one or more measuring investments for the current Account balance, and (ii) one or more measuring investments for amounts that are credited to the Account in the future.
4.4. Losses Under the Plan . The cash value of the Participant’s Account shall depend on the investment return experience of the Participant’s elected measuring investments. No officer, director or employee of the Employer shall be accountable or liable for any investment losses to a Participant’s Account incurred by virtue of implementing the directions of the Participant with respect to the measuring investments of the Account or due to any reasonable administrative delay in implementing such directions.
A Participant shall be fully vested in the funds credited to the Participant’s Account at all times.
The obligations to make payments under the Plan constitute only the unsecured (but legally enforceable) promises of the Participant’s Employer and Graco to make such payments. No Participant shall have any lien, prior claim or other security interest in any property of the Employer and Affiliates. The Employer shall have no obligation to establish or maintain any fund, trust or account (other than a bookkeeping account) for the purpose of funding or paying the benefits promised under the Plan. If such a fund, trust or account is established, the property therein that is allocable to the Employer shall remain the sole and exclusive property of the Employer.
7.1. Distribution .
7.1.1. Time of Distribution .
7.1.2. Form of Distribution .