Document:

Exhibit

Exhibit 10.2

	
	
	Graco Inc. Non-Qualified Stock Option Agreement

	[Grant Plan Long Name]

	 

	 

	

Graco Inc., a Minnesota corporation, (the “Company”), pursuant to the terms of the Graco Inc. 2019 Stock Incentive Plan (the “Plan”), wishes to grant this Option (as defined in the Terms and Conditions below) to you (“Nonemployee Director”). 

You must carefully read the Terms and Conditions governing this Option, as well as the Prospectus and any other documents provided in connection with the Option grant.  Be sure you understand these documents and what your responsibilities and obligations are before acknowledging receipt of the Option.  If you are not willing to agree to the Option Terms and Conditions, you must not accept the Option and you should not sign the Option Grant Acknowledgment and Agreement.  If you accept the Option, you are accepting all of the Terms and Conditions that are applicable to your receipt of the Option.  If you do not accept the Option, you are forfeiting your right to receive any potential benefits from the Option. 

	 

	 

	Participant:  XXXX

	Global ID: XXXXXXX

	Award Type: XXXXXX

	Date of Grant: XXXX

	Award Expiration Date: XXXXX

	Shares Granted: XXXXXX

	Award Price: XX.XXUSD

	

Note: The statements above are qualified in their entirety by the Terms and Conditions below, and should be read in conjunction with such Terms and Conditions.

Nonemployee Director 2019 Stock Option Grant

TERMS AND CONDITIONS

1.    Grant of Option

The Company grants to Nonemployee Director the right and option (the “Option”) to purchase all or any part of an aggregate of the Shares Granted of Common Stock of the Company, par value USD 1.00 per share, at the Award Price per share on the terms and conditions set forth below.

2.    Duration and Exercisability

		
	A.
	No portion of this Option may be exercised by Nonemployee Director until the first anniversary of the Date of Grant, and then only in accordance with the Vesting Schedule set forth below.  In no event shall this Option or any portion of this Option be exercisable following the tenth anniversary of the Date of Grant.  

Vesting Schedule

	
		
	Vesting Date
	Portion of Option Exercisable

	First Anniversary of Date of Grant
	25%

	Second Anniversary of Date of Grant
	50%

	Third Anniversary of Date of Grant
	75%

	Fourth Anniversary of Date of Grant
	100%

If Nonemployee Director does not purchase in any one year the full number of shares of Common Stock of the Company to which Nonemployee Director is entitled under this Option, Nonemployee Director may, subject to the terms and conditions of Section 3, purchase such shares of Common Stock in any subsequent year during the term of this Option.  This Option shall expire as of the close of trading at the national securities exchange on which the Common Stock is traded (“Exchange”) on the tenth anniversary of the Date of Grant, or if the Exchange is closed on the anniversary date, or the Common Stock of the Company is not trading on said anniversary date, such earlier business day on which the Common Stock is trading on the Exchange.

		
	B.
	During the lifetime of Nonemployee Director, the Option shall be exercisable only by Nonemployee Director and shall not be assignable or transferable by Nonemployee Director otherwise than (i) by will or the laws of descent and distribution, or (ii) by designating a beneficiary or beneficiaries (in a manner established by the Management Organization and Compensation Committee of the Board of Directors of the Company (the “Committee”)) to exercise the rights of Nonemployee Director and receive any property distributable with respect to the Option upon the death of the Nonemployee Director (any person to whom the Option has been transferred pursuant to this Section 2B, a “Transferee”).  The Transferee shall be subject to the provisions of the Agreement, and, as a condition to the transfer of the Option becoming effective, the Transferee shall agree to be bound by the provisions of this Agreement.

		
	C.
	Under no circumstances may the Option or any portion of the Option granted by this Agreement be exercised after the term of the Option expires.

		
	3.
	Effect of Termination of Membership on the Board

		
	A.
	In the event Nonemployee Director ceases being a director of the Company for any reason other than the reasons identified in Section 3B below, Nonemployee Director shall have the right to exercise the Option as follows:

Nonemployee Director 2019 Stock Option Grant

		
	(1)
	If Nonemployee Director was a member of the Board of Directors of the Company for five (5) or more years, the portion of the Option not yet exercisable shall become immediately exercisable upon the date Nonemployee Director ceases being a director.  Nonemployee Director may exercise all or any portion of the Option not yet exercised for a period beginning on the day after the date of Nonemployee Director’s ceasing to be a director and ending at the close of trading on the Exchange on the tenth anniversary of the Date of Grant.  If Nonemployee Director dies during the period between the date of Nonemployee Director ceasing to be a director and the expiration of the Option, the executor(s) or administrator(s) of Nonemployee Director’s estate or any Transferee may exercise the unexercised portion of the Option at any time during a period beginning the day after the date of Nonemployee Director’s death and ending at the close of trading on the Exchange on the tenth anniversary of the Date of Grant.  In no event shall the Option be exercisable following the tenth anniversary of the Date of Grant.

		
	(2)
	If Nonemployee Director was a member of the Board of Directors of the Company for less than five (5) years, Nonemployee Director may exercise that portion of the Option exercisable upon the date Nonemployee Director ceases being a director at any time within the period beginning on the day after Nonemployee Director ceases being a director and ending at the close of trading on the Exchange ninety (90) days later.  If Nonemployee Director dies within the ninety (90) day period and shall not have fully exercised the Option, the executor(s) or administrator(s) of Nonemployee Director’s estate or any Transferee may exercise the remaining portion of the Option at any time during a period beginning on the day after the date of Nonemployee Director’s death and ending at the close of trading on the Exchange on the anniversary of death one (1) year later.

		
	(3)
	If Nonemployee Director dies while a member of the Board of Directors of the Company, the Option, to the extent exercisable by Nonemployee Director at the date of death, may be exercised by the executor(s) or administrator(s) of Nonemployee Director’s estate or any Transferee at any time during a period beginning on the day after the date of Nonemployee Director’s death and ending at the close of trading on the Exchange on the tenth anniversary of the Date of Grant. 

		
	(4)
	In the event the Option is exercised by a Transferee or the executors or administrators of the estate of a deceased Nonemployee Director, the Company shall be under no obligation to issue stock hereunder unless and until the Company is satisfied that the person(s) exercising the Option is the validly designated beneficiary or the duly appointed legal representative of Nonemployee Director’s estate or the proper legatee or distributee thereof.

		
	B.
	If Nonemployee Director ceases being a director of the Company by reason of Nonemployee Director’s gross and willful misconduct, including but not limited to (i) fraud or intentional misrepresentation, (ii) embezzlement, misappropriation or conversion of assets or opportunities of the Company or any affiliate of the Company, (iii) breach of fiduciary duty, or (iv) any other gross or willful misconduct, as determined by the Board, in its sole and conclusive discretion, the unexercised portion of the Option granted to such Nonemployee Director shall immediately be forfeited as of the time of the misconduct.  If the Board determines subsequent to the time Nonemployee Director ceases being a director of the Company for whatever reason, that Nonemployee Director engaged in conduct while a member of the Board of Directors of the Company that would constitute gross and willful misconduct, the Option shall terminate as of the time of such misconduct.  Furthermore, if the Option is exercised in whole or in part and the Board thereafter determines that Nonemployee Director engaged in gross and willful misconduct while a member of the Board of Directors of the Company at any time prior to the date of such exercise, the Option shall be deemed to have terminated as of the time of the misconduct and the Company may elect to rescind the Option exercise.

Nonemployee Director 2019 Stock Option Grant

		
	C.
	For purposes of this Section 3, if the last day of the relevant period is a day upon which the Exchange is not open for trading or the Common Stock is not trading on that day, the relevant period will expire at the close of trading on such earlier business day on which the Exchange is open and the Common Stock is trading.

		
	4.
	Manner of Exercise

		
	A.
	Nonemployee Director or other proper party may exercise the Option only by delivering within the term of the Option 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), 4B(3) and 4B(4), accompanied by payment in full of the Option price for all shares designated in the notice.

		
	B.
	The Nonemployee Director may, at Nonemployee Director’s election, pay the Option price as follows:

		
	(1)
	by cash or check (bank check, certified check, or personal check);

		
	(2)
	by delivering to the Company for cancellation, shares of Common Stock of the Company which have a fair market value equal to the Option price;

		
	(3)
	if the Nonemployee Director is still serving as a director of the Company on the date of exercise, by a reduction in the number of shares of Common Stock to be delivered upon exercise, which number of shares to be withheld shall have an aggregate fair market value on the date of exercise equal to the exercise price; or

		
	(4)
	by delivering to the Company 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 Sections 4B(2) and 4B(3), the fair market value per share of the Company’s Common Stock shall be the closing price of the Common Stock on the day immediately preceding the date of exercise on the Exchange.  If there is not a quotation available for such day, then the closing price on the next preceding day for which such a quotation exists shall be determinative of fair market value.  If the Common Stock is not then traded on the Exchange, then the fair market value shall be determined in such manner as the Company shall deem reasonable.

		
	5.
	Change of Control

		
	A.
	Notwithstanding Section 2A hereof, the entire Option shall become immediately and fully exercisable upon a “Change of Control” and shall remain fully exercisable until either exercised or expiring by its terms.  A “Change of Control” means:

		
	(1)
	an acquisition by any individual, entity or group (within the  meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “1934 Act”)), (a “Person”), of beneficial ownership (within the meaning of Rule 13d-3 of the 1934 Act) which, together with other acquisitions by such Person, results in the aggregate beneficial ownership by such Person of 30% 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”);

Nonemployee Director 2019 Stock Option Grant

provided, however, that the following acquisitions will not result in a Change of Control:
		
	(i)
	an acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company,

		
	(ii)
	an acquisition by the Employee or any group that includes the Employee, or

		
	(iii)
	an acquisition by any entity pursuant to a transaction that complies with clauses (a), (b) and (c) of Section 5A(3) below; 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 by or on behalf of a Person other than the Board; or

		
	(3)
	Consummation of a reorganization, merger or consolidation of the Company with or into another entity or a 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”); 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 and Outstanding Company Voting Securities immediately prior to such Business  Combination  beneficially own, directly or indirectly, a majority 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 (or comparable equity interests), as the case may be, of the surviving or acquiring entity resulting from such Business Combination (including, without limitation, an entity that as a result of such transaction beneficially owns 100% of the outstanding shares of common stock and the combined voting power of the then outstanding voting securities (or comparable equity securities) or all or substantially all of the Company’s assets either directly or indirectly) in substantially the same proportions (as compared to the other holders of the Company’s common stock and voting securities prior to the Business Combination) as their respective ownership, immediately prior to such Business Combination, of the Outstanding Company Common Stock and Outstanding Company Voting Securities,

		
	(b)
	no Person (excluding (i) any employee benefit plan (or related trust) sponsored or maintained by the Company or such entity resulting from such Business Combination or any entity controlled by the Company or the entity resulting from such Business Combination, (ii) any entity beneficially owning 100% of the outstanding shares of common stock and the combined voting power of the then outstanding voting securities (or comparable equity securities) or all or substantially all of the Company’s assets either directly or indirectly and (iii) the Employee and any group that includes the Employee) beneficially owns, directly or indirectly, 30% or more of the then outstanding shares of common stock (or comparable equity interests) of the entity resulting from such Business Combination or the combined voting power of the then outstanding voting securities (or comparable equity interests) of such entity, and

Nonemployee Director 2019 Stock Option Grant

		
	(c)
	immediately after the Business Combination, a majority of the members of the board of directors (or comparable governors) of the entity 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

		
	(4)
	approval by the shareholders of the Company of a complete liquidation or dissolution of the Company.

		
	6.
	Adjustments; Fundamental Change

		
	A.
	If there shall be any change in the number or character of the Common Stock of the Company through merger, consolidation, reorganization, recapitalization, dividend in the form of stock (of whatever amount), stock split or other change in the corporate structure of the Company, and all or any portion of the Option shall then be unexercised and not yet expired, appropriate adjustments in the outstanding Option shall be made by the Company, in order to prevent dilution or enlargement of Employee’s Option rights. Such adjustments shall include, where appropriate, changes in the number of shares of Common Stock and the price per share subject to the outstanding Option.

		
	B.
	In the event of a proposed (i) dissolution or liquidation of the Company, (ii) a sale of substantially all of the assets of the Company, (iii) a merger or consolidation of the Company with or into any other corporation, regardless of whether the Company is the surviving corporation, or (iv) a statutory share exchange involving the capital stock of the Company (each, a “Fundamental Change”), the Committee may, but shall not be obligated to:

		
	(1)
	with respect to a Fundamental Change that involves a merger, consolidation or statutory share exchange, make appropriate provision for the protection of the Option by the substitution of options and appropriate voting common stock of the corporation surviving any such merger or consolidation or, if appropriate, the “parent corporation” (as defined in Section 424(e) of the Internal Revenue Code of 1986, as amended from time to time, and any regulations promulgated thereunder, or any successor provision) of the Company or such surviving corporation, in lieu of the Option and shares of Common Stock of the Company, or

		
	(2)
	with respect to any Fundamental Change, including, without limitation, a merger, consolidation or statutory share exchange, declare, prior to the occurrence of the Fundamental Change, and provide written notice to the holder of the Option of the declaration, that the Option, whether or not then exercisable, shall be canceled at the time of, or immediately prior to the occurrence of, the Fundamental Change in exchange for payment to the holder of the Option, within 20 days after the Fundamental Change, of cash (or, if the Committee so elects in lieu of solely cash, of such form(s) of consideration, including cash and/or property, singly or in such combination as the Committee shall determine, that the holder of the Option would have received as a result of the Fundamental Change if the holder of the Option had exercised the Option immediately prior to the Fundamental Change) equal to, for each share of Common Stock covered by the canceled Option, the amount, if any, by which the Fair Market Value (as defined in this Section 6B) per share of Common Stock exceeds the exercise price per share of Common Stock covered by the Option.  At the time of the declaration provided for in the immediately preceding sentence, the Option shall immediately become exercisable in full and the holder of the Option shall have the right, during the period preceding the time of cancellation of the Option, to exercise the Option as to all or any part of the shares of Common Stock covered thereby in whole or in part, as the case may be.  In the event of a declaration pursuant to this Section 6B, the Option, to the extent that it shall not have been exercised prior to the Fundamental Change, shall be canceled at the time of, or immediately prior to, the Fundamental Change, as provided in the declaration.  Notwithstanding the foregoing, the holder of the Option shall not be entitled to the payment provided for in this Section 6B if such Option shall 

Nonemployee Director 2019 Stock Option Grant

have expired or been forfeited.  For purposes of this Section 6B only, “Fair Market Value” per share of Common Stock means the fair market value, as determined in good faith by the Committee, of the consideration to be received per share of Common Stock by the shareholders of the Company upon the occurrence of the Fundamental Change, notwithstanding anything to the contrary provided in this Agreement.
		
	7.
	Miscellaneous

		
	A.
	This Option is issued pursuant to the Plan and is subject to its terms.  The terms of the Plan are available for inspection during business hours at the principal offices of the Company.

		
	B.
	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, Nonemployee Director’s legal representative, a Transferee, nor the executor(s) or administrator(s) of Nonemployee Director’s estate 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 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.
	The internal law, and not the law of conflicts, of the State of Minnesota, U.S.A., shall govern all questions concerning the validity, construction and effect of this Agreement, the Plan and any rules and regulations relating to the Plan or this Option.

		
	F.
	Nonemployee Director hereby consents to the transfer to Nonemployee Director’s employer or the Company of information relating to Nonemployee Director’s participation in the Plan, including the personal data set forth in this Agreement, between them or to other related parties in the United States or elsewhere, or to any financial institution or other third party engaged by the Company, but solely for the purpose of administering the Plan and this Option.  Nonemployee Director also consents to the storage and processing of such data by such persons for this purpose.

Nonemployee Director 2019 Stock Option GrantExhibit

Exhibit 10.3

GRACO INC.
NONEMPLOYEE DIRECTOR 
STOCK AND DEFERRED STOCK PROGRAM
(2019 Restatement)

1.    Purpose and Background of the Stock and Deferred Stock Program.  The purpose of the Graco Inc. Nonemployee Director Stock and Deferred Stock Program (“Program”) is to provide an opportunity for nonemployee members of the Board of Directors (“Board”) of Graco Inc. (“Graco” or “Company”) to increase their ownership of Graco Common Stock (“Common Stock”) and thereby align their interest in the long-term success of the Company with that of the other shareholders.  Each nonemployee director may elect to receive all or a portion of his or her compensation (“Compensation”) (which in the past has included annual cash retainers (“Retainer”) and fees payable for attendance at Board or Committee meetings (“Meeting Fees”)) in the form of shares of Common Stock or defer the receipt of such shares until a later date pursuant to an election made under the Program.

The Board has amended and restated the plan document for this Program effective as of May 1, 2019.  

2.    Eligibility.  Members of the Board who are not also officers or other employees of the Company or its subsidiaries are eligible to participate in the Program (“Eligible Directors”).

3.    Administration.  The Program will be administered by the Secretary of the Company (the “Administrator”).  Because the issuance or crediting of shares of Common Stock pursuant to the Program is based on elections made by Eligible Directors, the Administrator’s duties under the Program are those of interpretation and administrative oversight.  The Administrator shall make determinations and interpretations as necessary or appropriate and they will be conclusive and binding for all purposes and on all persons.  If an Eligible Director disagrees with an interpretation or wishes to make any claim with respect to the Program, the Eligible Director shall submit a written claim to the Administrator and the Administrator will refer the claim to the Governance Committee of the Board.  The Governance Committee of the Board shall review the written claim and make a determination on the written claim within ninety (90) days of the date the Governance Committee receives the written claim.  If the Eligible Director who submits the claim is a member of the Governance Committee, he or she will not have any authority with respect to the claim and will not be considered for purposes of establishing a quorum or a majority of votes in reviewing or making a determination with respect to the claim.  An Eligible Director must exhaust this internal review under the Program prior to commencing any legal action with respect to the Program.  A court shall grant deference to the decisions may by the Governance Committee under this internal, conclusive and binding review process.  The Administrator and the members of the Governance Committee of the Board will not be liable for any action or determination made in good faith with respect to the Program.  

4.    Election to Receive Stock and Stock Issuance.

4.1.    Compensation Elections.

4.1.1.    Annual Compensation Election (Election to Currently Receive or Defer Stock Instead of Receiving Cash).  Prior to the start of each calendar year, each Eligible Director may irrevocably elect (“Stock Election”) the portion of Compensation: (i) to receive as cash; (ii) to be issued as shares of Common Stock in lieu of Compensation; or (iii) to have credited to an account (“Deferred Stock Account”) as deferred shares of Common Stock in lieu of Compensation.  The portion of Compensation to be issued as shares of Common Stock or to be credited to a Deferred 

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Stock Account shall equal to 25%, 50%, 75% or 100% of the Compensation payable to that Eligible Director (the total not to exceed 100%) for services rendered as a director (based on Fair Market Value, as defined in Section 4.3).  An Eligible Director who elects to receive shares of Common Stock or to have shares credited under a Deferred Stock Account shall be referred to as a “Participating Director.”  

4.1.2.    Initial Compensation Election (Upon Becoming an Eligible Director).  Notwithstanding any other provision of this Section 4.1, if an individual first becomes an Eligible Director during a taxable year the Eligible Director may make a Stock Election by delivering an election form to the Secretary of the Company within thirty (30) calendar days of the date that the individual first becomes an Eligible Director, provided that the individual has not previously been eligible to participate in any deferred compensation plan required to be aggregated with this Program pursuant to regulations issued under section 409A of the Internal Revenue Code, its accompanying regulations and guidance governing deferred compensation (collectively, “Section 409A”).  The Stock Election will be applicable only to services performed after the election form is received by the Secretary.

4.1.3.    Payment Elections.  In addition to the Stock Elections under this Section 4.1, a Participating Director shall have a payment election as provided under Section 5.1.

4.1.4.    Default Payment Form.  If a director does not make a timely or effective election, the director’s Compensation will be paid in cash.  

4.2.    Issuance of Stock/Application of Credit in Lieu of Cash.  If the Stock Election is for the issuance of shares of Common Stock, shares of Common Stock having a Fair Market Value equal to the amount of Compensation so elected shall be issued to each Participating Director when each quarterly installment of Compensation is customarily paid.  The Company shall not issue fractional shares, but in lieu thereof shall pay cash of equivalent value using the same Fair Market Value used to determine the number of shares to be issued on the relevant issue date.  If the Stock Election is for a credit to a Deferred Stock Account, the number of shares of Common Stock (rounded to the nearest one-hundredth (1/100th) of a share) having a Fair Market Value equal to the amount of Compensation so elected shall be credited to the Participating Director’s Deferred Stock Account when each quarterly installment of Compensation is customarily paid.  In the event that a Participating Director elects to receive less than 100% of each quarterly installment of Compensation in shares of Common Stock, either issued or credited, the Participating Director shall receive the balance of the quarterly installment in cash.

4.3.    Fair Market Value.  For purposes of converting dollar amounts into shares of Common Stock, the Fair Market Value of each share of Common Stock shall be equal to the closing price of one (1) share of the Company’s Common Stock on the New York Stock Exchange-Composite Transactions on the last business day of the calendar quarter for which such shares are issued or credited.

4.4.    Termination of Service as a Director.  If a Participating Director leaves the Board before the conclusion of any calendar quarter, the Participating Director will be paid the quarterly installment of Compensation entirely in cash, notwithstanding any elections (Stock Election or otherwise) or Program provision to the contrary.

4.5.    Dividend Credit.  Each time a dividend is paid on the Common Stock, each Participating Director who has a Deferred Stock Account shall receive a credit to his or her Deferred Stock Account equal to that number of shares of Common Stock (rounded to the nearest one-hundredth (1/100th)of a share) having a Fair Market Value on the dividend payment date equal to the amount of the dividend 

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payable on the number of shares of Common Stock credited to the Participating Director’s Deferred Stock Account on the dividend record date.

5.    Payment of Deferred Stock Account.  Subject to Section 409A, the following rules apply.  

5.1.    Payment Election.  

5.1.1.    Payment Elections - Before 2020.  For Compensation earned prior to 2020, at the time of making the Stock Election in which the Participating Director elects to have a Deferred Stock Account credited in accordance with the provisions of Section 4.1, the Participating Director will make a payment election as to the time and form of payment (selecting among the forms in Section 5.2.1) for the amounts to be credited to his or her Deferred Stock Account for the year.  A new payment election under this Section 5.1.1 shall not become effective until the commencement of the first full taxable year after the date of receipt of such new payment election by the Company.

5.1.2.    Payment Elections - 2020 and Subsequent Years.  For Compensation earned in 2020 and subsequent years, a Participating Director who is a director in December of 2019 shall, prior to 2020, make a one-time payment election as to the time and form of payment (selecting among the forms described in Section 5.2.2) for all amounts credited to his or her Deferred Stock Account on and after 2020.  If an individual becomes an Eligible Director after 2020, within thirty (30) calendar days of the date that the individual first becomes an Eligible Director, the individual shall make this one-time payment election (no amounts may be credited to a Deferred Stock Account prior to the date the one-time election is received by the Secretary).

5.2.    Payment Options for Deferred Stock Accounts.  

5.2.1.    Payment Options - Contributions Before 2020.  For Compensation earned before 2020, a Participating Director may elect the form of payment from his or her Deferred Stock Account in a lump sum or installments.  Payments, whether in a lump sum or installments, shall be made in shares of Common Stock plus cash in lieu of any fractional share.

		
	(i)
	For a lump sum payment, the Company shall pay the Participating Director a single lump sum payment on the January 10 following the Participating Director’s Separation from Service (or the first business day following January 10) of the year following the year of the Participating Director’s Separation from Service.

		
	(ii)
	For installment payments, the Company shall pay the Participating Director the first installment payment on the January 10 following the Participating Director’s Separation from Service (or the first business day following January 10) of the year following the year of the Participating Director’s Separation from Service.  Subsequent payments will be made on each subsequent January 10 (or the first business day following January 10).  The amount of each installment payment will be computed by multiplying the number of shares credited to the Deferred Stock Account as of the payment date for each year by a fraction, the numerator of which is one (1) and the denominator of which is the total number of installments elected (not to exceed fifteen (15)) minus the number of installments previously paid.  Amounts paid prior to the final installment payment will be rounded to the nearest whole number of shares.  The final installment payment shall be for the whole number of shares remaining credited to the Deferred Stock Account, plus cash in lieu of any fractional share.

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Notwithstanding the foregoing, if a Participating Director has elected a different payment date as part of an election under Section 5.1.1, the first payment (lump sum or first installment payment) will be made on that date (and shall be paid no later than the latest of: (a) the end of the calendar year of this payment date; or (b) the end of the short-term deferral period with respect to the payment).

5.2.2.    Payment Options - Contributions On and After 2020.  For Compensation earned in 2020 and subsequent years, a Participating Director shall make a one-time election under Section 5.1.2 for amounts credited to his or her Deferred Stock Account on and after 2020 as to the form of payment from his or her Deferred Stock Account in a lump sum or installments.  Payments, whether in a lump sum or installments, shall be made in shares of Common Stock plus cash in lieu of any fractional share.

		
	(i)
	For a lump sum payment, the Company shall pay the Participating Director a single lump sum payment on the January 10 following the Participating Director’s Separation from Service (or the first business day following January 10) of the year following the year of the Participating Director’s Separation from Service.

		
	(ii)
	For installment payments, the Company shall pay the Participating Director the first installment payment on the January 10 following the Participating Director’s Separation from Service (or the first business day following January 10) of the year following the year of the Participating Director’s Separation from Service.  Subsequent payments will be made on each subsequent January 10 (or the first business day following January 10).  The amount of each installment payment will be computed by multiplying the number of shares credited to the Deferred Stock Account as of the payment date for each year by a fraction, the numerator of which is one (1) and the denominator of which is the total number of installments elected (not to exceed fifteen (15)) minus the number of installments previously paid.  Amounts paid prior to the final installment payment will be rounded to the nearest whole number of shares.  The final installment payment shall be for the whole number of shares remaining credited to the Deferred Stock Account, plus cash in lieu of any fractional share.

If a Participating Director fails to make this one-time election, the Participating Director is deemed to have elected to receive a single lump sum payment on the January 10 following the Participating Director’s Separation from Service (or the first business day following January 10) of the year following the year of the Participating Director’s Separation from Service.

5.3.    Payment Upon Death.  If a Participating Director dies before the Participating Director’s Deferred Stock Account has been fully paid, the unpaid amount in the Participating Director’s Deferred Stock Account shall be paid to the Participating Director’s Beneficiary on the first business day that is two (2) months after the Participating Director’s date of death.

5.4.    Payment In General.  All payments shall be paid no later than the latest of the end of: (a) the calendar year of this payment date; or (b) the short-term deferral period with respect to the payment.

5.5.    Compliance with Section 409A.  Section 409A governs deferred compensation, including amounts credited under the Deferred Stock Accounts.  To the extent this Program (as it relates to the Deferred Stock Accounts) is subject to Section 409A, this Program shall be interpreted in a manner that complies with Section 409A.  For example, the term “Separation from Service” shall be interpreted to 

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mean a separation from service under Section 409A.  In addition, each payment (including each installment payment) shall be treated as a separate payment for purposes of Section 409A, as allowed under 26 C.F.R. § 1.409A-2(b)(2)(iii).     

6.    Beneficiary.  

6.1.    Beneficiary Designation.  A Participating Director may designate a Beneficiary who, upon his or her death, shall receive any unpaid amount from the Participating Director’s Deferred Stock Account.  A “Beneficiary” shall include one or more natural individuals who are alive after the Participating Director dies and a trust designated by the Participating Director.  All Beneficiary designations shall be in writing and shall be effective only if and when delivered to the Company during the lifetime of the Participating Director.  Unless otherwise indicated by the Participating Director, no amounts shall be paid to a Beneficiary who dies before the Participating Director.  

If a Participating Director: (i) fails to designate a Beneficiary, (ii) designates a Beneficiary and thereafter such designation is revoked without another Beneficiary being named, or (iii) designates one (1) or more Beneficiaries and all such Beneficiaries so designated fail to survive the Participating Director, such Participating Director’s Deferred Stock Account shall be payable to the first class of the following classes of automatic Beneficiaries with a member surviving the Participating Director and (except in the case of the Participating Director’s surviving issue) in equal shares if there is more than one (1) member in such class surviving the Participating Director:
Participating Director’s surviving spouse
Participating Director’s surviving issue per stirpes and not per capita
Participating Director’s surviving parents
Participating Director’s surviving brothers and sisters
Representative of the Participating Director’s estate.

Unless a Participating Director has otherwise specified in his or her Beneficiary designation, the following rules shall apply:

		
	(a)
	If there is insufficient evidence that a Beneficiary was living at the time of the death of the Participating Director, the Beneficiary shall be deemed to be not living at the time of the Participating Director’s death (i.e., to have died prior to the Participating Director).

		
	(b)
	The Beneficiary designated by the Participating Director and any automatic Beneficiaries (if a Beneficiary has not been designated) shall become fixed at the time of the Participating Director’s death so that, if a Beneficiary survives the Participating Director but dies before the receipt of payment due such Beneficiary hereunder, such payment shall be made to the representatives of such Beneficiary’s estate.

		
	(c)
	If the Participating Director designates as a Beneficiary the person who is the Participating Director’s spouse on the date of the designation, either by name or relationship, or both, the dissolution, annulment or other legal termination of the marriage between the Participating Director and such person shall automatically revoke such designation.  The foregoing shall not prevent the Participating Director from designating a former spouse as a Beneficiary on a form signed by the Participating Director and received by the Secretary of the Company after the date of the legal termination of the marriage between the Participating Director and such former spouse, provided it is received during the Participating Director’s lifetime.  Notwithstanding the foregoing, if the Participating Director has elected to have the 

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Common Stock registered in the name of the Participating Director and another person, and the Participating Director has commenced receiving payment under the Program, the joint owner of the Common Stock may not be changed.

		
	(d)
	Except as provided under (c), any designation of a Beneficiary by name accompanied by a description of the relationship of the Beneficiary to the Participating Director shall be given effect without regard to whether the relationship to the Participating Director exists either then or at the time of the Participating Director’s death.  

		
	(e)
	Any designation of a Beneficiary only by statement of the Beneficiary’s relationship to the Participating Director shall be effective only to designate the person or persons standing in that relationship to the Participating Director at the time of the Participating Director’s death.

		
	(f)
	The Administrator, within 30 days of the receipt of a Beneficiary designation, may reject any Beneficiary designation if the Administrator determines the Beneficiary designation is not clear, too complex, or onerously difficult to administer.  If the Administrator rejects a Beneficiary designation, then the Program’s default Beneficiary designation rules shall apply (and not any prior Beneficiary designation submitted by the Participating Director).

		
	(g)
	Notwithstanding any other provision of this Program or any election or designation made under the Program, any individual who feloniously and intentionally kills a Participating Director or Beneficiary shall be deemed for all purposes of the Program and all elections and designations made under the Program to have died before such Participating Director or Beneficiary.  Prior to a judgment or conviction, the Administrator, in its sole discretion, shall determine whether a killing was felonious and intentional.  A final judgment of conviction of felonious and intentional killing is conclusive for the purposes of this determination

6.2.    Change of Beneficiary.  A Participating Director may from time to time during his or her lifetime change his or her Beneficiary by delivering a new written Beneficiary designation to the Company.

7.    Limitation on Rights of Eligible and Participating Directors.

7.1.    Service as a Director.  Nothing in the Program will interfere with or limit in any way the right of the Company’s Board or its shareholders to remove an Eligible or Participating Director from the Board.  Neither the Program nor any action taken pursuant to it will constitute or be evidence of any agreement or understanding, express or implied, that the Company’s Board or its shareholders have retained or will retain an Eligible or Participating Director for any period of time or at any particular rate of compensation.

7.2.    Nonexclusivity of the Program.  Nothing contained in the Program is intended to affect, modify or rescind any of the Company’s existing compensation programs, plans, or arrangements or to create any limitations on the Board’s power or authority to modify or adopt compensation arrangements as the Board may from time to time deem necessary or desirable.

8.    Program Amendment, Modification and Termination.  The Board may suspend or terminate the Program at any time.  The Board may amend the Program from time to time in such respects as the Board may deem advisable in order that the Program will conform to any change in applicable laws or 

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regulations or in any other respect that the Board may deem to be in the Company’s best interests.

9.    Participating Directors are General Creditors of the Company.  The Participating Directors and Beneficiaries thereof shall be general, unsecured creditors of the Company with respect to any payments to be made pursuant to the Program and shall not have any preferred interest by way of trust, escrow, lien or otherwise in any specific assets of the Company.  If the Company shall, in fact, elect to set aside monies or other assets to meet its obligations hereunder (there being no obligation to do so), whether in a grantor’s trust or otherwise, the same shall, nevertheless, be regarded as part of the general assets of the Company subject to the claims of its general creditors, and neither any Participating Director nor any Beneficiary thereof shall have a legal, beneficial or security interest therein.

10.    Miscellaneous.

10.1.    Securities Law and Other Restrictions.  Notwithstanding any other provision of the Program or any Stock Election delivered pursuant to the Program, the Company will not be required to issue any shares of Common Stock under the Program and a Participating Director may not sell, assign, transfer or otherwise dispose of shares of Common Stock issued pursuant to the Program, unless:

		
	(a)
	there is in effect with respect to such shares a registration statement under the Securities Act of 1933, as amended (the “Securities Act”) and any applicable state securities laws or an exemption from such registration under the Securities Act and applicable state securities laws, and 

		
	(b)
	there has been obtained any other consent, approval or permit from any other regulatory body that the Administrator, in his or her sole discretion, deems necessary or advisable.  The Company may condition such issuance, sale or transfer upon the receipt of any representations or agreements from the parties involved, and the placement of any legends on certificates representing shares of Common Stock, as may be deemed necessary or advisable by the Company, in order to comply with such securities law or other restriction.

10.2.    Adjustment to Shares.  In the event of any reorganization, merger, consolidation, recapitalization, liquidation, reclassification, stock dividend, stock split, combination of shares, rights offering, divestiture or extraordinary dividend, an appropriate adjustment shall be made in the number and/or kind of securities available for issuance under the Program to prevent the dilution or the enlargement of the rights of the Eligible and Participating Directors.

11.    Governing Law and Venue.  The validity, construction, interpretation, administration and effect of the Program and any rules, regulations and actions relating to the Program will be governed by and construed exclusively in accordance with the laws of the State of Minnesota, to the extent that federal laws and regulations do not apply.  Any legal action brought with respect to this Program shall be brought in federal court located in Minneapolis, Minnesota.

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