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Stock Repurchase Agreement

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Exhibit 10.1

STOCK PURCHASE AGREEMENT

THIS AGREEMENT made and entered into as of this 13th day of March, 2003, by and among GRACO INC., a Minnesota corporation (the " Company" ), David A. Koch, a resident of the State of Minnesota (" David Koch" ), Barbara G. Koch, a resident of the State of Minnesota (" Barbara Koch" ), David A. Koch, Paul M. Torgerson and U.S. Bank Trust National Association SD, as Trustees of the Trust (the " Trust" ) administered pursuant to Article V of the Last Will and Testament and Codicil thereto of Clarissa L. Gray deceased (the " Trustee" ), and Greycoach Foundation, a Minnesota nonprofit corporation (the " Foundation" and, together with David Koch, Barbara Koch and the Trustee, collectively referred to herein as the " Sellers" ; each of such persons is sometimes referred to herein as a " Seller" ).


RECITALS

WHEREAS, (a) David Koch owns 656,364 shares (the " David Koch Shares" ) of Common Stock of the Company, par value $1.00 per share (the " Common Stock" ), (b) Barbara Koch owns 536,853 shares (the " Barbara Koch Shares" ) of Common Stock, (c) the Trustee owns 1,209,444 shares (the " Trust Shares" ) of Common Stock, and (d) the Foundation owns 115,700 shares (the " Foundation Shares" ) and, together with the David Koch Shares, the Barbara Koch Shares and the Trust Shares, collectively referred to herein as the " Shares" ) of Common Stock; and

WHEREAS, the Sellers desire to sell to the Company, and the Company desires to repurchase from the Sellers, a portion of the Shares, as set forth in Article 1 below, on the terms and subject to the conditions set forth in this Agreement;

In consideration of the mutual agreements hereinafter contained and good and valuable other consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:


ARTICLE 1

PURCHASE AND SALE OF THE PURCHASE SHARES

Subject to the terms and conditions hereinafter set forth, each of the Sellers, in reliance on the representations and warranties of the Company contained herein, hereby agrees to sell, assign and transfer to the Company on the Closing Date (as hereinafter defined), and the Company, in reliance on the representations and warranties of such Seller contained herein, hereby agrees to purchase from each such Seller on the Closing Date, for a purchase price of $24.89 per share (the " Per Share Purchase Price" ) the following Shares (the " Purchase Shares" ): from David Koch 606,343 David Koch Shares; from Barbara Koch 268,513 Barbara Koch Shares; from the Trustee 1,209,444 Trust Shares; and from the Foundation 115,700 Foundation Shares.


ARTICLE 2

PAYMENT

The aggregate purchase price to be paid to (a) David Koch for the David Koch Shares constituting Purchase Shares shall be $15,091,877.27 (the " David Koch Purchase Price" ), (b) Barbara Koch for the Barbara Koch Shares constituting Purchase Shares shall be $6,683,288.57 (the " Barbara Koch Purchase Price" ), (c) the Trustee for the Trust Shares constituting Purchase Shares shall be $30,103,061.16 (the " Trust Purchase Price" ), and (d) the Foundation for the Foundation Shares constituting Purchase Shares shall be $2,879,773 (the " Foundation Purchase Price" and, together with the David Koch Purchase Price, the Barbara Koch Purchase Price and the Trust Purchase Price, collectively referred to herein as the " Purchase Price" ), in each case which amount equals the Per Share Purchase Price multiplied by the number of Purchase Shares being sold hereunder by such Seller.

At the Closing (as hereinafter defined), upon transfer of all of (i) the Purchase Shares sold by David Koch as provided for herein, the Company shall pay the David Koch Purchase Price to David Koch by wire transfer of immediately available funds to the account specified by Sellers' representative Scott Waychoff in writing prior to the Closing Date, (ii) the Purchase Shares sold by Barbara Koch as provided for herein, the Company shall pay the Barbara Koch Purchase Price to Barbara Koch by wire transfer of immediately available funds to the account referred to in clause (i) above, (iii) the Purchase Shares sold by the Trust as provided for herein, the Company shall pay the Trust Purchase Price to the Trustee by wire transfer of immediately available funds to the account specified by Sellers' representative Scott Waychoff in writing prior to the Closing Date and (iv) the Purchase Shares sold by the Foundation as provided for herein, the Company shall pay the Foundation Purchase Price to the Foundation by wire transfer of immediately available funds to the account specified by Sellers' representative Scott Waychoff in writing prior to the Closing Date. The Company' s payment of the David Koch Purchase Price, the Barbara Koch Purchase Price, the Trust Purchase Price or the Foundation Purchase Price, as the case may be, to such account shall be deemed to constitute payment in full to such Seller for the Purchase Shares sold hereunder by such Seller.


ARTICLE 3

REPRESENTATIONS AND WARRANTIES OF THE SELLERS

David Koch and Barbara Koch, jointly and severally, represent and warrant to the Company with respect to all Sellers and all matters set forth in this Article 3 as follows, and each of the Trustee and the Foundation, severally and not jointly and with respect only to itself and matters related to it set forth in this Article 3, represents and warrants to the Company as follows:

3.1 Ownership of the Purchase Shares . (a) Each Seller is, and at Closing will be, the sole record owner of those David Koch Shares, Barbara Koch Shares, Trust Shares or Foundation Shares (as applicable) that constitute Purchase Shares; provided , that (i) those Foundation Shares that constitute Purchase Shares are held in the Foundation' s account at Merrill Lynch Pierce Fenner & Smith (" Merrill Lynch" ) and Merrill Lynch is, and at Closing will be, the sole record owner of such Purchase Shares, as custodian for the Foundation, (ii) those Barbara Koch Shares that constitute Purchase Shares are held in Barbara Koch' s account at Merrill Lynch and Merrill Lynch is, and at Closing will be, the sole record owner of such Purchase Shares, as custodian for Barbara Koch, (iii) 36,841 of those David Koch Shares that constitute Purchase Shares are held in David Koch' s account at Merrill Lynch and Merrill Lynch is, and at Closing will be, the sole record owner of such Purchase Shares, as custodian for David Koch, and (iv) 17,392 of those Trust Shares that constitute Purchase Shares are held in the Trustee' s account at U.S. Bancorp Piper Jaffray (" Piper Jaffray" ) and Piper Jaffray is, and at Closing will be, the sole record owner of such Purchase Shares, as custodian for the Trustee. None of such accounts is a margin account.

(b) Except for the record ownership in Merrill Lynch and Piper Jaffray set forth in Section 3.1(a) above, each Seller has all right, title and interest in those David Koch Shares, Barbara Koch Shares, Trust Shares or Foundation Shares (as applicable) that constitute Purchase Shares, free and clear of any and all liens, pledges, encumbrances, security interests, charges, agreements, restrictions or claims of any kind whatsoever (each a " Lien" ), and no Lien will arise as a result of the sale of such Purchase Shares to the Company pursuant to this Agreement. There are no options, warrants, purchase rights or other contracts or commitments outstanding that would permit any person to acquire any of such Purchase Shares or any interest therein except pursuant to this Agreement, no voting trusts are in existence with respect to such Purchase Shares, and no person other than such Seller, except Merrill Lynch or Piper Jaffray to the extent of their record ownership of the Purchase Shares set forth in Section 3.1(a) above, has or shares any voting rights with respect to any such Purchase Shares. No person has asserted any claim or commenced or threatened any litigation concerning such Seller' s (or, as applicable, Merrill Lynch' s or Piper Jaffray' s) record title to or any other interest in such Purchase Shares. All of such Purchase Shares are, and have been for at least two years, beneficially owned by such Seller. For purposes of this representation, Purchase Shares acquired in stock splits are deemed to have been acquired on the date that the Purchase Shares into which such Purchase Shares were split or re-split were originally acquired by such Seller. Such Seller owns no shares of capital stock of the Company other than the Shares indicated in the first paragraph of the Recitals above; provided, that David Koch holds options to acquire shares of Common Stock. None of the Sellers is subject to backup withholding pursuant to the Code (as hereinafter defined) or the regulations promulgated thereunder.

3.2 The Trust . The Trustee has the legal right, power and authority under the Trust, all laws applicable thereto and otherwise to transfer, assign and deliver those Trust Shares that constitute Purchase Shares as provided in this Agreement and perform its other obligations under this Agreement free of any claims of persons having vested or contingent interests in the Trust. The Trust is a trust which was duly created under the laws of the State of Minnesota and which now has its situs in and is validly existing under the laws of the State of South Dakota, the sole trustees of which are set forth in the first sentence of this Agreement. The Trustee has previously delivered to the Company a true and correct copy of the trust instrument that establishes and governs the Trust, as currently in effect.

3.3 The Foundation . The Foundation is a nonprofit corporation duly organized, validly existing and in good standing under the laws of the State of Minnesota and has all corporate power necessary (and the legal right, power and authority under its articles of incorporation and bylaws, all laws applicable thereto and otherwise) to transfer, assign and deliver those Foundation Shares that constitute Purchase Shares as provided in this Agreement and perform its other obligations under this Agreement. The Company is not a " disqualified person" with respect to the Foundation within the meaning of Section 4946 of the Internal Revenue Code of 1986, as amended (the " Code" ), and the regulations promulgated thereunder. David Koch, Barbara Koch, Paul Torgerson, and Sidney Sehlin constitute all of the directors and officers of the Foundation, and no other person is a " foundation manager" , within the meaning of Section 4946(b) of the Code, with respect to the Foundation. The Foundation has no " substantial contributors" , within the meaning of Section 507(d)(2) of the Code and the regulations promulgated thereunder, other than David Koch and Barbara Koch. The Foundation has previously delivered to the Company true and correct copies of the Foundation' s articles of incorporation and bylaws, each as currently in effect.

3.4 Authorization, etc . The execution, delivery and performance by each of the Trustee and the Foundation of this Agreement have been duly authorized by all necessary action on the part of each such Seller. Each of David Koch and Barbara Koch has the requisite capacity and the legal right and power to transfer, assign and deliver those David Koch Shares and those Barbara Koch Shares that constitute Purchase Shares, respectively, as provided in this Agreement, to execute and deliver this Agreement and to perform his or her other obligations under this Agreement. This Agreement has been duly executed and delivered by each Seller and constitutes the legal, valid and binding obligation of such Seller, enforceable against such Seller in accordance with its terms, except as (i) the enforceability of this Agreement may be limited by bankruptcy, insolvency, moratorium or other similar laws affecting the enforcement of creditors' rights generally and (ii) the availability of equitable remedies may be limited by equitable principles of general applicability.

3.5 Governmental Authorization . The execution, delivery and performance by each Seller of this Agreement require no action by or in respect of, or filing with, any governmental body, agency or official, provided , that this Agreement must be filed with the Securities and Exchange Commission.

3.6 Non-Contravention . The execution, delivery and performance by each Seller of this Agreement do not (i) violate the terms of the Trust or the articles of incorporation or bylaws of the Foundation, (ii) violate any applicable statute, law, rule, regulation, ordinance, judgment, ruling by a court, writ, injunction, order or decree, or (iii) require any consent or other action (except the action that has been taken by each Seller in executing and delivering this Agreement) by, or any notice to, any person under, or constitute a default or create a penalty under, conflict with or give rise to any right of termination, cancellation or acceleration of any right or obligation of any Seller under, any agreement, contract, lease, license or other instrument binding upon or applicable to any Seller.

3.7 Litigation . There is no action, suit, investigation or proceeding pending against or, to the knowledge of each Seller, threatened against or affecting, any Seller or any affiliate of any Seller as of the date of this Agreement which in any manner challenges or seeks to prevent, enjoin, alter or delay any of the transactions contemplated by this Agreement.

3.8 Access to Information . Each Seller has been given the opportunity to ask questions of, and receive answers from, the officers of the Company with respect to the financial performance and prospects of the Company, has reviewed the publicly available information concerning the Company, including the current and recent market price of the Common Stock, and has had access to all additional information requested by it concerning the business, operations and financial condition, performance and prospects of the Company. The Trustee and the Foundation each acknowledges that its trustees or the members of its board of directors (as applicable) are familiar with the financial condition, performance and prospects of the Company and David Koch and Barbara Koch each acknowledge that they are familiar with the financial condition, performance and prospects of the Company.

3.9 Insolvency . No insolvency or bankruptcy proceedings of any nature are pending against or with respect to any Seller under the laws of the United States, any state or any foreign jurisdiction.


ARTICLE 4

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

The Company represents and warrants to each Seller as follows:

4.1 Corporate Existence and Power . The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Minnesota and has all corporate power necessary to purchase the Purchase Shares pursuant to the terms of this Agreement and perform its other obligations under this Agreement.

4.2 Corporate Authorization . The execution, delivery and performance by the Company of this Agreement have been duly authorized by all necessary corporate action on the part of the Company. This Agreement has been duly executed and delivered by the Company and constitutes the legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except as (i) the enforceability of this Agreement may be limited by bankruptcy, insolvency, moratorium or other similar laws affecting the enforcement of creditors' rights generally and (ii) the availability of equitable remedies may be limited by equitable principles of general applicability.

4.3 Governmental Authorization . The execution, delivery and performance by the Company of this Agreement require no action by or in respect of, or filing with, any governmental body, agency or official, provided , that this Agreement must be filed with the Securities and Exchange Commission.

4.4 Non-Contravention . The execution, delivery and performance by the Company of this Agreement do not (i) violate the articles of incorporation or bylaws of the Company, (ii) violate any applicable statute, law, rule, regulation, ordinance, judgment, ruling by a court, writ, injunction, order or decree or (iii) require any consent or other action by, or any notice to, any person under, or constitute a default or create a penalty under, conflict with or give rise to any right of termination, cancellation or acceleration of any right or obligation of the Company under, any agreement, contract, lease, license or other instrument binding upon or applicable to the Company, provided that this Agreement must be filed with the Securities and Exchange Commission.

4.5 Litigation . There is no action, suit, investigation or proceeding pending against, or, to the knowledge of the Company, threatened against or affecting, the Company or any subsidiary of the Company as of the date of this Agreement which in any manner challenges or seeks to prevent, enjoin, alter or delay any of the transactions contemplated by this Agreement.

4.6 No Insolvency . No insolvency or bankruptcy proceedings of any nature are pending against or with respect to the Company under the laws of the United States, any state or any foreign jurisdiction.

4.7 Minnesota Business Corporation Act . The Company has submitted the question of compliance with Section 302A.551 of the Minnesota Business Corporation Act to its Board of Directors in good faith and its Board of Directors has determined, pursuant to Section 302A.551, Subd. 1, that the Company will be able to pay its debts in the ordinary course of business after repurchasing the Purchase Shares pursuant to the terms of this Agreement.

4.8 Record Date for Dividend . The Board of Directors has set April 21, 2003 as the record date for the quarterly cash dividend payable to its shareholders on May 7, 2003.


ARTICLE 5

SURVIVAL OF REPRESENTATIONS AND WARRANTIES

Representations and warranties contained in this Agreement shall survive the execution and delivery of this Agreement and the Closing hereunder and continue indefinitely, regardless of any investigation made by the parties hereto, and shall be enforceable against the party making the representations and warranties (which, in the case of the Trustee or the Foundation, shall also include David Koch and Barbara Koch, jointly and severally) by the party for whose benefit they are made. Such representations and warranties (unless otherwise expressly provided therein to have been made as of the date of this Agreement) shall be deemed to be representations and warranties made as of the Closing Date as well as the date of this Agreement, unless such Seller (or, in the case of the Foundation, an officer of such Seller), David Koch, Barbara Koch or an officer of the Company, as the case may be, shall deliver a certificate to the contrary prior to the Closing to the party or parties for whose benefit the representation and warranty is made.


ARTICLE 6

COVENANTS

6.1 Covenants of the Sellers . Each Seller covenants that, during the period which commences on the date hereof and ends on the Closing Date, it will not, and each of David Koch and Barbara Koch covenants that no Se
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