STOCK OPTION AGREEMENT
(NON-ISO)
THIS AGREEMENT, made this 23nd day of February, 2001, by and between Graco
Inc., a Minnesota corporation (the "Company") and George Aristides ("Mr.
Aristides").
WITNESSETH THAT:
WHEREAS, the Company pursuant to its Long-Term Stock Incentive Plan wishes
to grant this stock option to Mr. Aristides;
NOW THEREFORE, in consideration of the premises and of the mutual covenants
herein contained, the parties hereto hereby agree as follows:
1. Grant of Option
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The Company hereby grants to Mr. Aristides the right and option
(hereinafter called the "option") to purchase all or any part of an
aggregate of 60,000 shares of Common Stock of the Company, par value
$1.00 per share, at the price of $26.35 per share on the terms and
conditions set forth herein.
2. Duration and Exercisability
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A. This option shall become exercisable in full (i) on May 6, 2002,
if Mr. Aristides remains a member of the Board of Directors until
that date, or (ii) upon the date of the resignation of Mr.
Aristides from the Board of Directors prior to May 6, 2002, but
only if the Board of Directors has requested by resolution that
Mr. Aristides resign from the Board of Directors. If the option
becomes fully exercisable pursuant to this Section 2A, it shall
remain exercisable for a period equal to the duration of the
option (i.e., 10 years from the date of grant).
B. In the event that Mr. Aristides does not purchase in any one year
the full number of shares of Common Stock of the Company to which
he is entitled under this option, he may, subject to the terms
and conditions of Section 3 hereof, purchase such shares of
Common Stock in any subsequent year during the term of this
option. During the lifetime of Mr. Aristides, the option shall be
exercisable only by him and shall not be assignable or
transferable by him otherwise than by will or the laws of descent
and distribution.
3. Effect of Termination of Board Membership
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A. In the event that Mr. Aristides shall cease to be a member of the
Board of Directors, by reason of his gross and willful
misconduct, including but not limited to wrongful appropriation
of Company funds or the commission of a felony, the option shall
be terminated as of the date of the misconduct.
B. If Mr. Aristides shall die while a member of the Board of
Directors of the Company and the option granted hereunder shall
not have become fully exercisable, such option shall become fully
exercisable and may be exercised at any time within the term of
this option by the executors or administrators of Mr. Aristides
or by any person or persons to whom the option is transferred by
will or the applicable laws of descent and distribution.
4. Manner of Exercise
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A. The option can be exercised only by Mr. Aristides or other proper
party within the option period delivering 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 Section 4. C., accompanied
by payment-in-full of the option price for all shares designated
in the notice.
B. Mr. Aristides may, at Mr. Aristides' election, pay the option
price either by check (bank check, certified check, or personal
check) or by delivering to the Company for cancellation shares of
Common Stock of the Company which have been held by Mr. Aristides
for not less than six (6) months with a fair market value equal
to the option price. For these purposes, the fair market value of
the Company's Common Stock shall be the closing price of the
Common Stock on the date of exercise on the New York Stock
Exchange (the "NYSE") or on the principal national securities
exchange on which such shares are traded if the shares are not
then traded on the NYSE. 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 shares are not then traded on an exchange,
the fair market value shall be the average of the closing bid and
asked prices of the Common Stock as reported by the National
Association of Securities Dealers Automated Quotation System. If
the Common Stock is not then traded on NASDAQ or on an exchange,
then the fair market value shall be determined in such manner as
the Company shall deem reasonable.
C. Mr. Aristides may, with the consent of the Company, pay the
option price by arranging for the immediate sale of some or all
of the shares issued upon exercise of the option by a securities
dealer and the payment to the Company by the securities dealer of
the option exercise price.
5. Payment of Withholding Taxes
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Upon exercise of any portion of this option, Mr. Aristides shall pay
to the Company an amount sufficient to satisfy any federal, state, or
local withholding tax requirements which arise as a result of the
exercise of the option or provide the Company with satisfactory
indemnification for such payment. If the Committee, as defined in the
Company's Long Term Stock Incentive Plan, has in its discretion
determined that Mr. Aristides may do so, such amount may be paid by
Mr. Aristides by delivering to the Company for cancellation shares of
Common Stock of the Company with a fair market value equal to the
minimum amount of such withholding tax requirement by (i) electing to
have the Company withhold common shares otherwise to be delivered with
a fair market value equal to the amount of such tax obligation, or
(ii) electing to surrender to the Company previously owned common
shares with a fair market value equal to the amount of such minimum
tax obligation.
6. Change of Control
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A. Notwithstanding Section 2 hereof, the entire option shall become
immediately and fully exercisable on the day following a "Change
of Control" and shall remain fully exercisable until either
exercised or expiring by its terms. A "Change of Control" means:
(1) 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:
(i) an acquisition directly from the Company,
(ii) an acquisition by the Company,
(iii) an acquisition by an employee benefit plan (or
related trust) sponsored or maintained by the
Company or any corporation controlled by the
Company,
(iv) an acquisition by any Person who is deemed to have
beneficial ownership of the Company common stock
or other Company voting securities owned 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 6, 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 limitations, the Graco Employee Retirement
Plan and the Graco Employee Stock Ownership Plan,
(v) an acquisition by Mr. Aristides or any group that
includes Mr. Aristides, or
(vi) an acquisition by any corporation pursuant to a
transaction that complies with clauses (a), (b),
and (c) of subsection (4) 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 (i) or (ii) 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 (i) or (ii) 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
(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 or consents by or on
behalf of a Person other than the Board; or
(3) The commencement or announcement of an intention to make a
tender offer or exchange offer, the consummation of which
would result in the beneficial ownership by a Person of 25%
or more of the Outstanding Company Common Stock or
Outstanding Company Voting Securities; or
(4) 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
(5) approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
B. A Change of Control shall not be deemed to have occurred with
respect to Mr. Aristides if:
(1) the acquisition of the 25% or greater interest referred to in
subparagraph A.(1) of this Section 6 is by a group, acting in
concert, that includes Mr. Aristides or
(2) if at least 25% of the then outstanding common stock or
combined voting power of the then outstanding Company voting
securities (or voting equity interests) of the surviving
corporation or of any corporation (or other entity)
acquiring all or substantially all of the assets of the
Company shall be beneficially owned, directly or indirectly,
immediately after a reorganization, merger, consolidation,
statutory share exchange, disposition of assets, liquidation
or dissolution referred to in subsections (4) or (5) of this
section by a group, acting in concert, that includes Mr.
Aristides.
7. Adjustments
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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
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.
8. Miscellaneous
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A. This option is issued pursuant to the Company's Long-Term Stock
Incentive Plan and is subject to its terms. A copy of the Plan
has been given to Mr. Aristides. The terms of the Plan are also
available for inspection during business hours at the principal
offices of the Company.
B. This Agreement shall not confer on Mr. Aristides any right with
respect to continuance of employment by the Company or any of its
subsidiaries, nor will it interfere in any way with the right of
the Company to terminate such employment at any time. Mr.
Aristides shall have none of the rights of a shareholder with
respect to shares subject to this option until such shares shall
have been issued to him/her upon exercise of this option.
C. 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.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the day and year first above written.
GRACO INC.
By:
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/s/GEORGE ARISTIDES
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George Aristides