GRACO INC
NON-ISO STOCK OPTION AGREEMENT
<DOCUMENT>
<TYPE>EX-10.39
<SEQUENCE>4
<FILENAME>0004.txt
<DESCRIPTION>NON-ISO STOCK OPTION AGREEMENT
<TEXT>




                             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  (the
"Employee").

      WITNESSETH THAT:

      WHEREAS, the Company pursuant to its Long-Term Stock Incentive Plan wishes
to grant this stock option to Employee;

      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
          ---------------

          The  Company   hereby   grants  to  Employee   the  right  and  option
          (hereinafter  called the  "option")  to purchase all or any part of an
          aggregate of 40,000  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
          ---------------------------

          A.   This option may not be exercised by Employee until the expiration
               of one (1) year from the date of grant  (except  as  provided  in
               Section  2B(ii) below).  On the first  anniversary of the date of
               grant,  25% of the option shall become  exercisable.  This option
               shall in all events  terminate  ten (10) years  after the date of
               grant.

          B.   If (i) on May 6,  2002,  Employee  is a  member  of the  Board of
               Directors,  (ii)  Employee  resigns  from the Board of  Directors
               prior to May 6,  2002,  pursuant  to a  request  of the  Board of
               Directors by resolution  that the Employee  resign from the Board
               of Directors,  or (iii) Employee dies while a member of the Board
               of Directors, the option shall become fully exercisable if it has
               not already become fully exercisable under Section 3C hereof, and
               shall  remain  exercisable  for a period equal to the duration of
               the   option   (i.e.,   10  years   from   the  date  of   grant)
               notwithstanding  anything  to the  contrary  in  Section 3B or 3C
               hereof.

          C.   In the event that  Employee 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  the  Employee,  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 Employment or Board Membership
          --------------------------------------------------------

          A.   In the event that  Employee  shall  cease to be  employed  by the
               Company  or its  subsidiaries,  or  ceases  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 the Employee  shall die while in the employ of the Company and
               shall not have fully exercised the option,  all remaining  shares
               shall  become  immediately  exercisable  and such  option  may be
               exercised at any time within twelve months after his death by the
               executors or  administrators  of the Employee or by any person or
               persons  to  whom  the  option  is  transferred  by  will  or the
               applicable laws of descent and  distribution,  and subject to the
               condition  that  no  option  shall  be   exercisable   after  the
               expiration of the term of the option.

          C.   If the Employee's  termination of employment is due to retirement
               or due to disability  within the meaning of the provisions of the
               Graco Long-Term Disability Plan, subject to the condition that no
               option shall be exercisable  after the expiration of the terms of
               the  option,   all  remaining  shares  shall  become  immediately
               exercisable  and the option may be  exercised  by the Employee at
               any time within three years of the Employee's retirement, subject
               to the condition  that no option shall be  exercisable  after the
               expiration  of the term of the option.  In the event of the death
               of the Employee  within the three-year  period after  retirement,
               the option may be  exercised  at any time  within  twelve  months
               after  his  death  by  the  executors  or  administrators  of the
               Employee  or by any  person  or  persons  to whom the  option  is
               transferred  by  will  or the  applicable  laws  of  descent  and
               distribution,  to the extent of the full  number of shares he was
               entitled to purchase  under the option on the date of death,  and
               subject  to the  condition  that no option  shall be  exercisable
               after the expiration of the term of the option.

          D.   In the event of the  death of the  Employee  prior to the  option
               becoming fully  exercisable  pursuant to Section 2B above, if the
               Employee  at the time of his  death is a member  of the  Board of
               Directors,  the periods for  exercisability  of the option in the
               event  of death  in  Sections  3B and 3C shall be the term of the
               option - i.e., 10 years from the date of grant.


      4.  Manner of Exercise
          ------------------

          A.  The option  can be  exercised  only by  Employee  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.  The Employee  may, at  Employee's  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 the Employee 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.  The Employee 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
          ----------------------------

          Upon exercise of any portion of this option, Employee 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 the
          Employee  may do so,  such  amount  may be  paid  by the  Employee  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
          -----------------

          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 the Employee  or any group that
                              includes the Employee, 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 an Employee 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 the Employee 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  that
                   Employee.

      7.  Adjustments

          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

          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 the  Employee.  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 Employee 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.  Employee
              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:


                                        ------------------------------



                                        /S/GEORGE ARISTIDES
                                        ------------------------------
                                        Employee
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