GRACO INC.

NONEMPLOYEE DIRECTOR RETAINER/MEETING FEES
CASH/STOCK/DEFERRED STOCK

ELECTION/CHANGE IN ELECTION FORM

SUBMIT TO:

Secretary to the Board, Legal Department, Graco Inc., P.O. Box 1441, Mpls, MN.
55440-1441

NAME:

                                      
                                                                    
Stock may be registered in director's name and name of one other person. Print
name(s) exactly as you wish them to appear in stock register.

EFFECTIVE DATE: This Form must be completed and delivered to the Secretary to
the Board in advance of the taxable year in which the services are to be
performed. The election will remain in effect for and may not be change during
the entire taxable year. In the event that a Change in Election Form is not
received, the Initial Election will remain in effect for taxable years going
forward. For an individual who becomes a nonemployee director during a taxable
year, the individual must complete and deliver his initial Election Form to the
Secretary no later than 30 days after the date that the individual first becomes
a nonemployee director and his election will be applicable only to services
performed after the election.

Check One:

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Initial Election. Allocate my annual retainer and meeting fees according to the
percentages indicated below.

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Change in Election. I elect to change my Election for the taxable year following
the current taxable year and all taxable years subsequent thereto, unless I
submit a Change in Election Form prior to the commencement of the applicable
taxable year. Allocate my annual retainer and meeting fees according to the
percentages indicated below.

 

Fill in Blanks:

    Retainer: [Select one: 0%, 25%, 50%, 75%, 100%]        Percentage of
Retainer paid in cash:         %        Percentage of Retainer paid in Graco
stock:         %        Percentage of Retainer credited to Deferred Stock
Account:         %     TOTAL**            %

    Meeting Fees (Board and Committee): [Select one: 0%, 25%, 50%, 75%, 100%]  
     Percentage of Meeting Fees paid in cash:         %        Percentage of
Meeting Fees paid in Graco stock:         %        Percentage of Meeting Fees
credited to Deferred Stock Account:         %     TOTAL**            %

** Total cannot exceed 100%

PAYMENT ELECTION:

If you have made a Deferred Stock Account Election, select one of the payment
options below. NOTE: If you are changing your payment election from a payment
election previously made, the new payment election will apply only to deferrals
made with respect to services performed in taxable years subsequent to the
current taxable year. The previous payment election is irrevocable with respect
to services performed in the current taxable year and taxable years prior
thereto.

I elect to receive payment from my Deferred Stock Account by the method checked
below.

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Lump sum. Credits to a Deferred Stock Account will be paid in full by the
issuance of shares of Graco Common Stock plus cash in lieu of any fractional
share on January 10 of the year following my separation from service, as defined
by regulations and rulings issued under Section 409A of the Internal Revenue
Code, as amended (the “IRC”), or the first business day after January 10, or
such other date as elected by me. Alternative
date:                                     .(month/date/year)

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Installments. Number of installments elected (from 2 to 15):                   .
Credits to a Deferred Stock Account will be paid in annual installments by the
issuance of shares of Graco Common Stock, plus cash in lieu of any fractional
share, on January 10 of each year following my separation from service on the
Board as defined by regulations and rulings issued under Section 409A of the
IRC, or the first business day after January 10. The number of annual
installments may range from 2 to 15. The amount of each payment will be computed
by multiplying the number of shares credited to my Deferred Stock Account as of
January 10 of each year by a fraction, the numerator of which is one and the
denominator of which is the total number of installments elected (not to exceed
fifteen) 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 will be for the whole number of shares
remaining credited to my Deferred Stock Account, plus cash in lieu of any
fractional share.

BENEFICIARY

In order to permit the payment of your Deferred Stock Account to a beneficiary
in the event of your death prior to the complete payout of your Deferred Stock
Account, provide the information indicated below:

Primary Beneficiary(ies)*   Secondary Beneficiary(ies)*     (If no primary
beneficiary survives you)      
Name                                                                          
Name                                                                            
  Address                                                                       
Address                                                                         
 
                                                                                 
 
                                                                                 
     
Name                                                                          
Name                                                                            
  Address                                                                       
Address                                                                         
 
                                                                                 
 
                                                                                 
      *Your Primary Beneficiaries will share equally unless any die before you
or unless you specify otherwise above.   *Your Secondary Beneficiaries will
share equally unless any die before you or unless you specify otherwise above.

I have made the elections indicated above and on the reverse side and have
received and read the Terms applicable to this Stock/Deferred Stock Program
which are set forth in the document attached hereto entitled Graco Inc.
Nonemployee Director Stock and Deferred Stock Program Terms and agree to such
Terms.

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Date   Signature

GRACO INC.
NONEMPLOYEE DIRECTOR
STOCK AND DEFERRED STOCK PROGRAM

TERMS

        1.  Purpose of the Stock and Deferred Stock Program. The purpose of the
Graco Inc. Nonemployee Director Stock and Deferred Stock Program (the “Program”)
is to provide an opportunity for nonemployee members of the Board of Directors
(the “Board”) of Graco Inc. (“Graco” or the “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 retainer and/or any fees payable for attendance at Board or Committee
meetings 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.

          2.  Eligibility. Directors of the Company 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”). Since 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 will be limited to
matters of interpretation and administrative oversight. All questions of
interpretation of the Program will be determined by the Administrator, and each
determination, interpretation or other action that the Administrator makes or
takes pursuant to the provisions of the Program will be conclusive and binding
for all purposes and on all persons. The Administrator 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.  Election to Receive Stock/Credit in Lieu of Cash. On forms
provided by the Company, each Eligible Director may irrevocably elect (“Stock
Election”) in lieu of cash, (i) to be issued shares of Common Stock or (ii) to
have credited to an account (“Deferred Stock Account”) the number of shares of
Common Stock having a Fair Market Value, as defined in Section 4.3, equal to
25%, 50%, 75% or 100% of the annual cash retainer (the “Retainer”) and/or 25%,
50%, 75% or 100% of any fees payable for attendance at Board or Committee
meetings (the “Meeting Fees”) payable to that director for services rendered as
a director (“Participating Director”). Eligible Directors are customarily paid
the Retainer and the Meeting Fees in quarterly installments in arrears at the
end of each calendar quarter. Any Stock Election must be received by the Company
before the commencement of the first full taxable year with respect to which
such election is made. Any Stock Election may only be amended or revoked
(“Amended Stock Election”) in accordance with the procedure set forth in Section
4.4.

          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 the Retainer and/or
Meeting Fees so elected shall be issued to each Participating Director when each
quarterly installment of the Retainer and the Meeting Fees 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 hundredth of a share) having a Fair Market Value
equal to the amount of the Retainer and/or the Meeting Fees so elected shall be
credited to the Participating Director’s Deferred Stock Account when each
quarterly installment of the Retainer and Meeting Fees is customarily paid. In
the event that a Participating Director elects to receive less than 100% of each
quarterly installment of the Retainer and/or Meeting Fees in shares of Common
Stock, either issued or credited, he or she 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 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.  Change in Election. Each Participating Director may irrevocably
elect in writing to change an earlier Stock Election, either to elect to be
issued shares of Common Stock or to have credited to the Participating
Director’s Deferred Stock Account, a number of shares of Common Stock having a
Fair Market Value equal to a percentage of the Participating Director’s Retainer
and/or Meeting Fees different from the percentages previously elected or to
receive the entire Retainer and/or Meeting Fees in cash (an “Amended Stock
Election”). An Amended Stock Election shall not become effective until the
commencement of the first full taxable year after the date of receipt of such
Amended Stock Election by the Company.

          4.5.  Termination of Service as a Director. If a Participating
Director leaves the Board before the conclusion of any calendar quarter, he or
she will be paid the quarterly installment of the Retainer and Meeting Fees
entirely in cash, notwithstanding that a Stock Election or Amended Stock
Election is on file with the Company. The date of termination of a Participating
Director’s service as a director of the Company will be deemed to be the date of
termination recorded on the personnel or other records of the Company.

          4.6.  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 of a share) having
a Fair Market Value on the dividend payment date equal to the amount of the
dividend 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 the regulations and
rulings issued under Section 409A of the Internal Revenue Code, as amended (the
“IRC”), the following rules apply.

          5.1.  Payment Election. 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 also elect the manner and timing for payment of the amounts
credited to his or her Deferred Stock Account (“Payment Election”) from the
alternatives described in Section 5.2. The Participating Director may change the
manner and timing for payment of amounts to be credited to his or her Deferred
Stock Account by executing another Payment Election; provided, however, that the
previously made Payment Election will be irrevocable as to all amounts credited
to the Participating Director’s Deferred Stock Account prior to the effective
date of the new Payment Election. A new Payment Election 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.

          5.2.  Payment from Deferred Stock Accounts. A Participating Director
may elect to receive payment from his or her Deferred Stock Account in a lump
sum or installments. Payments, whether in a lump sum or by installments, shall
be made in shares of Common Stock plus cash in lieu of any fractional share.
Unless the Participating Director elects to receive payment in installments,
credits to a Participating Director’s Deferred Stock Account shall be payable in
full on January 10 of the year following the Participating Director’s
termination from service as defined in regulations and rulings issued under
Section 409A of the IRC, the first business day after January 10, or such other
date as elected by the Participating Director pursuant to Section 5.1. If the
Participating Director elects to receive payment from his or her Deferred Stock
Account in installments, each installment payment will be made annually on
January 10 of each year, or the first business day after January 10, and the
amount of each payment will be computed by multiplying the number of shares
credited to the Deferred Stock Account as of January 10 of each year by a
fraction, the numerator of which is one and the denominator of which is the
total number of installments elected (not to exceed fifteen) 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.

          6.  Beneficiary.

          6.1.  Beneficiary Designation. A Participating Director may designate
a beneficiary or beneficiaries who, upon his or her death, shall immediately
receive the full distribution of all unpaid credits to said Participating
Director’s Deferred Stock Account, including distributions for which the
Participating Director has elected installment payments. All 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 the estate or heirs of
beneficiaries who die before the Participating Director.

          6.1.  Change of Beneficiary. A Participating Director may from time to
time during his or her lifetime change his or her beneficiary or beneficiaries
by a written instrument delivered to the Company. In the event a Participating
Director shall not designate a beneficiary or beneficiaries pursuant to this
Section, or if for any reason such designation shall be ineffective, in whole or
in part, the distribution that otherwise would have been paid to such
Participating Director shall be paid to his or her estate and in such event, the
term “beneficiary” shall include his or her estate.

          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 effect, modify or rescind any of the Company’s existing
compensation programs or programs 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 regulations or in
any other respect that the Board may deem to be in the Company’s best interests.

          9.  Participants 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 or Amended 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 Plan to prevent the
dilution or the enlargement of the rights of the Eligible and Participating
Directors.

          11.  Governing Law. 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.