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GRACO INC. RETIREMENT PLAN FOR NON-EMPLOYEE DIRECTORS GRACO INC. ("Graco"), a
Minnesota corporation, hereby establishes a Retirement Plan for Non-employee
Directors (the "Plan") for the benefit of certain members of the Board of
Directors of Graco as defined herein, and upon the terms and conditions set
forth below. Effective Date. The Plan is effective November I, 1988. 2.
Eligibility. A member of the Board of Directors of Graco is eligible for the
retirement benefits provided herein if: (a) He or she is not an employee of
Graco at the time of retirement from the Board of Directors, and (b) He or she
has at least five (5) full years of service as a director of Graco (whether or
not consecutive) and, during that entire time, was not an employee of Graco, and
(c) He or she retires after November i, 1988. Years of service as a director
shall be measured by the twelve (12) consecutive month period beginning with the
date the individual first becomes a non-employee director of Graco and all
twelve (12) consecutive month periods beginning on the annual anniversary of
such date (irrespective of any termination of membership and subsequent
reinstatement). An individual who is eligible for retirement benefits is
referred to as a "Participant." 3. Payments upon Retirement. Upon retirement,
payments will be made as follows: 3.1. Commencement. Payments will commence on
the quarterly payment date immediately following the date of the Participant’s
retirement. The quarterly payments date means the date on which regular
quarterly payments are made to active members of the Board of Directors. 3.2
Amount. Each payment shall be equal to one-fourth (I/4th) of the annual amount
being

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paid to the Participant for service as a member of the Board of Directors
immediately before his or her retirement. 3.3. Frequency. After commencement,
payments shall be made on the same quarterly dates as regular payments are made
to active members of the Board of Directors of Graco. 3.4. Duration. Payments
shall continue for five (5) years (this is, until a total of twenty (20)
quarterly payments have been made). If the Participant dies after payments have
commenced but before all payments have been made, the remaining payments shall
be made on the next regular payment date in one lump sum to the beneficiary or
beneficiaries designated by the Participant who survive the Participant. If no
beneficiary survives the Participant, payment shall be made to the Participant’s
estate. 4. Payments Upon Death Before Retirement. If a Participant dies before
retirement but at a time when the Participant would have been eligible for
payments hereunder had such Participant retired on the date of his or her death,
then payment shall be made to such Participant’s beneficiary as follows: 4.1.
Amount. Payment shall be made in one lump sum in an amount equal to the total
amount of the payments that would have been made to the Participant had he or
she retired on the date of his or her death and survived to the date of the
final payment. 4.2. Date of Payment. Payment shall be made as soon as reasonably
practical but in all events on or before the date six (6) months after the date
of Participant’s death. 5. Definitions. For purposes of this Plan, the following
definitions shall apply: 5.1. Retirement. "Retirement" shall mean any voluntary
or involuntary termination of the Participant as a member of the Board of
Directors of Graco, at any age.

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5.2. Employee. "Employee" shall mean any person who receives compensation from
Graco which is reportable on IRS Form W-2 (or any successor form). In
determining whether an individual is an employee during any particular calendar
year, compensation received during that year for services performed in a
previous year (for example, bonus payments) shall be disregarded. 5.3.
Non-employee. "Non-employee" shall mean any person who is not considered an
employee. 6. Source of Payments. Payments due under this Plan shall be paid out
of the general corporate funds of Graco, and Participants and beneficiaries
shall not have any preferred interest by way of trust, escrow, lien or otherwise
in any specific assets. The rights accruing to Participants and beneficiaries
hereunder shall be solely those of unsecured creditors of Graco. 7.
Nontransferability. Participants and beneficiaries shall not have the right to
assign, encumber or otherwise anticipate the payments to be made under this
Plan, and the payments provided hereunder shall not be subject to seizure for
payment of any debts or judgments against any Participant or any beneficiary. 8.
Tax Withholding. Graco may deduct from any payment (and transmit to the proper
taxing authority) such amount as it may be required to withhold under any
applicable federal, state or other law. 9. Beneficiaries. Each Participant may
designate one or more beneficiaries who, upon death, are to receive the amounts
that otherwise would have been paid to the Participant, and may change or revoke
any such designation from time to time. No such designation, change or
revocation shall be effective unless executed by the Participant and received by
Graco during the Participant’s lifetime. Unless the Participant has otherwise
specified in the beneficiary designation, the beneficiary or beneficiaries so
designated shall become fixed as of death so that, if a beneficiary survives the
Participant but dies before the receipt of the payment due such beneficiary,
such payment shall be payable to such beneficiary’s estate. If a Participant
does not designate a beneficiary pursuant to this section, or if for any reason
such designation is ineffective, in whole or in part, then the amounts that -3-

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otherwise would have been paid to such Participant (or the part thereof as to
which the designation is ineffective, as the case may be) shall be paid to such
Participant’s estate and, in such event, the term ~’beneficiary" shall include
such estate. I0. ApDlicability to Successors. This Plan shall be binding upon
and inure to the benefit of Graco and each Participant, the successors and
assigns of Graco, and the beneficiaries, personal representatives and heirs of
each Participant. If Graco becomes a party to anymerger, consolidation or
reorganization, this Plan shall remain in full force and effect as an obligation
of Graco or its successors in interest. ll. Amendment. This Plan may be amended
or revoked at any time by the Board of Directors of Graco, but no such amendment
shall have the effect of reducing the amount which would be due or could be
earned by any person then serving on the Board of Directors of Graco without the
consent of such person. Graco is authorized to issue implementing rules(not
Inconsistent with this Plan). Graco will informthe Participants of any rules,
amendments or revocation ofthis Plan. 12. ApDlicable Law. This Plan shall be
construed in accordance with the laws of the State of Minnesota. This Plan is
hereby adopted by Graco pursuant to the authority granted at a meeting of its
Board of Directors held on May 9, 1989. GRACO INC. -4-

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