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 Seller will,
during the period which commences on the date hereof and ends on the Closing
Date, directly or indirectly (i) sell, transfer, dispose of, grant any option or
other right with respect to, or otherwise encumber or restrict (or permit
Merrill Lynch or Piper Jaffray to do any of the foregoing), (ii) agree to sell,
transfer, dispose of, grant any option or other right with respect to, or
otherwise encumber or restrict (or permit Merrill Lynch or Piper Jaffray to do
any of the foregoing), or (iii) solicit or entertain offers for the purchase or
acquisition of (or permit Merrill Lynch or Piper Jaffray to do any of the
foregoing), any of the Purchase Shares or any interest therein, except pursuant
to this Agreement. With respect to Purchase Shares held of record by Merrill
Lynch or Piper Jaffray, each Seller further covenants to, and each of David Koch
and Barbara Koch covenants that each Seller will, cause Merrill Lynch or Piper
Jaffray (as applicable) to take all actions necessary to transfer, assign and
deliver all such Purchase Shares owned by such Seller (or, in the case of David
Koch and Barbara Koch, each Seller) to the Company pursuant to this Agreement.

ARTICLE 7

CONDITIONS TO CLOSING

        7.1 Conditions to Obligation of the Company. (a) The obligation of the
Company to consummate the Closing is subject to the satisfaction of the
following conditions (all or any of which may be waived by the Company):

 

        (i)      (A) Each Seller shall have performed in all material respects
all of such Seller’s covenants, agreements and obligations hereunder required to
be performed by such Seller on or prior to the Closing Date and (B) the
representations and warranties of each Seller contained in this Agreement shall
be true in all material respects at and as of the Closing Date as if made at and
as of such date except as expressly stated therein to have been made as of the
date of this Agreement.

 

        (ii)      The stock certificates representing all of the Purchase Shares
shall have been delivered to the Company properly endorsed or accompanied by
properly signed stock powers in form suitable for transfer to the Company of all
right, title and interest in all of the Purchase Shares in accordance with the
provisions hereof or, with respect only to those Purchase Shares held of record
by Merrill Lynch or Piper Jaffray, all actions shall have been taken and all
documents and instruments shall have been delivered, in each case to the
Company’s reasonable satisfaction, in order to transfer to the Company all
right, title and interest in all of such Purchase Shares.

 

        (iii)      The Company shall have received at the Closing an opinion
dated the Closing Date from Dorsey & Whitney LLP, counsel to the Sellers, in
substantially the form set forth in Exhibit A hereto.

 

        (iv)      The purchase of the Purchase Shares by the Company shall be in
compliance with Section 302A.551 of the Minnesota Business Corporation Act.

 

        (v)      No certificate shall have been delivered by or on behalf of any
Seller under Article 5 which establishes that the representation and warranties
of such Seller contained in this Agreement are untrue in any material respect.

 

        (vi)      No provision of any applicable law or regulation and no
judgment, injunction, order or decree shall prohibit the consummation of the
Closing or otherwise prohibit the sale of the Purchase Shares (or any of them)
pursuant to this Agreement.

        (b) Notwithstanding any other provision of this Agreement, (i) the
Company shall have no obligation to consummate the Closing or otherwise purchase
any Purchase Shares if any of the conditions set forth in Section 7.1(a) are not
satisfied in full or waived by the Company (regardless of which or how many of
the Sellers or the Purchase Shares such unsatisfied or unwaived conditions
relate to and whether all conditions set forth in such Section have been
satisfied with respect to some, but not all, of the Sellers or the Purchase
Shares) and (ii) the Company shall not be obligated to purchase any Purchase
Shares from any Seller unless it simultaneously has the right to purchase all
Purchase Shares from all Sellers.

        7.2. Conditions to Obligations of the Sellers. The obligation of each
Seller to consummate the Closing is subject to the satisfaction of the following
conditions (all or any of which may be waived by such Seller):

 

        (i)      (A) The Company shall have performed in all material respects
all of its covenants, agreements and obligations hereunder required to be
performed by it with respect to such Seller at or prior to the Closing Date and
(B) the representations and warranties of the Company contained in this
Agreement made to such Seller shall be true in all material respects at and as
of the Closing Date as if made at and as of such date except as expressly stated
therein to have been made as of the date of this Agreement.

 

        (ii)      The Sellers shall have received at the Closing an opinion
dated the Closing Date from Robert M. Mattison, general counsel to the Company,
in substantially the form set forth in Exhibit B hereto.

 

        (iii)      The portion of the Purchase Price payable for the Purchase
Shares of such Seller shall have been received by such Seller on the Closing
Date in accordance with Article 2 hereof.

 

        (iv)      The purchase of the Purchase Shares by the Company shall be in
compliance with Section 302A.551 of the Minnesota Business Corporation Act.

 

        (v)      No certificate shall have been delivered by an officer of the
Company under Article 5 which establishes that the representations and
warranties of the Company contained in this Agreement made to such Seller are
untrue in any material respect.

 

        (vi)      No provision of any applicable law or regulation and no
judgment, injunction, order or decree shall prohibit the sale of any Purchase
Shares owned by such Seller pursuant to this Agreement.

ARTICLE 8

CLOSING

        8.1 Closing and Closing Date. The closing of the sale and purchase of
the Purchase Shares (the “Closing”) shall occur at 9:00 a.m. on March 13, 2003,
or such other time or date to which the Company and the Sellers may agree (the
actual date of Closing being the “Closing Date”) at the offices of Faegre &
Benson LLP in Minneapolis, Minnesota or such other place to which the Company
and the Sellers may agree, provided, that if the conditions to Closing in
Article 7 shall not have been satisfied in full or waived pursuant to Article 7
by that date and the Company and the Sellers do not otherwise agree, the Closing
shall occur on the first business day after all conditions have been satisfied
or waived under Article 7. Notwithstanding anything to the contrary set forth
herein, the Closing shall not be held in any jurisdiction in which a stock
transfer tax would be applied to any transaction to be consummated at the
Closing.

        8.2 Proceedings at Closing. All proceedings to take place and all
documents to be executed and delivered by the parties at the Closing shall be
deemed to have taken place and been executed and delivered simultaneously, and
no proceeding shall be deemed to have taken place nor any document executed or
delivered until all have taken place and been executed and delivered.

        8.3 Deliveries at Closing. (a) At Closing, each Seller shall deliver to
the Company the following:

 

        (i)      certificates representing all the Purchase Shares owned by such
Seller, which certificates shall be duly endorsed in blank or, in lieu thereof,
shall have affixed thereto stock powers executed in blank, and in form suitable
for transfer to the Company or, with respect only to those Purchase Shares owned
by such Seller that are held of record by Merrill Lynch or Piper Jaffray, such
documents and instruments as the Company may reasonably request in order to
transfer to the Company all right, title and interest in such Purchase Shares;
and

 

        (ii)      the opinion of Dorsey & Whitney LLP described above.

        (b) At Closing, the Company shall deliver to each Seller from which the
Company is purchasing Purchase Shares the following:

 

        (i)      the portion of the Purchase Price payable for the Purchase
Shares owned by such Seller as provided above in Article 2; and

 

        (ii)      the opinion of Robert M. Mattison described above.

        8.4 David Koch Option Shares. David Koch represents and warrants to the
Company that 47,723 of those David Koch Shares that constitute Purchase Shares
(the “Option Shares”) were acquired by him upon the exercise of stock options in
March 2003. David Koch further acknowledges, confirms and agrees that that
certain Stock Power executed by him in blank and delivered to the Company on the
date hereof shall be deemed to relate to and transfer to the Company the Option
Shares as well as all of the other David Koch Shares that constitute Purchase
Shares.

ARTICLE 9

BROKERS

        David Koch and Barbara Koch, jointly and severally, and each of the
Trustee and the Foundation, severally and not jointly and only with respect to
itself, represents to the Company and the Company represents to each Seller that
neither any Seller (with respect to the foregoing representations of the
Sellers) nor the Company (with respect to the foregoing representation of the
Company), respectively, has engaged anyone to act as a broker or finder in
connection with the transactions contemplated by this Agreement. Each Seller
agrees to indemnify the Company and hold the Company harmless from and against
any and all liability to which the Company may be subjected by reason of any
broker’s, finder’s or similar fee with respect to the transactions contemplated
by this Agreement to the extent that such fee is attributable to any action
undertaken by or on behalf of such Seller (or, with respect to the
indemnification obligations of David Koch or Barbara Koch herein, to the extent
that such fee is attributable to any action undertaken by or on behalf of any
Seller). The Company agrees to indemnify each Seller and hold each Seller
harmless from and against any and all liability to which such Seller may be
subjected by reason of any broker’s, finder’s or similar fee with respect to the
transactions contemplated by this Agreement to the extent that such fee is
attributable to any action undertaken by or on behalf of the Company.

ARTICLE 10

ADDITIONAL COVENANTS AND AGREEMENTS

        Each of the Company and each Seller agrees to cooperate and use its
reasonable efforts to cause the transactions contemplated by this Agreement to
be consummated on the Closing Date and, in connection therewith, each agrees to
furnish such information and access to its books and records as may be required
in connection with any filing with, and to use its reasonable efforts to obtain
any consent, approval or authorization of, any governmental authority or any
third party in connection with the consummation of any transaction contemplated
hereby, and to execute such other documents or agreements as may be necessary or
desirable for the implementation of this Agreement and the consummation of the
transactions contemplated hereby. With respect to the dividend of the Company to
be payable to those shareholders who are shareholders of record at the close of
business on April 21, 2003, the Sellers and the Company agree that if Closing
occurs after April 21, 2003, such dividend will be paid to the Sellers on May 7,
2003.

ARTICLE 11

TERMINATION

        11.1 Grounds for Termination. This Agreement may be terminated at any
time prior to the Closing:

 

        (i)      by mutual written agreement of the Sellers and the Company;

 

        (ii)      by either the Sellers or any of them, on the one hand, or the
Company, on the other hand, if the Closing shall not have been consummated on or
before March 22, 2003, provided, that such failure is not due to the failure of
the party or parties seeking to terminate this Agreement to comply in all
material respects with its or their obligations under this Agreement;

 

        (iii)      by any Seller, if the conditions applicable to such Seller
set forth in Section 7.2 shall become impossible to fulfill other than for
reasons within the control of such Seller, and such conditions shall not have
been waived pursuant to Article 7;

 

        (iv)      by the Company, if the conditions set forth in Section 7.1
shall become impossible to fulfill other than for reasons within the control of
the Company, and such conditions shall not have been waived pursuant to Article
7.

The party or parties desiring to terminate this Agreement shall give written
notice of such termination to the other party or parties hereto.

        11.2 Effect of Termination. If this Agreement is terminated as permitted
by Section 11.1, termination shall be without liability of any party (or any
trustee, beneficiary, stockholder, director, officer, employee, agent,
consultant or representative of such party) to any other party to this
Agreement; provided, that if such termination shall result from the willful
failure of the Company or any Seller to fulfill a condition to the performance
of the obligations of the other party or parties, failure to perform a covenant
of this Agreement or breach by such party of any representation or warranty or
agreement contained herein, such party shall be fully liable for any and all
damages incurred or suffered by the other parties as a result of such failure or
breach.

ARTICLE 12

MISCELLANEOUS

        12.1 Notices. All notices, requests and other communications to any
party hereunder shall be in writing (including facsimile transmission) and shall
be given at the party’s address (or telecopier number) set forth below, or such
other address (or telecopier number) as shall have been furnished to the party
giving or making such notice, request or other communication:

        If to the Company, to:

  Graco Inc.   88 - 11th Avenue N.E.   Minneapolis, Minnesota 55413  
Telecopier: 612/623-6944   Attention: General Counsel

        If to David Koch or Barbara Koch, to:

  Koch Family Office   505 North Highway 169
Suite 595   Plymouth, Minnesota 55441   Telecopier: 763/417-2984   Attention:
David A. Koch

        If to the Trustee, to:

  U.S. Bank Trust National Association SD   141 North Main Avenue, Suite 300  
Sioux Falls, South Dakota 57104-6429   Telecopier: 605/333-3813   Attention:
Thomas J.Flynn

        If to the Foundation, to:

  Koch Family Office   505 North Highway 169
Suite 595   Plymouth, Minnesota 55441   Telecopier: 763/417-2984   Attention:
David A. Koch

        in the case of each Seller, with a copy to:

  Dorsey & Whitney LLP   50 South Sixth Street
Suite 1500   Minneapolis, Minnesota 55402   Telecopier: 763/417-2984  
Attention: William Jonason, Esq.

All such notices, requests and other communications shall be deemed received on
the date of receipt by the recipient thereof if received prior to 5:00 p.m. in
the place of receipt and such day is a business day in the place of receipt.
Otherwise, any such notice, request or communication shall be deemed not to have
been received until the next succeeding business day in the place of receipt.

        12.2 Specific Enforcement; Severability. The Sellers, on the one hand,
and the Company on the other, acknowledge and agree that irreparable damage
would occur in the event that any of the provisions of this Agreement were not
performed in accordance with its specific terms or were otherwise breached. Each
Seller and the Company agree that each shall be entitled to an injunction to
prevent breaches of the provisions of this Agreement and to enforce specifically
all terms and provisions hereof in any court of the United States or any state
thereof having jurisdiction, in addition to any other remedy to which such
Seller or the Company may be entitled at law or equity. If any provision of this
Agreement is in violation of any statute, rule, regulation, order or decree of
any governmental authority, court or agency, then such provision shall be
modified to the minimum extent necessary so as to cure such violation, and all
other provisions hereof shall remain in full force and effect notwithstanding
such violation.

        12.3 Amendments and Waivers. (a) Any provision of this Agreement may be
amended or waived if, but only if, such amendment or waiver is in writing and is
signed, in the case of an amendment, by each party to this Agreement, or in the
case of a waiver, by each party against whom the waiver is to be effective.

        (b)      No failure or delay by any party in exercising any right, power
or privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.

        12.4 Expenses. All costs and expenses incurred in connection with this
Agreement shall be paid by the party incurring such expense.

        12.5 Successors and Assigns; No Third Party Beneficiary. The provisions
of this Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns; provided, that no
party may assign, delegate or otherwise transfer any of its rights or
obligations under this Agreement without the written consent of the other
parties hereto. This Agreement is not intended to confer upon any person other
than the parties hereto any rights or remedies hereunder. The obligations of
each of David Koch and Barbara Koch under this Agreement, including the
obligation to sell, transfer and assign the David Koch Shares constituting
Purchase Shares and the Barbara Koch Shares constituting Purchase Shares to the
Company, shall survive the death or disability of each such Seller.

        12.6 Entire Agreement. This Agreement constitutes the entire agreement
among the parties hereto regarding the subject matter hereof.

        12.7 Governing Law. This Agreement shall be governed by and construed in
accordance with the law of the State of Minnesota, without regard to the
conflicts of law rules of such state.

        12.8 Paragraph Headings; Interpretation. The section headings contained
in this Agreement are for reference purposes only and shall not affect in any
way the meaning or interpretation of this Agreement. Wherever the context so
requires, the gender of any pronoun shall include the other genders. In this
Agreement, “including” means “including without limitation”.

        12.9 Exculpation. It is expressly understood and agreed, anything herein
to the contrary notwithstanding, that each and all of the representations,
covenants, undertakings, warranties and agreements of the undersigned trustees
are made and intended not for the purpose or with the intention of binding the
undersigned trustees, in their stated capacity as trustees, personally but for
the purpose of binding only the property of the Trust, and this instrument is
executed and delivered by the undersigned trustees, in their stated capacity as
trustees, not in their own right personally but solely in the exercise of the
powers conferred on them as such trustees, and that no personal liability or
responsibility is assumed by, nor shall at any time be asserted or enforceable
against, the undersigned trustees or their successors, if any, on account of the
purpose for which this instrument was executed; provided, that in no event shall
the foregoing provisions of this Section 12.9 apply to David Koch except to the
extent he is a party to this Agreement in his stated capacity as a trustee of
the Trust.

        12.10 Definition of Person. For purposes of this Agreement, a “person”
shall mean an individual, partnership, corporation, limited liability company,
estate, trust or other entity.

        12.11 Counterparts. This Agreement may be executed by facsimile and in
two or more counterparts, each of which shall be deemed to be an original but
all of which shall constitute one instrument; provided, that each party shall
promptly deliver to the other parties each original counterpart of this
Agreement executed by such party by facsimile.

        12.12 Further Assurances. In case at any time after the Closing any
further action is necessary or desirable to convey or confirm the conveyance of
the Purchase Shares (or any of them) to the Company free and clear of all Liens,
or to otherwise give full effect to this Agreement, each Seller will (and each
of David Koch and Barbara Koch will cause each Seller to) execute and deliver,
or cause Merrill Lynch and Piper Jaffray to execute and deliver, such further
instruments and documents as the Company reasonably may request, all at the sole
cost and expense of such Seller, to so convey or confirm such conveyance of such
Purchase Shares, or to so otherwise give full effect to this Agreement.

[Remainder of page left blank intentionally; signature page follows]

        IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement, as of the day and year first above written.

  The Company:       GRACO INC.               By  \Mark W.
Sheahan                                                        Its: Vice
President and Treasurer       The Trustee:                 \David A.
Koch                                                             David A. Koch  
              \Paul M.
Toregerson                                                      Paul M.
Torgerson       U.S. Bank Trust National Association SD              
By  \Thomas J. Flynn                                                           
       Its: Managing Director       As Trustees of the Trust, and NOT
Individually       David A. Koch:                 \David A.
Koch                                                             David A. Koch  
        Barbara Koch:                 \Barbara
Koch                                                              Barbara G.
Koch       The Foundation:       GREYCOACH FOUNDATION               By:   \David
A. Koch                                                                  Its:
President

Exhibit A

Opinion of Dorsey & Whitney LLP

March 13, 2003

Graco Inc.
88 – 11th Avenue N.E.
Minneapolis MN 55413

  Re:

Sale of Graco Inc. Stock by David A. Koch, Barbara G. Koch, Clarissa L. Gray
Trust and Greycoach Foundation

Ladies and Gentlemen:

        We have acted as counsel to (i) David A. Koch, a resident of the State
of Minnesota (“David Koch”), (ii) Barbara G. Koch, a resident of the State of
Minnesota (“Barbara Koch”), (iii) 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 (iv) Greycoach
Foundation, a Minnesota nonprofit corporation (the “Foundation” and, together
with David Koch, Barbara Koch and the Trustee, the “Sellers,” each such person
being a “Seller”), in connection with the Stock Purchase Agreement, dated March
13, 2003 (the “Purchase Agreement”), among Sellers and Graco Inc., a Minnesota
corporation (the “Company”). This opinion is being delivered pursuant to Section
7.1(a)(iii) of the Purchase Agreement. All capitalized terms used herein and not
defined herein have the meanings assigned to them in the Purchase Agreement.

        We have examined such documents and have reviewed such questions of law
as we have considered necessary and appropriate for the purposes of our opinions
set forth below.

        In rendering our opinions set forth below, we have assumed the
authenticity of all documents submitted to us as originals, the genuineness of
all signatures and the conformity to authentic originals of all documents
submitted to us as copies. We have also assumed the legal capacity for all
purposes relevant hereto of all natural persons. Moreover, we have assumed, with
respect to all parties to agreements or instruments relevant hereto other than
the Sellers, that such parties had the requisite power and authority (corporate
or otherwise) to execute, deliver and perform such agreements or instruments,
that such agreements or instruments have been duly authorized by all requisite
action (corporate or otherwise) on the part of such parties, that such
agreements or instruments have been duly executed and delivered by such parties
and that such agreements or instruments are the valid, binding and enforceable
obligations of such parties. As to questions of fact material to our opinions,
we have relied upon the representations made in the Purchase Agreement and upon
certificates of David Koch, Barbara Koch, the Trustee, officers of the
Foundation and of public officials.

        Our opinions expressed below as to certain factual matters are qualified
as being limited “to our knowledge” or by other words to the same or similar
effect. Such words, as used herein, mean the information known to William B.
Payne, William A. Jonason, Stanley M. Rein or Alysia Zens, the attorneys who
have represented the Sellers in connection with the transactions contemplated by
the Purchase Agreement, in connection with their representation of the Sellers.
In rendering such opinions, we have not conducted any independent investigation
or consulted with other attorneys in our firm with respect to the matters
covered thereby. No inference as to our knowledge with respect to such matters
should be drawn from the fact of our representation of the Sellers.

        Based on the foregoing, we are of the opinion that:

        1       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 U.S.
Bank Trust National Association SD, David A. Koch and Paul M. Torgerson. The
Trustee has the power and authority to execute and deliver, and perform its
obligations under, the Purchase Agreement.

        2       The Foundation is a nonprofit corporation duly incorporated,
validly existing and in good standing under the laws of the State of Minnesota,
with corporate power to execute and deliver, and perform its obligations under,
the Purchase Agreement.

        3       The execution, delivery and performance by each of the Trustee
and the Foundation of the Purchase Agreement, including the sale of the Purchase
Shares stated in the Purchase Agreement to be owned by such Seller to the
Company, have been duly authorized by all necessary action on the part of each
such Seller. The Purchase Agreement has been duly executed and delivered by each
Seller and constitutes the legal, valid, binding and enforceable obligation of
each Seller in accordance with its terms.

        4       The execution, delivery and performance by each Seller of the
Purchase Agreement, including the sale of the Purchase Shares stated in the
Purchase Agreement to be owned by such Seller to the Company, require no action
by or in respect of, or filing with, any governmental body, agency or official;
provided, that the Purchase Agreement and certain filings relating to David
Koch’s beneficial ownership of the Company’s common stock must be filed with the
Securities and Exchange Commission.

        5       The execution, delivery and performance of the Purchase
Agreement by each Seller will not (i) violate the terms of the Trust, (ii)
violate or conflict with the articles of incorporation or bylaws of the
Foundation, or (iii) violate any law of the United States or the State of
Minnesota, any rule, regulation or ordinance of any governmental authority or
regulatory body of the United States or the State of Minnesota, or, to our
knowledge, any judgment, order or decree applicable to such Seller of any court,
governmental authority or arbitrator.

        6       To our knowledge, there is no action, suit, investigation or
proceeding pending or threatened against any Seller which in any manner
challenges or seeks to prevent, enjoin, alter or delay any of the transactions
contemplated by the Purchase Agreement, including the sale of the Purchase
Shares to the Company.

        7       To our knowledge, 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.

        8       Assuming the Company does not have notice of any adverse claim
(within the meaning of the Uniform Commercial Code) to the Purchase Shares, upon
delivery of certificates representing the Purchase Shares to the Company and
payment therefor by the Company, the Company will acquire the Purchase Shares
free of any adverse claim, including (without limitation) claims of persons
having vested or contingent interests in the Trust.

        The opinions set forth above are subject to the following qualifications
and exceptions:

 

        (a)      Our opinions in paragraph 3 above are subject to the effect of
any applicable bankruptcy, insolvency, reorganization, moratorium or other
similar law of general application affecting creditors’ or secured creditors’
rights, including (without limitation) applicable fraudulent transfer laws.

 

        (b)      Our opinions in paragraph 3 above are subject to the effect of
general principles of equity, including (without limitation) concepts of
materiality, reasonableness, good faith and fair dealing, and other similar
doctrines affecting the enforceability of agreements generally (regardless of
whether considered in a proceeding in equity or at law).

 

        (c)      Minnesota Statutes § 290.371, Subd. 4, provides that any
corporation required to file a Notice of Business Activities Report does not
have a cause of action upon which it may bring suit under Minnesota law unless
the corporation has filed a Notice of Business Activities Report and provides
that the use of the courts of the State of Minnesota for all contracts executed
and all causes of action that arose before the end of any period for which a
corporation failed to file a required report is precluded. Insofar as our
opinion may relate to the valid, binding and enforceable character of any
agreement under Minnesota law or in a Minnesota court, we have assumed that any
party seeking to enforce such agreement has at all times been, and will continue
at all times to be, exempt from the requirement of filing a Notice of Business
Activities Report or, if not exempt, has duly filed, and will continue to duly
file, all Notice of Business Activities Reports.

        Our opinions expressed above are limited to the laws of the States of
Minnesota and South Dakota and the federal laws of the United States of America.

        The foregoing opinions are being furnished to you solely for your
benefit and may not be relied upon by, nor may copies be delivered to, any other
person without our prior written consent.

  Very truly yours,

WAJ/SMR

Exhibit B

Opinion of Robert M. Mattison

March 12, 2003

David A. Koch
Barbara G. Koch
505 North Highway 169
Suite 595
Plymouth, Minnesota 55441

David A. Koch,
Paul M. Torgerson
and U.S. Bank Trust National Association SD,
as Trustees of the Trust
administered pursuant to
Article V of the Last
Will and Testament and Codicil thereto
of Clarissa L. Gray deceased
P.O. Box 5308
Sioux Falls, South Dakota 57117-5308
Attention: Thomas J. Flynn, President

Greycoach Foundation
505 North Highway 169
Suite 595
Plymouth,
Minnesota 55441

Ladies and Gentlemen:

        I am the Vice President, General Counsel and Secretary of Graco Inc., a
Minnesota corporation (the “Company”), and have acted as counsel to the Company
in connection with the preparation, execution and delivery of the Stock Purchase
Agreement dated as of March 12, 2003 (the “Purchase Agreement”), by and among
each of you (collectively, the “Sellers”, and each sometimes referred to herein
as a “Seller”) and the Company, pursuant to which each Seller has agreed to
sell, and the Company has agreed to repurchase from such Seller, the Purchase
Shares owned by such Seller, on the terms and subject to the conditions thereof.
This opinion is rendered to you pursuant to Section 7.2(ii), of the Purchase
Agreement. Capitalized terms used herein but not otherwise defined herein shall
have the respective meanings assigned to such terms in the Purchase Agreement.

        I have examined copies of such documents, have made such inquiries and
have reviewed such questions of law as I have deemed necessary and appropriate
for the purposes of this opinion.

        In rendering my opinion set forth below, I have assumed the authenticity
of all documents submitted to me as originals, the genuineness of all signatures
and the conformity to authentic originals of all documents submitted to me as
copies. I have also assumed the legal capacity for all purposes relevant hereto
of all natural persons. Moreover, I have assumed, with respect to all parties
(other than the Company) to agreements or instruments relevant hereto (including
the Purchase Agreement), that such parties had the requisite power and authority
(corporate or otherwise) to execute, deliver and perform such agreements or
instruments, that such agreements or instruments have been duly authorized by
all requisite action (corporate or otherwise) on the part of such parties, that
such agreements or instruments have been duly executed and delivered by such
parties and that such agreements or instruments are the valid, binding and
enforceable obligations of such parties. As to questions of fact material to my
opinions, I have relied upon the representations made in the Purchase Agreement
and upon certificates of officers of the Company.

        On the basis of the foregoing, and subject to the qualifications and
exceptions hereafter set forth, I am of the opinion that:

        (a)      The Company is a corporation duly incorporated, 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 the Purchase Agreement and to perform its other obligations under the
Purchase Agreement.

        (b)      The execution, delivery and performance by the Company of the
Purchase Agreement, including the purchase of the Purchase Shares by the
Company, have been duly authorized by all necessary corporate action on the part
of the Company. The Purchase 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.

        (c)      The execution, delivery and performance by the Company of the
Purchase Agreement, including the purchase of the Purchase Shares by the
Company, require no action by or in respect of, or filing with, any governmental
body, agency or official, provided, that the Purchase Agreement must be filed
with the Securities and Exchange Commission.

        (d)      The execution, delivery and performance by the Company of the
Purchase Agreement, including the purchase of the Purchase Shares by the
Company, do not (i) violate any provision of the articles of incorporation or
bylaws of the Company, (ii) violate any statute, law, rule, regulation or
ordinance applicable to the Company or (iii) to my knowledge, violate any
judgment, writ, injunction, order or decree to which the Company is subject.

        (e)      To my knowledge, no action, suit, investigation or proceeding
is pending or threatened against the Company or any subsidiary thereof which in
any manner challenges or seeks to prevent, enjoin, alter or delay the
transactions contemplated by the Purchase Agreement, including the purchase of
the Purchase Shares.

        (f)      To my knowledge, 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.

        The opinions set forth above are subject to the following qualifications
and exceptions:

        (1)      My opinions in paragraph (b) above as to enforceability are
subject to the effect of any applicable bankruptcy, insolvency, reorganization,
moratorium or other similar law of general application affecting creditors’
rights, including (without limitation) applicable fraudulent conveyance or
transfer laws.

        (2)      My opinions in paragraph (b) above as to enforceability are
subject to the effect of general principles of equity, including (without
limitation) concepts of materiality and reasonableness, good faith and fair
dealing by each Seller, and other similar doctrines affecting the enforceability
of agreements generally (regardless of whether considered in a proceeding in
equity or at law).

        (3)      My opinions in paragraphs (a), (b) and (d) above assume that
the Company will be able to pay its debts in the ordinary course of business
after purchasing the Purchase Shares for purposes of Section 302A.551 of the
Minnesota Business Corporation Act.

        (4)      My opinions expressed above as to certain factual matters are
qualified as being limited “to my knowledge” or by other words to the same or
similar effect. Such words, as used herein, mean my actual knowledge.

        (5)      My opinions expressed above are limited to the laws of the
State of Minnesota and the federal laws of the United States; provided, however,
that I express no opinion with respect to the applicability of any of the
following types of laws: federal and state securities laws or any regulations
promulgated thereunder.

        The foregoing opinions are being furnished to you solely for your
benefit in connection with the transactions described in the Purchase Agreement.
These opinions may not be relied upon or used by you for any other purpose and
may not be relied upon or used by, nor may copies be delivered to, any other
person without my prior written consent.

  Very truly yours,                     \Robert M. Mattison  

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

Robert M. Mattison