SEVENTH AMENDMENT TO CREDIT AGREEMENT

     THIS SEVENTH AMENDMENT (this  "Amendment") dated as of May 27, 1997, amends
and modifies  that certain  Credit  Agreement,  dated as of October 1, 1990,  as
amended  pursuant to  Amendments  dated as of June 12, 1992,  December 31, 1992,
November 8, 1993,  February 8, 1994,  April 10, 1995, and September 27, 1996 (as
so amended, the "Credit Agreement"), between GRACO INC., a Minnesota corporation
(the  "Company")  and FIRST BANK NATIONAL  ASSOCIATION  (the "Bank").  Terms not
otherwise  expressly  defined  herein  shall have the  meanings set forth in the
Credit Agreement.

     FOR  VALUE  RECEIVED,  the  Company  and the Bank  agree  that  the  Credit
Agreement is amended as follows:

            ARTICLE I - AMENDMENTS TO THE CREDIT AGREEMENT

     1.1 Defined Terms. Section 1.01 is amended as follows:

     (a) The definition of "Maturity Date" is amended to read as follows:

            "`Maturity Date': June 29, 1998."

     1.2 Note.  The Loans shall  continue to be evidenced by the Note date April
10, 1995 in the principal amount of $25,000,000.

                 ARTICLE II - REPRESENTATIONS AND WARRANTIES

     To induce the Bank to enter into this  Amendment  and to make and  maintain
the Loans under the Credit  Agreement  as amended  hereby,  the  Company  hereby
warrants and  represents  to the Bank that it is duly  authorized to execute and
deliver  this  Amendment,  and to  perform  its  obligations  under  the  Credit
Agreement as amended  hereby,  and that this  Amendment  constitutes  the legal,
valid and binding obligation of the Company,  enforceable in accordance with its
terms.

                      ARTICLE II - CONDITIONS PRECEDENT

     This  Agreement  shall become  effective on the date first set forth above,
provided,  however,  that the  effectiveness of this Amendment is subject to the
satisfaction of each of the following conditions precedent:

     2.1  Warranties.  Before and after  giving  effect to this  Amendment,  the
representations  and  warranties in Section 6 of the Credit  Agreement  shall be
true and correct as thought made on the date hereof, except for changes that are
permitted by the terms of the Credit Agreement.  The execution by the Company of
this Agreement  shall be deemed a  representation  that the Company has complied
with the foregoing condition.

     2.2 Defaults. Before and after giving effect to this Amendment, no Event of
Default and no Unmarred  Event of Default  shall have occurred and be continuing
under the Credit Agreement. The execution by the Company of this Agreement shall
be deemed a  representation  that the Company has  complied  with the  foregoing
condition.

     2.3  Documents.  The  Company  shall  have  delivered  this  Amendment  and
certified  copies  of  resolutions  of the  Board of  Directors  of the  Company
authorizing or ratifying the execution, delivery and performance,  respectively,
of this Amendment, together with an incumbency certificate of officers executing
this Amendment.

                            ARTICLE III - GENERAL

     3.1 Expenses.  The Company agrees to reimburse the Bank upon demand for all
reasonable  expenses,  including  reasonable  fees  of  attorneys  (who  may  be
employees  of  the  Bank)  and  legal  expenses  incurred  by  the  Bank  in the
preparation,  negotiation and execution of this Amendment and any other document
required to be furnished  herewith,  and in  enforcing  the  obligations  of the
Company hereunder, and to pay and save the Bank harmless from all liability for,
any taxes which may be payable with respect to the execution or delivery of this
Agreement, which obligations of the Company shall survive any termination of the
Credit Agreement.

     3.2 Counterparts. This Agreement may be executed in as many counterparts as
may be deemed  necessary or convenient,  and by the different  parties hereto on
separate  counterparts,  each of  which,  when so  executed,  shall be deemed an
original  but all  such  counterparts  shall  constitute  but  one and the  same
instrument.

     3.3  Severability.  Any provision of this Amendment  which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition of unenforceability  without  invalidating the
remaining  portions hereof or affecting the validity or  enforceability  of such
provisions in any other jurisdiction.

     3.4 Law.  This  Amendment  shall be a  contract  made under the laws of the
State of Minnesota, which laws shall govern all the rights and duties hereunder.

     3.5  Successors;  Enforceability.  This Amendment shall be binding upon the
Company and the Bank and their  respective  successors  and  assigns,  and shall
inure to the benefit of the Company and the Bank and the  successors and assigns
of the Bank. Except as hereby amended, the Credit Agreement shall remain in full
force and effect and is hereby ratified and confirmed in all respects.

     IN WITNESS  WHEREOF,  the parties  hereto have caused this  Amendment to be
executed at Minneapolis,  Minnesota by their respective  officers thereunto duly
authorized as of the date first written above.


                                   GRACO INC.

                                   By:  /s/ Mark W.Sheahan

                                   Title: Treasurer


                                   FIRST BANK NATIONAL ASSOCIATION

                                   By: /s/ Michael S. Harter

                                   Title: Commercial Banking Officer