FIRST AMENDMENT
                                         OF
                                     GRACO INC.
                        DEFERRED COMPENSATION PLAN RESTATED



     The Graco Inc.  Deferred  Compensation  Plan Restated  ("Plan"),  which was
adopted and approved by the Board of Directors of Graco Inc.  effective December
1, 1992, is hereby amended as follows:


1.   AMENDMENT.  Effective September 1, 1996, Section 2.1 of the Plan is amended
     to read in full as follows:

          2.1.  Participation  by  Eligible  Employees.  Each  employee  that is
     classified  in a salary  grade  level  identified  in  Appendix  B shall be
     eligible to become a Participant in this Plan as follows:

               (a) Any eligible  employee who is employed on the Effective  Date
          of the Plan shall became a Participant  within  thirty-one  days after
          the  Effective  Date if the  eligible  employee  enters  into a Salary
          Reduction  Agreement with the Employer during July or August,  1988 to
          be effective  September 1, 1988,  which provides for salary  deferrals
          under the Plan.

               (b) Thereafter,  an eligible  employee shall become a Participant
          if, during the Annual Enrollment Period,  such Participant enters into
          a Salary  Reduction  Agreement  with the Employer  which  provides for
          salary  deferrals under the Plan. The Annual  Enrollment  period shall
          occur during the month of December each year and any Salary  Reduction
          Agreement  shall be  effective  as of January 1 of the next  following
          year applicable to Compensation earned by such Participant during such
          year.

               (c)   Notwithstanding   the  provisions  of  Section  2.1.(b),  a
          Participant  who was  scheduled  to  receive  during  1996 a refund of
          excess employee  contributions  to the Graco Employee  Investment Plan
          pursuant to the Employee Plans Voluntary Compliance Resolution ("VCR")
          with the Internal  Revenue  Service and a special payment of an amount
          equal to the employer match on the excess employee  contributions  may
          defer an  amount  equal to the  amount of the  employee  contributions
          scheduled to be refunded  plus the amount  calculated  for the special
          payment,   if  the  Participant   has  executed  a  Special   Deferred
          Compensation Plan Election, which shall be considered to be equivalent
          to a salary  reduction  agreement  for purposes of the Plan,  prior to
          receipt of such refund and special payment.

2.   AMENDMENT.  Effective for any amendment adopted after May 6, 1997,  Section
     7.1 of the Plan is amended to read in full as follows:

          7.1. Amendment. The Employer,  hereby reserves the power to amend this
     Plan prospectively or retroactively or both:

          (a) In any respect by action of its Board of Directors; and

          (b) In any respect that does not  materially  increase the cost of the
     Plan or  significantly  alter in  scope,  nature  or  degree  the  benefits
     accruing to the Participants,  by action of the Management Organization and
     Compensation Committee of the Board of Directors;  provided,  however, that
     no  amendment  shall  have the  effect  of  amending  this  section 7 or of
     reducing  or  cancelling   the  accrued  rights  and  benefits  of  present
     Participants.

3.   SAVINGS CLAUSE. Save and except as herein above expressly amended, the Plan
     shall continue in full force and effect.

     IN WITNESS WHEREOF, each of the parties hereto has caused these presents to
be executed, all as of May 6, 1997.

                                   GRACO INC.


                                          By /s/Clyde W. Hansen
                                                Clyde W. Hansen
                                                Vice President


                                          By /s/Robert M. Mattison
                                                Robert M. Mattison
                                                Vice President