CONDUCT OF BUSINESS GUIDELINES

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GRACO'S BUSINESS RELATIONSHIPS
GRACO AND ITS EMPLOYEES
GOVERNMENT AND COMMUNITY RESPONSIBILITY

These Conduct of Business Guidelines are intended to help Graco achieve its mission by protecting and enhancing Graco's worldwide reputation as an ethical and law-abiding company. They are also intended to help avoid violations of law that can be extremely expensive and damaging to Graco's reputation. These Guidelines apply to the employees, officers and directors of Graco Inc. and all of its subsidiaries and branches worldwide.

Graco expects you to understand these Guidelines and comply with them and with all applicable laws. You are also expected to conduct your Graco activities with honesty and integrity. Graco's Legal Department is available to help you comply with the law.

Of course, some activities will not be covered by these Guidelines or by law, and some laws set unacceptably low standards of conduct. You should be able to judge any action you are considering against the following standards and answer "yes" to each of these questions:

• Is it the "right thing" to do?
• If you were being affected by the action, is it what you would want to have done (the "Golden Rule")?
• Will the action stand public scrutiny - would you be comfortable reading about it in tomorrow's newspaper?
• Will it protect and enhance Graco's reputation as an ethical
  company?

If you cannot answer "yes" to each of these questions, it is time to rethink your decision and discuss it with your management or the Legal Department.

Management Obligations

Graco's managers are responsible for creating a work environment in which the highest ethical standards are consistently practiced, and for assuring that Graco's Conduct of Business Guidelines are followed and the law is obeyed. We all share a responsibility to protect Graco's reputation. It takes courage for an employee to raise an ethical issue. Graco therefore encourages its managers to maintain an open door policy for dealing with these issues.

Graco's Conduct of Business Program is under the supervision of the Audit Committee of the Board of Directors, which has approved these Guidelines. These Guidelines may not be waived, in whole or part, for any officer or director of Graco except by the Audit Committee, and any such waiver shall be promptly disclosed to the Company's shareholders. The Vice President and General Counsel is responsible for the Program.

Help With Questions

No guidelines can cover all situations. When you need help interpreting or applying the Guidelines, you can:

Discuss the matter with your supervisor.

Contact your Employee Relations Representative or the Human Resources Department.

Call the Legal Department at 612-623-6604, or send a fax to the Legal Department at 612-623-6944.

Write to:
Graco Inc.
Attention: Legal Department
P.O. Box 1441
Minneapolis, Minnesota 55440-1441

E-mail to: legal@graco.com

Reporting Suspected Violations

If you know of, or suspect, a violation of these Guidelines or any law, you should do one of the following:

• Report the matter to your supervisor.
• Call, write or e-mail the Legal Department. You may remain anonymous if you wish. (See above for contact information.)
• Call the Graco Ethics Hotline at 1-887-846-8913
• E-mail at ethics@graco.com

All reports of suspected violations will be thoroughly investigated. There will be no reprisals against any employee reporting a violation or suspected violation in good faith.

Discipline and Sanctions

These Conduct of Business Guidelines are an essential part of Graco. Every officer, director and employee is required to follow them. Violations of these Guidelines may lead to reprimand, probation, demotion, temporary suspension or discharge. Failing to report or actively condoning a violation of these Guidelines may also result in employee discipline. In certain cases, an employee who violates these Guidelines may have to reimburse Graco for losses. Violations of criminal law may be referred to the appropriate authorities for prosecution.

Additional Copies

For additional copies of the Graco Conduct of Business Guidelines, write, call or e-mail the Legal Department, or send a fax to the Legal Department at 612-623-6944.

GRACO'S BUSINESS RELATIONSHIPS

In conducting Graco's business, you may deal with a variety of people and organizations, including customers, suppliers and competitors, as well as other Graco employees. All business relationships should be based on a solid foundation of honesty and fairness.

The following Guidelines address Graco's relationship with our customers, competitors, suppliers and others outside the Company.

Graco Strategic Policy Statement - Quality

We strive for excellence and continuous improvement in everything we do. We will understand our customers' requirements and meet them on time. No defects or delays are acceptable. Quality is the individual responsibility of every Graco employee.

Every Graco manager is responsible for managing quality in his/her area. This includes designing and installing effective processes, setting and monitoring standards, and most importantly, selecting, training and involving capable, informed employees.

Every Graco employee is personally responsible for the quality of his/her work. Each of us will understand our customers' requirements and make the personal effort to meet those requirements on time.

For Further Detail See Management Policy and Procedure 90-004, Quality & Reliability.

Product Safety

Safe products and services are essential for Graco to maintain a competitive position in the marketplace, retain the confidence of our customers, and minimize product liability exposure. All Graco products shall be designed, manufactured, installed and serviced to meet Graco's internal safety standards, external regulations and the standards of the appropriate approval entities. Written product safety standards and procedures for product design, production and use shall be maintained for all products.

For further detail see Management Policy and Procedure 90-003, Product Safety Assurance.

Product Representation

Truth in Advertising

Graco will avoid any mis-statement of fact or misleading impression in any of its advertising, literature, exhibits or other public statements. All statements about Graco products and services shall be true and supported by documentation. The total impression of the message must also be considered. Any omission of fact, wrongful emphasis or use of illustrative material that would tend to mislead a casual reader, listener or viewer shall be avoided.

Disparagement

Graco will not make any false or misleading remarks regarding competitive organizations or individuals, or their products and services. All Graco products and services will be sold on their merits. When we are making comparisons between Graco products and those of competitors, we must be sure that all statements are factual, accurate and not misleading.

Strategic Policy Statement - Suppliers

Graco suppliers are integral in achieving the Company's goal of being the highest quality, lowest cost, most responsive manufacturer. The Company will ensure, through a formal process, that its suppliers are capable of supporting its requirements for rapid product design change, innovation, quality, business process development, value and lower inventories. The Company will deal with its suppliers fairly and cultivate an environment of mutual respect and trust. Graco will identify and qualify the smallest necessary number of suppliers with which to build long-term relationships for mutual benefit. The Company will strive to do business with suppliers worldwide which conduct business legally and ethically, and respect the human dignity of their employees.

Fair Competition (Antitrust)

The antitrust laws are intended to preserve competition by prohibiting actions that could unreasonably restrain the functioning of a free and competitive marketplace. Antitrust violations are extremely serious and can result in heavy fines and even criminal prosecution.

The following areas pose substantial antitrust risks. Actions in these areas may not be taken without first consulting the Legal Department.

• No Graco employee shall enter into any agreement, written or oral, express or implied, with a competitor regarding prices, price-related terms (discounts, rebates, payment terms, etc.), allocation of markets or customers, bidding practices, or limiting or refusing to do business with any customer. Because conversations can be interpreted as agreements, avoid any conversation with competitors about any of those subjects.


• Graco shall not compel or dictate resale prices charged for Graco products, or customers or territories where such products may be resold.

It is the policy of Graco to comply fully with both the letter and spirit of the antitrust laws of all countries in which Graco conducts business. This includes the U.S. antitrust laws, Articles 81 - 86 of the Treaty of Rome in the European Union, and the Anti-Monopoly Act of Japan. Management employees are expected to maintain familiarity with the principles of these antitrust laws and to do nothing which might violate such laws or give any appearance of an intention to violate them.

The provisions of the antitrust laws apply to both formal and informal communications. Employees involved in trade association activities or in other situations allowing for informal communication among competitors, customers or suppliers must be especially alert to the requirements of the law.

Graco considers compliance with the applicable antitrust laws so vitally important that claims of ignorance, good intentions or failure to seek timely advice will not be accepted as an excuse for violations.

For Further Detail See Management Policy and Procedure 10-014, Policy on Antitrust Compliance.

Competitive Information

Graco will not violate the legal rights of competitors or other parties in the gathering and use of competitive information and will obey all laws that apply to the information of competitors. The following points will help you avoid violations:

• Only lawful and ethical methods can be used to obtain competitive information. Graco will not engage in any spying or industrial espionage activities, or any activities that could be misinterpreted as such.
• Information about a competitor's pricing, price terms, customers or market share should not be obtained directly from the competitor or from someone who is legally bound not to disclose this information.
• Information that is confidential or proprietary to a competitor or other party may not be gathered or used unless that party voluntarily disclosed it to Graco.
• Graco shall strictly comply with the provisions of all confidential information and non-disclosure agreements which it enters into, and take measures to assure compliance. Confidential information of other parties shall not be shared beyond those who have a "need to know" such information to perform their jobs for Graco.
• Any confidential or proprietary information of another party, including a competitor, which is inadvertently disclosed to Graco shall not be used and shall be immediately returned to the owner.

Graco shall not solicit or use any confidential or proprietary information of a competitor or other party available to a current or former employee or consultant of that party. Graco shall inform any current or former employee or consultant of a competitor who becomes an employee and/or performs services for Graco, that he or she is expected not to disclose or use any confidential or proprietary information of the competitor or other party in performing services for Graco. Graco will also tell the person to comply with all legal and contractual requirements that person may have regarding such information. No Graco manager will apply any pressure, implicit or explicit, on any employee to use or disclose the confidential information of a former employer.

Giving Business Courtesies and Gratuities

Business courtesies and gratuities are gifts, such as meals, cocktails, discounts, hospitality, entertainment, recreation, tickets, promotional items, transportation and any tangible or intangible "thing of value" for which the recipient does not pay the fair market value.

Graco employees may give business courtesies or gratuities in their Graco business dealings with commercial customers and with other non-government parties provided they meet the following guidelines:

• They do not violate the law, regulations, or reasonable customs of the marketplace or the known policy of the recipient or the recipients employer;
• They are reasonable in cost, amount, quantity and frequency;
• They are appropriate as to time and place;
• They do not influence or give the appearance of influencing the business judgment of the recipient;
• They can stand public scrutiny without damaging Graco's reputation; and
• They are properly reflected on Graco books and records.

Under no circumstances should you give money as a business courtesy or gratuity.

These guidelines apply even when no reimbursement from the Company is sought.

The rules regarding gifts and gratuities to government employees or officials are considerably different from these guidelines and are very strict. Giving anything of value, even nominal value, to an official or employee of the U.S. government is strictly prohibited, as are certain payments to foreign government officials. Similar laws may apply to state and local government officials and employees. Check with the Legal Department before providing anything of value, even if it is nominal, to any governmental official or employee. Also see the sections titled Business with the U.S. Government and Transacting International Business in these Conduct of Business Guidelines.

Use of Software

Most computer software is the valuable intellectual property of the developer or other owner of the software. It is usually protected by copyright, patent, and/or trade secret and is made available to users under the terms of license agreements. The unauthorized use of this proprietary software on Graco equipment could expose both the user and the Company to serious liabilities for violation of these rights. Therefore, it is Graco's policy that all software owned by a third party will be used on Graco computers and other equipment only if a license or other permission has been obtained. The Information Systems Department has the responsibility and sole authority to acquire and install software on Graco computers. Employees are prohibited from loading software onto Graco computers themselves, both to assure that there is no unauthorized use of software and that the software will not cause compatibility problem.

For further detail see Human Resources Practice and Procedure 7.9, Personal Computer.

GRACO AND ITS EMPLOYEES

The following Guidelines should be followed to ensure a positive relationship between Graco and its employees.

Graco Strategic Policy Statement - Employees

Graco will provide challenging employment opportunities and competitive pay and benefits. The Company will also provide employees with essential resources and training to do their jobs, as well as set clear performance expectations and timely appraisal of that performance. While employees are responsible for their own careers, Graco will facilitate employee development through training and educational assistance.

Employees are responsible to meet the Company's job performance expectations, including quality work, productivity and ethical conduct. Employees have the obligation and responsibility to regularly contribute suggestions, ideas and actions for improvement both within their own jobs and elsewhere in the Company.

Strategic Policy Statement - Human Resource Management

Every Graco manager is responsible for creating a working environment that stretches talents and skills, and encourages participation, trust, accountability and teamwork.

Managers also have the responsibility to ensure that the appropriate skills and talents are available to meet the present and future requirements of their areas of responsibility. All employees, at all levels of the Company, will receive ongoing training necessary to meet the evolving requirements of their positions.

Graco is committed to providing equal employment opportunity to all applicants and employees in accordance with all applicable equal opportunity and affirmative action laws, directives and regulations of federal, state and local governing bodies and agencies thereof. In keeping with this commitment, Graco will recruit, hire, train and promote into all job levels the most qualified individuals without regard to race, color, creed, religion, sex, national origin, ancestry, marital status, status with regard to public assistance, disability, age, sexual orientation or affectional preference, or status as a special disabled or Vietnam era veteran, except where sex is a bona fide occupational qualification.

Graco will base all of its employment decisions on job-related standards and its commitment to equal employment opportunity. Graco will ensure that all human resources matters, such as compensation, benefits, transfers, layoffs, return from layoff, company-sponsored training programs, education, tuition assistance, and social and recreational programs are administered accordingly.

Equal Employment Opportunity

Graco's policy on Equal Employment Opportunity is part of its Strategic Policy, stated above. For Graco's full Equal Employment Opportunity/Affirmative Action policy, see Human Resources Practice & Procedure, Practice Number 7.1, Equal Employment Opportunity/Affirmative Action.

Harassment

It is Graco's policy and practice to maintain a work environment free of harassment based on an employee's protected personal characteristics such as race, national origin, physical disability, affectional preference, age, religion or sex. Harassment, including sexual harassment, refers to conduct that is offensive to the individual, that harms morale and that interferes with the effectiveness of our business. Harassment exists when specific adverse personal action is taken against a victim or when the work environment is made intimidating, offensive or abusive. Harassment in the workplace is unacceptable and will not be tolerated. An employee who is found to have acted in violation of this practice is subject to disciplinary action. Such action may include, depending on the circumstances, suspension, demotion or termination. Harassment may also lead to personal (legal and financial) liability for the harasser. Retaliation against an employee who reports harassing behavior or who participates in a harassment investigation is prohibited.

Definition of Sexual Harassment

Sexual harassment, which is a particular form of harassment based on the victim's gender, can involve a range of unwelcome conduct, including such things as:

• offensive sexual flirtations, advances or propositions;
• repeated use of innuendoes or vulgar language or gestures of a sexual nature;
• degrading comments of a sexual nature about an individual;
• leering or looking someone up and down in a suggestive manner;
• the display of suggestive pictures or objects;
• unwelcome physical contact; or
• action regarding an employee based upon his/her submission or refusal to submit to sexual overtures.

Responsibility of Managers and Supervisors

Managers and supervisors have the responsibility to:

• never state or even imply that sexual "favors" from an employee will affect the employee's promotional opportunities, career development, current position, performance evaluation or any other aspect of his/her employment;
• encourage employees to communicate questions or concerns regarding harassment;
• be able to recognize the range of behaviors that constitute harassment;
• notify their Employee Relations Representative immediately when an employee complains of harassment or incidents of harassment come to his or her attention;
• ensure that no retaliation against affected employees occurs.

If an employee feels that he/she is being harassed or knows of harassing behavior, he/she should immediately report such conduct to his/her supervisor or Employee Relations Representative. Telling a lead person or co-worker is not enough. If a supervisor or lead person learns that an employee is being harassed or knows of harassing behavior, he/she should immediately report this conduct to his/her Employee Relations Representative. Failure by the supervisor to report any incidents of harassment could result in disciplinary action, up to and including termination. The Company will promptly investigate all complaints in as confidential a manner as possible and take appropriate action. Any employee who has been found to have harassed another employee will be subject to appropriate disciplinary action, up to and including termination of employment.

Graco's complete policy and practice regarding harassment is contained in Human Resources Practice and Procedure 7.4, Harassment Prevention.

Health and Safety

The personal safety and health of each Graco employee is of primary importance. The prevention of occupationally-induced injuries and illnesses will be given precedence over operating productivity. Graco management will provide all mechanical and physical facilities required for the personal safety and health of its employees and comply with the Occupational Safety and Health Act and comparable legislation throughout the world.

Drug And Alcohol Free Workplace

Graco has a vital interest in maintaining safe, healthful and efficient working conditions for its employees. The use of drugs and alcohol has been shown to adversely affect safety, productivity, quality, integrity and morale. Graco is also subject to state and federal regulations requiring drug and alcohol testing under certain circumstances. For these reasons, Graco has implemented a practice and work rules with regard to the use, possession and sale of alcohol and drugs.

The Company strictly prohibits the use, sale, solicitation or possession of drugs, other controlled substances, or the use of alcohol, in any amount, on any Company premises or work sites (including parking lots). For the purposes of this policy, "use" shall include but not be limited to admission of use or a positive result on a drug & alcohol screening test indicating the presence of a drug or its metabolites, or alcohol at or above the threshold detection levels. Certain exceptions regarding alcohol consumption may be granted by the Vice President, Human Resources for Company-sponsored events.

Graco recognizes that drug and alcohol abuse are treatable conditions. Employees are encouraged to voluntarily seek help through Graco's Employee Assistance Program or their health care plan. However, using the Employee Assistance Program will not eliminate disciplinary action if an employee has violated Graco's Drug and Alcohol practices or rules, or if performance has been below his or her supervisor's expectations.

Use of Medication

An employee who has been prescribed or who is using a drug for any medical or other condition which might in any way impair his/her ability to perform the job must immediately notify his/her supervisor or Graco's Occupational Safety and Health Department. Appropriate medical advice will be sought to determine whether the individual can work while taking the medication. If it is determined that the individual is unable to perform his or her job without impairment caused by the medication, the employee will be reassigned or directed not to report to work until the condition for which such medication is being taken is no longer present, or use of medication causing impairment has been discontinued.

For further information see Human Resources Practice and Procedure 7.2, Alcohol/Drug Free Workplace.

Conflicts of Interest

A conflict of interest occurs whenever the prospect of direct or indirect personal gain (or the gain of an associate or family member) could influence your judgement or actions in the conduct of Graco business. It is your responsibility to conduct yourself with the highest standards of integrity, honesty, and fair dealing to avoid a conflict between the interests of Graco and your personal interests. The following situations shall be avoided:

• Working for or representing a customer, supplier or competitor, regardless of the nature of the services being provided, while employed by or representing Graco;
• Investing in a Graco competitor, customer or supplier, if the investment is significant enough possibly to conflict or appear to conflict with your responsibilities to Graco;
• Accepting personal gifts, payments or services from those seeking to do business with Graco. Accepting anything of value in return for business with Graco is strictly prohibited. However, gifts other than money, of such nominal value that they clearly will not affect the actions of either the giver or the receiver, and are not given specifically in return for business, are allowed. Accepting money in any amount is prohibited;
• Acting as a consultant to a competitor, customer or supplier of Graco;
• Serving as proprietor, general partner, officer, or director of any profit-oriented corporation or other organization without first obtaining written consent from a Graco corporate officer of vice president rank or higher;
• Using Graco's name, customer or employee lists for any purpose other than Graco business or functions without prior written approval from a Graco corporate officer of vice president rank or higher;
• Personally taking advantage of a business opportunity available to Graco;
• Any activity or arrangement (direct or indirect) which could conflict, or may reasonably be viewed as conflicting, with your responsibilities to Graco.

Personal Loans

Graco shall not make, facilitate or arrange, directly or indirectly, any personal loans to any employee, officer or director, unless such loan (i) is in compliance of all applicable laws and regulations; and (ii) is approved in advance by the Audit Committee of the Board of Directors. This policy does not prohibit properly authorized travel expense advances to employees in the ordinary course of business.

Unauthorized Use of Company Property

All assets owned by Graco have specific functions related to operating the Company's business. Graco assets are for the sole benefit of the Company. Improper or unauthorized use applies to Company property and personnel resources as well. Personal use of Company property or facilities (other than incidental use described below, or in accordance with Management Policy and Procedure 10-013, Employee Use of Graco Facilities and Other Assets) is prohibited. In addition, using services of other Graco employees during regular working hours for personal use is prohibited. This policy does not apply to benefits or services that have been approved for general employee use or as an approved employee benefit, such as the use of the Oakes or Graco loan equipment, according to Company guidelines.

Electronic Media

Computer and voice communication systems are provided to employees for the conduct of Graco business. They are valuable business assets. Computers, technology, and the electronic files and communications, including e-mail messages, created, sent or received, and stored through and in such computers and telecommunications systems are Graco property. Incidental use of electronic media and services (sending or receiving) for personal purposes is permitted, but must not involve any prohibited use, must not interfere with the business responsibilities or productivity of the employee, his/her co-workers or others, must not consume system resources or storage capacity on an ongoing basis, may be monitored in the same manner as business communications and must comply with the provisions of this policy.

Please understand that the files and records, including e-mail messages and internet usage patterns, which you create, access, retrieve, send, receive or store on Graco computer and telecommunications systems are not private and may be monitored and accessed by the Company to determine whether there have been any breaches of security, violations of law or Company policy, or other media or system misuse. Accordingly, users should have no expectation of privacy versus the Company in anything they create, store, send, receive, view, access or download through electronic media and systems.

Employees shall not use electronic media or services, including e-mail or the Internet/World Wide Web to create, access, view, browse, download, send, receive, disseminate, store, install, display or print material (text and graphics), communications, programs or documents which:

• Are discriminatory, harassing or disparaging or promote hate of others based upon race, national origin, gender, sexual orientation, age, disability, religion, political beliefs or any other protected class status;
• Are sexually explicit, offensive, obscene, pornographic, insulting, harassing, defamatory, or of a threatening nature;
• Relate to gambling, wagering or similar activities;
• Are "chain letters," jokes, solicitations, or offers to buy or sell goods or similar types of broadcast communications;
• Participate in any newsgroup, mailing list, bulletin board or other type of discussion forum that is not job-related;
• Solicit for charitable, religious, political or other non-business purposes;
• Are illegal, unethical, fraudulent, malicious or improper;
• Are intended to further or promote any non-Company
  commercial business;
• Transmit destructive programs (e.g., viruses, worms or
  self-replicating code);
• Are personal computer games, financial software or other programs for personal use;
• Encrypt messages, documents, programs, internet logs or files in order to block access by the Company;
• Send or transmit messages or material which attempts to hide the true identity of the sender;
• Use another individual's account, password or identity without explicit authorization;
• Permit any unauthorized individual access to the Company's electronic media or services;
• Hack or attempt to gain access to or defeat the security of confidential Company electronic data, records, programs or systems without prior authorization;
• Violate other Graco policies, or
• Are contrary to Graco's best interests.

Graco's full policy with regard to use of electronic media is set forth in Human Resources Practice and Procedure 7.8, Electronic Communication. See also Human Resource Policy and Procedure 7.9, Personal Computer.

Fraud and Theft

Any act by an employee that involves fraud, embezzlement, misappropriation or theft of any property, including that of the Company or any of its employees, suppliers or customers, is expressly prohibited, regardless of whether or not the act could result in a criminal proceeding.

GOVERNMENT AND COMMUNITY RESPONSIBILITY

Graco Strategic Policy Statement - Community Commitment

Graco will be a good corporate citizen in all communities worldwide where it has business activities. In addition to providing jobs, generating economic activity and paying taxes, Graco will contribute on average 2% percent of U.S. pre-tax earnings, through the Graco Foundation, to selected non-profit organizations.

The members of the Graco Foundation board who are managers of the Company will, as part of their management duties, direct the Company's U.S. volunteer and community activities, such as:

• provide information for employees to volunteer their time and talents.
• participate in selected community fund drives and other activities, such as the United Way, Junior Achievement and Paint-a-Thon.

Graco will communicate its views and opinions on public issues that have an impact on the Company.

Environmental Laws

It is Graco's policy to strive to manage its business in a way that conserves natural resources and protects the environment. In all locations and activities worldwide, Graco and its employees will:

• Comply with, or exceed the requirements of, all applicable environmental laws and regulations
• Adopt accepted environmental practices in all its operations
• Continuously improve its environmental practices, preventing pollution and reducing the impact its operations have on the environment.

Graco management will allocate the resources, and adopt processes and procedures, including setting and reviewing environmental goals and targets, to ensure that this policy is implemented.

You should immediately notify your supervisor or the Environmental Specialist at 612-623-6414, if you know or suspect that there has been a spill or release of hazardous materials, or are aware of other actual or potential environmental problems in any Graco facility.

Graco will provide truthful and accurate information to the government licensing or permitting authorities in connection with any application for any environmental license or permit or any periodic reports that may be required.

Transacting International Business

Foreign Corrupt Practices Act

The Foreign Corrupt Practices Act and other United States laws prohibit the payment of money or anything of value to a foreign government official, foreign political party, or any candidate for foreign political office for the purpose of obtaining, retaining or directing business. Graco's policy is to strictly abide by these laws.

The law does allow "facilitating payments", which are payments for things such as expediting shipments through customs or securing required permits, or obtaining adequate police protection. Any facilitating payments must be accurately and properly accounted for in the Company's (including any subsidiaries) financial records. Whenever "facilitating payments" are involved, employees must seek advice from the Legal Department prior to making any such payments.

The U.S. Foreign Corrupt Practices Act also requires Graco's non-U.S. subsidiaries to maintain accurate and complete financial books and records. No Graco funds or assets may be used for unlawful, improper or unethical purpose; no undisclosed, unrecorded or secret funds or assets may be established, and no false entries may be made in financial books for any purpose.

Export Regulations

The United States government regulates the export of goods, services and technical information from the United States. The term "export" is defined very broadly, and includes a re-export from a non-U.S. subsidiary of a U.S. company. For example, Graco may export products to a Graco subsidiary, such as Graco N.V. in Belgium, which in turn may export it to its ultimate destination. U.S. law regulates the re-export by the Graco subsidiary and holds Graco Inc. accountable for the compliance by the Graco subsidiary with the U.S. export law. The penalties for violating these laws include fines, imprisonment, suspension or revocation of the privilege to export from the U.S., and adverse publicity.

U.S. law prohibits exports to certain countries and to individuals and companies known to do business with those countries. This list is based on U.S. foreign policy and changes periodically. It is kept up to date and periodically sent to all Graco distribution outlets by the Legal Department. Graco and all its subsidiaries are prohibited from exporting products to any country subject to a U.S. trade embargo or selling to any entity listed by the U.S. government.

U.S. law also requires export licenses to be issued by the U.S. government for certain products sold by Graco or any Graco subsidiary to certain countries. Graco will review all of its products on an ongoing basis for any products that may require a license, and will not ship products without obtaining the proper license.

Anti-Boycott Laws

Under U.S. law, Graco and each Graco subsidiary (including non-U.S. subsidiaries), is required to report to the U.S. government receipt of any request to participate in any way in an international boycott, particularly the boycott of Israel by many Arab countries. This reporting requirement applies even if the business transaction is not completed. Graco is also prohibited from complying with any such request.

The definition of "request" is very broad. The request may be verbal or written, it may come directly from the customer or indirectly through another document, for example, a letter of credit. Consequently, all customer documentation shall be carefully scrutinized. Such a request may ask the seller to supply information, take action, or refrain from taking particular action that would further or support the Arab League boycott of Israel.

Graco's Legal Department issues periodic updates and conducts training on compliance with the U.S. anti-boycott laws. If you have any questions particularly regarding any statement or document which you believe may be related to the Arab League boycott of Israel, you should contact Graco's Legal Department. Do not respond to the request in the manner instructed by the request. Immediately call the Legal Department, which will report the request to the U.S. government and work with you to determine the appropriate response.

Imports and Customs

Graco will comply with all applicable laws and regulations governing the entry of goods into the United States or any other country. No employee shall take any action to improperly evade any custom tariff or duty, or other applicable requirement regarding the importation of goods, including documentation, record keeping and country of origin markings.

Business with the United States Government

No Gifts, Meals or Gratuities

Very strict guidelines prohibit any type of payment to U.S. Government employees for meals, refreshments, travel or lodging expenses. Normal business courtesies in the commercial marketplace are considered an attempt to improperly influence the government official and may be construed as a bribe, kickback or illegal gratuity. Therefore, do not provide any U.S. government employee with anything of value, including meals, refreshments, or gifts, even if they are of nominal value. If a Graco employee and a government employee share a meal, each should pay full and fair share of the cost of the meal.

Federal employees should be aware of the regulations that govern the activities and should decline any offer of gifts and gratuities. Do not assume, however, that because an employee accepts or appears willing to accept such an offer that it is legal or appropriate.

Kickbacks

Pursuant to federal law, Graco forbids any of its employees to offer, solicit, provide or accept any gift of money or other thing of value for the purpose of improperly obtaining or rewarding favorable treatment in connection with U.S. government contracts.

No employee, agent, or representative of Graco will bribe any person, including foreign officials and politicians, in order to obtain or retain business for Graco. Graco specifically prohibits offering, giving soliciting, or receiving any form of bribe or kickback. These activities could constitute criminal acts.

Contract Negotiations

The law has a number of specific requirements for the negotiation of contracts with the federal government, which vary depending on the type of transaction being negotiated. These requirements are complex, and penalties for violating them can be severe. If you are considering selling any products or services to the federal government, call the Legal Department.

Government Investigations

Graco and its employees will cooperate promptly and fully with all government investigations or interviews involving possible violations of the law. Employees shall give complete and truthful answers to any questions asked of them. The Company is also concerned about protecting the legal rights of its employees and other stakeholders. Therefore, any employee who is approached by anyone claiming to be a government investigator or inspector should immediately contact the Legal Department before answering any questions.

Employees Serving as Public Officials

Graco encourages its employees to be good citizens and to take an active part in the political process. A Graco employee may be a candidate for or be elected or appointed to local, state, or federal public office. If you serve as a public official, you should keep your role as a Graco employee and as a public official separate. Additionally, a supervisor or other employee must not attempt to exert undue influence over an employee's actions in that employee's role as a candidate or public official.

Full-time and part-time employees and those on leave serving as public officials should:

• make decisions as a public official based solely on the merits of issues;
• adhere strictly to the applicable laws and reporting regulations governing the proper conduct for candidates or public officials;
• avoid any conflicts of interest; and
• not speak for or act on behalf of Graco while carrying out responsibilities as a public official.

Political Contributions

Graco's resources shall not be used to support political parties or candidates. Individual employees are encouraged to support their own parties and candidates, but they must do so on their own time and with their own funds. If a planned contribution could in any way be looked upon as involving Graco funds, property or services, call the Legal Department.

Business Information

The following Guidelines are designed to ensure adequate protection and proper management of Graco's business information.

Proprietary Information and Nondisclosure

Information, ideas, and intellectual property are valuable Graco assets. Confidential information pertaining to competitive position and strategy, as well as personal information, must be protected from misuse. Such information includes manufacturing methods, information related to customers, business strategy, salary information, and trade secrets. Such information will be distributed only to those having a need to know such information to meet their job responsibilities. Employees, officers and directors shall maintain the confidentiality of all such information and disclose it only when legally mandated.

Accuracy of Reports and Accounting Records

Graco management has the responsibility to fairly and accurately report financial results to the Company's shareholders, banks and creditors. Graco management is also bound by legal requirements for recording and reporting information according to accounting and financial standards, such as the Financial Accounting Standards Board and the Internal Revenue Service. As a publicly-held company whose stock trades on the New York Stock Exchange, Graco is also subject to the requirements of the Securities and Exchange Commission, which regulates the format, content and timeliness of financial and business reports. Graco must also meet certain government requirements regarding the financial results of its employee benefit plans.

Accurate and timely financial data are critical to management and the Board of Directors. Graco policy prohibits the existence of any undisclosed or unreported funds, receipts or disbursements. All transactions related to the operations of the Company must be properly and promptly recorded and reported. Significant fines, penalties and other legal consequences may arise if any such information is intentionally misleading, concealed or otherwise improperly or inaccurately recorded and reported.

Cooperation with Internal and Outside Auditors

Every Graco employee will cooperate fully with both our internal auditors and Graco's independent public accountants in the performance of their duties. Cooperation includes promptly providing full and complete information in response to any request and being open, honest and candid with the auditors.

Disclosure of Information; Compliance with Securities Laws

Graco complies with all federal, state and local securities laws and regulations. Federal and state securities laws require the accurate and timely reporting of material information relating to Graco's business and financial results and condition. They also forbid people from trading securities based on knowledge of material non-public information.

Full and Accurate Reporting and Disclosure

All of Graco's disclosures required under state and federal securities laws or the requirements of the New York Stock Exchange, and all of Graco's public communications, shall be full, fair, accurate, timely, understandable and not misleading.

Non-Public Information

Any employee who becomes aware of material non-public information related to Graco or firms with which Graco is negotiating or competing may not:

• buy or sell shares or other securities of Graco or these firms; or
• disclose this information to anyone outside the Company until the information has been disclosed to the public and the securities markets have had an adequate chance to absorb it.

Any information that an investor might consider important in deciding whether to buy, sell or hold securities is considered material. Examples of material information include:

• financial results;
• financial forecasts;
• changes in dividends;
• possible mergers, acquisitions, and joint ventures;
• other purchases and sales of companies;
• investments in companies;
• obtaining or losing important contracts; and
• important product developments, major litigation developments, major management changes and major changes in business direction.

Insiders

Graco will comply with the securities laws regulating trading in Company stock by Company "insiders". Graco officers, directors and other employees who are considered "insiders" for purposes of the securities laws will follow guidelines for insider trading periodically issued by the Legal Department, and will not buy, sell or otherwise engage in any transaction in Graco stock without prior consultation with the Vice President and General Counsel.