Exhibit 10.1

June 26, 2014

Graco Inc.

88 11th Avenue NE

Minneapolis, Minnesota 55413

Re:      Amendment No. 2 to Note Agreement

Ladies and Gentlemen:

Reference is made to that certain Note Agreement, dated as of March 11, 2011 (as
amended by the Amendment and Restatement of Amendment No. 1 to Note Agreement,
dated March 27, 2012, the “Note Agreement”), between Graco Inc., a Minnesota
corporation (the “Company”), on the one hand, and The Prudential Insurance
Company of America, Gibraltar Life Insurance Co., Ltd., The Prudential Life
Insurance Company, Ltd., Forethought Life Insurance Company, RGA Reinsurance
Company, MTL Insurance Company and Zurich American Insurance Company, on the
other hand. Capitalized terms used herein and not otherwise defined herein shall
have the meanings assigned to such terms in the Note Agreement.

The Company has requested certain amendments to the Note Agreement set forth
below. Subject to the terms and conditions hereof, the undersigned holders of
the Notes are willing to agree to such request. Accordingly, and in accordance
with the provisions of paragraph 11C of the Note Agreement, the parties hereto
agree as follows:

SECTION 1.  Amendments to the Note Agreement.  Effective upon the Effective Date
(as defined in Section 2 below), the parties hereto agree that the Note
Agreement is amended as follows:

1.1.      Clause (xiii) of paragraph 7A of the Note Agreement is amended in its
entirety to read as follows:

“(xiii)  occurrence of any ERISA Event that alone or together with any other
ERISA Events that have occurred, could reasonably be expected to result in a
Material Adverse Effect or the imposition of a Lien under Title IV of ERISA; or”

1.2.      Clause (i) of paragraph 6I of the Note Agreement is amended in its
entirety to read as follows:

“(i)      Investments outstanding on the Second Amendment Effective Date and
listed on Schedule 6I.”

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1.3.      Paragraph 10B of the Note Agreement is hereby amended by amending and
restating, or inserting in the appropriate alphabetical sequence, as the case
may be, the following definitions:

“EBITDA” shall mean, for any period of determination, the consolidated net
income of the Company and its Subsidiaries, plus, to the extent subtracted in
determining consolidated net income and without duplication, (i) Interest
Expense, (ii) depreciation, (iii) amortization, (iv) income tax expense,
(v) extraordinary, non-operating or noncash charges and expenses (including but
not limited to non-cash stock compensation expense, non-cash pension expense,
workforce reduction or other restructuring charges, and transaction costs, fees
and charges incurred in connection with the acquisition of any substantial
portion of the Ownership Interests or assets of, or a line of business or
division of, another Person, including any merger or consolidation with such
other Person), minus (a) the aggregate amount of extraordinary, non-operating or
non-cash gains and income (including, without limitation, extraordinary or
nonrecurring gains, gains from the discontinuance of operations and gains
arising from the sale of assets other than inventory) and (b) required cash
contributions to pension plans, all as determined in accordance with GAAP. For
purposes of calculating EBITDA, with respect to any period of determination,
(i) Permitted Acquisitions that have been made by the Company and its
Subsidiaries, including through mergers or consolidations and including any
related financing transactions, during the period of determination shall be
deemed to have occurred on the first day of the period of determination;
provided that only the actual historical results of operations of the Persons so
acquired, without adjustment for pro forma expense savings or revenue increases,
shall be used for such calculation; and provided, further, that the EBITDA of
the Person so acquired attributable to discontinued operations, as determined in
accordance with GAAP, and operations or businesses disposed of prior to the end
of such period of determination, shall be excluded, and (ii) dispositions that
have been made by the Company and its Subsidiaries during the period of
determination shall be deemed to have occurred on the first day of the period of
determination; provided that the EBITDA for such period shall be reduced by an
amount equal to the EBITDA (if positive) attributable to the property that is
the subject of such disposition for such period or increased by an amount equal
to the EBITDA (if negative) attributable thereto for such period.

“ERISA Event” shall mean one of the following that, alone or together with any
other event described in clauses (i) through (vii) that have occurred, could
reasonably be expected to result in a Material Adverse Effect or the imposition
of a Lien under Title IV of ERISA: (i) the institution by the Company or any
ERISA Affiliate of steps to terminate any Plan if in order to effectuate such
termination, the Company or any ERISA Affiliate would be required to make a
contribution to such Plan, or would incur a liability or obligation to such
Plan, if such contribution or such liability or obligation would constitute a
Material Adverse Effect, (ii) the institution by the PBGC of steps to terminate
any Plan, (iii) the Company or any ERISA Affiliate fails to make a contribution
payment to a Plan on or before the applicable due date which could result in the
imposition of

 

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a Lien under Section 430(k) of the Code or Section 303(k) of ERISA, (iv) the
occurrence of any Reportable Event, (v) the failure of any Plan to satisfy the
“minimum funding standard”, as defined in Section 412(a) of the Code or
Section 302(a) of ERISA for a plan year, whether or not waived, (vi) the filing
pursuant to Section 412(c) of the Code or Section 302(c) of ERISA of an
application for a waiver of the minimum funding standard with respect to any
Plan, or (vii) the incurrence by the Company or any ERISA Affiliates of any
withdrawal liability under ERISA, or the receipt by the Company or any ERISA
Affiliate of any notice that a multiemployer plan is, or is expected to be,
insolvent or in reorganization, within the meaning of Title IV of ERISA.

“Indebtedness” shall mean, with respect to any Person at the time of any
determination, without duplication: (i) all obligations of such Person for
borrowed money, (ii) all obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments, (iii) all obligations of such
Person upon which interest charges are customarily paid or accrued, (iv) all
obligations of such Person under conditional sale or other title retention
agreements relating to property purchased by such Person, (v) all obligations of
such Person issued or assumed as the deferred purchase price of property or
services, except trade accounts payable and accrued expenses arising in the
ordinary course of business and except earn-outs and similar obligations,
(vi) all Indebtedness of others secured by any Lien on property owned or
acquired by such Person, whether or not the obligations secured thereby have
been assumed, (vii) all Capitalized Lease Obligations of such Person, (viii) all
Rate Hedging Obligations of such Person, (ix) all obligations of such Person,
actual or contingent, as an account party in respect of letters of credit or
bankers’ acceptances, except for letters of credit or bankers’ acceptances
supporting the purchase or sale of goods in the ordinary course of business,
(x) all Indebtedness of any partnership or joint venture as to which such Person
is or may become personally liable, (xi) all obligations of such Person under
any Ownership Interests issued by such Person which cease to be considered
Ownership Interests in such Person, and (1) all Contingent Obligations (except
for letters of credit, bankers’ acceptances, performance bonds and similar
instruments supporting the purchase or sale of goods in the ordinary course of
business) of such Person. Non-recourse Indebtedness of such Person shall be
deemed Indebtedness, but only to the extent of the lower of the book value of
such Indebtedness or the fair market value of the property securing such
Indebtedness. In no event shall obligations under operating leases (as
determined by GAAP as in effect on the date hereof, without regard to any change
to FASB ASC 840) be deemed Indebtedness.

  “Second Amendment Effective Date” shall mean the “Effective Date”, as defined
in Amendment No. 2 to this Agreement.

1.4.      Schedules 6I and 8A(1) to the Note Agreement are replaced by Schedules
6I and 8A(1) attached to this letter agreement.

 

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SECTION 2. Effectiveness.  The amendments in Section 1 of this letter agreement
shall become effective on the date (the “Effective Date”) that each of the
following conditions has been satisfied:

2.1.      Documents.    Each holder of a Note shall have received original
counterparts of this letter agreement executed by the holders of the Notes, the
Company and each Guarantor.

2.2.      Credit Agreement Amendment.  Each holder of a Note shall have received
copies of an executed amendment to or restatement of the Credit Agreement in
form and substance satisfactory to each holder of a Note and such amendment or
restatement shall be in full force and effect.

2.3.      Representations.    All representations set forth in Section 3 shall
be true and correct as of the Effective Date, except for such representations
and warranties that speak of an earlier date, in which case such representations
and warranties shall be true and correct as of such earlier date.

2.4.      Proceedings.    All corporate and other proceedings taken or to be
taken in connection with the transactions contemplated by this letter agreement
shall be satisfactory to each holder of a Note and its counsel, and each holder
of a Note shall have received all such counterpart originals or certified or
other copies of such documents as they may reasonably request.

SECTION 3. Representations and Warranties.      The Company represents and
warrants to each holder of Note that (i) the execution and delivery of this
letter agreement has been duly authorized by all necessary corporate action on
behalf of the Company and each Guarantor, this letter agreement has been
executed and delivered by a duly authorized officer of the Company and each
Guarantor, and all necessary or required consents to and approvals of this
letter have been obtained and are in full force and effect, and (ii) immediately
before and after giving effect to the amendments to the Note Agreement in
Section 1 hereof, (a) each representation and warranty set forth in paragraph 8
of the Note Agreement is true and correct other than those representations and
warranties that speak as of a certain date, in which case such representation
and warranty was true and correct as of such earlier date and (b) no Event of
Default or Default exists.

SECTION 4. Reference to and Effect on Note Agreement.  Upon the effectiveness of
the amendments made in this letter agreement, each reference to the Note
Agreement in any other document, instrument or agreement shall mean and be a
reference to the Note Agreement as modified by this letter agreement. Except as
specifically set forth in Section 1 hereof, the Note Agreement and the Notes
shall remain in full force and effect and are hereby ratified and confirmed in
all respects. Except as specifically stated in Section 1 of this letter
agreement, the execution, delivery and effectiveness of this letter agreement
shall not (a) amend the Note Agreement, any Note or any other Transaction
Document, (b) operate as a waiver of any right, power or remedy of the holder of
any Note, or (c) constitute a waiver of, or consent to any departure from, any
provision of the Note Agreement, any Note or any of the other Transaction
Documents at any time. The execution, delivery and effectiveness of this letter
agreement shall not be construed as a course of dealing or other implication
that any holder of Notes has agreed

 

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to or is prepared to grant any amendment to, waiver of or consent under the Note
Agreement, any Note or any other Transaction Document in the future, whether or
not under similar circumstances.

SECTION 5. Expenses.  The Company hereby confirms its obligations under the Note
Agreement, whether or not the transactions hereby contemplated are consummated,
to pay, promptly after request by the holders of the Notes, all reasonable
out-of-pocket costs and expenses, including attorneys’ fees and expenses,
incurred by such holders in connection with this letter agreement or the
transactions contemplated hereby, in enforcing any rights under this letter
agreement, or in responding to any subpoena or other legal process or informal
investigative demand issued in connection with this letter agreement or the
transactions contemplated hereby. The obligations of the Company under this
Section 5 shall survive transfer by any holder of any Note and payment of any
Note.

SECTION 6. Reaffirmation.      Each Guarantor hereby consents to the foregoing
amendments to the Note Agreement and hereby ratifies and reaffirms all of its
payment and performance obligations, contingent or otherwise, under the Guaranty
Agreement after giving effect to such amendments. Each Guarantor hereby
acknowledges that, notwithstanding the foregoing amendments, that the Guaranty
Agreement remains in full force and effect and is hereby ratified and confirmed.
Without limiting the generality of the foregoing, each Guarantor agrees and
confirms that the Guaranty Agreement continues to guaranty the obligations
arising under or in connection with the Note Agreement, as the same may be
amended by this letter agreement.

SECTION 7. Governing Law.        THIS LETTER AGREEMENT SHALL BE CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF ILLINOIS, WITHOUT
REGARD TO PRINCIPLES OF CONFLICT OF LAWS OF SUCH STATE WHICH WOULD OTHERWISE
CAUSE THIS LETTER TO BE CONSTRUED OR ENFORCED OTHER THAN IN ACCORDANCE WITH THE
LAWS OF THE STATE OF ILLINOIS.

SECTION 8. Counterparts; Section Titles.  This letter agreement may be executed
in any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed to be
an original and all of which taken together shall constitute but one and the
same instrument. Delivery of an executed counterpart of a signature page to this
letter agreement by facsimile or electronic transmission shall be effective as
delivery of a manually executed counterpart of this letter agreement. The
section titles contained in this letter agreement are and shall be without
substance, meaning or content of any kind whatsoever and are not a part of the
agreement between the parties hereto.

 

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Very truly yours,   THE PRUDENTIAL INSURANCE COMPANY OF AMERICA By:  

/s/ David Levine

    Vice President  

GIBRALTAR LIFE INSURANCE CO., LTD. THE PRUDENTIAL LIFE INSURANCE COMPANY,

  LTD.

By:   Prudential Investment Management (Japan), Inc.,     as Investment Manager
By:   Prudential Investment Management, Inc.,   as Sub-Adviser By:  

/s/ David Levine

    Vice President  

FORETHOUGHT LIFE INSURANCE COMPANY

RGA REINSURANCE COMPANY

MTL INSURANCE COMPANY ZURICH AMERICAN INSURANCE COMPANY

By:   Prudential Private Placement Investors, L.P.   (as Investment Advisor) By:
  Prudential Private Placement Investors, Inc.   (as its General Partner) By:  

/s/ David Levine

    Vice President  

 

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Accepted and Agreed to: GRACO INC. By:  

/s/ James A. Graner

  Name:   James A. Graner Title:   Chief Financial Officer GRACO MINNESOTA INC.
By:  

/s/ James A. Graner

  Name:   James A. Graner Title:   Chief Financial Officer and Treasurer GRACO
OHIO INC. By:  

/s/ James A. Graner

  Name:   James A. Graner Title:   Chief Financial Officer and Treasurer

GEMA USA INC. (formerly known as Graco

Holdings Inc.)

By:  

/s/ James A. Graner

  Name:   James A. Graner Title:   President

 

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Schedule 6I

Investments (Paragraph 6I)

Investment in Corporate Owned Life Insurance (COLI) through establishment of a
Rabbi (Grantor) Trust (“Trust”) with Wilmington Trust on June 27, 2007.

The Trust is intended to provide informal funding for the Company’s deferred
compensation and executive excess benefit retirement plans. The funding schedule
anticipates the payment of a premium of $1,498,626 each year for a five year
period beginning in 2007. An additional premium payment in the amount of
$1,498,626 was approved and made in November 2013.

 

6I-1

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Schedule 8A(1)

Subsidiaries (Paragraph 8A(1))

 

Subsidiary   Jurisdiction  

Number of

Shares

  Percentage Owned   Material
Subsidiary?     Part of Hold
Separate Business? DeVilbiss Equipamentos para Pintura Ltda.   Brazil  
4,417,465   99.9999773626% by Graco do Brasil Ltda.     Yes                    
    0.0000226374% by the Company         DeVilbiss Europa Unterstützungskasse
GmbH     Germany   50,000   100% by Finishing Brands Germany GmbH       Yes
DeVilbiss Ransburg de México, S. de R.L. de C.V.   Mexico   1 Series A, par
value 400 pesos   100% by Gema USA Inc.     Yes                    

1 Series B, par value 4,999,600  

pesos

  100% by the Company         Ecoquip Inc.   Virginia   100   100% by the
Company         Finishing Brands Germany GmbH   Germany   531,950   100% by the
Company       Yes Finishing Brands Holdings Inc.   Minnesota   100   100% by the
Company       Yes Finishing Brands UK Limited   United Kingdom   2   100% by
Graco Limited       Yes Finishing Brands (Shanghai) Co., Ltd.   P.R. China  
N/A**   100% by the Company       Yes Fluid Automation, Inc.   Michigan   100  
100% by Graco Ohio Inc.         Gema Europe s.r.l.   Italy   51,000   100% owned
by Graco International Holdings S.à r.l.         Gema México Powder Finishing S.
de R.L. de C.V.   Mexico   13,103,000   99.9999923682% by Gema USA Inc.        
                      0.0000076318% by the Company         Gema Switzerland
GmbH*   Switzerland   2,500,000   100% owned by Graco International Holdings
S.à r.l.         Gema USA Inc.   Minnesota   100   100% by the Company   Yes    
Gema (Shanghai) Co., Ltd.   P.R. China   N/A**   100% by Graco BVBA         GFEC
Uruguay S.A.   Uruguay   250,000   100% owned by Graco Global Holdings S.à r.l.
        GG Manufacturing s.r.l.   Romania   10,000   99.99% by Gema Switzerland
GmbH                               0.01% by Gema Europe s.r.l.         Graco
Australia Pty Ltd.   Australia   248   100% owned by Graco Global Holdings S.à
r.l.         Graco BVBA   Belguim   1,008,157   99.9999008091% by Graco
International        

 

8A(1)-1

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            Holdings S.à r.l.                                 0.0000991909% by
Graco Global Holdings S.à r.l.         Graco Canada Inc.   Canada   10,000  
100% owned by Graco Global Holdings S.à r.l.         Graco Chile SpA   Chile  
100   100% by the Company         Graco Colombia S.A.S.   Colombia   20,000  
100% by the Company         Graco do Brasil Ltda.   Brazil   26,006,536  
99.9999961548% by Graco Global Holdings S.à r.l.                              
0.0000038452% by Graco International Holdings S.à r.l.         Graco Fluid
Equipment (Shanghai) Co., Ltd.   People’s Republic of China   N/A**   100% by
the Company         Graco Fluid Equipment (Suzhou) Co., Ltd.   People’s Republic
of China   N/A**   100% by Graco Minnesota Inc.         Graco Global Holdings
S.à r.l.   Luxembourg   20,000   100% by the Company   Yes     Graco GmbH  
Germany   500,000   100% owned by Graco International Holdings S.à r.l.        
Graco Hong Kong Ltd.   People’s Republic of China (Special Adm Region)   2,000  
100% owned by Graco Global Holdings S.à r.l.         Graco International Holding
S.à r.l.   Luxembourg   17,000   100% owned by Graco Global Holdings S.à r.l.  
      Graco K.K.   Japan   660,000   100% owned by Graco Global Holdings S.à
r.l.         Graco Korea Inc.   Korea   125,500   100% owned by Graco Global
Holdings S.à r.l.         Graco Limited   United Kingdom   100,001   100% owned
by Graco International Holdings S.à r.l.         Graco Minnesota Inc.  
Minnesota   100   100% by the Company   Yes     Graco Ohio Inc.   Ohio  

95 Class A

9,405 Class B

  100% by the Company   Yes     Graco S.A.S.   France   24,499   100% owned by
Graco International Holdings S.à r.l.         Graco Trading (Suzhou) Co., Ltd.  
People’s Republic of China   N/A**   100% by Graco Minnesota Inc.        

Gusmer Sudamerica S.A.

 

 

Argentina

 

 

12,000*

 

 

100% by the Company*

 

        Q.E.D. Environmental Systems, Inc.   Michigan   500   100% by the
Company         Ransburg Industrial Finishing K.K.   Japan/Delaware     1,463  
100% by the Company       Yes

 

8A(1)-2

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Rasgory S.A.   Uruguay   10,800   100% owned by Graco Global Holdings S.à r.l.  
      Surfaces & Finitions S.A.S.   France   6,250   100% by the Company      
Yes

 

* Shares held by two executive officers of the Company to satisfy the
requirements of local law.\

**No shares are issued.

 

8A(1)-3