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Item 1.01.
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Entry into a Material Definitive Agreement.
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On January 29, 2020, Graco Inc. (the “Company”) entered into a Master Note Agreement (the “Note Agreement”) with NYL Investors LLC (“New York Life”) setting forth certain terms on which the Company may issue, and affiliates of New York Life (the “Purchasers”) may purchase, up to $200 million of the Company’s senior notes (the “Shelf Notes”).
No Shelf Notes have been issued in connection with execution of the Note Agreement. The Company may request that the Purchasers purchase Shelf Notes from time to time on or before January 29, 2023. The Purchasers may accept the Company’s request and purchase such Shelf Notes, subject to the Company’s satisfaction of certain conditions set forth in the Note Agreement, including, without limitation, payment of an issuance fee to New York Life. Nothing in the Note Agreement obligates the Company to issue or any Purchaser to purchase any Shelf Notes.
Shelf Notes may bear interest, to be determined at the time of issuance of such Shelf Notes, at a fixed rate or a floating rate at the option of the Company, provided that the maximum aggregate principal amount of Shelf Notes bearing interest at a floating rate at any one time outstanding may not exceed $100 million.
The interest payment period and maturity applicable to a series of Shelf Notes is to be set forth in the Shelf Notes. Shelf Notes may be subject to required prepayments, as determined at the time of issuance. The Company may make optional prepayments of the Shelf Notes, subject to certain limitations and the requirement to pay an additional yield-maintenance amount, prepayment premium, and breakage amount (if any) in connection therewith. Upon a change of control, the holders of the Shelf Notes have the right to require the Company to prepay the Shelf Notes, including an additional yield-maintenance amount.
The Company is restricted in its borrowings and in general under the Note Agreement by certain financial covenants. The Company is required to maintain a cash flow leverage ratio of not more than 3.50 to 1.00 as of the end of any fiscal quarter of the Company (unless a permitted acquisition for which the purchase consideration equals or exceeds $200 million has been consummated during the period of the four quarters ending with such fiscal quarter, in which case, not more than 4.00 to 1.00, subject to certain requirements) and an interest coverage ratio of not less than 3.00 to 1.00 for any period of four consecutive fiscal quarters ending on the last day of any fiscal quarter of the Company (unless a permitted acquisition for which the purchase consideration equals or exceeds $200 million has been consummated during the period of the four quarters ending with such fiscal quarter, in which case, not less than 2.50 to 1.00, subject to certain exceptions). The Note Agreement also contains customary representations, warranties and covenants applicable to the Company and its subsidiaries. The Note Agreement includes customary default provisions that include a default for the Company’s default on other debt exceeding $25 million. In the event that the Company refinances its existing senior credit facility and the financial covenants or the event of default for defaults on other debt are more restrictive on the Company than the existing senior credit facility, the Note Agreement shall be amended automatically to include such covenant or default. If an event of default occurs, all outstanding obligations may become immediately due and payable.
The foregoing description of the Note Agreement and the Shelf Notes does not purport to be complete and is qualified in its entirety by reference to such documents, forms of which are filed as Exhibit 10.1 hereto and are incorporated by reference in this Current Report on Form 8-K.