Document:

Exhibit

Exhibit 4.1

ILLINOIS TOOL WORKS INC.

Officers’ Certificate Pursuant to
Sections 2.01 and 2.04 of the Indenture

Michael M. Larsen, Senior Vice President & Chief Financial Officer, and Randall J. Scheuneman, Vice President & Chief Accounting Officer, of Illinois Tool Works Inc., a Delaware corporation (the “Company”), each certify, pursuant to Sections 2.01 and 2.04 of the Indenture dated as of November 1, 1986, as supplemented by the First Supplemental Indenture dated as of May 1, 1990 (the “Indenture”), between the Company and The Bank of New York Mellon Trust Company, N.A., as successor Trustee, that, pursuant to authority granted by the Board of Directors of the Company to the undersigned and certain other officers of the Company in resolutions duly adopted on August 7, 2015, the terms and form of the Company’s 2.650% Notes due 2026 (the “Notes”) shall be as set forth below.  Capitalized terms not defined herein shall have the meanings ascribed to them in the Indenture.

1.    The Notes shall be designated as “2.650% Notes due 2026.” 

2.    The aggregate principal amount at Stated Maturity of the Notes that may be authenticated and delivered under the Indenture (not including Notes authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of other Notes pursuant to Sections 2.06, 2.07, 2.08, 3.02 or 10.04 of the Indenture) initially shall be not more than $1,000,000,000.  The Company shall have the right from time to time, without the consent of the existing holders of Notes, to issue additional notes with the same terms and conditions and with the same CUSIP number as the Notes, except for the issue date, issue price and the first payment of interest thereon (“Additional Notes”).  Additional Notes will be consolidated with and will form a single series with the Notes.

3.    Each Note shall bear interest from and including the most recent Interest Payment Date to which interest on such Note (or any predecessor Note) has been paid or duly made available for payment, or if no interest has been paid, from and including November 7, 2016, at the rate of 2.650% per annum until the principal thereof is paid or made available for payment.  Interest shall be payable on each Interest Payment Date and at Stated Maturity.  Interest payments shall be in the amount of interest accrued to, but excluding, the relevant Interest Payment Date or Stated Maturity, as applicable.  Interest shall be payable to the person in whose name a Note (or any predecessor Note) is registered at the close of business on the Record Date next preceding each Interest Payment Date; provided, however, that interest payable at Stated Maturity shall be payable to the person to whom principal shall be payable.  

The Interest Payment Dates for the Notes shall be May 15 and November 15 of each year and at Stated Maturity, and the Record Dates for interest payable on the Notes shall be the close of business on May 1 and November 1 next preceding the May 15 and November 15 Interest 

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Payment Dates, respectively.  Interest on the Notes shall be computed on the basis of a 360-day year of twelve 30-day months.

4.    The Stated Maturity of the Notes shall be November 15, 2026.

5.    The Notes shall be substantially in the form attached to this Certificate as Exhibit A.

6.    The Notes may be redeemed in whole or in part from time to time at the option of the Company before the applicable date of Stated Maturity at the price and on the terms set forth in the form of Note attached to this Certificate as Exhibit A.

7.    The Notes shall be sold by the Company to J.P. Morgan Securities LLC and Citigroup Global Markets Inc., acting as representatives of the several underwriters (collectively, the “Underwriters”), pursuant to the Underwriting Agreement, dated October 31, 2016 with the Company, at a price equal to 99.235% of the principal amount of the Notes. The initial public offering price of the Notes shall be 99.685% of the principal amount thereof for the Notes, plus accrued interest, if any, from the date of original issue.

8.    The Notes shall not be entitled to any sinking, purchase or analogous fund, and the Company shall not be obligated to redeem or purchase the Notes at the option of any Holder thereof.

9.    The Notes shall be issued in minimum denominations of $2,000 and integral multiples of $1,000 in excess thereof.

10.    Payments of principal of and any premium or interest on the Notes, when payable, shall be made in immediately available funds at the Corporate Trust Office in Chicago, Illinois, or in New York, New York.  “Corporate Trust Office” shall mean the principal office of the Trustee in Chicago, Illinois or New York, New York, at which at any particular time its corporate trust business shall be administered.  On the date of this Certificate, the Corporate Trust Office is located at 2 N. LaSalle Street, Suite 1020, Chicago IL 60602, Attention:  Richard Tarnas and 101 Barclay Street, Floor 7W, New York, New York 10286, Attention:  Corporate Trust Administration.  Payments of interest on each Note (other than interest payable at Stated Maturity) shall be made by check mailed to the registered address of the person entitled thereto, unless such person and the Company shall have agreed that such payment will be made by wire transfer in immediately available funds.  Notwithstanding the foregoing, if the registered owner of the Notes is The Depository Trust Company (“DTC”) or its nominee, payments of principal and interest shall be made in accordance with the requirements of DTC pursuant to a Letter of Representations between DTC and the Company.

11.    So long as any of the Notes remain outstanding, the Company shall maintain an office and agency in Chicago, Illinois and any other location the Company may designate, where the Notes may be presented for registration of transfer and exchange, for payment, and where notices and demands to or upon the Company in respect of such Notes or the Indenture may be 

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served.  The office of the Trustee in such location or locations shall be such office of the Company, and the Trustee shall be such agent for the Company for the foregoing purposes.

12.    Section 12.02 of the Indenture shall be fully applicable to the Notes.  

13.    The Notes shall be issued as registered Notes, without coupons, in the form of one or more definitive Global Securities.  The Depositary for the Notes initially shall be DTC.  So long as the Notes are represented by such Global Securities in accordance with the Indenture, beneficial owners of interests in such Global Securities may not exchange such interests for Definitive Securities (as defined in Paragraph 15 of this Certificate) except as otherwise expressly provided in the Indenture.

14.    The aggregate principal amount of each Global Security may from time to time be increased or decreased by adjustments made on the records of the Note Custodian (as defined in Paragraph 15 of this Certificate), as provided herein and in the Indenture.

15.    Definitions. Certain capitalized terms used in this Certificate and not defined in the Indenture have the following meanings:

“Definitive Securities” means any Security issued in fully-registered certificated form pursuant to Section 2.03 of the Indenture (other than a Global Security), which shall be substantially in the form of Exhibit A, with appropriate legends as specified therein.

“Note Custodian” means the custodian with respect to any Global Note appointed by the Depositary, or any successor Person thereto, and shall initially be the Trustee. 

“Securities Act” means the Securities Act of 1933, as amended.

Each of the undersigned certifies that there is no Event of Default existing on the date hereof, and no event which with notice or lapse of time or both could become an Event of Default has occurred and is continuing on the date hereof.

Each of the undersigned states that all conditions precedent provided for in the Indenture relating to delivery of the executed Notes to the Trustee for authentication and delivery have been complied with.

Each of the undersigned further states that he has read the provisions of the Indenture relating to the issuance of the Notes and the definitions relating thereto; that the statements made in this Certificate are based upon an examination of the provisions of the Indenture and upon the relevant books and records of the Company; that he has, in his opinion, made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not the conditions included in such provisions have been complied with; and that, in his opinion, such conditions have been complied with.

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[Signature Page Follows]

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IN WITNESS WHEREOF, the undersigned have executed this Certificate as of this 7th day of November, 2016.

By:       /s/ Michael M. Larsen              
Name:    Michael M. Larsen 
Title:    Senior Vice President & 
Chief Financial Officer

By:       /s/ Randall J. Scheuneman
Name:    Randall J. Scheuneman
Title:    Vice President &  
Chief Accounting Officer

(Signature Page to Officers’ Certificate Pursuant to Sections 2.01 and 2.04 of the Indenture)

EXHIBIT A

FORM OF NOTE

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THIS IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE REFERRED TO HEREINAFTER. 
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION (“DTC”), NEW YORK, NEW YORK, TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC, TO DTC OR TO A SUCCESSOR DEPOSITARY OR SUCH SUCCESSOR’S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE INDENTURE REFERRED TO IN THE ADDITIONAL TERMS ATTACHED HERETO.

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ILLINOIS TOOL WORKS INC.
2.650% NOTE DUE 2026

Principal Amount $500,000,000
as revised by the Schedule of Increases and 
Decreases in Global Security attached hereto

No. 1-[  ]    November 7, 2016
CUSIP NO. 452308AX7
ISIN NO. US452308AX78

ILLINOIS TOOL WORKS INC., a corporation incorporated under the laws of the State of Delaware (hereinafter called the “Company”), for value received, hereby promises to pay to CEDE & CO., or its registered assigns, the principal sum of FIVE HUNDRED MILLION DOLLARS ($500,000,000) subject to adjustment from time to time as reflected on the Schedule of Increases and Decreases in Global Security attached hereto on November 15, 2026 at the office or agency of the Company in Chicago, Illinois or New York, New York or such other location or locations as may be provided for pursuant to the Indenture referred to herein, in such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts, and to pay interest on said principal sum, in arrears, from and including the most recent Interest Payment Date (as defined below) to which interest has been paid or duly provided for (or if no interest has been paid, from and including November 7, 2016), to, but excluding, May 15 and November 15 of each year (each, an “Interest Payment Date”), beginning on May 15, 2017, at the rate of 2.650% per annum, at said offices or agencies, in like coin or currency, to but excluding the date on which said principal sum is paid in full.  The Record Date with respect to each Interest Payment Date shall be the close of business on May 1 or November 1 (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date.  The interest payable on any Interest Payment Date will, subject to certain exceptions provided in the Indenture referred to herein, be paid by check mailed to the registered address of the person entitled thereto, unless such person and the Company shall have agreed that such payment will be made by wire transfer in immediately available funds.  Notwithstanding the foregoing, if the registered owner of the Notes is The Depository Trust Company (“DTC”) or its nominee, payments of principal and interest shall be made in accordance with the requirements of DTC pursuant to a Letter of Representations between DTC and the Company.

The further provisions of this Security are continued in an attachment hereto and such continued provisions shall for all purposes have the same effect as though fully set forth at this place.

This Security shall not be valid or become obligatory for any purpose until the certificate of authentication hereon shall have been signed manually by the Trustee under the Indenture referred to herein.
[signature page follows]

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IN WITNESS WHEREOF, ILLINOIS TOOL WORKS INC. has caused this Security to be manually signed by its duly authorized officers and its corporate seal to be affixed hereto.

ILLINOIS TOOL WORKS INC.

By: _______________________________
Name:  Michael M. Larsen 
Title:    Senior Vice President & 
Chief Financial Officer

[SEAL]

By: _______________________________
Name:    Randall J. Scheuneman
Title:   Vice President & Chief Accounting
Officer
 

By: _______________________________
Name:    Janet O. Love
Title:     Deputy General Counsel &
Assistant Secretary
 

[Signature Page to No. 1-[  ]Note]

TRUSTEE’S CERTIFICATE OF AUTHENTICATION

This is one of the Securities of the series designated herein issued under the within-mentioned Indenture.

THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A., as Trustee

Dated:  November 7, 2016    By: _______________________________
Authorized Signature

THE ADDITIONAL TERMS ATTACHED HERETO ARE INCORPORATED BY REFERENCE HEREIN AND DEEMED TO BE A PART HEREOF.

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ADDITIONAL TERMS OF
ILLINOIS TOOL WORKS INC.
2.650% NOTE DUE 2026

This Security is one of a duly authorized issue of the Securities of Illinois Tool Works Inc., a Delaware corporation (the “Company”), designated as its 2.650% Notes due 2026 (individually, a “Security” and collectively, the “Securities”), issued under and pursuant to an Indenture dated as of November 1, 1986 and supplemented by a First Supplemental Indenture dated as of May 1, 1990 (the “Indenture”), duly executed and delivered by the Company and The Bank of New York Mellon Trust Company, N.A., as successor trustee (the “Trustee”).  The terms of the Securities include those stated in the Indenture and in the Officers’ Certificate dated November 7, 2016 (the “Officers’ Certificate”) establishing certain terms of the Securities pursuant to the Indenture, those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (the “TIA”), and those set forth in this Security.  This Security is subject to all such terms, and Holders are referred to the Indenture, the Officers’ Certificate and the TIA for a statement of all such terms.  All terms used in this Security that are defined in the Indenture or in the Officers’ Certificate shall have the meanings assigned to them therein.  The Securities are unsecured general obligations of the Company.

The Securities are initially limited to the aggregate principal amount of One Billion Dollars ($1,000,000,000), as specified in the Officers’ Certificate.  The Company may from time to time, without the consent of the existing Holders of Securities, issue additional Securities with the same terms and conditions and with the same CUSIP number as the Securities, except for the issue date, issue price and the first payment of interest thereon.  Additional Securities so issued will be consolidated with and will form a single series with the Securities.

In case an Event of Default, as defined in the Indenture, relating to the Securities shall have occurred and be continuing, the principal hereof may be declared, and upon such declaration shall become, due and payable, in the manner, with the effect and subject to the provisions contained in the Indenture.  The Indenture provides that, prior to the declaration of maturity of the Securities upon the occurrence of an Event of Default relating to the Securities, the Holders of a majority in aggregate principal amount at Stated Maturity of the Securities at the time outstanding may on behalf of the Holders of all of the Securities waive any past default under the Indenture relating to the Securities and its consequences, except a default in the payment of the principal of and premium, if any, or interest on any of the Securities.  Any such consent or waiver by the Holder of this Security (unless revoked as provided in the Indenture) shall be conclusive and binding upon such Holder and upon all future Holders and owners of this Security and of any Security issued upon the registration of transfer hereof or in exchange or substitution herefor, irrespective of whether or not any notation of such consent or waiver is made upon this Security or such other Securities.

This Security may be redeemed at the Company’s option, in whole or in part, on any date that is prior to August 15, 2026 at a redemption price equal to the greater of (i) 100% of the principal amount of the Securities to be redeemed on the date of redemption or (ii) the sum of the present values of the Remaining Scheduled Payments of principal and interest on the Securities being redeemed on the date of redemption (exclusive of interest accrued to the date of redemption) 

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discounted to the date of redemption on a semiannual basis at the Treasury Rate (as defined below) plus 15 basis points, as determined by a Reference Treasury Dealer (as defined below), plus accrued and unpaid interest on the principal amount being redeemed to the date of redemption.  At any time on or after August 15, 2026, the Company may also redeem some or all of this Security at its option, at a redemption price equal to 100% of the principal amount of the Securities being redeemed on the date of redemption, plus accrued and unpaid interest on the principal amount being redeemed to the date of redemption.  Notwithstanding the foregoing, installments of interest on Securities that are due and payable on Interest Payment Dates falling on or prior to a date of redemption will be payable on the Interest Payment Date to the registered holder hereof as of the close of business on the relevant Record Date according to this Security and the Indenture.  The redemption price will be calculated on the basis of a 360-day year consisting of twelve 30-day months.

“Comparable Treasury Issue” means the United States Treasury security selected by the Reference Treasury Dealer as having a maturity comparable to the remaining term of the Securities to be redeemed that would be utilized, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities of comparable maturity to the remaining term of such Securities. 

“Comparable Treasury Price” means, with respect to any redemption date, (i) the average of the Reference Treasury Dealer Quotations for such redemption date, after excluding the highest and lowest such Reference Treasury Dealer Quotations, or (ii) if fewer than four such Reference Treasury Dealer Quotations are obtained, the average of all such quotations, or (iii) if only one Reference Treasury Dealer Quotation is received, such quotation. 

“Primary Treasury Dealer” means a primary United States government securities dealer in the United States.

“Reference Treasury Dealer” means (i) J.P. Morgan Securities LLC and Citigroup Global Markets Inc. (or their respective affiliates that are Primary Treasury Dealers) and their respective successors; provided, however, that if either of the foregoing shall cease to be a Primary Treasury Dealer, the Company will substitute therefor another Primary Treasury Dealer and (ii) any other Primary Treasury Dealer(s) (in any case not less than two) selected by the Company.

“Reference Treasury Dealer Quotations” means, with respect to each Reference Treasury Dealer and any redemption date, the average, as determined by the Company, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) quoted in writing to the Company by such Reference Treasury Dealer at 3:30 p.m., New York City time, on the third business day preceding such redemption date. 

“Remaining Scheduled Payments” means, with respect to each note to be redeemed, the remaining scheduled payments of the principal thereof and interest thereon that would be due after the related redemption date but for such redemption; provided, however, that, if such redemption date is not an interest payment date with respect to such note, the amount of the next succeeding scheduled interest payment thereon will be deemed to be reduced by the amount of interest accrued thereon to such redemption date. 

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“Treasury Rate” means, with respect to any redemption date, the rate per annum equal to the semiannual equivalent yield to maturity (on a day count basis) of the Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury Price for such redemption date. 

Notice of redemption will be mailed to holders of Securities to be redeemed by first-class mail at least 30 and not more than 60 days prior to the date fixed for redemption.  On and after the redemption date, interest will cease to accrue on the Securities or portions thereof called for redemption unless the Company defaults in payment of the redemption price.  If fewer than all of the Securities are to be redeemed, the Securities to be redeemed shall be selected in accordance with the policies and procedures of DTC; provided that in the case the Securities are held as definitive securities, the Trustee will select, not more than 60 days prior to the redemption date, the particular Securities or portions thereof for redemption from the outstanding Securities not previously called by such method as the Trustee deems fair and appropriate; provided further, however, that no Securities of a principal amount of $2,000 or less shall be redeemed in part. 

Except as otherwise specifically provided herein, the Securities may not be redeemed before November 15, 2026 (herein referred to as the “Stated Maturity”) and shall not be entitled to any sinking, purchase or analogous fund, nor shall the Company be obligated to redeem or purchase the Securities at the option of any Holder thereof.

The Indenture contains provisions permitting the Company and the Trustee, with the consent of the Holders of not less than a majority in aggregate principal amount at Stated Maturity of the Securities at the time outstanding, evidenced as provided in the Indenture, to execute supplemental indentures which, if they pertain specifically to the Securities, may add any provisions to or change in any manner or eliminate any of the provisions of the Indenture relating to the Securities or of any supplemental indenture relating to the Securities or modifying in any manner the rights of the Holders of the Securities; provided, however, that no such supplemental indenture shall (i) extend the Stated Maturity of any Security, or reduce the principal amount thereof, or reduce the rate or extend the time of payment of any interest thereon, or reduce any premium payable upon the redemption thereof, or change the currency in which any Security is payable, without the consent of the Holder of each Security so affected, or (ii) reduce the aforesaid majority in aggregate principal amount of Securities, the consent of the Holders of which is required for any such supplemental indenture relating to the Securities, without the consent of the Holders of all Securities then outstanding.  

The Company may terminate all of its obligations under the Securities and the Indenture as it relates to the Securities, with certain limited exceptions described in the Indenture, by (i) irrevocably depositing in trust with the Trustee money or Government Obligations (or any combination thereof) sufficient to pay principal of and any premium or interest on the Securities at Stated Maturity and (ii) complying with certain other conditions specified in the Indenture.  Alternatively, the Company may, upon the making of such deposit and the satisfaction of certain conditions specified in the Indenture, omit to comply with its covenants in the Indenture relating to creation of secured indebtedness (Section 4.05), sale and lease-back transactions (Section 4.06), and transactions involving a merger or consolidation of the Company into or with any other corporation or a sale, conveyance or lease of the property of the Company substantially as an 

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entirety to any other corporation or entity (Article Eleven), and such omission shall not be an Event of Default with respect to the Securities.

The Securities are issuable as registered Securities without coupons in denominations of $2,000 and any integral multiple of $1,000 in excess thereof.  At the office or agency to be maintained by the Company in Chicago, Illinois, New York, New York or at such other location or locations as may be provided for in the Indenture, and in the manner and subject to the limitations provided in the Indenture, Securities may be exchanged by the Holder thereof without charge except for any tax or other governmental charge imposed in respect thereof, for a like aggregate principal amount at Stated Maturity of Securities of other authorized denominations.

Subject to the limitations provided in the Indenture, the Officers’ Certificate and herein, this Security is transferable and the registration of the transfer hereof may be effected by the registered Holder hereof or by his attorney duly authorized in writing upon due presentment for registration of transfer at the office or agency of the Company in Chicago, Illinois, New York, New York or at such other location or locations as may be provided for in the Indenture, but only in the manner and subject to the limitations provided in the Indenture, the Officers’ Certificate and herein, without charge except for any tax or other governmental charge imposed in relation thereto.  Upon any such registration of transfer, a new Security or Securities of authorized denominations for a like aggregate principal amount at Stated Maturity will be issued to the transferee in exchange therefor.

Prior to due presentment for registration of transfer of this Security, the Company, the Trustee, any paying agent and the Security Registrar may deem and treat the registered Holder hereof as the absolute owner hereof (whether or not this Security shall be overdue and notwithstanding any notation of ownership or other writing hereon made by any person), for the purpose of receiving payment as herein provided and for all other purposes, and neither the Company nor the Trustee nor any paying agent nor any Security Registrar shall be affected by any notice to the contrary.

No recourse shall be had for the payment of the principal of or the interest on this Security, or for any claim based hereon, or otherwise in respect hereof, or based on or in respect of the Indenture or any indenture supplemental thereto, against any incorporator, stockholder, officer, director or employee, as such, past, present or future, of the Company or of any successor corporation, either directly or through the Company, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise, all such liability being, by the acceptance hereof and as a condition of and part of the consideration for the issue hereof, expressly waived and released.

The Indenture and this Security shall be governed by and construed in accordance with the laws of the State of Illinois.

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[FORM OF TRANSFER NOTICE]
 
FOR VALUE RECEIVED the undersigned registered holder hereby sell(s), assign(s) and transfer(s) unto
 
Insert Taxpayer Identification No.
 
                                                                                                      
 
Please print or typewrite name and address including zip code of assignee
 
                                                                                                      
 
the within Note and all rights thereunder, hereby irrevocably constituting and appointing                                                                      attorney to transfer said Note on the books of the Company with full power of substitution in the premises.
 
 
	
				
	Date:
	 
	 
	 

	 
	 
	NOTICE: The signature to this assignment must correspond with the name as written upon the face of the within-mentioned instrument in every particular, without alteration or any change whatsoever.

 
Signature must be guaranteed by a participant in a recognized signature guaranty medallion program or other signature guarantor acceptable to the Trustee.
 

SCHEDULE OF INCREASES OR DECREASES IN GLOBAL SECURITY
The following increases or decreases in this Global Security have been made:

	
					
	Date of Exchange
	Amount of decrease in Principal Amount of this Global Note
	Amount of increase in Principal Amount of this Global Note
	Principal Amount of this Global Note following such decrease or increase
	Signature of authorized signatory of Trustee or Note Custodian

	 
	 
	 
	 
	 

	 
	 
	 
	 
	 

C-7Exhibit 10.1

 

WAIVER AND AMENDMENT AGREEMENT

 

This Waiver and Amendment Agreement ("Agreement") is made and entered into as of September 14, 2016 (“Effective Date”), among RiceBran Technologies, a California corporation (“Borrower”), NutraCea, LLC (“NutraCea”), Rice Rx, LLC (“Rice”), Rice Science LLC (“Rice Science”), SRB-MERM, LLC (“MERM”), SRB-LC, LLC (“LC”), SRB-MT, LLC (“MT”), SRB-WS, LLC (“WS”) SRB-IP, LLC (“IP”), each of the foregoing a Delaware limited liability company, Healthy Natural, Inc., a Nevada corporation (“H&N”), The RiceX Company, a Delaware corporation, (“RiceX”) and RiceX Nutrients, Inc., a Montana corporation (“Nutrients,” and together with NutraCea, Rice, Rice Science, MERM, LC, MT, WS, IP, H&N and RiceX, each a  “Guarantor” and collectively, the “Guarantors”, and Borrower and Guarantors are collectively referred to as the “Grantors”) and Full Circle Capital Corporation, a Maryland corporation ("Agent" and a “Lender”).

Recitals:

	A.	
The Grantors, the Lender and the Agent are parties to that certain Loan, Guarantee and Security Agreement dated as of May 12, 2015 (as amended from time to time, including the amendments effected pursuant to a Forbearance and Amendment Agreement (“Forbearance Agreement”) dated October 1, 2015, a Waiver and Amendment Agreement (“Waiver Agreement”) dated February 12, 2016 and an Amendment Agreement (“Amendment Agreement”) dated June 22, 2016, the "Loan Agreement"), pursuant to which the Agent and Lender extended a secured lending facility to the Borrower.

	B.	
Grantors acknowledge that the Borrower has informed the Agent that it anticipates to be in Default under Section 6 and Items 21(a), (b), (c) and (f) of the Schedule to the Loan Agreement for failure to comply with (i) the Total Debt to Adjusted EBITDA covenant for the periods ending in the quarter ending September 30, 2016 and any periods thereafter that end before December 31, 2016 (all such periods, the “Applicable Periods”) (ii) the Senior Debt to Adjusted EBITDA covenant for the Applicable Periods, (iii) the Adjusted EBITDA to Fixed Charges covenant for the Applicable Periods, and (iv) Max Leverage Ratio for the Applicable Periods (the “Potential Defaults”).

	C.	
On May 12, 2015, Borrower issued to Lender and Agent a warrant to purchase 300,000 shares of Company common stock (“Warrant”), and the parties desire to reduce the per share exercise thereof to $1.60.

	D.	
Grantors have requested that Agent and Lender amend and waive certain provisions of the Loan Agreement in order to address the Potential Defaults as provided herein.

NOW, THEREFORE, intending to be legally bound, the parties hereto covenant and agree as follows:

Section 1.          Recitals.

 

1.1       The Recitals set forth above are hereby made a part of this Agreement as if fully set forth herein below.

Section 2.           Use of Terms; Definitions.

2.1       Capitalized terms used herein (including the Recitals above) shall have the same meaning ascribed thereto in the Loan Agreement unless otherwise specified herein.

Section 3.           Waiver of Financial Covenants.

3.1       Agent and Lender hereby waive any Defaults under the Loan Documents that occurred on or prior to the Effective Date.

3.2       Agent and Lender hereby waive the Potential Defaults and the Grantors’ obligations to comply with Items 21(a), (b), (c) and (f) of the Schedule for the Applicable Periods.  The parties understand and agree that the waiver set forth in this Section 3.2 shall not apply with respect to (i) financial covenants under the Loan Agreement that are tested as of December 31, 2016 or (ii) periods ending after December 31, 2016.

Section 4.           Amendments to the Loan Agreement.

4.1       Item 21(e) of the Schedule is hereby amended and restated in its entirety as follows:

“Minimum Liquidity. For the periods from February 1, 2016 through the December 30, 2016 (such later date, the “Liquidity Trigger Date”), the Grantors shall at all times maintain cash on hand, including availability under the Revolving Commitment, of not less than $1,275,000, provided that at least $525,000 of such amount must be in the form of cash on hand.  From and after the Liquidity Trigger Date, the Grantors shall at all times maintain cash on hand, including availability under the Revolving Commitment, of not less than $2,000,000, provided that at least $1,000,000 of such amount must be in the form of cash on hand.”

4.2       Item 21(g) of the Schedule is hereby amended and restated in its entirety to read as follows:

“(g)     Monthly Adjusted EBITDA:  Borrower shall maintain at all times, on a consolidated basis, an average of the Monthly Adjusted EBITDA of not less than $100,000 for each consecutive three (3) month period beginning on the first day of each month of calendar year 2016.  Borrower shall submit to Lender its Monthly Adjusted EBITDA as soon as available, and in any case not later than twenty (20) days after the end of each month. The average of the Monthly Adjusted EBITDA shall be calculated by adding the Monthly Adjusted EBITDA for the three months in the applicable period and dividing that sum by three (3).”

 

Section 5.           Borrower Payments.

5.1       Without limitation to any other obligation under this Agreement, the Loan Agreement or the other Loan Documents, in consideration of Agent and Lender agreeing to the waivers and amendments contained herein, the Borrower hereby agrees to pay a one-time extension fee to Agent and Lender in the aggregate amount of Two Hundred Twenty Five Thousand Dollars ($225,000.00).  Such extension fee shall be paid by increasing, as of the Effective Date, the principal amount outstanding under the Revolving Loan by $225,000.  Such increase in the principal amount shall constitute a draw under the Revolving Loan.

 

Section 6.           Warrant Adjustment.  Pursuant to Section 2(a) of the Warrant, Borrower hereby reduces the per share exercise price of the Warrant from $1.85 to $1.60 for the remainder of the term of the Warrant.

Section 7.           Acknowledgments.

7.1       (a)  Acknowledgement of Obligations.  Grantors hereby acknowledge, confirm and agree that as of the day immediately before the Effective Date, Borrower is indebted to Agent and Lender for Loans and other financial accommodations under the Loan Documents in the following principal amounts:

 

	
Revolving Loan:

	 	
$

	
1,586,765.87

	 
	
Term Loan:

	 	
$

	
1,500,000.00

	 

 

All such obligations under the Loan Agreement owing by Borrower together with interest accrued and accruing thereon, and all fees, costs, expenses and other charges now or hereafter payable by Borrower to Agent and Lender, are unconditionally owing by Borrower to Lender, without offset, defense or counterclaim of any kind, nature or description whatsoever.

(b)          Binding Effect of Documents.  Grantors hereby acknowledge, confirm and agree that: (i) each of the Loan Documents to which a party have been duly executed and delivered to Agent and Lender thereto by Grantors, and each is in full force and effect as of the Effective Date, (ii) the agreements and obligations of Grantors contained in the Loan Documents and in this Agreement constitute the legal, valid and binding obligations of Grantors, enforceable against Grantors in accordance with their respective terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors’ rights generally and by general equitable principles (whether enforcement is sought by proceedings in equity or at law), and Grantors have no valid defense to the enforcement of the obligations under the Loan Agreement and (iii)  Agent and Lender are and shall be entitled to the rights, remedies and benefits provided for in the Loan Documents and under applicable law or at equity.

Section 8.          Covenants, Representations and Acknowledgments of Grantors.

8.1       Each Grantor does hereby ratify, confirm and reaffirm all of the terms and conditions of the Loan Agreement, and the other Loan Documents, to which each are a party, in each case as such documents are amended and waived hereby; and the Grantors further agree that each continues to be bound by the terms and conditions thereof.

8.2       Each Grantor does hereby ratify, confirm and reaffirm, without condition, all liens and security interests in the collateral granted to the Lender pursuant to the Loan Documents; and all such liens and security interests shall continue to secure the Obligations as first priority liens (subject to Permitted Liens).

 

8.3       Each Grantor represents and warrants to the Lender and the Agent that, except as set forth in Borrower’s reports, schedules, forms, statements and other documents publicly filed by Borrower with the United States Securities and Exchange Commission:

 

(a)          this Agreement has been duly executed and delivered by each Grantor and constitutes the legal, valid and binding obligation of the Grantors enforceable in accordance with its terms;

(b)          the representations and warranties set forth within the Loan Agreement and the other Loan Documents continue to be true and correct in all material respects as of the date of this Agreement, except those changes resulting from the passage of time and those changes consented to by the Lender and the Agent, if any;

(c)          Each Grantor has not suffered a material adverse change with respect to its assets, business, operations or financial condition since the Closing Date, other than the material adverse changes subject to written Agent forbearance or waiver; and

(d)          the execution and delivery of this Agreement have been duly authorized by all necessary action by the Grantors.

8.4       Other Covenants.  Each Grantor covenants and agrees to:

(a)          take any and all commercially reasonable actions of any kind or nature whatsoever, either directly or indirectly, that are necessary to prevent Lender from suffering a loss with respect to the Obligations or being deprived of the Collateral, or of any rights or remedies of Agent with respect to the Term Loan and the Loan Documents in the event of a Default by Grantors under any other Loan Documents (or the ability to exercise such any rights or remedies); and

(b)          use commercially reasonable efforts to preserve all assets of the Grantors, except in the ordinary course of Grantor’s business.

Section 9.           Conditions Precedent.  This Agreement shall be effective as of the date hereof provided that on the date of execution of this Agreement each of the following conditions has been satisfied:

9.1       Contemporaneously with or prior to the execution hereof, each Grantor shall deliver, or cause to be delivered, to the Agent and the Lenders such other documents reasonably required by counsel for the Agent in connection with the transactions contemplated by this Agreement.

9.2       The Agent for the benefit of the Lender shall continue to have a first priority lien (subject to Permitted Liens) on and security interest in the collateral described in the Loan Agreement.

 

9.3       All legal details and proceedings in connection with the transactions contemplated by this Agreement shall be satisfactory to counsel for the Agent, and the Agent shall have received all such originals or copies of such documents as the Agent may request.

9.4       Borrower shall have paid to the Agent its expenses associated with this Agreement, including reasonable fees and expenses of counsel.  At the request of the Borrower, the Agent will confirm that the conditions under this Section 9 were met to its satisfaction and this Agreement became effective.

Section 10.         Reservation of Rights.

10.1     Each Grantor acknowledges and agrees that Agent and Lender (i) have not acquiesced to any noncompliance by the Borrower with the exact terms of the Loan Agreement relating to any Default except as expressly set forth herein and in the Forbearance Agreement, the Waiver Agreement and the Amendment Agreement, (ii) intend to strictly enforce the terms of the Loan Agreement and the Loan Documents (as amended and waived hereby), in the exercise of Agent’s and Lender’s sole and absolute discretion, and (iii) hereby reserve all rights, powers and remedies under the Loan Agreement and the other Loan Documents with respect to any noncompliance with the terms of the Loan Agreement or any of the other Loan Documents. Agent, in its discretion, may honor requests by the Borrower for advances pursuant to the Loan Agreement, but in no event shall Agent’s honoring of any such requests be deemed a waiver of any Default that may occur or exist. Each Grantor acknowledges and agrees that advances and other extensions of credit made by Agent to or for the benefit of the Borrower and Grantor have been made in reliance upon, and are consideration for, among other things, the covenants, agreements, representations and warranties of the Grantors herein.

Section 11.         Miscellaneous.

11.1     This Agreement shall be construed in accordance with, and governed by the internal laws of, the State of New York without giving effect to its conflict of laws principles.

11.2     This Agreement shall inure to the benefit of, and shall be binding upon, the respective successors and assigns of the Grantors, the Lender and the Agent. The Grantors may not assign any of its rights or obligations hereunder without the prior written consent of the Agent.

11.3     This Agreement may be executed in any number of counterparts 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.

11.4     All notices, communications, agreements, certificates, documents or other instruments executed and delivered after the execution and delivery of this Agreement may refer to the Loan Agreement without making specific reference to this Agreement, but nevertheless all such references shall include this Agreement unless the context requires otherwise.

11.5     Each Grantor hereby ratifies and reaffirms the Loan Agreement and all of its obligations and liabilities thereunder.  Borrower acknowledges and agrees that all terms and provisions, covenants and conditions of this Agreement shall be and remain in full force and effect and constitute the legal, valid, binding and enforceable obligations of the Grantors.  Borrower shall pay to Agent all costs and expenses, including legal fees, incurred by Agent in connection with preparation, negotiation and closing of this Agreement.

 

11.6     This Agreement is not intended to be, nor shall it be construed to create, a novation or accord and satisfaction, and the Loan Agreement, as amended hereby, shall remain in full force and effect.  Notwithstanding any prior mutual temporary disregard of any of the terms of the Loan Agreement, the parties agree that the term of each of the Loan Agreement shall be strictly adhered to on and after the date hereof, except as expressly modified or waived by this Agreement, the Forbearance Agreement, the Waiver Agreement and the Amendment Agreement.

11.7     To induce Agent to enter into this Agreement, each Grantor hereby releases, acquits, and forever discharges Agent and the Lender and their respective officers, directors, agents, employees, successors and assigns (the “Released Parties”), from all liabilities, claims, demands, actions or causes of action of any kind (if any there be) arising on or before the date of this Agreement, whether absolute or contingent, due or to become due, disputed or undisputed, liquidated or unliquidated, at law or in equity, or known or unknown, that any one or more of them now have or ever have had against the Released Parties, whether arising under or in connection with the Loan Agreement or otherwise.

11.8     Each Grantor hereby waives the benefit of any statute of limitations that might otherwise bar the recovery of any of the Obligations from any one or more of them.

11.9     Except as specifically set forth herein, neither this Agreement, Lenders’ continued making of loans or other extensions of credit at any time extended to Borrower in accordance with the Loan Agreement shall be deemed a waiver of or consent to any Default.

11.10   Nothing in this Agreement shall be construed to alter the existing debtor-creditor relationship between Grantors and Lender.  This Agreement is not intended, nor shall it be construed, to create a partnership or join venture relationship between or among any of the parties hereto.  No Person other than a party hereto is intended to be a beneficiary hereof and no Person other than a party hereto shall be authorized to rely upon or enforce the contents of this Agreement.

11.11   Any provision of this Agreement held by a court of competent jurisdiction to be invalid or unenforceable shall not impair or invalidate the remainder of this Agreement and the effect thereof shall be confined to the provision so held to be invalid or unenforceable.

11.12   Any reference to the Loan Agreement contained in any document, instrument or agreement executed in connection with the Loan Agreement, shall be deemed to be a reference to the Loan Agreement as modified or waived by this Agreement.

11.13   This Agreement is a Loan Document.

11.14   In the event there is a conflict between the terms of this Agreement and the other Loan Documents, the terms of this Agreement shall control.

[Signature Page Follows]

 

IN WITNESS WHEREOF, Grantors, Agent and Lender have executed this Agreement as of the day and year first above written.

 

	GRANTORS:
	  
	RICEBRAN TECHNOLOGIES

 

	
By:

	
/s/ Jerry Dale Belt

	 	
Jerry Dale Belt,

	 	
Chief Financial Officer

 

	
NUTRACEA, LLC,

	
RICE RX, LLC,

	
RICE SCIENCE LLC,

	
SRB-MERM, LLC,

	
SRB-LC, LLC,

	
SRB-MT, LLC,

	
SRB-WS, LLC,

	
SRB-IP, LLC,

	
HEALTHY NATURAL, INC.,

	
HEALTHY NATURAL, INC., and

	
RICEX NUTRIENT, INC.

 

	
By:

	
/s/ Jerry Dale Belt

	 	
Jerry Dale Belt,

	 	
Authorized Signatory for each entity

Agreed to and accepted this 14th day of September, 2016.

 

AGENT AND LENDER

 

FULL CIRCLE CAPITAL CORPORATION

 

By:/s/ Gregg J. Felton

Name: Gregg J. Felton

Title:   President & CEO

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