CALDERWOOD & HARKNESS LLP Attorneys at Law 150 North Michigan Avenue, Suite 3600 Chicago, Illinois 60601 Telephone: (312) 555-7100 Facsimile: (312) 555-7199 www.calderwoodharkness.com
September 23, 2022
VIA EMAIL
Lauren Chisholm, Esq. Senior Associate Kessler, Brandt & Whitfield LLP 311 South Wacker Drive, Suite 5400 Chicago, Illinois 60606
Re: $80,000,000 Senior Secured Asset-Based Revolving Credit Facility — Greenfield Agricultural Partners LLC — Borrower's Comments on Initial Draft Credit Agreement (KBW Draft dated September 16, 2022)
Calderwood & Harkness Matter No. 1020-00001
Dear Ms. Chisholm:
We write on behalf of our client, Greenfield Agricultural Partners LLC, an Iowa limited liability company ("Greenfield" or the "Borrower"), in connection with the above-referenced senior secured asset-based revolving credit facility (the "Facility"). This letter accompanies the enclosed first markup (redline) of the Credit Agreement (the "Credit Agreement") prepared by Kessler, Brandt & Whitfield LLP ("KBW") on behalf of Heartland Commerce Bank, N.A. ("HCB"), in its capacities as Administrative Agent, Collateral Agent, Sole Lead Arranger, and Sole Bookrunner.
As you are aware, the Credit Agreement provides for an $80,000,000 senior secured revolving credit facility among the Borrower, the Guarantors (Greenfield Holdings Corp., a Delaware corporation ("Holdings"), Greenfield Grain Storage LLC, an Iowa limited liability company ("GGS"), and Greenfield Crop Inputs Inc., an Illinois corporation ("GCI")), HCB as Administrative Agent, and the lenders party thereto from time to time (the "Lenders"). The initial commitment allocations among the Lenders are as follows:
The enclosed markup reflects borrower-side revisions to the initial draft of the Credit Agreement, and this letter highlights the principal issues for discussion. The redline should be read in conjunction with this letter, as this letter provides the rationale and context for many of the revisions reflected therein but does not restate every change. Where changes in the redline are self-explanatory or involve only conforming, typographical, or organizational edits, we have not separately addressed them below.
The Borrower reserves the right to raise additional comments as negotiations progress and as ancillary documents — including the Security Agreement, Guaranty, Pledge Agreement, Mortgage instruments, Deposit Account Control Agreements, and Insurance Assignments — are drafted and circulated. Nothing in this letter or the enclosed markup shall constitute a waiver of any right, remedy, or position of the Borrower, and any silence regarding a particular provision should not be construed as acceptance of such provision.
The Credit Agreement is governed by the laws of the State of Illinois, and all references to statutory provisions herein are to the laws of the applicable states as in effect on the date hereof.
Our principal comments are organized below to follow the general structure of the Credit Agreement.
I. Definitions and Interpretive Provisions (Article I)
A. Defined Terms — General Comments
Several defined terms in Article I of the Credit Agreement require refinement or clarification. We have addressed the most significant definitional issues in detail below. In addition, we note that a number of cross-references throughout the Credit Agreement appear to contain errors or refer to provisions that do not correspond to their intended targets. We request that counsel for the Agent conduct a comprehensive cross-reference verification once further drafts of the Credit Agreement are produced, and we are prepared to cooperate in that process to ensure internal consistency across the document as a whole.
We have also proposed certain new defined terms in the redline where we believe additional precision is warranted, and we have suggested modifications to existing definitions where the current drafting creates ambiguity or is inconsistent with the terms set forth in the revised term sheet executed by the parties and dated September 9, 2022 (the "Revised Term Sheet").
B. "Borrowing Base" Definition
The Borrowing Base definition is central to the Facility and, given the asset-based nature of the credit, requires significant and careful negotiation. The Borrower has proposed edits to ensure that the Borrowing Base formula accurately reflects the four collateral components and their respective advance rates as agreed in the Revised Term Sheet. Specifically, the Borrowing Base should be calculated as the sum of the following components, minus the Availability Reserve:
(i) Eligible Accounts Receivable. Eighty-five percent (85%) of the face amount of Eligible Accounts Receivable.
(ii) Eligible Crop Inventory. Sixty-five percent (65%) of the net orderly liquidation value ("NOLV") of Eligible Crop Inventory (defined as harvested grain held in owned or leased elevator facilities), as determined by the most recent appraisal conducted by Pryor & Associates LLC (the "Appraiser") or such other appraiser acceptable to the Agent.
(iii) Eligible Crop-Input Inventory. Seventy percent (70%) of the lower of cost or market value of Eligible Crop-Input Inventory (defined as seed, fertilizer, and crop protection chemicals held by the Borrower or the Guarantors at Approved Locations).
(iv) Eligible Grain Warehouse Receipts. Eighty percent (80%) of the market value of Eligible Grain Warehouse Receipts, with market value tied to the applicable Chicago Board of Trade ("CBOT") settlement price less the applicable local basis differential.
The initial draft of the Credit Agreement departs from the Revised Term Sheet in several respects. Most notably, the draft references an initial Availability Reserve of $5,000,000. The Revised Term Sheet clearly provides for an initial Availability Reserve of $3,500,000, and the Borrower's markup reflects this reduction. This point was specifically negotiated between Greenfield's management and HCB's credit team, and we do not believe there is any basis to revisit it at this stage.
More broadly, the Borrower objects to any further upward adjustment of the Availability Reserve without clear, objective criteria. The definition of "Availability Reserves" as currently drafted grants the Agent essentially unlimited discretion to increase reserves at any time and for any reason. The Borrower requests that the definition be revised to include: (a) a cap or ceiling on aggregate Availability Reserves (or, at minimum, a cap on any single discretionary increase), and (b) a mechanism pursuant to which the Borrower receives advance written notice and an opportunity to discuss any proposed discretionary increase with the Agent before such increase takes effect. We address the Agent's discretionary reserve authority in further detail in Section II.C below.
C. "Eligible Accounts Receivable" Definition
The draft of the Credit Agreement contains eligibility criteria for accounts receivable that are, in several respects, overly restrictive and inconsistent with market practice for agricultural asset-based lending facilities. The Borrower has proposed the following modifications in the enclosed redline:
(i) Aging Cutoff. The draft disqualifies any account receivable that is more than 60 days past invoice date. The Borrower proposes extending this cutoff to 90 days past invoice date. This extension is critical because many of Greenfield's customers are agricultural cooperatives, farm operators, and commercial grain buyers whose payment cycles are inherently seasonal. Payment terms in the agricultural sector routinely extend to 60, 75, or even 90 days, and a 60-day aging cutoff would result in the systematic exclusion of a substantial volume of current, performing receivables — particularly during the planting and early growing seasons when cash flows are most constrained. A 90-day cutoff is well within the range observed in comparable agricultural ABL facilities.
(ii) Cross-Aging Provision. As drafted, the Credit Agreement disqualifies all receivables of an account debtor if more than 25% of such account debtor's outstanding receivables are ineligible (whether due to aging or any other eligibility criterion). This blanket cross-aging provision is unduly punitive. The Borrower requests that the cross-aging threshold be modified to 50% — that is, all receivables of an account debtor would be disqualified only if more than 50% of such account debtor's outstanding receivables are ineligible. A 50% threshold is more customary in agricultural ABL facilities and more appropriately balances the Agent's interest in collateral quality against the practical realities of the Borrower's customer base.
(iii) Concentration Limit. The draft imposes a concentration limit of 10% of total Eligible Accounts Receivable per individual account debtor. The Borrower proposes a bifurcated approach: (a) a 15% concentration limit for named account debtors specifically approved by the Agent (a list of such approved account debtors to be established at closing and updated periodically), and (b) a 10% concentration limit for all other account debtors. This structure recognizes that Greenfield has a small number of large, creditworthy customers (including major grain trading companies and cooperatives) whose receivables should not be penalized by an across-the-board concentration limit designed for smaller, less creditworthy obligors.
(iv) Government Receivables. The draft does not clearly address the treatment of government receivables. Greenfield regularly receives payments under programs administered by the United States Department of Agriculture ("USDA"), as well as crop insurance receivables payable by Northstar Mutual Insurance Company under policies brokered through Redwood Insurance Group, Inc. The Borrower requests that USDA program payments and crop insurance receivables be expressly included as Eligible Accounts Receivable, subject to appropriate documentation requirements (including, as applicable, evidence of assignment, anti-assignment act compliance, and confirmation of coverage). These receivables represent a reliable and creditworthy component of the Borrower's receivables portfolio and should be recognized in the Borrowing Base.
D. "Eligible Crop Inventory" and "Eligible Crop-Input Inventory" Definitions
The Borrower has identified several issues with the definitions of Eligible Crop Inventory and Eligible Crop-Input Inventory that must be resolved:
(i) Valuation Methodology — Harmonization. The draft Credit Agreement contains an internal inconsistency with respect to the valuation of Eligible Crop Inventory. In certain provisions, the draft defines Eligible Crop Inventory value based on "cost," while in other provisions (including portions of the Borrowing Base definition), the draft references NOLV. These references must be harmonized. The Revised Term Sheet is clear that the 65% advance rate for Eligible Crop Inventory applies to NOLV as determined by the field examination and appraisal conducted by Pryor & Associates LLC. The Credit Agreement should consistently reference NOLV throughout all relevant provisions. Any residual references to "cost" as the valuation metric for Eligible Crop Inventory should be deleted.
(ii) Eligible Crop-Input Inventory — "Lower of Cost or Market." The draft's reference to "lower of cost or market" for Eligible Crop-Input Inventory requires clarification. The Borrower requests that this formulation be defined to mean the lower of (a) the Borrower's actual acquisition cost for the applicable inventory (determined on a first-in, first-out basis consistent with the Borrower's GAAP accounting policies) or (b) the current wholesale market price for comparable inventory, in each case as reported in the Borrower's most recent inventory report delivered to the Agent. The term "market" should not be interpreted to mean "replacement cost," which may differ materially from wholesale market price and would introduce an additional layer of complexity and potential dispute into the Borrowing Base calculation.
(iii) Approved Locations. The draft limits Eligible Crop Inventory and Eligible Crop-Input Inventory to inventory held at "Approved Locations," but the definition of Approved Locations is unduly narrow and does not enumerate the Borrower's existing facilities. The Borrower requests that all fourteen (14) grain elevator sites and three (3) regional distribution centers owned or operated by GGS and GCI be deemed Approved Locations upon closing, without the need for separate Agent approval of each site. These facilities are the core of the Borrower's operations, have been disclosed to HCB and the Appraiser, and will be subject to the initial field examination. In addition, the Borrower requests that the Credit Agreement include a mechanism for adding additional locations as Approved Locations with the Agent's consent, such consent not to be unreasonably withheld, conditioned, or delayed. The Agent's ability to impose additional reserves or conditions in connection with newly added locations is preserved and is an adequate safeguard.
(iv) In-Transit Inventory. The draft excludes all inventory in transit from the Borrowing Base. The Borrower requests that inventory in transit between Approved Locations be included as Eligible Crop Inventory or Eligible Crop-Input Inventory, as applicable, provided that the Borrower delivers appropriate documentation (including bills of lading, shipping receipts, or equivalent documentation) evidencing the shipment, origin, destination, and expected delivery date. In-transit inventory between the Borrower's own facilities is a routine and integral part of daily operations, and its exclusion from the Borrowing Base would create an artificial and unnecessary drag on availability.
E. "Eligible Grain Warehouse Receipts" Definition
The Borrower requests two modifications to the definition of Eligible Grain Warehouse Receipts:
(i) Market Value — CBOT Settlement Price. The definition should expressly provide that the "market value" of Eligible Grain Warehouse Receipts is determined by reference to the applicable CBOT settlement price for the relevant commodity (corn and soybeans being the Borrower's principal crops) on the most recent trading day preceding the date of determination, less the applicable local basis differential. This methodology was agreed upon in the Revised Term Sheet and provides an objective, transparent, and readily ascertainable measure of market value. The draft's current reference to "market value" without further specification is insufficiently precise and could lead to disputes.
(ii) Self-Issued Warehouse Receipts. The draft appears to exclude warehouse receipts issued by GGS's own elevator facilities. The Borrower requests that such self-issued warehouse receipts be treated as Eligible Grain Warehouse Receipts, provided that (a) the receipts are issued in compliance with applicable state warehouse laws (including the Iowa Grain Indemnity Fund Act and applicable provisions of the Iowa Code), (b) appropriate segregation protocols are maintained to distinguish grain held for the Borrower's own account from grain held for third-party depositors, and (c) documentation satisfactory to the Agent evidencing such segregation is delivered to the Agent on a periodic basis. GGS is a licensed and bonded grain warehouse operator, and the exclusion of its self-issued receipts from the Borrowing Base would be commercially unreasonable and inconsistent with standard practice in agricultural ABL facilities where the borrower operates its own storage infrastructure.
F. "Trigger Period" Definition
The definition of "Trigger Period" is a critical mechanism in the Credit Agreement, as it governs the transition from standard reporting and covenant compliance to enhanced reporting obligations and springing financial covenant testing. As drafted, a Trigger Period commences when Excess Availability falls below the greater of (a) 12.5% of the Borrowing Base or (b) $10,000,000.
The Borrower accepts the substantive threshold for a Trigger Period but requests two modifications to the mechanics governing its commencement and termination:
(i) Entry Cure Period. The Borrower requests that a Trigger Period not commence unless Excess Availability remains below the applicable threshold for five (5) consecutive business days. Agricultural operations are subject to short-term fluctuations in cash flow and borrowing base components — for example, a temporary decline in the value of grain inventory due to a single-day commodity price drop, or a brief spike in outstanding borrowings to fund a time-sensitive input purchase — that may cause Excess Availability to dip below the threshold on a transitory basis without reflecting any genuine deterioration in the Borrower's financial condition or collateral coverage. A five-business-day cure period before a Trigger Period commences would prevent the imposition of burdensome enhanced reporting obligations in response to these routine, self-correcting fluctuations.
(ii) Exit Provision. The draft is silent on the conditions under which a Trigger Period terminates once it has commenced. The Borrower requests that the Credit Agreement specify that a Trigger Period shall end when Excess Availability has exceeded the applicable threshold for twenty (20) consecutive business days. This provides certainty to both the Borrower and the Lenders as to when enhanced reporting and springing covenant obligations cease, and prevents a situation in which a Trigger Period, once commenced, continues indefinitely notwithstanding the Borrower's restoration of adequate excess availability.
G. "Material Adverse Change" / "Material Adverse Effect" Definition
The draft definition of "Material Adverse Change" (also used interchangeably with "Material Adverse Effect" in certain provisions) is overly broad and lacks the customary carve-outs that are standard in credit facilities of this type. As drafted, the definition would capture a wide range of changes, events, and circumstances that are beyond the Borrower's control and do not reflect any deterioration in the Borrower's creditworthiness or the quality of the collateral securing the Facility.
The Borrower has proposed the following carve-outs, each of which is customary and appropriate:
(i) Changes in general economic or financial market conditions (whether national, regional, or local) that do not have a disproportionate effect on the Borrower and its subsidiaries relative to other participants in the agricultural industry.
(ii) Changes in commodity prices, including without limitation changes in the market prices of corn, soybeans, wheat, fertilizer, seed, and crop protection chemicals. This carve-out is critical for an agricultural borrower whose revenues, asset values, and financial performance are inherently tied to commodity markets that are volatile and beyond the Borrower's control.
(iii) Changes in applicable law, regulation, or regulatory policy, or changes in GAAP or accounting standards, in each case after the Closing Date.
(iv) Seasonal fluctuations in financial performance, inventory levels, accounts receivable balances, and cash flows that are inherent to the Borrower's agricultural operations and consistent with the Borrower's historical experience. The agricultural business cycle necessarily produces periods of higher and lower revenue, inventory levels, and borrowing — these predictable patterns should not be captured by a Material Adverse Change definition.
(v) Effects of weather events, natural disasters, disease, pest infestations, and other force majeure events, to the extent such effects are covered by insurance maintained by the Borrower (including crop insurance and property/casualty coverage provided by Northstar Mutual Insurance Company through Redwood Insurance Group, Inc.).
We note that the inclusion of a standalone "Material Adverse Change" Event of Default (discussed further in Section VIII below) makes the breadth of this definition particularly consequential, and we urge the Agent and its counsel to give careful consideration to these proposed carve-outs.
H. SOFR Provisions
The Borrower accepts the Secured Overnight Financing Rate ("SOFR") as the benchmark reference rate for the Facility, with a floor of 0.50% (50 basis points). The Borrower requests the inclusion of customary benchmark replacement and transition language to address the possibility that SOFR is discontinued, becomes unavailable, or is determined by the Agent to be no longer representative. The benchmark replacement provisions should follow the ARRC-recommended language and should provide for a transparent and orderly transition process, with appropriate notice to the Borrower and an opportunity for the Borrower to participate in the selection of any successor benchmark rate.
The applicable margin grid, as reflected in the Borrower's markup, is as follows:
The foregoing grid is consistent with the Revised Term Sheet. We note that the initial draft of the Credit Agreement contained certain errors in the breakpoints of the margin grid, which have been corrected in the redline.
II. Borrowing Base Mechanics and Reporting (Article II / Borrowing Provisions)
A. Borrowing Base Certificate Frequency
The draft of the Credit Agreement requires the Borrower to deliver borrowing base certificates on a weekly basis at all times, regardless of the Borrower's financial condition or the level of Excess Availability. This requirement is inconsistent with market practice for ABL facilities of this size and nature, and it imposes an unreasonable administrative burden on the Borrower's finance team.
The Borrower proposes the following tiered reporting structure, which is consistent with the enhanced-reporting framework contemplated by the Trigger Period provisions:
(i) Outside a Trigger Period: Monthly borrowing base certificates, delivered within twenty (20) business days after the end of each calendar month. Monthly borrowing base certificates are the standard reporting frequency for ABL facilities of this size, and they provide the Agent and the Lenders with timely and reliable information regarding the Borrower's collateral position without imposing undue strain on the Borrower's internal resources. We note that Greenfield's Chief Financial Officer, Patricia Calloway, has specifically flagged the resource constraints that would be created by a weekly reporting obligation on a year-round basis, particularly given the complexity of the Borrowing Base calculation (which requires valuation of multiple collateral categories across numerous locations).
(ii) During a Trigger Period: Weekly borrowing base certificates, delivered within three (3) business days after the end of each week. The Borrower acknowledges that weekly reporting is appropriate during periods of reduced availability, as it provides the Agent and the Lenders with more frequent visibility into the Borrower's collateral position during periods of potential stress.
This tiered approach is consistent with the enhanced-reporting philosophy that underlies the Trigger Period framework and appropriately allocates reporting burdens to the periods in which they are most needed.
B. Field Examinations
The draft of the Credit Agreement permits the Agent to conduct field examinations of the Borrower's books, records, and collateral at any time and from time to time, with all costs and expenses borne by the Borrower, without any limitation on frequency, cost, or notice. This provision is inconsistent with the Revised Term Sheet and is commercially unreasonable.
The Borrower proposes the following framework for field examinations, which is consistent with the Revised Term Sheet and with market practice:
(i) Outside a Trigger Period: The Agent shall be entitled to conduct a maximum of two (2) field examinations per calendar year at the Borrower's expense, with costs per examination capped at $50,000 (inclusive of examiner fees, travel, and out-of-pocket expenses). Additional examinations may be conducted at the Agent's own expense.
(ii) During a Trigger Period: The Agent shall be entitled to conduct additional field examinations at the Borrower's expense, without any cap on frequency or cost. This enhanced examination right during a Trigger Period is consistent with the overall framework of enhanced monitoring during periods of reduced availability.
(iii) Notice. The Borrower shall receive not less than ten (10) business days' prior written notice before each field examination, specifying the anticipated scope, timing, and duration of the examination. This notice period is necessary to enable the Borrower to coordinate logistics, allocate staff resources, and ensure that the examination does not unreasonably disrupt operations — particularly during harvest season (September through November), when grain elevator operations are at peak intensity.
(iv) Examiner and Scope. HCB has engaged Pryor & Associates LLC (Thomas Pryor, Managing Partner) as the field examiner for the Facility. The Borrower does not object to this engagement but requests that the scope and methodology of each examination be coordinated with the Borrower's finance team in advance to ensure efficiency and to minimize duplication of effort.
C. Agent's Discretionary Reserve Authority
As noted in Section I.B above, the draft of the Credit Agreement grants the Agent unfettered and essentially unlimited discretion to impose, increase, or modify Availability Reserves at any time and without the Borrower's consent. This provision is of significant concern to the Borrower, as an unexpected or unilateral increase in Availability Reserves could materially reduce the Borrower's available borrowing capacity, potentially triggering a Trigger Period or, in extreme cases, an overadvance situation, with cascading adverse consequences.
The Borrower requests the following modifications to the Agent's reserve authority:
(i) Standard of Exercise. The Agent shall have the right to establish, increase, or modify Availability Reserves only in the exercise of commercially reasonable credit judgment, consistent with the Agent's practices for comparable agricultural asset-based lending facilities. The inclusion of this standard is not intended to eliminate the Agent's reserve discretion but rather to ensure that such discretion is exercised in a reasonable and predictable manner.
(ii) Notice and Consultation. The Borrower shall receive at least five (5) business days' prior written notice before any increase in Availability Reserves takes effect, together with reasonable detail regarding the basis for such increase (including the specific collateral or risk factors giving rise to the proposed increase). The Borrower shall have the right to discuss any proposed reserve increase with the Agent before its implementation. Nothing in this consultation right shall limit the Agent's authority to implement the increase if, after consultation, the Agent continues to determine in the exercise of commercially reasonable credit judgment that such increase is warranted.
(iii) Initial Reserve. The initial Availability Reserve shall be fixed at $3,500,000, consistent with the Revised Term Sheet, and shall not be subject to increase during the first twelve (12) months following the Closing Date absent the occurrence and continuance of a Default or an Event of Default. This provides the Borrower with a reasonable period of certainty regarding its available borrowing capacity as it transitions from the existing Prairie National Bank facility to the new Facility.
III. Conditions Precedent to Closing and Borrowings (Article III / IV)
A. Conditions Precedent to Closing
The conditions precedent to the closing of the Facility are generally acceptable to the Borrower, subject to the following comments and clarifications:
(i) Payoff of Existing Facility. The Borrower's existing $55,000,000 revolving credit facility with Prairie National Bank, N.A. ("PNB") must be repaid in full at or prior to closing. As of September 30, 2022, the outstanding balance under the PNB facility is approximately $38,750,000. Upon repayment, UCC-3 termination statements must be obtained and filed with respect to Iowa Secretary of State Filing Nos. 2018-0041729 and 2018-0041730 (each originally filed on April 2, 2018), and all mortgage liens recorded in connection with the PNB facility must be released. The Borrower requests the Agent's reasonable cooperation in coordinating a simultaneous payoff and closing so as to avoid any gap in the Borrower's borrowing availability. Greenfield's operations require continuous access to working capital, and even a brief interruption in credit availability could cause material operational disruptions, particularly if the closing occurs during a period of active inventory purchasing or receivables collection.
(ii) Legal Opinion. Calderwood & Harkness LLP will deliver a customary closing legal opinion on behalf of the Borrower and the Guarantors. An outline of the opinion will follow under separate cover once the Credit Agreement and ancillary documents are in substantially final form.
(iii) Officer's Certificate. An officer's certificate will be delivered by an authorized officer of Greenfield Agricultural Partners LLC, certifying the matters customarily addressed in such certificates (including incumbency, organizational authority, and the truth and correctness of representations and warranties).
(iv) Good Standing Certificates. Good standing certificates (or equivalent certificates of status) will be obtained and delivered for each Loan Party in its jurisdiction of organization:
• Greenfield Agricultural Partners LLC — Iowa Secretary of State (Filing No. 622847)
• Greenfield Holdings Corp. — Delaware Secretary of State (File No. 7291538)
• Greenfield Grain Storage LLC — Iowa Secretary of State
• Greenfield Crop Inputs Inc. — Illinois Secretary of State (SOS File No. 08294731)
(v) Insurance Certificates. Insurance certificates will be delivered evidencing compliance with the Credit Agreement's insurance requirements. All policies are placed through Redwood Insurance Group, Inc. as broker, with Northstar Mutual Insurance Company as primary carrier. The Borrower anticipates that coordination of insurance certificates and, as applicable, endorsements naming the Administrative Agent and/or Collateral Agent as loss payee or additional insured will require lead time, and we request that the conditions precedent allow for the delivery of binder-level evidence at closing with full certificates to follow within a reasonable period thereafter.
B. Conditions Precedent to Each Borrowing
The draft of the Credit Agreement provides that, as a condition precedent to each borrowing (including the initial borrowing on the Closing Date), all representations and warranties set forth in the Credit Agreement shall be "true and correct in all respects" at the time of such borrowing. This formulation is overly rigid and creates the risk of inadvertent breaches that could prevent the Borrower from accessing the Facility. The Borrower requests the following modifications to the representation bring-down mechanics:
(i) Representations and warranties that are qualified by materiality or by reference to a Material Adverse Effect standard shall be brought down as written — that is, subject to their existing qualifiers. The bring-down should not strip out materiality qualifiers that were deliberately negotiated as part of the underlying representation.
(ii) Representations and warranties that are not so qualified shall be brought down as "true and correct in all material respects." This formulation avoids the so-called "double materiality" problem (in which a representation that is already subject to a materiality qualifier is then further subjected to a materiality standard through the bring-down) while still providing appropriate assurance to the Agent and the Lenders. The Borrower's markup reflects careful drafting to implement this approach without creating unintended gaps.
(iii) Certain specified representations (including, for example, the financial statements representation) should be brought down only as of the date originally made or as of the most recent date for which such representation is applicable. It would be inappropriate, for example, to require a bring-down of the financial statements representation as of a borrowing date that falls between fiscal reporting periods, when no new financial statements have been prepared.
(iv) The condition that no Default or Event of Default shall have occurred and be continuing at the time of each borrowing, and no Default or Event of Default shall result from such borrowing, is accepted.
IV. Representations and Warranties (Article IV / V)
A. General Comments
Many of the representations and warranties set forth in the Credit Agreement are standard for facilities of this type and have been accepted with only minor conforming changes in the enclosed redline. Our specific comments are limited to the representations discussed below, each of which requires substantive negotiation.
B. Financial Statements Representation
The draft of the Credit Agreement requires that the Borrower's financial statements "fairly present" the Borrower's financial condition. The Borrower requests that this representation be refined as follows:
(i) Audited Financial Statements. With respect to audited financial statements (prepared by Ashford, Kline & Pearce LLP, Catherine Drummond, Audit Partner), the representation should provide that such statements "fairly present in all material respects the consolidated financial condition, results of operations, and cash flows of the Borrower and its subsidiaries as of the dates and for the periods covered thereby, in accordance with GAAP consistently applied." This is the standard formulation and is consistent with the auditors' own report language.
(ii) Interim / Unaudited Financial Statements. With respect to interim and unaudited financial statements, the representation should provide that such statements "fairly present in all material respects the consolidated financial condition, results of operations, and cash flows of the Borrower and its subsidiaries as of the dates and for the periods covered thereby, in accordance with GAAP consistently applied, subject to normal year-end adjustments and the absence of footnotes." This formulation recognizes the inherent limitations of unaudited interim statements.
For reference, the most recent audited financial statements of the Borrower and its consolidated subsidiaries are for fiscal year 2021, reflecting total revenue of approximately $347,200,000. The most recent interim financial statements are as of June 30, 2022, reflecting total assets of approximately $289,600,000. The Borrower's projected revenue for fiscal year 2022 is approximately $391,500,000 based on management projections.
With respect to projections and forward-looking information, the Credit Agreement should not require representations as to the accuracy or achievability of projections. The Borrower is prepared to represent only that projections were "prepared in good faith based on assumptions believed to be reasonable at the time of preparation," which is the customary standard. Projections are inherently uncertain, particularly in the agricultural sector where commodity prices, weather conditions, and government policy (including farm bill programs) can cause significant deviations from anticipated results.
C. Litigation Representation
The draft of the Credit Agreement requires the Borrower to represent that there is no pending or threatened litigation against the Borrower or any of its subsidiaries. This representation is unrealistic for a company of the Borrower's size and scope of operations. The Borrower requests the following modifications:
(i) Materiality Threshold. The litigation representation should be qualified by a materiality threshold of $500,000 individually or $1,000,000 in the aggregate. Litigation matters below these thresholds are routine and immaterial to the Borrower's financial condition or its ability to perform its obligations under the Credit Agreement.
(ii) Disclosure Schedule. The Borrower requests the inclusion of a disclosure schedule to the Credit Agreement on which existing litigation matters that exceed the materiality threshold are specifically identified. Matters disclosed on the schedule would be excluded from the scope of the representation. This approach is standard in credit facilities and provides the Lenders with full transparency regarding known litigation risks while ensuring that the Borrower does not inadvertently breach the representation with respect to matters that have been fully disclosed.
D. Environmental Representation
Given the nature and geographic scope of the Borrower's agricultural operations — spanning approximately 82,000 managed acres across Iowa, Illinois, and Indiana, together with fourteen (14) grain elevator sites and three (3) regional distribution centers — the environmental representation is both important and potentially far-reaching. Agricultural operations are subject to extensive environmental regulation, including regulations governing pesticide and fertilizer application, grain dust emissions, fuel storage, and water quality.
The Borrower requests the following modifications to the environmental representation:
(i) Knowledge Qualifier. The environmental representation should be qualified by the Borrower's knowledge (defined as the actual knowledge of the Borrower's senior management after reasonable inquiry). Given the breadth of the Borrower's operations and the complexity of environmental regulation, it is unreasonable to require an unqualified representation regarding environmental compliance at every location and with respect to every environmental law.
(ii) Disclosure Schedule Carve-Outs. Environmental matters previously disclosed to the Agent (whether in due diligence materials, environmental reports, or the disclosure schedules to the Credit Agreement) should be carved out of the representation. This ensures that the Borrower does not breach the representation with respect to conditions or liabilities that the Agent and the Lenders were aware of at the time of closing.
(iii) De Minimis Threshold. The Borrower has proposed a de minimis threshold for environmental liabilities, below which such liabilities would not constitute a breach of the environmental representation. The specific threshold is reflected in the redline.
E. Insurance Representation
The Borrower will represent that it maintains insurance coverage as required by the Credit Agreement. The specific coverage types and policy limits will need to be analyzed against the Credit Agreement's insurance requirements once those requirements are finalized. Calderwood & Harkness is currently preparing an insurance compliance checklist for this purpose.
The Borrower's key insurance policies, all of which are placed through Redwood Insurance Group, Inc. as broker with Northstar Mutual Insurance Company as primary carrier, include the following:
• Multi-peril crop insurance (covering crop loss due to weather, disease, and pest events)
• Property and casualty insurance (covering grain elevators, distribution centers, equipment, and stored inventory)
• Commercial general liability insurance
• Business interruption insurance
The Borrower requests that the insurance representation be drafted to reference the specific coverage requirements set forth in the Credit Agreement (once finalized) rather than imposing a broader, open-ended obligation.
F. Inventory and Receivables Representations
The draft of the Credit Agreement contains sweeping representations regarding the quality, merchantability, fitness for purpose, and ownership of the Borrower's inventory. While the Borrower understands the Agent's interest in the quality and condition of its collateral, several of these representations are ill-suited to agricultural inventory and require conforming revisions. Specifically:
(i) Agricultural inventory — particularly harvested grain — is by nature a perishable commodity subject to seasonal fluctuations in quantity, quality, and market value. Representations regarding merchantability and fitness for purpose must be appropriately qualified to reflect these inherent characteristics. The Borrower cannot, for example, represent that all grain inventory at every location at all times meets #2 or better grade standards; grain quality varies by growing season, storage conditions, and other factors.
(ii) Representations regarding warehouse receipts should be limited to receipts issued in compliance with applicable state warehouse laws, including the Iowa Grain Indemnity Fund Act, the Iowa Code provisions governing grain warehouses, and comparable laws in Illinois and Indiana. The Borrower should not be required to make representations regarding the validity or enforceability of warehouse receipts beyond confirming that they were issued in the ordinary course and in material compliance with applicable law.
V. Affirmative Covenants (Article V / VI)
A. Financial Reporting
The Borrower accepts the financial reporting obligations set forth in the Credit Agreement, subject to the following modifications to the delivery timing, which reflect the practical realities of financial reporting for an agricultural enterprise with complex, multi-location operations:
The extension of the annual audited financial statement deadline from 90 to 120 days reflects the complexity of the Borrower's operations, including the valuation of grain inventory, the reconciliation of warehouse receipts, and the seasonal nature of agricultural revenue recognition. It is also consistent with the delivery timeline historically maintained by the Borrower's auditors, Ashford, Kline & Pearce LLP. Similarly, the extension of the quarterly financial statement deadline from 45 to 60 days recognizes the administrative demands of preparing consolidated financial statements across multiple operating entities and jurisdictions.
B. Insurance Covenants
The Borrower accepts the obligation to maintain insurance as required by the Credit Agreement. However, the Borrower requests that the insurance covenant reference "commercially reasonable" coverage levels for a company of similar size and type engaged in agricultural operations, rather than specifying rigid coverage amounts that may not reflect the availability or cost of insurance in the agricultural market at any given time.
The Borrower acknowledges that the Credit Agreement will require an assignment of crop insurance proceeds and property/casualty insurance proceeds to the Agent (as Collateral Agent). The form and substance of such assignment will be separately negotiated in connection with the ancillary document drafting process. We note that crop insurance assignments are subject to certain regulatory requirements and limitations imposed by the Federal Crop Insurance Corporation and the Risk Management Agency, and the assignment documentation must be structured to comply with those requirements.
C. Collateral Reporting
The Borrower proposes the following tiered collateral reporting framework, consistent with the Trigger Period-based approach applied to borrowing base certificates:
(i) Inventory Reports (by location, type, and value): Monthly outside a Trigger Period; weekly during a Trigger Period.
(ii) Receivables Aging Reports: Monthly outside a Trigger Period; weekly during a Trigger Period.
(iii) Daily Cash Receipts Reporting: Only during a Trigger Period. The draft of the Credit Agreement requires daily cash receipts reporting at all times, which the Borrower objects to as overly burdensome and unnecessary during periods of adequate excess availability. Daily cash receipts reporting imposes significant administrative costs and does not provide meaningful incremental information when the Borrower's availability is well in excess of the Trigger Period threshold.
D. Access and Inspection Rights
The Borrower accepts the Agent's right to inspect the Borrower's books, records, and collateral, subject to the following conditions:
(i) Notice. The Agent shall provide reasonable prior notice before each inspection: ten (10) business days' notice outside a Trigger Period, and two (2) business days' notice during a Trigger Period.
(ii) Timing. Inspections shall be conducted during normal business hours.
(iii) Operational Interference. Inspections shall be conducted in a manner that does not unreasonably interfere with the Borrower's operations. This condition is particularly important during harvest season (generally September through November), when grain elevator operations are at their most intensive and the Borrower's personnel are fully occupied with receiving, grading, weighing, storing, and shipping grain. Inspection activities that disrupt elevator operations during this critical period could cause material operational and financial harm.
VI. Negative Covenants (Article VI / VII)
A. Indebtedness. The Borrower has proposed customary exceptions to the negative covenant on indebtedness, in addition to the specific baskets agreed upon in the Revised Term Sheet:
• Unsecured debt basket: $3,000,000 in the aggregate at any time outstanding.
• Purchase money indebtedness / capital leases: $1,500,000 in the aggregate at any time outstanding.
• Intercompany indebtedness among the Loan Parties (subordinated to the obligations under the Credit Agreement on customary terms).
• Existing indebtedness set forth on a schedule to the Credit Agreement (to be prepared and delivered at or prior to closing).
• Refinancing indebtedness — indebtedness incurred to refinance any permitted indebtedness, provided that the principal amount does not exceed the principal amount of the refinanced indebtedness (plus accrued interest, premiums, and fees), and the terms of the refinancing indebtedness are no less favorable to the Lenders than the terms of the refinanced indebtedness.
• Additional customary exceptions (e.g., workers' compensation obligations, surety bonds, letters of credit supporting trade payables).
B. Liens. The Borrower has proposed customary permitted lien exceptions, including the following:
• Liens securing obligations under the Credit Agreement and the other Loan Documents.
• Statutory liens (including mechanic's, materialmen's, landlord's, carrier's, and warehouseman's liens) arising in the ordinary course of business and not securing indebtedness for borrowed money.
• Tax liens for taxes not yet due and payable or being contested in good faith by appropriate proceedings with adequate reserves maintained in accordance with GAAP.
• Purchase money liens securing permitted purchase money indebtedness and capital lease obligations, limited to the assets financed.
• Liens existing on the Closing Date and set forth on a schedule to the Credit Agreement.
• Judgment liens that do not constitute an Event of Default.
• Easements, rights-of-way, restrictions, and other similar encumbrances on real property that do not materially interfere with the use of such property.
The Borrower notes that all existing liens in favor of Prairie National Bank — including UCC financing statement filings and mortgages recorded in Polk County, Iowa, McLean County, Illinois, and eight (8) additional Iowa counties — will be released upon payoff of the existing PNB facility at closing. The coordination of UCC-3 termination statements and mortgage releases is addressed in Section III.A above and in Section X below.
C. Restricted Payments / Distributions
Pursuant to the Revised Term Sheet, distributions by the Borrower to Holdings (and, indirectly, to Holdings' equity owners) are permitted only if all three of the following conditions are satisfied:
(a) No Default or Event of Default shall have occurred and be continuing or would result from such distribution;
(b) Pro forma Excess Availability (after giving effect to such distribution) shall equal or exceed 20% of the Borrowing Base; and
(c) The trailing twelve-month Fixed Charge Coverage Ratio, calculated on a pro forma basis after giving effect to such distribution, shall equal or exceed 1.15 to 1.00.
The Borrower accepts the foregoing framework but requests the following additional carve-outs:
(i) Tax Distributions. The Credit Agreement should expressly permit tax distributions to Holdings in amounts necessary to enable Holdings' equity owners to satisfy their federal and state income tax obligations arising from the Borrower's status as a pass-through entity for tax purposes. Holdings' equity owners include the Lindstrom Family Trust (holding 62% of the equity interests), Calloway-Foss Investments LP (holding 28% of the equity interests), and participants in the Borrower's management equity plan (collectively holding 10% of the equity interests). Tax distributions are customary and necessary for pass-through entities and should not be subject to all three of the conditions set forth above. The Borrower proposes that tax distributions be permitted so long as no Event of Default (as distinguished from a Default) has occurred and is continuing.
(ii) De Minimis Distributions. The Credit Agreement should permit distributions of up to $250,000 per fiscal year without the requirement to satisfy all three conditions set forth above. This basket provides flexibility for minor distributions (e.g., management incentive payments, small equity redemptions) that are immaterial to the Borrower's financial condition and liquidity position.
D. Capital Expenditures
The draft of the Credit Agreement imposes a cap on capital expenditures of $8,000,000 per fiscal year, with a carryforward of 50% of unused amounts from the prior fiscal year, subject to a maximum of $12,000,000 in any single fiscal year. The Borrower accepts this framework but requests the following modification:
Capital expenditures incurred for the maintenance, repair, or upgrade of grain elevator facilities to the extent required for compliance with safety regulations (including OSHA grain handling standards, EPA air quality regulations, and applicable state elevator safety codes) or other regulatory requirements shall be excluded from the annual cap. These expenditures are non-discretionary and are mandated by law; including them within the capital expenditure cap could force the Borrower to choose between regulatory compliance and compliance with its credit agreement obligations — a choice that no responsible lender should require.
E. Investments and Acquisitions
The draft of the Credit Agreement limits investments and acquisitions to $5,000,000 per fiscal year. The Borrower requests the following customary exceptions to the investment covenant:
• Intercompany investments among the Loan Parties (including intercompany loans and capital contributions).
• Investments in short-term cash equivalents (including U.S. Treasury securities, certificates of deposit, and money market funds).
• Employee loans in an aggregate amount not to exceed $250,000 at any time outstanding.
• Investments existing on the Closing Date and set forth on a schedule to the Credit Agreement.
• Deposits and prepayments made in the ordinary course of business (including deposits on equipment purchases, prepaid insurance, and trade deposits).
F. Change of Control
The draft of the Credit Agreement defines a "Change of Control" as occurring if the Lindstrom Family Trust ceases to own at least 51% of the equity interests in Greenfield Holdings Corp. The Borrower requests two modifications:
(i) Permitted Transfers. The Change of Control definition should include "directly or indirectly" language and should expressly accommodate transfers of equity interests to Lindstrom family members (including lineal descendants and spouses) or to trusts, family limited partnerships, or other estate planning vehicles established for the benefit of Lindstrom family members. Such transfers are routine components of family wealth and succession planning and should not trigger a Change of Control so long as aggregate family ownership remains above the 51% threshold.
(ii) Notice and Cure Period. The Borrower requests that a Change of Control not constitute an immediate Event of Default. Instead, the Borrower should have the right to provide thirty (30) days' prior written notice to the Agent of any anticipated Change of Control, and the Change of Control should not constitute an Event of Default if cured within thirty (30) days after the Borrower becomes aware of the event giving rise to the Change of Control. This cure period provides the Borrower with an opportunity to address inadvertent or unexpected changes in ownership structure (for example, resulting from the death or incapacity of a principal).
G. Commodity Hedging Negative Pledge
The draft of the Credit Agreement prohibits the Borrower from entering into any commodity hedging transactions without the prior written consent of the Agent. This blanket prohibition is inconsistent with the Revised Term Sheet and is fundamentally at odds with the Borrower's business operations. Commodity hedging is an essential risk management tool for any agricultural enterprise, and the Borrower routinely enters into futures contracts, options, and forward delivery contracts on the CBOT and with commercial counterparties to manage its exposure to commodity price fluctuations in corn, soybeans, and crop inputs.
The Revised Term Sheet provides that the Borrower may hedge up to 80% of anticipated production without the Agent's consent. The Borrower has proposed language in the enclosed redline that permits hedging transactions entered into in the ordinary course of business with approved counterparties, not to exceed 80% of anticipated annual production volumes. "Anticipated production" should be defined by reference to the Borrower's most recent annual budget delivered to the Agent pursuant to the financial reporting covenants. The list of approved counterparties should include major commodity exchanges and clearinghouses, as well as commercial counterparties meeting minimum credit standards to be agreed upon.
VII. Financial Covenants (Article VII / VIII)
A. Springing Fixed Charge Coverage Ratio
The Credit Agreement imposes a minimum Fixed Charge Coverage Ratio ("FCCR") of 1.10 to 1.00, tested only during a Trigger Period (i.e., when Excess Availability falls below the greater of 12.5% of the Borrowing Base or $10,000,000). The FCCR covenant is springing in nature and does not apply at any time when the Borrower's Excess Availability remains above the Trigger Period threshold.
The Borrower accepts the ratio level (1.10:1.00) and the springing trigger mechanism, subject to the Trigger Period entry and exit cure periods discussed in Section I.F above (i.e., a five-consecutive-business-day entry cure period and a twenty-consecutive-business-day exit provision).
The Borrower has proposed the following adjustments to the FCCR calculation methodology:
(i) Non-Cash Charges and Extraordinary Items. Non-cash charges (including depreciation, amortization, stock-based compensation, and non-cash asset write-downs) and extraordinary or non-recurring items should be excluded from the calculation of Fixed Charges. These items do not represent actual cash expenditures and should not be treated as charges against the Borrower's ability to service its fixed obligations.
(ii) Seasonal Working Capital Adjustments. The FCCR calculation should account for seasonal working capital swings that are inherent to agricultural operations. Specifically, fixed charges should exclude seasonal inventory build-up expenditures (i.e., expenditures for the purchase of seed, fertilizer, and crop protection chemicals during the spring planting season, and expenditures for the purchase of harvested grain during the fall harvest season) to the extent such expenditures are self-liquidating — that is, they are expected to be recovered through the sale of inventory within the ordinary operating cycle. Including these expenditures as fixed charges during the months in which they are incurred would create artificial covenant pressure during precisely the periods when the Borrower's working capital needs are greatest.
(iii) Permitted Asset Disposition Proceeds. Proceeds from asset dispositions that are expressly permitted under the Credit Agreement should be included in the numerator of the FCCR calculation (i.e., treated as available cash flow for purposes of the ratio). The exclusion of such proceeds would penalize the Borrower for engaging in permitted transactions.
B. Minimum Excess Availability
The Credit Agreement requires the Borrower to maintain minimum Excess Availability of $5,000,000 at all times. The Borrower accepts this covenant. However, the Borrower notes that this minimum must be evaluated in the context of the trough borrowing base scenario. Based on the Borrower's internal projections and historical seasonal patterns, the anticipated trough net availability (expected to occur in approximately April 2023, after the spring planting expenditure cycle and before the early summer revenue cycle) would be approximately $42,375,000, providing substantial headroom above both the $5,000,000 minimum availability requirement and the $10,000,000 Trigger Period threshold. We include this analysis for informational purposes and to demonstrate that the covenant, as structured, is well within the Borrower's expected operating parameters.
VIII. Events of Default (Article VIII / IX)
A. General Comments
Many of the Events of Default set forth in the Credit Agreement are standard for asset-based lending facilities and are accepted by the Borrower with minor conforming changes. The Borrower's principal comments are as follows: