CALDERWOOD & HARKNESS LLP
PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT
MEMORANDUM
To: Ian Blackwood, Partner Stephanie Okafor, Counsel Sophie Tremblay, Lead Associate
From: Daniel Obi, Working Associate
Date: November 10, 2022
Re: Negotiation Call Summary — Call #3 Matter No. 1020-00001 (Billing Code: GAPABF-2022) Greenfield Agricultural Partners LLC ("GAP" or "Borrower") $80,000,000 Senior Secured Asset-Based Revolving Credit Facility
Client: Greenfield Agricultural Partners LLC
This memorandum is a privileged and confidential attorney work product prepared in connection with the representation of Greenfield Agricultural Partners LLC. It is intended solely for the internal use of the Calderwood & Harkness LLP engagement team identified above and should not be distributed, copied, or disclosed to any third party without the prior written authorization of the Responsible Partner. This memorandum reflects the author's notes and recollections of the call described herein and does not constitute a verbatim transcript.
1. Overview and Call Logistics
On November 10, 2022, at approximately 2:00 p.m. Central Time, the parties convened the third negotiation call in the series related to the proposed $80,000,000 Senior Secured Asset-Based Revolving Credit Facility (the "Facility") to be provided by Heartland Commerce Bank, N.A. ("HCB"), as Administrative Agent, Collateral Agent, and a Lender, together with syndicate lenders Meridian Agricultural Credit Corporation ("MACC") and Tallgrass Capital Fund II, LP ("Tallgrass"), to Greenfield Agricultural Partners LLC ("GAP" or the "Borrower"). This call follows prior negotiation calls held on October 3, 2022 and October 21, 2022.
The following individuals participated in the call:
Calderwood & Harkness LLP (Borrower's Counsel):
• Ian Blackwood — Responsible Partner
• Sophie Tremblay — Lead Associate
• Daniel Obi — Working Associate
Greenfield Agricultural Partners LLC (Borrower):
• Patricia "Trish" Calloway — Chief Financial Officer
• Nina Vasquez — General Counsel and Corporate Secretary
• Raymond Foss — Vice President of Operations (joined for the field examination discussion under Section 2 below)
Kessler, Brandt & Whitfield LLP (Lender's Counsel):
• Richard Whitfield — Partner, Lead Lender's Counsel
• Lauren Chisholm — Senior Associate
Heartland Commerce Bank, N.A. (Administrative Agent and Lead Lender):
• Gregory Thorn — Managing Director, Agribusiness Lending
• Allison Kuo — Vice President, ABL Structuring
The primary purposes of the call were to: (a) address remaining collateral-related matters, including the status and preliminary findings of the Pryor & Associates field examination; (b) discuss the execution timeline and logistics for deposit account control agreements; (c) review outstanding insurance endorsement requirements; (d) resolve remaining open points in the Credit Agreement, including the Material Adverse Change definition, cure rights, and the anti-cash-hoarding provision; and (e) establish a projected closing timeline and assign action items to the respective parties.
The call lasted approximately one hour and forty-five minutes. The discussion points and agreements reached are summarized below.
2. Pryor & Associates Field Examination Findings
2.1 Status of Field Examination
Allison Kuo (HCB) reported on the status and preliminary findings of the field examination conducted by Pryor & Associates LLC ("Pryor"). Thomas Pryor, Managing Partner of Pryor & Associates LLC, led the examination team. The on-site field examination commenced on October 17, 2022, at GAP's corporate headquarters located at 4100 Grand Prairie Boulevard, Suite 300, Des Moines, Iowa 50309. In addition to the headquarters review, the Pryor examination team conducted site visits at select grain elevator locations operated by Greenfield Grain Storage LLC ("GGS"), a wholly owned subsidiary of GAP.
Kuo confirmed that the field examination was substantially completed on November 7, 2022. Pryor's preliminary findings were summarized verbally by Kuo on behalf of HCB during the call. The formal written field examination report is expected to be delivered by Pryor to HCB within 10 to 14 business days of the examination completion date (i.e., by approximately November 21–25, 2022). HCB has committed to sharing the written report with Calderwood & Harkness and Greenfield upon receipt.
2.2 Inventory Observations
Kuo provided the following summary of Pryor's preliminary inventory observations:
Harvested Crop Inventory. Pryor confirmed that Greenfield's peak seasonal inventory levels during the September through November harvest period are consistent with the estimates previously provided by Greenfield management to HCB during the underwriting process. Aggregate harvested crop inventory (including corn, soybeans, and specialty grains) was observed across the 14 grain elevator facilities operated by GGS throughout the state of Iowa. The inventory levels fell within the estimated range of $125 million to $145 million at peak. Pryor's preliminary assessment of the net orderly liquidation value ("NOLV") of harvested crop inventory was approximately $78.1 million as of the October examination date. This figure was generally in line with the borrowing base projections previously modeled by HCB's ABL Structuring group and provided a basis for the proposed advance rates discussed below.
Crop-Input Inventory. Crop-input inventory held by Greenfield Crop Inputs Inc. ("GCI"), another wholly owned subsidiary of GAP, was also examined. GCI maintains crop-input inventory — consisting primarily of seed, fertilizer, and crop protection chemicals — at three regional distribution centers, including the facility located at 780 Commerce Drive, Bloomington, Illinois 61701. Pryor's preliminary valuation of crop-input inventory at the three distribution centers was approximately $18.4 million, calculated on a lower-of-cost-or-market basis. This figure was consistent with GCI's internal records and the estimates provided during underwriting.
Warehouse Receipts. Warehouse receipts associated with grain held in GAP's owned and leased elevator facilities were reviewed and confirmed at approximately $12.0 million in market value. The valuation was calculated by reference to Chicago Board of Trade ("CBOT") settlement prices as of the examination date, less applicable basis differentials for each delivery point. Pryor's examination included a sample verification of warehouse receipts against physical grain stocks at selected elevator locations to confirm the integrity of the warehouse receipt inventory.
Advance Rate Discussion. The parties discussed the adequacy of the proposed advance rates in light of Pryor's preliminary findings. The advance rates under the proposed Borrowing Base formula are as follows:
Kuo confirmed on behalf of HCB that Pryor's preliminary findings supported these advance rates without adjustment. No party raised any objections to these advance rates during the call, and they remain as reflected in all prior drafts of the Credit Agreement.
2.3 Accounts Receivable Observations
Pryor's review of the accounts receivable aging schedules for GAP and its subsidiaries found eligible accounts receivable of approximately $42.3 million at the peak period. This figure was consistent with the 85% advance rate applicable to eligible accounts receivable under the proposed Borrowing Base formula. Kuo noted that the examination did not reveal any material concentration issues; the largest single obligor represented approximately 4.2% of total eligible accounts receivable, which is well within the 10% single-obligor concentration limit reflected in the current draft of the Credit Agreement.
The parties discussed the eligibility criteria applicable to crop-input distribution receivables generated by GCI. Pryor's examination noted that certain of GCI's receivables are subject to seasonal dating terms, pursuant to which GCI extends extended payment terms to farmer customers in connection with spring planting season purchases. The parties agreed that receivables with payment terms exceeding 90 days from the date of invoice would be excluded from the definition of "Eligible Receivables" and would not be included in the Borrowing Base calculation. This is consistent with standard ABL practice for agricultural distribution businesses, and no party objected to this treatment. Calderwood & Harkness will ensure that the eligibility criteria in the Credit Agreement reflect this agreement.
2.4 Field Examination Cost
The parties briefly discussed the allocation of field examination costs. The Credit Agreement, as currently drafted, provides that the Borrower shall bear the cost of up to two (2) field examinations per calendar year, with each examination capped at $50,000 in aggregate fees and expenses. Additional field examinations conducted during a Trigger Period (as defined in the Credit Agreement) will be at the Borrower's expense without any cap on fees or expenses.
Calloway (GAP CFO) confirmed Greenfield's understanding and acceptance of this cost allocation structure. Kuo noted that Pryor's invoice for the current examination is expected to fall within the $50,000 per-examination cap. No further discussion was required on this point.
3. Collateral Matters — Deposit Account Control Agreements (DACAs)
3.1 DACA Execution Timeline
The parties engaged in an extended discussion regarding the status and logistics of executing deposit account control agreements ("DACAs") covering all operating deposit accounts of GAP and its subsidiary guarantors, GGS and GCI. As required under the Security Agreement and the Credit Agreement, DACAs must be in place with each depository bank at which the Loan Parties maintain deposit accounts, granting HCB, as Collateral Agent, "control" (within the meaning of Section 9-104 of the Uniform Commercial Code) over such accounts.
DACAs are required with two depository institutions:
• Prairie National Bank, N.A. ("PNB") — PNB is the current depository bank for the operating accounts of GAP, GGS, and GCI.
• Heartland Commerce Bank, N.A. ("HCB") — Greenfield intends to open new operating accounts at HCB following the closing of the Facility.
Whitfield (KBW) noted that the form DACA previously circulated by Calderwood & Harkness on November 4, 2022, was currently under review by HCB's internal legal department and its ABL Structuring group. HCB expects to provide its comments on the form DACA within approximately one week (i.e., by approximately November 17, 2022).
Vasquez (GAP General Counsel) raised a significant logistical concern regarding the PNB DACA. Specifically, Vasquez noted that PNB is the incumbent lender under GAP's existing $55,000,000 revolving credit facility (the "Existing PNB Facility"), which has a stated maturity date of March 31, 2023. The Existing PNB Facility is secured by a lien on substantially all assets of GAP and its subsidiaries, including deposit accounts maintained at PNB. Vasquez expressed concern about PNB's willingness to execute a DACA on existing operating accounts in favor of HCB as Collateral Agent, given that PNB would effectively be subordinating or releasing its own deposit account control to a competing secured creditor prior to the payoff of the Existing PNB Facility. Vasquez noted that she had not yet raised this issue formally with PNB but anticipated resistance.
Blackwood (C&H) suggested a practical approach to address the DACA issue within the funds flow mechanics. Specifically, Blackwood proposed that Greenfield establish new operating accounts at HCB prior to or concurrent with the closing of the Facility. The proceeds of the initial borrowing under the Facility would be used in part to pay off the Existing PNB Facility in full. At the time of payoff, the PNB deposit accounts could either be closed entirely (with balances swept to the new HCB accounts) or, if Greenfield elected to maintain certain PNB accounts for transitional purposes, subjected to a DACA in favor of HCB only after the PNB payoff has been completed and PNB's security interest in those accounts has been released.
Thorn (HCB) responded that HCB would strongly prefer that all DACAs be fully executed and in place at or prior to closing as a condition precedent to the initial funding. Thorn acknowledged the practical difficulty posed by the PNB situation but indicated that HCB's credit committee would likely require certainty on deposit account control before authorizing the initial advance. Thorn suggested that the parties explore whether a simultaneous closing and payoff mechanism — where DACAs on the new HCB accounts are in place at closing, the PNB facility is paid off with initial advance proceeds, and the PNB accounts are either closed or subjected to DACAs promptly thereafter — would satisfy HCB's requirements.
The parties agreed to continue working on the DACA logistics. Calderwood & Harkness (Obi) will follow up directly with Janet Braddock, Senior Vice President, Agricultural Banking at Prairie National Bank, N.A., regarding PNB's willingness to cooperate on DACA execution and the practical sequencing of account transitions and payoff mechanics.
3.2 Number and Location of Accounts
Vasquez confirmed that Greenfield currently maintains approximately eight (8) operating deposit accounts at PNB and two (2) accounts at a separate depository institution (the identity of which was not discussed in detail on the call but is reflected in the deposit account schedules previously provided by Greenfield to HCB during underwriting). The plan is to consolidate the majority of operating accounts at HCB following closing. Transitional DACAs on PNB accounts will be required during the interim period if any PNB accounts remain open after closing. The parties acknowledged that account consolidation will take some time to implement operationally, given the need to redirect automated clearing house ("ACH") payment flows, payroll processing, and vendor payment instructions.
4. Insurance Assignment Endorsements
4.1 Crop Insurance and Property/Casualty Insurance
The parties discussed the assignment of insurance proceeds to HCB, as Collateral Agent, as required under the form Assignment of Insurance circulated by Calderwood & Harkness on November 4, 2022. The insurance assignment is a standard condition precedent to closing and will require the cooperation of Greenfield's insurance broker and carrier.
Greenfield's insurance program is placed through Redwood Insurance Group, Inc. ("Redwood"), with Brian Templeton serving as the Account Executive responsible for the Greenfield account. Primary coverage is provided by Northstar Mutual Insurance Company, headquartered at 400 First Avenue NE, Cedar Rapids, Iowa 52401.
The insurance program includes the following coverage types relevant to the Facility:
• Crop Insurance — covering harvested and growing crop inventory across Greenfield's operations;
• Property/Casualty Insurance — covering the 14 grain elevator sites operated by GGS and the 3 regional distribution centers operated by GCI, with an aggregate appraised real property value of approximately $64.8 million;
• Commercial General Liability ("CGL") Insurance — covering general liability exposure across all Greenfield operations;
• Business Interruption Insurance — covering loss of income resulting from covered property damage events; and
• Equipment Coverage — covering rolling stock, grain handling equipment, and other personal property used in Greenfield's operations.
The Credit Agreement and Assignment of Insurance require the following endorsements:
(a) Loss payee endorsement naming Heartland Commerce Bank, N.A., as Collateral Agent, on all property/casualty and crop insurance policies;
(b) Additional insured endorsement naming Heartland Commerce Bank, N.A., as Collateral Agent, on the commercial general liability policy; and
(c) 30-day advance notice of cancellation or material modification endorsement, requiring the carrier to provide at least 30 days' prior written notice to the Collateral Agent before any cancellation, non-renewal, or material modification of any required insurance policy.
4.2 Endorsement Timing
Vasquez reported that she had contacted Brian Templeton at Redwood Insurance Group regarding the required endorsements. Templeton indicated that Northstar Mutual Insurance Company typically requires 15 to 20 business days from receipt of a formal written request to process loss payee and additional insured endorsements. This timeline is consistent with industry norms for mutual insurance carriers, though it is somewhat longer than the turnaround times experienced with larger national carriers.
Kuo (HCB) stated clearly that executed endorsements reflecting the required loss payee, additional insured, and cancellation notice provisions would be a condition precedent to closing. Endorsed copies of all required insurance policies must be delivered to HCB, as Collateral Agent, at or prior to the closing date. Kuo emphasized that HCB would not waive this condition or accept post-closing delivery of insurance endorsements.
Given the 15-to-20-business-day processing timeline, the parties agreed that Greenfield must formally instruct Redwood Insurance Group to initiate the endorsement process immediately to avoid potential closing delays. Any delay in submitting the formal request could jeopardize the targeted closing date in early to mid-December 2022.
Calderwood & Harkness (Obi) agreed to prepare a formal insurance instruction letter for Greenfield's signature, addressed to Brian Templeton at Redwood Insurance Group, specifying the required endorsements, the endorsement language, and the applicable policy numbers. This letter will be circulated to Vasquez for review and execution as promptly as practicable.
4.3 Insurance Compliance Gaps
During the discussion, Obi (C&H) noted that the Insurance Compliance Checklist currently being prepared by Calderwood & Harkness had identified potential gaps in Greenfield's existing business interruption coverage limits relative to the minimum coverage requirements set forth in the insurance covenants of the Credit Agreement. The specific nature and magnitude of these gaps were not discussed in detail on the call, as the checklist is still being finalized. Calderwood & Harkness will complete the Insurance Compliance Checklist and circulate its findings to Greenfield and KBW for review and discussion.
Whitfield (KBW) took the opportunity to note that the Credit Agreement's insurance covenants, as reflected in the most recent draft, require the Borrower to maintain, at a minimum: (i) replacement cost coverage on all real property collateral (i.e., the 14 grain elevator sites, the GAP headquarters, and the 3 GCI distribution centers); and (ii) business interruption coverage with a coverage period of not less than 12 months. To the extent that Greenfield's existing coverage does not meet these requirements, additional coverage or increased limits will need to be procured prior to closing. Calloway acknowledged this and indicated that Greenfield would work with Redwood to address any identified gaps promptly.
5. Remaining Credit Agreement Open Points
The parties turned to a discussion of the remaining open points in the Credit Agreement. The discussion was conducted by reference to KBW's third draft of the Credit Agreement, dated October 28, 2022, and Calderwood & Harkness's third markup of the Credit Agreement, dated November 1, 2022.
5.1 Material Adverse Change (MAC) Definition
The parties continued the discussion, first raised on the October 3 call and further addressed on the October 21 call, regarding the definition of "Material Adverse Change" (also referred to in certain drafts as "Material Adverse Effect" or "MAE").
KBW's third draft (October 28, 2022) defined "Material Adverse Change" broadly to include any change, event, circumstance, occurrence, or condition that has had, or could reasonably be expected to have, a material adverse effect on:
(i) the business, assets, operations, financial condition, or prospects of the Borrower and its Subsidiaries, taken as a whole;
(ii) the ability of any Loan Party to perform its obligations under any Loan Document; or
(iii) the rights and remedies of the Agent and the Lenders under the Loan Documents.
Calderwood & Harkness's third markup (November 1, 2022) pushed back on the inclusion of "prospects" in clause (i) of the definition, arguing that the term is inherently vague, forward-looking, and subject to differing interpretations, and that its inclusion effectively converts the MAC definition into a subjective assessment of future performance rather than an objective evaluation of current or past material changes. Additionally, the C&H markup proposed the following exclusions (or "carve-outs") from the MAC definition, such that none of the following would, individually or in the aggregate, constitute or be deemed to contribute to a Material Adverse Change:
(i) general economic or market conditions affecting the United States economy as a whole;
(ii) changes in agricultural commodity prices (including but not limited to corn, soybean, and wheat prices);
(iii) weather events, natural disasters, or other acts of God, except to the extent such events disproportionately affect the Borrower and its Subsidiaries relative to other participants in the agricultural industry operating in the same geographic regions;
(iv) changes in applicable law, regulation, or generally accepted accounting principles ("GAAP"); and
(v) seasonal fluctuations in the Borrower's business, assets, operations, or financial condition occurring in the ordinary course of the Borrower's business and consistent with prior seasonal patterns.
Whitfield (KBW) indicated during the call that HCB was prepared to agree to the deletion of "prospects" from clause (i) of the MAC definition. However, Whitfield expressed significant resistance to the broad carve-out for commodity price changes proposed in C&H's markup. Whitfield noted that, given the fundamentally agricultural nature of the Borrower's business and the collateral securing the Facility (which consists principally of agricultural commodities and commodity-related receivables), a broad exclusion for commodity price changes could effectively render the MAC definition meaningless in precisely the circumstances where it would be most needed — namely, a severe and prolonged decline in agricultural commodity prices that materially impairs the value of the collateral and the Borrower's ability to service its obligations.
Thorn (HCB) proposed a middle-ground formulation. Specifically, Thorn suggested that commodity price changes would be excluded from the MAC definition, but only to the extent that such changes do not result in a reduction of the Borrowing Base below the then-outstanding Revolving Credit Exposure (as defined in the Credit Agreement). In other words, the commodity price carve-out would apply so long as the Borrower maintains adequate Borrowing Base coverage notwithstanding the commodity price movement. If commodity prices decline to a degree that causes the Borrowing Base to fall below outstanding borrowings, the MAC protection would no longer apply with respect to such commodity price changes.
Blackwood (C&H) indicated that this was a reasonable framework and represented a workable compromise. Blackwood noted that this approach provides Greenfield with protection against ordinary market fluctuations in commodity prices while preserving the Agent's ability to invoke the MAC provision in a true distress scenario where collateral coverage is impaired. Blackwood stated that Calderwood & Harkness would discuss the proposed compromise with the client before formally agreeing to specific language.
Calloway (GAP CFO) expressed general comfort with the approach outlined by Thorn, subject to Greenfield's review of the final drafted language. Calloway noted that, from a business perspective, a commodity price decline severe enough to cause the Borrowing Base to fall below outstanding exposure would represent a genuinely adverse scenario that Greenfield would expect to address in consultation with its lenders in any event.
The parties left this issue as follows: Calderwood & Harkness will draft proposed MAC definition language incorporating the deletion of "prospects," the commodity price carve-out conditioned on Borrowing Base coverage, and the remaining carve-outs (general economic conditions, weather events, changes in law/GAAP, and seasonal fluctuations) in the next markup of the Credit Agreement. KBW will review the proposed language and provide comments.
5.2 Cure Rights
The parties discussed the cure period provisions applicable to Events of Default under the Credit Agreement. Calderwood & Harkness's third markup (November 1, 2022) proposed the following cure periods:
(a) Financial Covenant Defaults: A 30-day cure period for defaults arising from a breach of the springing Fixed Charge Coverage Ratio ("FCCR") covenant. The FCCR covenant is set at 1.10 to 1.00 and is tested only during a Trigger Period, which is triggered when Excess Availability falls below the greater of (x) 12.5% of the Borrowing Base or (y) $10,000,000.
(b) Non-Financial Covenant Defaults: A 15-day cure period for defaults arising from breaches of non-financial covenants.
(c) Payment Defaults and Representation Breaches: No cure period for payment defaults, which would constitute immediate Events of Default upon the failure to make any payment when due.
Whitfield (KBW) countered with shorter cure periods: 15 days for financial covenant defaults and 10 days for non-financial covenant defaults, arguing that the ABL market standard for agricultural borrowers does not support extended cure periods and that the springing nature of the FCCR covenant already provides significant protection to the Borrower by limiting the circumstances in which the financial covenant is tested.
After discussion, the parties agreed to the following compromise on cure periods:
(a) Financial Covenant Defaults: A 20-day cure period from the date on which notice of default is delivered by the Agent to the Borrower (or, if earlier, the date on which the Borrower becomes aware of the default).
(b) Non-Financial Covenant Defaults: A 15-day cure period from the date on which notice of default is delivered by the Agent to the Borrower, excluding payment defaults and breaches of representations and warranties, for which no cure period will be available.
(c) Limitation on Cure Rights: No cure period will be available with respect to any default if, at the time of such default or at any time during the applicable cure period, Excess Availability has fallen below the Minimum Excess Availability threshold of $5,000,000.
Calderwood & Harkness will reflect the agreed cure periods in the next markup of the Credit Agreement. All parties confirmed their agreement on this point.
5.3 Minimum Excess Availability
The parties confirmed that the Minimum Excess Availability covenant remains at $5,000,000 at all times, as reflected in all three prior drafts of the Credit Agreement. This covenant requires the Borrower to maintain Excess Availability (defined as the lesser of the Borrowing Base and the Revolving Commitment, minus outstanding Revolving Credit Exposure) of not less than $5,000,000 at all times. Breach of the Minimum Excess Availability covenant would constitute an immediate Event of Default without any cure period.
There was no further dispute or discussion on this point, and the provision is considered agreed upon by all parties.
5.4 Distribution Covenant — Final Language
The parties confirmed the agreement reached on the October 21 call regarding the distribution covenant. Distributions (including dividends, redemptions, and other payments to equity holders) by the Borrower will be permitted only if the following conditions are satisfied at the time of, and after giving pro forma effect to, the proposed distribution:
(a) No Default or Event of Default shall have occurred and be continuing or would result from such distribution;
(b) Pro forma Excess Availability shall be equal to or greater than 20% of the Borrowing Base after giving effect to the distribution; and
(c) The trailing twelve-month Fixed Charge Coverage Ratio shall be equal to or greater than 1.15 to 1.00 on a pro forma basis after giving effect to the distribution.
Whitfield (KBW) confirmed that KBW's third draft of the Credit Agreement (October 28, 2022) accurately reflected this agreement. No further changes are needed to the distribution covenant, and it is considered fully agreed upon.
5.5 Change of Control
The parties confirmed the agreement reached on the October 21 call regarding the change of control provision. A "Change of Control" will be triggered if the Lindstrom Family Trust ceases to own, directly or indirectly, at least 51% of the outstanding equity interests in Greenfield Holdings Corp. (the indirect parent of GAP). A Change of Control constitutes an immediate Event of Default under the Credit Agreement.
No further changes were proposed or discussed, and this provision is considered fully agreed upon.
5.6 Capital Expenditure Limitation
The parties confirmed the previously agreed capital expenditure limitation: the Borrower and its Subsidiaries shall not make or incur Capital Expenditures in excess of $8,000,000 in any fiscal year, with an automatic carryforward of 50% of any unused portion of the annual limitation to the immediately succeeding fiscal year, provided that in no event shall Capital Expenditures in any single fiscal year exceed $12,000,000 (inclusive of any carryforward amounts).
No further changes were proposed or discussed, and this provision is considered fully agreed upon.
5.7 Commodity Hedging Negative Pledge
The parties confirmed the previously agreed commodity hedging negative pledge: the Borrower and its Subsidiaries shall not enter into commodity hedging transactions (including futures contracts, options, swaps, and forward contracts) covering in excess of 80% of anticipated production without the prior written consent of the Agent.
Calderwood & Harkness had requested in its third markup that the term "anticipated production" be defined with greater specificity in the Credit Agreement to provide clarity as to the basis on which the 80% threshold is calculated. Whitfield (KBW) agreed that a defined term would be appropriate and indicated that KBW would add a definition of "Anticipated Production" to the Credit Agreement referencing the Borrower's most recent annual production forecast delivered to the Agent in accordance with the reporting covenants. This is a minor drafting point that will be resolved in the next markup of the Credit Agreement.
5.8 Anti-Cash-Hoarding Provision
The parties discussed the anti-cash-hoarding provision included in KBW's third draft of the Credit Agreement. As drafted by KBW, the provision requires the Borrower to deposit all cash receipts into a controlled deposit account (i.e., an account subject to a DACA in favor of the Collateral Agent) within two (2) business days of receipt.
Calderwood & Harkness's third markup objected to the two-business-day requirement as operationally burdensome. Obi (C&H) noted that GAP operates 14 grain elevator locations across the state of Iowa, each of which serves as a collection point for grain purchases, grain storage fees, and other cash receipts. In addition, GCI's three regional distribution centers generate independent cash collection streams from crop-input sales. The geographic dispersion of GAP's operations and range collection channels (including checks, wire transfers, ACH payments, and in some cases cash payments at elevator locations) make it impractical to centralize all cash receipts into a controlled account within two business days.
Calderwood & Harkness proposed a five-business-day deposit requirement coupled with a weekly sweep mechanism, pursuant to which all funds in operating accounts would be swept to the controlled collection account on a weekly basis.
Thorn (HCB) agreed to the five-business-day deposit requirement as a general matter. However, Thorn proposed that 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 more restrictive two-business-day deposit requirement would apply. Thorn's rationale was that the heightened deposit requirement during a Trigger Period is appropriate given the increased credit risk associated with reduced availability, and is consistent with market practice for ABL facilities in the agricultural sector.
The parties agreed to this bifurcated approach:
(a) Outside of a Trigger Period: The Borrower shall deposit all cash receipts into a controlled deposit account within five (5) business days of receipt.
(b) During a Trigger Period: The Borrower shall deposit all cash receipts into a controlled deposit account within two (2) business days of receipt.
Calderwood & Harkness will revise the next markup of the Credit Agreement accordingly to reflect this agreement.
6. Ancillary Document Status
6.1 Documents Delivered November 4, 2022
Calderwood & Harkness delivered the following draft ancillary loan documents to KBW and HCB on November 4, 2022:
1. Security Agreement — granting HCB, as Collateral Agent for the benefit of the Lenders, a first-priority security interest in substantially all personal property of GAP, GGS, and GCI, including accounts receivable, inventory, equipment, deposit accounts, general intangibles, instruments, chattel paper, supporting obligations, letter-of-credit rights, commercial tort claims (if any), and all proceeds and products thereof.
2. Guaranty Agreement — an unconditional, joint and several guaranty by Greenfield Holdings Corp. ("Holdings"), Greenfield Grain Storage LLC ("GGS"), and Greenfield Crop Inputs Inc. ("GCI") in favor of the Agent and the Lenders, guaranteeing the full and punctual payment and performance of all Obligations (as defined in the Credit Agreement) of the Borrower.
3. Pledge Agreement — a pledge by GAP of (a) 100% of the membership interests in GGS and (b) 100% of the issued and outstanding shares of capital stock of GCI, in each case in favor of HCB, as Collateral Agent, together with stock powers and irrevocable proxies executed in blank.
4. Mortgage, Assignment of Leases and Rents, and Security Agreement — Iowa Form — covering the GAP headquarters property located in Polk County, Iowa, and the 14 grain elevator sites owned by GGS located across 8 additional counties in the state of Iowa.
5. Mortgage, Assignment of Leases and Rents, and Security Agreement — Illinois Form — covering the GCI distribution center located in McLean County, Illinois.
6. Deposit Account Control Agreement — Form — the form DACA for use with PNB and HCB as depository banks.
7. Assignment of Insurance — Form — the form assignment of insurance proceeds in favor of HCB, as Collateral Agent.
Chisholm (KBW) confirmed that KBW was in the process of reviewing all ancillary loan documents and expected to return comments within 7 to 10 business days (i.e., by approximately November 14–17, 2022). Chisholm noted that KBW's review would focus on ensuring consistency between the ancillary documents and the Credit Agreement, as well as confirming compliance with HCB's standard ABL documentation requirements.
6.2 UCC and Lien Search Status
Obi (C&H) provided an update on the status of UCC and lien searches. Calderwood & Harkness has conducted UCC financing statement searches, federal and state tax lien searches, and judgment searches in the following jurisdictions for all Loan Parties (GAP, Holdings, GGS, and GCI):
• Iowa — Secretary of State and applicable county recorder offices
• Illinois — Secretary of State and applicable county recorder offices
• Indiana — Secretary of State (to the extent any Loan Party has assets or operations in Indiana)
• Delaware — Secretary of State (Holdings is organized under the laws of the State of Delaware)
The search results revealed the following existing UCC filings:
These UCC filings secure the Existing PNB Facility and cover substantially all personal property assets of GAP and GGS. No other material liens, UCC filings, federal or state tax liens, or judgments were identified in any of the searched jurisdictions for any of the Loan Parties.
Upon the closing of the Facility and the contemporaneous payoff of the Existing PNB Facility (outstanding balance as of September 30, 2022: approximately $38,750,000), the PNB UCC filings will need to be terminated. Calderwood & Harkness will prepare UCC-3 termination statements for Iowa Secretary of State Filing Nos. 2018-0041729 and 2018-0041730 and will coordinate with Janet Braddock at PNB for execution and filing of the termination statements.
In addition, existing PNB mortgages are recorded in the following jurisdictions covering the Borrower's real property collateral:
• Polk County, Iowa — GAP headquarters
• McLean County, Illinois — GCI distribution center
• Eight (8) additional Iowa counties — covering the GGS grain elevator sites
All existing PNB mortgages will need to be released upon the payoff of the Existing PNB Facility. Calderwood & Harkness will prepare the necessary mortgage release documents (satisfactions of mortgage or releases of lien, as applicable under Iowa and Illinois law) and will coordinate with PNB for execution and recording.
6.3 Perfection Steps Remaining
Obi (C&H) provided a summary of the outstanding perfection steps required to establish and perfect HCB's first-priority security interest in the collateral. A comprehensive Collateral Description and Perfection Memo is being finalized by Obi and will be circulated to the engagement team upon completion. The following perfection steps remain outstanding:
(a) UCC-1 Financing Statement Filings: UCC-1 financing statements to be filed with the following offices:
• Iowa Secretary of State — covering GAP and GGS (as Iowa limited liability companies);
• Illinois Secretary of State — covering GCI (as an Illinois corporation);
• Indiana Secretary of State — if applicable, based on final determination of whether any Loan Party holds assets requiring Indiana filing;
• Delaware Secretary of State — covering Holdings (as a Delaware corporation);
(b) Mortgage Recordings: New mortgages in favor of HCB, as Collateral Agent, to be recorded in Polk County, Iowa, and 8 additional Iowa counties (covering the GGS elevator sites), as well as McLean County, Illinois (covering the GCI distribution center);
(c) Execution of DACAs: Deposit account control agreements to be executed with PNB and HCB, as discussed in Section 3 above;
(d) Insurance Endorsements: Loss payee, additional insured, and cancellation notice endorsements to be obtained from Northstar Mutual Insurance Company, as discussed in Section 4 above;
(e) Delivery of Pledged Equity Certificates: Physical delivery of (i) the GGS membership interest certificates (or equivalent evidence of membership interest ownership, together with blank transfer powers) and (ii) the GCI stock certificates (together with stock powers executed in blank) to HCB, as Collateral Agent, or to Calderwood & Harkness as escrow agent pending closing.
Thorn (HCB) requested that Calderwood & Harkness prepare a comprehensive perfection checklist in tabular format, setting forth each required perfection step, the applicable Loan Party, the relevant jurisdiction, the current status, and the responsible party. Thorn indicated that HCB's credit administration group would require this checklist for internal tracking purposes and for presentation to the credit committee in connection with final closing approval. Obi confirmed that Calderwood & Harkness would prepare and circulate the perfection checklist in advance of closing.
7. Projected Closing Timeline
The parties discussed the projected closing date for the Facility. The original target closing date had been late October 2022, but this date has passed due to the extended negotiation timeline, the scheduling of the Pryor & Associates field examination, and the need for additional rounds of document drafting and review.
The parties agreed to a revised target closing date of early to mid-December 2022, subject to the timely completion of the remaining deliverables and the resolution of all outstanding issues.
The following key milestones were discussed and are set forth in approximate chronological order:
Thorn (HCB) noted an important scheduling consideration: the syndicate lenders, Meridian Agricultural Credit Corporation (contact: Franklin Osei) and Tallgrass Capital Fund II, LP (contact: Monica Herrera), will each require at least 10 business days' advance notice of the closing date in order to obtain the necessary internal credit committee approvals for the initial funding. Thorn committed to notifying both syndicate lenders of the projected closing timeline immediately following the call.
Blackwood (C&H) observed that, if all items proceed on the schedule outlined above and no material new issues arise, a closing in the first two weeks of December 2022 remains achievable. Blackwood cautioned, however, that the DACA logistics with PNB and the insurance endorsement timeline represent the most significant potential sources of delay, and urged all parties to prioritize these work streams.
8. Action Items
The following action items were identified during the call, together with the responsible party and target completion date:
1. C&H (Obi) — Finalize Insurance Compliance Checklist and circulate to Greenfield and KBW. Target: November 14, 2022.
2. Greenfield (Vasquez) — Send formal insurance endorsement instruction letter to Redwood Insurance Group, Inc. (Brian Templeton, Account Executive), requesting loss payee endorsements, additional insured endorsements, and 30-day advance notice of cancellation endorsements from Northstar Mutual Insurance Company on all required policies. Target: Immediately.
3. C&H (Tremblay) — Prepare revised Credit Agreement markup incorporating the following agreements reached on this call: (a) MAC definition compromise (deletion of "prospects," commodity price carve-out conditioned on Borrowing Base coverage, retention of remaining carve-outs); (b) cure periods (20-day cure for financial covenant defaults, 15-day cure for non-financial covenant defaults, no cure for payment defaults or representation breaches, no cure if Excess Availability below $5,000,000); (c) anti-cash-hoarding provision (5-business-day deposit requirement, with 2-business-day requirement during a Trigger Period); and (d) commodity hedging definition (KBW to add "Anticipated Production" defined term referencing Borrower's most recent production forecast). Target: November 14–18, 2022.
4. C&H (Obi) — Follow up with Janet Braddock, Senior Vice President, Agricultural Banking, Prairie National Bank, N.A., regarding DACA cooperation for existing operating accounts and payoff/transition logistics. Target: November 14, 2022.
5. KBW (Chisholm) — Return comments on ancillary loan documents, including the Security Agreement, Guaranty Agreement, Pledge Agreement, Iowa and Illinois Mortgage forms, form DACA, and Assignment of Insurance. Target: November 14–17, 2022.
6. C&H (Obi) — Order title searches on all mortgaged real property, including properties in Polk County, Iowa, eight (8) additional Iowa counties (covering GGS grain elevator sites), and McLean County, Illinois (covering GCI distribution center). Target: Immediately.
7. C&H (Obi) — Order good standing certificates from the Iowa Secretary of State (for GAP, Iowa SOS Filing No. 622847, and GGS), the Delaware Secretary of State (for Holdings, Delaware SOS File No. 7291538), and the Illinois Secretary of State (for GCI, Illinois SOS File No. 08294731). Target: Immediately.
8. C&H (Obi) — Finalize Collateral Description and Perfection Memo, including comprehensive perfection checklist in tabular format as requested by HCB. Target: November 14, 2022.
9. HCB (Kuo) — Provide comments on form DACA circulated by C&H on November 4, 2022. Target: November 17, 2022.
10. HCB (Thorn) — Confirm receipt of Pryor & Associates written field examination report upon delivery and share the report with C&H and Greenfield. Target: November 21–25, 2022.
11. HCB (Thorn) — Notify syndicate lenders Meridian Agricultural Credit Corporation (Franklin Osei) and Tallgrass Capital Fund II, LP (Monica Herrera) of the projected closing timeline and provide at least 10 business days' advance notice of the anticipated closing date. Target: Immediately.
12. Greenfield (Calloway) — Prepare initial borrowing base certificate for the closing date, based on the most recent available collateral data. Target: 5 business days prior to closing.
13. C&H (Tremblay) — Update Preliminary Closing Checklist to reflect the current status of all closing deliverables and the revised closing timeline. Target: November 14, 2022.
9. Next Steps and Scheduling
The parties agreed to schedule a follow-up negotiation call (Call #4) for the week of November 21, 2022. The primary purposes of the follow-up call will be to: (a) review KBW's comments on the ancillary loan documents delivered by C&H on November 4, 2022; (b) assess the status of all remaining closing deliverables, including DACAs, insurance endorsements, title searches, and good standing certificates; (c) review the Pryor & Associates written field examination report, if received by that date; and (d) confirm or adjust the projected closing timeline based on the status of outstanding items.
Blackwood (C&H) will coordinate scheduling with all parties. The parties should be mindful that the Thanksgiving holiday falls on Thursday, November 24, 2022, which may affect scheduling availability and response times during that week. Blackwood suggested targeting Tuesday, November 22, 2022, or the following Monday, November 28, 2022, for the follow-up call, depending on the parties' availability.
All parties confirmed their agreement with this approach.
Prepared by: Daniel Obi, Working Associate, Calderwood & Harkness LLP