PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT COMMUNICATION ATTORNEY WORK PRODUCT
CALDERWOOD & HARKNESS LLP 425 Lexington Avenue New York, New York 10017
March 10, 2025
INTERNAL TAX MEMORANDUM
I. Executive Summary
This memorandum analyzes the state and local tax consequences arising from (a) the grant of security interests in personal property, (b) the pledge of equity interests, and (c) the recording of mortgage instruments, in each case in connection with the $1,400,000,000 senior secured Term Loan B facility (the "Term Loan B") to be provided to Nexford Industrial Holdings Inc. ("Nexford" or the "Borrower") by Crescent Harbor Bank, N.A., in its capacity as Administrative Agent and Collateral Agent, and the several lenders party to the Credit Agreement (collectively, the "Lenders" and, together with the Collateral Agent, the "Secured Parties").
The Borrower is a Delaware corporation headquartered at 1400 Industrial Parkway, Schaumburg, Illinois 60173 (EIN: 36-4178552). The holdings-level guarantor is Granite Peak NIH Holdings, LLC, a Delaware limited liability company (EIN: 85-3291047) (the "Holdings Guarantor"). In addition, eleven domestic subsidiaries organized under the laws of Delaware, Illinois, Pennsylvania, South Carolina, Texas, and Michigan will serve as Subsidiary Guarantors under the Credit Agreement (collectively with the Holdings Guarantor, the "Guarantors," and together with the Borrower, the "Loan Parties").
Key Conclusions. Our principal findings are as follows:
• Mortgage recording taxes represent the most significant state and local tax cost in connection with the security package for the Term Loan B. Estimated aggregate mortgage recording tax liability across four jurisdictions ranges from approximately $140,600 (best case, with the implementation of an allocation strategy in South Carolina) to approximately $5,180,000 (worst case, if the full face amount of the indebtedness is used as the taxable base in South Carolina).
• South Carolina is the primary jurisdiction of concern. South Carolina imposes a mortgage recording fee/tax at the rate of $1.85 per $500 of the stated amount of indebtedness secured. If the Greenville County mortgage states the full $1,400,000,000 face amount of the Term Loan B, the resulting recording tax would be approximately $5,180,000. We strongly recommend implementing a "maximum lien amount" or allocated amount strategy to reduce this exposure to approximately $140,600.
• Illinois and Texas do not impose mortgage recording taxes. Both Illinois (Cook County and Winnebago County) and Texas (Harris County) impose only nominal per-page recording fees for mortgage instruments, with no ad valorem mortgage tax, documentary stamp tax, or intangible tax.
• UCC-1 Financing Statement filings carry nominal administrative fees, not taxes. Aggregate UCC-1 filing fees across all six jurisdictions (Delaware, Illinois, Pennsylvania, South Carolina, Texas, and Michigan) are estimated at approximately $2,500 to $3,000. UCC-3 termination statement filings to release existing liens of Atlas Meridian Bank, N.A. will cost an additional estimated $1,500 to $2,000.
• No state in which the Loan Parties are organized imposes an intangible tax or transfer tax on the pledge of equity interests in connection with secured lending transactions.
The scope of this analysis covers the following:
(a) mortgage recording taxes in Cook County, Illinois; Winnebago County, Illinois; Greenville County, South Carolina; and Harris County, Texas;
(b) intangible taxes and documentary stamp taxes on security instruments in Illinois, South Carolina, and Texas;
(c) state and local transfer tax considerations on collateral pledges of personal property and equity interests;
(d) UCC filing fee analysis across all six filing jurisdictions (Delaware, Illinois, Pennsylvania, South Carolina, Texas, and Michigan); and
(e) a high-level summary of title insurance premium considerations related to mortgage recording.
The target closing date for the Term Loan B is March 28, 2025. The mortgages on the four owned real properties are post-closing deliverables due by April 30, 2025 under the Credit Agreement. The total appraised value of the real property collateral requiring mortgage recording is $193,000,000, comprising properties appraised at $85,000,000, $42,000,000, $38,000,000, and $28,000,000, respectively.
II. Transaction Overview and Relevant Security Package
A. Transaction Structure
The Term Loan B is a $1,400,000,000 senior secured term loan facility governed by a Credit Agreement to be dated as of March 28, 2025 (the "Credit Agreement"), among Nexford Industrial Holdings Inc., as Borrower, the Guarantors party thereto, Crescent Harbor Bank, N.A., as Administrative Agent and Collateral Agent, and the Lenders from time to time party thereto. The Credit Agreement is governed by the laws of the State of New York.
The proceeds of the Term Loan B will be applied as follows:
(i) approximately $879,375,000 to refinance in full the existing first lien term loan held by Atlas Meridian Bank, N.A. ("Atlas Meridian") under the Existing Credit Agreement dated as of June 15, 2021 (as amended);
(ii) approximately $190,000,000 to cash collateralize or otherwise retire the existing $190,000,000 revolving credit facility held by Atlas Meridian (which is currently undrawn);
(iii) approximately $335,000,000 to fund a cash dividend to the Holdings Guarantor, Granite Peak NIH Holdings, LLC;
(iv) approximately $38,625,000 to pay transaction fees and expenses (including the state and local taxes and filing fees analyzed in this memorandum); and
(v) approximately $147,000,000 to be retained as cash on the Borrower's balance sheet for general corporate purposes.
Crescent Harbor Bank, N.A. will serve as Collateral Agent for the benefit of the Secured Parties. All existing liens of Atlas Meridian Bank, N.A. on the assets of the Borrower and the Guarantors will be released at closing, and UCC-3 termination statements are to be filed no later than March 31, 2025.
B. Personal Property Collateral — UCC Filings
Under the Security Agreement to be executed on the closing date, the Collateral Agent will receive a first-priority security interest in substantially all personal property of the Borrower and each Guarantor, including, without limitation, accounts receivable, inventory, equipment, general intangibles, instruments, chattel paper, deposit accounts, investment property, intellectual property, and proceeds of the foregoing.
Perfection of the security interest in personal property will be accomplished primarily through the filing of UCC-1 Financing Statements in the applicable jurisdictions as determined by the location of each debtor entity under Article 9 of the Uniform Commercial Code. UCC-1 Financing Statements are to be filed in six jurisdictions, as follows:
Delaware Secretary of State — Seven filings for Delaware-organized entities:
1. Nexford Industrial Holdings Inc. (anticipated DE File No. 5765432)
2. Granite Peak NIH Holdings, LLC (anticipated DE File No. 7234891)
3. Nexford Precision Components Inc.
4. Nexford Engineered Systems LLC
5. Nexford Coatings & Surface Technologies Inc.
6. Nexford Properties LLC
7. Nexford International Holdings Inc.
Illinois Secretary of State — One filing:
8. Nexford Manufacturing Services, LLC (Illinois limited liability company)
Pennsylvania Department of State — One filing:
9. Clearfield Tool & Die, Inc. (Pennsylvania corporation)
South Carolina Secretary of State — One filing:
10. Summit Industrial Fabrication Co. (South Carolina corporation)
Texas Secretary of State — One filing:
11. Ridgepoint Specialty Coatings, LLC (Texas limited liability company)
Michigan Department of State — One filing:
12. Lakeshore Precision Engineering, Inc. (Michigan corporation)
In total, twelve (12) UCC-1 Financing Statements will be filed on or promptly after the closing date. The filing fees associated with these filings are addressed in Section VI of this memorandum.
C. Equity Pledges
In addition to the personal property security interests, the security package includes the following equity pledges:
Holdings Pledge. Granite Peak NIH Holdings, LLC will pledge 100% of its equity interest (membership interest) in the Borrower, Nexford Industrial Holdings Inc., pursuant to a Holdings Pledge Agreement.
Borrower Pledge. The Borrower will pledge 100% of its equity interest in each of its direct domestic subsidiaries pursuant to a Pledge Agreement, including its membership interests and shares of capital stock, as applicable, in each of Nexford Precision Components Inc., Nexford Engineered Systems LLC, Nexford Coatings & Surface Technologies Inc., Nexford Properties LLC, Nexford International Holdings Inc., and Nexford Manufacturing Services, LLC.
CFC Holdco Limited Pledge. Nexford International Holdings, Inc. will pledge (a) 65% of the voting equity and (b) 100% of the non-voting equity in Nexford Canada Holdings ULC, a British Columbia unlimited liability company, pursuant to a CFC Holdco Pledge Agreement. This limited pledge reflects the standard approach under Section 956 of the Internal Revenue Code to avoid deemed dividend treatment with respect to controlled foreign corporation stock.
Subsidiary Pledge Agreements. Each Subsidiary Guarantor will pledge its equity interests in any lower-tier subsidiaries it directly owns, pursuant to individual or joinder Subsidiary Pledge Agreements.
The state and local tax implications of these equity pledges are analyzed in Section VII.C of this memorandum.
D. Real Property Collateral — Mortgages
The Credit Agreement requires the Borrower and the Guarantors to deliver mortgages, deeds of trust, or similar instruments on each owned real property with a fair market value in excess of $10,000,000. Based on our review of the real property collateral schedule annexed to the draft Credit Agreement, four properties meet this threshold:
¹ The ownership entity for the Greenville property must be confirmed through the pending title search. The Memorandum — Real Property Title and Survey Review Summary dated February 20, 2025 identified a potential discrepancy as to whether Nexford Engineered Systems, LLC or Summit Industrial Fabrication Co. holds fee simple title. Resolution of this question is pending receipt of the title commitments from Landmark Title Assurance Company.
Each mortgage will be in the form of a Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing (or, in Texas, a Deed of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing). All four mortgages are post-closing deliverables under the Credit Agreement, required to be recorded and delivered (together with lender's title insurance policies) by April 30, 2025.
The title insurance underwriter for all four properties is Landmark Title Assurance Company. Title insurance considerations are discussed briefly in Section VIII of this memorandum and will be addressed in greater detail in a separate Title Insurance Commitment Review Memorandum anticipated in April 2025.
The aggregate appraised value of the real property collateral is $193,000,000. The mortgage recording taxes and recording fees applicable to each property are the central focus of Sections III through V of this memorandum.
III. Illinois — Cook County and Winnebago County Mortgage Recording Taxes
A. Applicable Taxes and Statutory Framework
The State of Illinois does not impose a state-level mortgage recording tax. This is an important distinction from certain other states (most notably South Carolina and New York) that impose ad valorem taxes on the recording of mortgage instruments.
The principal Illinois tax statute relating to real property transfers is the Illinois Real Estate Transfer Tax Act, 35 ILCS 200/31-1 *et seq., which imposes a tax on transfers of beneficial interests in real property. However, this statute applies to transfers of ownership (i.e., conveyances by deed or equivalent instruments) and is not triggered* by the grant of a mortgage lien or security interest in real property. Because the transactions at issue involve the granting of liens to secure indebtedness — rather than the conveyance of fee simple title or beneficial ownership — the Illinois Real Estate Transfer Tax is inapplicable.
Similarly, Illinois does not impose a documentary stamp tax or an intangible tax on mortgages securing commercial loans. The State of Illinois repealed its documentary stamp tax many years ago, and no successor tax has been enacted with respect to mortgage instruments.
For the recording of mortgage instruments in Illinois counties, the applicable charges are standard county recording fees imposed by the county recorder's office on a per-page basis. These fees are administrative in nature and are not calculated as a percentage of the secured indebtedness or the property value.
Cook County Considerations. Cook County, Illinois, in which the Schaumburg property is located, imposes recording fees through the Cook County Recorder of Deeds. The Cook County fee schedule generally consists of a base fee for the first page of a recorded document, plus a per-page charge for each additional page. Cook County has historically imposed certain surcharges (including a GIS surcharge and, at various times, other supplemental fees), but these surcharges remain nominal in the aggregate and are not calculated based on the amount of secured indebtedness. The total recording fee for a mortgage instrument of typical length (30 to 40 pages plus exhibits) is generally several hundred dollars.
Winnebago County Considerations. Winnebago County, Illinois, in which the Rockford property is located, follows the standard Illinois county recording fee schedule. Like Cook County, Winnebago County charges per-page recording fees, though the base fees and per-page rates may differ slightly from those in Cook County. The total recording fee is similarly expected to be nominal.
It bears emphasis that the Illinois Real Estate Transfer Tax, while not applicable to the mortgage recordings contemplated herein, may become relevant if any of the Illinois Loan Parties transfer ownership of the mortgaged properties in the future. Such a transfer could trigger the state transfer tax (currently $0.50 per $500 of consideration) and any applicable county or municipal transfer taxes (the City of Chicago, for example, imposes its own transfer tax, but the Schaumburg and Rockford properties are not within the City of Chicago).
B. Estimated Costs — Cook County (Schaumburg Property)
The mortgage to be recorded in Cook County will encumber the property located at 1400 Industrial Parkway, Schaumburg, Illinois 60173, which has an appraised value of $85,000,000. The grantor of the mortgage will be Nexford Properties, LLC.
Based on the current Cook County Recorder of Deeds fee schedule and our estimate that the mortgage instrument (including all exhibits, schedules, and legal descriptions) will be approximately 30 to 40 pages in length, the estimated recording fee is approximately $500. This figure includes the base recording fee, per-page charges, and applicable surcharges. No mortgage recording tax, documentary stamp tax, or intangible tax will be due in connection with this recording.
C. Estimated Costs — Winnebago County (Rockford Property)
The mortgage to be recorded in Winnebago County will encumber the property located at 2750 Commerce Drive, Rockford, Illinois 61101, which has an appraised value of $42,000,000. The grantor of the mortgage will be Nexford Precision Components, Inc.
Winnebago County applies the same Illinois per-page recording fee structure as Cook County, with minor variations in the applicable rates. Assuming a mortgage document of similar length (30 to 40 pages), the estimated recording fee is approximately $400. As with Cook County, no mortgage recording tax, documentary stamp tax, or intangible tax will be due.
D. Coordination with Hargrove & Whitmore LLP
We have engaged Hargrove & Whitmore LLP as Illinois local counsel for the real property collateral matters. Robert Kimura, lead partner at the firm's office at 233 South Wacker Drive, Suite 4500, Chicago, Illinois 60606, is our primary contact. We have requested that Hargrove & Whitmore:
(i) confirm the current Cook County and Winnebago County recording fee schedules, including any recently enacted surcharges or changes to per-page rates;
(ii) advise on any recent legislative or regulatory changes in Illinois that could affect the recording of mortgage instruments;
(iii) prepare or review mortgage recording cover letters for submission to both the Cook County Recorder of Deeds and the Winnebago County Recorder of Deeds; and
(iv) assist with coordination of the post-closing mortgage recordings in advance of the April 30, 2025 deadline.
We expect to receive Hargrove & Whitmore's confirmation of the current fee schedules by March 17, 2025.
IV. South Carolina — Greenville County Mortgage Recording Tax and Documentary Stamp Tax
A. Applicable Taxes and Statutory Framework
South Carolina is the primary jurisdiction of concern in this transaction from a state and local tax perspective. South Carolina imposes a mortgage recording fee (functionally a tax) under S.C. Code Ann. § 12-24-10 *et seq.*, commonly referred to as the Deed Recording Fee statute. Despite its name, this statute governs the recording fees applicable to both deeds and mortgages.
Under the applicable provisions, the recording fee on mortgages is assessed at the rate of $1.85 per $500 (or fraction thereof) of the principal amount of the indebtedness secured by the mortgage. This rate applies to the face amount of the debt stated in the mortgage instrument, not to the appraised value or fair market value of the encumbered real property.
Critical Issue — Tax Base. The secured indebtedness under the Term Loan B is $1,400,000,000. The Greenville County mortgage will secure all obligations of the applicable Loan Party grantor under the Credit Agreement, and the standard form of the mortgage defines the "Secured Obligations" by reference to the full amount of the Credit Agreement obligations. If the mortgage is recorded with the full $1,400,000,000 as the stated amount of indebtedness secured, the resulting recording tax would be calculated as follows:
$1,400,000,000 ÷ $500 = 2,800,000 units
2,800,000 × $1.85 = $5,180,000
This amount — approximately $5.18 million — represents an extremely significant transactional cost and would consume a substantial portion of the $38,625,000 budgeted for transaction fees and expenses.
Allocation Strategy. Under South Carolina law, the recording fee is assessed on the face amount of the mortgage — that is, the stated amount of indebtedness secured as set forth in the mortgage instrument itself. Critically, if the mortgage includes a "maximum lien amount" or if the stated amount of secured indebtedness is limited to an allocated amount rather than the full face amount of the credit facility, the recording fee is calculated based on the lower stated amount.
This approach — commonly employed in multi-property, multi-state secured lending transactions — involves drafting the South Carolina mortgage to include a cap or limitation on the principal amount of indebtedness that the mortgage secures. For example, the mortgage could state that, notwithstanding the aggregate amount of the Secured Obligations, the maximum amount of indebtedness secured by the lien on the Greenville County property shall not exceed $38,000,000 (the appraised value of the property). The recording fee would then be calculated on the $38,000,000 maximum lien amount:
$38,000,000 ÷ $500 = 76,000 units
76,000 × $1.85 = $140,600
The savings from implementing this strategy are substantial — approximately $5,039,400.
Permissibility. The maximum lien allocation approach is a recognized practice in South Carolina and has been accepted by county recorders' offices in connection with large commercial lending transactions. However, the following considerations must be addressed:
(a) The Collateral Agent (Crescent Harbor Bank, N.A.) must consent to the inclusion of a maximum lien amount in the Greenville County mortgage. Lenders sometimes resist this approach because it formally limits the amount of indebtedness that the mortgage secures, which may affect the lender's position in a foreclosure or bankruptcy proceeding to the extent the value of the property exceeds the stated maximum lien amount.
(b) Counsel to the Collateral Agent, Whitfield & Gage LLP (Margaret Ashby and Jonathan Ferris), should be consulted to confirm the Collateral Agent's acceptance of this approach and to determine whether the maximum lien amount should be set at the current appraised value ($38,000,000) or at some other figure.
(c) South Carolina local counsel should be engaged to confirm that the Greenville County Recorder of Deeds will accept the maximum lien amount approach and to advise on the specific drafting language required.
We strongly recommend that the maximum lien allocation strategy be pursued. The potential tax savings of approximately $5,039,400 are material, and the approach is well-established in South Carolina commercial practice.
B. Estimated Costs — Greenville County
The mortgage to be recorded in Greenville County will encumber the property located at 600 Manufacturers Row, Greenville, South Carolina 29607, which has an appraised value of $38,000,000. The grantor will be Nexford Engineered Systems, LLC or Summit Industrial Fabrication Co. (ownership entity to be confirmed).
The per-page recording fee imposed by Greenville County is an additional nominal charge, estimated at approximately $200 based on the anticipated length of the mortgage document.
We strongly recommend the maximum lien allocation approach, as set forth above, and urge that consultations with Crescent Harbor Bank, N.A. (Elaine Prescott and Thomas Nakamura, Collateral Agent contacts) and Whitfield & Gage LLP (Margaret Ashby) commence promptly to ensure this approach is agreed upon well in advance of the April 30, 2025 recording deadline.
C. South Carolina Intangible Tax
South Carolina previously imposed a separate intangible tax on certain financial instruments and obligations, but this tax has been repealed. As of the date of this memorandum, South Carolina does not impose a separate intangible tax on mortgages or on the obligations secured thereby. The recording fee under S.C. Code Ann. § 12-24-10 et seq. is the sole material tax imposed on the recording of mortgage instruments in South Carolina.
We have confirmed that Greenville County does not impose any county-level supplemental taxes or surcharges on mortgage recordings beyond the state recording fee and the standard per-page county recording fee. However, we recommend that South Carolina local counsel provide a final confirmation on this point prior to recording.
V. Texas — Harris County Mortgage Recording and Documentary Considerations
A. Applicable Taxes and Statutory Framework
Texas is among a small number of states that do not impose a mortgage recording tax, documentary stamp tax, or real estate transfer tax on the recording of mortgage instruments (or, in Texas parlance, deeds of trust). This favorable tax environment significantly reduces the transactional costs associated with the Harris County mortgage recording.
The applicable filing and recording fees in Harris County are governed by Texas Government Code § 118.011 *et seq.*, which establishes the fee schedule for county clerks in connection with the recording of real property instruments. These fees are assessed on a per-page basis and include a base recording fee, a records management and preservation fee, and any applicable courthouse security fee. All such fees are nominal.
Texas does not impose any ad valorem tax, stamp tax, or intangible tax on deeds of trust or other mortgage instruments. The State of Texas has never enacted a mortgage recording tax, and there have been no recent legislative proposals to introduce one.
B. Estimated Costs — Harris County (Houston Property)
The deed of trust to be recorded in Harris County will encumber the property located at 9100 Westpark Industrial Boulevard, Houston, Texas 77063, which has an appraised value of $28,000,000. The grantor will be Ridgepoint Specialty Coatings, LLC. The instrument will be in the form of a Deed of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing, consistent with Texas practice.
Based on the current Harris County Clerk fee schedule and our estimate that the deed of trust instrument will be approximately 30 to 40 pages, the estimated recording fees are approximately $500, inclusive of the base recording fee, per-page charges, the records management and preservation fee, and any applicable courthouse security fee. No mortgage recording tax, documentary stamp tax, or intangible tax is due.
C. Texas Franchise Tax Considerations
While the absence of a mortgage recording tax in Texas is favorable, we note for completeness that the grant of a security interest and the activities of the Loan Parties in connection with Texas real property could, in theory, create or reinforce nexus for purposes of the Texas franchise (margin) tax under Texas Tax Code Chapter 171.
However, Ridgepoint Specialty Coatings, LLC is organized under Texas law and already conducts business operations at the Houston property. As such, it is already subject to the Texas franchise tax, and the recording of the deed of trust does not create any incremental nexus or franchise tax liability.
With respect to other Loan Parties that are not organized in Texas and do not otherwise have Texas nexus, the mere fact that they are parties to a credit agreement that is secured, in part, by Texas real property should not, standing alone, create Texas franchise tax nexus. The security interest is being granted by Ridgepoint Specialty Coatings, LLC as the property owner, and the other Loan Parties are not conducting activities in Texas in connection with the mortgage recording. No incremental Texas franchise tax issue arises from the mortgage recording itself.
VI. UCC Filing Fees — All Jurisdictions
A. Overview
UCC-1 Financing Statement filing fees are administrative charges imposed by the applicable filing office (typically the Secretary of State or Department of State) in connection with the acceptance and indexing of financing statements under Article 9 of the Uniform Commercial Code. These fees are not taxes; they are ministerial charges for the filing and maintenance of public records. Accordingly, the UCC filing fees do not present the same magnitude of transactional cost as the South Carolina mortgage recording tax analyzed in Section IV above.
Twelve UCC-1 Financing Statements will be filed across six jurisdictions at or promptly following closing. In addition, UCC-3 termination statements will be filed to release the existing liens of Atlas Meridian Bank, N.A. The fees for each jurisdiction are summarized below.
B. Delaware Secretary of State
The Delaware Secretary of State currently charges a standard UCC-1 filing fee of $279 per filing, which includes the $110 base fee and a certified copy fee that is customarily obtained for lender diligence and file confirmation purposes.
Seven UCC-1 filings will be made in Delaware for the seven Delaware-organized Loan Parties: Nexford Industrial Holdings Inc., Granite Peak NIH Holdings, LLC, Nexford Precision Components Inc., Nexford Engineered Systems LLC, Nexford Coatings & Surface Technologies Inc., Nexford Properties LLC, and Nexford International Holdings Inc.
Estimated total Delaware UCC-1 fees: approximately $1,953 (7 × $279).
C. Illinois Secretary of State
The Illinois Secretary of State charges a UCC-1 filing fee currently in the range of $10 to $30, depending on the filing method (electronic versus paper) and any applicable surcharges. One UCC-1 filing will be made for Nexford Manufacturing Services, LLC, an Illinois limited liability company.
Estimated total Illinois UCC-1 fees: nominal (approximately $10–$30).
D. Pennsylvania Department of State
The Pennsylvania Department of State currently charges approximately $126 per UCC-1 filing. One filing will be made for Clearfield Tool & Die, Inc., a Pennsylvania corporation.
Estimated total Pennsylvania UCC-1 fees: approximately $126.
E. South Carolina Secretary of State
The South Carolina Secretary of State charges approximately $10 to $25 per UCC-1 filing. One filing will be made for Summit Industrial Fabrication Co., a South Carolina corporation.
Estimated total South Carolina UCC-1 fees: nominal (approximately $10–$25).
F. Texas Secretary of State
The Texas Secretary of State charges approximately $25 per UCC-1 filing. One filing will be made for Ridgepoint Specialty Coatings, LLC, a Texas limited liability company.
Estimated total Texas UCC-1 fees: approximately $25.
G. Michigan Department of State
The Michigan Department of State charges approximately $20 per UCC-1 filing. One filing will be made for Lakeshore Precision Engineering, Inc., a Michigan corporation.
Estimated total Michigan UCC-1 fees: approximately $20.
H. UCC-3 Termination Statements — Atlas Meridian Liens
UCC-3 termination statements must be filed to release the existing liens of Atlas Meridian Bank, N.A. in each jurisdiction where Atlas Meridian's UCC-1 financing statements are currently on file. Based on our review of the lien search results, termination statements will need to be filed in Delaware, Illinois, Pennsylvania, South Carolina, Texas, and Michigan. The number of UCC-3 filings will correspond to the number of existing Atlas Meridian financing statements, which we understand to be approximately twelve across the six jurisdictions.
Filing fees for UCC-3 statements are generally comparable to or lower than UCC-1 filing fees in each jurisdiction. The estimated aggregate cost of the UCC-3 termination filings is approximately $1,500 to $2,000.
Atlas Meridian Bank, N.A. is obligated under the payoff arrangements to authorize the filing of UCC-3 termination statements, and we understand that the requisite UCC-3 authorization letters are being prepared by Atlas Meridian's counsel. The termination filings are to be completed by March 31, 2025 — three days after the closing date — to allow for processing of the payoff and wire transfer confirmations.
VII. Intangible Tax Analysis — Broader Survey
A. States Without Intangible or Mortgage Recording Taxes
For completeness, and to confirm that no unanticipated tax exposure exists in the jurisdictions in which the Loan Parties are organized or in which collateral is located, we have surveyed the applicable intangible tax and mortgage recording tax regimes in each relevant state:
Delaware. Delaware does not impose a mortgage recording tax or an intangible tax on security instruments. While Delaware does impose a realty transfer tax on transfers of real property (4% of the value of the property, split between buyer and seller), this tax is triggered only by deed transfers, not by mortgage recordings. No Loan Party real property is located in Delaware, but even if it were, the recording of a mortgage would not trigger the realty transfer tax. Delaware is relevant to this transaction primarily as the state of organization for the majority of the Loan Parties and as the filing jurisdiction for seven UCC-1 financing statements, none of which generates a tax obligation.
Michigan. Michigan does not impose a mortgage recording tax. The State of Michigan does impose a real estate transfer tax on deed transfers (at the rate of $7.50 per $1,000 of consideration at the state level, plus a county-level tax of $1.10 per $1,000), but this tax is inapplicable to the recording of mortgage instruments. No Loan Party real property requiring mortgage recording is located in Michigan. The sole Michigan filing is the UCC-1 for Lakeshore Precision Engineering, Inc., which carries only the nominal administrative fee discussed in Section VI.G above.
Pennsylvania. Pennsylvania does not impose a mortgage recording tax in the traditional sense. Pennsylvania does impose a realty transfer tax on deed transfers (at a combined state and local rate that varies by municipality, with the state portion currently at 1%), but this tax is not triggered by mortgage recordings. No Loan Party real property requiring mortgage recording is located in Pennsylvania. The sole Pennsylvania filing is the UCC-1 for Clearfield Tool & Die, Inc.
Texas. As discussed in detail in Section V above, Texas does not impose a mortgage recording tax, documentary stamp tax, or real estate transfer tax on the recording of mortgage instruments.
Illinois. As discussed in detail in Section III above, Illinois does not impose a mortgage recording tax. The Illinois Real Estate Transfer Tax applies only to deed transfers and is not triggered by the grant of a mortgage lien.
B. States With Potential Exposure
South Carolina. South Carolina is the only state with material recording tax exposure in connection with this transaction. The South Carolina mortgage recording fee/tax is analyzed in detail in Section IV of this memorandum. As noted, the exposure ranges from approximately $140,600 (with the maximum lien allocation strategy) to approximately $5,180,000 (without allocation).
Florida. Florida is not applicable to this transaction. No Loan Party owns real property in Florida, and no collateral is located in Florida. We note that one of the syndicate lenders, Bluewater Fixed Income Fund, LP, has its principal office in Miami, Florida, but this fact does not create any mortgage recording tax nexus in Florida, as mortgage recording taxes are assessed in the jurisdiction where the encumbered real property is located, not where the lender is domiciled.
Georgia. Georgia is similarly not applicable. No collateral properties are located in Georgia, and no Loan Parties are organized in Georgia.
C. Intangible Tax on Equity Pledges
We have analyzed whether any state in which the Loan Parties are organized or in which collateral is located imposes an intangible tax, transfer tax, or documentary stamp tax on the pledge of equity interests (i.e., membership interests in limited liability companies or shares of capital stock in corporations) in connection with secured lending transactions.
Our conclusion is that no such tax applies in any of the relevant jurisdictions:
• Delaware does not impose an intangible tax on pledges of LLC membership interests or corporate stock. Delaware's unclaimed property reporting rules and the Delaware franchise tax are not triggered by the creation of a security interest in equity.
• Illinois does not impose an intangible tax or transfer tax on pledges of equity interests. The Illinois Real Estate Transfer Tax Act, to the extent it reaches transfers of beneficial interests in entities that own real property, is not triggered by the creation of a pledge or security interest (as opposed to a transfer of ownership).
• Pennsylvania, South Carolina, Texas, and Michigan do not impose intangible taxes or transfer taxes on the pledge of equity interests in connection with secured lending.
Accordingly, the Holdings Pledge, the Borrower Pledge, the CFC Holdco Limited Pledge, and the Subsidiary Pledge Agreements will not give rise to any state or local intangible tax, transfer tax, or documentary stamp tax liability.
VIII. Title Insurance Considerations
Although title insurance premiums are not a "tax" in the legal or fiscal sense, they represent a significant transactional cost directly related to the mortgage recordings and are therefore addressed briefly in this memorandum for the convenience of the deal team.
The title insurance underwriter for all four mortgaged properties is Landmark Title Assurance Company. Lender's title insurance policies will be issued in connection with each mortgage to insure the priority and validity of the Collateral Agent's mortgage lien.
Illinois Properties. Title insurance premiums for the Schaumburg property (Cook County) and the Rockford property (Winnebago County) will be calculated based on the Illinois Department of Insurance rate schedules. Illinois title insurance rates are filed and regulated by the Department of Insurance. The premium will be calculated based on the insured amount, which is typically the allocated portion of the secured indebtedness attributable to the property or the appraised value of the property, as agreed between the title underwriter and the insured. We note that the methodology for determining the insured amount of each lender's title policy should be coordinated between the deal team and Landmark Title Assurance Company.
South Carolina Property. Title insurance premiums for the Greenville property will be calculated based on rates approved by the South Carolina Department of Insurance. South Carolina regulates title insurance rates, and the premium is calculated as a percentage of the insured amount. Given the considerations discussed in Section IV regarding the maximum lien allocation approach, the insured amount for the South Carolina lender's title policy should be consistent with the stated maximum lien amount in the mortgage.
Texas Property. Title insurance rates in Texas are promulgated by the Texas Department of Insurance and are uniform across all title insurance underwriters in the state. The basic premium rate is calculated on the insured amount based on a published schedule. Texas title insurance rates are not negotiable, as they are set by the state regulator.
Endorsements. In addition to the basic lender's title insurance premiums, the Collateral Agent will likely require various endorsements to the title policies, including, but not limited to:
• Zoning endorsements (ALTA 3.0 or 3.1)
• Environmental protection lien endorsements
• Survey endorsements (ALTA 25 or 25.1)
• Creditors' rights endorsements
• Comprehensive endorsements (ALTA 9.0)
• Tax parcel endorsements
• Access endorsements
Each endorsement carries an additional premium, which varies by jurisdiction and by endorsement type. The aggregate endorsement costs across the four properties could be significant and should be factored into the overall title insurance budget.
Coordination. Premium quotes from Landmark Title Assurance Company for all four properties should be obtained promptly so that title insurance costs can be incorporated into the approximately $38,625,000 total transaction fees and expenses estimate. Title insurance commitments are expected to be issued in late March or early April 2025, and a separate Title Insurance Commitment Review Memorandum will be prepared by the deal team (anticipated April 2025).
IX. Summary of Estimated State and Local Tax and Fee Costs
A. Mortgage Recording Taxes and Fees — Summary Table
B. UCC Filing Fees — Summary
C. Total Estimated State and Local Tax and Fee Exposure
The difference between the best-case and worst-case scenarios is approximately $5,039,400 — driven entirely by the South Carolina mortgage recording tax treatment. This underscores the critical importance of implementing the maximum lien allocation strategy for the Greenville County mortgage.
Recommendation. We strongly recommend that the deal team pursue the maximum lien allocation approach in South Carolina to achieve the material savings reflected in the best-case scenario. The action items necessary to implement this recommendation are set forth in Section X below.
X. Recommendations and Action Items
Based on the analysis set forth in this memorandum, we recommend the following action items, organized by priority:
1. South Carolina Maximum Lien Allocation. Draft the Greenville County mortgage to include a stated maximum lien amount. We recommend setting the maximum lien amount at $38,000,000, which is equal to the appraised value of the 600 Manufacturers Row property. The inclusion of this cap will reduce the South Carolina mortgage recording tax from approximately $5,180,000 to approximately $140,600 — a savings of approximately $5,039,400. This approach requires the following coordination:
(a) Discuss with Crescent Harbor Bank, N.A. (contacts: Elaine Prescott, SVP, Secured Lending; Thomas Nakamura, VP, Collateral Administration) and its counsel, Whitfield & Gage LLP (contacts: Margaret Ashby, lead partner; Jonathan Ferris, associate), to confirm the Collateral Agent's acceptance of a maximum lien amount in the South Carolina mortgage.
(b) Engage South Carolina local counsel to confirm (i) the permissibility of the maximum lien amount approach under South Carolina law and Greenville County Recorder of Deeds practice, (ii) the specific drafting language required, and (iii) any procedural requirements for recording a mortgage with a stated maximum lien amount in Greenville County.
(c) Document the allocation rationale (based on the appraised fair market value of the encumbered property) in the event of any subsequent inquiry or challenge by the South Carolina Department of Revenue or the Greenville County Recorder.
2. Illinois Recording. Confirm the current Cook County and Winnebago County recording fee schedules with Hargrove & Whitmore LLP (contact: Robert Kimura, lead partner, 233 South Wacker Drive, Suite 4500, Chicago, IL 60606). Prepare recording cover letters for both counties. Target completion by March 21, 2025.
3. Texas Recording. Confirm the current Harris County Clerk fee schedule for recording deeds of trust. No special tax mitigation strategy is needed for Texas. Target completion by March 21, 2025.