Item 1.01 Entry into a Material Definitive Agreement.
Entry into a Note and Loan Agreement
On October 24, 2022, AppHarvest Berea Farm, LLC (the “Borrower Subsidiary”), a wholly-owned indirect subsidiary of AppHarvest, Inc. (the “Company”), entered into a note and loan agreement, dated October 24, 2022, (the “Note and Loan Agreement”) in the principal amount of $30.0 million (the “Note”) with Mastronardi Produce-USA, Inc.(“Mastronardi” or the “Lender”). Capitalized terms used in this Current Report on Form 8-K but not otherwise defined herein have the meaning ascribed to them in the Note and Loan Agreement.
Pursuant to the Note and Loan Agreement, the Lender agreed to advance $15.0 million upon execution of the agreement, and further amounts of up to $15.0 million provided that no Event of Default has occurred and certain other conditions have been met. The first tranche of $15.0 million was funded on October 25, 2022. The proceeds of the Note may be used for general corporate purposes consistent with a Cash Flow Forecast provided to Lender and may not be used to pay any dividends or make any distribution on account of or redeem, retire or purchase any capital stock.
Subject to any acceleration by the Lender or extension by the Borrower Subsidiary, all outstanding principal (including PIK Amounts), together with all accrued and unpaid interest, and any other sums payable under the Loan Documents shall be due and payable in full on December 19, 2022 (the “Initial Maturity Date”). The Initial Maturity Date may be extended for two (2) successive terms (the “Extension Option”) of thirty (30) days each to January 18, 2023 if the first Extension Option is exercised and February 17, 2023 if the second Extension Option is exercised, in each case subject to the satisfaction of certain conditions, including that the Borrower Subsidiary shall have agreed to the material terms for a Sale Leaseback transaction with the Lender, its affiliate or another third party. The Borrower Subsidiary will pay interest under the Note and Loan Agreement in arrears, on the first day of each calendar month, commencing on November 1, 2022 and continuing on the first day of each calendar month thereafter with a final payment on December 19, 2022 (or January 18, 2023 if the first Extension Option is exercised or February 16, 2023 if the second Extension Option is exercised). The interest rate shall be equal to seven and one-half percent (7.5%) per annum; provided that, in the event that the entire principal balance under the Note and Loan Agreement is not paid when due, or if any other Event of Default shall have occurred and be continuing, then the interest rate shall be equal to the lesser of 12.5% per annum or the maximum legal rate at the time any such interest is to be calculated.
The Note is secured by a Mortgage on the Borrower Subsidiary’s property located in Berea, Kentucky (the “Berea Property”).
In connection with the Borrower Subsidiary’s entry into the Note and Loan Agreement, on October 24, 2022, AppHarvest Operations, Inc. (“AppHarvest Operations”), a wholly-owned direct subsidiary of the Company, entered into a pledge and security agreement (together with the Note and Loan Agreement and the Mortgage, the “Loan Documents”) with Mastronardi, pursuant to which AppHarvest Operations granted to Mastronardi a first priority security interest in 100% of the limited liability company ownership interests in the Borrower Subsidiary.
The Loan Documents include customary representations and covenants for financing transactions of this nature, including, among others, financial reporting covenants and negative covenants regarding the Transfer of ownership interests in AppHarvest Operations and Borrower Subsidiary and the Transfer of the Berea Property as well as restrictions on distributions.
In connection with the Borrower Subsidiary’s entry into the Note and Loan Agreement, on October 24, 2022, the Company and Mastronardi Produce Limited (“MPL”) also entered into an exclusivity agreement (the “Exclusivity Agreement”). Pursuant to the Exclusivity Agreement, the Company agreed to negotiate exclusively with MPL regarding a Sale Leaseback or similar transaction with respect to the Berea Property for a period of 30 days after the date of the Exclusivity Agreement, subject to a previously disclosed right of first refusal with respect to certain financings structured as a sale-leaseback or build-to-suit lease granted by the Company to a third party. The Borrower Subsidiary and MPL also entered into a memorandum of agreement pursuant to which any successor owners, occupants, lessees and users of the Berea Property will be subject to the terms of that certain Purchase and Marketing Agreement, as amended, between the Company and MPL, pursuant to which MPL will be the sole and exclusive marketer of all products grown at the Berea Property that meet certain quality standards.
The foregoing description is only a summary of the Note and Loan Agreement and the Mortgage and is qualified in its entirety by reference to the full text of the Note and Loan Agreement and the Mortgage, copies of which will be filed as exhibits to the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.