6.3 EDSR 12-16-2013 ilk Request for Action
River
To Item Number
Economic Development Authority 6.3
Agenda Section Meeting Date Prepared by
General Business December 16,2013 Jeremy Barnhart, Deputy Director, CODD and
Brian Beeman, Director of Economic
Development
Item Description Reviewed by
Sportech Forgivable Loan
Reviewed by
Action Requested
Direct,by motion, staff to prepare a Loan Agreement for Sportech as recommended by the EDA
Finance Committee,to be formally approved in January.
Background/Discussion
Sportech is a manufacturing company that produces aftermarket products for sporting vehicles. Sportech
plans an expansion of a 6,210 sq ft upper level Customer Innovation Center that overlooks the production
floor.Although no increase in building footprint, the added space will allow the engineering department to
observe how their ideas are being implemented. Sportech is anticipating adding 6-8 design engineers during
2014-2015.A drawing of the proposed expansion is included in the packet.The total project cost is $263,088
and the project is expected to be completed by the second quarter of 2014.
Based on the information submitted thus far,it appears the plan meets the business subsidy criteria, however,
some additional information has been requested to complete the analysis. At this point, staff and the Finance
Committee are comfortable moving forward with the development of an agreement,with that agreement and
the full application materials being reviewed in January by both the EDA and the City Council.
The EDA is under some pressure from the state to utilize the remaining balance of state DEED funds or
return it to the State by the end of the year;that amount is $111,155.13. Sportech represents the only project
received that would be eligible.
A representative from Springsted, the city's financial consultant and a representative from Sportech will be
present to explain the project.
Financial Impact
N/A
Attachments
• Sportech Forgivable Loan Application (will be sent under cover by email due to confidentiality)
• Comment letter from Springsted dated December 11,2013
P / ■ ErE , 11
NAME
• Elk Request for Action
River
To Item Number
EDA Finance Committee 4.3
Agenda Section Meeting Date Prepared by
General Business November 12, 2013 Jeremy Barnhart, Deputy Director, CODD and
Brian Beeman,Director of Economic
Development
Item Description Reviewed by
Sportech Forgivable Loan
Reviewed by
Action Requested
Consider Forgivable Loan application for Sportech and recommend approval to EDA in the amount of
$111,155.13.
Background/Discussion
The EDA established Forgivable Loan guidelines in February 2013. The program is designed to stimulate
private sector investment, help spur new construction, create and retain employment opportunities, and
promote the sale of city property,using remaining State funds that must be used by the end of 2013.
• Sportech is a manufacturing company that produces aftermarket products for sporting vehicles.According to
company executives, Sportech has seen a 300%increase in business since last year and has surpassed$64 mill
in sales this year. In order to keep up with the increased demand, Sportech has submitted a Forgivable Loan
application for the expansion of their design and engineering process with an investment of a Customer
Innovation Center. The expansion is a 6,210 sq/ft upper level Customer Innovation Center that overlooks
the production floor. While the footprint of the building will not increase, the second level will increase in
size. The added space will allow the engineering department to observe how their ideas are being
implemented. Sportech is anticipating adding 6-8 design engineers during 2014-2015. They will also be
adding new CAD software, computer equipment&display technologies. A drawing of the proposed
expansion is included. The total project cost is $263,088 and the project is expected to be completed by the
second quarter of 2014.A cursory review by the building department did not yield immediate concerns.
In order to avoid having to give the remaining balance of the Forgivable Loan fund back to the State,the city
must use the remaining amount of$111,155.13 or have a letter of commitment by an applicant by the end of
the year. Staff has been communicating to the State that an application has been received and they are willing
to work with the City as long as they know the funds are being used.
Since the end of 2013 is near and no other applications have been received, staff recommends the EDA
Finance Committee make recommendation to the EDA to approve the Forgivable Loan with the following
terms and conditions:
• $111,155,13 at 3%interest, 5year term, 10 year amortization
• EDA to secure personal guarantee
• • EDA to obtain subordinate lien position on building and any machinery financed
r / 1 E 1 E 1 I T
NAME
• The loan will be forgiven upon completion of all the goals and requirements set forth by the Forgivable Loan
Policy. The policy requires one FTE job per$35,000 requested requiring four jobs. These jobs must be
maintained for at least one year and 51% of them must be must be awarded to employees meeting the Low
to Moderate Income requirements pursuant to the City's policy.
Staff determined through conversations with DEED that in the event the city loaned dollars and then
recouped them due to an applicant failing to fulfill the requirements set forth in the policy, there would be no
penalty;however, the dollars would need to be committed again in order for the city to apply for state grants.
The city is eligible to apply for state grants upon committing the funds. Once the EDA makes a
recommendation, the City Council will make the final approval.
A representative from Springsted, the city's financial consultant and a representative from Sportech will be
present to explain the project.
Financial Impact
The financial impact of approving the loan would be $111,155.13 with the applicant paying all legal and
filing fees at closing.
Attachments
• Springsted Memo
• Sportech Forgivable Loan Application
• Sportech Power Point Expansion Presentation
•
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1 N:\Departments\Community Development\Economic Development\EDA\Adminstrative\Agenda\Finance Committee Agenda\2013\12-10-
2013\x 4.3 sr Sportech Forgivabel Loan.docxDocumcnt3
Springsted Incorporated
Sp
380 Jackson Street, Suite 300
r ingsted Saint Paul,MN 55101-2887
Tel: 651-223-3000
Fax: 651-223-3002
www.springsted.com
DRAFT MEMORANDUM
TO: Members of the EDA Finance Committee
Brian Beeman, Economic Development Director
FROM: Mikaela Huot, Vice President/Consultant
Julian Bradshaw,Analyst
DATE: December 4, 2013
SUBJECT: Sportech, Inc.—Forgivable Loan Application Review
• Summary
At the request of the City of Elk River, Springsted has undertaken a review of the Sportech, Inc. forgivable loan
application.The purpose of this review is to ensure(based upon the provided information)that the applicant meets the
guidelines set forth by the City's forgivable loan policy. According to Sportech, Inc, the company produces OEM
(Original Equipment Manufacturer) thermoformed plastic products for numerous markets including the recreational
and utility vehicle product industry. Common products and accessories include windshields, UTV cab systems, skid
plates, body panels, and other miscellaneous components. Sportech's manufacturing and supplier facility is currently
located at 10800 175th Ave. NW in Elk River. Sportech, Inc. is requesting financial assistance of$111,115 in the form
of a forgivable loan to support remodeling and internal expansion of its current facility (to create a "Customer
Innovation Center", as termed by the company). The total estimated cost of the project is $263,088 and includes
primarily an internal expansion of its engineering work area.
Springsted has reviewed the following materials with regard to the above referenced project:
• Sportech, Inc. Forgivable loan application,submitted to the City on December 2,2013
• Balance sheets&Income statements for 2011 and 2012
Approach
Sportech, Inc. has provided Springsted, through the City,with its forgivable loan application and related materials. The
goals of Elk River's forgivable loan program, as stated in the policy guidelines, are to stimulate private sector
• investment to help spur new construction,create and retain employment opportunities, and to promote the sale of city-
owned property. The following review will outline the loan eligibility criteria as presented in the Elk River Economic
Public Sector Advisors
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City of Elk River, Minnesota
Sportech, Inc.Application Review
December 4,2013
Page 2
Development Forgivable Loan Policy guidelines and identify if the applicant meets those guidelines. Springsted's
determination that the applicant has fulfilled the necessary criterion is based upon the available information
(application information and related materials provided by the applicant and the City) and the City's current policy
guidelines. We have focused specifically on the project eligibility, eligible activities, business eligibility, and financial
feasibility requirements as stated in the guidelines. The review is meant to provide a snap shot of the above
referenced information and should be used as a tool to enable the City to form an opinion as to the applicant's
suitability for the forgivable loan program and ability to proceed with the project and honor any commitment made to
the City of Elk River.
Note on Financials
Sportech, Inc. has provided Springsted,through the City,with consolidated financial statements from the last two
years. The consolidated statements include Sportech, Inc. and Envision Company, LLC. According to the notes to
the financial statements, Envision Company, LLC shares common ownership with Sportech and is currently the lessor
of Sportech's operating facility.The notes also state that Sportech, Inc. has guaranteed the debt of the building owned
by Envision Company, LLC.
Project Eligibility Requirements
• The City's forgivable loan policy indicates that prior to the City granting a forgivable loan to a proposed business,that
the proposed project must meet certain eligibility requirements.According to the City of Elk River's forgivable loan
policy guidelines,a forgivable loan must be based on one of the following criteria(Criterion 6 or 7 must be
accompanied by either 1,2,3,4 or 5.):
1. Creation of new jobs which meet the federal low to moderate income(LMI)guidelines and wage goals.
At least 51%of the jobs created must be made available or held by LMI person(s);
According to Sportech's application materials the company plans to employ an additional six to ten
mechanical and design engineers with annual salary's ranging from$50,000 to$75,000.
2. Increase in tax base;
According to Sportech's application materials the company plans to remodel its current facility through
architectural redesign and additional industrial equipment. This remodel will increase the work force and
production at the facility.
3. The project demonstrates that investment of public dollars induces private funds;
According to Sportech's application materials the company expects that after receiving the forgivable loan
• from the city that$757,933 of the approximately$263,088 in project costs will be financed privately.
City of Elk River, Minnesota
Sportech, Inc.Application Review
December 4, 2013
Page 3
4. The project provides higher wage levels to the community or will add value to current workforce skills;
As stated under criteria number one, Sportech plans to hire six to ten engineers at salaries ranging from
$50,000 to$75,000.
5. The project results in the sale and development of city owned property;
The company does not anticipate acquiring any additional property with the proposed business expansion.
Therefore the project will not result in the sale and development of city owned property.
6. Whether assistance is necessary to retain existing business;and
The applicant has not specifically stated that the assistance is necessary to retain the company within the
City of Elk River at the present time. However, the company is planning to expand its existing operations
within the City of Elk River with the proposed project through the hiring of additional employees for
engineering purposes. Approval of the loan and this project will allow the existing company to remain in the
City of Elk River and expand certain aspects of the business, thus resulting in existing business retainage.
• 7. Whether assistance is necessary to attract out-of-state business.
The applicant has not indicated the project will attract out-of-state business.
Eligible Activities
To qualify for a forgivable loan the applicant must utilize the funds for the specific purposes outlined in the City's
forgivable loan policy.According to the forgivable loan policy,forgivable loans may be used for the following activities:
1. Land acquisition(city owned property given preference);
2. Purchase of furniture,fixtures and equipment(FF&E)along with construction*.
a. *If equipment installation is greater than$2,000, Davis Bacon Rates Apply.
According to Sportech's application materials the company plans to utilize forgivable loan funds to aid in the
purchase of equipment and to reduce construction costs associated with the remodeling of its facility.
Business Eligibility
In addition to having an eligible project a business must also meet certain criteria before it is deemed eligible to
receive forgivable loan funds. According to the forgivable loan policy, to be eligible for a forgivable loan a business
must meet the following:
1. Business must be a for-profit corporation, partnership or sole proprietorship;
City of Elk River, Minnesota
Sportech, Inc.Application Review
December 4, 2013
Page 4
After reviewing Sportech's application materials the company appears to be a for-profit enterprise.
2. Business must be a small business as defined by the small business administration;
Based upon the application materials provided by the applicant, the company appears to meet the definition
of a small business as defined by the small business administration. We are waiting on additional
information from the applicant to confirm this status.
3. Business must have a positive net worth;
It is important to note that the latest financial statements provided by the company are for the year ending
December 37, 2012 and as such this determination is being made based upon the available information at
that time. Based upon a review of the financial information submitted by the company, Sportech has a
positive net worth as of December 31,2012.
4. Business must be an industrial, manufacturing,or technology-based industry;
• A review of Sportech's application materials confirms that the company fits into the description of an
industrial,manufacturing, or technology based industry.
5. Religious, political,casino,sports facilities and pornographic enterprises are not eligible to use the
Economic Development Forgivable Loan Program.
Sportech does not appear to be a religious,political, casino, sports facilities or pornographic enterprise.
Financial Feasibility
According to the forgivable loan program guidelines the financial feasibility criterion are meant to assess availability of
funds, private involvement,financial packaging and cost effectiveness. These criteria are:
1. Appropriate ratio of private funds to forgivable loan funds
The company has requested financial assistance of$111,115 and plans to finance the remaining project
costs of$757,933. The ratio of private to public funds is 1.36:1. 57%of the project costs will be financed
with private dollars which meets the minimum criterion(50%)of the City's policy.
2. Sufficient cash flow to cover proposed debt service as demonstrated by financial statements and projections.
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City of Elk River, Minnesota
Sportech, Inc.Application Review
December 4, 2013
• Page 5
Springsted is waiting for additional information from the applicant to determine that this criterion has been
met.
3. Ability to demonstrate positive net worth
It is important to note that the latest financial statements provided by the company are for the year ending
December 37, 2012 and as such this determination is being made based upon the available information at
that time. Based upon a review of the financial information submitted by the company, Sportech has a
positive net worth as of December 31,2012.
4. Letter of commitment from applicant pledging to complete the project during proposed project duration.
Springsted is waiting for additional information from the applicant to determine that this criterion has been
met.
5. Letter of commitment from other financing sources stating terms and conditions of their participation.
• Springsted is waiting for additional information from the applicant to determine that this criterion has been
met.
6. Sufficient collateral
Springsted is waiting for additional information from the applicant to determine that this criterion has been
met.
7. Certificate of Good Standing from the Minnesota Secretary of State or other satisfactory evidence of good
standing.
Springsted is waiting for additional information from the applicant to determine that this criterion has been
met.
Conclusion
After examining the forgivable loan application materials submitted by Sportech, Inc. and in conjunction with the
Economic Development Forgivable Loan Program guidelines, Springsted concludes that Sportech, Inc. appears to be
in compliance with the program eligibility requirements(for which information was provided) as outlined in this memo.
Once the applicant provides further information pertaining to the financing of the project, unanswered eligibility
criterion will be addressed.
411
12/10/2013
Topics
SPORTECH • Company Overview
• Sportech's Design and Engineering Process
•ty of Elk River Economic Development • Investment in a"Customer Innovation Center"
Forgivable Loan Application
December 2013
20 Year History
Home Based First Production Model transition,AHermarket to
Business Facility1998 OEM Accessory
1994 Jarvis St.,Elk River 1999-2001
W_.:. - '�f"�«d mat►
2002 2008&2012 2013
First OEM New Facilities OEM/PL Model
Production Business both in Elk River
S.PORTECFI
1
12/10/2013
Facilities
Core Products • .
• OEM Class supplier facility
• Cell based manufacturing
• 100K Sp.Ft
r'—'. ...-N.Th16 • Multiple OEM Production Certification
0ualieations
Building 1 10800 175^Ave NW.Elk River
,,i 144 b......„......1, .. hitai.:,cr.. 5pK Se Ft Asaembty faciny•
• Customer Collaboration area
� .., .tom Warehousing
•-"'" ...— Add.July of 2012
UTV Cab Enclosures Windshields Building 2 11701179hAve NW.Elk River
Sales Growth Employment Growth 84 Full-time
hires in 2013
sco m
350 160
lap
0 In
E $30 100
;::t _ .. Msa • I11 ' ' �ap _ , . . . . � i � � II I// .1:
4, # , 1 s ' e4° ° s s/ $ Vie , ' 1 e e s e s •x' 4' 4'
4'
In addition to the employment growth detailed above,Sportech
Customers include Polaris,John Deere,Honda,BRP,Arctic Cat,Yamaha,and Kawasaki employs Temps dunng peak production months
2
12/10/2013
THE SPORTECH PROCESS
Discovery Industrial Design Design englneerirv..;.. Production
9 / ___C._- .�., .1
�' 00000
1
Sketching Surface Geometry is Sold Modeling e.Producnon Stahl
• Business.. Approval Design • Oaality/Production Plan
• iden*OEM Design Needs • Refining and etalStelae. Prototype Parts Products /Bun:1/Strip
• OEM Proves Defined and Modeling Part installationFementverracation
we, • Strategic LOgetILS
Understood Confirmation • Renew Business case dented Potenttal Lead-rime :scission
•0 OB
c
DESIGN DEVELOPMENT
..•, a #` ••
vv
•Full Service ID team integrated with `'
{ customer and Sportech engineer ng
Sams
•Creative designs that maintain
dimensional significance II/7
•
DISCOVERY High-level brand and styling
C. t relationships integrated early into•Passionate powersports enthusiasts-We as it e, 'I:I
• use and understand the products we develop
•
•Continually benchmarking the industry L �• __
offerings for style,finish,and price points r 'O„
v
3
12/10/2013
uGINEERING EXPERTISE ••«� •
enplez assemblies I,' "
•
anufacturing comp.
egration with Best it -r r I
•Latching Hardware
Planning to build during
•Sliding windows
•Windshield Wiper Systems
signs compliant to Industry Safety iii
endards the first half of 2014
•OEM Safety Team Requirements
•ROHVA Integration
•European
Project Overview Space Layout
• Facility Remodeling I U' - ' j
• Conversion of 6,210 SF within Building 1,located at 10800 175°
Ave.NW,Elk River,into a world class"Customer Innovation '' I I
.4 J« ir
•�
r ._ ___
• People and Equipment • __.y Lam_ . .. 1
F.
• Anticipate adding 6 to 8 design engineers during 2014&2015. + - -- [
• CAD software,computer equipment&display technologies --
I'"
4
12/10/2013
Project Budget Anticipated Impact of a new"Customer Innovation Center"
Architecture and interior design 6,210 SF $1.15 $10,868
Construction 6,210 SF $32m $198,220 • Strategic Value Drives deeper Customer relationships
Computer Hardware 8workstationsx $4,500.00 $36,OIX1
"Customer Collaboration Model"
Additional CAD software $10,000
Conference and Display systems $2,10 • Fueling Growth Resulting in future facility and employment
5:63,088 expansion in Elk River
Fund;"e
Economic Development Loan $111,111 • Business Plan By 2015,forecasting annualized Sales of
Owner investment 1151 933 approximately$100 million and full-time
employment to exceed 250
$263,088
to be completed by Q2 2014
• S •OR TECH - - - -
5