3.9. SR 07-15-2002Item 3.9.
MEMORANDUM
TO:
FROM:
DATE:
Mayor & City Council
Catherine Mehelich, Director of Economic Developmen[~/~/y
July 15, 2002
SUBJECT: Authorize Participation in Minnesota Community Capital Fund
Attachments · Staff reports to the EDA dated June 10, 2002 and July 8, 2002
· Balance Sheet as of May 31, 2002 - City of Elk River Micro Loan Fund
· MCCF Participation Agreement
· MCCF Loan Fund Escrow Agreement
· MCCF Loan Criteria
Background
The Economic Development Authority (EDA) has recently reviewed and considered
participation in the Minnesota Community Capital Fund. The Minnesota Community
Capital Fund 0VICCF) is a new non-profit membership corporation established to increase
the lending capacity of economic development groups throughout Greater Minnesota.
Attached please fred the staff reports to the EDA detailing the MCCF program.
The attached balance sheet for the city's Micro Loan fund indicates a cash balance of
$591,767.22 as of May 31, 2002. In addition, the outstanding principal on existing loans is in
the amount of $826,558.
The city's participation as a member of MCCF provides the flexibiliry to fund large housing
and economic development projects that would otherwise not be possible through typical
micro-loan funds. In addition, members have the capacity to originate loans of up to ten
times the amount they contributed to the Fund.
Recommendation
At its July 8, 2002 meeting the EDA recommended the City Council consider authorizing
the Executive Director of the Economic Development Authority to execute the attached
necessary documents relating to participation in the Minnesota Community Capital Fund,
and deposit $50,000 from the City of Elk River Micro Loan funds towards this fund.
MEMORANDUM
TO:
FROM:
DATE:
SUBJECT:
Economic Development Authority
Catherine Mehelich, Director of Economic Developmen~/~
June 10, 2002
Consider Participation in Minnesota Community Capital Fund
(MCCF)
Attachments
· Correspondence from Scott Martin, CEO, MCCF
· MCCF Prospectus - Membership and Loan Fund Participation
· MCCF Membership Update
· Balance Sheet as of May 31, 2002 - City of Elk River Micro Loan Fund
Issue
Staff has recendy received a request for the city's participation in the Minnesota Community
Capital Fund OVICCF) from Mr. Scott Martin, CEO/Fund Developer. Mr. Martin has been
invited to present an overview of the MCCF for the EDA's consideration. The Finance
Committee has also been invited to attend the presentation and discussion at the EDA
me.eting.
Background
The Minnesota Community Capital Fund (-MCCF) is a new non-profit membership
corporation established to increase the lending capacity of economic development groups
throughout Greater Minnesota. Membership in the MCCF provides the economic
development organization fle:dbility to fund large housing and economic development
projects that would otherwise not be possible through typical micro-loan funds. In addition,
members have the capacity to originate loans of up to ten Umes the amount they contributed
to the Fund (minimum of $25,000).
Included among MCCF's current list of 38 economic development members are: · St. CloudHRA
· Sherburne County
· Great River Energ7
· Big Lake
Consider M2'q Community; Capital Fund
June 10, 2002
Page 2 of 2
The City of Elk River's Economic Development Micro Loan programs provide for the
following:
· Industrial Incendve Program - loan amounts up to $100,000 at 4-points below prime
to industrial businesses for real estate, equipment and infrastructure costs associated
with locating or expanding in the West Business Park.
Supplemental Financing Program - loans up to $50,000 at 1-point below prime to
industrial businesses for real estate, equipment and infrastructure costs associated
with locating or expanding in ELk River.
· Redevelopment Financing Program - loans up to $50,000 at 2-points below prime
for business development and building renovation in the Central Business District.
The attached balance sheet for the city's Micro Loan fund indicates a cash balance of
$591,767.22 as of May 31, 2002. In-~ddit~o.n, the outstanding principal on e.,dsrmg loans is in
the amount of $826,558.
Action Requested
At this time the EDA is asked only to review the Minnesota Community Capital Fund
program and its applicability to the economic development goals of the city via the
presentation by Mr. Martin. Issues with the program may be discussed this evening and
again at a later date. Formal action on the request may also be considered at a future
meeting of the EDA.
M~NNESOTA COMMUNITY
CAPITAL PUND
May 10, 2002
Ms. Catherine Mehelich
Director of Economic Development
City of Elk River
13065 Orono Pkwy. PO Box 490
Elk P, Jver, MZN 55330
Dear Ms. Mehelich:
Enclosed for your consideration is the Offering Prospectus for the A,finnesota Commzmity Capital
Fund (Z&[CC.F'), the new nonprofit membership corporation established to increase the lending
capacity of economic development goups like yours throughout Greater Nfinnesota.
MCCF has been developed over the course of the past eighteen months with the input and
support of dozens of project funders, economic developers, lenders, and local government
officials. Recently, a $250,000 grant was awarded by the Blandin Foundation to assist with start-
up costs and to meet working capital needs during the first three years of the Fund's operations.
With the release of the Prospectus, the formal MCCF membership enrollment period is now
underway. We invite your organization to review this offering and act now to become a member
of this unique new housing and economic development financing resource.
If your organization is a local government that wishes to use revolving loan funds that originated
from the repayment of a Minnesota Investment Fund (MIF) loan, please refer to the enclosed
memorandum (dated March 5, 2002) from DTED Commissioner Rebecca Yanisch. Included for
your convenience is a sample letter and resolution to be submitted to DTED requesting their
authorization to transfer local pro,am funds for membership in the MCCF.
Once cumulative membership commitments reach the initial Loan Fund capitalization goal of
$2.5 million, the MCCF will become operational and loan applications will be accepted. If your
orgamzanon wishes to join, simply follow the instructions contained on page 16 of the
Prospectus under the section entitled "How to Participate".
Should you have any questions concerning membership in the MCCF, please don't hesitate to
contact me. Thank you for considering this invitation to join Minnesota's newest and most
innovative development financing organization.
Sincerely,
Scott A. Martin
CEO / Fund Developer
Activating Capital for Four Cornmt.tnit!/
13911 Ridgedale Drive I Suite 260 t Minneapolis, MN 5.5305
phone: 952 541-9674 I fax: 952 54i-9684 I webs/te: www.rnncomrnunit,Tcapitalfund.org
Minnesota Community
Capital Fund
Activating
For
Capital.
YO II F
Community
The Minnesota Community Capital Fund (MCCF), a new nonprofit organization, is offering local communities and economic developmen
organizations throughout Greater Minnesota an opportunity to participate in an innovative new development financing resource. This
flexible loan fund ts designed to leverage millions of dollars in underutilized local Revolving Loan Fund (RLF) capital. Through the
pooling of RLF resources, the IVlCCF (the "Fund") will provide participants with greater lending flexibility, the capability of offerSn7
much larger loans than would be possible with limited existing local resources, and professional fund management services.
MCCF Organizational Structure
The MCCF is a Minnesota nonprofit corporation that is organized and will be operated exclusively for purposes consistent with Section
50.1.(c)(3) of the Internal Revenue Code.
· Entities that participate through the contribution of funds to the MCCF loan pool will become members of the corporation.
· The business and affairs of the corporation will be under the direction of a
nine-member board of directors.
· The corporation has three classes of members, with each class of members having the authority to elect two directors to serve on the
board.
· In addition to the six directors elected by the membership, the elected directors
will appoint three at-large directors to the board.
Participation Levels
In order to encourage communities and organizations of all sizes to become members,
the MCCF is offenng three participation levels:
· Class A memberships--contributions of $100,000 or more.
· Class B memberships---Contributions of at least $50,000, but less than $100,000.
· Class C memberships--contributions of at least $25,000, but less than $50,000.
Participation in the Fund shall be subject to approval by the Board ~of Directors a
the
execution of a written participation agreement.
Benefits of Membership
As a self-governed organization, the MCCF will offer its members a great deal
of flexibility in structuring loans that support business and affordable housing
development in their respective communities.
· Members will have the capacity to originate loans of up to ten times the amount
they contributed to the Fund.
· The professional fund manager will work closely with members, prospective
borrowers, and other lenders in analyzing and structuring financing deals that
will best meet the needs of both borrowers and lenders.
· In addition to overall fund administration, the MCCF fund manager will be
· responsible for loan closings and negotiating the sale of loans to the secondary
market.
· All of the paperwork and report filings required under the Minnesota business
subsidy law will be handled by the fund manager, which will allow members to
focus their time and efforts on other development projects.
· Members will have ongoing access to the technical assistance and expertise
available from the MCCF fund manager, even for financings that do not utilize the
Minnesota Community Capital Fund as a resource.
· In addition to the loan pool capitalized by member contributions, the MCCF
intends to offer members access to other financing resources in the future.
Specifically, an application is now pending for US Treasury. Department
certification of the MCCF as a Community Development Financial Institution
(CDFI). Once certified, the Fund will apply for Federal funds to support the
expansion of MCCF's economic development mission.
Frequently Asked Questions (FAQ's)
Throughout the MCCF concept development stage, interested individuals raised a number of questions concerning
e workings of the Fund. While answers to many of these questions were not available at that time, the project
clevelopment ream has subsequently addressed most, if not all of these issues, including the following IrAQ's:
How large must our organization or communi~, be in order to become a MCCF member?
There is no minimum size eligibility requirement for organizations or communities to become members of the
MCCF. In fact, the Fund is designed for and encourages the participation of communities of all sizes, as well as
multi-community and region~ economic development organizations that want to increase their development
financing capacity.
The fitncls that I have available locally to invest in the MCCF were
originally received from the Minnesota Department of Trade and
Economic Development (DTED) under the Minnesota Investment
Fund grant program. These funds were loaned to a local business and
the repayments are being used to capitalize my local revolving loan
fitnd (RLF). Can 1 use this money to join MCCF?
Yes. The State Legislature enacted an amendment to Minn. Statute
116J.8731, subd.2 this year that specifically authorizes local government
units to do so.
How about using city general fimd dollars for this purpose?
,s, again. Minn. Statutes 469.191 authorizes cities and towns to
appropriate not more than $50,000 annually out of their general revenue
fund for organizations like the Minnesota Community Capital Fund.
Most of our local economic development financing resources were
provided to ottr community by DTED throttgh a HUD Small Cities
Development Block Grant (SCDBG). Is it ok to ttse this money for ottr
MCCF contribution ?
Xes. In fact, since the MCCF has been organized to qualify as a
Community-Based Development Organization, SCDBG funds can be
contributed with minimal reporting, which will be handled by the Fund
manager.
Once we"re a member of the MCCF, can we increase our initial
contribution level in order to be able to originate larger loans from
the Fund?
Absolutely. MCCF members will be able to increase their stake in the
Fund at any time in order to meet their changing needs and to make the
most of this new financing resource.
~e are a member of the MCCF and later decide to terminate our membership, how and when will the funds that
we contributed be returned to us?
Membership in the fund will be subject to a participation agreement, which will require members to make a minimum
three-year commitment to the MCCF. At the end of the three-year period, all funds contributed will be returned,
without interest, upon written request of the member.
As a member of the MCCF, do we hare the right to appoint a representative to the Board of Directors?
No, but a representative of your organization will be eligible for election to the nine-member Board that will
govern the MCCF. Six of the nine board members will be elected by the membership at the organization's
meeting. Since the corporation has three classes of membership (based
upon the member's contribution level) each class of members will elect
two directors. The six elected directors will be responsible for filling the
three at-large director seats.
Who will manage the Fund?
The Northland Institute, a Minnesota nonprofit corporation, will provide
management services to the MCCF for at least the first three years of
operation. After this initial period, the Board of Directors may either
continue to contract for fund management services or hire staff to manage
the Fund.
Who will pay for the cost of fitnd management?
The primary revenue sources that will be available to pay for fund
management services are the interest earnings on the pooled funds
contributed by MCCF members and loan origination fees charged to
borrowers. Members will not be required to pay directly for services
provided by the fund manager that pertain to the structuring of MCCF
loans. However, any technical assistance provided to members that is not
directly related to a MCCF loan transaction will be subject to a reasonable
service fee to be paid by the benefiting member.
How will the Fund be recapitaliz, ed?
The MCCF will be a self-sustaining development resource, with recapitalization of the Fund through the sale of
pre-approved loans to the secondary, market. The sale proceeds from MCCF loans will go back into the Fund.
Members originating MCCF loans that are sold at a discount will be required to make-up the difference between
the loan's par value and it's sale price. Through this ongoing approach, the MCCF loan pool will be continually
recapitalized and funds will be readily available to make new loans.
What drives the price paid for a loan?
Institutional investors who purchase economic development and affordable housing loans seek a market rate of
return. Accordingly, loans that are priced at market rates receive par value. Those priced above the market earn a
premium, while those priced below the prevailing market are bought at a discount.
How flexible are the Fund's lending policies?
The MCCF is designed to provide a great deal of flexibility in terms of borrower eligibility, interest rates, loan
terms and conditions, equity requirements, etc. The Fund's lending focus will be on business and community,
economic development financing activities that support livable wage jobs and affordable housing. MCCF
members will be encouraged to work closely with the fund manager in structuring loan packages that are
responsive to their needs.
Is there a limit on the number of loans that a MCCF member can originate?
No. The only limit is on the size of each loan that may be originated by a member from the Fund. Members wiI1
be able to originate loans of up to ten times the amount they contributed to the Fund.
Loan Criteria and Approval Process
One of the primary goals of the MCCF is to provide local communities with significantly greater lending capacity and a more flexible,
user-friendly development financing resource than most economic development loan programs. Therefore, the Fund is being designed
with relatively few hard and fast rules concerning borrower eligibility, target interest rates, loan terns and conditions, equity requirements,
etc. Loans of up to ten times the amount members have contributed to the Fund may be funded through the MCCF. So. a $50,000
investment allows a member to originate loans of up to $500.000.
What's most important in evaluating any given loan application is:
· Creditworthiness of the borrower.
· Repayment ability based on cash flow analysis.
· Commitment of one or more banks to participate in the financing.
· Support of the local community and MCCF member.
The fund manager will be directly involved in negotiating and structuring every loan package that
includes a MCCF loan. Once the originating MCCF member adopts a local resolution in support of
the loan application, the request will be submitted to the MCCF Loan Committee, which will consist
of five members (appointed by the Board of Directors) who have experience and expertise in
reviewing business and/or housing loans. The loan committee will meet on an "as needed" basis in
order to expedite the loan review process, and will have the responsibility and final authority for
approving, denying, or modifying the loan terns and conditions. Once the loan committee approves
a loan, the fund manager will coordinate the loan closing and sale to the secondary market.
Fund Recapitalization
The MCCF wiil be a self-sustaining 'development resource, with the con'tinual recapitalization of the
Fund through the sale of pre-approved loans to the secondary market. MCCF loans will be structured to best meet the needs of our
members, the borrowers, other participating lenders, and the community. One of the primary considerations for octr members as loan
terms and conditions are being negotiated is how the secondary, market will price the loan for purchase. Most institutional investors
active in buying econotmc development loans are seeking a market rate of return. Accordingly, loans that are priced at market rates
receive par value, those priced above market earn a premium, and those priced below prevailing market rates are discounted.
Below are examples of actual economic development loan sale transactions conducted within the past year*:
· A loan made to a local business to expand a processing facility carried an 8% interest rate with a five-year term and ballooned at
maturity. This loan had a remaining principle balance of $198,689, and was sold for $191,895 (96.5% of par).
· A i0% loan made to support the expansion of a dry-cleaning plant was sold at a premium when the loan balance of $27,155 was
purchased for $27,969.
· A nonprofit housing organization provided a loan as part of a financing package for the development of an 80-unit affordable
housing development. The interest rate was at the prevailing market level, so the lender received par value for the $302,000
remaining balance of the loan, which was secured by a first mortgage.
· An existing loan made to a local printing company for the purchase of additional equipment was sold to recapitalize a local loan
fund. At sale, this 10-year term loan had a principle balance of $84,520, with an interest rate of 7%. The seller received $81,162 or
96.03% of par for this loan. The discounted purchase price included a 2.5% transaction fee charged by the loan broker.
· A locaI economic development lender issued, a loan at 8.5% for 20 years to fund a business expansion, and negotiated an advance
commitment for the purchase of the loan at par value.
*Examples provided by Community, Reinvestment F~,nd solely for the purpose of demonstrating how the secondat? marker for economic
development loans responds ro interest rare variables.
Loans originated from the MCCF p0ol will be subject to an advanced commitment from a secondary market buyer, such as the
Community Reinvestment Fund (CRF). As such, the actual price to be paid for MCCF loans will be known to the participating member
before a formal loan commitment is made to the borrower or other participating lenders. If the price offered by the market is discounted
from par value, the MCCF member or4ginating the loan will be responsible for funding the difference between par value and the loan's
sale price. On the other hand, if the loan is sold at a prermum, the member will receive the premium payment (that amount in excess of
the loan's par value).
Through this approach, the MCCF loan pool will be continually recapitalized and members will be able to originate more development
loans in their communities.
Membership Enrollrnent Schedule
The pre-enrollment period for MCCF charter members is now underway. Communities and organizations are being asked to indicate
their interest in becoming members of the MCCF by executing a non-binding letter of intent to join at a specified contribution Ievel.
At the end of this period, if enough organizations have submitted LOIs, the MCCF will move forward with the preparation of all legal
documents necessary to fbrmally launch the Fund. We anticipate the start-up of the Fund sometime during the first quarter of 2002.
If your organization is interested in learning more about tkis unique opportunity or would like to express your
interest in becomin.~ a charter member of the MCCF. r~lease contact Scott Martin at/95215,z[-9674.
Minnesota Community Capital Fund
13911 Ridgedale Drive, Suite 260
Minneapolis, MN 55305
Phone: 952-541-9674
Fa.x: 952-541-9684
e-mail:, info@mncommunitycapitalfund.org
www.mncommunitycapitalfund, org
MEMORANDUM
TO:
FROM:
DATE:
Economic Development Authority
Catherine Mehelich, Director of Economic Developmeny/~/
July 8, 2002
SUBJECT: Consider Participation in Minnesota Community Capital Fund
(MCCF)
Attachments · MCCF Participation Agreement
· MCCF Loan Fund Escrow Agreement
· MCCF Loan Criteria
Background
At its June 10, 2002 meeting the EDA and Finance Committee heard a presentation about
the Minnesota Community Capital Fund (MCCF) by Scott Martin, CEO/Fund Developer.
The EDA indicated interest in participating in MCCF and directed staff to review the
program further and respond with a recommendation for the level of participation.
Issue
The MCCF is a new and innovative loan fund the City may access in order to do a myriad of
development activities. The fund is a self-sustaining development resource, with the
continual recapitalization of the fund through the sale of pre-approved loans to the
secondary market. As soon as the fund has $2.5 million on deposit, loan originations can
begin.
The city's commitment would include a membership deposit. The deposit will allow the city
to borrow up to 10 times that amount. There are three classes of participation levels ~vhich
the city may consider:
Class A memberships - deposits of $100,000 or more
Class B memberships - deposits of at least $50,000, but less than $100,000
Class C memberships - deposits of at least $25,000, but less than $50,000
Participation in MCCF
July 8, 2002
Page 2 of 2
Staff recommends an initial deposit of $50,000, which would allow the city to originate loans
up to $500,000. There is no limit on the number of loans that a MCCF member can
originate. Members are able to increase their stake in the fund at any time in order to meet
changing needs.
Staff believes this is a valuable and unique opportunity to fund economic and housing
development. There are very few tools at our disposal for development and this fund begins
to address those needs.
Membership in the fund is subject to the attached Participation Agreement and Loan Fund
Escrow Agreement, which require members to make a minimum 3-year commitment to the
MCCF. At the end of the 3-year period, all funds contributed will be returned, without
interest, upon written request of the member.
Projects will be required to complete an MCCF application to be considered per the attached
MCCF Loan Criteria. Applications may be imfially reviewed by the EDA's Finance
Committee for recommendation to the EDA.
Requested Action
Authorize the Executive Director to execute the necessary documents relating to
participation in the Minnesota Community Capital Fund, and deposit $50,000 from Micro
Loan funds towards this fund.
S:NEDA~MicroLoan~MCCFN7-8-02.DOC
BALANCE SHEET
Date: 06/06/02
Time: !:49pm
CITY. OF ELK RIVER Page: 1
~ f: 05/31/02 Balance
Fund Type: SR SPECIAL REVENUE
Fund: 240 MICRO LOAN FUND
Assets
CUR3tENT ASSETS
1010 Cash
1012 Fair Value-lnvesZments
1190 Notes Receivable
1380 Interest Receivable
CURJlENT ASSETS
591,767.22
280.00
826,558.01
5,363.00
1,423,968.23
Total Assets
1,423,968.23
Liabilities
CURRENT LIABILITIES
2080 Due to Other Governments
2220 Deferred Revenue
CI/R_RENT LIABILITIES
323,896.67
502,661.34
826,558.01
Total Liabilities
826,558.01
Reserves/Balances
FUND EQUITY
2400 Fund Balance
2600 Change In Fund Balance
FUND EQUITY
Total Reserves/Balances
538,046.48
59,363.74
597,410.22
597,410.22
Total Liabilities & Balances
1,423,968.23
=================
PARTICIPATION AGREEMENT
Minnesota Community Capital Fund
ivlinnesota Commumty Capital Fund CMCCF') and the undersigned ("Member") agree as follows:
1. Defined Words. The words which are defined in the Prospectus of MCCF dated April 30, 2002
("Prospectus") when capitalized in this Agreement have the same meaning as set forth in the Prospectus, provided
the term "Agreement" as used herein means this Participation Agreement.
2. Loan Fund Participation. Member wishes to participate in the Loan Fund and become a Member of MCCF
and hereby agrees to execute the Loan Fund Escrow Agreement and deliver to MCCF a completed Loan Fund
Escrow Agreement Signature Page, together with Member's certified check, bank money order, or other good funds
in the amount of its participation as set forth on the signature page of th.is Agreement, payable to Wells Fargo Bank
Minnesota, N.A. Escrow Agent MCCF Loan Fund.
3. Member Participation. MCCF agrees that upon receipt of the funds and documents as described in Section
2 above, it will deliver Member's' funds and the Member Loan Fund Escrow Agreement Signature Page to the
Escrow Agent and, upon acceptance by the Escrow Agent, the Member's funds shall be deposited into-the Loan
Fund and Member shall be entitled to all of the privileges of membership in MCCF as set forth in its Articles of
Incorporation, Bylaws and this Agreement.
4. Rights of Membership. MCCF agrees that Members of MCCF have, in addition to the rights of Members
as set forth in the Articles of Incorporation and Bylaws of MCCF, the following rights:
(a)
Members are able to originate individual Development Loans of up to ten times the amount of
their deposit balance in the Loan Fund or contribution to MCCF. Members are able to originate
multiple Development Loans, which in the aggregate have no topside limit, except that no
individual Development Loan may be in excess of ten times the Member's deposit balance in the
Loan Fund or the Member's contribution to MCCF;
The Fund Manager will work closely with Members, prospective borrowers, and other lenders in
analyzing and structuring financing transactions that will best meet the needs of both borrowers
and other participating lenders. The Fund Manager will be responsible for Development Loan
closings and negotiating the sale of Development Loans to the secondary market and perform all
papenvork and report fih.'ng required by the Minnesota Business Subsidy Law with respect to
Development Loans.
5. Originating Member Obligations Limited. The originating Member of each Development Loan will be
required by the Loan Purchaser to fund a credit reserve of not less than five percent of the principal amount of the
Development Loan for a period of 12 months following the closing of the sale to the Loan Purchaser. In the event
the price offered by the Loan Purchaser is discounted from par value (face amount of the loan), the originating
Member will be responsible for funding the difference between the par value and the loan sale price. The actual
credit reserve requirement or any discount from par value will be known to the originating Member prior to the
commitment by MCCF to the borrower and other funding sources. The originating Member may decline to proceed
with the Development Loan closing without any obligation at any time prior to the formal written approval of the
Development Loan by the Member. In the event the Development Loan originated by a Member is sold at a
premium, the Member will receive at closing the Development Loan premium payment (the amount paid by, the
Loan Purchaser in excess of the face amount of the loan). Except as set forth in this section, Members do not incur
any expenses, costs, or obligations with respect to Development Loans that they orig/nate and which MCCF initially
funds through the Loan Fund.
6. Procedural Steps for Advances from Loan Fund. MCCF agrees that it will comply with all procedures for
draws upon and reimbursement to the Loan Fund as set forth in the Loan Fund Escrow Agreement and further
agrees that it will request the Escrow Agent for disbursement of Member Funds only for the purpose of initially
funding Development Loans and then only upon the following conditions:
(a)
Co)
MCCF has received a commitment for the pre-closing sale of the Development Loan to a Loan
Purchaser at a sale price which is not less than the amount of Member Funds to be advanced by
Escrow Agent from the Loan Fund;
MCCF will utilize the services of the title company or closing agent approved by MCCF and
Member Funds held by the Loan Fund shall be transferred by wire transfer to such title company
or closing agent as of the date of the Development Loan closing;
(c)
The commitment which MCCF receives from the Loan Purchaser shall provide for payment of the
pumhase price of the Development Loan by wire tinnier to the Loan Fund as of the same date as
the Loan Fund transfers Member Funds to the title company or closing agent of MCCF;
(d)
MCCF will not irrevocably advance Member Funds to fund the Development Loan until MCCF
has confirmed with Escrow Agent that Escrow Agent has received a wire transfer from the Loan
Purchaser in an amount equal to the amount advanced by Escrow Agent to the title company or
closing agent of MCCF.
MCCF and Member agree that funds received by Escrow Agent from a Loan Purchaser or directly or indirectly from
MCCF with respect to the closing or sale of the Development Loan funded from the Loan Fund shall be deposited in
the Loan Fund and deemed a reimbursement of Member Funds previously advanced.
7. Refund of Member Funds. A Member shall receive a refund of its deposit balance in the Loan Fund upon
30 days advance writ-ten notice to MCCF and Escrow Agent specifying the amount of refund which the Member
wishes to receive. This notice may be given at any time after the third anniversary date of the first deposit to the
Loan Fund made by the Member. In the event the requested refund by a Member would reduce the Member's
deposit balance in the Loan Fund to less than $25,000, the Member's entire deposit balance in the Loan Fund shall
be refunded. All refunds are of principal only without interest.
8. Assignment of Interest and Income. Member hereby assigns to MCCF all income and revenue derived
from Member Funds on deposit in the Loan Fund and Member hereby directs the Escrow Agent to distribute
monthly from the Loan Fund all interest and income earned uPon their respective deposits held in the Loan Fund,
net of fees and expenses of ESCrow Agent. The assignment contairted herein and tiffs direction is irrevocable until
such time as the deposit of a Member in the Loan Fund is refunded to such Member pursuant to this Participation
Agreement and the Loan Fund Escrow Agreement.
9. Investments Authorized. Member Funds on deposit in the Loan Fund shall be invested in U.S. Government
Bonds, U.S. Insured Certificates of Deposit, U.S. Government Agency Bonds, and U.S. Government Money Market
Funds pursuant to the directions of MCCF as agent of Member.
10. Escrow Agent Fees and Expenses. The fees and expenses of the Escrow Agent shall be determined by an
agreement between MCCF and Escrow Agent. MCCF is hereby appointed as agent for Member with respect to the
negotiation of such fee arrangement with the Escrow Agent.
11. MCCF Designated as Agent of Member. Member hereby irrevocably designates MCCF as its agent during
the term of this Agreement and any extensions thereof with respect to the following matters:
(a)
All rights to act as agent as set forth in this Agreement and all directions which are authorized to
the Escrow Agent pursuant to the Loan Fund Escrow Agreement;
(b) Assignment of a Member's interest by a Member to a th/rd party if requested by Member,
provided Member provides to MCCF an agreement of assignment and assumption by and between
the Member and the assignee whereby the Member assigns its interest to the Member Funds which
have been deposited in the Loan Fund and its obligations under this Agreement and the assignee
assumes such obligations;
(c) Directions to Escrow Agent with respect to the investment of the Loan Funds within the
limitations set forth in Section 10 of this Agreement;
(d) Establishment and modi.ficarion of terms of Escrow Agent compensation and ex-pense
reimbursement as provided under this Agreement and the Loan Fund Escrow Agreement.
12. Term and Termination. This Agreement shall be for an initial term which ends on the third anmversary
date of the deposit of the Member Funds in the Loan Fund and at any time thereafter, upon 30 days advanced written
notice to MCCF and Escrow Agent. Unless terminated as herein provided this Agreement shall automatically renew
for successive terms of one year each. MCCF reserves the right to terminate a membership at any rime by action of
its Board of Directors.
13. Benefit. This Agreement shall be binding upon the respective parties and their successors and assigns.
14. Notices to MCCF and Member. All notces and another communications required or permitted by this
Agreement shall be in writing and shall be deemed given to the party when sent by United States mail, delivered to
the appropriate address by hand or by a nationally recognized overnight courier service (costs pre-paid), or sent by
facsimile or e-mail addresses and marked to the attention of the person Coy name or rifle) designated below or to
such other address, facsimile number, e-mail address, or person as the party, may designate by notice to the other
part/es.
To: Minnesota Community Capital Fund
Arm: Scott Martin, Chief Executive Officer
13911 R.idgedale Drive
Suite 260
Minneapolis, MN 55305
(962) 541-9684 (fax)
smartin~northlandinst.org
To: Member at the address, facsimile number, or e-mail address shown on the Participation Agreement
Signature Page.
15. Appointment of Authorized Representative bv Member. Member hereby appoints as its Authorized
Representative the person designated on the signature page of this Agreement. The authorized representative may
be changed by Member at any time by giving notice to MCCF pursuant to Section 14 of this Agreement. MCCF
may rely upon all directions given by the designated authorized representative.
16. Counterparts. This Agreement may be executed in counterparts, which, taken together, shall constitute one
original. The parties agree that this Agreement may be transmitted among themselves by facsimile. The parties
intend that the faxed signatures constitute original signatures and faxed agreements or counterparts containing the
signatures (original or faxed) is binding on each of the parties.
17. Applicable Law. This Agreement shall be governed by and construed in accordance with Minnesota law.
PARTICI~PATION AGREEMENT SIGNATI~E PAGE
Member
Name of Member
Signature of Authorized Officer
Name of Authorized Officer
Title of Authorized Officer
Address of Member
(Please Print)
(Please Print or Type)
(Business Address
(City, State, Zip)
(Facsimile Number)
(E-mail address)
(Business Address)
(City, state, zip)
(Facsimile Number)
(E-mail address) '
· 200
Authorized Representative
Address of Authorized Representative
Federal Tax Identification No.
State Tax Identification No.
Amount of Member Funds to be Deposited
in Loan Fund
Dated:
Minnesota Community Capital Fund
By
Its
Dated:
· 200
MINNESOTA COMMUNITY CAPITAL FUND
Loan Fund Escrow Agreement
Agreement by and between Minnesota Community Capital Fund, a Minnesota non-profit
corporation ("MCCF"), Wells Fargo Bank Minnesota. N.A. ("Escrow Agent"), and those entities
which execute this Agreement and deposit funds with Escrow Agent pursuant to this Agreement
("Member(s)").
1. Purpose of Loan Fund Escrow. MCCF and Member have entered into a
Participation Agreement for the purposes therein set forth including development ora flexible, Self
sustaining development loan fund and providing initial funding of loans made from such loan fund
with funds advanced from an escrow account funded by Members. The purpose of this Agreement
is to establish the escrow account which will receive, hold, and disburse Member funds.
2. Definitions.
(a)
(b)
(c)
(d)
(e)
(f)
(h)
"Agreement" means this Loan Fund Escrow Agreement.
"Authorized Representative" means a person(s) designated by resolution of
the Board of Directors of MCCF as the person(s) authorized to give
directions to Escrow Agent on behalf of MCCF.
"Development Loan" means a business or community development loan
made by MCCF.
"Escrow Agent" means Wells Fargo Bank Minnesota, N.A.
"Loan Fund" means the escrow account established pursuant to this
Agreement.
"Loan Fund Signature Page" means the signature page of this Agreement in
the form contained in Schedule 1 of this Agreement.
"Loan Purchaser" means a secondary market purchaser of Development
Loans made by MCCF.
"MCCF" means Minnesota Community Capital Fund, a Minnesota nonprofit
corporation.
"Member Funds" means the funds deposited by Members in the Loan Fund
created by this Agreement.
"Member(s)" means those entities which are members of MCCF and which
have deposited funds with Escrow Agent in the Loan Fund pursuant to this
Agreement.
_3. Deposit of Member Funds and Establishment of Escrow Account.
(a)
MCCF shall deliver to Escrow Agent from time to time a
Loan Fund Signature Page which has been executed by
MCCF and a Member together with Member's certified
check, bank money order or other good funds payable to
Escrow Agent in an amount equal to the amount set forth on
(c)
the Loan Fund Signature Page. Escrow Agent upon execution
of the Loan Fund Signature Page and deposit of the funds
delivered in the Loan Fund shall be deemed to have accepted
the obligations of Escrow Agent with respect to such funds.
Escrow Agent shall provide MCCF with a facsimile copy of
the signed Loan Fund Signature Page.
The Member Funds shall be maintained by Escrow Agent as
one escrow account for all Members and the Member Funds
shall be deposited and commingled in such account.
Escrow Agent shall maintain records with respect to deposits
and refunds to and from the account by each Member and the
dates of such transactions, provide MCCF with a monthly
report, and shall annually provide Members with Form 1099
and other reports as may be required with respect to interest
earned on Member Funds held in the Loan Fund.
Fund Not Limited In Amount. There is no limit upon the number of Members or
the aggregate amount which may be deposited in the Loan Fund by Members,
provided no Member may deposit more than $250,000 in the Loan Fund.
Distribution and Advances of Member Funds from Loan Fund.
(a)
(b)
Minimum Initial Funding. In the event Escrow Agent has not
received a minimum of $2,500,000 from Members, together
with their respective Loan Fund Signature Pages by October
31, 2002, the Loan Fund shall terminate and the Escrow
Agent shall refund to Members, without interest, the amount
each Member deposited.
Advances to MCCF. Escrow Agent shall advance Member
Funds to MCCF upon MCCF providing Escrow Agent with
a request signed by an Authorized Representative of MCCF
stating:
(i)
MCCF requests an advance from the Loan
Fund in the amount ors as of the
closing date of a Development'Loan by
MCCF to (name of
borrower) in the principal amount of
$ (the "Development Loan");
(if)
The advance requested will be used to fund
the principal amount of the Development
(c)
(d)
Loan to borrower and the request is made that
the Member Funds be transferred by wire to
at
(title company or closing agent) for the
account of MCCF on the day of
,200
(iii)
MCCF has received a commitment for the sale
of the Development Loan to
("Loan Purchaser"),
at a sale price of $ payable by
wire transfer as of the same day Member
Funds are transferred pursuant to this request.
In the event the principal amount of the
Development Loan exceeds th.e advance
requested by MCCF pursuant 'to this
Agreement, such difference will be funded
from other sources.
(iv)
The Member Funds advanced to MCCF will
not be irrevocably advanced by MCCF to fund
the Development Loan until MCCF has
confirmed with Escrow Agent that Escrow
Agent has received a wire transfer from Loan
Purchaser in an amount equal to the amount
advanced by Escrow Agent to the title
company or closing agent with respect to such
Development Loan pursuant to 5(b)(i) and (ii)
of this Ageement.
Reimbursement of Member Funds. Funds received by
Escrow Agent,from a Loan Purchaser or directly or indirectly
from MCCF with respect to the closing or sale of a
Development Loan funded from the Loan Fund shall be
deposited in the Loan Fund and deemed a reimbursement of
Member Funds previously advanced.
Refund of Member Funds. A Member shall receive a refund
of their deposit balance in the Loan Fund upon 30 days
advance written notice to MCCF and Escrow Agent
specifying the amount of refund which the Member wishes to
receive. This notice may be given at any time after the third
anniversary date of the first deposit to the Loan Fund made by
the Member. In the event the requested refund by a Member
would reduce the deposit balance in the Loan Fund by the
Member to less than $25,000, the Member's entire deposit
balance in the Loan Fund shall be refunded. All refunds are
of principal only without interest.
6. Distribution of Interest and Income Derived from Loan Fund. Deposits made
by Members in the Loan Fund are the property of the respective Members, subject to the Escrow
Agreement and the Participation Agreement. Each Member pursuant to the Participation Agreement
has assigned to MCCF all interest and income earned upon their respective deposits in the Loan
Fund and each Member hereby directs the Escrow Agent to distribute monthly from the Loan Fund
all interest and income earned upon their respective deposits held in the Loan Fund net of fees and
expenses of Escrow Agent. The assignment contained in the Participation Agreement and this
direction is irrevocable until such time as the deposit of a Member in the Loan Fund is refunded to
such Member pursuant to this Agreement.
7. Investments Authorized. The Loan Fund shall be invested in U.S. Govern.merit
Bonds, U.S. Insured Certificates of Deposit, U.S. Government Agency BOnds, and U.S. Government
Money Market Funds pursuant to directions of MCCF as agent of Member.
8. Escrow Agent Fees and Expenses and Position of Escrow Agent. The Escrow
Agent hereunder pursuant to the instructions contained in this Agreement is a depository only and
is not a party to or bound by any agreement or undertaking that may be evidenced by or arise out of
any of the items deposited with it pursuant to these instructions. Escrow Agent is not responsible
or liable in any manner for the sufficiency, correctness, genuineness or validity of any of the items
and undertakes no responsibility or liability for the form of execution of such items or the identity,
authority, title or other rights of any person executing or depositing funds or documents hereunder.
Escrow Agent fees and expenses during the term of this Agreement shall be determined by
separate letter agreement from time to time between Escrow Agent, MCCF and MCCF as agent of
Member.
Fees and expenses of Escrow Agent shall be deducted from interest earned Upon the Loan
Fund.
9. Liability of Escrow Ao~ent. The Escrow Agent shall not be liable for any error of
judgment or for any act done or omitted by it in good faith or for anything that it may in good faith
do or refrain from doing in connection with the foregoing instructions.
No liability will be incurred by Escrow Agent if, in the event any dispute or question
as to the construction of the directions, it acts in accordance with the opinion of its legal counsel.
10. Adverse Claims. In the event of any disageement or the presentation of adverse
claims or demands in connection with or for any item affected by the instructions contained within
this Ageement, Escrow Agent shall refuse to comply with any such claims or demands during the
continuance of the disagreement and shall refrain from delivering any item affected. In so doing,
Escrow Agent shall not become liable to MCCF or any Member or any other person, due to its
4
failure to comply with any adverse claim or demand. Escrow Agent shall be entitled to continue,
without liability, to refrain and refuse to act:
(a)
Until all the rights of the adverse claimants have been finally
adjudicated by a court having jurisdiction of parties and the
items affected, after which time the Escrow Agent shall be
entitled to act in conformity with such adjudication; or
(b)
Until all differences have been adjusted by agreement and the
Escrow Agent shall have been notified of adjustment and
shall have been directed in a writing, signed jointly or in
counterparts by the undersigned and by all persons making
adverse claims or demands at which time agent shall be
protected in acting in compliance'with °the notice.
11. MCCF Designated as Agent of Member. Member hereby irrevocably designates
MCCF as its agent during the term of this Agreement and any extension thereof and Escrow Agent
is hereby author/zed to follow directions of MCCF with respect to the following matters:
(a)
(c)
· '(d)
(e)
(0
All directions set forth in this Agreement;
Assignment of a Member's interest by a Member to a third
party if requested by a Member, provided, MCCF provides to
Escrow Agent an agreement of assignment and assumption by
and between the Member and the assignee whereby the
Member assigns its interest in the Member Funds which have
been deposited in the Loan Fund and its obligations under this
Agreement and the assig-nee assumes such obligations.
Directions to Escrow Agent with respect to the investment of
Loan Funds within the limitations set forth in Section 7 of this
Agreement.
Establishment and modifidation of terms of EscrOw Agent
compensation and expense reimbursement as provided under
this Agreement.
Assignment of the interest of Members under this Agreement and in
the Loan Fund to a successor Escrow Agent and release of Escrow
Agent upon assignment.
Termination of this Agreement.
12. Term and Termination. This Agreement shall be for an initial term which ends on
October 31,2005 and will automatically renew for successive one year terms thereafter unless earlier
terminated. This Agreement may be terminated by MCCF by giving Escrow Agent 90 days' advance
written notice of termination and may be terminated by Escrow Agent by giving MCCF 90 days'
advance written notice of termination. In the event a successor Escrow Agent is not appointed by
the effec_tive date of termination the Member Funds shall be refunded to the Members.
13.
and assigns,
Benefit. This Agreement shall be binding upon the respective parties' successors
14. Effective Date. This Agreement shall become effective upon the execution of this
Agreement by Escrow Agent and MCCF. This Agreement shall become effective as to each
Member upon the date the Member signs the Agreement.
15. Notices to Escrow Agent and MCCF. All notices and other communications
required or permitted by this Agreement shall be in writing and shall be deemed given to a party
when sent by United States mail, delivered to the appropriate address by hand or by a nationally
recognized overnight courier service (costs prepaid) or sent by facsimile or e-mail with confirmation
of transmission by the transmitting equipment to the following addresses, facsimile numbers or e-
mail addresses and marked to the attention of the person (by name or title) designated below or to
such other address, facsimile number, e-mail address or person as a party may desig-nate.by notice
to the other parties:
TO:
Minnesota Community Capital Fund
Attention: Scott Martin
13911 Ridgedale Drive
Suite 260
Minneapolis, MN 55305
(952) 541-9684(fax)
smartin(-~_,northlandinst.org
TO:
Wells Fargo Bank Minnesota, N.A.
Attention: Stephen M. Vaillant, Vice President
230 West Superior Street
P.O. Box 488
Duluth, MN 55801-0026
(218) 723-2660 (fax)
TO:
Member at the address, facsimile number, or e-mail address as is
designated on the Loan Fund Escrow Agreement Signature Page.
16. Benefit - No Third Party Beneficiaries. This Agreement is entered into for the
benefit of MCCF, Escrow Agent and the Members which sign this Agreement and their respective
successors and assigns, and there are no third party beneficiaries.
17. Counterparts. This Agreement may be executed in counterparts, which, taken
together, shall constitute one original. The parties agree that this Agreement may be transmitted
among themselves by facsimile. The parties intend that faxed signatures constitute original
signatures and a faxed Agreement or counterparts containing the signatures (original or faxed) is
binding upon all the parties.
18. Entire Agreement. This Ag-reement constitutes the entire ageement between the
parties and the parties' respective fights and obligations associated therewith. No modification to
this Agreement shall be effective unless reflective in a writing 'containing signatures of both parries.
19. AI)Diicable Law. This Agreement shall be governed by and construed in accordance
with Minnesota law.
Minnesota Community Capital Fund
Dated: May t, 2002
YVells Fargo Bank Minnesota, N.A.
Its ~_~ ,;,_.. ,[2-.~__~ .
Dated: May 1, 2002
G:kAPp$\WP5 [\DAL[Norlhland la.~titute\MCCF~elcrow AGP~.w~d
May 2, 2002 (1 l:43AM) 7
Member
Name of' Member
Signature of Authorized Officer
Name of Authorized Officer
Title of Authorized Officer
Address of Member
SCHEDULE 1
MINNESOTA COMMUNITY CAPITAL FUND
LOAN FUND SIGNATURE PAGE
(Please Print)
(Please Print or Type)
(Business Address
(City, State, Zip)
(Facsimile Number)
(E-mail address)
Federal Tax Identification No.
State Tax Identification No.
Amount of Member Funds to be Deposited
in Loan Fund
Dated:
Minnesota Community Capital Fund
By
Its
,200__
Wells Fargo Bank Minnesota, N.A.
By
Its
MCCF LOAN CRITERIA
FINANCING POLICIES
Loan Amounts:
· $50,000 minimum
· $2,500,000 maximum
Eiio. ible Proiects:
· Funded project must be within a member's area of operations.
· Borrower may be a for-profit business entity, non-profit entity, cooperative, or local unit
of government.
· A financial institution must be a participant in the project financing.
AllOwable Use of Proceeds:
· MCCF financing assistance may include, but is not limited to: fixed assets, including
land and building purchase, building construction, leasehold improvements and
renovations; acquisition, renovation or moving machinery and equipment; and working
capital loans secured by fixed assets with fixed repayment schedules (not lines of credit).
· Loans may not be used to refinance existing debt.
Inelieible Use of Proceeds:
· Speculative real estate developments.
· Purchase of equity positions in business enterprises.
Interest Rates:
· Adjustable and fixed rate loans are available, with rates determined by the MCCF
member originating the loan.
Loan Term Length:
The term of each loan will be determined on a case-by-case basis, with the primary
factor being the collateral offered. Loans secured by real estate will generally not exceed
20 years, and loans secured by machinery and equipment will generally support a loan
term of up to 10 years, not to exceed the depreciated life of the asset being financed.
When possible, the MCCF loan will coincide with the term of the participating bank
loan, including any balloon maturity provisions.
Fees and Charges:
· A 1.75% loan origination fee will be charged to all MCCF borrowers. This fee will be
assessed only for approved loans, but must be paid at or prior to loan closing.
· Borrowers are responsible for paying all legal and other loan closing costs incurred by
MCCF.
CREDIT CRITERIA
Equitw or Cash Requirements:
Loan applicants must demonstrate an acceptable level of project equity, with a minimum
of 10% equity provided by the borrower. Subordinated debt within the same project
financing may be considered as additional equity, subject to an intercreditor agreement.
All other criteria will apply, including subordinate debt, when calculating debt coverage.
Collateral Re/quirements:
· Loan collateral coverage must be at least 100% of the MCCF loan amount on appraised
value of assets, less all senior debt.
· MCCF will consider the following, collateral positions: first security interest, shared first
security interest, subordinated security interest and shared subordinated security interest.
Debt to Worth:
· MCCF will consider financing projects that have a tangible net worth ratio on an actual
and proforma basis of no greater than 10 to 1 (10% project equity or greater). Each
project shall be analyzed on its own merits and its ability to service both existing and
new debt.
· MCCF borrowers (real estate holding companies excluded) should have a tangible net
worth of 5 to 1 or less, based upon their most recent financial statements and, on a
proforma basis, reflecting the new proposed debt.
Personal Guarantees:
· Personal guarantees will be required for all owners with 20% or greater ownership in
closely held businesses.
Management Experience & Company Performance:
The MCCF will require that the project have capable, skilled management through
experience or expertise in the applicant's industry, either through previous successful
business ownership or through appropriate managerial support services. Borrowers
having erratic or undocumented earnings, or borrowers having new and unproven
management, will require more loan risk sharing by the MCCF member originating the
loan.
Repayment Ability:
Applicants must demonstrate adequate historical cash flow showing trends that support
debt service coverage of at least 1.1 to 1. Proforma financial cash flows must also
support debt service coverage of at least one to one.
2