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4.8. SR 05-19-2014 City of Elk Request for Action River To Item Number Mayor and City Council 4.8 Agenda Section Meeting Date Prepared by Consent May 19, 2014 Brian Beeman,Director of Economic Development Item Description Reviewed by Resolution Approving Intercreditor Agreement Jeremy Barnhart,Deputy Director, CODD with Preferred Powder Coating Reviewed by Cal Portner, City Administrator Action Requested Adopt,by motion,a resolution approving the Intercreditor Agreement between the City of Elk River and First National Bank of Elk River in relation to Preferred Powder Coating's new construction project. Background/Discussion On September 26, 2013, Preferred Powder Coating (PPC) closed on the necessary documents to obtain financing to start their 100,000 sq. ft. project. Since that time,due to an extended construction schedule, PPC has gone over budget on the construction costs. As a result, First National Bank of Elk River will be increasing its loan obligation to PPC. First National Bank is requesting that,by approving the Intercreditor Agreement,the city agrees to subordinate its rights to collect shortfall payments from Preferred Powder Coating,LLC, Preferred Real Estate Holding,LLC,Lloyd Peterson and Dan Bosshart to the Bank's rights to collect payments on its loan, including the original principal amount of$5,093,000 and the additional principal amount of$386,000. The city's right to collect and use tax increments and enforce the minimum assessment agreement would not change. It is common practice for cities to take subordinate positions in development projects. All parties have reviewed the documents and are satisfied. In order to keep the project on schedule, First National Bank and PPC plan to close on the new loan the week of May 19, 2014. The EDA's attorney from Kennedy Graven,will be available for questions. Financial Impact None Attachments • City Council Resolution Approving Intercreditor Agreement • Intercreditor Agreement P a w E A E U s r Template Updated 4/14 INIM UREI �j City of Elk River Resolution No. 14- A Resolution of the City of Elk River Approving Intercreditor Agreement Section 1. Recitals. 1.01 The City Council (the "Council") of the City of Elk River (the "City") has heretofore established Tax Increment Financing District No. 23 in connection with providing assistance to Preferred Powder Coating,LLC, a Minnesota limited liability company, and Preferred Real Estate Holding,LLC, a Minnesota limited liability company (both collectively and individually referred to as "Debtor"). 1.02 The Debtor has previously obtained a loan from First National Bank of Elk River (the `Bank") in the original principal amount of$5,093,000. 1.03 The Debtor has requested an additional loan from the Bank in the amount of $386,000 and the Bank has required, as a condition to making such additional loan, that the Debtor obtain from the City an Intercreditor Agreement (the "Intercreditor Agreement") with the Debtor and Lloyd Peterson and Dan Bosshart (collectively, the "Guarantors") for the benefit of the Bank providing for the subordination of the City's rights to collect certain payments from the Guarantors to the Bank's rights with respect to the additional financing, a copy of which is on file with the City Clerk. NOW THEREFORE, BE IT RESOLVED by the City Council ("Council' of the City of Elk River ("City's as follows: Section 2. Approval of Intercreditor Agreement. 2.01. The Intercreditor Agreement as presented to the City is hereby in all respects approved, in substantially the form submitted,together with any related documents necessary in connection therewith,and the Mayor and City Clerk are hereby authorized and directed to execute the Intercreditor Agreement on behalf of the City and to carry out,on behalf of the City,the City's obligations thereunder. 2.02. The approval hereby given to the Intercreditor Agreement includes approval of such additional details therein as may be necessary and appropriate and such modifications thereof,deletions therefrom and additions thereto as may be necessary and appropriate and approved by legal counsel to the City and by the Mayor and City Clerk prior to executing said documents;and said officers are hereby authorized to approve said changes on behalf of the City. The execution of any instrument by the Mayor and City Clerk shall be conclusive evidence of the approval of such document in accordance with the terms hereof. In the event of absence or disability of said officers, any of the documents authorized by this Resolution to be executed may be executed without further act or authorization of the Council by any duly designated acting official,or by such other officer or officers of the Council as, in the opinion of the City Attorney,may act in their behalf 443685v1JSB EL185-22 Approved by the City Council of the City of Elk River this 19'b day of May,2014. John J.Dietz,Mayor ATTEST: Tina Allard,City Clerk 443685v1JSB EL185-22 Contract No. 14- Intercreditor Agreement Between City of Elk River, Preferred Powder Coating, LLC, Preferred Real Estate Holdings, LLC, Lloyd Peterson and Dan Bosshart, and First National Bank of Elk River THIS AGREEMENT is entered into as of the date set forth below,by and among the City of Elk River,a Minnesota municipal corporation(the"Subordinate Creditor"),Preferred Powder Coating, LLC,a Minnesota limited liability company,Preferred Real Estate Holding,LLC,a Minnesota limited liability company,Lloyd Peterson and Dan Bosshart (both collectively and individually referred to as "Debtor"), and First National Bank of Elk River, a national bank association (the "Bank"). In consideration of the mutual agreements set forth herein,and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged by all of the parties, the parties agree as follows: A. Debt Subordination 1. As used in this Agreement, the "Creditor's Claim" refers to all of the Debtor's debts, obligations and liabilities to the Subordinate Creditor, now existing or hereafter arising, direct or indirect, absolute or contingent, joint or several, whether as maker, endorser, surety, guarantor or otherwise, as well as all notes and other writings now and hereafter evidencing the same, including, without limitation, those obligations evidenced by the following: a. Promissory Note in the principal amount of$680,695.00,made,executed and delivered by Preferred Real Estate Holding, LLC to the order of Subordinate Creditor on September 26, 2013 (the "Purchase Price Note"); b. Development Agreement between Preferred Real Estate Holding, LLC and Subordinate Creditor dated September 26,2013 (the"Development Agreement");and C. Guaranty of Preferred Powder Coating, LLC, Lloyd Peterson and Dan Bosshart, in favor of Subordinate Creditor, to secure the obligations of Preferred Real Estate Holding,LLC pursuant to the Development Agreement (the "Shortfall Guaranty"). 2. All of the debts,obligations and liabilities of Debtor to the Bank,now existing or hereafter arising,direct or indirect,absolute or contingent,joint or several,whether as maker, endorser, surety, guarantor or otherwise,as well as all notes and other writings now and hereafter evidencing the same, are herein called the "Bank's Claim."The Bank's Claim shall include,without limitation,obligations of Debtor evidenced by the following: a. Construction and Term Loan Agreement between Debtor and Bank dated September 26, 2013 ("Loan Agreement"),in the original amount of Five Hundred Ninety Three Thousand and No/100 Dollars ($5,093,000.00), as amended on May , 2014 to include additional credit extended by Bank to Debtor, increasing the total amount of indebtedness issued pursuant to the Loan Agreement to the sum Five Million Four Hundred Seventy Nine Thousand Dollars ($5,479,000.00). 3. The Subordinate Creditor shall not receive,or take any action to collect or enforce,payment from the Debtor, and the Debtor shall not make payment to the Subordinate Creditor, of the Creditor's Claim or any part thereof, except that, as long as Bank has not sent to Subordinated Creditor and Debtor notice of Debtor's default under the terms of the Loan Agreement,the Debtor may pay, and the Subordinate Creditor may receive payments pursuant to the Promissory Note referenced in section 1.a., above. 4. Without the prior written consent of the Bank,the Subordinate Creditor shall not receive,or take any action to collect or enforce, payment of the Creditor's Claim or any part thereof from any debtor in possession, trustee in bankruptcy, receiver, or other liquidator of any part of the assets of Debtor (the "Property"). 5. In the event of the bankruptcy of, or the appointment of a trustee, receiver or other representative or liquidator for any of the property of the Debtor, or if the Debtor shall become the subject of any proceeding of any character under any federal or state bankruptcy, reorganization, receivership,liquidation,or insolvency act or law,all moneys and other property allocated or allocable to the Creditor's Claim and which would be payable or deliverable to the Subordinate Creditor in the absence of the provisions of this Agreement shall be paid and delivered directly to the Bank for application by the Bank as hereinafter provided,regardless of whether the Subordinate Creditor or the Bank or both file a claim on behalf of the Creditor's Claim in any such proceeding. The Bank is irrevocably authorized,at its option,but is under no duty or obligation, (a) to represent the Subordinate Creditor in any such proceeding, and (b) in its own name or otherwise,to make proof of,and receive any payments and property allocated or declared for payment or delivery on account of the Creditor's Claim in any such proceeding. For such purposes, the Subordinate Creditor further agrees at the Bank's request to deliver to the Bank a separate instrument of assignment assigning the Creditor's Claim to the Bank. The Bank may apply all payments and property it receives on such of the Bank's Claim as it shall then elect,until full payment of all of the Bank's Claim. 6. If the Subordinate Creditor receives any payment or property in violation of the terms of this Agreement,the Subordinate Creditor shall forthwith pay over or deliver the same to the Bank to be applied on the Bank's Claim whether or not then due. 7. In event of any breach of this Agreement by the Debtor,the Bank may declare the Bank's Claim immediately due and payable in full with notice as provided in the Loan Agreement. B. General Provisions 1. The Subordinate Creditor's and the Debtor's agreements and undertakings and the Bank's rights and remedies shall not be affected or impaired by(a) any neglect or omission on the part of the Bank to look to,preserve,protect,care for,insure,take possession of,collect,dispose of,or otherwise realize upon the Property or any other security for the Bank's Claim, or (b) any act by the Bank in releasing, canceling or surrendering all or part of such security, or in extending the time for payment with respect to all or any part of the Bank's Claim or such security, or in enforcing or realizing upon such security, or (c) any other act or omission by the Bank or any other person or entity,or any other thing. No notice need be given to the Subordinate Creditor at any time of the Bank's Claim or the amount thereof, whether now existing or later arising, or any increase or decrease therein, or any payment thereof, or with respect to any security, or in any other respect. 2. The Subordinate Creditor shall not,without the prior written consent of the Bank,assign, negotiate, pledge or otherwise transfer, or permit to be assigned, negotiated, pledged or otherwise transferred, or execute any power of attorney with respect to, the Creditor's Claim, the Subordinate Creditor's Security Interest, or any part thereof, except to the Bank. 3. Nothing herein creates,or implies the existence of,any commitment on the part of the Bank to extend credit to the Debtor or any other person or entity. 4. This Agreement shall continue in effect until payment in full of the Bank's Claim,and the Bank shall provide a written instrument executed by the Bank terminating this Agreement. 5. Each of the parties consents to the personal jurisdiction of the state and federal courts located in the State of Minnesota in connection with any controversy relating in any way to this Agreement or to any transaction or matter relating to this Agreement,waives any argument that venue in such forums is not convenient, and agrees that any litigation initiated by any of the parties against anyone or more of the other parties relating in any way to this Agreement or to any transaction or matter relating to this Agreement shall be venued in either the District Court of Sherburne County, Minnesota, or the United States District Court,District of Minnesota, Fourth Division. 6. This Agreement binds the Subordinate Creditor and the Debtor and their respective successors and assigns.This Agreement shall benefit and is enforceable by the Bank and its successors and any assignees of the Bank's Claim, but this Agreement shall not benefit or be enforceable by any other party or subordinate the Creditor's Claim or the Creditor's Security Interest to any claim or security interest other than the Bank's Claim and the Bank's Security Interests. 7. This Agreement and the rights and duties of the parties shall be governed by and construed in accordance with the laws of the State of Minnesota. All terms in this Agreement that are defined in the Minnesota Uniform Commercial Code (the "UCC") shall have meanings set forth in the UCC. The Subordinated Creditor waives any and all rights to require the marshaling of assets by the Bank. No provision of this Agreement can be waived, amended, modified, supplemented or terminated, except by a writing executed by the Subordinated Creditor and the Bank. This Agreement is made between the Bank and the Subordinated Creditor. It shall bind and benefit the parties and their respective successors and assigns. The Subordinated Creditor waives notice of the Bank's acceptance of this Agreement. C. No Subordination as to Tax Increment. 1. Notwithstanding anything to the contrary in this Agreement,nothing in this Agreement shall limit the City's rights to collect Tax Increments (as defined in the Development Agreement) and apply such Tax Increments as provided in the Development Agreement and the Purchase Price Note. 2. Notwithstanding anything to the contrary in this Agreement, the Assessment Agreement (as defined in the Development Agreement) and the rights of the city thereunder, shall be and remain prior and superior to the Mortgage, Security Agreement and Fixture Financing Statement executed by Preferred Real Estate Holding,LLC ("Mortgagor") in favor of the Bank on September 26, 2013, and filed on September 27, 2013, as Document No. 778853 in the office of the County Recorder of Sherburne County,Minnesota, to secure an original indebtedness of Five Million Ninety Three Thousand Dollars ($5,093,000.00), as amended by that Amendment to Mortgage executed by Mortgagor on , and recorded on as document number increasing the total amount of indebtedness secured by the mortgage to the sum Five Million Four Hundred Seventy Nine Thousand Dollars ($5,479,000.00), and the Bank and any other person or entity which acquired title to the Development Property (as defined in the Development Agreement) as a result of a foreclosure sale or otherwise shall take title to the Development Property subject to the Assessment Agreement and the terms and provisions thereof. Without limiting the generality of the foregoing, the Bank hereby consents to the minimum market value of the Development Property as set forth in the Assessment Agreement. SUBORDINATE CREDITOR: City of Elk River, Minnesota By: Its: Mayor,John J. Dietz And by: Its: City Clerk,Tina Allard DEBTORS: Preferred Powder Coating, LLC By: Lloyd Peterson Its: Chief Manager Preferred Real Estate Holding, LLC By: Its: Chief Manager Lloyd Peterson Dan Bosshart BANK: First National Bank of Elk River By: Chad Vitzthum Its: INTERCREDITOR AGREEMENT BETWEEN CITY OF ELK RIVER, PREFERRED POWDER COATINC, LLC, PREFERRED REAL ESTATE HOLDINGrS, LLC, LLOYD PETERSON, DAN BOSSIJART, AND FIRST NATIONAL BANK OF ELK RIVER TI IIS AGREEMENT is entered into as of the date set forth below,by and among the City of' Elk River, a Minnesota municipal corporation (the "Subordinate Creditor"), Preferred Powder Coating, LLC, a Minnesota limited liability company, Preferred Real Estate Holding, LLC, a Minnesota limited liability company, Lloyd Peterson and Dan Bosshart (both collectively and individually referred to as "Debtor"), and First National Bank of Elk River, a national bank association (the "Bank"). In consideration of the mutual agreements set forth herein, and for other good and valuable consideration,the receipt and sufficiency of which is hereby acknowledged by all of the parties, the parties agree as follows: A. Debt Subordination 1. As used in this Agreement, the "Creditor's Claim" refers to all of the Debtor's debts, obligations and liabilities to the Subordinate Creditor, now existing or hereafter arising, direct or indirect, absolute or contingent,joint or several, whether as maker, endorser, surety, guarantor or otherwise, as well as all notes and other writings now and hereafter evidencing the same, including, without limitation, those obligations evidenced by the following: a. Promissory Note in the principal amount of $680,695.00, made, executed and delivered by Preferred Real Estate Holding,LLC to the order of Subordinate Creditor on September 26, 2013 (the "Purchase Price Note"); b. Development Agreement between Preferred Real Estate Holding, LLC and Subordinate Creditor dated September 26, 2013 (the "Development Agreement"); and C. Guaranty of Preferred Powder Coating, LLC, Lloyd Peterson and Dan Bosshart, in favor of Subordinate Creditor, to secure the obligations of Preferred Real Estate Holding, LLC pursuant to the Development Agreement (the "Shortfall Guaranty"), 2. All of the debts,obligations and liabilities of Debtor to the Bank,now existing or hereafter arising,direct or indirect,absolute or contingent,joint or several,whether as maker,endorser,surety, guarantor or otherwise, as well as all notes and other writings now and hereafter evidencing the same, are herein called the "Bank's Claim." The Bank's Claim shall include, without limitation, obligations of Debtor evidenced by the following: a. Construction and Term Loan Agreement between Debtor and Bank dated September 26,2013 ("Loan Agreement"),in the original amount of Five Hundred Ninety Three Thousand and No/]00 Dollars($5,093,000.00),as amended on May_,2014 to include additional credit extended by Bank to Debtor, increasing the total amount of indebtedness issued pursuant to the Loan Agreement to the sum Five Million Four Hundred Seventy Nine Thousand Dollars ($5,479,000.00). 3. The Subordinate Creditor shall not receive, or take any action to collect or enforce, payment from the Debtor, and the Debtor shall not make payment to the Subordinate Creditor, of the Creditor's Claim or any part thereof, except that, as long as Bank has not sent to Subordinated Creditor and Debtor notice of Debtor's default under the terms of the Loan Agreement,the Debtor may pay, and the Subordinate Creditor may receive payments pursuant to the Promissory Note referenced in section La., above. 4. Without the prior written consent of the Bank,the Subordinate Creditor shall not receive, or take any action to collect or enforce,payment of the Creditor's Claim or any part thereof from any debtor in possession, trustee in bankruptcy, receiver, or other liquidator of any part of the assets of Debtor(the "Property"). 5. In the event of the bankruptcy of, or the appointment of a trustee, receiver or other representative or liquidator for any of the property of the Debtor, or if the Debtor shall become the subject of any proceeding of any character under any federal or state bankruptcy, reorganization, receivership, liquidation, or insolvency act or law, all moneys and other property allocated or allocable to the Creditor's Claim and which would be payable or deliverable to the Subordinate Creditor in the absence of the provisions of this Agreement shall be paid and delivered directly to the Bank for application by the Bank as hereinafter provided, regardless of whether the Subordinate Creditor or the Bank or both file a claim on behalf of the Creditor's Claim in any such proceeding. The Bank is irrevocably authorized,at its option,but is under no duty or obligation,(a)to represent the Subordinate Creditor in any such proceeding, and (b) in its own name or otherwise, to make proof of, and receive any payments and property allocated or declared for payment or delivery on account of the Creditor's Claim in any such proceeding. For such purposes,the Subordinate Creditor further agrees at the Bank's request to deliver to the Bank a separate instrument of assignment assigning the Creditor's Claim to the Bank. The Bank may apply all payments and property it receives on such of the Bank's Claim as it shall then elect, until full payment of all of the Bank's Claim. G. If the Subordinate Creditor receives any payment or property in violation of the tern-is of this Agreement,the Subordinate Creditor shall forthwith pay over or deliver the same to the Bank to be applied on the Bank's Claim whether or not then due. 7. In event of any breach of this Agreement by the Debtor,the Bank may declare the Bank's Claim immediately due and payable in full with notice as provided in the Loan Agreement. B. General Provisions 1. The Subordinate Creditor's and the Debtor's agreements and undertakings and the Bank's rights and remedies shall not be affected or impaired by(a)any neglect or omission on the part of the Bank to look to, preserve, protect, care for, insure, take possession of, collect, dispose of, or otherwise realize upon the Property or any other security for the Bank's Claim, or(b)any act by the Bank in releasing,canceling or surrendering all or part of such security,or in extending the time for payment with respect to all or any part of the Bank's Claim or such security, or in enforcing or realizing upon such security, or (c) any other act or omission by the Bank or any other person or entity, or any other thing. No notice need be given to the Subordinate Creditor at any time of the Bank's Claim or the amount thereof, whether now existing or later arising, or any increase or decrease therein, or any payment thereof, or with respect to any security, or in any other respect. 2. The Subordinate Creditor shall not,without the prior written consent of the Bank,assign, negotiate, pledge or otherwise transfer, or permit to be assigned, negotiated, pledged or otherwise transferred, or execute any power of attorney with respect to, the Creditor's Claim,the Subordinate Creditor's Security Interest, or any part thereof, except to the Bank. 3. Nothing herein creates, or implies the existence of, any commitment on the part of the Bank to extend credit to the Debtor or any other person or entity. 4. This Agreement shall continue in effect until payment in full of the Bank's Claim,and the Bank shall provide a written instrument executed by the Bank terminating this Agreement. 5. Each of the parties consents to the personal jurisdiction of the state and federal courts located in the State of Minnesota in connection with any controversy relating in any way to this Agreement or to any transaction or matter relating to this Agreement, waives any argument that venue in such forums is not convenient, and agrees that any litigation initiated by any of the parties against anyone or more of the other parties relating in any way to this Agreement or to any transaction or matter relating to this Agreement shall be venued in either the District Court of Sherburne County, Minnesota, or the United States District Court, District of Minnesota, Fourth Division. 6. This Agreement binds the Subordinate Creditor and the Debtor and their respective successors and assigns. This Agreement shall benefit and is enforceable by the Bank and its successors and any assignees of the Bank's Claim, but this Agreement shall not benefit or be enforceable by any other party or subordinate the Creditor's Claim or the Creditor's Security Interest to any claim or security interest other than the Bank's Claim and the Bank's Security Interests. 7. This Agreement and the rights and duties of the pat-ties shall be governed by and construed in accordance with the laws of the State of Minnesota. All tern-is in this Agreement that are defined in the Minnesota Uniform Commercial Code (the "UCU) shall have meanings set forth in the UCC. The Subordinated Creditor waives any and all rights to require the marshaling of assets by the Bank. No provision of this Agreement can be waived, amended, modified, supplemented or terminated, except by a writing executed by the Subordinated Creditor and the Bank. This Agreement is made between the Bank and the Subordinated Creditor. It shall bind and benefit the parties and their respective successors and assigns. The Subordinated Creditor waives notice of the Bank's acceptance of this Agreement, C. No Subordination as to Tax Increment. 1, Notwithstanding anything to the contrary in this Agreement, nothing in this Agreement shall limit the City's rights to collect Tax Increments (as defined in the Development Agreement) and apply such Tax Increments as provided in the Development Agreement and the Purchase Price Note. 2. Notwithstanding anything to the contrary in this Agreement, the Assessment Agreement (as defined in the Development Agreement) and the rights of the city thereunder, shall be and remain prior and superior to the Mortgage, Security Agreement and Fixture Financing Statement executed by Preferred Real Estate Holding, LLC ("Mortgagor") in favor of the Bank on September 26, 2013, and filed on September 27, 2013, as Document No. 778853 in the office of the County Recorder of Sherburne County, Minnesota, to secure an original indebtedness of Five Million Ninety Three Thousand Dollars ($5,093,000.00), as amended by that Amendment to Mortgage executed by Mortgagor on May_, 2014, and recorded on 2014 as document number , increasing the total amount of indebtedness secured by the mortgage to the sum Five Million Four Hundred Seventy Nine Thousand Dollars ($5,479,000.00), and the Bank and any other person or entity which acquired title to the Development Property (as defined in the Development Agreement) as a result of a foreclosure sale or otherwise shall take title to the Development Property subject to the Assessment Agreement and the terms and provisions thereof Without limiting the generality of the foregoing, the Bank hereby consents to the minimum market value of the Development Property as set forth in the Assessment Agreement. SUBORDINATE CREDITOR: City of Elk River, Minnesota By:___ Its: Mayor And by-__ Its: City Clerk DEBTORS: Preferred Powder Coating, LLC By:___ Lloyd Peterson Its: Chief Manager Preferred Real Estate Holding, LLC By:. ...... Lloyd Peterson Its: Chief Manager .......... Lloyd Peterson ................... Dan Bosshart BANK: First National Bank of Elk River By: ............................ ............... Chad Vitzthurn Its: Lead Market President