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6.2 EDSR 05-19-2014To Item Number Economic Development Authority 16.2 Agenda Section Fleeting Date Prepared by General Business May 19, 2014 Brian Beeman, Director of Economic Development Item Description Reviewed by Preferred Powder Coating (PPC) Subordination Jeremy Barnhart, Deputy Director, CODD Agreements Reviewed by Action Requested By motion, approve the Resolution approving the Security Interest Subordination Agreement and Mortgage Subordination Agreement between the Economic Development Authority of the City of Elk River and First National Bank of Elk River, in relation to Preferred Powder Coating's 100,000 sq. ft. new construction project. Background /Discussion On September 26, 2013 Preferred Powder Coating (PPC) closed on all of the documents necessary to obtain financing to start their 100,000 sq. ft. project. Since that tune, due to an extended constriction 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. The FDA's loans were subordinate to the Bank's loan in the original principal amount of $5,093,000. First National Bank is now requesting that the EDA consent to being subordinate to the additional $386,000 increased loan amount as well, by approving the new Subordination Agreements. 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 FDA's attorney from Kennedy Graven, will be available for questions. Financial Impact None Attachments Resolution approving the updated Subordination Agreements Security Interest Subordination Mortgage Subordination Agreement POWERED 0Y Template updated 4/14 [NAYUREI • I[*] U01 • a L03 Q I Ems UWA4 INUZ . • 12 lfi`l 1:a*1 S i! NO r N •• :.••r • V Section 1. Recitals. 1.01 The Board of Commissioners (the "Board ") of the Economic Development Authority of the City of Elk River (the "EDA ") has heretofore provided a Microloan in the amount of $100,000 and a Forgivable Loan Program loan in the amount of $200,000 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 ") which were secured by certain mortgages and security agreements on a subordinate basis to a loan from First National Bank of Elk River (the "Bank ") in the original principal amount of $5,093,000. 1.02 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 EDA a Security Interest Subordination Agreement (the "Security Interest Agreement ") in favor of the Bank and a Subordination Agreement in favor of the Bank (the "Subordination Agreement" and together with the Security Interest Agreement die "Agreements "), providing for the subordination of the FDA's mortgages and security agreements to the Bank's mortgages and security agreements with respect to the additional financing, copies of which are on file with the Executive Director. NOW THEREFORE, BE IT RESOLVED by the Board of Coin nissioners (the "Board ") of the Economic Development Authority of the City of Elk River (the "EDA ") as follows: Section 2. Approval of Agreements. 2.01. The Agreements as presented to the EDA are hereby in all respects approved, in substantially the forms submitted, together with any related documents necessary in connection therewith, and the President and Executive Director are hereby authorized and directed to execute the Agreements on behalf of the EDA and to carry out, on behalf of the EDA, the FDA's obligations thereunder. 2.02. The approval hereby given to the Agreements 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 EDA and by the President and Executive Director prior to executing said documents; and said officers are hereby authorized to approve said changes on behalf of the EDA. The execution of any instrument by the President and Executive Director shall be conclusive evidence of the approval of such document in accordance with tie 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 Board by any duly designated acting official, or by such other officer or officers of the Board as, in the opinion of the City Attorney, may act in their behalf. 443799v1 JSB EL 185-22 Approved by the Board of Commissioners of the Economic Development Authority of the City of Elk River this 19th day of May, 2014. Dan Tveite, President ATTEST: Brian Beeman, Executive Director 4437990 JSB ELI 85-22 SECURITY INTEREST SUBORDINATION AGREEMENT To: First National Bank of Elk River, a national bank association (the "Bank ") For good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and to induce the Bank to extend additional credit to, or for die benefit of, 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 "), the Economic Development Authority of the City of Elk River, a public body corporate and politic of the State of Minnesota (the "Subordinated Creditor "), hereby agrees that regardless of any priority otherwise available to the Subordinated Creditor by law or by agreement, those security interests held by the Subordinated Creditor in the assets of Debtor (the "Property "), evidenced by the following documents: a. Security Agreement (Microloan) executed by Debtor in favor of Subordinated Creditor on September 26, 2013, securing all indebtedness of Debtor to Subordinated Creditor, including, without limitation, obligations created under the loan agreement and promissory note in the amount of $100,000.00, payable by Debtor to the order of Subordinated Creditor dated September 26, 2013; and b. Security Agreement (Forgivable Loan Program) executed by Debtor in favor of Subordinated Creditor on September 26, 2013, securing all indebtedness of Debtor to Subordinated Creditor, including, without limitation, obligations created under the loan agreement and promissory note in the amount of $200,000.00, payable by Debtor to the order of Subordinated Creditor dated September 26, 2013; shall be and shall remain fully subordinate for all purposes to any security interest and assignment now held or at any time hereafter granted to or acquired by Bank in any portion or all of the Property, including die security interest held by the Bank, as evidenced by the following document: a. Security Agreement executed by Debtor in favor of Bank on September 26, 2013, securing obligations owed to Bank in the original amount of Five Hundred Ninety Three Thousand and No/ 100 Dollars ($5,093,000.00) pursuant to the Construction and Term Loan Agreement and Promissory Note execute in favor of Bank on September 26, 2013, as amended on or about May , 2014 to include additional credit extended by Bank to Debtor, increasing the total amount of indebtedness secured by Security Agreement to the sum Five Million Four Hundred Seventy Nine Thousand Dollars ($5,479,000.00). The Subordinated Creditor further agrees that: 1. The Subordinated Creditor shall not, without the prior written consent of the Bank, commence or prosecute any action or proceeding with respect to any of the Property, exercise any collection rights with respect to any of the Property, take possession of, sell or dispose of, or otherwise deal with, any of the Property, or exercise or enforce any right or remedy which may be available to the Subordinated Creditor with respect to any of the Property upon default; provided, however, if Debtor is in default with Subordinated Creditor, then upon the occurrence of any default by Debtor of any loan agreement with the Bank, if within 180 days after such default, Bank has not begun efforts to realize upon the Property, including but not limited to entering into a Work -Out or Forbearance Agreement with Debtor, under terms in Bank's sole discretion, or thereafter Bank fails to continue its efforts to realize upon the Property with reasonable diligence, then Subordinated Creditor may take action with respect to the Property without the prior written consent of the Bank, but subject to the Bank's superior Security Interest in the Property. 2. The Bank may exercise collection rights, may take possession of, sell or dispose of, and otherwise deal with, the Property, and may exercise and enforce any rights and remedies available to the Bank with respect to the Property, whether available prior to or after the occurrence of any default, all without notice to or consent by anyone. Bank may apply the proceeds of the Property to any indebtedness secured by Bank's above- described security interest, in any order of application. 3. Neither the Subordinated Creditor nor die Bank (a) makes any representation or warranty concerning any of the Property or the validity, perfection or (except as to the subordination accomplished hereby) priority of any security interest therein, or (b) shall have any duty to preserve, protect, care for, insure, take possession of, collect, dispose of or otherwise realize upon any of the Property, or take any other action. 4. The agreements and undertakings of the Subordinated Creditor and the Bank's rights and remedies shall not be affected or unpaired 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 any of the Property or any other property, or (b) any other act or omission by the Bank or any other person or entity, or any other thing. 5. The Subordinated Creditor warrants that any purchaser or transferee of, or successor to, any security interest of the Subordinated Creditor in any or all of the Property will be given detailed written notice of the subordination accomplished hereby, prior to the time of purchase, transfer or succession. 6. The Subordinated Creditor hereby consents to Debtor granting to Bank a security interest in the Property of Debtor and further agrees to subordinate its security interest in the Property to the security interest of Bank. 7. The Subordinated Creditor 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 the Subordinated Creditor against the Bank 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. 8 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. SUBORDINATED CREDITOR: Dated: ECONOMIC DEVELOPMENT AUTHORITY OF THE CITY OF ELK RIVER By: Dan Tveite Its: President And By: Brian Beeman Its: Executive Director SUBORDINATION AGREEMENT DATE: FOR VALUABLE CONSIDERATION, the undersigned, Economic Development Authority of the City of Elk River, a public body corporate and politic of the State of Minnesota ("Subordinating Mortgagee ") hereby subordinates the liens on that real property in Sherburne County, Minnesota, legally described on Exhibit A, attached hereto and made a part hereof (the "Property "), evidenced by the following documents ("Subordinated Mortgages "): a. Mortgage and Assignment of Rents and Security Agreement and Fixture Financing Statement (Microloan) executed by Preferred Real Estate Holding, LLC, a Minnesota limited liability company ( "Mortgagor ") in favor of Subordinating Mortgagee on September 26, 2013, and filed on September 27, 2013, as Document No. 778856 in the office of the County Recorder of Sherburne County, Minnesota, securing an indebtedness of $10000.00; and b. Mortgage and Assignment of Rents and Security Agreement and Fixture Financing Statement (Forgivable Loan Program) executed by Mortgagor in favor of Subordinating Mortgagee on September 26, 2013, and filed on September 27, 2013, as Document No. 778857 in the office of the County Recorder of Sherburne County, Minnesota, securing indebtedness of $200,000.00. to those liens on the Property running in favor on First National Bank of Elk River, a national bank association ("First Mortgagee "), evidenced by tine following documents ("Priority Liens "): a. Mortgage, Security Agreement and Fixture Financing Statement executed by Mortgagor in favor of First Mortgagee 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 May , 2014 as document number , increasing the total amount of indebtedness secured by the First Mortgage to the sum Five Million Four Hundred Seventy Nine Thousand Dollars ($5,479,000.00). b. Assignment of Rents and Leases executed by Mortgagor in favor of First Mortgagee on September 26, 2013, and filed on September 27, 2013, as Document No. 778854 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 Assignment of Rents and Leases executed by Mortgagor on May , 2014, and recorded on May , 2014 as document number , increasing the total amount of indebtedness secured by the Assignment of Rents and Leases to the sum Five Million Four Hundred Seventy Nine Thousand Dollars ($5,479,000.00). It is hereby further agreed that all of the stipulations, provisions, conditions and covenants of the Subordinated Mortgages shall remain in full force and effect except as subordinated to the Priority Liens identified herein, and nothing herein contained shall be construed to impair the security or lien of the holder of said Subordinated Mortgages, except as specifically set forth herein. ECONOMIC DEVELOPMENT AUTHORITY OF THE CITY OF ELK RIVER By: Its: President And By: Its: Executive Director State of Minnesota ) ) ss County of Sherburne ) This instrument was acknowledged before me on , 2014, by and , the President and Executive Director, respectively, of the Economic Development Authority of the City of Elk River, a public body corporate and politic of the State of Minnesota, on behalf of said Economic Development Authority. Notary Public THIS INSTRUMENT WIAS DRAFTED BY.• GRIES LENHARDT MICHENFELDER ALLEN, P.L.L.P. Jill M. Presseller 12725 - 43d Street N.E., Suite 201 St. Michael, MN 55376 763- 497 -3099 2 EXHIBIT A LEGAL DESCRIPTION Lot 1, Block 3, Natures Edge Business Center, according to the plat thereof on file and of record in the office of the County Recorder of Sherburne County, Minnesota.