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6.0. EDSR 06-10-2002 Item # 6 • � City of Elk -. -, Ri• ver MEMORANDUM TO: Economic Development Authority FROM: Catherine Mehelich, Director of Economic Developmen DATE: June 10, 2002 SUBJECT: 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 recently received a request for the city's participation in the Minnesota Community Capital Fund (MCCF) 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 meeting. 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 flexibility 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 (minimum of$25,000). Included among MCCF's current list of 38 economic development members are: • St. Cloud HRA • Sherburne County • • Great River Energy • Big Lake Consider MN 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 Incentive 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 addition, the outstanding principal on existing 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 C C ' F • MINNESOTA COMMUNITY CAPITAL FUND May 10, 2002 Ms. Catherine Mehelich Director of Economic Development City of Elk River 13065 Orono Pkwy. PO Box 490 Elk River, MN 55330 Dear Ms. Mehelich: Enclosed for your consideration is the Offering Prospectus for the Minnesota Community Capital Fund (MCCF), the new nonprofit membership corporation established to increase the lending capacity of economic development groups like yours throughout Greater Minnesota. 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 program 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 organization 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, 14-klk*4) Scott A. Martin ID CEO/Fund Developer Activating Capital for your Community 13911 Ridgedale Drive I Suite 260 I Minneapolis,MN 55305 phone:952 541-9674 I fax:952 541-9684 I website:www.mncommunitycapitalfund.org • M 'nnes t C nitCapital 1 1 / , „„ , , , ii.,,,, , , ., / / , „,,, , ,,,..,,,„ , , 4 /, Allrh,,,,, ' // y c.. • \' , ir it .4 01006°P A. ActivatingCa ital0� 400 For Your Community The Minnesota Community Capital Fund(MCCF),a new nonprofit organization, is offering local communities and economic development organizations throughout Greater Minnesota an opportunity to participate in an innovative new development financing resource.This flexible loan fund is designed to leverage millions of dollars in underutilized local Revolving Loan Fund(RLF) capital.Through the pooling of RLF resources, the MCCF(the "Fund") will provide participants with greater lending flexibility,the capability of offering 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 of erated exclusively for purposes consistent with Section 501(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, For communities the MCCF is offering 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 and • of all sizes, as well as • 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 multi-community 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. and regional •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 economic development 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. III •In addition to the loan pool capitalized by member contributions,the MCCF intends to offer members access to other financing resources in the future. organizations. 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 iik workings of the Fund. While answers to many of these questions were not available at that time, the project velopment team has subsequently addressed most, if not all of these issues, including the following FAQ's: How large must our organization or community 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 regional economic development organizations that want to increase their development financing capacity. The funds that I have available locally to invest in the MCCF were originally received from the Minnesota Department of Trade and What are economic developers saying Economic Development (DTED) under the Minnesota Investment about the MCCF? Fund grant program. These funds were loaned to a local business and the repayments are being used to capitalize my local revolving loan "The MCCF concept makes a lot of fund (RLF). Can I use this money to join MCCF? sense to me. By pooling revolving loan Yes. The State Legislature enacted an amendment to Minn. Statute fund dollars, smaller communities Will 116J.8731, subd.2 this year that specifically authorizes local government have greater access to development units to do so. capital, and will likely become more actively involved in supporting economic How about using city general fund dollars for this purpose? development in their communities.„ p, again. Minn. Statutes 469.191 authorizes cities and towns to Southern Minnesota Economic Developer ropriate not more than $50,000 annually out of their general revenue fund for organizations like the Minnesota Community Capital Fund. "I see this (the pooling of loan funds) as a way to make more money available to Most of our local economic development financing resources were provided to our community by DTED through a HUD Small Cities our reglon...WhlCh means more money is Development Block Grant (SCDBG). Is it ok to use this money for our available to every city in the region for MCCF contribution? economic development.” Local EDA Professional Yes. In fact, since the MCCF has been organized to qualify as a Community-Based Development Organization, SCDBG funds can be "I really like the program. From talking contributed with minimal reporting, which will be handled by the Fund to the smaller cities in our area, I've manager. . been told that they like it, too. The sense Once we're a member of the MCCF, can we increase our initial the smaller cities have is that their contribution level in order to be able to originate larger loans from money will go a lot further invested in the Fund? the MCCF. I think it could be a very Absolutely. MCCF members will be able to increase their stake in the valuable tool." Countywide Rural Fund at any time in order to meet their changing needs and to make the Development Finance Authority Director 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 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 have 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 annual 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. Financing 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 for business 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. expansion Who will pay for the cost of fund management? The primary revenue sources that will be available to pay for fund management services are the interest earnings on the pooled funds and affordable 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 housing projects. related to a MCCF loan transaction will be subject to a reasonable •directly service fee to be paid by the benefiting member. How will the Fund be recapitalized? 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 •esponsive 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 will 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 terms 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. T • Repayment ability based on cash flow analysis. Loans of f up to ten • 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 times the amount •... 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 d contribute approving, denying, or modifying the loan terms 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 will be a self-sustaining development resource,with the continual 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 our members as loan 1 terms and conditions are being negotiated is how the secondary market will price the loan for purchase. Most institutional investors active in buying economic 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*: 0 • 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 10% 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 local 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 Fund solely for the purpose of demonstrating how the secondary market for economic development loans responds to interest rate variables. Loans originated from the MCCF pool 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 originating 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 premium,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 Enrollment Schedule iThe 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 level. 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 formally 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 this unique opportunity or would like to express your interest in becoming a charter member of the MCCF, please contact Scott Martin at (952) 541-9674. MCCF 1M IN NT SOr.A COMMUNITY CAPITAL FUND PROSPECTUS MEMBERSHIP AND LOAN FUND PARTICIPATION MINNESOTA COMMUNITY CAPITAL FUND a Minnesota Nonprofit Corporation Minnesota Community Capital Fund ("MCCF") is a Minnesota nonprofit corporation. MCCF has not commenced operations. MCCF has been formed for the purpose of developing, funding and operating a flexible self-sustaining development loan fund as a new development financing resource. This loan fund is designed to leverage millions of dollars in local revolving loan fund ("RLF") capital held by a variety of economic development organizations throughout Minnesota. It is intended that these economic development organizations will become Members of MCCF and pool RLF resources and other local funds ("Member Funds") in an escrow account maintained at a financial institution (the"Loan Fund"). The Member Funds deposited in the Loan Fund remain the assets of Members but are used by MCCF to provide initial funding of Development Loans made by MCCF. Member Funds on deposit in the Loan Fund are refundable to the Member three years after the deposit by the Member. The relationship between MCCF and its Members is described in a Participation Agreement,which • sets forth the terms of membership in MCCF and the obligations and rights of MCCF and its Members. MCCF,through the use of the Loan Fund, intends to provide its Members with professional fund management services, greater lending flexibility,and the capability of offering much larger loans than would be possible with limited existing local resources. MCCF hereby offers local government agencies, community development corporations, business organizations, development-orientated venture funds,public charity and private foundations which are involved in economic development activities within the State of Minnesota, and other organizations that have an interest in supporting the purposes of MCCF ("Offerees"),the opportunity to become Members of MCCF and participate in the Loan Fund as provided in the Participation Agreement(the"Participation"). The following table sets forth data with respect to this Participation: Membership Class Deposits In Loan Fund Class A $100,000 or more but not to exceed$250,000 Class B $50,000 or more but less than$100,000 Class C $25,000*or more but less than$50,000 *Minimum Loan Fund Deposit The aggregate minimum deposit to the Loan Fund is$2,500,000 and there is no limit upon the number of Members. THIS PARTICIPATION DOES NOT CONSTITUTE AN OFFERING OF A SECURITY UNDER FEDERAL LAW AND HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THIS PARTICIPATION IS REQUIRED TO BE REGISTERED UNDER CHAPTER 80A OF THE LAWS OF THE STATE OF MINNESOTA AND MCCF HAS FILED WITH THE COMMISSIONER OF COMMERCE FOR REGISTRATION BY NOTIFICATION PURSUANT TO SECTION 80A.09 OF THE LAWS OF THE STATE OF MINNESOTA. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE MINNESOTA DEPARTMENT OF COMMERCE NOR HAS THE DIVISION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Dated April 30,2002 IMPORTANT NOTICE TO OFFEREES • NO PERSON HAS BEEN AUTHORIZED BY MCCF TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS CONCERNING MCCF OTHER THAN AS CONTAINED IN THIS PROSPECTUS OR ACCOMPANYING DOCUMENTS, IN CONNECTION WITH THE PARTICIPATION DESCRIBED HEREIN AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY MCCF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER WITHIN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION WITHIN SUCH JURISDICTION. MCCF RESERVES THE RIGHT TO ACCEPT OR REJECT PARTICIPATION AGREEMENTS SUBMITTED 1 BY OFFEREES. TABLE OF CONTENTS Page Glossary iii Prospectus Sununary 2 Risk Factors 3 Risks Related to Member Funds 3 Loss of Use of Funds 3 Investment of Loan Fund 3 Earnings and Interest Not Refundable 4 Startup Nonprofit Corporation 4 Forward-Looking Statements Involves Risks and Uncertainties 4 Projections and Assumptions not Reviewed by CPA 4 Additional Funding 4 Business Model Unproven 4 , Use of Proceeds 5 Membership 5 Eligibility and Classes of Members 5 Refund of Loan Fund Deposits 5 No Rights in Assets and Earnings 5 - Members to Elect Certain Directors 5 Limited Rights of Governance 6 Transfer of Membership Restricted 6 No Liability for Debts of MCCF 6 No Limit on Number of Members and Size of Loan Fund 6 Closing 6 Initial Closing 6 Additional Closings 6 Early Termination of Participation 6 Capitalization 6 Financial Statements and Financial Data 7 Business Plan 7 Puns 7 Loan Origination and Other Benefits 7 Loan Origination Fees and Closing Expenses 8 Member Obligations Limited 8 Loan Criteria 8 Sequence of Events-Development Loan Origination to Loan Closing 8 Sale of Pre-Approved Loans to Secondary Market 9 Loan Closing 9 Sources of Revenue 10 • Working Capital 10 Projections and Assumptions 10 i • Loan Activity Dependent on Member Origination 10 Organizational Stricture 11 Incorporation as a Nonprofit Corporation 11 Tax Exempt Status under the Internal Revenue Code 11 Director Managed 11 Management 11 Initial Board of Directors 11 Biographical Information—Directors 11 Officers 12 Biographical Information-Officers 12 Employees,Equipment,and Office Space 13 Summary of Management Agreement 13 Summary of Participation Agreement 14 Participation Agreement 14 Membership 14 Refund of Contribution 14 Origination of Loans 14 Loan Purchaser Agreements 14 Loan Fund Escrow Agreement Summary 15 Conflicts of Interest 16 Indemnification 16 Limitation of Director Liability and Indemnification 16 How to Participate • 16 Additional Information 16 Exhibits • Projections and Assumptions Exhibit A Articles of Incorporation of Minnesota Community Capital Fund Exhibit B Bylaws of Minnesota Community Capital Fund Exhibit C Loan Fund Escrow Agreement Exhibit D Participation Agreement Exhibit E Loan Criteria Exhibit F S ii GLOSSARY • The following defined terms are used in this Prospectus. "Board of Directors"or"Board"means the Board of Directors of MCCF. "Closing"means the acceptance by MCCF of the Participation Agreements. "Development Loan" means an affordable housing project or business loan made by MCCF and initially funded with proceeds from the Loan Fund. "Escrow Agent"means Wells Fargo Bank Minnesota,National Association,or a successor financial institution. "Fund Manager"means Northland Institute or a professional manager designated by Northland Institute to negotiate and structure each loan package originated by Members. "Initial Closing" means the first Closing upon MCCF receiving and accepting Participation Agreements for a minimum amount of$2,500,000 and the occurrence of other contingencies as shown in the Prospectus. "Institute"means Northland Institute,a Minnesota nonprofit corporation. "Loan Fund" means an escrow account at Wells Fargo Bank Minnesota, N.A., established pursuant to the Loan Fund Escrow Agreement for purposes of holding, investing, and disbursing Member Funds in accordance with the Loan Fund Escrow Agreement. "Loan Fund Escrow Agreement" means the agreement between MCCF, Wells Fargo Bank, N.A., and Members establishing a Loan Fund into which Member Funds are deposited pursuant to this Prospectus, a copy of which is . included as Exhibit D. "Loan Fund Escrow Agreement Signature Page"means the signature page of the Loan Fund Escrow Agreement. "Loan Purchaser"means a secondary market purchaser of Development Loans made by MCCF. "MCCF'means Minnesota Community Capital Fund,a Minnesota non-profit corporation.' "Member"means entities that are admitted as members of MCCF. "Member Funds"means funds deposited by Members in the Loan Fund. "Offerees" means the entities to which MCCF is extending the offer of Participation made pursuant to this Prospectus. "Participation" means the offering of the Participation Agreement pursuant to which Offerees receive membership in MCCF and the right to participate in the Loan Fund pursuant to this Prospectus. "Participation Agreement". means the agreement between MCCF and Members that establishes the rights and obligations of MCCF and Members with respect to membership in MCCF and participation in the Loan Fund, a copy of which agreement is included as Exhibit E in this Prospectus. "Participation Agreement Signature Page"means the signature page of the Participation Agreement. "Projections and Assumptions" means the forward-looking statements which are contained in Exhibit A of this Prospectus and which are discussed in"Business Plan-Projections and Assumptions". • "RLF" means a revolving loan fund maintained by a government unit or economic development organization. • nl PROSPECTUS SUMMARY • The following summary is qualified in its entirety by, and should be read in conjunction with, the more detailed information appearing elsewhere in this Prospectus and incorporated or deemed to be incorporated by reference in this Prospectus, including, the exhibits attached to this Prospectus. Prospective Members should carefully consider the factors set forth under "Risk Factors"and are urged to read this Prospectus in its entirety. In General MCCF is a newly organized Minnesota non-profit corporation formed for purposes of developing and operating a flexible self-sustaining loan fund as a new development financing resource. This loan fund is designed to leverage millions of dollars in RLF capital held by a variety of economic development organizations throughout Minnesota. It is intended that these economic development organizations will become members of MCCF and pool RLF resources and other local funds ("Member Funds") in an escrow account maintained at a financial institution (the "Loan Fund"). The Member Funds in the Loan Fund remain the assets of Members, but are used by MCCF to provide initial funding of Development Loans made by MCCF. Member Funds on deposit in the Loan Fund are refundable to the Member three years after the first deposit by the Member. The relationship between MCCF and its Members is described in a Participation Agreement that sets forth the terms of membership of MCCF and the obligations and rights of MCCF and its Members. MCCF is assigned the right to receive all earnings and interest upon the Loan Fund. The principal amount of the Member Funds in the Loan Fund will be used solely for the purpose of initially funding a Development Loan made by MCCF. The Participation Agreement requires that prior to disbursement of Loan Funds to the borrower, MCCF shall receive confirmation that the secondary market Loan Purchaser has purchased the Development Loan made by MCCF and the purchase price of the Development Loan has been received via wire transfer by the Loan Fund. Reselling of all Development Loans made by MCCF to a Loan Purchaser assures that the Loan Fund will be self-sustaining. See"Business Plan". Corporate Information • MCCF was incorporated under the Minnesota Non-Profit Corporation Act on August 7, 2001 and its corporate office is located at 13911 Ridgedale Drive, Suite 260, Minneapolis, Minnesota 55305. See "Additional Information". Membership and Member Loan Origination In order to encourage communities and organizations of all sizes to become Members, MCCF has three classes of membership. The Members of MCCF have the authority to elect six of the nine directors of MCCF. Each of the three classes of Members has the right to elect two directors of MCCF. Members are entitled to one vote for each $1,000 deposit balance in the Loan Fund or contributed to MCCF for working capital. Members of MCCF have no other rights of governance with respect to MCCF and have no property rights in the assets of MCCF and no earnings of MCCF shall inure to the benefit or be distributed to Members. See"Membership". Each Member of MCCF is entitled to participate by originating Development Loans that will be initially funded by the Loan Fund.Participation includes the right to originate Development Loans of up to ten times the amount of the Member's deposit balance in the Loan Fund, or the amount of working capital contributed to MCCF. Members receive, at no cost, the services of the Loan Fund Manager, who will work closely with Members, prospective borrowers, and other lenders in analyzing and structuring transactions. Upon approval of originating Member and the MCCF loan committee, the Loan Fund Manager provides all services with respect to the Development Loan closing and negotiating the sale of the Development Loan to the Loan Purchaser. See "Summary of Participation Agreement"and"Business Plan". Use of Proceeds and Contribution to MCCF MCCF does not receive any proceeds of this offering. The Member Funds that are deposited in the Loan Fund remain funds of the Members that deposited such funds. All interest and earnings upon the Loan Fund are assigned by Members to MCCF by the Members pursuant to the Participation Agreement. The assignment of all Loan Fund • interest and earnings by a Member is a contribution to MCCF. See"Use of Proceeds." 2 Minimum Participation-No Maximum Participation The Initial Closing is conditional upon a minimum of$2,500,000 of Member Funds being deposited into the Loan • Fund by Members, pursuant to Participation Agreements. Deposits to the Loan Fund shall be refunded without interest in the event the Initial Closing does not occur on or before October 31, 2002. MCCF will continue to offer this Participation following the Initial Closing and there is no limit upon the number of Members that may be thereafter admitted to MCCF or the aggregate amount of Members' deposits to the Loan Fund. (See"Closing"). Deposits to Loan Fund Refundable upon Certain Conditions A Member shall receive a refund of their deposit balance in the Loan Fund upon 30 days' advance written notice to MCCF and the Escrow Agent specifying the amount of refund that 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. See "Membership"and"Loan Fund Escrow Agreement Summary". Offeree Participation Offerees who desire to participate may do so by executing the Participation Agreement included in this Prospectus as Exhibit E and the Loan Fund Escrow Agreement included in this Prospectus as Exhibit D. Participation by an Offeree is subject to approval by the Board of Directors of MCCF. See "Summary of Participation Agreement", "Loan Fund Escrow Agreement Summary",and"How to Participate". RISK FACTORS Risks Related to Member Funds Member Funds are deposited pursuant to the Participation Agreement directly into the Loan Fund that has been established at Wells Fargo Bank Minnesota, N.A. The Loan Fund is an escrow account and Wells Fargo Bank Minnesota, N.A. is the Escrow Agent. Member Funds deposited in the Loan Fund remain assets of the Member. io MCCF agrees with Members in the Participation Agreement 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 as described in the Participation Agreement: (i) All Development Loans will be sold prior to closing to a Loan Purchaser. (ii) MCCF will direct the Escrow Agent to wire transfer funds sufficient to fund a Development Loan closing to a title company or other authorized loan closer designated by MCCF for purposes of initially funding a Development Loan which has been made by MCCF. (iii) MCCF shall follow a detailed procedure set forth in the Participation Agreement with respect to the closing of the Development Loans including confirmation by MCCF that a Loan Purchaser has wire transferred to the Loan Fund an amount equal to the funds the Loan Fund previously advanced to the title company or authorized loan closer for purposes of initially funding the Development Loan. The risk of loss of Member Funds only arises if the foregoing agreements and conditions by MCCF are not followed by MCCF. Loss of Use of Funds The Member Funds deposited by a Member are unavailable to the Member for a period of three years. Investment of Loan Fund MCCF is granted by Members the authority to direct investment of the Loan Fund. Such investments shall be limited to U.S. Government Bonds,U.S. Government Agency Bonds, U.S. Government Money Market Funds, and • federally-insured Certificates of Deposit. U.S. Government Agency Bonds and U.S. Government Money Market Funds are not direct obligations of the United States of America and are not backed by the full faith and credit of the United States of America. 3 Earnings and Interest Not Refundable • All earnings and interest are assigned by the Participation Agreement to MCCF and are contributions to MCCF by the Member and are not refundable. Start-up Nonprofit Corporation MCCF has not commenced operations and is a development stage corporation subject to the uncertainty and risks of a development stage corporation Forward-Looking Statements Involve Risks and Uncertainties This Prospectus contains projections and assumptions which are contained at Exhibit A ("Projections and Assumptions"). These Projections and Assumptions and statements in this Prospectus and in certain documents incorporated or deemed incorporated by reference in this Prospectus constitute forward-looking statements that involve risks and uncertainties. These statements relate to the future plans,objectives,expectations and intentions of MCCF and may be identified by the use of words such as"believe", "estimate", "expect", "anticipate", "intend", "plan", "should", "potential" and similar expressions. Actual results could differ materially from those contemplated by the forward-looking statements made in this Prospectus and in the Projections and Assumptions which are contained in Exhibit A. Future revenues are unpredictable and it is expected that operating results will fluctuate from period to period. The absence of an operating history makes it difficult to accurately forecast revenues in any given period. Revenues that are derived from origination fees are dependent upon the number of loan closings which occur during any given period. If revenues fall short of expectations, MCCF will use its working capital at an accelerated rate. See "Business Plan". The Projections and Assumptions assume and MCCF expects to pre-sell all loans which are made from the Loan • Fund to the secondary market In the event MCCF is unable to pre-sell certain loans to the secondary market,the number of loans made may be less than projected and revenues derived from origination fees may be substantially reduced. See"Business Plan". MCCF expects losses. The Projections and Assumptions of MCCF contained in Exhibit A and other forward- looking statements anticipate that MCCF will incur losses from operations in fiscal years ended June 2003 and June 2004 and enjoy a slight profit from operations for the fiscal year ended June 2005. Future revenues are unpredictable and no assurance can be given that MCCF will remain profitable in future years. Projections and Assumptions Not Reviewed by CPA The Projections and Assumptions attached hereto as Exhibit A were prepared internally and were not reviewed by a certified independent public accountant Additional Funding Upon the Initial Closing,MCCF will have commitments for not less than$200,000 in working capital from which to finance projected operating deficits over the next three years. Although management of MCCF believes that these cash flow reserves and cash flow from operations will be adequate to fund operations for the next three years, such sources may be inadequate to cover such period. Consequently, MCCF may require additional working capital funding and if such funding is not available MCCF may be required to limit or discontinue its operations. See "Capitalization". Business Model Unproven The MCCF business model is largely unproven. Accordingly, the MCCF business model may not be successful, and may need to be changed. See`Business Plan". 4 USE OF PROCEEDS MCCF will not receive any funds upon the Closing of this Participation. All Member Funds payable pursuant to this • Participation shall be deposited in the Loan Fund and remain the property of the Offerees. There are no commissions or other expenses applicable to this Participation. All expenses relating to MCCF prior to the Initial Closing date will have either been paid for by the Northland Institute, or from grants awarded to the Northland Institute, including a start-up grant provided by the Blandin Foundation. The payment of such expenses are not reimbursable by MCCF to Northland Institute or the parties making such grants. See"Capitalization". MEMBERSHIP Eligibility and Classes of Members MCCF has three classes of membership. There are no members as of the date of this Prospectus. Membership is granted only upon the consent of the MCCF Board. Membership is granted to entities making deposits to the Loan Fund and to entities which make working capital contributions to MCCF. The class of membership which an Offeree receives is determined solely upon the aggregate balance on deposit of the Offeree in the Loan Fund or the aggregate amount a Member contributes to MCCF for working capital purposes. The three classes of membership are as follows: Membership Class Aggregate Deposit of a Member to the Loan Fund or Contributions to MCCF Class A $100,000 or more(not to exceed$250,000) Class B $50,000 or more but less than$100,000 Class C $25,000 or more but less than$50,000 Members may only belong to one membership class. The aggregate balance on deposit of a Member in the Loan Fund may not exceed$250,000 and the aggregate minimum on deposit of a Member may not be less than$25,000. • In the event a Member makes more than one deposit,both deposits shall be aggregated for purposes of determining the membership class of such Member. In the event an Offeree requests a refund of a portion of the amount on deposit in the Loan Fund in accordance with the procedures set forth in the Loan Fund Escrow Agreement, the balance of the amount on deposit following the refund will determine the Membership Class to which such Member then belongs. In the event a Member requests refunds pursuant to the Loan Fund Escrow Agreement that would reduce the balance deposit to less than$25,000, the entire balance of the deposit of such Member shall be refunded and the membership of such Member shall terminate. See"Summary of Participation Agreement". Refund of Loan Fund Deposits A Member shall receive a refund of all or a portion of their deposit balance in the Loan Fund upon 30 days'advance written notice to MCCF and the Escrow Agent specifying the amount of refund that 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. See"Membership"and"Summary of Loan Fund". No Rights in Assets and Earnings The Members of MCCF have no property rights in the assets of MCCF and no earnings of MCCF shall inure to the benefit of or be distributed to the Members. Members to Elect Certain Directors Each of the three classes of Members has the right to elect two directors of MCCF. A Member is entitled to one vote for each $1,000 deposited in the Loan Fund or contributed to the working capital of MCCF (fractions are disregarded) and the candidate for director receiving the greatest number of votes from the class of Members nominating such director is elected. Transfers of Loan Fund interest earnings to MCCF are not deemed contributions for the purposes of Member voting rights. See"Bylaws-Exhibit C". 5 Limited Rights of Governance • The Members of MCCF have the responsibility to elect six of nine directors of MCCF and their approval shall be required prior to amendment or abridgement of their right to elect directors; however,the Members of MCCF shall have no other rights with respect to governance of MCCF. Transfer of Membership Restricted Members may transfer memberships or rights of memberships only upon the written consent of the Board of Directors. No Liability for Debts of MCCF Members have no liability for the debts,liabilities,or obligations of MCCF due to their membership. No Limit on Number of Members and Size of Loan Fund There is no limit upon the aggregate number of Members of MCCF or the aggregate amount of deposits to the Loan Fund. This Participation will be a continuing offering until terminated by MCCF. CLOSING Initial Closing This Participation will have an initial closing ("Initial Closing") upon the occurrence of MCCF receiving and accepting Participation Agreements from Offerees providing for deposits to the Loan Fund in the minimum aggregate amount of$2,500,000 and the deposit of such funds in the Loan Fund. • Additional Closings Additional Closings of this Participation will occur following the Initial Closing upon MCCF accepting additional Participation Agreements and funds for deposit in the Loan Fund. Early Termination of Participation In the event the Initial Closing does not occur on or before October 31, 2002, this Participation shall be deemed terminated and all funds will be returned to Offerees by the Escrow Agent of the Loan Fund without interest. CAPITALIZATION The total capitalization of MCCF as of April 30, 2002,and as adjusted to give effect to receipt of grant funds, is as follows: April 30,2002 Actual As Adjusted for Initial Closing Member Contributions $0 $-0- Grant Funds Receivable' $0 $200,000 Total Capitalization $0 $200,000 ' Northland Institute has been awarded a grant in the amount of$250,000 from The Blandin Foundation("Blandin Grant"). The Blandin Grant provides that $200,000 of grant proceeds are to be used by the Northland Institute exclusively for MCCF working capital needs and operational support upon MCCF receiving Participation • Agreements providing for a deposit of $2,500,000 in the Loan Fund. Northland Institute has entered into an agreement with MCCF to apply these grant funds for MCCF working capital and operational support needs upon the request of MCCF following the Initial Closing. The Blandin Foundation or its designee shall receive a Class A membership with respect to $125,000 of this grant and corresponding Loan Fund participation. No part of the Blandin Grant is included for purposes of determining whether the minimum Participation of$2,500,000 has been attained. 6 FINANCIAL STATEMENTS AND FINANCIAL DATA MCCF has not commenced operations and will not commence operations until the Initial Closing, and the • occurrence of the conditions precedent to the Initial Closing. See"Closing". As of April 30, 2002 MCCF had no assets and no liabilities.It is anticipated that MCCF will have no liabilities and that all development and organizational expenses will, as of the Closing, have been paid by Northland Institute or from proceeds of grants awarded Northland Institute for such purpose. The fiscal year of MCCF ends on June 30 of each year. MCCF shall submit to Members within 150 days of the end of its fiscal year an annual financial report that has been audited by a certified independent public accountant. BUSINESS PLAN Purpose MCCF was established to address unmet development financing needs of communities and economic development organizations throughout Greater Minnesota by pooling local RLF resources and providing professional management services to support local efforts. MCCF is designed to provide its Members with greater lending flexibility and the capacity to originate multiple loans that are much larger than would be possible with limited local resources. Loan Origination and Other Benefits The Participation Agreement between MCCF and its Members sets forth procedures pursuant to which Members may originate Development Loans. MCCF, through its Fund Manager, will structure, coordinate, and close these Development Loans utilizing the Loan Fund as its funding source. See "Summary of Participation Agreement". The following is a summary.of some of these procedures and other benefits conferred upon Members by the Participation Agreement: . • 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. For example,a Member having a$50,000 Loan Fund deposit balance may originate a loan of up to$500,000; • Members also have the right 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 a Member's contribution to MCCF. For example,a Member with a $50,000 deposit balance may originate a $500,000 Development Loan and thereafter, while the $500,000 Development Loan is still outstanding, the Member may originate additional Development Loans of up to$500,000. The Loan Fund is able to accommodate multiple Development Loans due to the fact that all Development Loans made by MCCF are to be sold to the secondary market pursuant to pre-closing loan purchase commitments made by a Loan Purchaser and the proceeds of the sale at the time of the closing of the Development Loan are then redeposited by MCCF in the Loan Fund,thereby assuring that the Loan Fund will be self-sustaining; • 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; • All paperwork and report filing required by the Minnesota Business Subsidy Law will be handled by the Fund Manager, which will allow Members to focus their time and efforts on other local development projects; • • Members will have ongoing access to technical assistance and expertise available from the Fund Manager, even for financings that do not utilize the Loan Fund as a resource. MCCF may charge a separate fee for these services; 7 • MCCF intends to offer Members access to other financing resources in the future. Specifically, an • application is now pending for a US Treasury Department certification of the MCCF as a Community Development Financial Institution ("CDFI"). When certified, MCCF will apply for federal funds to support the expansion of MCCF's economic development mission. Loan Origination Fees and Closing Expenses MCCF will charge the borrower a loan origination fee of 1.75%for each loan. The borrower is also required to pay all other fees and expenses customarily associated with loan closings, including the legal expenses of MCCF incurred with respect to the loan closing. Member Obligations Limited For each MCCF Loan,the originating Member will be required by the Loan Purchaser to fund a credit reserve of not less than 5%of the principal amount of the Development Loan for a period of 12 months following the closing of the sale of the Development Loan 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 Member originating the Development Loan will be responsible for funding the difference between that 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. 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). Whether Development Loans sold by MCCF to the Loan Purchaser are sold at par value,at a premium,or are discounted is a function of the marketplace. However,the Member will always have the opportunity to accept or reject the offer of the Loan Purchaser. Except as set forth above, Members do not incur any expenses, costs, or obligations with respect to Development • Loans that it originates through the MCCF Loan Fund. Loan Criteria MCCF has established general criteria for the review and analysis of Development Loans. MCCF Loan Criteria includes financing policies that provide for minimum and maximum loan amounts, project eligibility requirements, allowable uses of loan proceeds, ineligible uses, fees and charges, and interest rate and loan term provisions. Also included are borrower credit criteria, which addresses equity and collateral requirements, debt to worth ratios, personal guarantees, management experience and company performance factors, and minimum cash flow and debt service coverage requirements. See"MCCF Loan Criteria—Exhibit F'. Sequence of Events-Development Loan Origination to Loan Closing The following sets forth a representative sequence of events reflecting the process that will be followed when a Member originates a Development Loan: • A Member identifies a development project which appears to qualify for MCCF financing and an authorized representative of the Member contacts the Fund Manager concerning the potential development project and its financing needs; • The Fund Manager gathers details of the development project and its financing needs from the Member representative; • If the development project is eligible and has a high probability of moving forward,the Fund Manager sets up a site visit with the applicant, participating bank, Member representative, and other development project stakeholders. During this meeting, various financing structures will likely be considered which will affect secondary market loan pricing. The Loan Purchaser will be called upon to give preliminary indications as to whether the proposed financing qualifies for a secondary market purchase and to provide an estimated purchase price of the Development Loan. The applicant will be invited to submit a formal loan application and will be advised of the loan approval process and time line; 8 • The Fund Manager receives the completed Development Loan application and then proceeds with loan • review,credit analysis and recommendation; • The final structuring of the Development Loan is determined in consultation with the Member representative,participating lenders,the applicant and the Loan Purchaser, • The Fund Manager initiates a request for an formal commitment by the Loan Purchaser to purchase the Development Loan; • The commitment of the Loan Purchaser is issued. The commitment sets forth the pricing and terms of purchase; • The Fund Manager prepares a loan sununary package that includes the development project description,loan analysis and recommendation and forwards the same to the Member for approval by its governing body. For the Development Loan to proceed,the originating Member's governing body must pass a resolution which specifically requests approval of the Development Loan and commits the Member to cover any loan discount costs(based on Loan Purchaser advance commitment)and to fund any required loan loss reserve escrow which may be required by the Loan Purchaser. See"Business Plan-Loan Origination and Closing Expense"; • The Development Loan application is then submitted to the MCCF Loan Committee, which will consist of five persons (appointed by the Board of Directors) who have experience and expertise in reviewing business and/or housing loans. The MCCF Loan Committee will meet on an"as needed" basis in order to expedite the loan review process, and will have responsibility and final authority for approving, denying or modifying the loan terms and conditions; • On authorization of both the originating Member and the MCCF Loan Committee,the Fund Manager will coordinate the Development Loan closing and sale to the Loan Purchaser. 1111 Sale of Pre-Approved Loans to Secondary Market The Loan Fund is intended to be self-sustaining development financing resource, with continual recapitalization through the sale of pre-approved loans to the secondary market. All loans made by MCCF will, as a condition of closing the loan with the borrower,be pre-sold to the secondary market on a non-recourse basis. Loan Closing The following are procedural steps that MCCF, in its Participation Agreement with each Member,agrees to follow with respect to a Development Loan closing: • MCCF will request the Escrow Agent to advance from the Loan Fund an amount necessary to fund the Development Loan,net of any discount(discount to be paid by the Member originating the loan),at or before closing to the title company or authorized closing agent; • The amount so requested will be used solely to fund the principal amount of the Development Loan, net of discount, and MCCF requests the Escrow Agent to wire transfer the funds directly to the title company or authorized closing agent which will attend to the closing of the Development Loan; • MCCF will not irrevocably advance funds received from the Loan Fund to fund the Development Loan until MCCF has confirmed with the Escrow Agent that the Escrow Agent has received a wire transfer from the Loan Purchaser in an amount equal to the funds previously advanced to close the Development Loan. Monies advanced by the Loan Fund to the title company or authorized closing agent for purposes of closing the • Development Loan will be reimbursed by wire transfer from the Loan Purchaser on the same day as the transfer by the Escrow Agent to the title company or authorized loan closer. 9 Sources of Revenue The primary sources of revenue of MCCF are loan closing fees payable by borrowers upon closing of loans made from the Loan Fund and interest upon the Loan Fund which is estimated at 1.25%per annum. Loan closing fees are initially intended to be 1.75%of the principal amount of the loan. In addition to the loan closing fee,MCCF will be entitled to receive from the borrower direct out of pocket expenses with respect to the loan transaction, including legal fees incurred by MCCF. Working Capital MCCF will not receive any funds upon the Closing of this Participation. All Member Funds payable pursuant to this Participation shall be paid to the Loan Fund Escrow Account for purposes of funding the Loan Fund. There are no commissions or other expenses applicable to this Participation. All expenses relating to MCCF prior to the Initial Closing date will have either been paid for by the Northland Institute or from grants awarded to the Northland Institute for such purpose. The payment of the expenses of MCCF by the Northland Institute is not reimbursable by MCCF to the Northland Institute. See"Capitalization". Projections and Assumptions The following should be read in conjunction with the Proforma Income Statements and MCCF Proforma Assumptions("Projections and Assumptions")contained in Exhibit A of this Prospectus. The discussion contained in this section reflects management's plans, estimates and beliefs. Actual results could differ materially from those discussed in the Projections and Assumptions. Factors that could cause or contribute to these difficulties include, but are not limited to,those discussed below and elsewhere in this Prospectus,particularly in"Risk Factors". The Projections and Assumptions reflect losses from operations of$83,550 during the period of July 2002 through June 2003 and an operating loss of$51,560 for the 12 month period of July 2003 through June 2004. During the period of July 2004 through June 2005 the Projections and Assumptions reflect a profit from operations of$6,113. • The operating profit or loss of MCCF is dependent largely upon the number of loan closings and size of loans made during any reporting period. The Projections and Assumptions are based upon assumptions concerning the number of loan closings as shown during each of the periods and receipt of a loan closing fee of 1.75% of the principal amount of each Development Loan closed. The other primary source of revenue of MCCF as shown in the Projections and Assumptions is interest upon the Loan Fund,which is estimated at 1.25%per annum. The Projections and Assumptions reflect extraordinary costs with respect to professional services during July and August of 2002, which reflect one-time additional service fees payable to the Northland Institute for start-up services following the Initial Closing(which is intended to occur on July 1,2002). Thereafter,professional services are based upon a contracted fee with Northland Institute of$4,000 per month for management services and$1,400 per loan closing. See"Summary of Management Agreement". The projected losses from operations during the first three fiscal years, as shown in the Projections and Assumptions,will be funded by grant proceeds in the amount of$200,000. In the event this working capital and the revenues from operations are insufficient to provide necessary working capital, MCCF will either raise additional working capital or will be required to reduce or terminate its operations. The Projections and Assumptions assume the Initial Closing will occur on July 1, 2002. In the event of a delay in the Initial Closing, the Projections and Assumptions should be viewed as commencing as of the date of the actual Initial Closing. Loan Activity Dependent on Member Origination MCCF will rely upon its Members to originate Development Loans in order to achieve the loan activity level necessary for MCCF to be profitable. It is anticipated that the number of loans made by MCCF will continue to increase during the three year period following the Initial Closing. • 10 ORGANIZATIONAL STRUCTURE Incorporation as a Nonprofit Corporation • MCCF was incorporated as a nonprofit corporation under the laws of the State of Minnesota on the 7th day of August 2001. Tax Exempt Status under the Internal Revenue Code MCCF has applied for recognition of Federal tax exemption under Section 501(c)(3)of the Internal Revenue Code. The application has not been approved as of the date of this Prospectus and MCCF does not expect approval until the fall of 2002. Director Managed MCCF is managed by a Board of Directors.The first elected Board of Directors of MCCF shall be comprised of not more than nine directors. Two of the directors shall be elected by a majority vote of each class of the three classes of Members. Each $1,000 deposit balance of a Member in the Loan Fund or contribution to MCCF for working capital purposes shall entitle the Member to one vote. In addition to the six directors elected by the Members,up to three directors shall be elected by an affirmative vote of a majority of the directors elected by Class A, B, and C Members. See "Membership". Other than this right to vote for directors and the right to approve modifications to the Articles of Incorporation or Bylaws of MCCF which may modify the right to vote for directors,no Member shall have any rights of governance with respect to MCCF. MANAGEMENT Initial Board of Directors The following persons constitute the Board of Directors of MCCF and will serve until the organizational meeting of • Members which is to be held following the Initial Closing for the purpose of electing Directors: Name Age Address Steve Dusek 37 1 Prairie Drive Slayton,MN 56172 Nancy Norr 40 30 West Superior Street Duluth,MN 55802 Greg Hohlen 41 729 Main Street Elk River,MN 55330 Teary Erickson 47 519 SW First Avenue Rochester,MN 55903 Biographical Information-Directors Steve Dusek has served as Chief Executive Officer of Prairieland Economic Development Corporation, located in Slayton, Minnesota, since 1996. He currently manages a loan portfolio of $26.5 million and a staff of six. Prairieland's loan portfolio includes $21.5 million in SBA 504 loans and $5 million in USDA Rural Development IRP loans. After graduating from the University of North Dakota in 1987, Mr. Dusek began his career at a planning agency in Minot, North Dakota. In 1989, he moved to southwest Minnesota and accepted a position with the Southwest Regional Development Commission (SRDC) as the Economic Development / Deputy Director. Mr. Dusek is certified as a Certified Economic Development Professional by the National Development Council. As a member of the National Association of Development Companies (NADCO), he is actively involved in several NADCO committees that support legislative advocacy and networking opportunities for small business development throughout the country. Nancy Norr of Duluth, Minnesota, is Economic Development Manager for Minnesota Power, a regional electric 41) utility. She currently manages a $6 million business development revolving loan fund portfolio and promotes economic development in northern and central Minnesota and portions of Northwest Wisconsin. A 1983 business administration graduate of the University of Wisconsin-Eau Claire, Ms. Non also holds a master's degree in 11 Agricultural Economics from UW-Madison. Prior to joining Minnesota Power in 1989, Ms. Norr worked as a downtown revitalization consultant for the City of Superior,Wisconsin and as a commercial loan officer at US Bank • in Duluth. She serves on numerous boards related to economic development, including the Northeast Entrepreneur Fund, the Duluth Airport Authority, Arrowhead Business Connection Funders Advisory Committee and the Utility Economic Development Association. Her past board service includes The Northspan Group, Inc., Harborview Economic Development Corporation,and Minnesota Business Finance Corporation. Greg Hohlen has been an Assistant Vice President/Commercial Loan Officer at First National Bank of Elk River since 1998. He is responsible for managing the bank's government lending department, and also provides general commercial lending services to his customers from the bank's main office in Elk River. Mr. Hohien's lending expertise has resulted in a significant increase in the number of SBA Loans originated by the bank during the past three years,which has elevated it to Minnesota's tenth largest producer of SBA 7(a)loans.Prior to joining the bank, Mr. Hohlen served as an economic developer in Mille Lacs County for eleven years. In that capacity, he managed several revolving loan funds,provided technical assistance to small businesses,and provided economic development services to several communities in Mille Lacs County. Mr. Hohlen is a graduate of Hamlin University and has a master's degree from the University of Minnesota's Humphrey Institute of Public Affairs. Terry Erickson has over fifteen years of direct economic development experience, primarily in Southeastern Minnesota. Mr.Erickson has been employed by Aquila Networks since 200 land presently serves as its Director of Economic Development. From 1986 to 2001 he was instrumental in starting Southeastern Minnesota Development Corporation and its subsidiary Southeast Consultants Inc.,where he fostered the development of several initiatives that continue to have a major impact on the region. These included the development of a revolving loan fund, contractual based development services for over 20 municipalities and three counties, and a business support program that assisted businesses with a variety of technical and financial needs. Mr. Erickson received a Bachelor of Arts degree from Winona State University in 1977. Directors serve without compensation for services performed in their capacity as directors of MCCF. • Officers The officer positions of MCCF consist of a chair,vice-chair, secretary and treasurer. In addition, a majority of the directors may appoint a manager to act as chief executive officer of MCCF. Officers of MCCF, other than a manager/chief executive officer, shall be directors of MCCF. The following named persons serve in the capacity set forth after their respective names: Name Position Steve Dusek Chair Greg Hohlen Vice Chair Nancy Norr Secretary/Treasurer Scott Martin Manager/Chief Executive Officer Officers serve without compensation for services rendered in their capacity as officers of MCCF. Biographical Information-Officers For biographical information concerning Ms. Non and Messrs. Dusek and Hohlen, see`Biographical Information- Directors". Scott Martin is 49 years of age and is the Chief Executive Officer of Northland Institute. Northland Institute receives compensation pursuant to a Management Agreement between Northland Institute and MCCF. Scott Martin receives compensation from Northland Institute for his services as Chief Executive Officer of Northland Institute. Scott Martin has been involved in Community Economic Development throughout all of his professional career. He has served in a variety of public, private and non-profit organizations during the past 27 years in both managerial and board positions. • Before coming to the Northland Institute in January 2000, Mr. Martin was a Vice President of Business Development for EnPower,Inc.,a Twin Cities-based multi-state energy marketing company from 1997-2000. Prior to that, he was Director of Economic Development for United Power Association(UPA), a regional electric power supplier based in Elk River,MN. His responsibilities included the establishment and management of a$10 million Business Financing Program, which provided gap financing for UPA's customers, and oversight of all economic 12 development activities, including business recruitment and marketing. He also launched the company's corporate giving program, which among other issues, provided financial support to many local, regional, and statewide • economic development groups. Prior to joining UPA in 1989, Mr. Martin spent fourteen years as City Manager and Community Development Director in three rapidly growing Twin Cities suburban communities, and as a Land Use Planning&Development Coordinator for the City of Rochester and Olmsted County,MN. In addition to his professional positions, Mr. Martin has been actively involved as a board member of several regional and national foundations and non-profit organizations that focus on affordable housing, economic development financing,and expanding economic opportunities for low-income families. Mr. Martin is a Certified Development Finance Professional and a graduate of the Urban and Regional Studies Institute at Minnesota State University-Mankato. Employees,Equipment,and Office Space It is the intent of MCCF that it shall not have any employees,equipment,or office space during the three-year period following the Initial Closing. All management and staff support will be provided by Scott Martin and the staff of the Northland Institute. In addition, Northland Institute will provide the use of all necessary equipment and office space. See"Summary of Management Agreement". Summary of Management Agreement MCCF has entered into a Management and Service Agreement with the Northland Institute, a Minnesota nonprofit corporation ("Institute") with offices at 13911 Ridgedale Drive, Suite 260, Minneapolis, MN 55305 to furnish management, administrative and operational services ("Management Agreement"). The following is a summary of pertinent terms of the Management Agreement: • Management Duties and Responsibilities. Management duties and responsibilities to be performed • by the Institute on behalf of MCCF broadly encompass the following: o Institute shall allow its Chief Executive Officer, Scott Martin, to serve as Chief Executive Officer of MCCF without additional charge for such services. Mr. Martin shall report to the Board of Directors of MCCF; o The implementation and development of the operations of MCCF within the general policy guidelines and budgetary restraints established by the Board of Directors of MCCF,including without limitation,responsibility to perform all of the duties of Fund Manager; o Institute will be responsible for negotiations and serve as the first point of contact for Members and inquires of others regarding MCCF and its operations; o Institute will provide fiscal management and administration for all programs, grants and contracts. • Personnel and Support Staff. Institute shall provide,at its cost, personnel sufficient to carry out the operations of MCCF at the level shown in the Projections and Assumptions of MCCF. • Space and Equipment. Institute shall provide within its offices without charge all space and equipment necessary to the operations of MCCF. • Term. The Management Agreement is for a term of approximately three years extending from the earlier of the Initial Closing or July 1,2002 to August 30,2005. • Compensation. Institute shall receive compensation for startup services during the 60 days following • the Initial Closing on a cost reimbursement basis, with support staff time being charged at $90 per hour. In addition, Institute shall receive reimbursement for travel and other out of pocket expenses during this period. Commencing with the third month following the Initial Closing, Institute shall 13 receive compensation of$4,000 per month and$1,400 per loan closing. This compensation is subject to annual increases of 5%in each of Years 2 and 3 of the contract. In addition,Institute shall receive i reimbursement for travel and other out of pocket expenses. These costs are reflected as estimates in the Projections and Assumptions attached as Exhibit A. • Insurance. Institute shall take out and maintain, at MCCF's expense in the name of MCCF, director and officer insurance, liability insurance and such other insurance policies as the Board of Directors may require. Institute shall name MCCF as an additional insured upon its liability insurance policies. • Indemnity. Institute indemnifies and holds MCCF harmless from any and all claims resulting from claims by Development Loan borrowers and claims of its employees. • Assignment and Subcontracting. Institute may subcontract or engage others to perform certain of its duties and obligations, including fund management services; however, such duties and obligations shall remain the responsibility of Institute. SUMMARY OF PARTICIPATION AGREEMENT Participation Agreement In order for an Offeree to become a Member and participate in the Loan Fund,an Offeree is required to execute and deliver to MCCF a Participation Agreement in the form of Exhibit E attached to this Prospectus. Membership Each Offeree executing the Participation Agreement shall,upon acceptance by the Board of Directors and deposit in the Loan Fund of the amount set forth in the Participation Agreement, become a Member of MCCF. The Participation Agreement provides for three levels of participation depending upon the amount of contribution to the • Loan Fund. The minimum participation is $25,000 and the maximum participation is $250,000. See "Membership". Refund of Contribution A Member shall receive a refund of their deposit balance in the Loan Fund upon 30 days' advance written notice to MCCF and the Escrow Agent specifying the amount of refund that 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. See "Membership"and"Loan Fund Escrow Agreement Summary". Origination of Loans Members are entitled to originate Development Loans up to ten times the amount of their deposit balance in the Loan Fund or contribution to MCCF. Development Loans originated by Members are subject to approval by the MCCF Loan Committee, which consists of five persons (appointed by the Board of Directors) who are to have experience in reviewing business and/or housing loans. The Committee will meet on an as needed basis in order to expedite the loan review process and will have final responsibility and final authority for approving, denying or modifying the loan terms and conditions. In the event the Loan Purchaser requires a credit reserve deposit as security for the Development Loan, and/or the sale price of the Development Loan is discounted from par value(the principal amount of the loan),the originating Member will be required to fund the credit reserve and the discounted amount See "Business Plan - Loan Origination and Closing Expenses". The originating Member will be informed of the existence of a reserve requirement and a discount prior to the Member's commitment to the loan and the Member may decline to proceed. LOAN PURCHASER AGREEMENTS • MCCF will receive an advance commitment agreement and loan purchase agreement from the Loan Purchaser with respect to the purchase of all Development Loans made from the Loan Fund. The loan agreement will be on a non- recourse basis. MCCF intends to enter into agreement with Community Reinvestment Fund("CRF'),a secondary market economic development loan buyer to serve as a Loan Purchaser. 14 The MCCF Loan Criteria, which has been reviewed and accepted by CRF, is attached to this prospectus as Exhibit F. One of the primary considerations for Members to consider as loan terms and conditions are being negotiated is how the secondary market will price the loan for purchase. CRF, and most institutional investors active in buying economic development loans, are seeking a market rate of return. Accordingly, loans that are priced at market rates receive par value, those priced above market rates earn a premium, and those priced below prevailing market rates are discounted. In the event a loan is discounted,the originating Member will be required to contribute an amount equal to the discount at or prior to the loan closing so that the Loan Fund will not be reduced in value. See"Business Plan-Loan Origination and Closing Expenses". It is anticipated that CRF and other loan purchasers will require a credit reserve of at least 5% of the principal amount of the loan sold to the secondary market, which will be held by MCCF for a period of 12 months from the date the loan is purchased. In the event of a default upon the loan within such 12-month period, MCCF would be required to release all or part of the credit reserve for such loan to the secondary market purchaser. See"Business Plan-Loan Origination and Closing Expenses". The loan purchase terms,including any discount from par value and any reserve requirement will be known prior to any binding commitment by MCCF to the borrower or any participating bank and the originating Member may,if it does not wish to proceed,withdraw the loan from further consideration at that time. LOAN FUND ESCROW AGREEMENT SUMMARY The following is a summary of the Loan Fund Escrow Agreement which is included with this Prospectus as Exhibit D. The Loan Fund Escrow Agreement is between MCCF,Wells Fargo Bank Minnesota, NA, as Escrow Agent and Offerees who may become Members pursuant to the Participation offered by this Prospectus. The Escrow Agent's duties shall be as follows: • To hold all Member Funds deposited in the Loan Fund in one account and invest the Member Funds in accordance with the directions of MCCF, provided Member Funds may only be invested in U.S. Government Bonds, U.S. Government Agency Bonds, and U.S. Government Money Market Funds, • and federally-insured Certificates of Deposit. • In the event Escrow Agent has not received a minimum of$2,500,000 of Member Funds by October 31, 2002, the Loan Fund shall terminate and the Escrow Agent shall refund to Members, without interest,the amount of each Member's deposit in the Loan Fund. • Transfer to MCCF all revenue and interest derived from the investment of the Loan Fund. • Advance Member Funds to MCCF upon MCCF providing Escrow Agent with a request signed by an authorized representative of MCCF stating: (i) The amount of the requested funds necessary for a Development Loan by MCCF to a named borrower; (ii) A representation that the Member Funds requested will be used to fund the principal amount of the Development Loan to the borrower and directing the funds to be transferred by wire transfer to a named title company or authorized closing agent of MCCF as of a specified time. (iii) A representation that MCCF has received a commitment for the sale of the Development Loan to a named Loan Purchaser at a sale price which is equal to the amount to be transferred by Escrow Agent to the title company or authorized closing agent of MCCF; and (iv) That the Member Funds advanced by the Escrow Agent to the title company or • authorized closing agent of MCCF will not be irrevocably advanced by MCCF to fund the Development Loan until MCCF has confirmed with the Escrow Agent that Escrow Agent has received a wire transfer from the Loan Purchaser in an amount equal to the sale price of the Development Loan. 15 • Escrow Agent shall,upon 30 days' advance written direction given to MCCF and Escrow Agent by a • Member requesting refund of Member Funds, pay to such Member from the Loan Fund all or any portion of the deposit balance of the Member in the Loan Fund in accordance with the request by the Member. • To provide MCCF with monthly reports and Members with annual reports. CONFLICTS OF INTEREST Northland Institute has entered into a Management and Service Agreement with MCCF and the Chief Executive Officer of Northland Institute, Scott Martin, also serves as the Manager/Chief Executive Officer of MCCF. Mr. Martin has a duty of loyalty to both organizations. In the event of a conflict, it will be incumbent upon Mr.Martin to bring such conflict to the attention of the respective Boards of Directors of the parties. The management and service agreement is believed to be as fair and equitable as to both MCCF and Northland Institute and the compensation payable pursuant to the agreement believed to approximate that which would be payable to unrelated third parties for similar services. INDEMNIFICATION Limitation of Director Liability and Indemnification The Minnesota Business Corporation Act requires that MCCF indemnify any director, officer or employee made or threatened to be made a party to a proceeding, by reason of the former or present official capacity of the person, against judgments, penalties,fines, settlements and reasonable expenses incurred in connection with the proceeding if certain statutory standards are met. "Proceedings" means a threatened, pending, or completed, civil, criminal, administrative, arbitration or investigative proceeding, including a derivative action in the name of MCCF. Reference is made to the detailed terms of the Minnesota Indemnification Statute (Minn. Stat. §302A.521), for a complete statement of such indemnification right. The bylaws of MCCF also require MCCF to provide • indemnification to the fullest extent of the Minnesota Indemnification Statute. HOW TO PARTICIPATE Offerees who wish to participate in this Participation should complete and sign the forms of"Signature Page to Participation Agreement" and"Signature Page to Loan Fund Escrow Agreement"which are delivered to the Offeree with this Prospectus. The completed Signature Page to Participation Agreement and Signature Page to Loan Fund Escrow Agreement,together with a certified check,bank money order,or other good funds payable to"Wells Fargo Bank Minnesota, N.A.Escrow Agent MCCF Loan Fund" should be delivered to the Minnesota Community Capital Fund at its business address as set forth in this Prospectus. See"Additional Information". Upon acceptance and the occurrence of the conditions precedent as set forth in this Prospectus, the Initial Closing will occur and following the Initial Closing, the Member will receive a copy of the Participation Agreement and Loan Fund Escrow Agreement that has been fully signed. ADDITIONAL INFORMATION Offerees are invited to ask questions and receive answers concerning the terms and conditions of this Participation and to obtain any additional information that is necessary to verify the accuracy of the information contained in this Prospectus. Please direct all requests to Scott Martin, Chief Executive Officer of MCCF, at the business offices of MCCF: Minnesota Community Capital Fund 13911 Ridgedale Drive, Suite 260 Minneapolis,MN 55305 952-541-9674(phone) • 952-541-9684(fax) email:info@mncommunitycapitalfund.org 16 • Exhibit A MCCF PROFORMA ASSUMPTIONS $2,500,000 Loan Fund Capitalization Projected Loan Activity is based upon the following: Membership at Start-up--- 48 12— Class A members 16—Class B members 20— Class C members Loan Activity by membership class Yrl Yr2 Yr3 Percentage of Class A members originating one loan 70% 80% 90% Percentage of Class B members originating one loan 50% 70% 80% Percentage of Class C members originating one loan 50% 70% 80% • Year 1 Year 2 Year 3 Class A average loan size& no.-- $300,000 (8) $300,000 (10) $400,000 (11) Class B average loan size& no.-- $150,000 (8) $200,000(11) $250,000 (13) Class C average loan size& no.-- $ 75,000 (10) $100,000 (14) $150,000 (16) Total Number of Loans Closed -- 26 35 40 Weighted Average Loan Size -- $167,308 $188,571 $251,250 Year 1 Year 2 Year 3 Loan volume for Class A $2.4 $3.0 $4.4 Loan volume for Class B $1.2 $2.2 $3.25 Loan volume for Class C $0.75 1.4 $2.4 (Millions) Total $4.35 $6.6 $10.05 • Proforma reflects a fiscal year of July 1 —June 30. • Loan Fund Revenue—loan origination fee of 1.75% on new loans. Interest earnings at 1.25% per annum. • • Professional Services-based upon $1,400 per loan closed, plus $4,000 per month for all Fund management services. The first two months of operation includes extraordinary costs related to Fund start-up. • Travel—average expense of$200 per loan closed plus $100 monthly for general business S travel. • Annual Meeting—includes an organizational membership meeting in July 2002 and annual meetings in August of subsequent years. • Board Meetings—the cost of quarterly board meetings, including mileage reimbursement and meals for board members attending. • Member Training—the cost of periodic training services for member representatives related to loan Fund operation, marketing, and technical issues. • Legal—legal expenses for corporate legal work. Legal expenses associated with the closing and documentation of loans will be paid directly by the borrowers. • Audit& Accounting—the cost of preparing a year-end financial statement and audit report and for day-to-day accounting services. • Bond—the cost of a fiduciary bond. • Directors& Officers Insurance—the cost of liability insurance for corporate officers and board members. • Teleconferencing—the cost of loan committee meetings using conference calls. • Telephone—the cost of mobile telephone for Fund management staff. • Postage—postage costs based upon familiarity with similar types of organizations. • Website Maintenance—cost of maintaining the MCCF website. • Advertising—the cost of start-up advertising and press releases announcing the launch of the MCCF. 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N NCD rrr p O O O O O Q r N M , m N VR�QrA''I 8 y8._ § iD Opp S m n r ' L 1 �ODO1_OOD 8i ....N , r , �I 10("NNt�C�N O� O/ N N m M C 47 ''NN A ^- N Or N m 0+) O CO C C 3m = LL � C LLea B m to C.C E a m co E E 1i 0 a ca r Z42 0 tn fp ,0 :W m •Z' ; o a. 7U) o c c@ m w H C . . E 7 0 K m 0 V o m rn c p1.� ° c 0 c F " w V- a a EII, E 'AV a c m m@ 3 ; E . V o a ij VII Q• V C• m oScc w o `Dcomm� o°'lmmomvv' w a �O w• = ozm JJ w oat=¢m2J¢morra�li. X Z 2 O = 2 m 01- j a: Owi a o: Z C m LL Q Q 2 0 c C R w ¢ w F w i r C o of cz.9 0 2d >- z or w or o o z 2d c6D z z m 2 • Exhibit B RESTATED ARTICLES OF INCORPORATION OF MINNESOTA COMMUNITY CAPITAL FUND ARTICLE NAME The name of the corporation shall be Minnesota Community Capital Fund. ARTICLE II REGISTERED OFFICE The location of the registered office of the corporation shall be 13911 Ridgedale Drive, Suite 260, Minneapolis, Minnesota 55305. ARTICLE III PURPOSE . This corporation is organized and shall at all times hereafter be operated exclusively for charitable purposes under section 501(c)(3) of the Internal Revenue Code. Within the foregoing limitations, this corporation will combat community deterioration by promoting the development of housing and business enterprises throughout Minnesota. The operations of the corporation are intended to provide long term financing and development services to business and affordable housing enterprises, in order to foster economic development and job opportunities, with an emphasis on those projects and enterprises owned, controlled and operated by, and for the benefit of, those who live within the described area, or are committed to hiring persons affected by poverty or by the deterioration within the described area. The corporation is also intended: (a) to be eligible for certification as a Community Development Financial Institution under the criteria specified in 12 CFR Part 1805 of the federal regulations, (b) to qualify as a Community-Based Development Organization under the criteria and procedures specified in 24 CFR Part 570.204 of the federal regulations, and (c)to meet the criteria specified in Section 45D of the Internal Revenue Code as a Qualified Community Development Entity. To the extent consistent with the foregoing, the corporation may pursue all other lawful purposes available to the nonprofit corporations organized as such under the laws of the State of Minnesota. ARTICLE IV POWERS This corporation is organized under and shall have the authority and general powers contained . in the Minnesota Nonprofit Corporation Act, Minnesota Statutes Chapter 317A, as it now exists or may hereafter be amended. ARTICLE V • PROHIBITED PURPOSES AND POWERS This corporation shall not afford pecuniary gain, incidentally or otherwise, to its members, other than nonprofit corporations (except the payment of reasonable fees for goods and services rendered and approved in accordance with the bylaws), and no part of the net income or net earnings of this corporation shall, directly or indirectly, be distributable to or otherwise inure to the benefit of any individual. The corporation shall not participate in, or intervene in (including the publishing or distribution of statements) any political campaign on behalf of any candidate for public office. No substantial part of the activities of the corporation shall be the carrying on of propaganda, or otherwise attempting to influence legislation, unless and to the extent the corporation makes an election available to public charities under federal tax law to permit limited expenditures to influence legislation, in which event such limits shall be strictly observed to preserve the corporation's exempt status. ARTICLE VI DISSOLUTION Upon the dissolution of the corporation, the board of directors shall, after paying or making provision for the payment of all of the liabilities of the corporation, dispose of all the assets of the corporation exclusively for the purposes of the corporation in such manner, or to such organization or organizations organized and operated exclusively for charitable purposes as • shall at the time qualify as an exempt organization or organizations under §501(c)(3), §170(b)(1)(A)(i-vi), §170(c)(2), §2055(a) and §2522(a) of the Internal Revenue Code of 1986 (or the corresponding provision of any future United States Internal Revenue law), as the board of directors shall determine. Any assets not so disposed of shall be disposed of by the district court of the county in which the principal office of the corporation is then located, exclusively for the purposes of the corporation or to such organization or organizations, as the court shall determined, which are so qualified and are organized and operated exclusively for such purposes. ARTICLE VII MEMBERSHIP Each community development corporation, individual, business organization, development- oriented venture fund, local governmental agency, public charity or private foundation which is involved in economic development activity, including the management of a Revolving Loan Fund ("RLF") operated within the area of operations of the corporation, with an interest in supporting the purposes of the corporation, may apply to become a member by contributing funds to the corporation for use by the corporation as working capital or may apply to participate through the deposit of funds in a loan fund maintained in an escrow account established pursuant to an escrow agreement by depositor, corporation and a bank or other independent financial institution, which escrow agreement provides in part that (i) title and ownership of the funds deposited in such loan fund shall remain in the depositor; (ii) the income derived from the loan fund, net of expenses of the escrow agent shall be paid to the corporation; (iii) loan fund • principal may be advanced to corporation upon receipt of directions as set forth in the escrow agreement; and (iv) deposit to the loan fund shall be returned to the depositor upon notice of 2 • withdrawal by the depositor upon lapse of time as set forth in the escrow agreement. The terms upon which the corporation may draw upon and receive an advance from the loan fund are contained in the escrow agreement and in a participation agreement. Each such participation shall be subject to approval by the board of directors of the corporation through the execution of a written participation agreement. Upon execution of the participation agreement and transfer of funds to the loan fund, the participating entity shall become a member of the corporation. The participation agreement will also describe the procedure by which the member shall identify the members' official representative and an alternate entitled to attend membership meetings and vote on behalf of the member. The corporation shall have three classes of members. Members whose contributions to the corporation or deposits to the loan fund amount in the aggregate to $100,000 or more shall be designated as "Class A members." Members whose contributions to the corporation or deposits to the loan fund amount in the aggregate to at least $50,000 but less than $100,000 shall be designated as "Class B members." Members whose contributions to the corporation or deposits to the loan fund amount in the aggregate to at least $25,000 but less than $50,000 shall be designated as "Class C members." Two of the directors of the corporation shall be elected exclusively by Class A members. Two of the directors of the corporation shall be elected exclusively by Class B members. Two of the directors of the corporation shall be elected exclusively by Class C members. Other than this limited right to vote for directors and the right to approve modifications to the articles or bylaws which modify the limited right to vote for directors, no member shall have any rights of governance with respect to the corporation. Members are entitled to one vote for each $1,000 contribution to the corporation for working capital or one vote for each $1,000 of deposit balance in the Loan Fund (fractions are • disregarded). The members of the corporation shall have no property rights in the assets of the corporation and no earnings of the corporation shall inure to the benefit of or be distributable to the members, except the members may be reasonably compensated for services performed for the corporation. The corporation shall at all times be operated exclusively for charitable purposes under Section 501(c)(3) of the Internal Revenue Code. Within the foregoing limitations, this corporation will combat community deterioration by promoting economic development opportunities, including the development of housing and business enterprises throughout Minnesota. Future net income of the corporation shall be used for developing and expanding programming that enhances economic development opportunities throughout Minnesota. The members of the corporation shall have the authority to elect directors to the extent set out in this Article VII, any approval of such members shall be required prior to amendment or abridgement of this right to elect certain directors, but the members of the corporation shall have no other rights with respect to the governance of the corporation. ARTICLE VIII DIRECTORS The number, qualifications, term of office, method of election, powers, authority and duties of the directors of this corporation, the time and place of their meetings, and such other provisions • with respect to them as are not inconsistent with the express provisions of these articles of incorporation shall be specified in the bylaws of this corporation. 3 ARTICLE IX NO PERSONAL LIABILITY • The officers, directors and members of this corporation shall not be personally liable for the acts, debts, liabilities or obligations of the corporation or any enterprise or activity carried on or sponsored by it. ARTICLE X ACTION WITHOUT A MEETING An action may be taken by written action signed by the number of directors that would be required to take the same action at a meeting of the board at which all directors were present. The written action is effective when signed by the required number of directors, unless a different effective time is provided in the written action. When written action is taken pursuant to the authority of this Article, all directors must be notified immediately of its text and effective date. Failure to provide the notice does not invalidate the written action. A director who does not sign or consent to the written action is not liable for the action. ARTICLE XI INCORPORATOR The name and address of the incorporator is Scott Martin, 13911 Ridgedale Drive, Suite 260, Minneapolis, Minnesota 55305. • • 4 11/ Exhibit C BYLAWS OF MINNESOTA COMMUNITY CAPITAL FUND ARTICLE I. OFFICES, CORPORATE SEAL Section 1.01 Registered and Other Offices. The registered office of the corporation in Minnesota shall be that set forth in the articles of incorporation or in the most recent amendment of the articles of incorporation or statement of the board of directors filed with the Secretary of State in Minnesota changing the registered office in the manner prescribed by law. The corporation may have such other offices, within or without the State of Minnesota, as the board of directors shall from time to time determine. Section 1.02 Corporate Seal. The corporation shall have no corporate seal. ARTICLE II. MEMBERS Section 2.01 Eligibility and Classes of Members. Each community development corporation, individual, business organization, development-oriented venture fund, local governmental • agency, public charity or private foundation which is involved in economic development activity, including the management of a Revolving Loan Fund ("RLF") operated within the area of operations of the corporation, with an interest in supporting the purposes of the corporation, may apply to become a member by contributing funds to the corporation for use by the corporation as working capital or may apply to participate through the deposit of funds in a loan fund maintained in an escrow account established pursuant to an escrow agreement by depositor, corporation and a bank or other independent financial institution, which escrow agreement provides in part that (i) title and ownership of the funds deposited in such loan fund shall remain in the depositor; (ii) the income derived from the loan fund, net of expenses of the escrow agent shall be paid to the corporation; (iii) loan fund principal may be advanced to corporation upon receipt of directions as set forth in the escrow agreement; (iv) deposit to the loan fund shall be returned to the depositor upon notice of withdrawal by the depositor upon lapse of time as set forth in the escrow agreement. The terms upon which the corporation may draw upon and receive and advance from the loan fund are contained in the escrow agreement and in a participation agreement. Each such participation shall be subject to approval by the board of directors of the corporation through the execution of a written participation agreement. Upon execution of the participation agreement and transfer of funds to the loan fund, the participating entity shall become a member of the corporation. The participation agreement will also describe the procedure by which the member shall identify the members' official representative and alternate entitled to attend membership meetings and vote on behalf of the member. The corporation shall have three classes of members. Members whose contributions to the corporation or deposits to the loan fund amount in the aggregate to $100,000 or more shall be • designated as "Class A members." Members whose contributions to the corporation or deposits to the loan fund amount in the aggregate to at least $50,000 but less than $100,000 shall be designated as "Class B members." Members whose contributions to the corporation or deposits to the loan fund amount in the aggregate to at least $25,000 but less than $50,000 shall be designated as "Class C members." Two of the directors of the corporation shall be elected exclusively by Class A members. Two of the directors of the corporation shall be elected exclusively by Class B members. Two of the directors of the corporation shall be elected exclusively by Class C members. Members are entitled to one vote for each $1,000 contribution to the corporation for working capital or one vote for each $1,000 of deposit balance in the Loan Fund (fractions are disregarded). Section 2.02 No Rights in Assets or Earnings. The members of the corporation shall have no property rights in the assets of the corporation and no earnings of the corporation shall inure to the benefit of or be distributable to the members, except the members may be reasonably compensated for services performed for the corporation. The Corporation shall at all times be operated exclusively for charitable purposes under Section 501(c)(3) of the Internal Revenue Code. Within the foregoing limitations, this Corporation will combat community deterioration by promoting economic development opportunities, including the development of housing and business enterprises throughout Minnesota. Future net income of the Corporation shall be used for developing and expanding programming that enhances economic development opportunities throughout Minnesota. Section 2.03 Members to Elect Certain Directors. The members of the corporation shall have the authority to elect directors to the extent set out in Article Ill, any approval of such members shall be required prior to amendment or abridgement of this right to elect certain directors, but the members of the corporation shall have no other rights with respect to the governance of the corporation. • Section 2.04 Transfer of Membership Interests. Membership and rights arising out of membership may be transferred upon the written consent of the board of directors. ARTICLE III. DIRECTORS Section 3.01 General Purposes. The business and affairs of the corporation shall be managed by or shall be under the direction of the board of directors. Section 3.02 Number, Qualifications, Election and Term of Office. The number of active directors shall be nine (9), or such greater or lesser number as the board shall from time to time determine, provided that the Class A, Class B and Class C members of the corporation shall collectively at all times following the first annual meeting of the corporation, be entitled and responsible to elect a majority of the directors then serving. To make certain that the management of the corporation is broadly representative of, and responsive to, communities within the State of Minnesota, all directors shall be individuals employed or residing in Minnesota, and the corporation shall make an effort to identify and recruit as directors individuals representing a broad cross section of Minnesotans. Particular emphasis shall be placed on identification and recruitment of qualified board candidates who themselves are low- and moderate-income Minnesota residents or who work with organizations and enterprises serving low- and moderate-income communities throughout Minnesota. 2 010 The initial board of directors shall be appointed by written action by the incorporator and shall serve until the first annual meeting of the corporation. Two of the director positions shall be designated as "Class A" director positions to be filled by the vote of the Class A members. Two of the director positions shall be designated as "Class B" director positions to be filled by the vote of the Class B members. Two of the director positions shall be designated as "Class C" director positions to be filled by the vote of the Class C members. At each annual meeting of the corporation, if a Class A, Class B or Class C director position is vacant or the term of the present occupant is expiring, the appropriate class of members shall assemble to propose and consider nominees, who may but need not be associated with members of the corporation, and to vote to fill each such designated director position. The votes cast by members shall be weighted proportionally to the total deposits made by such member to the loan fund maintained in the escrow account described in Section 2.01 of these Articles, each$1,000 on deposit by the member (fractions thereof shall be disregarded) shall be equal to 1 vote, and the candidate receiving the greatest number of votes representing the greatest aggregate deposits from the appropriate class of members shall be deemed elected. The remaining director positions, which have not been designated as Class A, Class B or Class C director positions, shall be at-large positions filled by the affirmative vote of a majority of the remaining directors present at a meeting of the board. Each of the directors shall hold office for a term of three (3) years, except that, of the first board elected at an annual meeting under these bylaws, up to one-third of those elected shall hold office for a term of two (2) years and up to one-third of those elected shall hold office for a term of one (1) year. Election of additional directors or of replacements for directors whose terms are expiring each year shall take place at the annual meeting of the board in such year, and each director shall hold office until a successor shall have been elected and shall qualify, or until the earlier death, resignation or removal of such director. Section 3.03 Board Meetings; Place and Notice. Meetings of the board of directors may be held from time to time at any place that the board of directors may designate. A meeting of the board and the members shall be held at least annually. A conference among directors by any means of communication through which the directors may simultaneously hear each other during the conference constitutes a meeting of the board of directors if the number of directors participating in the conference would be sufficient to constitute a quorum at a meeting, and if the same notice is given of the conference as would be required for a meeting. The chair may call a board meeting by giving not less than five (5) nor more than thirty (30) days notice to all directors of the date and time of the meeting. The notice of a meeting need not state the purpose of the meeting. Notice shall be written and may be given by mail or in person. If a meeting schedule is adopted by the board, or if the date of a board meeting has been announced at a previous meeting, no notice is required. Section 3.04 Waiver of Notice. A director may waive notice of a meeting of the board. A waiver of notice by a director is effective whether given before, at or after the meeting and whether given in writing or by attendance, whether in person or by electronic means. Section 3.05 Quorum. A simple majority of the directors currently holding office is a quorum for the transaction of business. If a quorum is present when a duly called meeting is convened, the directors in attendance may continue to transact business until adjournment even though the withdrawal of a number of directors originally present leaves less than the number otherwise • required for a quorum. 3 Section 3.06 Vacancies. Vacancies on the board of directors resulting from the death, resignation or removal of a director may be filled by the affirmative vote of a majority of the remaining directors, even though less than a quorum. Each director elected under this section to fill a vacancy shall hold office until a qualified successor is elected at the annual meeting of the board occurring at the end of the term which he or she was elected to fill. Section 3.07 Removal of Directors. Any director may be removed at any time, with or without cause, by the affirmative vote of two-thirds of the remaining directors. Absence of a director at three consecutive board meetings without written or oral explanation to the chair of such absences shall be deemed to be the resignation of such director. Section 3.08 Manner of Acting. Unless otherwise required by law or these bylaws, the action of a majority of directors present at a meeting at which a quorum is present shall be the act of the board. Any action required or permitted to be taken by the board may be taken without a meeting by the collective consent in writing, setting forth the action so taken, of all the directors. The board may also act by any other form of communication permitted by law. ARTICLE IV. OFFICERS Section 4.01 Number, Designation and Qualifications. The officers of the corporation shall consist of a chair, a vice chair, a secretary and a treasurer. A majority of all directors may appoint a manager to act as chief executive officer, or any other officers deemed necessary for the operation and management of the corporation, each of whom shall have the powers, rights, duties, responsibilities and terms of office determined by the board from time to time. Any number of offices or functions of these offices may be held or exercised by the same person. Officers of this corporation, other than a manager/CEO, shall be directors of this corporation. Section 4.02 Chair. The chair of the corporation shall preside at all meetings of the board and at all meetings of any executive committee that may subsequently be established.The chair shall perform all functions customarily incident to the office of chair and all such other functions as from time to time are assigned by the board of directors. Unless and until the board appoints a manager to act as chief executive officer, the chair of the corporation shall be the chief executive officer of the corporation and in such capacity shall have overall responsibility for the management of the business of the corporation; while continuing as chief executive officer, the chair shall sign and deliver all instruments having to do with the business of the corporation, maintain records of and, to the extent necessary, certify all proceedings of the board of directors of the corporation. Section 4.03 Vice Chair. The vice chair of the corporation shall act in place of the chair in the absence of the chair and perform such other duties as may from time to time be prescribed by the board of directors. Section 4.04 Secretary. The secretary of the corporation shall prepare minutes of each meeting of the board, shall maintain records of and, to the extent necessary, certify all proceedings of the board of directors of the corporation. Section 4.05 Treasurer. The treasurer shall act as chief financial officer of the corporation and in such capacity shall keep accurate financial records for the corporation; endorse and deposit all money, drafts, and checks in the name of and to the credit of the corporation in the banks and depositories designated by the board of directors; disburse corporate funds and issue 4 • checks and drafts in the name of the corporation; render to the chair and the board of directors, whenever requested, an account of all transactions and of the financial condition of the corporation; and perform such other duties as may from time to time be prescribed by the board of directors or chair. The treasurer need not personally perform the duties described herein, but all such duties shall be performed under the supervision of the treasurer. Section 4.06. Manager. The board of directors may choose to appoint a manager who shall be the Chief Executive Officer of the corporation and shall exercise the functions and duties customarily incident to the office. The manager shall have general active management of the affairs and business of the corporation, reporting to the board of directors. The manager shall be responsible for seeing that all orders and resolutions of the board of directors are carried into effect. The manager shall be an ex officio member of all board committees, without vote. Section 4.07 Election and Term of Office. The directors shall, no less frequently than at each annual meeting, elect a chair, a vice chair, a secretary and a treasurer and any other officers or agents the board deems necessary. Such officers shall hold their offices until their successors are elected and qualified, or until death, resignation or removal as herein provided. A vacancy in any office may be filled by the board for the unexpired portion of the term. Section 4.08 Removal of Officer. An officer may be removed at any time, with or without cause, by the affirmative vote of a majority of the directors present at a meeting of the board of directors at which a quorum is present. Section 4.09 Other Committees. The board of directors may establish other committees of one • or more persons having the authority of the board in the management of the business of the corporation to the extent provided in the resolution establishing such committee. Committee members need not be directors or officers. A majority of the members of a committee present at a meeting constitutes a quorum for the transaction of business. ARTICLE V. NOTICE Whenever under the provisions of these bylaws or other law any notice is required to be given, such notice may be given in writing by mail, by telegram, by e-mail if the intended recipient personally provides written or e-mailed acknowledgment of receipt, or by personal delivery, to the person to whom notice is to be given. Any notice required by these bylaws when given by mail is deemed given when deposited in the United States mail with sufficient postage affixed. ARTICLE VI. INDEMNIFICATION To the extent permitted by law, any former or present director, officer, employee, trustee or agent of this corporation shall be indemnified by this corporation against expenses incurred in connection with any proceeding to which he or she is a party by reason of past or present official capacity as a director, officer, employee, trustee or agent, or as director, officer, partner, employee, trustee or agent of another corporation, partnership, joint venture, trust or other organization while serving at the request of this corporation. • 5 ARTICLE VII • AMENDMENT These bylaws may be amended upon the affirmative vote of two-thirds of the directors present at a meeting at which a quorum is present, after notice as provided in Section 3.03, together with a copy of the proposed amendments, has been given to all directors. - END OF BYLAWS - • 6 • EXHIBIT D • 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 of a 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) "Agreement"means this Loan Fund Escrow Agreement. (b) "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. (c) "Development Loan" means a business or community development loan made by MCCF. (d) "Escrow Agent" means Wells Fargo Bank Minnesota,N.A. (e) "Loan Fund" means the escrow account established pursuant to this Agreement. (f) "Loan Fund Signature Page"means the signature page of this Agreement in the form contained in Schedule 1 of this Agreement. (g) "Loan Purchaser" means a secondary market purchaser of Development Loans made by MCCF. (h) "MCCF"means Minnesota Community Capital Fund,a Minnesota nonprofit corporation. (i) "Member Funds"means the funds deposited by Members in the Loan Fund created by this Agreement. (j) "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 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. (b) 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. (c) 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. 4. 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. 5. Distribution and Advances of Member Funds from Loan Fund. • (a) Minimum Initial Funding. In the event Escrow Agent has not received a minimum of$2,500,000 from Members, together with their respective Loan Fund Signature Pages by October 31, 2002, the Loan Fund shall terminate and the Escrow Agent shall refund to Members,without interest, the amount each Member deposited. (b) Advances to MCCF. Escrow Agent shall advance Member Funds to MCCF upon MCCF providing Escrow Agent with a request signed by an Authorized Representative of MCCF stating: (i) MCCF requests an advance from the Loan Fund in the amount of$ as of the closing date of a Development Loan by MCCF to (name of borrower) in the principal amount of $ (the "Development Loan"); (ii) The advance requested will be used to fund • the principal amount of the Development 2 • 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 the 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 Agreement. (c) 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. (d) 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 3 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. Government 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 Agent. 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 disagreement or the presentation of adverse claims or demands in connection with or for any item affected by the instructions contained within this Agreement, 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 authorized to follow directions of MCCF with respect to the following matters: (a) All directions set forth in this Agreement; (b) 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 assignee assumes such obligations. (c) Directions to Escrow Agent with respect to the investment of Loan Funds within the limitations set forth in Section 7 of this Agreement. (d) Establishment and modification of terms of Escrow Agent compensation and expense reimbursement as provided under this Agreement. (e) 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. (f) 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 effective date of termination the Member Funds shall be refunded to the Members. 5 13. Benefit. This Agreement shall be binding upon the respective parties' successors IF and assigns. 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 designate 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) 411 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. • 6 . • 18. Entire Agreement. This Agreement constitutes the entire agreement between the parties and the parties' respective rights and obligations associated therewith. No modification to this Agreement shall be effective unless reflective in a writing containing signatures of both parties. 19. Applicable Law. This Agreement shall be governed by and construed in accordance with Minnesota law. Minnesota Community Capital Fund Wells Fargo Bank Minnesota, N.A. By ta(,t , Bim_ . - Its CC:0 Its V s Dated: May 1, 2002 Dated: May 1, 2002 • • G:\APPS\WP5I\DAL\Northland Institute\MCCP\escrow AGR2.wpd 7May 2,2002(I I:43AM) SCHEDULE I • MINNESOTA COMMUNITY CAPITAL FUND LOAN FUND SIGNATURE PAGE Member Name of Member (Please Print) Signature of Authorized Officer Name of Authorized Officer (Please Print or Type) Title of Authorized Officer Address of Member (Business Address S (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: , 200 Minnesota Community Capital Fund Wells Fargo Bank Minnesota,N.A. By Its By • Its • Exhibit E PARTICIPATION AGREEMENT Minnesota Community Capital Fund Minnesota Community Capital Fund("MCCF")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 this 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; (b) 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 paperwork and report filing 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 originate 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) 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; (b) 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 purchase price of the Development Loan by wire transfer 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 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 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 contained herein 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 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; • 2 • (b) Assignment of a Member's interest by a Member to a third 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 modification of terms of Escrow Agent compensation and expense 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 anniversary 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 time 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 notices 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(by name or title) designated below or to such other address, facsimile number, e-mail address, or person as the party may designate by notice to the other parties. • To: Minnesota Community Capital Fund Attn: Scott Martin,Chief Executive Officer 13911 Ridgedale 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 by 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. III 3 PARTICIPATION AGREEMENT SIGNATURE PAGE Member Name of Member (Please Print) Signature of Authorized Officer Name of Authorized Officer (Please Print or Type) Title of Authorized Officer Address of Member (Business Address (City, State,Zip) (Facsimile Number) (E-mail address) Authorized Representative • Address of Authorized Representative (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: , 200_ Minnesota Community Capital Fund By Its Dated: ,200 • 4 Exhibit F MCCF LOAN CRITERIA FINANCING POLICIES Loan Amounts: • $50,000 minimum • $2,500,000 maximum Eligible Projects: • 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. • Ineligible 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 Equity 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 Requirements: • 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 • SCHEDULE I MINNESOTA COMMUNITY CAPITAL FUND LOAN FUND SIGNATURE PAGE Member Name of Member (Please Print) Signature of Authorized Officer Name of Authorized Officer (Please Print or Type) Title of Authorized Officer Address of Member (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: , 200_ Minnesota Community Capital Fund Wells Fargo Bank Minnesota,N.A. By Its By • Its PARTICIPATION AGREEMENT SIGNATURE PAGE • Member Name of Member (Please Print) Signature of Authorized Officer Name of Authorized Officer (Please Print or Type) Title of Authorized Officer Address of Member (Business Address (City, State,Zip) (Facsimile Number) (E-mail address) • Authorized Representative Address of Authorized Representative (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: ,200_ Minnesota Community Capital Fund By Its Dated: ,200 • 4 Membership Updates Page 1 of 2 Horne Fund Development About Memberrship Benefits Member Update,, • EMCCF mINNEsorA COVINIUNITY' C. NT L FUND; Minnesota Community Capital Fund Membership Update The following communities and organizations have made pre-enrollment period commitments to become members of the MCCF: Winona Tracy EDA St. Louis County East Central Energy Sandstone Moorhead EDA Chisholm Economic Development Partnership of Wright County St. Cloud HRA Willow River Brainerd Lakes Area Development Corporation Prairieland EDC Worthington Itasca Development Corporation Carlton County Jackson Greater Jobs Inc., Albert Lea Detroit Lakes Hinckley Great River Energy Silver Bay Becker County EDA Moose Lake Luverne Kandiyohi County Economic Development Partnership Hibbing Mille Lacs Area CDC Pine County Economic Development Corporation Babbitt Jackson County Mille Lacs Electric Cooperative Cloquet New Ulm Fergus Falls Big Lake Warroad Port Authority Tower EDA Sherburne County http://www.mncommunitycapitalfund.org/updates.cfm 6/6/02 BALANCE SHEET Date: 06/06/02 Time: 1:49pm CITY OF ELK RIVER Page: 1 05/31/02 Balance Fund Type: SR SPECIAL REVENUE Fund: 240 MICRO LOAN FUND Assets CURRENT ASSETS 1010 Cash 591,767.22 1012 Fair Value-Investments 280.00 1190 Notes Receivable 826,558.01 1380 Interest Receivable 5,363.00 CURRENT ASSETS 1,423,968.23 Total Assets 1,423,968.23 Liabilities CURRENT LIABILITIES 2080 Due to Other Governments 323,896.67 2220 Deferred Revenue 502,661.34 CURRENT LIABILITIES 826,558.01 Total Liabilities 826,558.01 Reserves/Balances FUND EQUITY 2400 Fund Balance 538,046.48 AgIg600 Change In Fund Balance 59,363.74 FUND EQUITY 597,410.22 Total Reserves/Balances 597,410.22 Total Liabilities & Balances 1,423,968.23 • Jun 10 02 03: 09p SANTWIRE/BERGQUIST 763-262-7389 p . 2 • June 10, 2002 TO: Pat Klaers City Administrator City of Elk River 13065 Orono Parkway Flk River, MN 55330 Re: Property Tax Abatement For: Proposed F.Ik Path Professional Orrice Building Dear Pat: This will confirm our conversation of last Friday regarding our concern with the proposed use of tax subsidies for speculative office development of Elk Path LLC. We believe the application should be denied by the Elk River City Council for one or all of the following reasons. • Note: Hereinafter the Economic Development Tax Rebate Financing Policy & Application shall be referred to as "Rebate Policy". 1) The application does not meet any one of the Objectives set forth in the Rebate Policy under Section III Objectives of Tax Rebate Financing; as such this project would not qualify subject to Section VI thereof: 2) We do not believe it was the intent of the Rebate Policy to subsidize SPECULATIVE OFFTCF. DEVELOPMENT. This proposal is delinitely pure speculation. 3) Under the Business Subsidy Law Minnesota Chapter 116J.993-995, 116J.994 Subd_ 4 Wage & Job Goals it states in part "The subsidy agreement, in addition to any other goals, must include (1.) goals for the number of jobs created". We believe if this abatement were approved, the proposed Abatement Agreement (Page 3, Para. H) should stipulate that the covenant to provide 100 additional NEW full time jobs in the City of Elk River will not be changed or modified in any way during the abatement period. 4) Job Creation. The problem has always been to determine how a Speculative Office Building can in itself create jobs other than such as lawn care, a etc. The point being is that Speculative Office Space is in no way similar to an office building that would be proposed in order to move a large number of Jun 10 02 03 : 09p SANTWIRE/BERGQUIST 763-262-7389 p . 3 • corporate employees; for instance, Best Buy, into Elk River from a different location. The only way a speculative building could meet job goals is if it were leased prior to development to business entities with employees, in which case it would not be speculative. 5) The "but-For" analysis (Exhibit D) prepared by the applicant is incorrect in numerous categories. When the proper corrections are made, it becomes apparent that this project DOES NOT need a Property Tax Abatement. I will he present at the public hearing this evening, June 10, 2002, 6:30 PM to discuss the details of the subjects contained herein. 15"yi?..czt.tr‘ips Gary L. Santwire On behalFofEquity Management. Inc., Rivers Crossing, Inc. and D. Russell Norha. and Linda M. Norha Please distribute copies to: • Lori Johnson Catherine Mehelich Mayor and all Council Members All E.D.A. Members