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5.0. EDSR 07-08-2002 Item 5 . • City of Elly -, River MEMORANDUM TO: Economic Development Authority FROM: Catherine Mehelich, Director of Economic Developmen DATE: July 8, 2002 SUBJECT: Consider Participation in Minnesota Community Capital Fund (MCCF) Attachments • MCCF Participation Agreement • MCCF Loan Fund Escrow Agreement • • MCCF Loan Criteria Background At its June 10,2002 meeting the EDA and Finance Committee heard a presentation about the Minnesota Community Capital Fund (MCCF) by Scott Martin, CEO/Fund Developer. The EDA indicated interest in participating in MCCF and directed staff to review the program further and respond with a recommendation for the level of participation. Issue The MCCF is a new and innovative loan fund the City may access in order to do a myriad of development activities. The fund is a self-sustaining development resource,with the continual recapitalization of the fund through the sale of pre-approved loans to the secondary market. As soon as the fund has $2.5 million on deposit,loan originations can begin. The city's commitment would include a membership deposit. The deposit will allow the city to borrow up to 10 times that amount. There are three classes of participation levels which the city may consider: Class A memberships—deposits of$100,000 or more Class B memberships—deposits of at least$50,000,but less than$100,000 Class C memberships—deposits of at least$25,000,but less than$50,000 i Participation in MCCF July 8,2002 Page 2 of 2 • Staff recommends an initial deposit of$50,000,which would allow the city to originate loans up to $500,000. There is no limit on the number of loans that a MCCF member can originate. Members are able to increase their stake in the fund at any time in order to meet changing needs. Staff believes this is a valuable and unique opportunity to fund economic and housing development. There are very few tools at our disposal for development and this fund begins to address those needs. Membership in the fund is subject to the attached Participation Agreement and Loan Fund Escrow Agreement,which require members to make a minimum 3-year commitment to the MCCF. At the end of the 3-year period, all funds contributed will be returned,without interest,upon written request of the member. Projects will be required to complete an MCCF application to be considered per the attached MCCF Loan Criteria. Applications may be initially reviewed by the EDA's Finance Committee for recommendation to the EDA. Requested Action Authorize the Executive Director to execute the necessary documents relating to participation in the Minnesota Community Capital Fund, and deposit$50,000 from Micro Loan funds towards this fund. • • S:\EDA\MicroLoan\MCCF\7-8-02.DOC • 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; • 2 110 (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. • 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_ i 4 • 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 • g 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 fund111111 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 i 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 • 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) • smartin(2I 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 lat& Its QED Its V s • Dated: May 1, 2002 Dated: May 1, 2002 • • • G:WPPS\WP5I\DAL\Northland Institute\MCCF\escrow AGR2.wpd .7 May 2,2002(11:43AM) • 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 • (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 MCCF LOAN CRITERIA 1111 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: i • 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