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5.0. EDSR 02-10-1997 ELK RIVER ECONOMIC DEVELOPMENT AUTHORITY i MEMORANDUM TO: Economic Development Authority FROM: Paul T. Steinman, Director of Economic Development DATE: February 4, 1997 SUBJECT: Micro Loan Request -Eastey and Johnson, Inc. Introduction On January 23, 1997, the EDA Finance Committee met and discussed the Eastey and Johnson, Inc., loan request of$50,000. This request is made in • order to fund fixed improvements to a building which Eastey and Johnson recently purchased in Rail 10 Industrial Park. The EDA Finance Committee approved this loan request for a term of five years at a fixed interest rate of 8.25 percent. Committee member Jim Simpson was not present at this meeting. Background Eastey and Johnson own and operate Eastey Enterprises currently located in Rogers. They are intending to relocate certain portions of their business to the new Elk River location. Sally Johnson and Jeff Eastey will be available at this EDA meeting to provide a brief description of their manufacturing operation and answer questions of the EDA. Attached to this memo is the application form from Eastey and Johnson, Inc., and also an EDA Statement of Financial Activity which indicates our current micro loan fund amount. 13065 Orono Parkway • P. O. Box 490 • Elk River, MN 55330-1743• (612) 441-7420 • Fax (612) 441-7425 Equal Opportunity Housing and Equal Opportunity Employment • The details of the loan would be as follows: • $50,000 principal • Five year term • Fixed interest rate of 8.25 percent • Collateralized with a second mortgage position on the land and buildings. Staff is recommending a fixed interest rate on this loan due, in part, to discussions with the Finance Department and staffs overall concern with the logistics of implementing floating interest rate loans. The floating interest rate makes administration of these loans more difficult due to having to recalculate loan payments and provide this updated information to our borrowers on a semi-annual basis. Staff will likely be recommending a fixed interest rate approach to future micro loans also. Action Requested Staff is recommending that,the EDA approve the $50,000 loan request from Eastey and Johnson, Inc. IllAttachments • Meeting minutes EDA Finance Committee • Statement of Financial Activity as of January 31, 1997 • Loan Application from Eastey and Johnson, Inc. \\elkriver\sys\shrdoc\eda\meetings\edeastey.doc EDA FINANCE COMMITTEE MEETING MINUTES JANUARY 23, 1997 • ELK RIVER CITY HALL CONFERENCE ROOM Members Present: Tom McNair, Tom Bender, Lloyd Brutlag, and Bud Houlton Members Absent: Jim Simpson Staff Members Present: Paul Steinman, Director of Economic Development Also Present: Applicants: Jeff Eastey and Sally Johnson The Finance Committee Meeting was called to order at 4:00 p.m. Ms. Johnson and Mr. Eastey provided a video tape and summary of their manufacturing business. They provided brochures and additional information on the products which they manufacture - shrink wrapping machines and sealers. The proceeds of the $50,000 micro loan requested would go toward various general upgrading and facilitating aesthetic improvements such as curb and • gutter on the site, blacktopping parking lots, landscaping, and painting the building. Jeff Eastey explained they have already purchased the former Osseo Brake building on 173rd Avenue in Elk River, and intend to move the assembling part of their business into that building from its current location in Rogers. After the applicants were dismissed, the Finance Committee discussed the details of the requested $50,000 micro loan. Tom McNair asked about the reasons for offering the applicants a fixed rate of 8.25 percent versus the option of allowing for the rate to float and be adjusted every six months. Staff indicated from an administrative point of view that it was much easier and cleaner to fix the interest rate and amortization schedule rather than recalculating semi-annually over the term of the loan. It was the consensus of the Finance Committee, including phone comments from Jim Simpson, that the loan be recommended for approval to the Economic Development Authority. The applicants are requesting a $50,000 loan, and staff is recommending the loan term be 5 years at a fixed interest rate of 8.25 percent. Respectfully submitted, • Paul T. Steinman Director of Economic Development INFORMATION STATEMENT OF FINANCIAL ACTIVITY FOR THE EDA,MICRO AND DTED LOAN FUNDS • FOR THE PERIOD JANUARY 31,1997 ECONOMIC DEVELOPMENT AUTHORITY 1997 Month to Year to Budget Date Date Cash Balance $ 118,209 Revenues Property Tax 82,440 - - HACA 12,060 - - Refunds&Reimb. - - - Interest Income - - - Total Revenues 94,500 - - Expenditures Personal Services 46,600 17 17 Supplies 800 53 53 Other Services&Charges 45,350 - - Capital Outlay - - - Transfers 1,000 - - Total Expenditures 93,750 70 70 IIIMICRO LOAN FUND DTED LOAN FUND Month to Year to Month to Year to Date Date Date Date • Cash Balance $ 286,300 $ 87,648 Revenues Application Fees 500 500 - - Interest Income 2,517 2,517 771 771 Loan Payments 8,388 8,388 2,591 2,591 Total Revenues 11,405 11,405 3,362 3,362 Expenditures Loans - - - - Legal Services - - - - Total Expenditures - - - - Status of Micro Loans as of January 31: Business Current Business Current Alltool Grant Y Pomeroy Tool Y Roma Tool Grant Y Designing Women Y Second Generation Y Tescom Y Indy Lube Y Larose Y • Beaudry Y Water Laboratories Y R&D Sales Y E R Automall Y Carpe Kairos LLC Y T J Properties Y Internet 5 Y Diamond City Bread Y S:\FINANCE\EDA\EDASTMT.XLS ECONOMIC DEVELOPMENT MICRO LOAN FUND ELK RIVER, MINNESOTA APPLICATION • APPLICANT ) e X tvfx txx xi Eastev & Johnson Inc . ADDRESS 21480 147th Ave . North CITY Rogers , STATE MN ZIP CODE 55374 CONTACT PERSON(S) Sally Johnson or Jeff Eastey BUSINESS PHONE 428-4846 HOME PHONE S-4416161 J-4974670 AMOUNT REQUESTED $50000 . 00 TERMS REQUESTED SOCIAL SECURITY NUMBER J_477-68-8208 #41-1858594 S 47�-7n-tihn7 FED ID # I.Nb F STATE ID #XAD0051E #2988370 1 . Type of Project: • Construction/New Building Expansion/Existing Building Equipment/Machinery Purchase __ Remodel/Commercial • Retail/Industrial Industrial Inventory Working Capital X Other Renovation and moderization of building. F.xt.pri nr rpnnvat i nn _ FvT anci nn of n1irrcnt—�?LySlA2SS t L2n 1 l nn�tlnn 2 . Describe Project: Eastey Ent . Inc . manufactures Shrink Packaging Equipment and is expanding to a 2nd location . The new building will require renovation for use . • 3 . Purpose of Loan: 2nd floor Expansion . Building liner & ceil_ing insulation. • R1 artri ra 1 expansion _ Tnstal L new efficient furnaces . Install new dock doors . Septic updated or replaced . Tar Driveway and parking area . Landscaping. *Note the $50 , 000 . 00 will be covering only some of the above items , as they will total more than $50 , 000 . 00 . 4 . Cost of Project: A) Land $ B) Buildings (attach plans & costs ) $ ?30 , 000 _ on C) Equipment/Machinery/Fixtures (attach list and estimated costs) $ D) Remodeling $ 69 , 922 . 00 E) Industrial Inventory/Working Capital $ F) Other (attach description) $ TOTAL COSTS $ 349 , 922 . 00 5 . Proposed Financing: SOURCE NAME TERMS AMOUNT A) Bank Loan 00 B) Bank Loan $ C) Other Private Funds $ D) Applicant Contribution -for building loan, other $23 , 922_:00 improvements will be out of pocket , ( Eastey ) E) Other $ F) Fed Grant/Loan $ G) State Grant/Loan $ 111 H) This Loan $ 50 , 000 . 00 TOTAL FINANCING $349, 922 . 00 -2- 6 . Collateral to be assigned (Describe and show lien position) : A) To Bank: Building & Land $280, 000 . 00 B) To Bank: 111 C) To Private Funding Source: D) To Other Source: E) To Federal Govt: F) To State: G) To This Loan: $50 , 000 .00 2nd Mortgage 7 . Value of Collateral : COST BOOK VALUE EXISTING LIENS A) Land $ $ $ B) Buildings $ 280 , 000 . 00 $280 , 000 . 00 $2-76,.000-. 00)-Bank C) Mach. & Equip. $ $ $ D) Other $ $ $ E) Other $ $ $ 8 . Employment* : 111 Present: # of Employees 43 Total Payroll $79, nnn _ nn/week After Project: # of Employees Total Payroll *If Loan is for Job Retention Only, Explain in Business Plan. 9 . Attorney, Accountant (Names , addresses , phone) : Mark Saliterman LTD, Diamond Hi1.1 center , 4301 HWY 7 , Suite 100 St . Louis Park, MN 55416 920-8282 Fredrikson & Bryon; 1100` Inter.nationai` Centre , 900 Second Ave South ?1pT� M 5 0 1d 347-714z 10 . Bank and Other Credit References (Names, addresses, phone) : Joe Jensen, Park Nat ' l Bank, 5353 Wayzata Blvd . Mpls . , MN 55416 544-3544 - Bank, Joe ' s desk - 591-2784 • -3- 11 . Attach and include the following: IA) Written Business Plan: 1. Description of Business 2 . Ownership 3 . Management 4 . Date established 5 . Products/Services / 6 . Future Plans ✓ B) Financial Statements for past two years / C) Financial Projections for two years AD) Resume of Owner/Management /E) Personal Financial Statements of proprietor, partners, guarantors F) Letter of commitment from applicant pledging to complete during the proposed project duration G) Letter of commitment from the other sources of financing, stating terms and conditions of their participation in project H) Other O „, I ) Other U/-J) Fee ( 1% of amount of loan request) -4- I/We certify that all information provided in this application is true and correct to the best of my/our knowledge. I/We authorize the City of Elk River and the Finance Committee to check credit references and verify financial and other information. I/We agree to provide any additional information as may be requested by the City and the Finance Committee. DATE •//4/-C-C41-271k Applicant Name � � � �%SI �� Fr' � c ' By l\ iv� �� / By ^ A � ) ( fl ( / Lb• -5- 411 JEFF EASTEY ENT. INC. IS A MANUFACTURER OF SHRINK PACKAGING EQUIPMENT. OWNERSHIP: JEFF EASTEY 80% MANAGES FACTORY SALLY JOHNSON 20% MANAGES OFFICE INCORPORATED 5-9-1986 PRODUCTS : MANUAL L-SEALERS , AUTOMATIC L-SEALER (WE IMPORT THESE) , SLEEVEWRAPPERS , SHRINK TUNNELS, AND PARTS FOR OUR EQUIPMENT AS WELL AS REPLACEMENT PARTS FOR WELDOTRON SHRINK PACKAGING EQUIPMENT. SEE ATTACHED FUTURE PLAN: CONTINUE GROWTH AT A RATE OF 12% TO 20% PER YEAR, DEVELOPE NEW SHRINK PACKAGING EQUIPMENT, WITHIN 5 TO 7 YEARS BUILD AT NEW LOCATION SO WHOLE BUSINESS IS AT ONE LOCATION. Eastey & Johnson Inc . (A Real Estate Holding Company formed by Jeff Eastey & Sally Johnson to Purchase the Elk River Building) 110 Ownership : Jeff Eastey 50% Sally Johnson 50% [NAME OF TENANT] SUBLEASE THIS SUBLEASE,made this day of , 1997, by and between the City of Elk River Economic Development Authority, a (hereinafter called "Sublessor"), and , a (hereinafter called "Sublessee"); WITNESSETH, THAT: WHEREAS, Sublessor has leased certain space in an office/industrial complex known as and located at in the City of Elk River, for the purpose of supporting the development and growth of high technology companies in the City of Elk River. Such space being leased by Sublessor shall be referred to herein as the "Elk River Business Incubator." WHEREAS, Sublessor is leasing the Elk River Business Incubator pursuant to the terms and conditions of that certain lease (hereinafter called "Prime Lease") dated 1997, between Larry Hickman (hereinafter called "Landlord"), as landlord, and Sublessor, as lessee, a true and correct copy of which is attached hereto as Exhibit A and made a part hereof. • WHEREAS, Sublessee desires to lease the space in the Elk River Business Incubator designated on Exhibit B attached hereto and made a part hereof (hereinafter called the "Subleased Premises") and Sublessor desires to sublease the Subleased Premises to Sublessee. NOW, THEREFORE, in consideration of the rents to be paid and the covenants to be performed by the Sublessee as hereinafter set forth, Sublessor does hereby demise and sublease the Subleased Premises to the Sublessee, and Sublessee does hereby hire and take the Subleased Premises from Sublessor upon the terms and conditions hereinafter set forth. (1) Assumption of Obligations. Except as may be herein otherwise specifically provided, Sublessee shall have all the rights and privileges and assume and agree to keep, obey and perform all of the obligations, restrictions and conditions, agreements and covenants of the Sublessor as lessee under the Prime Lease as fully and to the same extent as if the provisions of the Prime Lease were set forth herein. Sublessee hereby accepts the demise and Sublease of the Subleased Premises expressly subject to all of the terms, covenants and conditions set forth in the Prime Lease, and agrees to comply with all of the terms, covenants and provisions thereof. Any failure by Sublessee to perform such duties, liabilities and obligations under the Prime Lease shall also be a default under this Sublease. (2) Rent and Other Charges. In consideration of the aforesaid subleasing, Sublessee eda/doc/bilease2 1 covenants and agrees to pay to the Sublessor, without setoff or deduction whatsoever, rent in the amount of$ per month payable on the first day of each month during the Term described in Paragraph (3) hereof. In the event that the Term begins or ends on other than the first or last day of the month, rent shall be pro-rated for such partial month. Sublessor shall be responsible for payment of all rent due to the Landlord under the Prime Lease. (3) Term. Notwithstanding any provisions relating to the Term or Renewal Term contained in the Prime Lease, the Term of this Lease shall be for the period commencing on , 1997 and terminating on (4) Quiet Enjoyment. Sublessor covenants that Sublessee, subject to the Prime Lease and on paying the rents and performing the covenants herein set forth, shall and may peaceably and quietly have, hold and enjoy the Subleased Premises for the Term hereof free of all claims made by persons claiming by,through or under Sublessor. (5) Exclusions. The following rights, if any, reserved to the Sublessor under the Prime Lease shall be reserved to the Sublessor, and Sublessee shall have no right therein: (a) The right to sublease, assign or sublet. (b) Any right on the part of the Sublessor under the Prime Lease to terminate the Prime Lease in the event of damage by casualty or taking by eminent 41 domain,the default of the Landlord, or for any reason whatsoever. (c) Any option or right to extend the Term or any Renewal Term. (6) Maintenance. The Sublessee agrees to accept the Subleased Premises as of the commencement of the Term in their then "as is" condition and that they will take good care of the Subleased Premises, and will commit no waste, and will not do, suffer or permit to be done any injury to the same; that they will keep said Subleased Premises in at least as good order, condition and state of repair required of Sublessor under the Prime Lease; that they will permit the Sublessor to enter onto the Subleased Premises at any and all reasonable times to inspect the same or for any other proper purpose without liability on the part of Sublessor for any loss or interruption of business occasioned thereby, and that they will not do or permit to be done any act or thing contrary to the covenants and agreements made by the Sublessor in the Prime Lease. Sublessee shall also, at their sole cost and expense, comply with all applicable local, state and federal laws, ordinances, codes and regulations, and with all rules and regulations promulgated by companies which from time to time insure against loss or damage to, or against injuries or deaths occurring on or about, the Subleased Premises. In no event shall Sublessee allow the Subleased Premises to be used for any use which makes void or voidable any insurance in force with respect to the Subleased Premises or makes it impossible to obtain insurance, creates a public or private nuisance, or is illegal, unlawful, immoral, or is a hazardous business, trade, occupation, activity or purpose. • (7) Alterations. Sublessee agrees that any alterations or improvements will be made eda/doc/bilease2 2 in good and workmanlike manner and that it will not make any alterations or improvements in or • to the Subleased Premises except in compliance with Prime Lease and with all applicable laws, ordinances, codes and regulations and without obtaining the prior written consent of the Sublessor, but such consent will not be unreasonably withheld if Landlord grants its consent thereto. Sublessor may require Sublessee, at the end of the term and at Sublessee's expense, to remove all alterations and improvements made by Sublessee and to repair any damage caused by such removal. (8) Liability of Sublessor; Assignment of Right of Action. Sublessor shall have no responsibility whatsoever with respect to the Subleased Premises or the condition thereof. Sublessor shall not be liable for any nonperformance of or noncompliance with or breach or failure to observe any term, covenant or condition of the Prime Lease upon Landlord's part to be kept, observed, performed or complied with, or for any delay or interruption in Landlord's performing its obligations thereunder. Sublessor hereby assigns unto Sublessee, for so long as this Sublease shall be in force and effect, any and all rights and causes of action which it may have against Landlord with respect to the Subleased Premises due to defaults by Landlord under the Prime Lease. Sublessor agrees to cooperate with and join Sublessee in claims or suits brought by Sublessee against Landlord under the Prime Lease, provided that the costs and expenses of such participation shall be borne by Sublessee. Sublessor reserves the right at Sublessor's option to tender to Sublessee the defense of any claim made against Sublessor arising out of the Prime Lease, the Sublease or any use of the Subleased Premises, in which instance Sublessee shall defend the claim using counsel reasonably acceptable to Sublessor. In any event, • the expense of all such costs and attorney's fees shall be borne by Sublessee. (9) Insurance; Indemnification. Sublessee shall continuously maintain public liability insurance with respect to death or injury to persons and damage to or destruction of property occurring at or about the Subleased Premises. Such policy of insurance shall be in form and amount reasonably satisfactory to Sublessor, shall name Sublessor and/or Landlord as an additional insured party and shall be delivered to Sublessor. Sublessee hereby agrees to indemnify and hold harmless Sublessor from, and shall reimburse Sublessor for, all costs and expenses, including reasonable legal expenses, incurred by Sublessor in connection with the defense of all claims and demands of third persons, whether or not suit is brought, including but not limited to those for death, for personal injuries, or for property damage, arising out of any default of Sublessee in performing or observing any term, covenant, condition or provision of this Sublease, or out of the use or occupancy of the Subleased Premises by the Sublessee, or out of any of the acts or omissions of the Sublessee, its agents, representatives, employees, customers, guests, invitees or other persons who are doing business with Sublessee or who are at the Subleased Premises with Sublessee's consent. Sublessee, for itself and its insurers, hereby further expressly waives all claims against Sublessor for any and all damages to persons or property caused by or resulting from any thing or circumstance. Sublessee agrees that said insurance policies shall contain waiver of subrogation rights against Sublessor. (10) Termination; Surrender of Subleased Premises. This Sublease shall terminate at the end of the term hereof or upon any default arising under the Prime Lease without the • necessity of any notice from either Sublessor or Sublessee to terminate the Sublease. Sublessee eda/doc/bilease2 3 hereby agrees that they will peacefully and quietly vacate and surrender the Subleased Premises • to the Sublessor at the expiration of the term, in as good order and repair as required under this Sublease and the Prime Lease. It is further understood and agreed by and between the parties hereto that existence of this Sublease is dependent and conditioned upon the continued existence of the Prime Lease, and in the event of the cancellation or termination of said Prime Lease, this Sublease automatically shall be terminated. Sublessor shall have no liability to Sublessee due to the termination of the Prime Lease by reason of any default by Sublessee hereunder, by reason of any condemnation or destruction of the Subleased Subleased Premises, or by any other reason not within the control of Sublessor. (11) Sublease and Subletting. Sublessee may not assign this Sublease or sublet all or any part of the Subleased Premises. Sublessee may not pledge this Sublease, or allow any liens to be placed hereon, or suffer this Sublease or any portion thereof to be attached or taken upon execution. (12) Sublessor's Right to Cure Defaults. If Sublessee shall default in the observance or performance of any of Sublessee's covenants, agreements or obligations hereunder, Sublessor may, but it is not obligated, and without limiting any other remedy which Sublessor may have by reason of such default, cure the default and charge the cost thereof to Sublessee including, without limitation, reasonable attorney's fees. Sublessee shall pay the same within ten (10) days after receipt of an invoice therefore from Sublessor, together with interest thereon at the lesser of the rate of twelve percent(12%)per annum or the maximum rate allowed by law. • (13) Default by Sublessee. If Sublessee shall default in the payment of any installment of rent or other monies to be paid under this Sublease, or if Sublessee shall default in the observance or performance of any of Sublessee's other covenants, agreements or obligations hereunder, or if any proceeding is commenced by or against Sublessee for the purpose of subjecting the assets of Sublessee to any law relating to bankruptcy or insolvency, or for appointment of a receiver for Sublessee or for any of Sublessee's assets, or if Sublessee makes a general Sublease of Sublessee's assets for the benefit of creditors; then Sublessor, at its option, may terminate this Sublease, may reenter the Subleased Premises and remove all persons and property therefrom, and have, regain and enjoy possession of the Subleased Premises and, in addition, Sublessor shall have all of the rights and remedies against Sublessee as are available to Landlord against Sublessor pursuant to the Prime Lease. Sublessee hereby expressly waives service of any notice of Sublessor's intention to reenter and waives all right of restoration to possession of the Subleased Premises after reentry or after judgment for possession thereof. In case of any such termination, and in addition to any other remedies which Sublessor may have, Sublessee shall indemnify Sublessor for all damages Sublessor may incur by reason of such default, including the cost of recovering the Subleased Premises, attorney's fees and expenses incurred in enforcing any term of this Sublease, and the rent reserved in this Sublease for the remainder of the Term, all of which amounts shall be immediately due and payable to Sublessor. Sublessor shall have no obligation whatsoever to mitigate the aforesaid costs, expenses or damages incurred or suffered by Sublessor. • eda/doc/bilease2 4 (14) Security Interest. Sublessor shall have a security interest in all trade fixtures, • exterior signs, floor coverings, or drapes, or any other equipment or property owned by Sublessee and installed on the Subleased Premises, for rent and other sums which may become due Sublessor, or upon any default, under this Sublease and the Prime Lease. Sublessee agrees to execute such UCC filings as Sublessor may require as necessary to perfect such security interest. (15) Expenses and Attorney's Fees. Sublessee shall pay to Sublessor within ten (10) days after receipt of an invoice therefore an amount equal to any costs, legal or otherwise, including attorney's fees, incurred by Sublessor in protecting Sublessor's interest in the Subleased Premises or in enforcing Sublessor's rights under this Sublease, whether or not a lawsuit is involved. (16) Relocation. In the event that the Landlord exercises its rights, if any under the Prime Lease to relocate the Subleased Premises, then Sublessor shall have the same right to relocate the Subleased Premises. (17) Notice. Any notices or demands (not to include invoices) permitted or required hereunder shall be deemed given or made if, and shall not be deemed to have been delivered or made unless, in writing and delivered personally or deposited in the United States mails, registered or certified, postage prepaid, addressed to Sublessor and Sublessee jointly as follows: If to Sublessor: City of Elk River Economic Development Authority • Elk River City Hall P.O. Box 490 Elk River, Minnesota 55330-0490 Attention: Paul Steinman If to Sublessee: which addresses may be changed from time to time by notice as above provided. Sublessee agrees to furnish Sublessor immediately upon Sublessee's receipt thereof any and all communications received by Sublessee from the Landlord under the Prime Lease. Sublessee further agrees to give Sublessor concurrent notice of any notice or demand given to said Landlord. (17) Relationship of the Parties. This Sublease does not and shall not create the relationship of principal and agent, or of partnership, or of joint venture, or of any other association between Sublessor and Sublessee, the sole relationship between the parties hereto being strictly Sublessor and Sublessee. (18) Severability. If any term, condition or provision of this Sublease, or the application thereof to any person or circumstance, shall, to the extent be held to be invalid or • unenforceable, the remainder hereof, and the application of such term, provision, and condition eda/doc/bilease2 5 to persons or circumstances other than those as to whom it shall be held invalid or unenforceable, • shall not be affected thereby, and this Sublease, and all of the terms, provisions, and conditions hereof, shall, in all other respects, continue to be effective and to be complied with to the full extent permitted by law. • • eda/doc/bilease2 6 IN WITNESS WHEREOF, the parties hereto have fully executed this Sublease on the day • and year first written above. SUBLESSOR: City of Elk River Economic Development Authority By: Witness Its: SUBLESSEE: Witness • • eda/doc/bilease2 7