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6.1. EDSR 09-21-2020 ��i City of Elk , Request for Action River To Item Number Economic Development Authori 6.1 Agenda Section Meeting Date Prepared by Consent September 21, 2020 Amanda Othoudt,ED Director Item Description Reviewed by Sale of 17565 Tyler Street NW, Northstar Business Cal Portner, City Administrator Park and TIF Request Reviewed by Action Requested 1. Open Public Hearing to consider the sale of EDA property located at 17565 Tyler Street NW and invite public comment. 2. Close the Public Hearing. 3. Approve,by motion,a resolution approving the purchase agreement and conveyance of the property located at 17565 Tyler Street NW,Northstar Business Park. 4. Review TIF Plan and application for assistance and provide a recommendation to the City Council. Background/Discussion The EDA has received a purchase agreement for 17565 Tyler Street,NW from Shoot Steel, Inc. of Ramsey,MN. They manufacture AR500 and AR550 steel targets,target stands, and other valuable range equipment. The purchase agreement proposes the purchase of a 4.34-acre lot at of$2.00 per square foot for a total of $378,100. Shoot Steel will provide $20,000 earnest funds and will be credited against the purchase price. They propose to relocate 7 FT and 1 PT employees and hire 6-7FT employees over the next two years. The positions will pay a minimum of$18 per hour depending on skill level. At their August 17, 2020, meeting, the EDA approved the purchase agreement contingent on the EDA holding a public hearing on September 21, 2020, and making the requisite findings required by Minnesota Statutes Section 469.105, subdivision 2 that the sale and conveyance of the property to the buyer are in the best interests of the city and the transaction furthers the EDA's general plan of economic development. Shoot Steel also indicated their intention to apply for incentives through the EDA and have applied for Tax Increment Financing to fund a portion of the acquisition and infrastructure improvement costs necessary to proceed. The purchase agreement has been amended to include contingencies to address public financing. The developer's proposed financial package includes long-term,private financing of$1,259,050 from Village Bank, $1,036,000 in SBA financing, $200,000 from a private investor and $98,258 in owner equity for a total estimated budget of$2,993,308. There is an identified gap of$400,000. The Elk River Vision A Y�elcoming community nvith revolutionary and spirited resourcefulness, exceptional p D W E H E D D Y service, and community engagement that encourages and inspires prosperity ,g /` UR This project is estimated to generate $269,050 in total gross tax increment over 9 years, the maximum term for an Economic Development District. The total net amount available for this project is $241,274 or 90 percent, with the city retaining 10 percent for administrative expenses over the term of the district. The present value of the increment generated considering a 4%interest rate is $192,196. The applicant has committed to filling the remaining gap of approximately$210,000 through additional equity contributions. The developer is proposing a pay-as-you-go method for eligible costs as reimbursement from the city to construct their new facility. At their September 16, 2020, meeting, the Joint Finance Committee recommended approval of a tax increment financing package for Shoot Steel, Inc. in the amount of$190,000 subject to the creation of the TIF District. Financial Impact N/A Attachments ■ Joint Finance Committee Packet (September 16, 2020) ■ Purchase Agreement (Amended September 16, 2020) ■ Notice of Public Hearing ■ Resolution ■ TIF Plan for TIF District No. 26 Meeting of the Joint Finance Committee AGENDA Wednesday, September 16, 2020 3:00 p.m. Elk River City Hall Upper Town Conference Room 1. CALL MEETING TO ORDER 2. CONSIDER AGENDA 3. CONSENT AGENDA Considered to be routine and noncontroversial by the Economic Development Finance Committee and will be approved by one motion. There will be no separate discussion of these items unless a Committee member, staff member, or citizen so requests, in which case the item will be removed from the consent agenda and considered under the regular agenda. 3.1 June 30, 2020, Meeting Minutes 3.2 Revolving Loan Fund Balance Report 4. GENERAL BUSINESS 4.1 Shoot Steel TIF Application 5. ANNOUNCEMENTS 6. ADJOURNMENT Meeting Protocol No sidebar discussions No interruptions State your concern Ensure you understand Don’t take things personally Adhere to time limits Come prepared Ensure all are heard Meeting of the Elk River Joint Finance Committee Held at Elk River City Hall Held Via Zoom Meeting Tuesday, June 30, 2020 Members Present: Dan Tveite, Ryan Hardin, Nate Ovall, Rhonda Magnussen, Charlie Blesener, Larry Toth, and Michelle Eder Members Absent: Chad Vitzthum Staff Present: Amanda Othoudt, Economic Development and Colleen Eddy, Economic Development Specialist Others Present: None 1. Call Meeting to Order Pursuant to due call and notice thereof, the meeting of the Elk River Joint Finance Committee was called to order by Dan Tveite at 7:34 a.m. 2. Consider Agenda Motion by Toth and seconded by Eder to approve the June 30, 2020, Joint Finance Committee agenda. Motion carried 7-0. 3. Consent Agenda Motion by Blesener and seconded by Eder to approve the June 15, 2020 Joint Finance Committee meeting minutes with the following change: Charlie Blesener attended the May 26, 2020 meeting. Motion carried 7-0. 4.1 COVID-19 Small Business Emergency Microloan Applications Ms. Othoudt presented the staff report and explained the application and microloan criteria. The commission discussed the following application: 1. Pinnacle Foods, LP dba Perkins Elk River a. Requested $5,000 Property Tax Relief b. President Tveite asked if this was one of the incomplete applications from last month. Ms. Othoudt said yes and Commissioner Toth asked if the application was for tax relief, of which Ms. Othoudt stated yes. c. Motion by Ovall and seconded by Magnussen to approve Pinnacle Foods, LP dba Perkins Elk River $5,000 Property Tax Relief application. Motion carried 7-0. 5.1 Announcements Ms. Othoudt notified the committee that there is an at large vacancy on the committee and to send Ms. Othoudt any recommendations. 6. Adjournment There being no further business, Mr. Tveite adjourned the meeting at 7:43 a.m. Minutes prepared by Colleen Eddy. _____________________ Tina Allard City Clerk ___________________ Amanda Othoudt Economic Development Director ELK RIVER ECONOMIC DEVELOPMENT AUTHORITY MICRO LOANS Current Current 8/13/20 Loan Loan Interest Term Monthly Principal Borrower Date Amount Rate (Months)Payment Outstanding Current Die Concepts 6/3/2016 $185,200 2.00%60 $936.90 $153,802.10 N Making payment 8/13/20 Heritage Millwork 12/22/2016 $100,000 3.00%60 $965.61 $67,631.70 Y Ralphies#1 9/10/2013 $74,999 3.00%120 $724.20 $25,093.46 Y Ralphies#2 8/28/2018 $19,175 3.00%60 $343.65 $12,162.01 Y TOTAL MICRO LOANS $258,689.27 Micro Loan Fund 240 Distinctive Iron 10/1/2019 $126,000 2.03%60 $1,050.07 184,095.51$ Y Scott Morrell LLC 8/6/2015 $200,000 2.00%60 $1,011.77 157,925.93 Y 5-Year Balloon is up Orluck 7/17/2018 $200,000 3.00%84 $2,642.66 147,070.25 Y $489,091.69 DEED Jobs Incentive Loan Fund 242 COVID-19 Small Business Emergency Loans Current 8/13/20 Loan Loan Interest Term 6-month Monthly Principal Forgivable Date Amount Rate (Months)Deferment Payment Outstanding Chow Mixed Grill and BBQ 7/6/2020 $20,000.00 0%60 1/1/2021 166.67 $20,000.00 $5,000.00 Daddy-O's Café, Inc.7/6/2020 $5,000.00 0%60 1/1/2021 41.67 $5,000.00 $5,000.00 Inspire Studio, LLC 7/6/2020 $20,000.00 0%60 1/1/2021 166.67 $20,000.00 $0.00 Pinnacle Foods, LP 7/6/2020 $5,000.00 0%60 1/1/2021 41.67 $5,000.00 $5,000.00 Pyramid Fitness Group 7/6/2020 $20,000.00 0%60 1/1/2021 166.67 $20,000.00 $5,000.00 Snap Fitness 8/3/2020 $20,000.00 0%60 2/1/2022 166.67 $20,000.00 $0.00 Elk River Country Club 8/3/2020 $5,000.00 0%60 2/1/2020 41.67 $5,000.00 $5,000.00 Eagles Club 8/3/2020 $2,374.00 0%60 2/1/2020 19.78 $2,374.00 $2,374.00 $97,374.00 $27,374.00 Fund Cash Balances 08/13/20: Micro Loan Fund - 240 $804,887.39 State DEED Jobs Incentive - 242 $135,731.14 The Elk River Vision A welcoming community with revolutionary and spirited resourcefulness, exceptional service, and community engagement that encourages and inspires prosperity Request for Action To Joint Finance Committee Item Number 4.1 Agenda Section General Business Meeting Date September 16, 2020 Prepared by Amanda Othoudt, EDD Item Description Shoot Steel TIF Application and Financial Review Reviewed by Mikaela Huot, Baker Tilly Reviewed by Cal Portner, City Administrator Action Requested Review application and provide a recommendation to the Economic Development Authority to establish Tax Increment Financing District No. 26. Background/Discussion Shoot Steel is Shoot Steel, Inc. manufactures AR500 and AR550 steel targets, target stands, and other valuable range equipment. They are currently operating out of their Ramsey, MN facility. At their August 17, 2020, meeting, the EDA approved a purchase agreement from Shoot Steel contingent on the EDA holding a public hearing on September 21, 2020, and making the requisite findings required by Minnesota Statutes Section 469.105, subdivision 2 that the sale and conveyance of the property to the buyer are in the best interests of the city and the transaction furthers the EDA’s general plan of economic development. Shoot Steel also indicated their intentions to apply for incentives through the EDA. The purchase agreement proposes the purchase of a 4.34-acre lot at the asking price of $2.00 per square foot, or market rate, for a total of $378,100. Shoot Steel, Inc. is proposing to relocate 7 FT and 1 PT employees from their Ramsey location. They plan to hire 6-7FT employees over the next two years. The positions will pay a minimum of $18 per hour depending on skill level. Shoot Steel, Inc is requesting up to $400,000 in financial assistance from the city in the form of Tax Increment Financing to construct their new facility. The maximum term for an Economic Development district is 8 years after receipt of first increment, for a total of 9 years. The developer is proposing a pay-as- you-go method for eligible costs as reimbursement from the city to construct their new facility. This project is estimated to generate $269,050 in total gross tax increment over 9 years, the maximum term for an Economic Development District. The total net amount available for this project is $241,274 or 90 percent, with the city retaining 10 percent for administrative expenses over the term of the district. The present value of the increment generated considering a 4% interest rate is $192,196. There is a remaining financing gap of $210,000 in which the developer must fill from a combination of equity or other funding sources. N:\Departments\Community Development\Economic Development\EDA\Administrative\Agenda\Joint Finance Committee Agenda Packets\2020\09162020 Special Meeting\4.1 sr Shoot Steel TIF Application Review.docx The developer’s proposed financial package for the Shoot Steel project includes long-term, private financing of $1,259,050 from Village Bank, $1,036,000 in SBA financing, $200,000 from a private investor and $98,258 in equity from the owner, for a total estimated project budget of $2,993,308. Policy Review Staff completed a review of the application in accordance of the city’s Tax Increment Financing Policy adopted on December 4, 2017. Based on the Estimated Market Value of the project as calculated by Sherburne County, the project’s EMV is approximately $1,349,100 or $67 per square foot. Public Purpose The project must achieve one or more of the following public purpose statements: 1. Demonstrate long-term benefits to the community. 2. Retain local jobs and/or increase the number and diversity of jobs that offer stable employment and/or attractive wages and benefits through:  Diversification of the local economy  Significant addition of permanent, high-wage, full-time jobs  Addition of jobs attractive to those unemployed or underemployed 3. Significantly increases the city’s commercial and industrial tax base. 4. Demonstrates the ability to encourage unsubsidized private development through “spin off” development. 5. Facilitates the development process and achieves development on sites that would not develop “but for” the use of TIF. 6. Removes blight and/or encourages redevelopment of commercial and industrial areas resulting in high quality redevelopment and private reinvestment. 7. Offsets redevelopment costs (i.e. contaminated site cleanup) over and above the costs normally incurred in development. 8. Aids the implementation of the Mississippi Connections Plan. The proposed project meets public purpose objective #1, #2, and #3. TIF District Term According to the city’s policy adopted by Council on December 14, 2017, TIF Districts shall be limited to the minimum term necessary to meet the project needs. Only projects exceeding the objectives identified in the policy will be considered to exceed the maximum term allowed. The maximum term allowed for an economic development district is 8 years after receipt of the first increment, for a total of 9 years. The applicant has requested the maximum term allowed for an economic development district. Policy Considerations 1. Each Project is required to meet the but for test to determine the need for and level of assistance.  Baker Tilly completed a but for analysis and determined without TIF assistance the project would not proceed. 2. Developers receiving TIF assistance shall provide a minimum of ten percent cash equity investment in the project. TIF is not to be used to supplement cash equity. N:\Departments\Community Development\Economic Development\EDA\Administrative\Agenda\Joint Finance Committee Agenda Packets\2020\09162020 Special Meeting\4.1 sr Shoot Steel TIF Application Review.docx  The developer indicated Owner Cash Equity in the Shoot Steel project of $298,258, equivalent to 9.96% percent equity in the project. Which is slightly less then our minimum requirement for equity investment. 3. TIF will not be used in circumstances where land and property price is of fair market value.  The developer paid fair market value for the EDA property. 4. The developer shall demonstrate a market demand for the proposed project. TIF shall not be used to support purely speculative projects.  The developer is proposing to relocate from their Ramsey location. 5. The developer shall adequately demonstrate, to the city’s sole satisfaction, an ability to complete the proposed project base don past development experience, general reputation, and credit history, amount other factors, including size and scope of the proposed project.  The city and the developer will enter into a development agreement outlining conditions and expectations of the proposed project. 6. For the purposes of underwriting the proposal, the developer shall provide any requested market, financial, environmental, or other data requested by the city or its consultants.  The developer provided all requested materials as part of the application.  Mikaela Huot from Baker Tilly Municipal Advisors will present the but for analysis. 7. The City of Elk River shall only use TIF to encourage economic growth and development within the city limits.  The project is located within the city limits of Elk River. Financial Impact Per the city policy, the total estimated gross increment available over 9 years for economic development is $269,050. The developer could receive 90 percent of the gross increment over 15 years of $241,274, or a present value of $192,196. Attachments  Shoot Steel TIF Application and Supporting Materials  Baker Tilly analysis and supporting documents dated September 11, 2020 Memo – Draft for Review To: Members of the Joint Finance Committee Amanda Othoudt, Economic Development Director From: Mikaela Huot, Director Date: September 11, 2020 Subject: Application for Tax Increment Financing Assistance related to proposed establishment of Tax Increment Financing Economic Development (TIF) District No. 26 Financial Analysis and But-For Review Background The City of Elk River received an application from Shoot Steel, INC, the applicant, for financial assistance through Tax Increment Financing (TIF) to assist with financing a portion of the extraordinary development costs related to the construction of a new 20,000 square foot warehousing facility. The applicant is proposing the acquisition of City-owned property located at 17565 Tyler St NW in the City of Elk River for business location and expansion of its existing company operations. The applicant’s company is currently leasing approximately 10,000 square feet of space in a neighbouring city and has reached capacity. Due to current capacity concerns, the company has been limited in opportunities for product growth and future development. As a result, it is looking for land that will facilitate existing business needs, as well as allowing for potential additional future expansion. The proposed property for this project has been identified as an ideal location for the company to relocate and meet current demands, as well as allow for future anticipated growth plans, subject to a feasible financing plan. The applicant’s original budget for the project did not account for the level of acquisition and site development costs that are required for construction on the identified proposed site. The increased costs related to acquisition, site development and potential winter construction have created a financial gap of approximately $400,000. The project is expected to locate 7 full time and 1 part time position to the City of Elk River. The applicant is anticipating hiring an additional 6-7 new employees over the next two years at a minimum wage of $18/hour and would meet the City’s business subsidy policy provisions. Baker Tilly has been retained by the City to review the application for financial assistance. The purpose of this memorandum is to provide a summary of Baker Tilly’s review of the development project costs and sources of funds, and operating pro forma as provided by the applicant to assist the City with making a determination if the project as proposed would be unlikely to proceed “but-for” the requested Tax Increment Financing (TIF) assistance, and to determine the appropriate amount, if any, of public assistance. Prior to establishing a tax increment financing district, there are findings that need to be made by the City that include: 1) determination that the project qualifies as a TIF district and 2) determination that the project as proposed would not proceed without public assistance (meeting the “but-for” test. When reviewing requests for financial assistance it is important to understand how the level of financial assistance would impact the ability of the project to proceed as proposed and maximize new value created on the current project site. Applicant Request for Assistance The applicant’s application for financial assistance includes an approximate $2.993 million project that would be funded by an estimated $1.259 million first mortgage from Village Bank, $298,258 of equity from both a private investor ($200,000) and owner cash ($98,258), and a $1.036M SBA loan, leaving a $400,000 gap. The applicant has asked for tax increment financing assistance to close the financial gap. The extraordinary acquisition and site development costs that cannot be supported solely by the project alone may justify the need for public financial assistance. The assistance would allow the project to proceed as proposed and to provide appropriate upfront funding and to meet minimum debt coverage requirements. The applicant has indicated in the application that the receipt of City financial assistance is necessary for the project to proceed based on current financing limitations. The sources and uses of funds from the applicant’s financial materials is illustrated in the table below. Sources Amount Uses Amount First Mortgage $1,259,050 Acquisition $378,100 TIF Mortgage * $400,000 Site Development $513,377 Private Investor $200,000 Construction $1,926,944 Owner Cash Equity $98,258 Architectural and Engineering fees $61,365 SBA Loan $1,036,000 Contingencies $113,522 Total $2,993,308 Total $2,993,308 * financed as pay as you go for reimbursement of certain costs Qualifications Providing financial assistance through tax increment financing would require the City to proceed with the establishment of a Tax Increment Financing (Economic Development) District. Tax increment financing is a tool the City may consider using to support financial assistance for the project, subject to meeting the but-for test and need for public financial participation. The definition of an economic development district is included as an attachment to this memo. A public hearing date of October 5 has been established for the City Council to consider taking action on establishment of the Tax Increment Financing District. The Economic Development Authority of the City of Elk River will review the request and tax increment financing documents at its September 21 meeting. Project Financing There are generally two ways in which assistance can be provided for most projects, either upfront or on a pay- as-you-go basis. With upfront financing, the City would finance a portion of the applicant’s initial project costs through the issuance of bonds or as an internal loan. Future tax increment would be collected by the City and used to pay debt service on the bonds or repayment of the internal loan. With pay-as-you-go financing, the applicant would finance all project costs upfront and would be reimbursed over time for a portion of those costs as revenues are available. Pay-as-you-go-financing is generally more acceptable than upfront financing for the City because it shifts the risk for repayment to the applicant. If tax increment revenues are less than originally projected, the applicant receives less and therefore bears the risk of not being reimbursed the full amount of their financing. However, in some cases pay as you go financing may not be financially feasible. With bonds, the City would still need to make debt service payments and would have to use other sources to fill any shortfall of tax increment revenues. With internal financing, the City reimburses the loan with future revenue collections and may risk not repaying itself in full if tax increment revenues are not sufficient. The project financing would be pay-as-you-go for reimbursement of eligible costs. Tax Increment Revenue Assumptions The County Assessor provided a taxable value estimate for the project. To estimate the amount of available TIF revenues generated by the proposed project, certain assumptions were made based on the value of the project, construction schedule, and anticipated financing terms. • Total existing value of $378,100 o Parcel ID: 75-757-0205 o Base value as of Jan. 1, 2020 o Original net tax capacity (ONTC) of $6,812 o Assuming classification as commercial-industrial (C-I)  C-I classification rate is 1.5% first $150,000 value and 2% value above $150,000 • Estimated total market value upon completion o 20,000 square foot warehouse facility  $67 per square foot (approximate)  $1,349,100 • Incremental value based on difference between existing and new land/building value • Construction commences in 2020 and is completed in 2021 o Project values 100% complete for assess 2022 and taxes payable 2023 • First increment collected in 2022 • Net present value (discount) rate of 4% • 3% annual market value inflation Tax Increment Revenue Estimates Revenue Estimates Estimated annual available increment (first year) $22,739 Total gross tax increment $268,083 City retainage (10%) $26,809 Net amount available for development (90%) $241,274 Total estimated present value (4%) $192,196 Estimated Applicant Principal TIF Note $190,000 Estimated interest payments at 4% $41,880 Total payments $239,556 Estimated surplus ($241,274 - $239,556) $1,718 The level of tax increment revenues projected for this project are less than what the applicant has requested. As a result, the applicant will be required to obtain additional funding from other sources, presumably equity and/or equity, low-interest loans or forgivable loans/grants to fill the remaining gap. Applicant Pro forma Analysis including But-For Upon approval of a TIF district and project, the City must make several findings, including the “but for” test: that the proposed development would not reasonably be expected to occur solely through private investment within the reasonably foreseeable future. The applicant has stated that but for the provision of tax increment financing, the project as proposed would not occur. In the application for financial assistance and supporting materials, including the but-for statement, the applicant provided sources and uses of funds illustrating an approximate $400,000 gap due to increased costs of the project relating to acquisition, site development and stormwater ponding, and winter construction. The applicant provided a letter from its lender indicating the estimated amount of financing available is 50% of total project costs. Based on total original cost estimates of $2.5 million, this would equate to approximately $1.259 million of potential lending. Remaining funding sources include SBA loan and equity. Ability to obtain an increased level of funding through one or more of the other funding sources would be subject to financial feasibility and availability of annual revenues to support repayment, as well as willingness of the lender to provide additional funding. Based on the applicant’s stated position relative to the need for tax increment financing assistance, the City could make its “but for” finding and provide tax increment assistance. We recommend, however, that the City review the provided assumptions to consider if the project meets the but-for test and, if so, what an appropriate level and type of TIF assistance may be based on the information submitted by the applicant. Following thorough evaluation of the project as provided allows the City to be prepared to make an informed “but-for” decision based on the likelihood of the project needing assistance, as well as the appropriate level of assistance. As stated previously, the applicant’s request for financial assistance of $400,000 is more than the projected available tax increment revenues generated by the project ($190,000). As a result, any level of financial assistance provided would be less than what has been requested. To complete the but-for analysis, we reviewed the applicant’s provided sources and uses of funds and operating proforma and constructed similar ten-year project proformas, showing a result if the applicant received the assistance as pay-as-you-go (reimbursement for TIF eligible costs) and showing a result if the applicant did not receive assistance. Our analysis of the proformas included a review of the development budget, projected operating revenues and expenditures, and the project’s capacity to support annual debt service payments. The purpose of evaluating the operating proformas is to understand the potential cash flow performance and projected rates of return of the project over a 10-year period to assist with making the determination that 1) tax increment assistance is necessary and 2) an appropriate level of assistance will be provided. An additional measure of project need and financial feasibility is the Debt Coverage Ratio (DCR), which is a calculation detailing the ratio by which operating income exceeds the debt-service payments for the project. If the DCR is greater than 1.0 it indicates the project has operating income that is greater than the debt-service payment by some margin; conversely if the DCR is less than 1.0 it indicates the project is incapable of meeting its debt-service payment and would need to seek additional revenue sources in order to pay its debt. Typical lending standards will require a DCR of greater than 1.0 as a measure of cushion in the event actual revenues and expenses are different than projected. The applicant’s operating proforma without tax increment assistance includes a 1.15x DCR, which is the minimum level generally required for this type of project. Altering the level of financing through tax increment financing assistance is expected to increase the performance of the project, resulting in approximately 1.28x DCR with assistance. To understand viability of the project and need for public assistance, we provided a sensitivity analysis to the proformas with adjustments made to the upfront funding sources. The applicant provided a ‘with’ and ‘without’ scenario based on a $400,000 gap. The ‘with assistance’ scenario assumes receipt of the entire $400,000 of requested assistance and would provide additional annual cash flow and higher return on equity (18.86%). With no assistance, the annual cash flow and returns are reduced to a level the applicant has deemed infeasible for the project to proceed (8.06%-9.07%). In addition to reduced returns, the annual revenues may not be sufficient to support the level of debt necessary for the project to proceed. The applicant is also limited in the level of debt financing and equity investment it can receive based on project performance. A modified level of assistance based on availability of revenues and need for assistance is estimated to provide more reasonable annual cash flow and returns on equity (12.78%). The amount of financing available for the project is typically based on net operating income, which is lease revenues less operating expenses. The annual cash flow is based on assumptions relative to lease revenues, operating expenses and debt repayment. The applicant provided terms of the lease revenues that includes 5- year term at $17,000 per month. Rent is adjusted equal to the real estate taxes to be paid during the calendar year. Moyer Properties, LLC will lease the building to Shoot Steel, Inc for occupancy. Debt repayment is based on payments to be made to both Village Bank as first mortgage lender and SBA loan with remaining cash flow available as returns to the equity investor(s). The City’s current TIF policy provides parameters regarding maximum amount of assistance that could be provided and minimum cash equity contributions. The policy guidelines and statutory limitations for the term an economic development is 8 years after receipt of first increment. The policy guidelines also include a requirement that owner cash equity is a minimum of 10%. The current sources of funds include approximately 9.96% of investor and cash equity. A reduction in the amount of tax increment assistance based on availability of revenues is expected to result in the increase of both lender and equity requirements. Conclusion The applicant has requested financial assistance related to construction of the new project and relocation of the business from existing small leased space to owner-occupied space in the City of Elk River. Due to estimated costs for land acquisition, site improvements and storm water ponding, the project is expected to experience an estimated $400,000 cost overrun prior to construction commencing. The applicant’s primary lender, Village Bank, has provided a financing proposal for a loan amount of $1,259,050 based on approximately 50% of total original project costs. Terms of the loan are 4.05% interest rate, fixed for 7 years then adjusting and fixing every 5 years. Terms of the SBA loan include 25-year repayment at 2.75% interest rate. Remaining funding sources include investor equity and owner cash. The project includes the transition to a new location and also from lease to ownership for the company and owner. The company has been operating at a reduced capacity in the existing location and would have the opportunity to expand post-relocation. Tax increment financing revenues would provide an additional cash flow source during the early years of the project to allow for business growth and development and fulfilment of increased employment goals. Tax increment financing is a tool that can assist with covering a portion of the additional eligible costs associated with the project. The level of financial assistance the applicant has requested is less than what is expected to be available and based on financial analysis appears to be more in alignment with what the project would need for financial support. Since terms of the assistance include pay-as-you-go as reimbursement for certain costs, the applicant will be responsible for obtaining all upfront funding sources and using cash flow from the project and any tax increment revenues to repay obligations. Total estimated tax increment revenues that could be available for this project are approximately $190,000. Should the City choose to provide tax increment assistance, the applicant will need to find an additional $210,000 from other funding sources to fill the remaining gap. Aligning the level of assistance to the availability of projected revenues provides a method of closing a portion of the financial gap and allows the public participation for the project to remain at a reasonable level, while still providing a means for allowing the project to proceed as proposed. Thank you for the opportunity to be of assistance to the City of Elk River. Please contact me at 651.368.2533 or Mikaela.huot@bakertily.com with any questions or comments. Definition of Economic Development Tax Increment Financing District Economic development district means a type of tax increment financing district which consists of any project, or portions of a project, which the authority finds to be in the public interest because: 1. it will discourage commerce, industry, or manufacturing from moving their operations to another state or municipality; 2. it will result in increased employment in the state; 3. it will result in preservation and enhancement of the tax base of the state; or 4. it satisfies the requirements of a workforce housing project under section 469.176, subdivision 4c, paragraph (d). MN Statutes 469.176, Subd. 4c. Revenue derived from tax increment from an economic development district may not be used to provide improvements, loans, subsidies, grants, interest rate subsidies, or assistance in any form to developments consisting of buildings and ancillary facilities, if more than 15 percent of the buildings and facilities (determined on the basis of square footage) are used for a purpose other than: 1. the manufacturing or production of tangible personal property, including processing resulting in the change in condition of the property; 2. warehousing, storage, and distribution of tangible personal property, excluding retail sales; 3. research and development related to the activities listed in clause (1) or (2); 4. telemarketing if that activity is the exclusive use of the property; 5. tourism facilities; 6. space necessary for and related to the activities listed in clauses (1) to (5); or 7. a workforce housing project that satisfies the requirements listed below. A project qualifies as a workforce housing project under this subdivision if: (1) increments from the district are used exclusively to assist in the acquisition of property; construction of improvements; and provision of loans or subsidies, grants, interest rate subsidies, public infrastructure, and related financing costs for rental housing developments in the municipality; (2) the governing body of the municipality made the findings for the project required by section 469.175, subdivision 3, paragraph (f); and (3) the governing bodies of the county and the school district, following receipt, review, and discussion of the materials required by section 469.175, subdivision 2, for the tax increment financing district, have each approved the tax increment financing plan, by resolution. The maximum term of an economic development district is eight years after receipt of first increment for a total collection term of 9 years. Projected Tax Increment Report City of Elk River, Minnesota Tax Increment Financing (Economic Development) District No. 26 Shoot Steel, INC Draft TIF Plan Exhibits Less:Retained Times:Less:Less:P.V. Annual Total Total Original Captured Tax Annual State Aud.Subtotal Admin.Annual Annual Period Estimated Net Tax Net Tax Net Tax Capacity Gross Tax Deduction Net Tax Retainage Net Net Rev. To Ending Market Value (1)Capacity (2)Capacity (3)Capacity Rate (4)Increment 0.360%Increment 10.00%Revenue 02/01/21 (1)(2)(3)(4)(5)(6)(7)(8)(9)(10)(11)4.00% 12/31/20 378,100 6,812 6,812 0 130.571%0 0 0 0 0 0 12/31/21 378,100 6,812 6,812 0 130.571%0 0 0 0 0 0 12/31/22 1,349,100 26,232 6,812 19,420 130.571%25,357 91 25,266 2,527 22,739 21,300 12/31/23 1,389,573 27,041 6,812 20,229 130.571%26,415 95 26,320 2,632 23,688 21,336 12/31/24 1,431,260 27,875 6,812 21,063 130.571%27,502 99 27,403 2,740 24,663 21,359 12/31/25 1,474,198 28,734 6,812 21,922 130.571%28,624 103 28,521 2,852 25,669 21,376 12/31/26 1,518,424 29,618 6,812 22,806 130.571%29,779 107 29,672 2,967 26,705 21,383 12/31/27 1,563,977 30,530 6,812 23,718 130.571%30,968 111 30,857 3,086 27,771 21,381 12/31/28 1,610,896 31,468 6,812 24,656 130.571%32,194 116 32,078 3,208 28,870 21,373 12/31/29 1,659,223 32,434 6,812 25,622 130.571%33,456 120 33,336 3,334 30,002 21,356 12/31/30 1,709,000 33,430 6,812 26,618 130.571%34,755 125 34,630 3,463 31,167 21,332 $269,050 $967 $268,083 $26,809 $241,274 $192,196 (1) value based on estimate provided by City for the anticipated construction of new businesses and possible existing business expansions (2) tax capacity based on commercial-industrial class rate of 1.50% for first $150,000 of value and 2% for value above $150,000 (3) original net tax capacity will be based on existing land and building values and commercial-industrial class rate for payable 2021 (4) combined local tax capacity rate of City of Elk River, ISD 728 and Sherburne County for payable 2020 City of Elk River, Minnesota Tax Increment Financing (Economic Development) District No. 26 Shoot Steel, INC Draft TIF Plan Exhibits Note Date:02/01/21 Note Rate:4.00% Amount:$190,000 Semi-Annual Loan Net Capitalized Balance Date Principal Interest P & I Revenue Interest Outstanding (1)(2)(3)(4)(5)(6)(7) 190,000.00 02/01/21 0.00 0.00 0.00 0.00 0.00 190,000.00 08/01/21 0.00 0.00 0.00 0.00 3,800.00 193,800.00 02/01/22 0.00 0.00 0.00 0.00 3,876.00 197,676.00 08/01/22 7,415.98 3,953.52 11,369.50 11,369.50 0.00 190,260.02 02/01/23 7,564.30 3,805.20 11,369.50 11,369.50 0.00 182,695.72 08/01/23 8,190.09 3,653.91 11,844.00 11,844.00 0.00 174,505.63 02/01/24 8,353.89 3,490.11 11,844.00 11,844.00 0.00 166,151.74 08/01/24 9,008.47 3,323.03 12,331.50 12,331.50 0.00 157,143.27 02/01/25 9,188.63 3,142.87 12,331.50 12,331.50 0.00 147,954.64 08/01/25 9,875.41 2,959.09 12,834.50 12,834.50 0.00 138,079.23 02/01/26 10,072.92 2,761.58 12,834.50 12,834.50 0.00 128,006.31 08/01/26 10,792.37 2,560.13 13,352.50 13,352.50 0.00 117,213.94 02/01/27 11,008.22 2,344.28 13,352.50 13,352.50 0.00 106,205.72 08/01/27 11,761.39 2,124.11 13,885.50 13,885.50 0.00 94,444.33 02/01/28 11,996.61 1,888.89 13,885.50 13,885.50 0.00 82,447.72 08/01/28 12,786.05 1,648.95 14,435.00 14,435.00 0.00 69,661.67 02/01/29 13,041.77 1,393.23 14,435.00 14,435.00 0.00 56,619.90 08/01/29 13,868.60 1,132.40 15,001.00 15,001.00 0.00 42,751.30 02/01/30 14,145.97 855.03 15,001.00 15,001.00 0.00 28,605.33 08/01/30 15,011.39 572.11 15,583.50 15,583.50 0.00 13,593.94 02/01/31 13,593.94 271.88 13,865.82 13,865.82 0.00 0.00 08/01/31 0.00 0.00 0.00 0.00 0.00 0.00 02/01/32 0.00 0.00 0.00 0.00 0.00 0.00 08/01/32 0.00 0.00 0.00 0.00 0.00 0.00 02/01/33 0.00 0.00 0.00 0.00 0.00 0.00 08/01/33 0.00 0.00 0.00 0.00 0.00 0.00 02/01/34 0.00 0.00 0.00 0.00 0.00 0.00 08/01/34 0.00 0.00 0.00 0.00 0.00 0.00 02/01/35 0.00 0.00 0.00 0.00 0.00 0.00 08/01/35 0.00 0.00 0.00 0.00 0.00 0.00 02/01/36 0.00 0.00 0.00 0.00 0.00 0.00 $197,676 $41,880.32 $239,556.32 $239,556.32 $7,676.00 Surplus Tax Increment 1,717.68 Total Net Revenue $241,274.00 457530v2 SJS EL185-33 PURCHASE AGREEMENT 1. PARTIES. This Purchase Agreement (this “Agreement”) is made on this _____ day of _______________, 202015 (the “Effective Date”), by and between the Elk River Economic Development Authority, a Minnesota body corporate and politic (the “EDA”) and Shoot Steel, Inc., a Minnesota corporation (the “Buyer”). 2. SALE OF PROPERTY. The EDA agrees to sell to the Buyer and the Buyer agrees to buy from the EDA, the real estate located at: 17565 Tyler Street in the City of Elk River, Sherburne County, Minnesota, legally described on the attached Exhibit A (the “Property”). 3. PURCHASE PRICE AND MANNER OF PAYMENT. The Buyer shall pay the EDA $378,100 dollars for the Property (the “Purchase Price”). Upon approval and execution of this Agreement by the Buyer and the EDA, the Buyer shall deposit $20,000.00 in earnest money to be held by the Buyer’s title company in an escrow account. Said earnest money shall be deducted from the Purchase Price at Closing. 4. OBLIGATIONS OF THE EDA. The EDA shall provide the following documentation: 4.1. Representations and Warranties. The representations and warranties of the EDA contained in this Agreement must be true now and on the Closing Date in all material respects as if made on the Closing Date and the EDA shall have delivered to the Buyer on the Closing Date, a certificate dated the Closing Date, signed by an authorized representative of the EDA, certifying that such representations and warranties are true as of the Closing Date in all material respects (the “Closing Certificate”). 4.2. Title. Title to the Property shall have been found marketable, or been made marketable, in accordance with the requirements and terms of Section 8 below. 4.3. Performance of the EDA’s Obligations. The EDA shall have performed all of the obligations required to be performed by the EDA under this Agreement in all material respects. Included within the obligations of the EDA under this Agreement shall be the following: 4.3.1. The EDA agrees to cooperate with the Buyer as reasonably necessary to permit the Buyer to investigate the Property. 4.3.2. The EDA shall deliver to the Buyer the Title Evidence required in Section 8 10 days from the Effective Date of this agreement. 4.3.2 The EDA shall deliver to the Buyer copies of all surveys, the plat, civil plans, soils reports, environmental reports (including all investigations performed on the Property in the last five years), and title work relating to the Property which are in the EDA’s possession or control within ten (10) days from the Effective Date of this Agreement. 457530v2 SJS EL185-33 2 5. CONTINGENCIES WHICH MUST BE EXERCISED BY WRITTEN NOTICE TO THE EDA ON OR BEFORE 120 DAYS OF THE EFFECTIVE DATE OF THIS AGREEEMENT (THE “CONTINGENCY DATE”): 5.1. Buyer’s Contingencies. 5.1.1. Testing. The Buyer shall have determined that the Buyer is satisfied with the results of, and matters disclosed by, any environmental site assessments (including a Phase I and Phase II if necessary), soil tests, surveys, engineering inspections, hazardous substances and environmental reviews of the Property, all such tests, assessments, inspections and reviews to be obtained at the Buyer’s sole cost and expense. a. The Buyer shall pay all costs and expenses of such investigation and testing and shall promptly repair and restore any damage to the Property caused by the Buyer’s testing and return the Property to substantially the same condition as existed prior to entry. The Buyer shall indemnify, defend and hold the EDA harmless from any claim for damage to person or property arising from any investigation or inspection of the Property conducted by the Buyer, the Buyer’s agents or contractors, including the cost of attorneys’ fees. b. Copies of any written reports, studies or test results obtained by the Buyer in connection with the Buyer’s inspection of the Property or investigation relating to the Property shall be delivered to the EDA promptly upon receipt of the same at no cost to the EDA. 5.1.2. Land Use Approvals. The Buyer shall have obtained, at the Buyer’s sole cost and expense, on or before the Contingency Date, all consents, agreements, approvals, easements, licenses and adequate assurances that are legally necessary for the Buyer to use the Property as intended, including, but not limited to, land use approvals from the City of Elk River. 5.1.3 Financing. The Buyer shall have obtained suitable financing in a form and amount acceptable to the Buyer in its sole discretion. 5.1.4 Tax Increment. The City of Elk River (the “City”) shall have approved the establishment of an economic development tax increment financing district after a public hearing and upon satisfaction of all other conditions required by Minnesota Statutes Sections 469.174 through 469.1794 prior to the Closing Date. 5.1.5 Development Agreement. The Buyer and the City shall have negotiated, mutually agreed to, and executed, effective not later than the Closing Date, a 457530v2 SJS EL185-33 3 development agreement relating to the provision of tax increment financing assistance for the proposed project to be constructed on the Property. 5.2. EDA’s Contingencies. 5.2.1. Determination by the EDA after a holding a public hearing required by Minnesota Statutes Section 469.105, subdivision 2 that the sale and conveyance of the Property to the Buyer are in the best interests of the City of Elk River and its people, and that the transaction furthers the EDA’s general plan of economic development. 5.2.2. Tax Increment. The City of Elk River (the “City”) shall have approved the establishment of an economic development tax increment financing district after a public hearing and upon satisfaction of all other conditions required by Minnesota Statutes Sections 469.174 through 469.1794 prior to the Closing Date. 5.2.3. Development Agreement. The Buyer and the City shall have negotiated, mutually agreed to, and executed, effective not later than the Closing Date, a development agreement relating to the provision of tax increment financing assistance for the proposed project to be constructed on the Property. If, on or before the Contingency Date, either party determines that any of their respective contingencies listed in this Section have not been satisfied in their sole discretion, then this Agreement may be terminated by written notice from the party to the other, which notice must give no later than the Contingency Date. If the party does not give written notice of termination on or before the Contingency Date, all of such contingencies will be deemed to have been satisfied and the parties shall proceed to close this transaction in accordance with the terms of this Agreement. All of the contingencies set forth in this Agreement are specifically stated and agreed to be for the sole and exclusive benefit of the respective party and each party shall have the right to unilaterally waive any of its contingencies by written notice to the other party. If this Agreement is terminated by either party in accordance with this Section, the EDA shall return the Buyer’s earnest money to the Buyer and neither party shall have any further rights or obligations regarding this Agreement or the Property. The Buyer may extend the Contingency Date by an additional 60 days by notifying the EDA in writing and depositing into an escrow account held by the Buyer’s title company an additional $5,000 in nonrefundable earnest money prior to the expiration of the original Contingency Date. The nonrefundable earnest money shall be applied to the Purchase Price at Closing. 6. CLOSING. The closing of the purchase and sale contemplated by this Agreement (the “Closing”) shall occur on or before 30 days after the Contingency Date or its extension if such an extension is requested by the Buyer or such other date on which the parties may agree (the “Closing Date”). The EDA agrees to deliver possession of the Property to the Buyer on the Closing Date. 457530v2 SJS EL185-33 4 6.1. EDA’s Closing Documents. On the Closing Date, the EDA shall execute and deliver to the Buyer the following (collectively, “EDA’s Closing Documents”), all in form and content reasonably satisfactory to the EDA and the Buyer: 6.1.1. Deed. A quit claim deed conveying the Property to the Buyer. Said quit claim deed shall contain a covenant running with the Property that the building on the Property must be constructed and completed within one year from the date of the deed or the Property will automatically revert back to the EDA. 6.1.2. Seller’s Affidavit. An Affidavit of Title by the EDA stating that on the Closing Date there are no outstanding, unsatisfied judgments, tax liens or bankruptcies against or involving the EDA or the Property; that there has been no skill, labor or material furnished to the Property for which payment has not been made or for which mechanics’ liens could be filed; and that there are no other unrecorded instruments affecting the Property, together with whatever standard owner’s affidavit (ALTA form) which may be required by the Title Company to issue an Owner’s Policy of Title Insurance with the standard exceptions waived. 6.1.3. Original Documents. Original copies of any surveys, plans and records in the EDA’s possession. 6.1.4. FIRPTA Affidavit. A non-foreign affidavit, properly executed, containing such information as is required by the Internal Revenue Code Section 1445(b)(2) and its regulations. 6.1.5. Other Documents. Any other documents reasonably required in order to complete the transaction contemplated by this Agreement. 6.2. Buyer’s Closing Documents. On the Closing Date, the Buyer shall execute, as appropriate and deliver to the EDA the following (collectively, “Buyer’s Closing Documents”): 6.2.1. Purchase Price. The Purchase Price in good funds (certified or cashier’s check or wire transfer). 6.2.2. Other Documents. Such affidavits of Purchaser, Certificates of Value or other documents as may be reasonably required in order to complete the transaction contemplated by this Agreement. 7. PRORATIONS. The EDA and the Buyer agree to the following prorations and allocation of costs regarding this Agreement: 7.1. Title Insurance and Closing Fees. The EDA shall pay the cost of the title insurance commitment, including any associated title examination and search charges. The 457530v2 SJS EL185-33 5 Buyer shall pay the cost of any title insurance or endorsement premiums. The parties shall split any closing fee charged by the title company. 7.2. Real Estate Taxes and Special Assessments. The EDA shall pay the state deed tax. The EDA shall also pay, on or before the Closing Date, all levied special assessments, constituting a lien against the Property as of the effective date, including, without limitation, any installments of special assessments that are payable with general real estate taxes in the year in which Closing occurs. Any general real estate taxes payable in all years prior to the year in which the Closing occurs shall be paid by the EDA. Any general real estate taxes payable in the year in which Closing occurs shall be prorated between the Buyer and the EDA as of the date of Closing. 7.3. Recording Costs. The EDA shall pay the cost of recording all documents necessary to vest marketable title in the EDA and cure title objections, if any. The Buyer shall pay the cost of recording all other documents, including, but not limited to, the quit claim deed. 7.4. Attorneys’ Fees. Each of the parties shall pay its own attorneys’ fees. 7.5. Brokers’ Fees. The Buyer is represented by Richard Lee of Premier Commercial Properties, LLC (the “Buyer’s Broker”). Brokerage fees of three percent of the Purchase Price shall be paid to the Buyer’s Broker by the EDA at Closing. The Buyer confirms that no other brokers are representing it in this transaction. The EDA represents that it is not represented by a broker in this transaction. 8. TITLE EXAMINATION. Title examination shall be conducted as follows: 8.1. EDA’s Title Evidence. Within 10 days of the Effective Date, the EDA shall furnish the following (collectively, “Title Evidence”) to the Buyer: 8.1.1. Title Commitment. A title insurance commitment for the Property. The Buyer shall be responsible for selecting the title insurance company. 8.1.2. Survey. A copy of any existing land survey of the Property in the EDA’s possession or control. The Buyer, at the Buyer’s option, also may obtain, at the Buyer’s expense, a new survey of the Property. Any new survey shall be certified and delivered to the EDA as well as the Buyer and any other parties that the Buyer may designate. 8.2. Buyer’s Objections. No later than 14 days after receiving the updated Title Commitment, the Buyer must make written objections (“Objections”) to the marketability of title to the Property based on the Title Evidence. If the Buyer elects to obtain a new survey, objections based upon the survey must be made within 14 days after receipt of said survey but in no event later than the Contingency Date. The Buyer’s failure to make Objections within such time period will constitute a waiver of Objections. However, any matter which is not referenced in the title commitment Commented [A1]: Aren’t these typically the seller’s expenses? 457530v2 SJS EL185-33 6 and is first recorded, discovered or disclosed after the effective date of the title commitment, may be objected to by the Buyer in the manner described herein. If not sooner satisfied, the EDA shall cause the Property to be released from any mortgages or other liens against the Property at the closing. Any matter shown on such Title Evidence, other than a mortgage or other lien and not objected to by the Buyer shall be a “Permitted Encumbrance” hereunder. Within seven days after receipt of the Buyer’s Objections, the EDA shall notify the Buyer in writing if the EDA elects not to cure the Objections. If such notice is given within said seven-day period, the Buyer may either waive the Objections or terminate this Agreement by giving written notice of termination to the EDA within 10 days after the EDA’s notice is given to the Buyer. If written notice by the EDA is not given within the 10-day period, the EDA shall use commercially reasonable efforts to correct any Objections within 30 days after the expiration of the 10-day period (“Cure Period”). If the Title Company is willing to issue a title insurance policy to the Buyer that does not except from title insurance coverage an item the Buyer has objected to, the objection relating to such item shall be deemed cured. If the Objections are not cured within the Cure Period, the Buyer shall have the option to do any of the following: 8.2.1. Terminate this Agreement by giving written notice to the EDA within 10 days after the expiration of the Cure Period and neither the EDA nor the Buyer shall have further rights or obligations hereunder. In such event the EDA shall return all earnest money to the Buyer. 8.2.2. Waive the objections and proceed to close without reduction in the Purchase Price. The Buyer shall make the election within 10 days after expiration of the EDA’s Cure Period. A failure to make an election within such period shall be deemed an election to proceed to close pursuant to subsection 8.2.2. 9. REPRESENTATIONS AND WARRANTIES BY THE EDA. The EDA represents and warrants to the Buyer that the following are true in all material respects now and, as modified by any changes about which the EDA notifies the Buyer in writing following after the date hereof, will be true in all material respects on the Closing Date: 9.1. Authority. The EDA is a public body corporate and politic, duly created under and subject to the laws of the State of Minnesota; the EDA has the requisite power and authority to enter into and perform this Agreement and those EDA Closing Documents signed by it; such documents have been or will be duly authorized by all necessary action on the part of the EDA and have been or will be duly executed and delivered; such execution, delivery and performance by the EDA of such documents does not conflict with or result in a violation of any judgment, order, or decree of any court or arbiter to which the EDA is a party; such documents are valid and binding obligations of the EDA, and are enforceable in accordance with their terms, subject to bankruptcy, reorganization, insolvency, moratorium and other laws affecting the rights and remedies of creditors generally and principles of equity. 457530v2 SJS EL185-33 7 9.2. Utilities. The EDA has received no notice of actual or threatened curtailment of any utility service now supplied to the Property. 9.3. Rights of Others to Purchase the Property. The EDA has not entered into any other contracts for the sale of the Property, nor are there any rights of first refusal or options to purchase the Property or any other rights of others that might prevent the sale of the Property contemplated by this Agreement. 9.4. Use of the Property. To the best of the EDA’s knowledge without investigation, the Property is usable for its current uses without violating any federal, state, local or other governmental building, zoning, health, safety, platting, subdivision or other law, ordinance or regulation, or any applicable private restriction. 9.5. Proceedings. There is no action, litigation, investigation, condemnation or proceeding of any kind pending or, to the best of the EDA’s knowledge without investigation, threatened against the EDA with respect to the Property or any portion of the Property. 9.6. Wells. No wells exist on the Property. 9.7. Sewage Treatment Systems. No sewage treatment system exists on the Property. 9.8. Title. The EDA owns fee title to the Property. The EDA’s representations shall be true, accurate and complete as of the date of this Agreement, in all material respects and, as modified by any notices given by the EDA to the Buyer, on the Closing Date in all material respects. If any time prior to Closing, the Buyer shall determine that any representation herein made by the EDA was not true in all material respects when made, the Buyer’s sole remedy shall be to terminate this Agreement by giving notice to the EDA and seeking any applicable remedies for breach from the EDA. The earnest money paid by the Buyer shall be returned to the Buyer. Notwithstanding the above paragraph, all representations and warranties shall terminate on the Closing Date. Any claim by the Buyer not made by written notice delivered to the EDA before the date the representation or warranty terminates shall be deemed waived. 10. “AS IS, WHERE IS.” The Buyer acknowledges that the Buyer has inspected or has had the opportunity to inspect the Property and agrees to accept the Property “AS IS” with no right of set off or reduction in the Purchase Price. Such sale shall be without representation of warranties, express or implied, either oral or written, made by the EDA or any official, employee or agent of the EDA with respect to the physical condition of the Property, including but not limited to, the existence or absence of petroleum, hazardous substances, pollutants or contaminants in, on, or under, or affecting the Property or with respect to the compliance of the Property or its operation with any laws, ordinances, or regulations of any government or other body, except as stated above. The Buyer acknowledges and agrees that the EDA has not made and does not make any representations, warranties, or covenants of any kind or character whatsoever, whether expressed or implied, with respect to warranty of income potential, operating expenses, uses, habitability, tenant ability, or suitability for any purpose, merchantability, or fitness of the Property for a particular purpose, all of 457530v2 SJS EL185-33 8 which warranties EDA hereby expressly disclaims, except as stated above. The Buyer is relying entirely upon information and knowledge obtained from the Buyer’s own investigation, experience and knowledge obtained from the Buyer’s own investigation, experience or personal inspection of the Property. The Buyer expressly assumes, at closing, all environmental and other liabilities with respect to the Property and release and indemnify the EDA from same, whether such liability is imposed by statute or derived from common law including, but not limited to, liabilities arising under the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”), the Hazardous and Solid Waste Amendments Act, the Resource Conservation and Recovery Act (“RCRA”), the federal Water Pollution Control Act, the Safe Drinking Water Act, the Toxic Substances Act, the Superfund Amendments and Reauthorization Act, the Toxic Substances Control Act and the Hazardous Materials Transportation Act, all as amended, and all other comparable federal, state or local environmental conservation or protection laws, rules or regulations. The foregoing assumption and release shall survive Closing. All statements of fact or disclosures, if any, made in this Agreement or in connection with this Agreement, do not constitute warranties or representations of any nature. The foregoing provision shall survive Closing and shall not be deemed merged into any instrument of conveyance delivered at Closing. 11. REPRESENTATIONS AND WARRANTIES BY THE BUYER. The Buyer represents and warrants to the EDA that the Buyer is a Minnesota corporation; that the Buyer has the requisite capacity, power and authority to enter into this Agreement and the Buyer’s Closing Documents; such execution, delivery and performance by the Buyer of such documents does not conflict with or result in a violation of any judgment, order or decree of any court or arbiter to which the Buyer is a party; such documents are valid and binding obligations of the Buyer, and are enforceable in accordance with their terms. 12. CONDEMNATION. If, prior to the Closing, eminent domain proceedings are commenced against all or any material part of the Property, the EDA shall immediately give notice to the Buyer of such fact and at the Buyer’s option (to be exercised within 15 days after the EDA’s notice), this Agreement shall terminate, in which event neither party will have further obligations under this Agreement. The earnest money paid by the Buyer shall be returned to the Buyer. If the Buyer fails to give such notice, then there shall be no reduction in the Purchase Price, and the EDA shall assign to the Buyer at the Closing all of EDA’s right, title and interest in and to any award made or to be made in the condemnation proceedings. Prior to the Closing, the EDA shall not designate counsel, appear in, or otherwise act with respect to the condemnation proceedings without the Buyer’s prior written consent. For purposes of this section, the words “a material part” means a part if acquired by a condemning authority would materially hinder Buyer’s operations on the Property. 13. COMMISSIONS. With the exception of the Buyer’s Broker, both the Buyer and the EDA represent that they have not entered into a contract with any other real estate broker, whereby the broker is entitled to a commission resulting from the transaction contemplated by this Agreement. Each party agrees to indemnify, defend and hold harmless the other party against any claim made by a real estate broker for a commission or fee based on alleged acts or agreements with the indemnifying party. 14. REMEDIES. 457530v2 SJS EL185-33 9 14.1. Buyer’s Remedies. If the EDA fails to consummate this Agreement for any reason except the Buyer’s default or the termination of this Agreement pursuant to a right to terminate given herein, the Buyer, as its sole and exclusive remedy, terminate this Agreement by giving 30 days’ written notice to the EDA, pursuant to Minnesota Statutes Section 559.21, as amended from time to time, in which event the earnest money shall be promptly released to the Buyer and upon such release, neither party shall be further obligated to the other (except for the Buyer’s and the EDA’s indemnities set forth in this Agreement). The Buyer specifically waives any right to make a claim against the EDA for compensatory or consequential damages or any other type of monetary claim, except for the indemnity obligations set forth in this Agreement. 14.2. EDA’s Remedy. If the Buyer fails to consummate this Agreement for any reason except the EDA’s default or the termination of this Agreement pursuant to a right to terminate given herein, the EDA’s sole and exclusive remedy shall be to terminate this Agreement by giving 30 days’ written notice to the Buyer, pursuant to Minnesota Statutes Section 559.21, as amended from time to time, in which case, the earnest money shall be retained by the EDA. 14.3 Indemnification Remedy. Notwithstanding the foregoing provisions of this Section 14, in the event of any default by the Buyer or the EDA under or in connection with any indemnification pursuant to this Agreement, and in the event of any failure by the defaulting party to cure such default within 30 days after the date of notice of default by the non-defaulting party to the defaulting party, the non- defaulting party shall be entitled to seek and recover all legal and equitable relief available under applicable law, including, without limitation, monetary damages. 15. ASSIGNMENT. The Buyer may not assign the Buyer’s rights under this Agreement, without prior consent of the EDA. 16. SURVIVAL. All of the terms of this Agreement and warranties and representations herein contained shall survive and be enforceable after the Closing. 17. NOTICES. Any notice required or permitted hereunder shall be given by personal delivery upon an authorized representative of a party hereto; or if mailed by United States mail postage prepaid; or if transmitted by facsimile copy followed by mailed notice; or if deposited cost paid with a nationally recognized, reputable overnight courier, properly addressed as follows: If to the EDA: Elk River Economic Development Authority Attn: Executive Director 13065 Orono Parkway Elk River, MN 55330 If to the Buyer: Shoot Steel, Inc. Attn: Evan Moyer 32428 N Center Lane Center City, M 55012-5501 457530v2 SJS EL185-33 10 Notices shall be deemed effective on the earlier of the date of receipt or the date of deposit, as aforesaid; provided, however, that if notice is given by deposit, the time for response to any notice by the other party shall commence to run one business day after any such deposit. Any party may change its address for the service of notice by giving notice of such change 10 days prior to the effective date of such change. 18. CAPTIONS. The paragraph headings or captions appearing in this Agreement are for convenience only, are not a part of this Agreement and are not to be considered in interpreting this Agreement. 19. ENTIRE AGREEMENT, MODIFICATIONS. This written Agreement constitutes the complete agreement between the parties and supersedes any prior oral or written agreements between the parties regarding the Property. There are no verbal agreements that change this Agreement and no waiver of any of its terms will be effective unless in a writing executed by the parties. 20. BINDING EFFECT. This Agreement binds and benefits the parties and their successors and assigns. 21. CONTROLLING LAW. This Agreement has been made under the substantive laws of the State of Minnesota, and such laws shall control its interpretation. 457530v2 SJS EL185-33 11 BUYER SHOOT STEEL, INC. By: _______________________________________ Its: ________________________________________ SELLER ELK RIVER ECONOMIC DEVELOPMENT AUTHORITY By: _______________________________________ Its: President By: _______________________________________ Its: Executive Director 457530v2 SJS EL185-33 EXHIBIT A Legal Description of the Property Lot 1, Block 2, Northstar Business Park, according to the recorded plat thereof, Sherburne County, Minnesota. PID 75-757-0205 PURCHASE AGREEMENT 1.PARTIES. This Purchase Agreement (this “Agreement”) is made on this _____ day of _______________, 2020 (the “Effective Date”), by and between the Elk River Economic Development Authority, a Minnesota body corporate and politic (the “EDA”) and Shoot Steel, Inc., a Minnesota corporation (the “Buyer”). 2.SALE OF PROPERTY. The EDA agrees to sell to the Buyer and the Buyer agrees to buy from the EDA, the real estate located at: 17565 Tyl er Street in the City of Elk River, Sherburne County, Minnesota, legally described on the attached Exhibit A (the “Property”). 3.PURCHASE PRICE AND MANNER OF PAYMENT.The Buyer shall pay the EDA $378,100 dollars for the Property (the “Purchase Price”). Upon approval and execution of this Agreement by the Buyer and the EDA, the Buyer shall deposit $20,000.00 in earnest money to be held by the Buyer’s title company in an escrow account. Said earnest money shall be deducted from the Purchase Price at Closing. 4.OBLIGATIONS OF THE EDA.The EDA shall provide the following documentation: 4.1.Representations and Warranties. The representations and warranties of the EDA contained in this Agreement must be true now and on the Closing Date in all material respects as if made on the Closing Date and the EDA shall have delivered to the Buyer on the Closing Date, a certificate dated the Closing Date, signed by an authorized representative of the EDA, certifying that such representations and warranties are true as of the Closing Date in all material respects (the “Closing Certificate”). 4.2.Title. Title to the Property shall have been found marketable, or been made marketable, in accordance with the requirements and terms of Section 8 below. 4.3.Performance of the EDA’s Obligations. The EDA shall have performed all of the obligations required to be performed by the EDA under this Agreement in all material respects. Included within the obligations of the EDA under this Agreement shall be the following: 4.3.1.The EDA agrees to cooperate with the Buyer as reasonably necessary to permit the Buyer to investigate the Property. 4.3.2.The EDA shall deliver to the Buyer the Title Evidence required in Section 8 10 days from the Effective Date of this agreement. 4.3.2 The EDA shall deliver to the Buyer copies of all surveys, the plat, civil plans, soils reports, environmental reports (including all investigations performed on the Property in the last five years), and title work relating to 457530v2 SJS EL185-33 457530v2 SJS EL185-33 2 the Property which are in the EDA’s possession or control within ten (10) days from the Effective Date of this Agreement. 5.CONTINGENCIES WHICH MUST BE EXERCISED BY WRITTEN NOTICE TO THE EDA ON OR BEFORE 120 DAYS OF THE EFFECTIVE DATE OF THIS AGREEEMENT (THE “CONTINGENCY DATE”): 5.1.Buyer’s Contingencies. 5.1.1.Testing. The Buyer shall have determined that the Buyer is satisfied with the results of, and matters disclosed by, any environmental site assessments (including a Phase I and Phase II if necessary), soil tests, surveys, engineering inspections, hazardous substances and environmental reviews of the Property, all such tests, assessments, inspections and reviews to be obtained at the Buyer’s sole cost and expense. a.The Buyer shall pay all costs and expenses of such investigation and testing and shall promptly repair and restore any damage to the Property caused by the Buyer’s testing and return the Property to substantially the same condition as existed prior to entry. The Buyer shall indemnify, defend and hold the EDA harmless from any claim for damage to person or property arising from any investigation or inspection of the Property conducted by the Buyer, the Buyer’s agents or contractors, including the cost of attorneys’ fees. b.Copies of any written reports, studies or test results obtained by the Buyer in connection with the Buyer’s inspection of the Property or investigation relating to the Property shall be delivered to the EDA promptly upon receipt of the same at no cost to the EDA. 5.1.2.Land Use Approvals. The Buyer shall have obtained, at the Buyer’s sole cost and expense, on or before the Contingency Date, all consents, agreements, approvals, easements, licenses and adequate assurances that are legally necessary for the Buyer to use the Property as intended, including, but not limited to, land use approvals from the City of Elk River. 5.12.35.1.3 Financing. The Buyer shall have obtained suitable financing in a form and amount acceptable to the Buyer in its sole discretion. 5.1.4 Tax Increment. The City of Elk River (the “City”) shall have approved the establishment of an economic development tax increment financing district after a public hearing and upon satisfaction of all other conditions required by Minnesota Statutes Sections 469.174 through 469.1794 prior to the Closing Date. 457530v2 SJS EL185-33 3 5.1.5 Development Agreement. The Buyer and the City shall have negotiated, mutually agreed to, and executed, effective not later than the Closing Date, a development agreement relating to the provision of tax increment financing assistance for the proposed project to be constructed on the Property. 5.2.EDA’s Contingencies. 5.2.1.Determination by the EDA after a holding a public hearing required by Minnesota Statutes Section 469.105, subdivision 2 that the sale and conveyance of the Property to the Buyer are in the best interests of the City of Elk River and its people, and that the transaction furthers the EDA’s general plan of economic development. 5.2.2.Tax Increment. The City of Elk River (the “City”) shall have approved the establishment of an economic development tax increment financing district after a public hearing and upon satisfaction of all other conditions required by Minnesota Statutes Sections 469.174 through 469.1794 prior to the Closing Date. 5.2.3.Development Agreement. The Buyer and the City shall have negotiated, mutually agreed to, and executed, effective not later than the Closing Date, a development agreement relating to the provision of tax increment financing assistance for the proposed project to be constructed on the Property. If, on or before the Contingency Date, either party determines that any of their respective contingencies listed in this Section have not been satisfied in their sole discretion, then this Agreement may be terminated by written notice from the party to the other, which notice must give no later than the Contingency Date. If the party does not give written notice of termination on or before the Contingency Date, all of such contingencies will be deemed to have been satisfied and the parties shall proceed to close this transaction in accordance with the terms of this Agreement. All of the contingencies set forth in this Agreement are specifically stated and agreed to be for the sole and exclusive benefit of the respective party and each party shall have the right to unilaterally waive any of its contingencies by written notice to the other party. If this Agreement is terminated by either party in accordance with this Section, the RFSEDA shall return the Buyer’s earnest money to the Buyer and neither party shall have any further rights or obligations regarding this Agreement or the Property. The Buyer may extend the Contingency Date by an additional 60 days by notifying the EDA in writing and depositing into an escrow account held by the Buyer’s title company an additional $5,000 in nonrefundable earnest money prior to the expiration of the original Contingency Date. The nonrefundable earnest money shall be applied to the Purchase Price at Closing. 6.CLOSING. The closing of the purchase and sale contemplated by this Agreement (the “Closing”) shall occur on or before 30 days after the Contingency Date or its extension if such an extension is requested by the Buyer or such other date on which the parties may agree (the “Closing Date”). The EDA agrees to deliver possession of the Property to the Buyer on the Closing Date. 457530v2 SJS EL185-33 4 6.1.EDA’s Closing Documents. On the Closing Date, the EDA shall execute and deliver to the Buyer the following (collectively,“EDA’s Closing Documents”), all in form and content reasonably satisfactory to the EDA and the Buyer: 6.1.1.Deed. A quit claim deed conveying the Property to the Buyer. Said quit claim deed shall contain a covenant running with the Property that the building on the Property must be constructed and completed within one year from the date of the deed or the Property will automatically revert back to the EDA. 6.1.2.Seller’s Affidavit. An Affidavit of Title by the EDA stating that on the Closing Date there are no outstanding, unsatisfied judgments, tax liens or bankruptcies against or involving the EDA or the Property; that there has been no skill, labor or material furnished to the Property for which payment has not been made or for which mechanics’ liens could be filed; and that there are no other unrecorded instruments affecting the Property, together with whatever standard owner’s affidavit (ALTA form) which may be required by the Title Company to issue an Owner’s Policy of Title Insurance with the standard exceptions waived. 6.1.3.Original Documents. Original copies of any surveys, plans and records in the EDA’s possession. 6.1.4.FIRPTA Affidavit. A non-foreign affidavit, properly executed, containing such information as is required by the Internal Revenue Code Section 1445(b)(2) and its regulations. 6.1.5.Other Documents. Any other documents reasonably required in order to complete the transaction contemplated by this Agreement. 6.2.Buyer’s Closing Documents. On the Closing Date, the Buyer shall execute, as appropriate and deliver to the EDA the following (collectively,“Buyer’s Closing Documents”): 6.2.1.Purchase Price. The Purchase Price in good funds (certified or cashier’s check or wire transfer). 6.2.2.Other Documents. Such affidavits of Purchaser, Certificates of Value or other documents as may be reasonably required in order to complete the transaction contemplated by this Agreement. 7.PRORATIONS.The EDA and the Buyer agree to the following prorations and allocation of costs regarding this Agreement: 457530v2 SJS EL185-33 5 7.1.Title Insurance and Closing Fees. The EDA shall pay the cost of the title insurance commitment, including any associated title examination and search charges.The Buyer shall pay the cost of any title insurance or endorsement premiums. The parties shall split any closing fee charged by the title company. 7.2.Real Estate Taxes and Special Assessments. The EDA shall pay the state deed tax. The EDA shall also pay, on or before the Closing Date, all levied special assessments, constituting a lien against the Property as of the effective date, including, without limitation, any installments of special assessments that are payable with general real estate taxes in the year in which Closing occurs. Any general real estate taxes payable in all years prior to the year in which the Closing occurs shall be paid by the EDA. Any general real estate taxes payable in the year in which Closing occurs shall be prorated between the Buyer and the EDA as of the date of Closing. 7.3.Recording Costs. The EDA shall pay the cost of recording all documents necessary to vest marketable title in the EDA and cure title objections, if any. The Buyer shall pay the cost of recording all other documents, including, but not limited to, the quit claim deed. 7.4.Attorneys’ Fees. Each of the parties shall pay its own attorneys’ fees. 7.5.Brokers’ Fees. The Buyer is represented by Richard Lee of Premier Commercial Properties, LLC (the “Buyer’s Broker”). Brokerage fees of three percent of the Purchase Price shall be paid to the Buyer’s Broker by the EDA at Closing. The Buyer confirms that no other brokers are representing it in this transaction. The EDA represents that it is not represented by a broker in this transaction. 8.TITLE EXAMINATION. Title examination shall be conducted as follows: 8.1.EDA’s Title Evidence. Within 10 days of the Effective Date, the EDA shall furnish the following (collectively, “Title Evidence”) to the Buyer: 8.1.1.Title Commitment. A title insurance commitment for the Property. The Buyer shall be responsible for selecting the title insurance company. 8.1.2.Survey. A copy of any existing land survey of the Property in the EDA’s possession or control. The Buyer, at the Buyer’s option, also may obtain, at the Buyer’s expense, a new survey of the Property. Any new survey shall be certified and delivered to the EDA as well as the Buyer and any other parties that the Buyer may designate. 8.2.Buyer’s Objections. No later than 14 days after receiving the updated Title Commitment, the Buyer must make written objections (“Objections”) to the marketability of title to the Property based on the Title Evidence. If the Buyer elects to obtain a new survey, objections based upon the survey must be made within 14 [A1]: Aren't these typically the seller's expenses? 457530v2 SJS EL185-33 6 days after receipt of said survey but in no event later than the Contingency Date. The Buyer’s failure to make Objections within such time period will constitute a waiver of Objections. However, any matter which is not referenced in the title commitment and is first recorded, discovered or disclosed after the effective date of the title commitment, may be objected to by the Buyer in the manner described herein. If not sooner satisfied, the EDA shall cause the Property to be released from any mortgages or other liens against the Property at the closing. Any matter shown on such Title Evidence, other than a mortgage or other lien and not objected to by the Buyer shall be a “Permitted Encumbrance” hereunder. Within seven days after receipt of the Buyer’s Objections, the EDA shall notify the Buyer in writing if the EDA elects not to cure the Objections. If such notice is given within said seven-day period, the Buyer may either waive the Objections or terminate this Agreement by giving written notice of termination to the EDA within 10 days after the EDA’s notice is given to the Buyer. If written notice by the EDA is not given within the 10-day period, the EDA shall use commercially reasonable efforts to correct any Objections within 30 days after the expiration of the 10-day period (“Cure Period”). If the Title Company is willing to issue a title insurance policy to the Buyer that does not except from title insurance coverage an item the Buyer has objected to, the objection relating to such item shall be deemed cured. If the Objections are not cured within the Cure Period, the Buyer shall have the option to do any of the following: Terminate this Agreement by giving written notice to the EDA within 108.2.1. days after the expiration of the Cure Period and neither the EDA nor the Buyer shall have further rights or obligations hereunder. In such event the EDA shall return all earnest money to the Buyer. Waive the objections and proceed to close without reduction in the8.2.2. Purchase Price. The Buyer shall make the election within 10 days after expiration of the EDA’s Cure Period. A failure to make an election within such period shall be deemed an election to proceed to close pursuant to subsection 8.2.2. 9.REPRESENTATIONS AND WARRANTIES BY THE EDA. The EDA represents and warrants to the Buyer that the following are true in all material respects now and, as modified by any changes about which the EDA notifies the Buyer in writing following after the date hereof, will be true in all material respects on the Closing Date: 9.1.Authority. The EDA is a public body corporate and politic, duly created under and subject to the laws of the State of Minnesota; the EDA has the requisite power and authority to enter into and perform this Agreement and those EDA Closing Documents signed by it; such documents have been or will be duly authorized by all necessary action on the part of the EDA and have been or will be duly executed and delivered; such execution, delivery and performance by the EDA of such documents does not conflict with or result in a violation of any judgment, order, or decree of any court or arbiter to which the EDA is a party; such documents are 457530v2 SJS EL185-33 7 valid and binding obligations of the EDA, and are enforceable in accordance with their terms, subject to bankruptcy, reorganization, insolvency, moratorium and other laws affecting the rights and remedies of creditors generally and principles of equity. 9.2.Utilities. The EDA has received no notice of actual or threatened curtailment of any utility service now supplied to the Property. 9.3.Rights of Others to Purchase the Property. The EDA has not entered into any other contracts for the sale of the Property, nor are there any rights of first refusal or options to purchase the Property or any other rights of others that might prevent the sale of the Property contemplated by this Agreement. 9.4.Use of the Property. To the best of the EDA’s knowledge without investigation, the Property is usable for its current uses without violating any federal, state, local or other governmental building, zoning, health, safety, platting, subdivision or other law, ordinance or regulation, or any applicable private restriction. 9.5.Proceedings. There is no action, litigation, investigation, condemnation or proceeding of any kind pending or, to the best of the EDA’s knowledge without investigation, threatened against the EDA with respect to the Property or any portion of the Property. 9.6.Wells. No wells exist on the Property. 9.7.Sewage Treatment Systems. No sewage treatment system exists on the Property. 9.8.Title. The EDA owns fee title to the Property. The EDA’s representations shall be true, accurate and complete as of the date of this Agreement, in all material respects and, as modified by any notices given by the EDA to the Buyer, on the Closing Date in all material respects. If any time prior to Closing, the Buyer shall determine that any representation herein made by the EDA was not true in all material respects when made, the Buyer’s sole remedy shall be to terminate this Agreement by giving notice to the EDA and seeking any applicable remedies for breach from the EDA. The earnest money paid by the Buyer shall be returned to the Buyer. Notwithstanding the above paragraph, all representations and warranties shall terminate on the Closing Date. Any claim by the Buyer not made by written notice delivered to the EDA before the date the representation or warranty terminates shall be deemed waived. 10.“AS IS, WHERE IS.” The Buyer acknowledges that the Buyer has inspected or has had the opportunity to inspect the Property and agrees to accept the Property “AS IS” with no right of set off or reduction in the Purchase Price. Such sale shall be without representation of warranties, express or implied, either oral or written, made by the EDA or any official, employee or agent of the EDA with respect to the physical condition of the Property, including but not limited to, the existence or absence of petroleum, hazardous substances, pollutants or contaminants in, on, or under, or affecting the Property or with respect to the compliance of the Property or its operation with any 457530v2 SJS EL185-33 8 laws, ordinances, or regulations of any government or other body, except as stated above. The Buyer acknowledges and agrees that the EDA has not made and does not make any representations, warranties, or covenants of any kind or character whatsoever, whether expressed or implied, with respect to warranty of income potential, operating expenses, uses, habitability, tenant ability, or suitability for any purpose, merchantability, or fitness of the Property for a particular purpose, all of which warranties EDA hereby expressly disclaims, except as stated above. The Buyer is relying entirely upon information and knowledge obtained from the Buyer’s own investigation, experience and knowledge obtained from the Buyer’s own investigation, experience or personal inspection of the Property. The Buyer expressly assumes, at closing, all environmental and other liabilities with respect to the Property and release and indemnify the EDA from same, whether such liability is imposed by statute or derived from common law including, but not limited to, liabilities arising under the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”), the Hazardous and Solid Waste Amendments Act, the Resource Conservation and Recovery Act (“RCRA”), the federal Water Pollution Control Act, the Safe Drinking Water Act, the Toxic Substances Act, the Superfund Amendments and Reauthorization Act, the Toxic Substances Control Act and the Hazardous Materials Transportation Act, all as amended, and all other comparable federal, state or local environmental conservation or protection laws, rules or regulations. The foregoing assumption and release shall survive Closing. All statements of fact or disclosures, if any, made in this Agreement or in connection with this Agreement, do not constitute warranties or representations of any nature. The foregoing provision shall survive Closing and shall not be deemed merged into any instrument of conveyance delivered at Closing. 11.REPRESENTATIONS AND WARRANTIES BY THE BUYER. The Buyer represents and warrants to the EDA that the Buyer is a Minnesota corporation; that the Buyer has the requisite capacity, power and authority to enter into this Agreement and the Buyer’s Closing Documents; such execution, delivery and performance by the Buyer of such documents does not conflict with or result in a violation of any judgment, order or decree of any court or arbiter to which the Buyer is a party; such documents are valid and binding obligations of the Buyer, and are enforceable in accordance with their terms. 12.CONDEMNATION. If, prior to the Closing, eminent domain proceedings are commenced against all or any material part of the Property, the EDA shall immediately give notice to the Buyer of such fact and at the Buyer’s option (to be exercised within 15 days after the EDA’s notice), this Agreement shall terminate, in which event neither party will have further obligations under this Agreement. The earnest money paid by the Buyer shall be returned to the Buyer. If the Buyer fails to give such notice, then there shall be no reduction in the Purchase Price, and the EDA shall assign to the Buyer at the Closing all of EDA’s right, title and interest in and to any award made or to be made in the condemnation proceedings. Prior to the Closing, the EDA shall not designate counsel, appear in, or otherwise act with respect to the condemnation proceedings without the Buyer’s prior written consent. For purposes of this section, the words “a material part” means a part if acquired by a condemning authority would materially hinder Buyer’s operations on the Property. 13.COMMISSIONS. With the exception of the Buyer’s Broker, both the Buyer and the EDA represent that they have not entered into a contract with any other real estate broker, whereby the broker is entitled to a commission resulting from the transaction contemplated by this Agreement. Each party agrees to indemnify, defend and hold harmless the other party 457530v2 SJS EL185-33 9 against any claim made by a real estate broker for a commission or fee based on alleged acts or agreements with the indemnifying party. 14.REMEDIES. 14.1.Buyer’s Remedies. If the EDA fails to consummate this Agreement for any reason except the Buyer’s default or the termination of this Agreement pursuant to a right to terminate given herein, the Buyer, as its sole and exclusive remedy, terminate this Agreement by giving 30 days’ written notice to the EDA, pursuant to Minnesota Statutes Section 559.21, as amended from time to time, in which event the earnest money shall be promptly released to the Buyer and upon such release, neither party shall be further obligated to the other (except for the Buyer’s and the EDA’s indemnities set forth in this Agreement). The Buyer specifically waives any right to make a claim against the EDA for compensatory or consequential damages or any other typ e of monetary claim, except for the indemnity obligations set forth in this Agreement. 14.2.EDA’s Remedy. If the Buyer fails to consummate this Agreement for any reason except the EDA’s default or the termination of this Agreement pursuant to a right to terminate given herein, the EDA’s sole and exclusive remedy shall be to terminate this Agreement by giving 30 days’ written notice to the Buyer, pursuant to Minnesota Statutes Section 559.21, as amended from time to time, in which case, the earnest money shall be retained by the EDA. 14.3 In demnification Remedy. Notwithstanding the foregoing provisions of this Section 14, in the event of any default by the Buyer or the EDA under or in connection with any indemnification pursuant to this Agreement, and in the event of any failure by the defaulting party to cure such default within 30 days after the date of notice of default by the non-defaulting party to the defaulting party, the non-defaulting party shall be entitled to seek and recover all legal and equitable relief available under applicable law, including, without limitation, monetary damages. 15.ASSIGNMENT. The Buyer may not assign the Buyer’s rights under this Agreement, without prior consent of the EDA. 16.SURVIVAL. All of the terms of this Agreement and warranties and representations herein contained shall survive and be enforceable after the Closing. 17.NOTICES. Any notice required or permitted hereunder shall be given by personal delivery upon an authorized representative of a party hereto; or if mailed by United States mail postage prepaid; or if transmitted by facsimile copy followed by mailed notice; or if deposited cost paid with a nationally recognized, reputable overnight courier, properly addressed as follows: 457530v2 SJS EL185-33 10 If to the EDA:Elk River Economic Development Authority Attn: Executive Director 13065 Orono Parkway Elk River, MN 55330 If to the Buyer:Shoot Steel, Inc. Attn: Evan Moyer 32428 N Center Lane Center City, M 55012-5501 Notices shall be deemed effective on the earlier of the date of receipt or the date of deposit, as aforesaid; provided, however, that if notice is given by deposit, the time for response to any notice by the other party shall commence to run one business day after any such deposit. Any party may change its address for the service of notice by giving notice of such change 10 days prior to the effective date of such change. 18.CAPTIONS. The paragraph headings or captions appearing in this Agreement are for convenience only, are not a part of this Agreement and are not to be considered in interpreting this Agreement. 19.ENTIRE AGREEMENT, MODIFICATIONS. This written Agreement constitutes the complete agreement between the parties and supersedes any prior oral or written agreements between the parties regarding the Property. There are no verbal agreements that change this Agreement and no waiver of any of its terms will be effective unless in a writing executed by the parties. 20.BINDING EFFECT. This Agreement binds and benefits the parties and their successors and assigns. 21.CONTROLLING LAW.This Agreement has been made under the substantive laws of the State of Minnesota, and such laws shall control its interpretation. 457530v2 SJS EL185-33 11 BUYER SHOOT STEEL, INC. By: _______________________________________ Its: ________________________________________ SELLER ELK RIVER ECONOMIC DEVELOPMENT AUTHORITY By: _______________________________________ Its: President By: _______________________________________ Its: Executive Director EXHIBIT A Legal Description of the Property Lot 1, Block 2, Northstar Business Park, according to the recorded plat thereof, Sherburne County, Minnesota. PID 75-757-0205 457530v2 SJS EL185-33 Document comparison by W orkshare 10.0 on Monday, September 14, 2020 1:58:45 PM Input: Document 1 ID PowerDocs://DOCSOPEN/663594/1 Description DOCSOPEN-#663594-v1-Purchase_Agreement_-_Shoot_ Steel Document 2 ID PowerDocs://DOCSOPEN/663594/2 Description DOCSOPEN-#663594-v2-Purchase_Agreement_-_Shoot_ Steel Rendering set Standard Legend: Insertion Deletion Moved from Moved to Style change Format change Moved deletion Inserted cell Deleted cell Moved cell Split/Merged cell Padding cell Statistics: Count Insertions 6 Deletions 2 Moved from 0 Moved to 0 Style change 0 Format changed 0 Total changes 8 ECONOMIC DEVELOPMENT AUTHORITY OF THE CITY OF ELK RIVER COUNTY OF SHERBURNE STATE OF MINNESOTA RESOLUTION NO. 2020-____ RATIFYING THE APPROVAL OF A PURCHASE AGREEMENT AND CONVEYANCE OF THE PROPERTY LOCATED AT 17565 TYLER STREET, ELK RIVER, MN TO SHOOT STEEL, INC. BE IT RESOLVED By the Board of Commissioners of the Economic Development Authority of the City of Elk River (the “Authority”) as follows: Section 1. Recitals. 1.01. The Authority is authorized pursuant to Minnesota Statutes, Sections 469.090 to 469.1081 (the “EDA Act”), to acquire and convey real property and to undertake certain activities to facilitate the development of real property by private enterprise. 1.02. On ___________, 2020, the Authority approved that certain Purchase Agreement with Shoot Steel, Inc. (“Shoot Steel”) to allow Shoot Steel to purchase the property owned by the Authority that is legally described as: Lot 1, Block 2, Northstar Business Park, according to the recorded plat thereof, Sherburne County, Minnesota (the “Property”). 1.03. The Authority has on this date conducted a duly noticed public hearing regarding the sale of the Property to Shoot Steel, at which all interested persons were given an opportunity to be heard. 1.04. The Authority finds and determines that the conveyance of the Property to Shoot Steel is in the public interest and will further the objectives of its general plan of economic development because it will provide an opportunity for increased business and job opportunities in the City and could serve as an impetus for further development. Section 2. Authority Approval, Further Proceedings. 2.01. The Board hereby ratifies its approval of the Purchase Agreement to Shoot Steel that was made on __________, 2020. 2.02. Authority staff and officials are authorized to take all actions necessary to perform the Authority’s obligations under the Purchase Agreement as a whole, including, without limitation, execution of any documents necessary to which the Authority is a party referenced in or attached to the Purchase Agreement, and any deed or other documents necessary to convey the Property to Shoot Steel, all as described in the Purchase Agreement. 2 Approved by the Board of Commissioners of the Economic Development Authority of the City of Elk River this ___ day of _________, 2020. President ATTEST: Executive Director NOTICE OF PUBLIC HEARING ECONOMIC DEVELOPMENT AUTHORITY FOR THE CITY OF ELK RIVER, MINNESOTA Notice is hereby given that the Board of Commissioners of the Economic Development Authority for the City of Elk River, Minnesota (the “EDA”) will meet at or after 5:30 p.m. on September 21, 2020, at the Elk River City Hall, 13065 Orono Parkway, Elk River, Minnesota, to conduct a public hearing on the proposed sale of real property owned by the EDA and located at 17565 Tyler Street in the City of Elk River, Sherburne County, Minnesota to Shoot Steel, Inc. The property is legally described as: Lot 1, Block 2, Northstar Business Park, according to the recorded plat thereof, Sherburne County, Minnesota. PID 75-757-0205 (the “Property”). A copy of all documents relating to the proposed sale of the Property will be on file and available for inspection at City Hall during regular business hours. Any person wishing to express an opinion on the matters to be considered at the public hearing will be heard. PLEASE NOTE, due to COVID-19, the public hearing may be conducted via telephone or other electronic means as allowed under Minnesota Statutes, Section 13D.021. Please refer to the City’s website at https://www.elkrivermn.gov/ or call City Hall at 763-635-1000 to learn how to attend and participate in the public hearing via telephone or electronically. Baker Tilly Municipal Advisors, LLC is a registered municipal advisor and wholly-owned subsidiary of Baker Tilly Virchow Krause, LLP, an accounting firm. Baker Tilly Virchow Krause, LLP trading as Baker Tilly is a member of the global network of Baker Tilly International Ltd., the members of which are separate and independent legal entities. Tax Increment Financing Plan for Tax Increment Financing (Economic Development) District No. 26 within Development District No. 1 (Shoot Steel, INC Project) City of Elk River, Minnesota Prepared by Baker Tilly Municipal Advisors, LLC Draft Dated: September 4, 2020 Anticipated Public Hearing: October 5, 2020 Anticipated Approval by City Council: October 5, 2020 TABLE OF CONTENTS Section Page(s) A. Definitions ................................................................................................................................... 1 B. Statutory Authorization ............................................................................................................... 1 C. Statement of Need and Public Purpose ..................................................................................... 2 D. Statement of Objectives ............................................................................................................. 2 E. Designation of Tax Increment Financing District as an Economic Development District ............................................................................................... 2 F. Duration of the TIF District ......................................................................................................... 3 G. Property to be Included in the TIF District .................................................................................. 3 H. Property to be Acquired in the TIF District ................................................................................. 3 I. Specific Development Expected to Occur Within the TIF District .............................................. 3 J. Findings and Need for Tax Increment Financing ....................................................................... 3 K. Estimated Public Costs .............................................................................................................. 5 L. Estimated Sources of Revenue .................................................................................................. 5 M. Estimated Amount of Bonded Indebtedness .............................................................................. 6 N. Original Net Tax Capacity .......................................................................................................... 6 O. Original Tax Capacity Rate ........................................................................................................ 6 P. Projected Retained Captured Net Tax Capacity and Projected Tax Increment ......................... 7 Q. Use of Tax Increment ................................................................................................................. 7 R. Excess Tax Increment ................................................................................................................ 8 S. Tax Increment Pooling and the Five-Year Rule ......................................................................... 9 T. Limitation on Administrative Expenses ...................................................................................... 9 U. Limitation on Property Not Subject to Improvements - Four Year Rule ..................................... 10 V. Estimated Impact on Other Taxing Jurisdictions ........................................................................ 10 W. Prior Planned Improvements ...................................................................................................... 11 X. Development Agreements .......................................................................................................... 11 Y. Assessment Agreements ........................................................................................................... 11 Z. Modifications of the Tax Increment Financing Plan ................................................................... 11 AA. Administration of the Tax Increment Financing Plan ................................................................. 12 AB. Financial Reporting and Disclosure Requirements .................................................................... 13 Map of the Tax Increment Financing District ........................................................................ EXHIBIT I Assumptions Report .............................................................................................................. EXHIBIT II Projected Tax Increment Report ........................................................................................... EXHIBIT III Estimated Impact on Other Taxing Jurisdictions Report ....................................................... EXHIBIT IV Market Value Analysis Report ............................................................................................... EXHIBIT V City of Elk River, Minnesota SPRINGSTED Page 1 SECTION I – MODIFICATION TO THE DEVELOPMENT PROGRAM FOR DEVELOPMENT DISTRICT NO. 1 Foreword The following text represents a Modification to the Development Program for Development District No. 1. This modification represents a continuation of the goals and objectives set forth in the Development Program for Development District No. 1. The changes generally include the establishment of Tax Increment Financing (Economic Development) District No. 26. For further information, a review of the Development Program for Development District No. 1 is recommended. It is available from the City Administrator at the City of Elk River. Other relevant information is contained in the Tax Increment Financing Plans for the Tax Increment Financing Districts located within Development District No. 1. SECTION II – ESTABLISHMENT OF THE TAX INCREMENT FINANCING PLAN FOR TAX INCREMENT FINANCING (ECONOMIC DEVELOPMENT) DISTRICT NO. 26 Section A Definitions The terms defined in this section have the meanings given herein, unless the context in which they are used indicates a different meaning: "City" means the City of Elk River, Minnesota; also referred to as a "Municipality". "City Council" means the City Council of the City. "County" means Sherburne County, Minnesota. "Development District" means Development District No. 1 in the City, which is described in the corresponding Development Program. "Development Program" means the Development Program for the Development District. "Project Area" means the geographic area of the Development District. "School District" means Independent School District No. 728, Minnesota. "State" means the State of Minnesota. "TIF Act" means Minnesota Statutes, Sections 469.174 through 469.1794, both inclusive. "TIF District" means Tax Increment Financing (Economic Development) District No. 26. "TIF Plan" means the tax increment financing plan for the TIF District (this document). Section B Statutory Authorization See Section B of the Development Program for the Development District. City of Elk River, Minnesota SPRINGSTED Page 2 Section C Statement of Need and Public Purpose See Section C of the Development Program for the Development District. Section D Statement of Objectives See Section D of the Development Program for the Development District. Section E Designation of Tax Increment Financing District as an Economic Development District Economic development districts are a type of tax increment financing district which consist of any project, or portions of a project, which the City finds to be in the public interest because: (1) it will discourage commerce, industry, or manufacturing from moving their operations to another state or municipality; (2) it will result in increased employment in the state; or (3) it will result in preservation and enhancement of the tax base of the state. The TIF District qualifies as an economic development district in that the proposed development described in this TIF Plan (see Section I) meets the criteria listed above in (2) and (3). Without establishment of the TIF District, the proposed development would not occur within the City. The proposed development will also result in increased employment and enhancement of the tax base in both the City and the State. Tax increments from an economic development district must be used to provide improvements, loans, subsidies, grants, interest rate subsidies, or other assistance in which at least 85% of the square footage of the facilities to be constructed are used for any of the following purposes: (1) manufacturing, production, or processing of tangible personal property; (2) warehousing, storage and distribution of tangible personal property, excluding retail sales; (3) research and development related to the activities listed in (1) or (2) above; (4) telemarketing if that activity is the exclusive use of the property; (5) tourism facilities (see M.S. Section 469.174, Subd. 22); (6) space necessary for and related to the activities listed in (1) through (5) above; (7) a workforce housing project that satisfies the requirements of paragraph (d). Tax increments from the TIF District will be used to provide financial assistance to the proposed development (see Section I), in which over 85% of the square footage of the facilities to be constructed will be used for manufacturing or other purposes as listed in (1) through (7) above. City of Elk River, Minnesota SPRINGSTED Page 3 Section F Duration of the TIF District Economic development districts may remain in existence 8 years from the date of receipt by the City of the first tax increment. The City anticipates that the TIF District will remain in existence the maximum duration allowed by law (projected to be through the year 2030, due to anticipated receipt of first increment in 2022). Modifications of this plan (see Section AA) shall not extend these limitations. Section G Property to be Included in the TIF District The TIF District is an area of land comprising of the parcels listed below that are located within the Project Area. A map showing the boundaries of the TIF District is shown in Exhibit I. Parcel ID Number Legal Description 75-757-0205 LOT 1, BLK 2 SUBJ TO EASEMENT OF RECORD The area encompassed by the TIF District shall also include all street or utility right-of-ways located upon or adjacent to the property described above. Section H Property to be Acquired in the TIF District The City may acquire and sell any or all of the property located within the TIF District. It will not be acquiring any property at this time but will be selling the property to the developer to facilitate development. Section I Specific Development Expected to Occur Within the TIF District The proposed project is anticipated to consist of the acquisition of approximately 4.34 acres at 17565 Tyler Street Northwest in the City of Elk River by the developer from the City. The developer is planning to construct an approximate 20,000 square foot warehouse building on the site. The proposed uses of the building include primarily production and operations with a small office portion for operations directly related to the business. The square footage of the business within the District will comply with the requirements of an economic development district with at least 85% being used for a qualifying purpose and less than 15% will be office space. It is anticipated that the City will use the tax increment to finance a portion of the extraordinary acquisition and infrastructure improvement costs that are necessary for this project to proceed. In addition, the city may use tax increment for related administrative expenses, and any other eligible expenditures associated with development of the site that may include additional necessary public improvements. Construction of the project is expected to commence in 2020 and be 100% assessed and on the tax rolls as of January 2, 2021 for taxes payable in 2022. At the time this document was prepared there were no signed construction contracts with regards to the above described development. Section J Findings and Need for Tax Increment Financing In establishing the TIF District, the City makes the following findings: (1) The TIF District qualifies as an economic development district; City of Elk River, Minnesota SPRINGSTED Page 4 See Section E of this document for the reasons and facts supporting this finding. (2) The proposed development, in the opinion of the City, would not reasonably be expected to occur solely through private investment within the reasonably foreseeable future and the increased market value of the site that could reasonably be expected to occur without the use of tax increment financing would be less than the increase in the market value estimated to result from the proposed development after subtracting the present value of the projected tax increments for the maximum duration of the district permitted by the TIF Plan. Factual basis: Proposed development not expected to occur: The proposed development consists of the construction of an approximate 20,000 square foot new warehousing facility. The new facility will be used primarily for warehousing to allow for further business growth and development. The business has requested financial assistance to write down a portion of the acquisition and site improvement costs associated with development of the site. The provided supplemental financial information demonstrates that the development of this site would not occur without the assistance provided in this TIF Plan. Therefore, the City has determined that the proposed development would not occur but for the financial assistance provided in this TIF Plan because of the increased costs related to development within the TIF District. The property requires additional expenditures related to development of the site, including acquisition, site improvements, storm water ponding and winter construction, which currently do not allow development on the property. No higher market value expected: The land located within TIF District No. 26 requires site improvements including site preparation, grading, and landscaping, as well as storm water ponding. To commence construction of the new business facility, assistance with financing a portion of those costs will be necessary. The financial assistance provided under this TIF Plan will help offset the costs of these improvements. Given the nature of this property, there is no reasonable expectation of any development occurring that would generate as much market value increase as is estimated to be generated by the proposed development by the new business. Therefore, the City has concluded that substantial development at this particular site--and hence any significant increase in market value--is not reasonably expected to occur unless the City provides tax increment assistance as described in this Tax Increment Plan. To summarize the basis for the City’s findings regarding alternative market value, in accordance with Minnesota Statutes, Section 469.175, Subd. 3(d), the City makes the following determinations: a. The City's estimate of the amount by which the market value of the site will increase without the use of tax increment financing is $0 (for the reasons described above), except some unknown amount of appreciation. b. If the proposed development to be assisted with tax increment occurs in the District, the total increase in market value would be approximately $1,330,900, including the value of the building (See Exhibit II). c. The present value of tax increments from the District for the maximum duration of the district permitted by the TIF Plan is estimated to be $214,321 (See Exhibit V). City of Elk River, Minnesota SPRINGSTED Page 5 d. Even if some development other than the proposed development were to occur, the Council finds that no alternative would occur that would produce a market value increase greater than $1,116,579 (the amount in clause b less the amount in clause c) without tax increment assistance. (3) The TIF Plan will afford maximum opportunity, consistent with the sound needs of the City as a whole, for development of the Project Area by private enterprise. Factual basis: The proposed development is the construction of a new business in the Project Area that is expected to create new jobs in the City and State, plus create new tax base for the City and the state. The development meets the City's economic development goals in terms of land use, job retention, and wage levels. (4) The TIF Plan conforms to general plans for development of the City as a whole. Factual basis: The City Council has determined that the development proposed in the TIF Plan conforms to the City comprehensive plan. Section K Estimated Public Costs The estimated public costs of the TIF District are listed below. Such costs are eligible for reimbursement from tax increments of the TIF District. Estimated Public Costs Estimated Amount Land/Building acquisition $0 Site Improvements/Preparation costs $0 Utilities $0 Other public improvements $241,274 Construction of affordable housing $0 Administrative expenses $26,809 Total Estimated Public Costs $268,083 Interest expenses $0 Total Costs $268,083 The City reserves the right to administratively adjust the amount of any of the items listed above or to incorporate additional eligible items, so long as the total estimated public costs ($268,083) do not increased. The City also reserves the right to fund any of the identified costs with any other legally available revenues, such as grants and/or loans, but anticipates that such costs will be primarily financed with tax increments. Section L Estimated Sources of Revenue Estimated Sources of Revenue Estimated Amount Tax Increment revenue $268,083 Interest on invested funds Total $268,083 City of Elk River, Minnesota SPRINGSTED Page 6 The City anticipates providing financial assistance to the proposed development through pay-as-you-go financing in which the City will provide funding to the developer to offset a portion of the infrastructure fees and collect annual increments to repay the note. As tax increments are collected from the TIF District in future years, a portion will be retained by the City and the remaining funds will be provided as reimbursement for certain identified costs as necessary within the TIF District to assist with financing the public costs incurred (see Section K). The City reserves the right to finance any or all public costs of the TIF District using pay-as-you-go assistance, internal funding, general obligation or revenue debt, or any other financing mechanism authorized by law. The City also reserves the right to use other sources of revenue legally applicable to the Project Area to pay for such costs including, but not limited to, special assessments, utility revenues, federal or state funds, and investment income. The projected tax increment report is included as Exhibit III. Section M Estimated Amount of Bonded Indebtedness The maximum principal amount of bonds (as defined in the TIF Act) secured in whole or part with tax increment from the TIF District is $268,083. The City currently plans to finance the improvement costs through pay-as-you-go financing. The City reserves the right to issue an interfund loan or issue bonds in any form, including without limitation any interfund loan with interest not to exceed the maximum permitted under Section 469.178, subd. 7 of the TIF Act. Section N Original Net Tax Capacity The County Auditor shall certify the original net tax capacity of the TIF District. This value will be equal to the total net tax capacity of all property in the TIF District as certified by the State Commissioner of Revenue. For districts certified between January 1 and June 30, inclusive, this value is based on the previous assessment year. For districts certified between July 1 and December 31, inclusive, this value is based on the current assessment year. The Estimated Market Value of all property within the TIF District as of January 2, 2020, for taxes payable in 2021, is $378,100. Upon establishment of the TIF District, it is estimated that the original net tax capacity of the TIF District will be $6,812, upon classification as commercial-industrial. Each year the County Auditor shall certify the amount that the original net tax capacity has increased or decreased as a result of: (1) changes in the tax-exempt status of property; (2) reductions or enlargements of the geographic area of the TIF District; (3) changes due to stipulation agreements or abatements; or (4) changes in property classification rates. Section O Original Tax Capacity Rate The County Auditor shall also certify the original tax capacity rate of the TIF District. This rate shall be the sum of all local tax rates that apply to property in the TIF District. This rate shall be for the same taxes payable year as the original net tax capacity. City of Elk River, Minnesota SPRINGSTED Page 7 In future years, the amount of tax increment generated by the TIF District will be calculated using the lesser of (a) the sum of the current local tax rates at that time or (b) the original tax capacity rate of the TIF District. It is anticipated the request for certification of the District will occur after June 30, 2020 and the local tax rates for taxes levied in 2020 and payable in 2021 will apply. The payable 2021 rates are not available at the time of drafting of the TIF Plan. For purposes of estimating the tax increment generated by the TIF District, the sum of the local tax rates for taxes levied in 2019 and payable in 2020 of 130.571% have been used and are shown below: 2019/2020 Taxing Jurisdiction Local Tax Rate City of Elk River 46.241% Sherburne County 47.426% ISD 728 34.371% Other 2.533% Total 130.571% Section P Projected Retained Captured Net Tax Capacity and Projected Tax Increment The City anticipates that the building construction for all businesses will be completed by December 31, 2020 creating a total tax capacity for TIF District No. 26 of $26,232 as of January 2, 2021. The captured tax capacity as of that date is estimated to be $19,420 and the first full year of tax increment is estimated to be $25,357 payable in 2022. A complete schedule of estimated tax increment from the TIF District is shown in Exhibit III. The estimates shown in this TIF Plan assume that commercial class rates remain at 1.50% of the estimated market value up to $150,000 and 2.0% of the estimated market value over $150,000; and assume 3% annual increase in market values. Each year the County Auditor shall determine the current net tax capacity of all property in the TIF District. To the extent that this total exceeds the original net tax capacity, the difference shall be known as the captured net tax capacity of the TIF District. The County Auditor shall certify to the City the amount of captured net tax capacity each year. The City may choose to retain any or all of this amount. It is the City's intention to retain 100% of the captured net tax capacity of the TIF District. Such amount shall be known as the retained captured net tax capacity of the TIF District. Exhibit II gives a listing of the various information and assumptions used in preparing a number of the exhibits contained in this TIF Plan, including Exhibit III which shows the projected tax increment generated over the anticipated life of the TIF District. Section Q Use of Tax Increment Each year the County Treasurer shall deduct 0.36% of the annual tax increment generated by the TIF District and pay such amount to the State's General Fund. Such amounts will be appropriated to the State Auditor for the cost of financial reporting and auditing of tax increment financing information throughout the state. Exhibit III shows the projected deduction for this purpose over the anticipated life of the TIF District. City of Elk River, Minnesota SPRINGSTED Page 8 The City has determined that it will use 100% of the remaining tax increment generated by the TIF District for any of the following purposes: (1) pay for the estimated public costs of the TIF District (see Section K) and County administrative costs associated with the TIF District (see Section T); (2) pay principal and interest on tax increment bonds or other bonds issued to finance the estimated public costs of the TIF District; (3) accumulate a reserve securing the payment of tax increment bonds or other bonds issued to finance the estimated public costs of the TIF District; (4) pay all or a portion of the county road costs as may be required by the County Board under M.S. Section 469.175, Subdivision 1a; or (5) return excess tax increments to the County Auditor for redistribution to the City, County and School District. Tax increments from property located in one county must be expended for the direct and primary benefit of a project located within that county, unless both county boards involved waive this requirement. Tax increments shall not be used to circumvent levy limitations applicable to the City. Tax increment shall not be used to finance the acquisition, construction, renovation, operation, or maintenance of a building to be used primarily and regularly for conducting the business of a municipality, county, school district, or any other local unit of government or the State or federal government, or for a commons area used as a public park, or a facility used for social, recreational, or conference purposes. This prohibition does not apply to the construction or renovation of a parking structure or of a privately- owned facility for conference purposes. If there exists any type of agreement or arrangement providing for the developer, or other beneficiary of assistance, to repay all or a portion of the assistance that was paid or financed with tax increments, such payments shall be subject to all of the restrictions imposed on the use of tax increments. Assistance includes sale of property at less than the cost of acquisition or fair market value, grants, ground or other leases at less then fair market rent, interest rate subsidies, utility service connections, roads, or other similar assistance that would otherwise be paid for by the developer or beneficiary. Section R Excess Tax Increment In any year in which the tax increments from the TIF District exceed the amount necessary to pay the estimated public costs authorized by the TIF Plan, the City shall use the excess tax increments to: (1) prepay any outstanding tax increment bonds; (2) discharge the pledge of tax increments thereof; (3) pay amounts into an escrow account dedicated to the payment of the tax increment bonds; or (4) return excess tax increments to the County Auditor for redistribution to the City, County and School District. The County Auditor must report to the Commissioner of Education the amount of any excess tax increment redistributed to the School District within 30 days of such redistribution. City of Elk River, Minnesota SPRINGSTED Page 9 Section S Tax Increment Pooling and the Five-Year Rule At least 80% of the tax increments from the TIF District must be expended on activities within the district or to pay for bonds used to finance the estimated public costs of the TIF District (see Section E for additional restrictions). No more than 20% of the tax increments may be spent on costs outside of the TIF District but within the boundaries of the Project Area, except to pay debt service on credit enhanced bonds. All administrative expenses are considered to have been spent outside of the TIF District. Tax increments are considered to have been spent within the TIF District if such amounts are: (1) actually paid to a third party for activities performed within the TIF District within five years after certification of the district; (2) used to pay bonds that were issued and sold to a third party, the proceeds of which are reasonably expected on the date of issuance to be spent within the later of the five-year period or a reasonable temporary period or are deposited in a reasonably required reserve or replacement fund. (3) used to make payments or reimbursements to a third party under binding contracts for activities performed within the TIF District, which were entered into within five years after certification of the district; or (4) used to reimburse a party for payment of eligible costs (including interest) incurred within five years from certification of the district. Beginning with the sixth year following certification of the TIF District, at least 80% of the tax increments must be used to pay outstanding bonds or make contractual payments obligated within the first five years. When outstanding bonds have been defeased and sufficient money has been set aside to pay for such contractual obligations, the TIF District must be decertified. The City does not anticipate that any tax increments will be spent outside of the TIF District (including allowable administrative expenses); but the City reserves the right to allow for tax increment pooling from the TIF District in the future. Section T Limitation on Administrative Expenses Administrative expenses are defined as all costs of the City other than: (1) amounts paid for the purchase of land; (2) amounts paid for materials and services, including architectural and engineering services directly connected with the physical development of the real property in the project; (3) relocation benefits paid to, or services provided for, persons residing or businesses located in the project; (4) amounts used to pay principal or interest on, fund a reserve for, or sell at a discount bonds issued pursuant to section 469.178; or (5) amounts used to pay other financial obligations to the extent those obligations were used to finance costs described in clause (1) to (3). Administrative expenses include amounts paid for services provided by bond counsel, fiscal consultants, planning or economic development consultants, and actual costs incurred by the County in administering City of Elk River, Minnesota SPRINGSTED Page 10 the TIF District. Tax increments may be used to pay administrative expenses of the TIF District up to the lesser of (a) 10% of the total tax increment expenditures authorized by the TIF Plan or (b) 10% of the total tax increments received by the TIF District. Section U Limitation on Property Not Subject to Improvements - Four Year Rule If after four years from certification of the TIF District no demolition, rehabilitation, renovation, or qualified improvement of an adjacent street has commenced on a parcel located within the TIF District, then that parcel shall be excluded from the TIF District and the original net tax capacity shall be adjusted accordingly. Qualified improvements of a street are limited to construction or opening of a new street, relocation of a street, or substantial reconstruction or rebuilding of an existing street. The City must submit to the County Auditor, by February 1 of the fifth year, evidence that the required activity has taken place for each parcel in the TIF District. If a parcel is excluded from the TIF District and the City or owner of the parcel subsequently commences any of the above activities, the City shall certify to the County Auditor that such activity has commenced and the parcel shall once again be included in the TIF District. The County Auditor shall certify the net tax capacity of the parcel, as most recently certified by the Commissioner of Revenue, and add such amount to the original net tax capacity of the TIF District. Section V Estimated Impact on Other Taxing Jurisdictions Exhibit IV shows the estimated impact on other taxing jurisdictions if the maximum projected retained captured net tax capacity of the TIF District was hypothetically available to the other taxing jurisdictions. The City believes that there will be no adverse impact on other taxing jurisdictions during the life of the TIF District, since the proposed development would not have occurred without the establishment of the TIF District and the provision of public assistance. A positive impact on other taxing jurisdictions will occur when the TIF District is decertified and the development therein becomes part of the general tax base. The fiscal and economic implications of the proposed tax increment financing district, as pursuant to Minnesota Statutes, Section 469.175, Subdivision 2, are listed below. 1. The total amount of tax increment that will be generated over the life of the district is estimated to be $269,050. 2. To the extent the facility in the proposed TIF District generates any public cost impacts on city- provided services such as police and fire protection, public infrastructure, and borrowing costs attributable to the district, such costs will be levied upon the taxable net tax capacity of the City, excluding that portion captured by the District. The City does not anticipate issuing tax increment revenue bonds in conjunction with this project but reserves the right to issue bonds as necessary to facilitate development. 3. The amount of tax increments over the life of the district that would be attributable to school district levies, assuming the school district’s share of the total local tax rate for all taxing jurisdictions remained the same, is estimated to be $70,823. 4. The amount of tax increments over the life of the district that would be attributable to county levies, assuming the county’s share of the total local tax rate for all taxing jurisdictions remained the same is estimated to be $97,724. City of Elk River, Minnesota SPRINGSTED Page 11 5. No additional information has been requested by the county or school district that would enable it to determine additional costs that will accrue to it due to the development proposed for the district. Section W Prior Planned Improvements The City shall accompany its request for certification to the County Auditor (or notice of district enlargement), with a listing of all properties within the TIF District for which building permits have been issued during the 18 months immediately preceding approval of the TIF Plan. The County Auditor shall increase the original net tax capacity of the TIF District by the net tax capacity of each improvement for which a building permit was issued. There have been no building permits issued in the last 18 months in conjunction with any of the properties within the TIF District. Section X Development Agreements If within a project containing an economic development district, more than 10% of the acreage of the property to be acquired by the City is purchased with tax increment bonds proceeds (to which tax increment from the property is pledged), then prior to such acquisition, the City must enter into an agreement for the development of the property. Such agreement must provide recourse for the City should the development not be completed. The City anticipates entering into an agreement for development but does not anticipate acquiring any property located within the TIF District. Section Y Assessment Agreements The City may, upon entering into a development agreement, also enter into an assessment agreement with the developer, which establishes a minimum market value of the land and improvements for each year during the life of the TIF District. The assessment agreement shall be presented to the County or City Assessor who shall review the plans and specifications for the improvements to be constructed, review the market value previously assigned to the land, and so long as the minimum market value contained in the assessment agreement appears to be an accurate estimate, shall certify the assessment agreement as reasonable. The assessment agreement shall be filed for record in the office of the County Recorder of each county where the property is located. Any modification or premature termination of this agreement must first be approved by the City, County and School District. The City does not anticipate entering into an assessment agreement. Section Z Modifications of the Tax Increment Financing Plan Any reduction or enlargement in the geographic area of the Project Area or the TIF District; increase in the amount of bonded indebtedness to be incurred; determination to capitalize interest on the debt if it was not part of original plan; increase in that portion of the captured net tax capacity to be retained by the City; increase in the total estimated public costs; or designation of additional property to be acquired by the City shall be approved only after satisfying all the necessary requirements for approval of the original TIF Plan. This paragraph does not apply if: (1) the only modification is elimination of parcels from the TIF District; and City of Elk River, Minnesota SPRINGSTED Page 12 (2) the current net tax capacity of the parcels eliminated equals or exceeds the net tax capacity of those parcels in the TIF District's original net tax capacity, or the City agrees that the TIF District's original net tax capacity will be reduced by no more than the current net tax capacity of the parcels eliminated. The City must notify the County Auditor of any modification that reduces or enlarges the geographic area of the TIF District. The geographic area of the TIF District may be reduced but not enlarged after five years following the date of certification. Section AA Administration of the Tax Increment Financing Plan Upon adoption of the TIF Plan, the City shall submit a copy of such plan to the Minnesota Department of Revenue. The City shall also request that the County Auditor certify the original net tax capacity and net tax capacity rate of the TIF District. To assist the County Auditor in this process, the City shall submit copies of the TIF Plan, the resolution establishing the TIF District and adopting the TIF Plan, and a listing of any prior planned improvements. The City shall also send the County Assessor any assessment agreement establishing the minimum market value of land and improvements in the TIF District and shall request that the County Assessor review and certify this assessment agreement as reasonable. The County shall distribute to the City the amount of tax increment as it becomes available. The amount of tax increment in any year represents the applicable property taxes generated by the retained captured net tax capacity of the TIF District. The amount of tax increment may change due to development anticipated by the TIF Plan, other development, inflation of property values, or changes in property classification rates or formulas. In administering and implementing the TIF Plan, the following actions should occur on an annual basis: (1) prior to July 1, the City shall notify the County Assessor of any new development that has occurred in the TIF District during the past year to ensure that the new value will be recorded in a timely manner. (2) if the County Auditor receives the request for certification of a new TIF District, or for modification of an existing TIF District, before July 1, the request shall be recognized in determining local tax rates for the current and subsequent levy years. Requests received on or after July 1 shall be used to determine local tax rates in subsequent years. (3) each year the County Auditor shall certify the amount of the original net tax capacity of the TIF District. The amount certified shall reflect any changes that occur as a result of the following: (a) the value of property that changes from tax-exempt to taxable shall be added to the original net tax capacity of the TIF District. The reverse shall also apply; (b) the original net tax capacity may be modified by any approved enlargement or reduction of the TIF District; (c) if laws governing the classification of real property cause changes to the percentage of estimated market value to be applied for property tax purposes, then the resulting increase or decrease in net tax capacity shall be applied proportionately to the original net tax capacity and the retained captured net tax capacity of the TIF District. The County Auditor shall notify the City of all changes made to the original net tax capacity of the TIF District. City of Elk River, Minnesota SPRINGSTED Page 13 Section AB Filing TIF Plan, Financial Reporting and Disclosure Requirements The City will file the TIF Plan, and any subsequent amendments thereto, with the Commissioner of Revenue and the Office of the State Auditor pursuant to Minnesota Statutes, Section 469.175, subdivision 4A. The City will comply with all reporting requirements for the TIF District under Minnesota Statutes, Section 469.175, subdivisions 5 and 6. Exhibit I Map of Tax Increment Financing (Economic Development) District No. 26 Exhibit II Assumptions Report City of Elk River, Minnesota Tax Increment Financing (Economic Development) District No. 26 Shoot Steel, INC Draft TIF Plan Exhibits Type of Tax Increment Financing District Economic Development Maximum Duration of TIF District 8 years from 1st increment Projected Certification Request Date 11/01/20 Decertification Date 12/31/30 (9 Years of Increment) 2020/2021 Base Estimated Market Value * $378,100 Original Net Tax Capacity * $6,812 Assessment/Collection Year 2020/2021 2021/2022 2022/2023 2023/2024 Base Estimated Market Value $378,100 $378,100 $378,100 $378,100 Increase in Estimated Market Value 0 971,000 1,011,473 1,053,160 Total Estimated Market Value 378,100 1,349,100 1,389,573 1,431,260 Total Net Tax Capacity $6,812 $26,232 $27,041 $27,875 City of Elk River 46.241% Sherburne County 47.426% ISD #728 34.371% Other 2.533% Local Tax Capacity Rate 130.571% 2019/2020 Fiscal Disparities Contribution From TIF District NA Administrative Retainage Percent (maximum = 10%) 10.00% Pooling Percent 0.00% Bonds PayGO Note Bonds Dated NA Note Dated 02/01/21 Bond Issue @ 0.00% (NIC) NA Note Rate 4.00% Eligible Project Costs NA Note Amount $190,000 Present Value Date & Rate 02/01/21 4.00% Present Value Amount $192,196 Notes Assumptions assume no change to future tax rates, class rates, and a 3% annual MV inflator is assumed Calculations include payable 2020 final tax capacity rates Total EMV upon completion based on value estimates for new business * Base EMV of property as provided by Sherburne County property taxes Exhibit III ` Projected Tax Increment ReportCity of Elk River, MinnesotaTax Increment Financing (Economic Development) District No. 26Shoot Steel, INCDraft TIF Plan ExhibitsLess: Retained Times: Less: Less: P.V.Annual Total Total Original Captured Tax Annual State Aud. Subtotal Admin. Annual AnnualPeriod Estimated Net Tax Net Tax Net Tax Capacity Gross Tax Deduction Net Tax Retainage Net Net Rev. ToEnding Market Value (1)Capacity (2)Capacity (3)Capacity Rate (4)Increment 0.360% Increment 10.00% Revenue 02/01/21(1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) 4.00%12/31/20 378,100 6,812 6,812 0 130.571%00000 012/31/21 378,100 6,812 6,812 0 130.571%00000 012/31/22 1,349,100 26,232 6,812 19,420 130.571% 25,357 91 25,266 2,527 22,739 21,30012/31/23 1,389,573 27,041 6,812 20,229 130.571% 26,415 95 26,320 2,632 23,688 21,33612/31/24 1,431,260 27,875 6,812 21,063 130.571% 27,502 99 27,403 2,740 24,663 21,35912/31/25 1,474,198 28,734 6,812 21,922 130.571% 28,624 103 28,521 2,852 25,669 21,37612/31/26 1,518,424 29,618 6,812 22,806 130.571% 29,779 107 29,672 2,967 26,705 21,38312/31/27 1,563,977 30,530 6,812 23,718 130.571% 30,968 111 30,857 3,086 27,771 21,38112/31/28 1,610,896 31,468 6,812 24,656 130.571% 32,194 116 32,078 3,208 28,870 21,37312/31/29 1,659,223 32,434 6,812 25,622 130.571% 33,456 120 33,336 3,334 30,002 21,35612/31/30 1,709,000 33,430 6,812 26,618 130.571% 34,755 125 34,630 3,463 31,167 21,332$269,050 $967 $268,083 $26,809 $241,274 $192,196(1) value based on estimate provided by City for the anticipated construction of new businesses and possible existing business expansions(2) tax capacity based on commercial-industrial class rate of 1.50% for first $150,000 of value and 2% for value above $150,000(3) original net tax capacity will be based on existing land and building values and commercial-industrial class rate for payable 2021(4) combined local tax capacity rate of City of Elk River, ISD 728 and Sherburne County for payable 2020 Exhibit IV Estimated Impact on Other Taxing Jurisdictions ReportCity of Elk River, MinnesotaTax Increment Financing (Economic Development) District No. 26Shoot Steel, INCDraft TIF Plan ExhibitsWithoutProject or TIF District With Project and TIF DistrictProjected Hypothetical2019/2020 2019/2020 Retained New Hypothetical Hypothetical Tax GeneratedTaxable 2019/2020 Taxable Captured Taxable Adjusted Decrease In by RetainedTaxing Net Tax Local Net Tax Net Tax Net Tax Local Local CapturedJurisdiction Capacity (1) Tax Rate Capacity (1) + Capacity = Capacity Tax Rate (*) Tax Rate (*) N.T.C. (*)City of Elk River 27,823,086 46.241% 27,823,086 $26,618 27,849,704 46.197% 0.044% 12,297Sherburne County 106,729,866 47.426% 106,729,866 26,618 106,756,484 47.414% 0.012% 12,621ISD #728 41,735,916 34.371% 41,735,916 26,618 41,762,534 34.349% 0.022% 9,143Other (2) --- 2.533% --- 26,618 --- 2.533% --- --- Totals 130.571% 130.493% 0.078% * Statement 1: If the projected Retained Captured Net Tax Capacity of the TIF District was hypothetically available to each ofthe taxing jurisdictions above, the result would be a lower local tax rate (see Hypothetical Adjusted Tax Rate above)which would produce the same amount of taxes for each taxing jurisdiction. In such a case, the total local tax ratewould decrease by 0.078% (see Hypothetical Decrease in Local Tax Rate above). The hypothetical tax that theRetained Captured Net Tax Capacity of the TIF District would generate is also shown above.Statement 2: Since the projected Retained Captured Net Tax Capacity of the TIF District is not available to the taxing jurisdictions,then there is no impact on taxes levied or local tax rates. (1) Taxable net tax capacity = total net tax capacity - captured TIF - fiscal disparity contribution, if applicable. (2) The impact on these taxing jurisdictions is negligible since they represent only 1.94% of the total tax rate. Exhibit V Market Value Analysis Report City of Elk River, Minnesota Tax Increment Financing (Economic Development) District No. 26 Shoot Steel, INC Draft TIF Plan Exhibits Assumptions Present Value Date 02/01/21 P.V. Rate - Gross T.I. 4.00% Increase in EMV With TIF District $1,330,900 Less: P.V of Gross Tax Increment 214,321 Subtotal $1,116,579 Less: Increase in EMV Without TIF 0 Difference $1,116,579 Annual Present Gross Tax Value @ Year Increment 4.00% 1 2022 25,357 23,752 2 2023 26,415 23,792 3 2024 27,502 23,818 4 2025 28,624 23,836 5 2026 29,779 23,844 6 2027 30,968 23,843 7 2028 32,194 23,833 8 2029 33,456 23,815 9 2030 34,755 23,788 $269,050 $214,321 Assumptions Report City of Elk River, Minnesota Tax Increment Financing (Economic Development) District No. 26 Shoot Steel, INC Draft TIF Plan Exhibits Type of Tax Increment Financing District Economic Development Maximum Duration of TIF District 8 years from 1st increment Projected Certification Request Date 11/01/20 Decertification Date 12/31/30 (9 Years of Increment) 2020/2021 Base Estimated Market Value * $378,100 Original Net Tax Capacity * $6,812 Assessment/Collection Year 2020/2021 2021/2022 2022/2023 2023/2024 Base Estimated Market Value $378,100 $378,100 $378,100 $378,100 Increase in Estimated Market Value 0 971,000 1,011,473 1,053,160 Total Estimated Market Value 378,100 1,349,100 1,389,573 1,431,260 Total Net Tax Capacity $6,812 $26,232 $27,041 $27,875 City of Elk River 46.241% Sherburne County 47.426% ISD #728 34.371% Other 2.533% Local Tax Capacity Rate 130.571% 2019/2020 Fiscal Disparities Contribution From TIF District NA Administrative Retainage Percent (maximum = 10%) 10.00% Pooling Percent 0.00% Bonds PayGO Note Bonds Dated NA Note Dated 02/01/21 Bond Issue @ 0.00% (NIC) NA Note Rate 4.00% Eligible Project Costs NA Note Amount $190,000 Present Value Date & Rate 02/01/21 4.00% Present Value Amount $192,196 Notes Assumptions assume no change to future tax rates, class rates, and a 3% annual MV inflator is assumed Calculations include payable 2020 final tax capacity rates Total EMV upon completion based on value estimates for new business * Base EMV of property as provided by Sherburne County property taxes Prepared by: Baker Tilly (printed on 9/11/2020 at 11:46 AM) Elk River ED TIF 26 draft TIF Plan Exhibits 091120Assumptions