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7.1. SR 04-26-1993 ITEM 7. 1. TO: MAYOR AND CITY COUNCIL FROM: WILLIAM RUBIN, ECONOMI~/r~ DEVELOPMENT COORDINATqR~Vt- APRIL 22, 1993 DATE: SUBJECT: LOAN AGREEMENT FOR DTED FUNDS (TESCOM EXPANSION PROJECT) INTRODUCTION On October 15, 1992, the City of Elk River was awarded a Minnesota Small Cities Economic Development Program Grant in the amount of $250,000 to assist Tescom Corporation, 12616 Industrial Boulevard, with its expansion project. A Grant Agreement covering the terms and conditions of this award of funds required a loan agreement, promissory note, and security documents to be executed by the City of Elk River and Tescom Corporation. BACKGROUND . Larkin, Hoffman, Daly, and above referenced documents and of Small Cities Development memo. This document has been Daly, and Lindgren using a model. Lindgren, Ltd. has prepared the a copy of the Agreement for Loan Program Funds is attached to this developed by Larkin, Hoffman, DTED boilerplate agreement as a The loan terms covering the repayment of the $250,000 principle is as follows: --Interest is paid at a rate of 4.5% for five (5) years; thereafter, the interest rate is at 6% for the final five (5) years. Prepayment of the loan may occur at any time without penalty. The agreement also addresses certain remedies available to the City in the event of a default. that are . As collateral for repayment, the City is granted a first security interest in all collateral, including machinery and equipment items purchased with funds loaned by the City under the agreement, up to an amount of $250,000. In addition, the City is granted a mortgage on lots 2 and 3, block 2, Elk River Industrial Park, Second Addition. This mortgage is subordinated to a first mortgage (that is, the Industrial Revenue Bonds) in favor of Norwest Bank. The loan agreement also contains the provision for the creation of new, permanent jobs. Tescom agrees to ensure that 45 new, 720 Dodge Avenue N.W., Elk River, Minnesota 55330 (612) 441-7420 . . . permanent jobs will be created by this expansion, shall be held by/made available to low and persons. This job creation information is semi-annual progress reports submitted to DTED. ACTION REQUESTED of which, 34 moderate income documented by The City Council is asked to approve the Agreement for Loan of Small Cities Development Program Funds and authorize the Mayor or the City Administrator to execute the Agreement on behalf of the City. RECOMMENDATION I recommend that the City Council approve the loan agreement. . . . '. AGREEMENT FOR LOAN OF SMALL CITIES DEVELOPMENT PROGRAM FUNDS THIS AGREEMENT is made and entered into as the day of , 1993, by and between the CITY OF ELK RIVER, hereinafter called "City" and TESCOM CORPORATION, INC., hereinafter called "Developer;" WITNESSETH: WHEREAS, the City has applied to the Minnesota Department of Trade and Economic Development for a Small Cities Development Program (SCDP) Grant and has received preliminary approval for said grant; and, WHEREAS, the Minnesota Department of Trade and Economic Development and the City have entered into that certain Grant Agreement dated October 15, 1992, for grant number CDAP-92-0113- H-FY93 (the "Grant Agreement"). The Grant Agreement requires the Developer to secure sufficient private financing and to agree to loan terms with the City for Small Cities Development Grant funds used to assist in f~nancing the project described therein. The Grant Agreement is hereby incorporated herein and made a part hereof. NOW, THEREFORE, it is agreed by and between the parties hereto as follows: ARTICLE 1 Definitions SECTION 1.1 DEFINITIONS. In this Agreement, unless a different meaning clearly appears from the context: "Bank" means the Norwest Bank Minnesota, National Association, a national banking association. "City" means City of Elk River. "Collateral" means all equipment of the Developer, whether now owned or hereafter acquired, including but not limited to, all present and future machinery, vehicles, furniture, fixtures, manufacturing equipment, farm machinery and equipment, shop equipment, office and record keeping equipment, parts and tools, and the goods described in any equipment schedule or list herewith or hereafter furnished to the City by the Developer (but no such schedule or list need be furnished in order for the City's security interest granted herein to be valid as to all of the Developer's equipment), as specified in Section 4.3. The City's security interest in the collateral shall be subordinate . . . '. to the security interest of Bankin the collateral which secures a present debt of approximately "Completion Date" means the earliest of the following: (i) the date that the Developer gives the City notice that the Developer does not intend to draw any further Loan funds from the City; (ii) the date that Developer has purchased all of the equipment to be purchased with Loan funds; (iii) the date all of the Loan funds are disbursed by Developer; or (iv) December 31, 1994. "Developer" shall mean Tescom Corporation, Inc. "Development Property" means the real property described as Lot 8, Block 1, Elk River Industrial Park. "Grant Agreement" means Minnesota Department of Trade and Economic Development Grant Agreement #CDAP-92-0113-H-FY93. "Grantor Agency" means Minnesota Department of Trade and Economic Development. "Leverage Funds" means the funds provided by or for the account of the Developer pursuant to Section 2.1. ,- "Loan" shall have the meaning set forth in Section 2.2 hereof. "Note" means the Mortgage Note of even date herewith from the Developer in favor of the City in the original principal amount of $250,000, evidencing the Loan. "Project" means an approximately 30,000 square foot industrial building to be constructed and equipped on the Development Property, as generally described in the application for SCDP funding which resulted in the Grant Agreement. "State" means the State of Minnesota. "SCDP" means Minnesota Small Cities Development Program. "SCDP Application" means the application dated July 28, 1992 for SCDP funding that resulted in the Grant Agreement. ARTICLE 2 Financing for Projects SECTION 2.1. DEVELOPER'S EQUITY AND OTHER FINANCING. The Developer shall commit not less than $60,000 of equity through Tax Increment Financing and $1,500,000 of other financing to be used for the completion of the project development. 2. . . . " SECTION 2.2. SCDP LOAN. The Grantor Agency has granted to the City and the City shall loan to the Developer, SCDP funds of an amount up to $250,000 (the IILoanll) according to the terms described in ARTICLE 3. ARTICLE 3 SCDP Loan Terms and Conditions SECTION 3.1. BASIC LOAN TERMS. As more fully set forth in the Note, the principal amount of the Loan of SCDP funds by the City to the Developer shall not exceed $250,000. The Loan shall bear interest at a rate of four and one-half (4.5%) percent per annum for five (5) years. Thence, the Loan shall bear interest at a rate of six (6%) percent per annum for five (5) years. The Loan terms may not be modified without prior written approval from the Grantor Agency. SECTION 3.2. PREPAYMENT. PrepaYment of the Loan may occur at any time during the Loan without penalty. SECTION 3.3. ASSIGNMENT. The Developer will not sell the Development Property or assign its rights or interests to any part therein or its right or interest in this Loan Agreement, or any part thereof. ~~ the event the Developer sells, conveys, transfers, further mortgages or encumbers or disposes of the Development Property, or any part thereof, or any interest therein, or agrees so to do, the unpaid principal balance of the Loan, together with interest then accrued, shall, at the option of the City, become immediately due and payable in full, This shall be in addition to any other remedies at law or in equity available to the City. SECTION 3.4. TERMINATION. This Agreement shall automatically terminate without any notice to Developer (1) if the Loan proceeds to have not been disbursed to the Developer prior to December 31, 1994; or (2) if a petition is filed by or against the Developer under the U.S. Bankruptcy Code, or if voluntary, such a petition is not dismissed within sixty (60) days following such petition. SECTION 3.5. DAVIS-BACON. The Loan is for equipment needs only. If the Loan proceeds are used for construction or rehabilitation, a wage decision must be requested from the Grantor Agency, as Davis Bacon Labor Standards provisions would apply. If any of the equipment items financed in whole or in part with SCDP funds require more than an incidental amount of installation work, a wage decision must be requested from the Grantor Agency, as Davis-Bacon Labor Standards provisions would apply to the total project. The following factors should be considered in determining whether or the amount of the installation activity is more than incidental: 3. . . . " (a) the cost of the equipment itself, compared to the cost of its installation; (b) the existence of high absolute cost of installation (even if the equipment costs much more) ; (c) the necessity for structural modification to house the equipment or widening of entrances to accommodate its installation; and (d) the necessity for upgrading electrical wiring; etc. SECTION 3.6. LOBBYING. The Developer must not use all or any part of the Loan proceeds or any other SCDP funds to pay any person for influencing or attempting to influence an officer or employee of a federal agency, a member of Congress, an officer or employee of Congress, or any employee of a member of Congress in connection with the awarding of any federal contract, the making of a federal grant, the making of a federal loan, the entering into of any cooperative agreement, and the extension, continuation, renewal, amendment, or modification of any federal contract, grant, loan, or cooperative agreement. If the Developer uses non-federal funds to conduct any of the aforementioned activities, the Developer must complete and submit Standard Form LLL, ",Disclosure Form to Report Lobbying." ARTICLE 4 Default and Collateral SECTION 4.1. DEFAULT. The Developer shall be in default under this Agreement upon the happening of any of the following events: (a) nonpaYment, when due, of any amount payable on the Loan or failure to observe or perform any of the terms thereof; (b) if Developer is in breach of any material respect of any obligation or agreement of the Developer under this agreement, provided Developer remains in breach of any material respect for thirty (30) days after written notice thereof to the Developer by the City; provided, however, that if such breach shall reasonably be incapable of being cured within such thirty (30) days after notice, and if Developer commences and diligently prosecutes the appropriate steps to cure such breach, no default shall exist so long as Developer is proceeding to cure such breach, and such breach is, in fact, fully cured with ninety (90) days after the date of the notice; (c) if any material covenant, warranty or representation of Developer shall prove to be untrue in any material respect, provided such covenant, warranty or representation of Developer remains untrue in any material respect for thirty (30) days after written notice thereof to the Developer; 4. . (d) if the Developer becomes insolvent or generally unable to pay debts as they mature or makes an assignment for the benefit of creditors, provided such insolvency or general inability to pay is not remedied within sixty (60) days after written notice thereof to the Developer; (e) entry of a final judgment against Developer where such judgment the City reasonably deems will have a material, adverse impact on Developer's ability to comply with its obligations under this agreement; (f) sale or other transfer by the Developer, of any part of the Development Property and/or the Collateral to any entity other than a wholly-owned subsidiary of Developer provided such is not approved in writing by the City, which approval will not be unreasonably withheld; (g) merger or consolidation where such merger or consolidation is not approved in writing by the City, which approval will not be unreasonably withheld; or . (h) lossl theft, substantial damage, destruction or encumbrance of any of the Collateral, provided that such is not remedied within sixty (60) days after written notice thereof to the Developer (incl~ding, without limitation, by a pledge of insurance proceeds or by substitute Collateral satisfactory to the City); SECTION 4.2. REMEDIES UPON DEFAULT. (a) In the event of a default and the failure to cure it in any grace period or cure period expressly permitted therefor, the City shall have the right at its option and without demand or notice, to declare all or any part of the Loan (as described in Section 3.1) immediately due and payable, and in addition to the rights and remedies granted hereby, the City shall have all of the rights and remedies under the Uniform Commercial Code or any applicable law. . (b) Developer agrees in the event of a default and the failure to cure it in the time allotted therefor, to make the Collateral available to the City at the Development Property. In the event of any lawsuit under this Agreement, reasonable attorney's fees and costs will be awarded to the prevailing party. If any notice of sale, disposition or other intended action by the City is required by law to be given to Developer, such notice shall be deemed reasonably and properly given if mailed to Developer at the Development Property or at such other address of Developer as may be shown on the City's records, at least fifteen (15) days before such sale, disposition or other intended action. Waiver of any default hereunder by the City shall not be a waiver of any other default or of the same default on a later occasion. No delays or failure by the City to exercise any right or remedy shall be a waiver of such right or 5 . . remedy and no single or partial exercise by the City of any right or remedy shall preclude other or further exercise thereof of the exercise of any other right or remedy at any other time. SECTION 4.3. COLLATERAL. The Developer shall grant to the City a first security interest in all Collateral, including all machinery and equipment items purchased with funds loaned by the City under this Agreement, for up to an amount of $250,000, and the Developer shall grant to the City a mortgage on the Development Property according to the terms of the mortgage instrument between the Developer and the City as attached to this Agreement, which mortgage shall be subordinate to a first mortgage in favor of Bank, securing a principal amount not to exceed $ ARTICLE 5 Loan Disbursement provisions . SECTION 5.1. PAYMENT REQUISITION DOCUMENTATION AND FORMAT. Loan disbursements shall be for equipment costs in the amount of $250,000. The Loan funds for equipment may be disbursed to the Developer only after the City has received from the Developer: (i) a signed and dated written request specifying the amounts of the disbursementdes,;ired; (ii) invoices for equipment costs and only on a cost-sharing ratio 33% Loan funds to 67% other funds; and (iii) such other documentation reasonably requested by the City. At the City's option, for each disbursement made, the funds may be disbursed to the Developer directly, or by check payable to the applicable equipment vendor, or by check payable jointly to the Developer and said vendor. SECTION 5.2. PROVISION OF EVIDENTIARY MATERIALS. No disbursements of Loan funds shall be made until all evidentiary materials required by the Grantor Agency have been submitted to and approved by the Grantor Agency. SECTION 5.3. PROJECT TIME FRAME (SCHEDULE). The time frame outlined in the SCDP Application pertaining to the Project shall be met by the Developer. SECTION 5.4. PERMANENT LOAN TERMS. As more fully set forth in the Note, the Loan of $250,000 shall be a term of ten (10) years, with repayment of principal commencing not later than January 1, 1995. The interest rate shall be 4.5% per annum prior to the Completion Date and for the first 60 months thereafter. The interest rate shall be 6% per annum for the period from 61 to 120 months after the Completion Date. After the Completion Date, payments shall be made monthly in sufficient amounts to completely payoff the Loan over the Loan term. In the event that less than $250,000 of Loan funds are drawn down by the Completion Date, a revised amortization schedule shall be . prepared to reflect the lower monthly payments. 6 . . SECTION 5.5. LOAN REPAYMENTS SCHEDULE. Subject to the last sentence of Section 5.4, repayment of the principal sum, together with accrued interest, shall be made in monthly installments, commencing the first day of the month following the Completion Date in the amount necessary to fully amortize the Loan over the ten year Loan term. The entire unpaid balance shall be due and payable in full at the end of ten years after the Completion Date. SECTION 5.6. LEVERAGE FUNDS. The leveraged funds described in the SCDP Application must be used for the same purposes and under the same terms, rates, and conditions as specified unless prior written consent is received from the Grantor Agency. ARTICLE 6 provision of Evidentiary Material Requirement SECTION 6.1. PROVISION OF EVIDENTIARY MATERIALS. The Developer, shall agree to provide to the City all evidentiary materials according to the format and timetable cited in the Grant Agreement. The City will forward said materials to the Grantor Agency and assist in expediting reviews leading to a release of SCDP funds. . ~ SECTION 6.2. DOCUMENTATION OF USE OF FUNDS. The Developer must provide the City with necessary documentation that the Loan proceeds and leveraged funds have been used for the items and purposes stated in the SCDP Application, prior to submitting the final progress report and requesting grant closeout from the Grantor Agency. SECTION 6.3. The Developer must document that items purchased with SCDP loan funds (equipment) are of reasonable cost, in accordance with OMB Circular A-87. ARTICLE 7 provision of New Permanent Jobs SECTION 7.1. EMPLOYMENT OBJECTIVE. The Developer agrees to take affirmative action to ensure that 45 new permanent jobs will be created by the Project, of which, at a minimum, 34 shall be held by/made available to low and moderate income individuals. The Developer agrees that the above job requirements shall be completed by December 31, 1994. SECTION 7.2. EMPLOYMENT DOCUMENTATION. The Developer shall complete and provide to the City notification of employment semi- annually of hiring each new employee. This notification requirement will not be necessary after December 31, 1994, provided the employment objective set forth in Section 7.1 has . been met. In addition, the Developer agrees to provide 7. ~ . . . verification that jobs are held by/are available to persons of low and moderate income by documenting that: (a) Once the jobs are filled, that at least 51% of the persons hired are of low and moderate income families, as per Section 8 Income Guidelines; or (b) the skill level of the jobs available meet that of the general low and moderate-income population; (c) the education and experience required meet that of the low and moderate-income population; (d) the training provided by the employer, if training is needed, will make the jobs available to the low and moderate- income population; and, (e) the advertising, recruitment, and other outreach efforts are made to contact and involve the low and moderate- income population. SECTION 7.3. JOB CREATION DOCUMENTATION. The Developer must include job creation information in each semi-annual progress report. This information shall be provided by the Developer and must include: (a) jobs created; (b) job title per job; and, (c) date employee(s) hired. SECTION 7.4. FIRST SOURCE EMPLOYMENT REFERRAL AGREEMENT. Developer agrees to list any vacant or new positions with the job services of the Commission of Job Services or a local service unit operated by a county or counties operating under a joint powers agreement, one or more cities of the first class operating under a joint powers agreement, or a city of the first class. ARTICLE 8 provision of Monitoring Information Related to Project Proqress SECTION 8.1. PROVISIONS OF PROGRESS INFORMATION. The Developer shall agree to provide to the City information for incorporation into progress reports, as required by the Grantor Agency and as needed by the City, to monitor project implementation for compliance with grantor and local guidelines. ARTICLE 9 Nondiscrimination SECTION 9.1. NONDISCRIMINATION. The provisions of Minnesota Statutes, Section 181.59, which relate to civil rights and 8 . . discrimination, shall be considered a part of this Agreement as though wholly set forth herein. ARTICLE 10 Developer's Acknowledgments. Representations. and Warrants SECTION 10.1. ACKNOWLEDGMENTS. The Developer acknowledges that the City, in order to obtain funds for part of the City's activities in connection with the project, has applied for a Small Cities Development Program (SCDP) Grant (the "Grant") to the Commissioner of the Minnesota Department of Trade and Economic Development (the "Commissioner") under the Small Cities Development Program, Community Development Division, and that the City will be entering into the Grant Agreement with the Commissioner setting forth the terms, conditions, and requirements as to the Grant. The Developer further acknowledges that the Developer has made certain representations and statements as to those activities of the Project to be carried out and completed by the Developer which were contained in and made part of the application for. the Grant and that the Developer is designated and identified under the Grant Agreement. . A copy of the Grant Agreement shall be on file in the office of the City Clerk. In the event any provision of this Agreement relating to the Developer's obligation hereunder shall be inconsistent with the provisions of the Grant Agreement relating to the Developer's activities thereunder, the provisions of the Grant Agreement shall prevail. The Developer acknowledges that nothing contained in the Grant Agreement or this Agreement, nor any act of the Commissioner or the City shall be deemed or construed to create any relationship or third-party beneficiary, principal and agent, limited or general partnership, or joint venture, or of any association or relationship involving the Commissioner. SECTION 10.2. REPRESENTATIONS AND WARRANTIES. Developer warrants and represents, in connection with the Grant and for the benefit of the Commissioner and the City, that: (a) The representations, statements, and other matters provided by the Developer relating to those activities of the Project to be completed by the Developer, which were contained in the application for the Grant, were true and complete in all material respects as of the date of submission to the City and that such representations, statements, and other matters are true as of the date of this Agreement. . (b) To the best of the Developer's knowledge, no member, officer, or employee of the City or its designee$ or agents, no consultant, member of the governing body of the City, and no 9. . other public official of the City, who exercises or has exercised any functions or responsibilities with respect to the Project during his or her tenure shall have any interest, direct or indirect, in any contract or subcontract, or the proceeds thereof, for work to be performed in connection with the Project or in any activity, or benefit therefrom, which is part of this Project. (c) The Developer acknowledges that the Commissioner, in selecting the City as recipient of the Grant, relied in material part upon the assured completion of the Project to be carried out by the Developer, and the Developer assures the City that said Project will be carried out by the Developer. (d) The Developer warrants that to the best of its knowledge, it has obtained all federal, state, and local governmental approvals, reviews, and permits required by law to be obtained in connection with the Project. . (e) The Developer warrants that it shall keep and maintain books, records, and other documents relating directly to the receipt and disbursements of Loan proceeds and that any duly authorized representative of the Commissioner shall, at all reasonable times, have access to and the right to inspect, copy, audit, and examine aJl such books, records, and other documents of the Developer until the completion of all closeout procedures respecting the Loan and the final settlement and conclusion of all issues arising out of the Loan. (f) The Developer warrants that no transfer of Loan proceeds by the City to the Developer shall be or be deemed an assignment of the Loan proceeds and the Developer shall neither succeed to any rights, benefits, or advantages of the City under the Grant Agreement, nor attain any right, privileges, authorities, or interests in or under the Grant Agreement. (g) The Developer warrants that it has fully complied with all applicable state and federal laws pertaining to its business and will continue said compliance throughout the terms of this Agreement. If at any time notice of noncompliance is received by the Developer, it agrees to take any necessary action to comply with the State or Federal law in question. ARTICLE 11 Other Special Conditions SECTION 11.1. ANTITRUST. Developer hereby assigns to the State of Minnesota any and all claims or overcharges as to goods and/or services provided in connection with this contract resulting from antitrust violations which arise under the antitrust laws of the United States and the antitrust laws of the . State of Minnesota. 10. . . . SECTION 11.2. WORKERS COMPENSATION INSURANCE. Developer has obtained worker's compensation insurance as required by Minnesota Statutes, 1982, Section 176.181, Subd. 2. Developer'S workers' compensation insurance information is as follows: (a) Company Name: (b) Policy Number: (c) Local Agent: SECTION 11.3. BUSINESS WITH THE STATE OF MINNESOTA/STATE TAX LAWS. Notice to Developer. You are required by Minnesota Statutes, 1982, Section 270.66, to provide your Minnesota tax identification number if you do business with the State of Minnesota. This information may be used in the enforcement of Federal and State tax laws. Supplying these numbers could result in an action to require you to file State tax returns and pay delinquent State tax liabilities. This contract will not be approved unless these numbers are provided. These numbers will be available to Federal and State tax authorities and State personnel involved in the payment of State obligations. Minnesota Tax ID: Federal Employer ID :,. IN WITNESS WHEREOF, the City has caused this Agreement to be duly executed in its name and behalf and the Developer has caused this Agreement to be duly executed in its name and behalf as of the date first above written. CITY: CITY OF ELK RIVER By: Its: DEVELOPER: TESCOM CORPORATION, INC. By: Its: 11. . . . STATE OF MINNESOTA) ) ss. COUNTY OF ) The foregoing instrument was a day of ,19 , the of CitY-of municipal corporation, on behalf 0 knowledged before me this y Elk River, a Minnesota the corporation. otary Public STATE OF MINNESOTA) ) ss. COUNTY OF ) The foregoing instrument was a day of , 19__, the of Tescom corporation, on behalf of the corp knowledged before me this y orporation, a Minnesota ration. ,.. THIS INSTRUMENT WAS DRAFTED BY: otary Public LARKIN, HOFFMAN, DALY & LINDGREN, td. 1500 Norwest Financial Center 7900 Xerxes Avenue South Bloomington, Minnesota 55431 (612) 835-3800 GAR:AV5 12.