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5.1. SR 02-19-2008REQUEST FOR ACTION To Item Number Ci Council 5.1. Agenda Section Meeting Date Prepared by Community Development February 19, 2008 Catherine Mehelich, Director of Economic Develo ment Item Description Reviewed by Consider Resolution Authorizing Execution of a Tax Abatement Lori ohnson, Ci Administrator and Business Subsidy for E&O Tool Expansion, Public Reviewed by Hearing Action Requested State statute requires local government agencies to hold a public hearing to receive comment on Tax Abatement and Business Subsidies. Following the public hearing, staff recommends the City Council approve the attached "Resolution Authorizing Execution of a Tax Abatement and Business Subsidy Agreement" with Caswell and Osterman Properties, LLC for the E & O Tool expansion project. The draft agreement is also attached. Background/Discussion The owners of E & O Tool are requesting property Tax Abatement for the expansion of their manufacturing operations in Elk River. The attached staff report describes the proposed project and Tax Abatement request that were reviewed by the EDA on February 11, 2008. This Abatement request meets all of the EDA's policies regarding employment and valuation. The EDA is recommending the City Council's approval of the Tax Abatement and Business Subsidy for the project. Financial Impact • Up to $411,000 City Tax Abatement assistance for a time period of up to thirteen years (approximately $33,000 annual city portion generated as a result of the project). o A request has also been made to Sherburne County for up to $411,000 of Tax Abatement assistance for a time period of up to ten years per County policy. • The project will result in an estimated market value of $4,033,700. • The project will result in the retention of 124 full-time jobs and the creation of 25 full-time jobs at hourly wages not less than $15.00. Attachments • Staff Report dated February 11, 2008 Regarding EDA Recommendation • Resolution Authorizing Execution of a Tax Abatement & Business Subsidy Agreement • DRAFT Tax Abatement and Business Subsidy Agreement Action Motion by Second by Vote Follow Up C:\Documents and Settings\jjohnson\Local Settings\Temporary Internet Files\OLK49\2 ]9 08 EO Action Requested.doc ITEM # 5. Elk -~ River MEMORANDUM TO: FROM: DATE: SUBJECT: Economic Development Authority Catherine Mehelich, Director of Economic Development February 11, 2008 Consider Recommendation to City Council for Approval of Tax Abatement Assistance for E & O Tool and Plastics Expansion Project Attachments N~ • City of Elk River Tax Abatement & Business Subsidy Policies ~ J ~„~ • E & O Tool Tax Abatement Application 'J~~ d • Tax Abatement Application Review Worksheet ~ i~ Issue Staff has been working with E & O Tool owners, Tim Osterman, Jay Caswell and Gary Pearson over the past year to identify a site and financing assistance to retain the company's expansion in Elk River. In addition to Elk River, the company had considered other communities for its expansion. Tim Osterman, President of E & O Tool will be at the EDA meeting to provide background on the company's history in Elk River, its expansion plans and financing assistance request. Company Background E & O Tool and Plastics, Inc. was founded in Elk River in 1986. Since that time the company has developed into a full service injection molding company, manufacturing custom tooling on-site. The company provides these services to a variety of industries including appliances, home construction, sports equipment, agriculture and electronics. The proposed expansion project enables the company to meet the demands of their existing customer base, while adding additional facility capabilities needed to produce components for the medical device industry. The company currently operates in a 62,000 square foot primary facility and a 10,000 square foot secondary facility both of which axe leased in the Elk River Industrial Park. In addition the company established a 21,000 square foot molding facility in Monterrey, Nuevo Leon, Mexico to serve clients in that market.. The company currently employs a staff of~ over 120 in Elk River and 30 in Monterrey. C'.onsider Tae Abatement for E & O Tool Expansion February 11, 2008 EDA Meeting Page 2 of 2 Project Description The company proposes to construct a 55,000 square foot light industrial facility on 7..31 acres of the easterly portion of the 17,11-acre Sandpiper Business Park (formerly known as the Gagne property). The facility will be located just east of the Metal Craft Machine facility anticipated fox construction spring/summer 2008. The company will occupy the entire 55,000 square feet with the potential to expand up to 80,000 total square feet in the future. Proposed Financing Assistance E & O Tool has submitted the attached Tax Abatement application. A summary of the request and job retention/creation and wage goals are as follows: Up to $411,000 City assistance fox a time period of up to thirteen years. Up to $411,000 Sherburne County assistance for a time period of up to ten years (per County policy). 149 full-time jobs retained & to be created (124 retained at an average wage of $18,48 per hour & 25 to be created at an hourly wage not less than $15.00 per City Business Subsidy Policy). Staff has evaluated the company's application based on the attached Tax Abatement and Business Subsidy Policies and the Tax Abatement Application Review Worksheet, which indicates that the project scored 45 out of 45 possible points, which equates to a "highly desirable" project based on the City's project priorities. In addition, the City's financial advisor Ehlers and Associates has completed a "but-for" analysis and determined that the level of assistance z'equested is necessary for the project to proceed. The company's tax abatement application indicates an EDA Micro Loan in the amount of $100,000 as a proposed source of project financing in addition to the tax abatement. The company has recently submitted an amended Micro Loan application in the amount of $75,000. The micro loan application is awaiting review by the EDA Finance Committee for recommendation to the EDA next month for final action. Action Requested Staff recommends that the EDA recommend the City Council approve providing tax abatement and business subsidy assistance to the E & O Tool and Plastics expansion project with the following terms: • Pay-as-you-go Tax Abatement note in the amount of up to $411,000. • To be provided at a rate of 100% of the Tax Abatement for a maximum period of up to 1.3 years. • Commitment from the developer to retain the existing 124-full time employment positions, and to create 25 new full-time jobs at an hourly wage not less than $15..00 (exclusive of benefits required by law) within two years of the final certificate of occupancy Next Step A City Council public hearing has been scheduled for Tuesday, February 19, 2008 to consider providing tax abatement and a business subsidy to the E & O Tool expansion project. An EDA Finance Committee meeting will be scheduled to review and provide the EDA a recommendation on the Micro Loan application. X. TAX ABATEMENT APPLICATION REVIEW WORKSHEET TO BE COMPLETED BY CITY STAFF 1. The roject meets the criteria set forth in ,Section V of the Tax Abatement policy. __1c/ ) Meets at least one of the objectives in Section III. -fib) Demonstrates need for Tax Abatement with the but for analysis.. ~) Consistent with all city plans and ordinances.. ~/" d) Serves at least two public purposes as defined in Section V(g). 2. Ratio of Private to All Public Investment i Project: $ rivate Investment (/1ot~n~~~ $ Public Investment ~: / Ratio Private: Public Financing Less than 3. Job Creation in the City of Elk River: 2~ Number of~ new jobs as a result of the project. Number of existing/retained jobs /~!9 Total Less than Points: 5:1 ~5 4:1 4 3:1 3 2:1 2 2:1 1 Points: 25+ 20+ 4 15+ 3 10+ 2 10 1 4. Ratio of Public Investment to Job Creation: Points: $ ~2 000 Public Investment $8,000 or less Number of neav jobs created/retained $10,000 or less 4 $ 'j S/ `7 of Public Investment per new job $12,000 or less 3 $15,000 or less 2 Over $15,000 1 5. Wage Level of ne7v jobs created/retained Points: Minimum hourly wage ~ Over $21 /hour 5 of jobs created/retained: ~©O $18-21 /hour 4 $14-17 /hour $10-13 /hour 2 Under $10 /hour 1 6. Project size: Points: s The project will result in the construction 40,000+ of square feet '-~s~~~ 30,000+ 4 .~ 20,000+ 3 10,000+ 2 10,000 or less 1 City of Elk River Tax Abatement Polity Amended May 2006 - 13- 7. Market Value/Tax Base Generation: The project will result in a per square foot es ated market value (land and building) of~ ~3.3y 8. Type of Project: 100% Owner Occupied Mix Owner Occupied & Investment Investment Property 9. Use: Industrial or Business Park Project Commercial Rehabilitation/Redevelopment 10. Likelihood that the project will result in unsubsidized, spin-off development. Points: Industrial Commercial $80/sf+ $110/sf+ 5 $70/sf+ $100/sf+ C~ $60/sf+ $90/sf+ 3 $50/sf+ $80/sf+ 2 $40/sf+ $70/sf+ 1 Points• 4 3 Points: L? J 4 Points: J !~ High Moderate 3 Low 1 Sub -Total Points: ~ of a possible 45 points. 11. Bonus Points Bonus Points: ~/ The project will be 100% Pay-as,yougo Tax Abatement ~ints ;~ The project contributes to the goals of Energy City. 2 points • Product promotes sensible use of energy, OR • Project utilizes significant energy efficient design &/or materials in construction.. Total Points l J'~ Overall project desirability: High 45- 8 points Moderate 37-29 points Low 28-20 points Not Eligible 19-0 points City of Elk River Tax Abatement Policy Amended May 2006 - 14- VI11. APPLICATION FOR TAX ABATEMENT A. APPLICANT INFORMATION Name of Corporation/Partnership, ~~~ eo ~ -F-/~la~~~ s , ~ c Address I ~.« g ~1~-~;5~~~ ~V~` ~.1 ~ 1~ 1 ~('N ~-l~ ~~~3C~ Primary Contact ~~ "^-~~7 ~5~~"'~°`"'1 S a w~ -~ Phone`76?-.icy 1--61 c~0 Fax 7~ 3 ~ ~~~ F " 6 y S ~. Email ~ ~ ~''` • Q S ~.. v vv,.a.r. ~ e o~ ~ ~ ~,~`c.S ~ co w, Brief description of the corporation/partnership's business, including history, principal pr1oduct or servi~cpe/; 4 - ` (~ ~t 5~~11..d ,... ~~Ob ~L'}'o ~ov(d ~~.A6~'GS 1r.aS cJ-~-.~c.Qu ~ ,end-b o~ -\ u se.~.U;t~c.. ~ ~ ~1 tt '1,Zi.1 ~^-o ` /-~ Gov-•p ~ ti U $~ .+~ ~ 3 ~~ ~ e.~, a,,, ~le.sst-t J-•~,{v-.~ ~rV..~ ~ ti. S ; ~ 1- - l~a^^ 3 $ bn Soo+o~en S- I,,~e~. ,ntiP.,., ~n ..r~. G+r s~-a++.~ -~nc9l iv~~ 6~^ - S i 0 ~. d-~rV'_ aw w bd~^~3. l...c-~-e-l~a~ sM~ ~~3~-~s~,nlcs; ir.cl,.rd~~~_app~,~c+~.c.~ L.ovtic ccr..s~.r~+bsn~ e~~e.c~•iCS ~o'~"~rY: Brief description of the proposed projecct: n f~ ~~ ~~ ~1-m..s~u~~ a~ a. ,~•ew ~,ty.c~c~vc.~d`~/~S cd~~.ac-~ ~~t~`1 e~ o1-T4'!br/ S5 A~ ..SqT~ I_A~ L.., ~nc,4~ ~- ~F r^^S Cam. dD rb`t 4(~ DOO S d-~ ~~~-c.. View ~a.c~• (~ fj i 5 yti.y.,~ rc ~. ~ /"ucJ+ d~-~/ ~J o~-~'f.diSd~ Gv~etv~~-l. ~,,,y~ ~ ~~i~^c ~od~•iC~b~. a !~ ~ ~ .1„ n-ra~tt~ o~ a.,s~'Z Ga'~oa~^a~3 •rt,•- `rre ~ c 11nD~-~S~r7~ Attorney Name ~~i ^ O Df•Scv1` G,~, ~~ a-.~.~"-1Moo-~-j ~-1' G-t Address 1010 ~-~csj 5-~ G~rMO.~`~ 5.1- S'4t. bon S ~Cl~~ ~v~,N Ss'33 p Phone3Z~-Z02-S35~ Fax 3zd-~Si` `~`f8~- Email 1cW~~..odr3~of1 Q o~Pval~•m,~... Accountant Name t`Z' ~cl~ al bob- `1 Nz~no w ~rzw b-~. + ~ Address -lgoo K~x~s /~~ ~ S~ ~ ~ ~-~e '2_.~oa ~ ~ ~ e ~ o L~`5 tM h~ ,~5~13 / Phonea52 35 f- 438 Fax q52•-835-5815 Email R~4-Ibo~-~v~v-~,l-..a ~., kris-c_ca,,~.. Contractor Name ~~-v~ ~~ C~.S~ ~ °'-° ~ Address l3'i~-'Z g..5i~..e.sS G~~•- Dr; /•e.. Z- Phone~63 633-4y8o Fax ~b3-63;-~1o$Z L L-L s- Engineer Name Address Phone Fax Email Architect Name f/`1 p ~ ~ 0 ~ -~ S Address I tai X37 V f ~ ew 2 0 ~ ~ -i ~_ IM ~ S 3 y Phone q S Z - ~ y l - ~ O Fax `~'~ Z - q y l- Z7 S~ Email ; ~ ~ G' w ~ ~ M~~s o-f ~ . ~o H^ City of Elk River Tax Abatement Polity Amended May 2006 - 8' B. PROJECT INFORMATION 1. The project will be: ~Industrial~ New Construction Expansion Redevelopment /Rehab. Office/research facility that conforms to Business Park zoning standards Commercial Redevelopment/Rehabilitation Other 2. In ad tion to the City of Elk River, applicant is requesting Tax Abatement from: Sherburne County School District 728 3. The projectwill be: -Owner Occupied Leased Space 4. Project Address S Parcel Identification Nurr. ~ lr.t.5 s' ~U! ~ - Pj~ls ~ v~c.3S C ti.~ ~~t.~G. s~ "Tg ~ 5. Site Plan and Construction Plans Attached: Yes No 6. Total Amount of Tax Abatement Requested $ ~ Z~ 5~,over ~ ~. years. City Portion: Annual $ Total $ County Portion: Annual $ Total $ ISD 728 Portion: Annual $ Total $ Current Real Estate Taxes on Project Site: $ ~~~ ~~Z Estimated Real Estate Taxes upon Completion: Phase I $ Phase II $. 8. Construction Starr. Date: S2..D~-vw~+r 10 ~-~ ~ ~~ Construction Completion Date: ~-~ ~-~ ~ ~I If Phased Project _ Year % Completed Year C. PUBLIC PURPOSE Completed It is the policy of the City of Elk River that the use of Tax Abatement should result in a benefit to the public. Please indicate how this project will serve a public purpose. ,job Creation/Retention Number of existing jobs ~ZZ Number of jobs created by project x'3O ova v~-k. Average hourly wage of jobs created/retained 1°t."1 ~ New industrial development which will result in additional private investment in the area. Enhancement and/or diversification of the City of Elk River's economic base. The project contributes to the fulfillment of the City's Economic Development Strategic Plan. -Removal of blight. -Rehabilitation of a high profile or priority site. Significantly increase the City's tax base. City of Elk River Tax Abatement Polity Amended May 2006 - 9- L yj.~s D. SOURCES & USES f SOURCES ~~ AMOUNT Bank Loan ~ ~. k ~' F (~~' ~ P~ $ 2, 6 a ~~+o ° Other Private Funds uit h E C O $ ~? ~ 4 °~? - y q as wner -; S ~~ t/L d G F $ pvv ~o ° ° 2- oan ran e , ~ State Grant/Loan EDA Micro Loan $ ~ o•o v o y Tax Abatement $ 5? ~ z,. v a n ID Bonds ~ TOTAL ~ T TSES AMOUNT i ition d A L $ `~' •~z Div cqu s an ment elo D Sit $ p ev e Construction $ ~~ 9 b °-r- ° "- ment ui & E hi M $ `"~ p q nery ac Fees ineerin l & En hit t A $ g g ura ec rc l F L $ I v , vc~ c~ ees ega Interest During Construction $ ,~o roan Debt Service Reserve $ Contingencies $ - ~ 3 ° ° " ° T^~ ~ ~..~ 5; ~- ~ `~, Oda City of Elk Rives Tax Abatement Polity Amended May 2006 - 10- E. ADDITIONAL DOCUMENTATION AND CHECKLIST Applicants will also be required to provide the following documentation: A) Written business plan, including a description of the business, ownership/management, date established, products and services, and ` / future plans V B) Financial Statements for Past Two Years _/ Profit & Loss Statement ~-Balance Sheet C) Curren~Financial Statements Profit & Loss Statement to Date ~-Balance Sheet to Date v D) Two Year Financial Projections V E) Personal Financial Statements of all Major Shareholders Profit & Loss Current Tax Return ~F) Lettex of Commitment from Applicant Pledging to Complete ~ ,/ During the Proposed Project Duration `~ _G) Letter of Commitment from the Other Sources of Financing, / Stating Terms and Conditions of their Participation in the Project y F~ Non-refundable application deposit of $5,000 /~~ _l) Construction Plans and Itemized Project Construction Statement Attach the fo owing documentation as Exhibits Exhibit A -Corporation/Partnership Description Exhibit B -Description of Project ~ Exhibit C - List of Shareholders/Partners _ Exhibit D -But-ForAnalysis /U~ Exhibit E - List of Prospective Lessees /y~ Exhibit F -Legal Description and PI.D Number(s) Note: All Major shareholders will be required to sign personal guarantees and a minimum assessment agreement if up front financing of the project is required. The undersigned certifies that all information provided in this application is true and correct to the best of the undersigned's knowledge.. The undersigned authorizes the City of Elk River to check credit references, verify financial and other information, and share this information with other political subdivisions as needed. The undersigned also agrees to provide any additional information as may be requested by the City after the filing of this application. ~,7 Applicant Name ~`~ ~~~ ~ `~ Lai di Zs ~ Date ~ ~ City of Elk River Tax Abatement Polity Amended Map 2006 - 11- City of El: ~r~..~-~ Tax Abatement Policy & Application Amended: May 2006 Amended: August 2002 Adopted: April 10, 2000 City of Elk River Economic Development Division 13065 Orono Parkway Elk River, MN 553.30 763..635..1040 Table of Contents I. Policy Purpose 3 II. Difference Between Tax Abatement & Tax Increment Financing 3 III. Objectives of Tax Abatement 3 IV. Policies for the Use of Tax Abatement 4 V. Project Qualifications 5 VI. Subsidy Agreement & Reporting Requirements 6 VII. Application Process for Tax Abatement 7 City of Elk River 7 Application to Other Jurisdictions 7 VIII. Application for Tax Abatement 8 Applicant Information 8 Project Information 9 Public Purpose 9 Sources & Uses 10 Additional Documentation and Checklist 11 IX. Sample But-For Analysis 12 X. Application Review Worksheet 13 XI. City of Elk River Business Subsidy Policy 15 City of Elk River Tax Abatement Polity Amended May 2006 - 2- i. POLICY PURPOSE For the purpo.re.r of this document, the term "City" (hall include the Elk Kiver City Council, Economic DevelopmentAuthority, and Houring and KedevelopmentAuthorzty.. The purpose of this policy is to establish the City of Elk River's position relating to the use of Tax Abatement for private development above and beyond the requirements and limitations set forth by State Law. This policy shall be used as a guide in the processing and review of applications requesting Tax Abatement assistance. The fundamental purpose of providing Tax Abatement in Elk River is to encourage desirable development or redevelopment that would not otherwise occur but for the assistance provided through the Tax Abatement. The City of Elk River is granted the power to utilize Tax Abatement by Minnesota Statutes, Sections 469..1812 to 469.1815 (the "Minnesota Tax Abatement Act"), as amended. It is the intent of the City to provide the minimum amount of Tax Abatement, as well as other incentives, at the shortest term required for the project to proceed. Preference is given to projects in which the total amount of Tax Abatement request includes participation from the county. The City reserves the right to approve or reject projects on a case by case basis, taking into consideration established policies, project criteria, and demand on city services in relation to the potential benefits from the project. Meeting policy criteria does not guarantee the award of Tax Abatement to the project. Approval or denial of one project is not intended to set precedent for approval or denial of another project.. 11. DIFFERENCE BETWEEN TAX ABATEMENT AND TAX INCREMENT FINANCING The primary difference between Tax Abatement and Tax Increment Financing (TIF) is the way in which the dollars are awarded to the project.. When TIF is awarded to a project by the city, the other taxing jurisdictions (the school district and the county) are required to contribute their portion of the increased taxes to the project., Conversely, when Tax Abatement is requested, each political subdivision has the option of granting its portion of the increased taxes to the project. Subsequently, the dollars generated for the project with Tax Abatement are generally less than the dollars generated with TIF. III. OBJECTIVES OF TAX ABATEMENT As a matter of adopted policy, the City will consider using Tax Abatement to assist private development projects to achieve one or more of the following objectives: • To retain local jobs and/or increase the number and diversity of jobs that offer stable employment and/or attractive wages and benefits as defined in the City's Business Subsidy Policy. • To enhance and diversify the City of Elk R.iver's economic base.. • To encourage additional unsubsidized private development in the area, either directly or indirectly through "spin off 'development. City of Elk River Tax Abatement Polity Amended May 2006 - 3- • To facilitate the development process and to achieve development on sites which would not be developed without Tax Abatement assistance. • To remove blight and/or encourage redevelopment of commercial and industrial areas in the city that result in high quality redevelopment and private reinvestment. • To offset increased costs of redevelopment (i.e. contaminated site clean up) over and above the costs normally incurred in development. • To create opportunities for affordable housing. • To contribute to the implementation of other public policies, as adopted by the city from time to time, such as the promotion of quality urban or architectural design, energy conservation, and decreasing capital and/or operating costs of local government. • To significantly increase the City of Elk River's tax base. IV. POLICIES FOR THE USE OF TAX ABATEMENT a. Tax Abatement assistance will be provided to the developer upon receipt of taxes by the City, otherwise referred to as the pay-asyougo method.. Requests for up front financing will be considered on a case-by-case basis.. b. Any developer receiving Tax Abatement assistance shall provide a minimum of ten percent (10%) owner cash equity investment in the project, Tax Abatement will not be used in circumstances where land and/or property price is in excess of fair market value.. d.. Developer shall be able to demonstrate a market demand for a proposed project. e. Tax Abatement will not be utilized in cases where it would create an unfair and significant competitive financial advantage over other projects in the area. f. Tax Abatement shall not be used for projects that would place extraordinary demands on city services or for projects that would generate significant environmental impacts, g.. The developer must provide adequate financial guarantees to ensure completion of the project, including, but not limited to: minimum assessment agreements, letters of credit, personal guaranties, and etcetera. h. The developer shall adequately demonstrate, to the City's sole satisfaction, an ability to complete the proposed project based on past development City of Elk River Tax Abatement Policy Amended May 2006 - 4- experience, general reputation, and credit history, among other factors, including the size and scope of the proposed project.. i. For the purposes of underwriting the proposal, the developer shall provide any requested market, financial, environmental, construction plans or other data requested by the City or its consultants. j, Tax Abatement proposals shall not be used to support speculative office projects. Speculative projects are defined as those projects which have pre- leasing agreements or letters of intent for less than 50% of the available space. In addition, leasable office projects must meet the following guidelines: 1. Evidence of the 50% occupancy must be reported to the Director of Economic Development six months following an issued Certificate of Occupancy. 2. Of the occupants certified at the six month period, 50% of the jobs must be considered "new" jobs to the Ciry of Elk River, meaning jobs not located in the City at any time prior to occupying space in the project.. 3. Business retention jobs will be considered on a one-for-one match to job creation only in cases where job loss is specific and demonstrable in accordance with the MN Business Subsidy Law. Evidence may include documentation that the company will have to close involuntarily, or the company has received an attractive offer to move to another state or community. k. All Tax Abatement proposals shall optimize the private development potential of a site.. V. PROJECT QUALIFICATIONS All Tax Abatement projects considered by the City of Elk River must meet each of the following requirements a.. The project shall meet at least one of the objectives set forth in Section III of this document. The use of Tax Abatement will be limited to: • Industrial development, expansion, redevelopment, or rehabilitation; or • Commercial redevelopment or rehabilitation; or • Research and development facilities that satisfy Business Park zoning requirements; or • Office facilities with a minimum new construction of 25,000 square feet; or City of Elk River Tax Abatement Polity Amended May 2006 - 5 • Residential development and redevelopment may be eligible for Tax Abatement under a separate set of policies and only with the recommendation of the HRA. c. The developer shall demonstrate that the project is not financially feasible but for the use of Tax Abatement. Evaluation of the project's financial feasibility without Tax Abatement shall be provided by the City's financial advisor on all requests of over $25,000 total public investment. d. The City will consider the use of Tax Abatement assistance for projects that may not meet the but for and job creation criteria, but rather would be considered as a "location incentive". These projects may result in other public benefits such as a significant tax base increase, the creation of higher paying jobs (at least twice the minimum hourly rate stated in the City's Business Subsidy Policy), and is likely to assist in the marketing and attraction of additional desired developments,. e. The project shall comply with all provisions set forth in the Minnesota Tax Abatement Law, State Statues 469.1812 to 469..1815, as amended. f. The project must be consistent with the City's Comprehensive Plan, Land Use Plan, and Zoning Ordinances. g. The project shall serve at least two of the following public purposes: • Job creation or job retention. • Significantly increase the tax base.. • Enhancement or diversification of the city's economic base.. • Development or redevelopment that will spur additional private investment in the area.. Fulfillment of defined city objectives, such as those identified in the Economic Development Strategic Plan or the City's Comprehensive Plan, among others. Removal of blight or the rehabilitation of a high profile or priority site.. VI. SUBSIDY AGREEMENT & REPORTING REQUIRMENTS All developers/businesses receiving Tax Abatement assistance from the City of Elk River shall be subject to the provisions and requirements set forth by the City's Business Subsidy Policy as amended and attached as Section XI of this document, and Minnesota State Statute 116J.993 (the "Minnesota Business Subsidy Law"). City of Elk River Tax Abatement Polity Amended May 2006 - 6- V11. APPLICATION PROCESS FOR TAX ABATEMENT A. CITY OF ELK RIVER 1. Applicant submits the completed application along with a non- refundable $5,000 application deposit. The application deposit will be used toward the cost of services provided in the evaluation of financial feasibility and preparation of'legal documents and agreements. Projects that demand professional services in excess of the initial deposit shall be required to reimburse the City for the additional expenses, 2. City staff reviews the application and completes the Application Review Worksheet. 3. Results of the Worksheet are submitted to the appropriate governing authorities (EDA or HRA) for recommendation to the City Council of approval or denial of the request. 4. If preliminary approval is granted, all necessary notices, resolutions and agreements are prepared by City staff and/or consultants.. Public hearing(s) on the proposed request are held. The City Council grants final approval or denial of the request. B. APPLICATIONS TO OTHER JURISDICTIONS It is recommended that applicants intending to seek Tax Abatement from Sherburne County and/or School District 728 make their applications to those bodies concurrent with their application to the City of Elk River. For more information on applying for Tax Abatement through Sherburne County and/or School District 728, contact: Sherburne County Administrator 763-241-2701 School District 728 Superintendent 76.3-241-3400 City of Elk River Tax Abatement Polity Amended May 2006 - 7- City of ~1: Business Subsidy Policy Amended: May 2006 EDA Adopted: May 8, 2006 City Council Adopted: May 15, 2006 Original Adopted: Housing & Redevelopment Authority November 25, 2002 City Council November 25, 2002 Economic Development Authority December 9, 2002 City of Elk River Economic Development Division 13065 Orono Pazkway Elk River, MN 55330 763.635,1040 CITY OF ELK RIVER POLICY AND PROCEDURES RELATING TO THE USE OF BUSINESS SUBSIDIES 1. PURPOSE For the purporet of thin document, the term "City"Thal! include the Elk River City Council, Economic Development Authority, and HouJing and RedevelopmentAuthority. The purpose of this policy is to establish guidelines and criteria regarding the use of business subsidies, such as tax increment financing (TIF), tax abatement, and other business subsidies for private development projects within the Ciry of Elk River. This policy shall be used as criteria for providing subsidies, in addition to the requirements and limitations set forth by provisions of Minnesota State Statute 116J.993 (MN Business Subsidy Law), and the City's policy and guidelines of the particular form of subsidy. These guidelines shall be used in processing and reviewing applications requesting business subsidy assistance. The fundamental purpose of business subsidies in the City is to encourage desirable development or redevelopment that would not otherwise occur "but for" the assistance provided through business subsidies. It is the intent of the City to provide business subsidies, as well as other incentives that the City may deem appropriate, at the shortest term required for the project to proceed.. The City reserves the right to approve or reject projects on a case-by-case basis, taking into account established policies, specific project criteria, and demand on city services in relation to the potential benefits to be received from a proposed project. Meeting policy guidelines or other criteria does not guarantee the award of a business subsidy.. Furthermore, the approval or denial of one project is not intended to set precedent for approval or denial of another project. Whenever possible it is the City's intent to coordinate the use of business subsidies with other applicable taxing jurisdictions. I1. DEFINITION OF "BUSINESS SUBSIDY" The following types of assistance having a value in excess of $25,000 are defined as a "business subsidy" within the MN Business Subsidy Law: • State and local government agency grants; • Contributions of personal property, real property, or infrastructure; • The principal amount of a loan that exceeds $75,000 at rates below those commercially available; • Reductions or deferrals of taxes or fees; • Guarantees of any payment under any loan, lease, or other obligation; and, • Preferential use of government facilities.. Ciry of Elk River Business Subsidy Policy Amended May 2006 111. PUBLIC PURPOSE OBJECTIVES OF BUSINESS SUBSIDIES In accordance with the MN Business Subsidy Law, the City will consider using business subsidies to assist private development projects to achieve one or more of the following public purpose objectives: • To retain local jobs and/or increase the number and diversity of jobs that offer stable employment and/or attractive wages and benefits. • To enhance and diversify the City of Elk River's tax base. • To encourage additional unsubsidized private development in the area, either directly or indirectly through "spin off' development. • To achieve development on sites which would not be developed without business subsidies assistance. • To remove blight and/or encourage development of commercial and industrial areas in the city that result in higher quality development or redevelopment and private investment. • To offset increased costs of development of specific properties when the unique physical characteristics of the site may otherwise preclude private investment. • To create opportunities for the construction, operation and maintenance of affordable housing. IV. GENERAL POLICIES FOR THE USE OF BUSINESS SUBSIDIES A. Business subsidy assistance will be provided from the City, on a "pay-as-you-go" note method, to the developer if the business subsidy is tax increment financing or tax abatement. Requests for up front financing will be considered on a case-by-case basis. B. A developer requesting business subsidy assistance must demonstrate, to the satisfaction of the City, sufficient cash equity investment in the project as required within the City's policy for the particular form of subsidy. C. Business subsidy assistance will not be provided in circumstances where land and/or property price is demonstrated by the County Assessor to be in excess of fair market value. This would normally be where the acquisition price is more than 10% in excess of market value. D. A developer must be able to demonstrate to the City, or, if applicable, to the underwriting authority, amarket-demand for a proposed project, E. Business subsidy assistance will not be used in cases where the subsidy would create an unfair and significant competitive financial advantage over other similar projects in the area.. F. Business subsidy assistance will not be used for projects that would place extraordinary demands on city infrastructure and services. City of Elk River Business Subsidy Policy Amended May 2006 G. If requested by the City the developer shall provide adequate financial guarantees to ensure completion of~ the project, including, but not limited to: minimum assessment agreements, letters of credit, cash escrows, and personal guaranties.. H, Each developer must be able to demonstrate to the City's satisfaction, an ability to construct, operate, and maintain the proposed project based on past experience, general reputation, and credit history. If requested by the City, or its consultants, the developer shall provide sufficient market, financial, environmental, or other data relative to the successful operation of the project.. I. Projects receiving business subsidy approval from other affected taxing jurisdictions will be more favorably received by the City. V. GUIDELINES FOR COMMERCIAL/INDUSTRIAL BUSINESS SUBSIDIES A. Business subsidies will not be used fox retail or service businesses unless it is a redevelopment project that demonstrates that it will result in a substantial increase in tax base and a significant improvement in quality employment.. B. The project must be consistent with the City's Comprehensive Plan, Land Use Plan, and Zoning Ordinances.. C. The project must result in the retention of existing jobs that would be lost "but for" the proposed development or result an increase and diversification in local jobs. Business retention jobs will be considered on a one-for-one match to job creation only in cases where job loss is specific and demonstrable in accordance with the MN Business Subsidy Law.. D.. Specific wage and job goals will be determined by the City giving consideration to the particular form of the subsidy, nature of the development, the purpose of the subsidy, local economic conditions and similar factors. The recipient will have up to two years from the benefit date, which is the date that the recipient receives the subsidy, to meet the job and wage goals established by the City.. E.. The minimum wage for a job to be considered a new or retained job shall be $15.00 per hour, exclusive of benefits required bylaw. Deviations from the job and wage goal may be considered for projects that will result in a significant increase in tax base. Deviations less than the wage floor will be considered on a case-by-case basis and in accordance with the requirements of the MN Business Subsidy Law. F. Business subsidies will not be used for commercial/industrial projects that have a history of inconsistent compliance with applicable environmental rules and regulations.. City of Elk River Business Subsidy Polity Amended May 2006 VI. GUIDELINES FOR REDEVELOPMENT AND RENOVATION BUSINESS SUBSIDIES In accordance with the MN Business Subsidy Law, the following forms of financial assistance related to redevelopment and renovation are not a "business subsidy": A. Assistance provided for the sole purpose of renovating old or decaying building stock or bringing it up to code, provided that the assistance is equal to or less than 50 percent of the total cost; B. Assistance for pollution control or abatement; C. Redevelopment when the recipient's investment in the purchase of the site and in site preparation is 70 percent or more of the assessor's current year's estimated market value. VII. SUBSIDY APPLICATION PROCESS AND PROCEDURE A. Application for business subsidies shall be made on the City's forms for the particular type of assistance. The application for business subsidies shall request information required within the City's policies on the particular form of subsidy including but not limited to; a detailed description of the project; a preliminary site plan; the amount of business subsidy requested; the public purpose of the project; the number and types of jobs to be created; the wages and benefits to be paid new employees; and verifiable funding sources and uses. B. Following a review by appropriate City Staff the application shall be referred to the either the Economic Development Authority, or Housing and Redevelopment Authority, for recommendation to the City Council for denial or approvah C.. Before granting a business subsidy that exceeds $100,000, the City shall provide public notice and hold a hearing on the subsidy unless a hearing and notice on the subsidy is otherwise required by law. VIII. SUBSIDY AGREEMENT AND REPORTING REQUIREMENTS Each company receiving a business subsidy shall be subject to the subsidy agreement and reporting provisions and requirements set forth by the MN Business Subsidy Law and summarized below: A. Progress Reports The recipient shall file a report annually for two years after the receiving the subsidy or until all goals set forth in the subsidy agreement have been met, which ever is later. Reports shall be completed using the format drafted by the State of Minnesota and shall be filed with the City's Economic Development Division no later than March 1 of each year for the progress made the previous year. City of Elk River Business Subsidy Policy Amended May 2006 B. Maintain Facility The recipient agrees to maintain and operate its facility at the site where the subsidy is used for a period of five years after the date the subsidy is provided. C. Failure to Combly Businesses failing to comply with the subsidy agreement will be subject to fines, repayment requirements at the rate established within the MN Business Subsidy Law, and be deemed ineligible by the State to receive any loans or grants from public entities for a period of five years,. City of Elk River Business Subsidy Policy Amended May 2006 EXTRACT OF MINUTES OF MEETING OF THE CITY COUNCIL OF THE CITY OF ELK RIVER, MINNESOTA HELD: February 19, 2008 Pursuant to due call and notice thereof, a meeting of the City Council of the City of Elk River, Sherburne County, Minnesota, was duly called and held at the City Hall in said City on Tuesday, the 19th day of February, 2008, at 6:30 o'clock p.m. The following members were present: and the following were absent: Member adoption: introduced the following resolution and moved its RESOLUTION AUTHORIZING EXECUTION OF A TAX ABATEMENT AND BUSINESS SUBSIDY AGREEMENT BE IT RESOLVED by the City Council (the "Council") of the City of Elk River, Minnesota (the "City"), as follows: 1. Recitals. (a) Caswell and Osterman Properties, LLC (the "Developer") proposes to construct an approximately 55,000 square foot light industrial facility in the City (the "Project"). The Developer has requested that the City provide financial assistance to the Developer for the Project. The City proposes to use the abatement for the purposes provided for in Minnesota Statutes, Sections 469.1812 through 469.1815 (the "Abatement Law"), including the Project. The proposed term of the abatement will be for up to thirteen years in an amount not to exceed $411,000. The abatement will apply to 100°/0 of the City's share of the property taxes (the "Abatement") derived from approximately 7.31 acres of the easterly portion of property currently described as Parcel Identification Number 75-131-4100 which is being replatted as Lot 2, Block 1, Portside Addition and which is or will be owned by the Developer (the "Property"). (b) On the date hereof, the Council held a public hearing on the question of the Abatement and the business subsidy, and said hearing was preceded by at least 10 days but not more than 30 days prior published notice thereof. (c) The Abatement is authorized under the Abatement Law. 2. Findings for the Abatement. The City Council hereby makes the following findings: 2138913v2 C:\Users\cmehelich\P.ppData\Local\Microsoft\Windows\Temporary Internet Files\OLK4635\PCDOCS-#2138913-v2- Elk River EO Tool RESOLUTION APPROVING TAX ABATEMENT (2).DOC (a) The Council expects the benefits to the City of the Abatement to at least equal or exceed the costs to the City thereof. (b) Granting the Abatement is in the public interest because it will increase or preserve the tax base of the City and provide employment opportunities in the City. (c) The Property is not located in a tax increment financing district. (d) In any year, the total amount of property taxes abated by the City by this and other resolutions, if any, does not exceed the greater of ten percent (10°/0) of the current levy or $200,000. 3. Terms of Abatement. The Abatement is hereby approved; provided, however, the this approval is contingent upon the approval by Sherburne County of an abatement program for the Project upon the same terms as set forth below for the County's share of property tax amount which the County receives from the Property. The terms of the Abatement are as follows: (a) The Abatement shall be for up to thirteen (13) years and shall apply to the taxes payable in the years 2010 through 2022, inclusive. (b) The City will abate and pay to the Developer 100% of the property tax amount which the City receives from the Property, not to exceed $411,000. (c) The Abatement shall be subject to all the terms and limitations of the Abatement Law. (d) The Abatement may not be modified or changed during its term. 4. Approval of Tax Abatement and Business Subsidy Agreement. (a) The City Council hereby approves a Tax Abatement and Business Subsidy Agreement with the Developer providing for payment of the Abatement and the City's assistance for the Project in substantially the form submitted, and the Mayor and Administrator are hereby authorized and directed to execute the Tax Abatement and Business Subsidy Agreement on behalf of the City. (b) The approval hereby given to the Tax Abatement and Business Subsidy Agreement includes approval of such additional details therein as may be necessary and appropriate and such modifications thereof, deletions therefrom and additions thereto as may be necessary and appropriate and approved by the City officials authorized by this resolution to execute the Agreement. The execution of the Agreement by the appropriate officer or officers of the City shall be conclusive evidence of the approval of the Agreement in accordance with the terms hereof. 2138913v2 2 The motion for the adoption of the foregoing resolution was made by member and duly seconded by member and, upon a vote being taken thereon after full discussion thereof, the following voted in favor thereof: and the following voted against the same: Whereupon said resolution was declared duly passed and adopted. 2138913v2 STATE OF MINNESOTA ) SS COUNTY OF SHERBURNE) I, the undersigned, being the duly qualified and acting Clerk of the City of Elk River, Minnesota (the "City"), by reason of my office as Clerk, DO HEREBY CERTIFY that I have compared the attached and foregoing extract of minutes with the original thereof on file in my office, and that the same is a full, true and complete transcript of the minutes of a meeting of the City Council of the City, duly called and held on the date therein indicated, insofar as such minutes relate to property tax abatements for the Caswell and Osterman Properties, LLC Project. WITNESS my hand this day of February, 2008. City Clerk 2138913x2 TAX ABATEMENT AND BUSINESS SUBSIDY AGREEMENT BY AND BETWEEN CITY OF ELK RIVER, MINNESOTA AND CASWELL AND OSTERMAN PROPERTIES, LLC 2138910v2 C:\Users\cmehelich\AppData\Local\Microsoft\Windows\Temporary Internet Files\OLK4635\PCDOCS-#2138910-v2- Elk_River_EO Tool_ABATEMENT_AGREEMENT (2).DOC TABLE OF CONTENTS Page ARTICLE I DEFINITIONS ................................................................................................. 1 Section 1.1 Definitions .......................................................................................... .. 1 ARTICLE II REPRESENTATIONS AND WARRANTIES .............................................. .. 3 Section 2.1 Representations and Warranties of the City ....................................... .. 3 Section 2.2 Representations and Warranties of the Developer ............................. .. 3 ARTICLE III UNDERTAKINGS BY DEVELOPER AND CITY ..................................... .. 5 Section 3.1 Construction of Project and Reimbursement of Tax Abatement Property Cost ..................................................................................... .. 5 Section 3.2 Limitations on Undertaking of the City ............................................. .. 5 Section 3.3 Commencement and Completion of Construction ............................. .. 5 Section 3.4 Damage and Destruction .................................................................... .. 5 Section 3.5 Change in Use of Project ................................................................... .. 5 Section 3.6 Prohibition Against Transfer of Project and Assignment of Agreement .......................................................................................... .. 5 Section 3.7 Real Property Taxes ........................................................................... .. 6 Section 3.8 Business Subsidies Act ...................................................................... .. 6 Section 3.9 Duration of Abatement Program ........................................................ .. 8 ARTICLE IV EVENTS OF DEFAULT ............................................................................... .. 9 Section 4.1 Events of Default Defined ................................................................. .. 9 Section 4.2 Remedies on Default .......................................................................... .. 9 Section 4.3 No Remedy Exclusive ........................................................................ .. 9 Section 4.4 No Implied Waiver ............................................................................ .. 9 Section 4.5 Agreement to Pay Attorney's Fees and Expenses ............................. 10 Section 4.6 Release and Indemnification Covenants ............................................ 10 ARTICLE V ADDITIONAL PROVISIONS ...................................................................... 11 Section 5.1 Conflicts of Interest ............................................................................ 11 Section 5.2 Titles of Articles and Sections ........................................................... 11 Section 5.3 Notices and Demands ........................................................................ 11 Section 5.4 Counterparts ....................................................................................... 11 Section 5.5 Law Governing .................................................................................. 11 Section 5.6 Duration ............................................................................................. 12 Section 5.7 Provisions Surviving Rescission or Expiration .................................. 12 2138910v2 _i_ TAX ABATEMENT AND BUSINESS SUBSIDY AGREEMENT THIS AGREEMENT, made as of the day of , 2008, by and among the City of Elk River, Minnesota (the "City"), a municipal corporation and political subdivision of the State of Minnesota, and Caswell and Osterman Properties, LLC, a Minnesota limited liability company (the "Developer"). WITNESSETH: WHEREAS, pursuant to Minnesota Statutes, Sections 469.1812 through 469.1815, the City has established a Tax Abatement Program; and WHEREAS, the City believes that the development and construction of a certain Project (as defined herein), and fulfillment of this Agreement are vital and are in the best interests of the City, will result in preservation and enhancement of the tax base, provide employment opportunities and are in accordance with the public purpose and provisions of the applicable state and local laws and requirements under which the Project has been undertaken and is being assisted; and WHEREAS, the requirements of the Business Subsidy Law, Minnesota Statutes, Section 116J.993 through 116J.995, apply to this Agreement; and WHEREAS, the City has adopted criteria for awarding business subsidies that comply with the Business Subsidy Law, after public hearings for which notice was published; and WHEREAS, the Council has approved this Agreement as a subsidy agreement under the Business Subsidy Law. NOW, THEREFORE, in consideration of the premises and the mutual obligations of the parties hereto, each of them does hereby covenant and agree with the other as follows: ARTICLE I DEFINITIONS Section 1.1 Definitions. All capitalized terms used and not otherwise defined herein shall have the following meanings unless a different meaning clearly appears from the context: Agreement means this Agreement, as the same may be from time to time modified, amended or supplemented; Benefit Date means the date on which a Certificate of Occupancy for the Project is issued by the City; Business Day means any day except a Saturday, Sunday or a legal holiday or a day on which banking institutions in the City are authorized by law or executive order to close; 2138910v2 City means the City of Elk River, Minnesota; County means Sherburne County, Minnesota; Developer means Caswell and Osterman Properties, LLC, a Minnesota limited liability company, its successors and assigns; Event of Default means any of the events described in Section 4.1; Project means the construction by the Developer of an approximately 55,000 square foot light industrial facility to be located in the City; State means the State of Minnesota; Tax Abatement Act means Minnesota Statutes, Sections 469.1812 through 469.1815; Tax Abatement Program means the actions by the City pursuant to Minnesota Statutes, Section 469.1812 through 469.1815, as amended, and undertaken in support of the Project; Tax Abatement Property means all and any portion of the real property owned or to be owned by the Developer and described as Lot 2, Block 1, Portside Addition located in the City; Tax Abatements means 100% of the City's share of real estate taxes on the Tax Abatement Property abated in accordance with the Tax Abatement Program. 2138910v2 2 ARTICLE II REPRESENTATIONS AND WARRANTIES Section 2.1 Representations and Warranties of the Cites The City makes the following representations and warranties: (1) The City is a municipal corporation and a political subdivision of the State and has the power to enter into this Agreement and carry out its obligations hereunder. (2) The Tax Abatement Program was created, adopted and approved in accordance with the terms of the Tax Abatement Act. (3) To finance the costs of the Project to be undertaken by the Developer, the City proposes, subject to the further provisions of this Agreement, to apply the Tax Abatements to reimburse the Developer for a portion of the costs of the Tax Abatement Property as further provided in this Agreement. (4) The City has made the findings required by the Tax Abatement Act for the Tax Abatement Program. Section 2.2 Representations and Warranties of the Developer. The Developer makes the following representations and warranties: (1) The Developer has the power to enter into this Agreement and to perform its obligations hereunder and doing so will not violate its articles of organization, member control agreement or operating agreement or any local, state or federal laws. (2) The Developer is a limited liability company validly existing under the laws of this State and has full power to enter into this Agreement and carry out the covenants contained herein. (3) The Developer will cause the Project to be constructed in accordance with the terms of this Agreement and all local, state and federal laws and regulations (including, but not limited to, environmental, zoning, energy conservation, building code and public health laws and regulations). (4) The Developer will obtain or cause to be obtained, in a timely manner, all required permits, licenses and approvals, and will meet, in a timely manner, all requirements of all applicable local, state, and federal laws and regulations which must be obtained or met before the Project maybe lawfully constructed (5) The construction of the Project would not be undertaken by the Developer, and in the opinion of the Developer would not be economically feasible within the reasonably foreseeable future, without the assistance and benefit to the Developer provided for in this Agreement. z1389io~z 3 (6) Neither the execution and delivery of this Agreement, the consummation of the transactions contemplated hereby, nor the fulfillment of or compliance with the terms and conditions of this Agreement is prevented, limited by or conflicts with or results in a breach of, the terms, conditions or provisions of any contractual restriction, evidence of indebtedness, agreement or instrument of whatever nature to which the Developer is now a party or by which it is bound, or constitutes a default under any of the foregoing. (7) The Developer will cooperate fully with the City with respect to any litigation commenced with respect to the Project but only to the extent that the City and the Developer are not adverse parties to the litigation. (8) The Developer will cooperate fully with the City in resolution of any traffic, parking, trash removal or public safety problems which may arise in connection with the construction and operation of the Project. a~sa9~o~2 4 ARTICLE III UNDERTAKINGS BY DEVELOPER AND CITY Section 3.1 Construction of Project and Reimbursement of Tax Abatement Property Cost. (1) The costs of the construction of the Project shall be paid by the Developer. The Developer will construct the Project in accordance with the approved construction plans and at all times prior to the termination of this Agreement will operate and maintain, preserve and keep the Project or cause the Project to be maintained, preserved and kept with the appurtenances and every part and parcel thereof, in good repair and condition. (2) Upon completion of the Project and submission to the City of a settlement statement for the purchase of the Abatement Property actually incurred and paid by the Developer or its designee, the City shall [reimburse the Developer for such costs of the Abatement Property] in an amount not to exceed $411,000 (the "Reimbursement Amount") pursuant to the Abatement Program as provided in Section 3.9. Section 3.2 Limitations on Undertaking of the City. Notwithstanding the provisions of Section 3.1, the City shall have no obligation to reimburse the Developer for the costs of the Project, if the City, at the time or times such payment is to be made, is entitled under Section 4.2 to exercise any of the remedies set forth therein as a result of an Event of Default which has not been cured. Section 3.3 Commencement and Completion of Construction. The Developer shall complete the Project by April 1, 2009. All work with respect to the Project to be constructed or provided by the Developer shall be in conformity with the construction plans as submitted by the Developer and approved by the City. Nothing in this Agreement shall be deemed to impair or limit any of the City's rights or responsibilities under its zoning laws or construction permit processes. Section 3.4 Damage and Destruction. In the event of damage or destruction of the Project the Developer shall repair or rebuild the Project. Section 3.5 Change in Use of Project. The City's obligations pursuant to this Agreement shall be subject to the continued operation of the Project by the Developer. Section 3.6 Prohibition Against Transfer of Project and Assignment of Agreement The Developer represents and agrees that prior to the termination date of this Agreement the Developer shall not transfer the Project or any part thereof or any interest therein, without the prior written approval of the City. The City shall be entitled to require as conditions to any such approval that: 2138910v2 (1) Any proposed transferee shall have the qualifications and financial responsibility, in the reasonable judgment of the City, necessary and adequate to fulfill the obligations undertaken in this Agreement by the Developer. (2) Any proposed transferee, by instrument in writing satisfactory to the City shall, for itself and its successors and assigns, and expressly for the benefit of the City, have expressly assumed all of the obligations of the Developer under this Agreement and agreed to be subject to all the conditions and restrictions to which the Developer is subject. (3) There shall be submitted to the City for review and prior written approval all instruments and other legal documents involved in effecting the transfer of any interest in this Agreement or the Project. Section 3.7 Real Property Taxes. The Developer shall, so long as this Agreement remains in effect, pay all real property taxes with respect to all parts of the Tax Abatement Property owned by it which are payable pursuant to any statutory or contractual duty that shall accrue until title to the property is vested in another person. The Developer agrees that for tax assessments so long as this Agreement remains in effect: (a) It will not seek administrative review or judicial review of the applicability of any tax statute relating to the ad valorem property taxation of real property contained on the Tax Abatement Property determined by any tax official to be applicable to the Project or the Developer or raise the inapplicability of any such tax statute as a defense in any proceedings with respect to the Tax Abatement Property, including delinquent tax proceedings; provided, however, "tax statute" does not include any local ordinance or resolution levying a tax; (b) It will not seek administrative review or judicial review of the constitutionality of any tax statute relating to the taxation of real property contained on the Tax Abatement Property determined by any tax official to be applicable to the Project or the Developer or raise the unconstitutionality of any such tax statute as a defense in any proceedings, including delinquent tax proceedings with respect to the Tax Abatement Property; provided, however, "tax statute" does not include any local ordinance or resolution levying a tax; (c) It will not seek any tax deferral or abatement, either presently or prospectively authorized under Minnesota Statutes, Section 469.181, or any other State or federal law, of the ad valorem property taxation of the Tax Abatement Property so long as this Agreement remains in effect. Section 3.8 Business Subsidies Act. (1) In order to satisfy the provisions of Minnesota Statutes, Sections 116J.993 to 116J.995 (the "Business Subsidies Act"), the Developer acknowledges and agrees that the amount of the "Business Subsidy" granted to the Developer under this Agreement is the amount of the cost of the Tax Abatement Property to be reimbursed hereunder, which is approximately $411,000, and that the Business Subsidy is needed because the Project is not sufficiently feasible 2138910v2 6 for the Developer to undertake without the Business Subsidy. The public purpose of the Business Subsidy is to create jobs and increase the tax base in the City. The Developer agrees that it will cause E & O Tool & Plastics, Inc. (the "Tenant") to meet the following goals (the "Goals"): in addition to the existing 124 full time equivalent jobs the Tenant will maintain, it will create at least twenty-five (25) new full time equivalent jobs in connection with the development of the Project at a wage of at least $15.00 per hour, [which includes benefits not required by law,] within two years from the Benefit Date. (2) If none of the Goals are met, the Developer agrees to repay all of the Business Subsidy to the City, plus interest ("Interest") set at the implicit price deflator defined in Minnesota Statutes, Section 275.70, Subdivision 2, accruing from and after the Benefit Date, compounded semiannually. If the Goals are met in part, the Developer will repay a portion of the Business Subsidy (plus Interest) determined by multiplying the Business Subsidy by a fraction, the numerator of which is the number of jobs in the Goals which were not created at the wage level set forth above and the denominator of which is least twenty-five (25) (i.e. number of jobs set forth in the Goals). (3) The Developer agrees to (i) report its progress on achieving the Goals to the City until the later of the date the Goals are met or two years from the Benefit Date, or, if the Goals are not met, until the date the Business Subsidy is repaid, (ii) include in the report the information required in Section 116J.994, Subdivision 7 of the Business Subsidies Act on forms developed by the Minnesota Department of Employment and Economic Development, and (iii) send completed reports to the City. The Developer agrees to file these reports no later than March 1 of each year commencing March 1, 2009, and within 30 days after the deadline for meeting the Goals. The City agrees that if it does not receive the reports, it will mail the Developer a warning within one week of the required filing date. If within 14 days of the post marked date of the warning the reports are not made, the Developer agrees to pay to the City a penalty of $100 for each subsequent day until the report is filed up to a maximum of $1,000. (4) The Developer agrees to cause the Tenant to continue operations of the Project for at least five (5) years after the Benefit Date. (5) In addition to the Tax Abatements provided by the City and comparable tax abatements from the County, [the Economic Development Authority of the City of Elk River, Minnesota will provide a $75,000 micro loan to the Developer for the Project][Delete if not approved]. (6) There is no parent corporation of the Developer or the Tenant. 2138910v2 7 Section 3.9 Duration of Abatement Pro am. The Tax Abatement Program shall exist for a period of up to thirteen years beginning with real estate taxes payable in 2010 through 2022. On or before February 1 and August 1 of each year commencing February 1, 2010 until the earlier of the date that the Developer shall have received the Reimbursement Amount or August 1, 2022 the City shall pay the Developer the amount of the Tax Abatements received by the City in the previous six month period. The City may terminate the Tax Abatement Program and this Agreement at an earlier date if an Event of Default occurs and the City rescinds or cancels this Agreement. 213891Ov2 ARTICLE IV EVENTS OF DEFAULT Section 4.1 Events of Default Defined. The following shall be "Events of Default" under this Agreement and the term "Event of Default" shall mean whenever it is used in this Agreement any one or more of the following events: (1) Failure by the Developer to timely pay any ad valorem real property taxes, special assessments, utility charges or other governmental impositions with respect to the Project. (2) Failure by the Developer to cause the construction of the Project to be completed pursuant to the terms, conditions and limitations of this Agreement. (3) Failure by the Developer to observe or perform any other covenant, condition, obligation or agreement on its part to be observed or performed under this Agreement. Section 4.2 Remedies on Default. Whenever any Event of Default referred to in Section 4.1 occurs and is continuing, the City, as specified below, may take any one or more of the following actions after the giving of thirty (30) days' written notice to the Developer citing with specificity the item or items of default and notifying the Developer that it has thirty (30) days within which to cure said Event of Default. If the Event of Default has not been cured within said thirty (30) days: (a) The City may suspend its performance under this Agreement until it receives assurances from the Developer, deemed adequate by the City, that the Developer will cure its default and continue its performance under this Agreement. (b) The City may cancel and rescind this Agreement. (c) The City may take any action, including legal or administrative action, in law or equity, which may appear necessary or desirable to enforce performance and observance of any obligation, agreement, or covenant of the Developer under this Agreement. Section 4.3 No Remedy Exclusive. No remedy herein conferred upon or reserved to the City is intended to be exclusive of any other available remedy or remedies, but each and every such remedy shall be cumulative and shall be in addition to every other remedy given under this Agreement or now or hereafter existing at law or in equity or by statute. No delay or omission to exercise any right or power accruing upon any default shall impair any such right or power or shall be construed to be a waiver thereof but any such right and power may be exercised from time to time and as often as maybe deemed expedient. Section 4.4 No Implied Waiver. In the event any agreement contained in this Agreement should be breached by any party and thereafter waived by the other party, such waiver shall be 2138910v2 9 limited to the particular breach so waived and shall not be deemed to waive any other concurrent, previous or subsequent breach hereunder. Section 4.5 Agreement to Pay Attorney's Fees and Expenses. Whenever any Event of Default occurs and the City shall employ attorneys or incur other expenses for the collection of payments due or to become due or for the enforcement or performance or observance of any obligation or agreement on the part of the Developer herein contained, the Developer agrees that they shall, on demand therefor, pay to the City the reasonable fees of such attorneys and such other expenses so incurred by the City. Section 4.6 Release and Indemnification Covenants. (1) The Developer releases from and covenants and agrees that the City and its governing body members, officers, agents, servants and employees shall not be liable for and agrees to indemnify and hold harmless the City and its governing body members, officers, agents, servants, and employees against any loss or damage to property or any injury to or death of any person occurring at or about or resulting from any defect in the Project. (2) Except for any willful misrepresentation or any willful or wanton misconduct of the following named parties, the Developer agrees to protect and defend the City and its governing body members, officers, agents, servants and employees, now or forever, and further agrees to hold the aforesaid harmless from any claim, demand, action or other proceeding whatsoever by any person or entity whatsoever arising or purportedly arising from a breach of the obligations of the Developer under this Agreement, or the transactions contemplated hereby or the acquisition, construction, installation, ownership, maintenance and operation of the Project. (3) The City and its governing body members, officers, agents, servants and employees shall not be liable for any damages or injury to the persons or property of the Developer or its officers, agents, servants or employees or any other person who may be about the Project due to any act of negligence of any person. (4) All covenants, stipulations, promises, agreements and obligations of the City contained herein shall be deemed to be the covenants, stipulations, promises, agreements and obligations of the City and not of any governing body member, officer, agent, servant or employee of the City in the individual capacity thereof. 2138910v2 1 Q ARTICLE V ADDITIONAL PROVISIONS Section 5.1 Conflicts of Interest. No member of the governing body or other official of the City shall participate in any decision relating to this Agreement which affects his or her personal interests or the interests of any corporation, partnership or association in which he or she is directly or indirectly interested. No member, official or employee of the City shall be personally liable to the City in the event of any default or breach by the Developer or successor or on any obligations under the terms of this Agreement. Section 5.2 Titles of Articles and Sections. Any titles of the several parts, articles and sections of this Agreement are inserted for convenience of reference only and shall be disregarded in construing or interpreting any of its provisions. Section 5.3 Notices and Demands. Except as otherwise expressly provided in this Agreement, a notice, demand or other communication under this Agreement by any party to any other shall be sufficiently given or delivered if it is dispatched by registered or certified mail, postage prepaid, return receipt requested, or delivered personally, and (1) in the case of the Developer is addressed to or delivered personally to: Caswell and Osterman Properties, LLC 19178 Industrial Boulevard Elk River, MN 55330 Attention: President (2) in the case of the City is addressed to or delivered personally to the City at: City of Elk River, Minnesota Elk River City Hall 13065 Orono Parkway Elk River, MN 55330-5600 Attention: Director of Economic Development or at such other address with respect to any such party as that party may, from time to time, designate in writing and forward to the other, as provided in this Section. Section 5.4 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall constitute one and the same instrument. Section 5.5 Law Governing. This Agreement will be governed and construed in accordance with the laws of the State of Minnesota. 2138910v2 1 1 Section 5.6 Duration. This Agreement shall remain in effect through the earlier of the date the Developer receives the Reimbursement Amount or August 1, 2022, unless earlier terminated or rescinded in accordance with its terms. Section 5.7 Provisions Surviving Rescission or Expiration. Sections 4.5 and 4.6 shall survive any rescission, termination or expiration of this Agreement with respect to or arising out of any event, occurrence or circumstance existing prior to the date thereof. 2138910v2 12 IN WITNESS WHEREOF, the City has caused this Agreement to be duly executed in its name and on its behalf, and the Developer has caused this Agreement to be duly executed in its name and on its behalf, on or as of the date first above written. CASWELL AND OSTERMAN PROPERTIES, LLC By- Its This is a signature page to the Tax Abatement and Business Subsidy Agreement by and between the City of Elk River, Minnesota and Caswell and Osterman Properties, LLC 2138910v2 S-I CITY OF ELK RIVER, MINNESOTA By Its Mayor By Its Administrator This is a signature page to the Tax Abatement and Business Subsidy Agreement by and between the City of Elk River, Minnesota and Caswell and Osterman Properties, LLC 2138910v2 S-2