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DBQ Nursey Landscape UDAG Loan D~ ~~~ MEMORANDUM March 30, 2004 TO: The Honorable Mayor and City Council Members FROM: Michael C. Van Milligen, City Manager SUBJECT: UDAG Loan to Dubuque Nursery and Landscaping Greg Schmidt and Wayne Klostermann, owners of a new nursery and landscaping business, have approached the City about purchasing property of a former nursery at 2813 Jackson Street. The company has received a written commitment from American Trust and Savings Bank for the financing of the purchase and renovation of the real estate. The bank's commitment is contingent upon securing an additional $20,000 in capital to fund inventory and cash flow needs for the first few months of operation. Economic Development Director Bill Baum is recommending that the City Council approve a UDAG loan agreement in the amount of $20,000. Providing financing of this nature is unusual for the City, however, the property on Jackson Street is the location of the former Hopper's Nursery, and in its current vacant and run down condition, is a blighting influence on the neighborhood. The proposed new business will be the only full service landscape garden center located in the "North end" of the City. A UDAG loan agreement has been prepared in the amount of $20,000. The loan proposed is for a five-year term, at 3% interest, with interest only payments due for the term, and a balloon payment due at the end of the loan period. The City will require security of a second mortgage on the property and personal guarantees of Gregory W. Schmidt and Wayne C. Klostermann. I concur with the recommendation and respectfully request Mayor and City Council approval. rrwJ ~Aa Miéhael C. Van Milligen ~ MCVM/jh Attachment cc: Barry Lindahl, Corporation Counsel Cindy Steinhauser, Assistant City Manager William Baum, Economic Development Director D~ ~~~ MEMORANDUM March 30, 2004 TO: FROM: Michael Van Milligen, City Manager William Baum, Economic Development Directo~ SUBJECT: UDAG loan to Dubuque Nursery and Landscaping BACKGROUND For the past six months I have been having discussions with the owners of a new nursery and landscaping business about purchasing a former nursery property at 2813 Jackson Street. Greg Schmidt and Wayne Klostermann have submitted a business plan to our office and local lenders in an attempt to finance an upscale residential landscaping and nursery business. The company plans to be a "one of a kind" in the trade area and compete with the market currently lost to Davenport, Cedar Rapids, and Madison companies. DISCUSSION The company has received a written commitment from American Trust and Savings Bank for the financing of the purchase and renovation of the real estate. The bank's commitment is contingent upon the securing of an additional $20,000 in capital to fund inventory and cash flow needs for the first few months of operation. The City is being asked to fill this gap in funding for the company. We have discussed two potential loan programs with the owners: the Community Development Block Grant (CDBG) program, and the "UDAG" loan program. The CDBG program has numerous federal conditions attached that make the use unfeasible for this project. The other loan program has flexible terms and conditions. RECOMMENDATION The property on Jackson Street is the location of the former Hopper's nursery, and in its current vacant and run down condition, is a blighting influence on the neighborhood. The proposed new business will be the only full service landscape garden center located in the "North end" of the City. Loan assistance to help finance the reuse of this property is appropriate. A UDAG loan agreement has been prepared in the amount of $20,000. The loan proposed is for a five-year term, at 3% interest, with interest only payments due for the term, and a balloon payment due at the end of the loan period. The City will require security of a second mortgage on the property and personal guarantees of Gregory W. Schmidt and Wayne C. Klostermann. I recommend approval of the loan. ACTION REQUIRED The City Council is requested to approve the attached resolution approving a loan agreement with Dubuque Nursery and Landscape. F:IUSERSIWBaumIGen EDlInemo on UDAG loan to Dubuque Nursery and Landscaplng.doc RESOLUTION NO. 138-04 APPROVING LOAN AGREEMENT WITH DUBUQUE NURSERY AND LANDSCAPE WHEREAS, an application for a City UDAG loan has been made by Dubuque Nursery and Landscape, and WHEREAS, Dubuque Nursery and Landscape proposes to operate a business at 2813 Jackson Street, and WHEREAS, the City of Dubuque has Urban Development Action Grant (UDAG) funds available to assist in projects that contribute to the local economy; NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF DUBUQUE, IOWA: Section 1. That the redevelopment of the property at 2813 Jackson Street will have a beneficial impact on the neighborhood, and will result in new job creation in the neighborhood and the City of Dubuque. Section 2. That the Loan Agreement by and between the City of Dubuque, and the Dubuque Nursery and Landscape attached hereto is hereby approved. Section 3. That the City Manager is authorized to execute, on behalf of the City of Dubuque, Iowa, said Loan Agreement in substantially the form attached hereto, but with such changes as the City Manager, with the assistance of the Corporation Counsel, find to be appropriate, the City Manager's execution thereofto constitute this City Council's approval of said Loan Agreement. Passed, approved and adopted this 5th day of April, 2004. Terrance M. Duggan, Mayor Attest: Jeanne F. Schneider, City Clerk F:\USERS\WBaum\Gen ED\resolution approving Dubuque Nursery and Landscape.doc CITY OF DUBUQUE, IOWA ECONOMIC DEVELOPMENT LOAN PROGRAM DUBUQUE NURSERY AND LANDSCAPE LOAN AGREEMENT NUMBER: UDAG #1-04 This AGREEMENT, dated as of the - day of , 2003, is entered into by and between the CITY OF DUBUQUE, IOWA, a municipal corporation organized and existing under the laws of the State of Iowa (hereinafter referred to as the "City") and DUBUQUE NURSERY AND LANDSCAPE a Iowa Corporation with its principal place of business in Dubuque, Iowa (hereinafter referred to as the "Company"). WITNESSETH: WHEREAS, City has funded an economic development loan program to support the growth and expansion of new and existing businesses; and WHEREAS, Company has requested a loan to offset the costs associated with the acquisition and operation of a nursery and landscaping business located at 2813 Jackson Street, Dubuque, Iowa; and . WHEREAS, City has considered said proposal and has determined that it will improve the Jackson Street neighborhood and contribute to the local economy through the creation of jobs for area residents. NOW THEREFORE, in consideration of the promises and respective covenants, agreements and representations hereinafter set forth, the parties agree as follows: 1. SOURCE OF LOAN FUNDS. City has sufficient Urban Development Action Grant (UDAG) funds to carry out its obligations under this Agreement. 2. LOAN TERMS. City agrees to provide a loan to Company in the amount of twenty thousand dollars ($20,000.00). The term of the loan shall be five (5) years. Interest shall accrue at the rate of three percent (3%) per annum. Payments of interest shall be made quarterly during the term of the loan, and the entire amount of principal shall be due and payable on April 15, 2009. On or before the date of the first disbursement of loan funds to Company, Company shall execute its Promissory Note in the form attached hereto as Exhibit A payable to the order of City in the principal amount of twenty thousand dollars ($20,000.00). Loan Agreement Dubuque Nursery and Landscape Page 2 3. DISBURSEMENT AND USE OF LOAN FUNDS. Loan funds shall be disbursed for the benefit of Company by City for Qualifying Project Expenses up to twenty thousand dollars ($20,000.00). Company shall furnish to City written request for disbursement of loan funds. It is expressly understood that all funds advanced under this Agreement shall be specifically earmarked and used by Company only for the purpose of paying the Qualifying Project Expenses listed in the applicable written request and as defined in Section 26(b). Company shall complete the Project as defined in Section 26(a) in accordance with the terms of this Agreement within twelve (12) months of the date of this Agreement. City shall not be obligated to pay any funds not drawn by Company as of said date and any undrawn funds shall be credited against the balance due on the Promissory Note. 4. SECURITY. This loan shall be secured by Personal Guarantees from Gregory W. Schmidt and Wayne C. Klostermann, and a second mortgage on the real estate located at 2813 Jackson Street. 5. STATUS OF COMPANY. Company represents that it is a corporation duly organized and existing under the laws of the State of Iowa; that it is authorized to borrow under this Agreement, to execute and deliver the Note and otherwise perform the obligations of this Agreement; that is has corporate authority and power to own its property and conduct its business as it is currently carried on; that the performance of its obligations under this Agreement and the issuance of any note under it will not conflict with any provision of law, the Articles of Incorporation or the Bylaws of Company, or any agreement binding on it; and that, except as disclosed in writing to City, it is not a party to any pending or threatened litigation or to any proceeding or action for the assessment or collection of additional taxes, and that it knows of no known contingent liabilities not provided for or disclosed in the financial statement provided City. 6. CONDITIONS OF BORROWING. On the date on which any sum is to be borrowed, Company, in addition to the Note, shall deliver to City such other papers and documents as may be required to comply with the conditions of this Agreement, as counsel for City may reasonably request. Company shall be required at the closing date to comply, or establish compliance, as follows: (a) That the representations and warranties of Company are correct on the closing date, as well as on the date of execution of this Agreement; (b) That Company has fully complied with the covenants and agreements to the extent required before the closing date; Loan Agreement Dubuque Nursery and Landscape Page 3 (c) That no default or event which might mature into a default has occurred or continues to the closing date; (d) That no litigation or proceeding is pending against Company which might result in any change in the business or adversely affect the properties of Company, taking into account the entire assets and overall business of Company; (e) That since the date of execution of this Agreement and to the closing date there has been no material adverse change in the financial condition of Company; (f) That since the date of execution of this Agreement no fire or casualty has occurred in any building or to any inventories or property of Company that might substantially, adversely affect the conduct of its business; (g) That it will furnish to City on the closing date with the opinion of Company's counsel that Company is a corporation duly organized, existing and in good standing under the laws of the State of Iowa; that it has corporate power to own its properties and conduct the business in which it is then engaged; that Company is not in violation of any law, ordinance or regulation of any governmental authority as to its business, premises or assets; that Company has full power to execute and deliver this Agreement, to execute and deliver the Note that evidences the sum borrowed, to borrow moneys under this Agreement, and to perform its obligations under this Agreement and the Note; that such actions have been duly authorized by all necessary corporate actions and are not in conflict with any agreement binding on Company known to counsel; and that this Agreement and the Note when executed and delivered by Company will be a valid and binding obligation of Company in accordance with its terms. 9. COVENANTS OF COMPANY. Company covenants that until any sums borrowed under this Agreement are paid in full, it will, unless City agrees in writing to a modification or otherwise stated herein: (a) Take all actions necessary and required to create a minimum of eight (8) new permanent full-time job equivalents with Company in Dubuque, Iowa by April 15, 2009. Company shall use its best efforts to hire local area residents whenever practicable and not otherwise in conflict with nondiscrimination provisions herein stated. (b) Furnish City within ninety (90) days after the end of each fiscal year with a copy of its annual report, which shall be prepared in conformity with generally accepted accounting principles consistently applied, and, within thirty (30) days after the end of each quarter of its fiscal year, with a copy of its financial Loan Agreement Dubuque Nursery and Landscape Page 4 statement similarly prepared and, from time to time, such other financial information as City may reasonably request. City reserves the right to request audited annual reports, certified by the accountants that supplied the statements at the execution, or such other accountants satisfactory to City as may be retained by Company, which shall be prepared in conformity with generally accepted accounting principles consistently applied. Reports shall be supplied at the expense of Company; (c) Pay when due all rent, taxes, assessments and other liabilities, except those contested in good faith where notice of such contest has been given to City; (d) Not create or permit to exist any mortgage, pledge, security interest, lien or other encumbrance on the security for this Loan Agreement provided in Section 4 above and the Note provided pursuant to this Loan Agreement without written consent of City. City approval of such written consent will not be unreasonably withheld; (e) Not become a party to any merger, consolidation or sale of Company; not sell, transfer, conveyor lease all or any part of its property except in the ordinary course of business; (f) Not cause, suffer or permit any of its subsidiaries to do any of the things prohibited to Company in this Agreement; (g) Not change the general character of its business as conducted at the date hereof, engage in any type of business not reasonably related to its business as normally conducted, or relocate Company's project operations outside the city limits of the City of Dubuque; (h) Give prompt notice in writing to City of any adverse development, financial or otherwise, which would materially affect its business, properties or affairs, or the ability of Company to perform its obligations under this Agreement or the Promissory Note executed pursuant to the terms of this Agreement; (i) Use loan funds only for purposes authorized herein; 0) Pay all fees, expenses and charges in respect to this Agreement or its making in any way connected therewith including, but not limited to, legal fees, abstract continuation, recording and filing fees, mortgage taxes, documentary stamps, and any other taxes, fees and expenses payable in connection with this transaction. Loan Agreement Dubuque Nursery and Landscape Page 5 10. DEFAULT. Company shall be in default if: (a) It fails to pay any installment of principal or interest on any note (whether to City or any other public or private lender) when due or within ten (10) days thereafter; (b) It becomes insolvent or admits in writing its inability to pay its debts as they mature; or applies for, consents to or acquiesces in the appointment of a trustee or received for any of its property; or in the absence of an application for consent, or acquiescence, a trustee or receiver is appointed for it or a substantial part of its property and is not discharged within ten (10) days; or it otherwise commits an act of bankruptcy; or any bankruptcy, reorganization, debt arrangement or other proceeding under any bankruptcy or insolvency law, or any dissolution or liquidation proceeding, is instituted by or against it and if instituted is consented to or acquiesced in by it or remains for ten (10) days undismissed; (c) It fails in the performance of the terms and conditions of this Agreement (other than the payment terms referred to in (a) above) and such non- performance continues for ten (10) days after notice thereof from City or from the holder of a note; (d) Any warranty made by Company is untrue in any material respect, or any schedule, statement, report, notice or writing furnished by Company to City is untrue in any material respect on the date as of which the facts set forth are stated or certified; (e) Any government board, agency, department, commission or public or private lender takes possession or control of any substantial part of the property of Company and such possession or control continues for ten (10) days. 11. ACCELERATION AT OPTION OF CITY. If any default occurs, City may declare the Note immediately due and payable, at which time all unpaid principal and interest shall immediately become due and payable. City shall promptly advise Company in writing of any acceleration under this section, but the failure to do so shall not impair the effect of such declaration. Loan Agreement Dubuque Nursery and Landscape Page 6 13. MAINTENANCE OF RECORDS AND RIGHT TO INSPECT. Company will keep and maintain all normal business books and records and all other documents, invoices and receipts relating directly to the receipt and disbursement of loan funds and job creation; and any duly authorized independent accounting representative of City shall at all reasonable times have access to and the right to inspect, copy, audit and examine all such books and other documents of Company pertaining to the project until the completion of all closeout procedures respecting City's loan and the final settlement and conclusion of all issues arising out of said loan. 14. ADDRESS. Company's initial business address is: Dubuque Nursery and Landscape 1623~ Paradise Lane Dubuque, Iowa 52002 Company shall promptly give City written notice of any further change in its principal office address. City's address is: Economic Development Department City Hall 50 West 13th Street Dubuque, IA 52001 15. ACCESS TO PROJECT. Company agrees that any duly authorized representative of City shall at all reasonable times have access to any portion of the project, for monitoring purposes, until the completion of all closeout procedures respecting this loan. 16. LIMITATION OF CITY'S LIABILITY FOR PROJECT ACTIVITIES. City shall not be liable to Company, or to any party, for the completion of, or the failure to complete, any activities that are part of the project, except as may be specifically provided in this Agreement. Company agrees to indemnify, hold harmless and defend City from any such claims against City for which liability is limited hereunder. 17. CONFLICT OF INTEREST. Company agrees that no member, officer or employee of City, or its designees or agents, nor any consultant or member of the governing body of City, and no other public official of City who exercises or has exercised any functions or responsibilities with respect to the project during his or her tenure, or who is in a position to participate in a decision making process or gain inside information with regard to the project, 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 at any time during or after such person's tenure. Loan Agreement Dubuque Nursery and Landscape Page 7 18. NONDISCRIMINATION. In carrying out the project, Company shall not discriminate against any employee or applicant for employment because of race, religion, color, sex, national origin, age or disability. Such action shall include, but not be limited to, the following: employment upgrading, demotion or transfer; recruitment or recruitment advertising; layoff or termination; rate of payor other forms of compensation; and selection for training, including apprenticeship. 19. DISCLAIMER OF RELATIONSHIPS. Nothing contained in this Agreement between the parties, nor any act of City or Company shall be deemed or construed by any of the parties, or by any third persons, to create any relationship of third party beneficiary, principal or agent, limited or general partnership, or joint venture, or of any association or relationship involving the United States. 20. NOTICE. Any notice, if mailed by United States certified mail, shall be deemed given when mailed, postage prepaid, addressed to Company at its address shown above, or at any other address subsequently designated to City by Company. 21. SUCCESSORS AND ASSIGNS. All covenants, representations, warranties and agreements herein set forth shall be binding upon Company, and its legal representatives, successors and assigns. This Agreement may not be assigned by City or Company without the express written consent of the other party. 22. LEGALITY. If any provision of this Agreement shall, for any reason, be held to be invalid or unenforceable, such invalidity or unenforceability shall not affect any other provision hereof, but this Agreement shall be construed as if such invalid or unenforceable provision had never been contained herein. 23. GOVERNING LAW. This Agreement and all rights and duties hereunder, including but not limited to, all matters of construction, validity and performance shall be governed by the laws of the State of Iowa. 24. SURVIVAL OF REPRESENTATIONS. All representations or warranties of Company shall survive the execution and delivery of this Agreement and any notes executed and delivered under it, and no investigation by City nor any closing shall affect the representations or warranties or the right of City to rely on and enforce them. 25. DELAY. No delay on the part of City or the holder of any note in the exercise of any right shall operate as a waiver, nor shall any single or partial exercise of any right preclude other or additional exercise of any right. 26. DEFINITIONS. Loan Agreement Dubuque Nursery and Landscape Page 8 (a) "Project" shall mean those activities to be carried out by Company for the expansion of Company in Dubuque, Iowa. (b) "Qualifying Project Expenses" shall mean those expenditures or expenses incurred by Company during and for the Project for the acquisition of needed inventory and for working capital. (c) "Full-Time Job Equivalent" shall equal a total of forty hours of labor per work week. Such hours may be accrued by single individuals or divided among two or more Company employees. IN WITNESS WHEREOF, City has caused this Loan Agreement to be executed by the City Manager. The Company has executed this Loan Agreement in its corporate name by its duly authorized officer. All of the above occurred as of the - day of , 2004. CITY OF DUBUQUE, IOWA DUBUQUE NURSERY AND LANDSCAPE Michael C. Van Milligen City Manager Gregory W. Schmidt President F:IUSERSIWBaumIGen EDludag.loan dubuque nusery and landscape.doc Exhibit A PROMISSORY NOTE DUBUQUE NURSERY AND LANDSCAPE Economic Development Loan Program UDAG #1-04 Value: $20,000 FOR VALUE RECEIVED, Dubuque Nursery and Landscape. ("Company") promises to pay to the order of the CITY OF DUBUQUE, IOWA, a municipal corporation ("City"), the principal amount of twenty thousand dollars ($20,000) from the date said monies are disbursed by City pursuant to the terms of the attached Loan Agreement dated the - day of , 2004, ("Loan Agreement") which interest shall be at the rate of three percent (3%) per annum. All payments hereunder shall be made in lawful money of the United States at the administrative offices of the Finance Department of City, or at such other place as City may from time to time in writing designate. Company may, from time to time, prepay all or any portion of the principal balance due hereunder without penalty and without consent of City. All such payments of principal shall be applied to principal installments in reverse order of maturity and which last come due under the terms of this Promissory Note. This Promissory Note is made, executed and delivered in accordance with and subject to all of the terms and provisions of the Loan Agreement, entered into and between Company, as borrower, and City, as lender, which is incorporated herein by reference. This Promissory Note is secured by Personal Guarantees of Gregory W. Schmidt and Wayne C. Klostermann. In the event of occurrence of an act of default under Section 10 of the Loan Agreement or any mortgage or security agreement between the parties, then written notice of said default shall be given by City to Company, and Company shall have the time specified in such agreement if any is specified, to cure said default. If default is not cured by Company within the time allowed, City may, at its option declare the entire unpaid amount, including interest, to be immediately due and payable or take such other actions as may be permitted under the Loan Agreement. Principal and interest not paid when due shall draw interest at a rate of fifteen percent (15%) per annum. Company agrees to pay all expenses of collection, including reasonable attorney's fees, court costs, abstracting costs, storage costs, costs of disposition of collateral, and any and all other related and incidental expenses thereto, all of which shall first be deducted from the proceeds of sale or foreclosure. In addition, the holder of this Note shall have all other rights and remedies as are provided for under the Loan Agreement, or as are provided by law. Makers, endorsers and sureties waive demand of payment, notice of nonpayment, protest and notice thereof. Sureties, endorsers and guarantors agree to all of the provisions ofthis Note and consent that the time or times for payment of all or any part hereof may be extended after maturity, from time to time, without notice. DUBUQUE NURSERY AND LANDSCAPE Date Gregory W. Schmidt President F:IUSERSIWBaumIGen EDlUDAG.NOTdubuque nursery and landscape.doc