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HomeMy WebLinkAbout9B - Premiere Dance Academy Development Agreement MEETING DATE: AGENDA #: PREPARED BY: AGENDA ITEM: DISCUSSION: JULY 16,2007 98 PAUL SNOOK, ECONOMIC DEVELOPMENT DIRECTOR CONSIDER APPROVAL OF A RESOLUTION AUTHORIZING THE EXECUTION OF A DEVELOPMENT AGREEMENT BY AND BETWEEN THE CITY OF PRIOR LAKE AND PREMIERE DANCE ACADEMY, LLc Introduction The City Council is asked to approve a resolution authorizing the execution of a Development Agreement by and between the City and Premiere Dance Academy for Tax Increment Financing District 5-1 which increases the tax increment amount authorized for this project. History At the March 6,2006 meeting, City Council approved the establishment of Tax Increment Financing District No. 5-1 for the purposes of assisting in the redevelopment of property located at 4616 Colorado St. in the downtown area for future location of Premiere Dance Academy. Ehlers and Associates prepared a Tax Increment Financing Plan including a "but for" test which would have allowed up to $330,000 in Tax Increment Financing for this project. The developer's actual request at the time was only $135,000 in Tax Increment proceeds which the City Council approved. Current Circumstances Shortly after the approval of the TIF District and Plan it was discovered that there were significant site problems (petroleum contamination and grading issues related to future CSAH 21 expansion) that ultimately resulted in site preparation costs of $251,776 rather than the original $135,000. This is an increase in $116,776 or 86% over the original site preparation costs. The Developer is now requesting an increase in TIF financing to cover the increase in site preparation costs. The Developer is also requesting that the property acquisition cost of $200,000 (which is TIF-eligible under the Minnesota TIF Act) be reimbursed. The Developer acquired the property for $200,000. The rationale for considering using TIF to fund the increase in site preparation costs is that the site problems that caused the increased costs are legitimately TIF-eligible costs, and these costs along with costs of acquiring blighted property are what TIF is designed to address. Adding the property acquisition cost of $200,000 to the demolition and site preparation costs of $251,776 equals a total possible request for reimbursement of $451,533. However, the greatest amount of increment that can be generated by this development is $330,000, less the 10% retained by the City for administration, resulting in $297,000 for the TIF www.cityofpriorlake.com Phone 952.447.9800 / Fax 952.447.4245 eligible costs. All TIF costs must be verified by receipts. If the City Council were to consider including reimbursement of the $200,000 property acquisition cost, only $45,224 of that could be considered for reimbursement since that is the amount that results from $297,000 (total available for TIF reimbursement) less $251,776 (site preparation costs). Issues the City Council should consider when contemplating the request for increasing the amount of increment reimbursement: · The City's TIF Policy states that "the level of TIF financing shall be reduced to the lowest possible level" (which in turn calls for the terms of districts to be as short as possible). This is to ensure that the new tax capacity goes to the taxing jurisdictions as soon as possible. · The original request and application was for reimbursement of $135,000 in demolition and site preparation costs over a 12 year term. Due to unforeseen cleanup and grading requirements, this now totals $251,776. · If TIF reimbursement is at the $297,000 level (demolition/site preparation of $251,776 plus part of acquisition of $45,224), this is approximately a 220% increase in the original amount of $135,000. If this reimbursement level is approved by City Council, the City would be providing TIF financing for 100% of the demolition and site preparation costs, and approximately 23% of the property acquisition costs. The term for this would be approximately 26 years, which is the full term allowed for a TI F Redevelopment District. The project, as specified in the TIF Plan City Council approved March 6, 2006, meets the "but for" analysis as required by law. The reasons and facts supporting the findings (that "but for" the use of TIF the project would not occur) for the adoption of the Tax Increment Financing Plan for Tax Increment Financing District No. 5-1, as required pursuant to Minnesota Statutes, Section 469.175, Subdivision 3 are summarized as follows: · Finding that Tax Increment Financing District No. 5-1 is a redevelopment district. · Finding that the proposed development, in the opinion of the City Council, would not reasonably be expected to occur solely through private investment within the reasonably foreseeable future and that the increased market value of the site that could reasonably be expected to occur without the use of tax increment financing would be less than the increase in the market value estimated to result from the proposed development after subtracting the present value of the projected tax increments for the maximum duration of Tax Increment Financing District No. 5-1 permitted by the TIF Plan. · Finding that the Tax Increment Financing Plan for Tax Increment Financing District No. 5-1 conforms to the general plan for the development or redevelopment of the municipality as a whole. · Finding that the Tax Increment Financing Plan for Tax Increment Financing District No. 5-1 will afford maximum opportunity, consistent with the sound needs of the City as a whole, for the redevelopment of Development District No. 5 by private enterprise. Staff proposes two options for City Council consideration in deciding the level of TIF participation for this project. Of the $330,000 that can be generated by the TIF district, the City would reimburse: 1. Site preparation costs only of $251 ,776. Total TIF would be $279,751. This is comprised of retention by the city of 10% for TIF administrative costs, $27,975; the original request of $135,000; and increased site prep costs of $116,776; The term would be approximately 22 years. 2. Site preparation and property acquisition costs of $297,000. Total TIF would be $330,000. This is comprised of retention by the City of 10% for TIF administrative costs, $33,000; the original request of $135,000; increased site prep costs of $116,776, and $45,224 for property acquisition. The term would be approximately 26 years. The Development Agreement is in final draft form for the final TIF reimbursement amount of $297,000 (Option #2 above). If the City Council elects to approve Option 2 as presented it should authorize execution of the attached Development Agreement between the City and the Developer. If the City Council determines additional TIF funding is not appropriate or an amount different than that proposed in Option 1 or Option 2 (but not more than Option 2) is appropriate, the Development Agreement can be amended accordingly. The terms of the agreement and obligations of the Developer and City are presented in detail in the Agreement. The Note is a special and limited obligation of the City and not a general obligation of the City and only Tax Increments shall be used to pay the principal of and interest on the Note, to the extent they are available. The increment is not guaranteed by the City. The Tax Increment Note states that "the City makes no representation or covenant, express or implied, that the Tax Increments will be sufficient to pay, in whole or in part, the amounts which are or may become due and payable hereunder." The increment is collected for the duration that it takes to reimburse the eligible costs but is not collected beyond that time. The principal amount of this Note shall equal from time to time the principal amount stated in the TIF Plan, and reduced to the extent that such principal installments shall have been paid in whole or in part pursuant to the terms hereof; provided that the sum of the principal amount listed in the TIF Plan shall in no event exceed the amount of TIF approved by City Council as provided in the Development Agreement. Conclusion When the City Council originally considered the TIF application by Premiere Dance Academy it concluded that the Premiere Dance Academy redevelopment project met the objectives of the City's 2030 Vision and Strategic Plan, the Comprehensive Plan and also consistent with the City's Tax Increment Financing Policy. The soil correction issues were unexpected and increased the site preparation costs. Additionally, although eligible, the applicant did not originally request assistance for site acquisition. The Development Agreement, which is essentially an agreement to allow for the use of Tax Increment Financing for the project, is a legal contract that reflects the action taken at the March 6,2006 meeting, in which the City Council approved establishment of Tax Increment Financing District No. 5-1. The Development Agreement was negotiated as part of the TIF approval process and prepared by the City's Bond Counsel. FINANCIAL IMPACT: In an effort to undertake the redevelopment of property that was blighted, the City, County and School District are foregoing their incremental tax receipts that would be generated by this property for the length of the term of the TIF District. As found in the approved TIF Plan, without such assistance the project could not be undertaken. ALTERNATIVES: 1. Adopt Resolution 07 -xx Authorizing the execution of a Development Agreement between the City and Premiere Dance Academy LLC which assumes tax increment in the total amount of $330,000 provided: $33,000 to the City for TIF administration, and $297,000 to the Developer to reimburse eligible site preparation costs and a portion of the property acquisition costs. 2. Defer for a specific reason. RECOMMENDED MOTION: Alternative #1. ReViewed1J Frank Boyles, Cit ATTACHMENTS: 1. Resolution Authorizing Execution of a Development Agreement by and Between The City of Prior Lake and Premiere Dance Academy, LLC 2. Development Agreement by and Between the City of Prior Lake, Minnesota and Premiere Dance Academy, LLC EXTRACT OF MINUTES OF MEETING OF THE CITY COUNCIL OF THE CITY OF PRIOR LAKE, MINNESOTA HELD: July 16,2007 Pursuant to due call and notice thereof, a meeting of the City Council of the City of Prior Lake, Scott County, Minnesota, was duly called and held at the City Hall in said City on Monday, the 16th day of July, 2007, at 6:00 o'clock p.m. The following members were present: and the following were absent: Member adoption: introduced the following resolution and moved its RESOLUTION 07-xx AUTHORIZING EXECUTION OF A DEVELOPMENT AGREEMENT BY AND BETWEEN THE CITY OF PRIOR LAKE AND PREMIERE DANCE ACADEMY, LLC A. WHEREAS, Premiere Dance Academy, LLP (the "Developer") has requested that the City of Prior Lake, Minnesota (the "City") assist with the financing of certain costs in connection with the demolition/removal of an existing house and the construction of an approximately 10,000 square foot commercial facility to be used as a dance studio to be constructed by the Developer in the City (the "Project"). B. WHEREAS, the Developer and the City have determined to enter into a Development Agreement providing for the City's assistance for the Project (the "Development Agreement"). NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Prior Lake, Minnesota, as follows: 1. The City Council hereby approves the Development Agreement in substantially the form submitted, and the Mayor and Manager are hereby authorized and directed to execute the Development Agreement on behalf of the City. 2. The approval hereby given to the Development 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. 2014848vl The motion for adoption of the foregoing resolution was duly seconded by member and, after full discussion thereof, and upon a vote being taken thereof, the following voted in favor thereof: and the following voted against same: Adopted this 16th day of July, 2007. Mayor Attest: City Manager 2014848vl 2 STATE OF MINNESOTA COUNTY OF SCOTT CITY OF PRIOR LAKE I, the undersigned, being the duly qualified and appointed Manager of the City of Prior Lake, Minnesota, DO HEREBY CERTIFY that I have carefully compared the attached and foregoing extract of minutes with the original minutes of a meeting of the City Council of the City held on the date therein indicated, which are on file and of record in my office, and the same is a full, true and complete transcript therefrom insofar as the same relates to a Resolution Authorizing Execution of a Development Agreement. WITNESS my hand as such Manager of the City Council of the City of Prior Lake, Minnesota this _ day of July, 2007. City Manager 2014848vl 3 DEVELOPMENT AGREEMENT BY AND BETWEEN THE CITY OF PRIOR LAKE, MINNESOTA AND PREMIERE DANCE ACADEMY, LLC This document drafted by: BRIGGS AND MORGAN Professional Association 2200 First National Bank Building S1. Paul, Minnesota 55101 1874773v4 TABLE OF CONTENTS Pa!!e AR TlCLE I. REClT ALS ......................................................... ............................................. 2 Section 1.1 Recitals................... .............. ................................................. ............... 2 ARTICLE II. DEFINITIONS........ ................................................ ......................................... 3 Section 2.1 Definitions............................................................................................ 3 ARTICLE III. REPRESENTATIONS AND WARRANTIES................................................ 5 Section 3.1 Representations and Warranties of the City......................................... 5 Section 3.2 Representations and Warranties of the Developer............................... 5 ARTICLE IV. UNDERTAKINGS BY DEVELOPER AND CITy....................................... 7 Section 4.1 Land Acquisition and Site Improvements; Reimbursement of Costs..................................................................................................... 7 Reimbursement: Tax Increment Revenue Note ................................... 7 Business Subsidies Act........................................................................ 8 Section 4.2 Section 4.3 ARTICLE V. EVENTS OF DEF AUL T ............................................................................... 10 Section 5.1 Events of Default Defined ................................................................. 10 Section 5.2 Remedies on Default.......................................................................... 10 Section 5.3 No Remedy Exclusive........................................................................ 11 Section 5.4 No Implied Waiver ............................................................................11 Section 5.5 Agreement to Pay Attorney's Fees and Expenses .............................11 Section 5.6 Indemnification of City...................................................................... 11 ARTICLE VI. DEVELOPER'S OPTION TO TERMINATE AGREEMENT ..................... 13 Section 6.1 The Developer's Option to Terminate ............................................... 13 Section 6.2 Action to Terminate ........................................................................... 13 Section 6.3 Effect of Termination........................ ........................................ ......... 13 ARTICLE VII. ADDITIONAL PROVISIONS.. .......................... ............ .............................. 14 Section 7.1 Restrictions on Use............................................................................ 14 Section 7.2 Conflicts of Interest............................................................................ 14 Section 7.3 Titles of Articles and Sections ...........................................................14 Section 7.4 Notices and Demands ........................................................................ 14 Section 7.5 Counterparts....................................................................................... 14 Section 7.6 Law Governing.................................................................................. 15 Section 7.7 Expiration........................................................................................... 15 Section 7.8 Provisions Surviving Rescission or Expiration.................................. 15 Section 7.9 Assignability of Agreement and Note................................................ 15 EXHIBIT A Description of Development Property......................................................... A-I EXHIBIT B Form of Tax Increment Note ....................................................................... B-1 EXHIBIT C Site Improvements....................................................................................... C-l 1874773v4 -1- DEVELOPMENT AGREEMENT THIS AGREEMENT, made as of the 16th day of July, 2007, by and between the City of Prior Lake, Minnesota (the "City"), a municipal corporation organized and existing under the laws of the State of Minnesota and Premiere Dance Academy, LLC (the "Developer"), a Minnesota limited liability company. WITNESSETH: WHEREAS, pursuant to Minnesota Statutes, Section 469.124 through 469.134, the City has formed Municipal Development District No.5 (the "Development District") and has adopted a Development Program therefor (the "Development Program"); and WHEREAS, pursuant to the provisions of Minnesota Statutes, Section 469.174 through 469.1799, as amended (hereinafter, the "Tax Increment Act"), the City has created within the Development District, Tax Increment Financing District No. 5-1 (a redevelopment district) (the "Tax Increment District"), and has adopted a tax increment financing plan therefor (the "Tax Increment Plan") which provides for the use of tax increment financing in connection with certain development within the Development District; and WHEREAS, in order to achieve the objectives of the Development Program and particularly to make the land in the Development District available for development by private enterprise in conformance with the Development Program, the City has determined to assist the Developer with the financing of certain costs of a Project (as hereinafter defined) to be constructed within the Tax Increment District as more particularly set forth in this Agreement; and WHEREAS, the City believes that the development and construction of the Project, and fulfillment of this Agreement are vital and are in the best interests of the City, the health, safety, morals and welfare of residents of the City, and 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 had adopted criteria for awarding business subsidies that comply with the Business Subsidy Law, after a public hearing 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: 1874773v4 ARTICLE 1. RECITALS Section 1.1 Recitals. The recitals set forth above are incorporated herein and made part of this Agreement. Remainder of this page intentionally left blank !874773v4 2 ARTICLE II. DEFINITIONS Section 2.1 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; 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; City means the City of Prior Lake, Minnesota; County means Scott County, Minnesota; Developer means Premiere Dance Academy, LLC, its successors and assigns; Development District means the real property described in the Development Program; Development Program means the Development Program approved in connection with the Development District; Development Property means the real property legally described in Exhibit A attached to this Agreement; Event of Default means any of the events described in Section 5.1 hereof; Note Payment Date means August 1,2008, and each February 1 and August I thereafter to and including February 1,2034 or such later date as the principal amount of the Note is paid in full; provided, that if any such Note Payment Date should not be a Business Day, the Note Payment Date shall be the next succeeding Business Day; Prime Rate means the rate of interest from time to time publicly announced by U.S. Bank National Association in St. Paul, Minnesota, as its "prime rate" or "reference rate" or any successor rate, which rate shall change as and when that rate or successor rate changes; Proiect means the demolition/removal of an existing house and the construction of an approximately 10,000 square foot commercial facility to be used as a dance studio; Site Improvements means the site improvements to be undertaken on the Development property as identified on Exhibit C attached hereto; State means the State of Minnesota; 1874773v4 3 Tax Increment Act means Minnesota Statutes, Sections 469.174 through 469.1799, as amended; Tax Increment Note means the Tax Increment Revenue Note (Premiere Dance Academy, LLC Project) to be executed by the City and delivered to the Developer pursuant to Article IV hereof, a copy of which is attached hereto as Exhibit B; Tax Increment District means Tax Increment Financing District No. 5-1, located within the Development District, which was qualified as an economic development district under the Tax Increment Act; Tax Increment Financing Plan means the tax increment financing plan approved for the Tax Increment District by the City Council; Tax Increments means 90% of the tax increments derived from the Tax Increment District which have been received and retained by the City in accordance with the provisions of Minnesota Statutes, Section 469.177; Termination Date means the earlier of (i) the date the principal amount of the Note is paid in full, (ii) the date on which the Tax Increment District expires or is otherwise terminated, or (iii) the date this Agreement is terminated or rescinded in accordance with its terms; provided, however, that this Agreement shall not expire prior to the date the Reimbursement Amount is paid in full. Unavoidable Delays means delays, outside the control of the party claiming its occurrence, which are the direct result of strikes, other labor troubles, unusually severe or prolonged bad weather, shortages of materials, acts of God, fire or other casualty to the Project, litigation commenced by third parties which, by injunction or other similar judicial action or by the exercise of reasonable discretion, directly results in delays, or acts of any federal, state or local governmental unit (other than the City) which directly result in delays; Remainder of this page intentionally left blank 1874773v4 4 ARTICLE III. REPRESENTATIONS AND WARRANTIES Section 3.1 Representations and Warranties of the City. The City makes the following representations and warranties: (1) The City is a municipal corporation and has the power to enter into this Agreement and carry out its obligations hereunder. (2) Based on the representations of the Developer contained in Section 3.2(8), the Tax Increment District is a "redevelopment district" within the meaning of Minnesota Statutes, Section 469.174, Subdivision 10, and was created, adopted and approved in accordance with the terms of the Tax Increment Act. (3) The development contemplated by this Agreement is in conformance with the development objectives set forth in the Development Program. (4) To finance certain costs within the Tax Increment District, the City proposes, subject to the further provisions of this Agreement, to apply Tax Increments to reimburse the Developer for certain Site Improvements and for a portion of the costs of the Development Property as further provided in this Agreement. (5) The City makes no representation or warranty, either express or implied, as to the Development Property or its condition or the soil conditions thereon, or that the Development Property shall be suitable for the Developer's purposes or needs. Section 3.2 Representations and Warranties of the Developer. The Developer makes the following representations and warranties: (1) The Developer is a Minnesota limited liability company, has power to enter into this Agreement and to perform its obligations hereunder and is not in violation of any provisions of its articles, bylaws or the laws of the State. (2) The Developer shall cause the Project to be constructed in accordance with the terms of this Agreement, the Development Program, 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). (3) The Developer has represented to the City that the construction of the Project would not be undertaken, 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. (4) 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 provision of any contractual restriction, evidence of indebtedness, 1874773v4 5 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. (5) The Developer will cooperate with the City with respect to any litigation commenced with respect to the Project. (6) The Developer will cooperate with the City in resolution of any traffic, parking, trash removal or public safety problems which may arise in connection with the construction of the Project. (7) The construction of the Project commenced not later than April 1, 2007 and, barring Unavoidable Delays, will be substantially complete by December 31, 2007. (8) The Project consists of the demolition/removal of an existing house and the construction of an approximately 10,000 square foot commercial facility to be used for the primary purpose ofa dance studio. Remainder of this page intentionally left blank 1874773v4 6 ARTICLE IV. UNDERTAKINGS BY DEVELOPER AND CITY Section 4.1 Land Acquisition and Site Improvements: Reimbursement of Costs. As consideration for the execution of this Agreement and the construction of the Project by the Developer, subject to the further provisions of this Agreement, the parties agree that the acquisition of the Development Property and the construction of the Site Improvements to be constructed by the Developer is essential to the successful completion of the Project. The costs of the acquisition of the Development Property and the construction of the Site Improvements shall be paid by the Developer. The City shall reimburse the Developer for the lesser of $297,000 or the costs of the Site Improvements and acquisition of the Development Property actually incurred and paid by the Developer (the "Reimbursement Amount") as further provided in Section 4.2. Section 4.2 Reimbursement: Tax Increment Revenue Note. The City shall reimburse the Developer for the costs identified in Section 4.1 through the issuance of the City's Tax Increment Revenue Note in substantially the form attached to this Agreement as Exhibit B, subject to the following conditions: (1) The Note shall be dated, issued and delivered when the Developer (a) shall have demonstrated in writing to the reasonable satisfaction of the City that the Developer has incurred and paid all costs of the acquisition of the Development Property and the Site Improvements, as described in and limited by Section 4.1 and shall have submitted a closing statement, purchase agreement and paid invoices in an amount not less than the Reimbursement Amount and (b) shall have executed an agreement with the City relating to dedicating right of way and grading the Development Property out to Highway 21 in accordance with the development site plan. (2) No interest shall be paid on the Note. Principal shall mature as provided in the Note. (3) The principal amount of the Note shall be payable solely from the Tax Increments. (4) On each Note Payment Date and subject to the provisions of the Note, the City shall pay, against the principal outstanding on the Note, the Tax Increments received by the City during the preceding 6 months. All such payments shall be applied to reduce the principal of the Note. (5) The Note shall be a special and limited obligation of the City and not a general obligation of the City, and only Tax Increments shall be used to pay the principal on the Note. (6) The City's obligation to make payments on the Note on any Note Payment Date or any date thereafter shall be conditioned upon the requirement that (A) there shall not at that time be an Event of Default that has occurred and is continuing under this Agreement and (B) this Agreement shall not have been rescinded pursuant to Section 5.2(b). !874773v4 7 (7) The Note shall be governed by and payable pursuant to the additional terms thereof, as set forth in Exhibit B. In the event of any conflict between the terms of the Note and the terms of this Section 4.2, the terms of the Note shall govern. The issuance of the Note pursuant and subject to the terms of this Agreement are hereby authorized and approved by the City. Section 4.3 Business Subsidies Act. (1) In order to satisfy the provisions of Minnesota Statutes, Sections 1161.993 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 Reimbursement Amount which is the amount of the Development Property and the Site Improvements reimbursed by the City, and that the Business Subsidy is needed because the Project is not sufficiently feasible for the Developer to undertake without the Business Subsidy. The Tax Increment District is a "redevelopment" district and the public purpose of the Business Subsidy is to retain and develop new jobs within the City and encourage the construction of the Site Improvements and to develop commercial facilities in the City. The Developer agrees that it will meet the following goals (the "Goals"): It will create at least 1 full-time equivalent job at an average wage of at least $9.00 per hour in connection with the development of the Development Property within two years from the "Benefit Date", which is the earlier of the date the Developer completes construction of the Project or occupies the Project. (2) If the Goals are not met, the Developer agrees to repay all or a part 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 one (1) (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, 2008, 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 continue operations within the City for at least five (5) years after the Benefit Date. 1874773v4 8 (5) There are no other state or local government agencIes providing financial assistance for the Project other than the City. (6) There is no parent corporation of the Developer. (7) The Developer certifies that it does not appear on the Minnesota Department of Employment and Economic Development's list of recipients that have failed to meet the terms of a business subsidy agreement. Remainder of this page intentionally left blank 1874773v4 9 ARTICLE V. EVENTS OF DEFAULT Section 5.1 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 anyone or more of the following events: (a) Failure by the Developer to timely pay any ad valorem real property taxes assessed with respect to the Development Property. (b) Failure by the Developer to cause the construction of the Project to be completed pursuant to the terms, conditions and limitations of this Agreement. (c) The holder of any mortgage on the Development Property or any improvements thereon, or any portion thereof, commences foreclosure proceedings as a result of any default under the applicable mortgage documents. (d) If the Developer shall (A) file any petition in bankruptcy or for any reorganization, arrangement, composition, readjustment, liquidation, dissolution, or similar relief under the United States Bankruptcy Act of 1978, as amended or under any similar federal or state law; or (B) make an assignment for the benefit of its creditors; or (C) admit in writing its inability to pay its debts generally as they become due; or (D) be adjudicated a bankrupt or insolvent; or if a petition or answer proposing the adjudication of the Developer, as a bankrupt or its reorganization under any present or future federal bankruptcy act or any similar federal or state law shall be filed in any court and such petition or answer shall not be discharged or denied within sixty (60) days after the filing thereof; or a receiver, trustee or liquidator of the Developer, or of the Project, or part thereof, shall be appointed in any proceeding brought against the Developer, and shall not be discharged within sixty (60) days after such appointment, or if the Developer, shall consent to or acquiesce in such appointment. Section 5.2 Remedies on Default. Whenever any Event of Default referred to in Section 5.1 occurs and is continuing, the City, as specified below, may take anyone or more of the following actions after the giving of thirty (30) days' written notice to the Developer, but only 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 and the Note. 1874773v4 10 (b) The City may cancel and rescind the Agreement and the Note. (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 5.3 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 may be deemed expedient. Section 5.4 No Implied Waiver. In the event any agreement contained in this Agreement should be breached by any party and thereafter waived by any other party, such waiver shall be limited to the particular breach so waived and shall not be deemed to waive any other concurrent, previous or subsequent breach hereunder. Section 5.5 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 it shall, on demand therefor, pay to the City the reasonable fees of such attorneys and such other expenses so incurred by the City. Section 5.6 Indemnification of City. (1) The Developer covenants and agrees that the City, its governing body members, officers, agents, including the independent contractors, consultants and legal counsel, servants and employees thereof (hereinafter, for purposes of this Section, collectively the "Indemnified Parties") shall not be liable for and agrees to indemnify and hold harmless the Indemnified Parties against any loss or damage to property or any injury to or death of any person occurring at or about the Development Property or resulting from any defect in the Project, provided that the foregoing indemnification shall not be effective for any actions of the Indemnified Parties that are not contemplated by this Agreement. (2) Except for any willful misrepresentation or any willful or wanton misconduct of the Indemnified Parties, the Developer agrees to protect and defend the Indemnified Parties, now and forever, and further agrees to hold the aforesaid harmless from any claim, demand, suit, action or other proceeding whatsoever by any person or entity whatsoever arising or purportedly arising from the actions or inactions of the Developer (or if other persons acting on their behalf or under their direction or control) under this Agreement, or the transactions contemplated hereby or the acquisition, construction, installation, ownership, and operation of the Project; provided, that this indemnification shall not apply to the warranties made or obligations undertaken by the City in this Agreement or to any actions undertaken by the City which are not lS74773v4 11 contemplated by this Agreement but shall, in any event and without regard to any fault on the part of the City, apply to any pecuniary loss or penalty (including interest thereon from the date the loss is incurred or penalty is paid by the City at a rate equal to the Prime Rate) as a result of the Project causing the Tax Increment District to not qualify or cease to qualify as a "redevelopment district" under Section 469.174, Subdivision 10, of the Act or to violate limitations as to the use of Tax Increments as set forth in Section 469.176, Subdivision 4c. (3) 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 ofthe City, as the case may be. Remainder of this page intentionally left blank 1874773v4 12 ARTICLE VI. DEVELOPER'S OPTION TO TERMINATE AGREEMENT Section 6.1 The Developer's Option to Terminate. This Agreement may be terminated by the Developer, if (i) the Developer is in compliance with all material terms of this Agreement, and no Event of Default has occurred; and (ii) the City fails to comply with any material term of this Agreement, and, after written notice by the Developer of such failure, the City has failed to cure such noncompliance within ninety (90) days of receipt of such notice, or, if such noncompliance cannot reasonably be cured by the City within ninety (90) days, of receipt of such notice, the City has not provided assurances, reasonably satisfactory to the Developer, that such noncompliance will be cured as soon as reasonably possible. Section 6.2 Action to Terminate. Termination of this Agreement pursuant to Section 6.1 must be accomplished by written notification by the Developer to the City within sixty (60) days after the date when such option to terminate may first be exercised. A failure by the Developer to terminate this Agreement within such period constitutes a waiver by the Developer of its rights to terminate this Agreement due to such occurrence or event. Section 6.3 Effect of Termination. If this Agreement is terminated pursuant to this Article VI, this Agreement shall be from such date forward null and void and of no further effect. Upon termination of this Agreement pursuant to this Article VI, the Developer shall be free to proceed with the Project at its own expense and without regard to the provisions of this Agreement; provided, however, that the City shall have no further obligations to the Developer with respect to reimbursement of the expenses set forth in Section 4.2. Remainder of this page intentionally left blank 1874773v4 13 ARTICLE VII. ADDITIONAL PROVISIONS Section 7.1 Restrictions on Use. The Developer agrees for itself, its successors and assigns and every successor in interest to the Development Property, or any part thereof, that the Developer and such successors and assigns shall operate, or cause to be operated, the Developer's facilities on the Development Property as a dance studio and shall devote the Development Property to, and in accordance with, the uses specified in this Agreement. Section 7.2 Conflicts of Interest. No member of the governing body or other official of the City shall have any financial interest, direct or indirect, in this Agreement, the Development Property or the Project, or any contract, agreement or other transaction contemplated to occur or be undertaken thereunder or with respect thereto, nor shall any such member of the governing body or other official participate in any decision relating to the 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 7.3 Titles of Articles and Sections. Any titles of the several parts, articles and sections of the Agreement are inserted for convenience of reference only and shall be disregarded in construing or interpreting any of its provisions. Section 7.4 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 (a) in the case of the Developer is addressed to or delivered personally to: Premiere Dance Academy, LLC 16210 Eagle Creek Avenue SE, #101 Prior Lake, MN 55372 (b) in the case of the City is addressed to or delivered personally to the City at: City of Prior Lake, Minnesota 16200 Eagle Creek Avenue SE Prior Lake, Minnesota 55372-1787 Attn: City Manager 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 7.5 Counterparts. This Agreement may be executed m any number of counterparts, each of which shall constitute one and the same instrument. 1874773v4 14 Section 7.6 Law Governing. This Agreement will be governed and construed In accordance with the laws of the State. Section 7.7 Expiration. This Agreement shall expire on the Termination Date. Section 7.8 Provisions Surviving Rescission or Expiration. Sections 5.5 and 5.6 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. Section 7.9 Assignability of Agreement and Note. This Agreement and the Note may be assigned only with the consent of the City which consent shall not be unreasonably withheld. Remainder of this page intentionally left blank 1874773v4 15 IN WITNESS WHEREOF, the City has caused this Agreement to be duly executed in its name and on its behalf and its seal to be hereunto duly affixed, 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. CITY OF PRIOR LAKE, MINNESOTA By Its Mayor By Its Manager (SEAL) This is signature page 1 of 2 to the Development Agreement by and between the City of Prior Lake and Premiere Dance Academy, LLC 1874773v4 S-l PREMIERE DANCE ACADEMY, LLC By Its This is signature page 2 of 2 to the Development Agreement by and between the City of Prior Lake and Premiere Dance Academy, LLC 1874773v4 8-2 EXHIBIT A Description of Development Property Parcel ID No. 25-001103-0 1874773v4 A-I EXHIBIT B Form of Tax Increment Note No. R-1 $ UNITED STATES OF AMERICA STATE OF MINNESOTA COUNTY OF SCOTT CITY OF PRIOR LAKE TAX INCREMENT REVENUE NOTE (PREMIERE DANCE ACADEMY, LLC PROJECT) The City of Prior Lake, Minnesota (the "City"), hereby acknowledges itself to be indebted and, for value received, hereby promises to pay the amounts hereinafter described (the "Payment Amounts") to Premiere Dance Academy, LLC (the "Developer") or its registered assigns (the "Registered Owner"), but only in the manner, at the times, from the sources of revenue, and to the extent hereinafter provided. The principal amount of this Note shall equal from time to time the principal amount stated above, as reduced to the extent that such principal installments shall have been paid in whole or in part pursuant to the terms hereof; provided that the sum of the principal amount listed above shall in no event exceed $297,000 as provided in that certain Development Agreement, dated as of July 16, 2007, as the same may be amended from time to time (the "Development Agreement"), by and between the City and the Developer. This Note bears no interest. The amounts due under this Note shall be payable on August 1, 2008, and on each February 1 and August 1 thereafter to and including February 1, 2034 or such later date as the principal amount of the Note is paid in full, or, if the first should not be a Business Day (as defined in the Development Agreement) the next succeeding Business Day (the "Payment Dates"). On each Payment Date the City shall pay by check or draft mailed to the person that was the Registered Owner of this Note at the close of the last business day of the City preceding such Payment Date an amount equal to the Tax Increments (hereinafter defined) received by the City during the six month period preceding such Payment Date. All payments made by the City under this Note shall be applied to principal. The Payment Amounts due hereon shall be payable solely from 90% of the tax increments from the City's Tax Increment District No. 5-1 (the "Tax Increment District") within its Development District No.5 which are paid to the City and which the City is entitled to retain pursuant to the provisions of Minnesota Statutes, Sections 469.174 through 469.1799, as the same may be amended or supplemented from time to time (the "Tax Increment Act") (the "Tax Increments"). This Note shall terminate and be of no further force and effect on the date the Tax Increment District expires or is otherwise terminated, on any date upon which the City shall have 1874773v4 B-1 terminated the Development Agreement under Section 5 .2(b) thereof or the Developer shall have terminated the Development Agreement under Article V thereof, or on the date that all principal payable hereunder shall have been paid in full, whichever occurs earliest. The City makes no representation or covenant, express or implied, that the Tax Increments will be sufficient to pay, in whole or in part, the amounts which are or may become due and payable hereunder. The City's payment obligations hereunder shall be further conditioned on the fact that no Event of Default under the Development Agreement shall have occurred and be continuing at the time payment is otherwise due hereunder, but such unpaid amounts shall become payable if said Event of Default shall thereafter have been cured; and, further, if pursuant to the occurrence of an Event of Default under the Development Agreement the City elects to cancel and rescind the Development Agreement, the City shall have no further debt or obligation under this Note whatsoever. Reference is hereby made to all of the provisions of the Development Agreement, including without limitation Section 4.2 thereof, for a fuller statement of the rights and obligations of the City to pay the principal of this Note, and said provisions are hereby incorporated into this Note as though set out in full herein. This Note is a special, limited revenue obligation and not a general obligation of the City and is payable by the City only from the sources and subject to the qualifications stated or referenced herein. This Note is not a general obligation of the City of Prior Lake, Minnesota, and neither the full faith and credit nor the taxing powers of the City are pledged to the payment of the principal of this Note and no property or other asset of the City, save and except the above-referenced Tax Increments, is or shall be a source of payment of the City's obligations hereunder. This Note is issued by the City in aid of financing a project pursuant to and in full conformity with the Constitution and laws of the State of Minnesota, including the Tax Increment Act. This Note may be assigned only with the consent of the City. In order to assign the Note, the assignee shall surrender the same to the City either in exchange for a new fully registered note or for transfer of this Note on the registration records for the Note maintained by the City. Each permitted assignee shall take this Note subject to the foregoing conditions and subject to all provisions stated or referenced herein. IT IS HEREB Y CERTIFIED AND RECITED that all acts, conditions, and things required by the Constitution and laws of the State of Minnesota to be done, to have happened, and to be performed precedent to and in the issuance of this Note have been done, have happened, and have been performed in regular and due form, time, and manner as required by law; and that this Note, together with all other indebtedness of the City outstanding on the date hereof and on the date of its actual issuance and delivery, does not cause the indebtedness of the City to exceed any constitutional or statutory limitation thereon. 1874773v4 B-2 IN WITNESS WHEREOF, City of Prior Lake, Minnesota, by its City Council, has caused this Note to be executed by the manual signatures of its Mayor and Manager and has caused this Note to be dated as of 200 . Manager Mayor 1874773v4 B-3 CERTIFICATION OF REGISTRATION It is hereby certified that the foregoing Note was registered in the name of Premiere Dance Academy, LLC, and that, at the request of the Registered Owner of this Note, the undersigned has this day registered the Note in the name of such Registered Owner, as indicated in the registration blank below, on the books kept by the undersigned for such purposes. NAME AND ADDRESS OF REGISTERED OWNER DATE OF REGISTRA nON SIGNATURE OF MANAGER Premiere Dance Academy, LLC 16210 Eagle Creek Avenue SE #101 Prior Lake. MN 55372 1874773v4 B-4 EXHIBIT C Site Improvements Demolition Site Preparation 1874773v4 C-l