HomeMy WebLinkAboutagenda item 2015 1210 rdc 05a8Department of
Community Investment
Memorandum
December 10, 2015
TO:
FROM:
SUBJECT:
South Bend Redevelopment Commission
Brock Zeeb, Economic Resources Director
IRF subordination
In 2014 staff brought forward a development agreement with'Nello Corporation creating 524
jobs and 50 million in new commercial investment. Nello's contractors have experienced
delays in building construction that has created a need for Nella Corporation to ramp up more
rapidly upon completion of their building.
The proposed ownership interest subornation is a partnership between the City of South Bend
Redevelopment Commission and the Industrial Revolving Fund (IRF). The IRF is an economic
development tool designed to assist and promote growth in local manufacturing.
The IRF will take a 1st position ahead of the Commission's purchase security interest to secure
a working capital loan of$$ 1,400,000 for Nella. It will require the IRF to provide any material
updates to the Commission.
Staff requests approval of the IRF subordination agreement.
227 W. JEFFERSON BLVD. SOUTH BEND, IN 46601 I P: 574-235-9371 I FAX: 574-235-9021 I SOUTHBENDIN.GOV
ITEM: 5.A.(8)
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (this "Agreement") executed and delivered this
__ day of , 2015, by SOUTH BEND REDEVELOPMENT
COMMISSION ("Grantor"), whose address is 1400 S. County-City Building, 227 W. Jefferson
Blvd., South Bend, Indiana 46601, to and in favor of THE INDUSTRIAL REVOLVING
FUND OF SOUTH BEND, INDIANA, lST SOURCE BANK, SOUTH BEND, INDIANA,
TRUSTEE, ("Lender").
RECITALS
On , 2015, Nello Inc., an Indiana corporation
("Borrower") executed a Promissory Note (the "Note") and Loan Agreement (the "Loan
Agreement") in favor of Lender, pursuant to which Lender agreed to lend to Borrower the
aggregate stated amount of One Million Four Hundred Thousand Dollars ($1,400,000.00)
("Loan");
Lender has agreed to make said Loan, evidenced by the Note and Loan Agreement, for
the purpose of facilitating equipment and inventory relocation to South Bend, Indiana ("The
City") as well as to hire and train new staff and cover inventory purchases from local vendors
with which Borrower has no previous history.
Borrower has represented to Lender that completion of the Project (as defined herein)
will result in retention of current jobs and creation of additional jobs in The City, as well as a
substantial capital investment by Borrower in Borrower's assets located in The City;
Borrower has requested certain economic development assistance from The City, which
assistance consists of The City agreeing to acquire certain equipment and subsequently lease said
equipment to Borrower for use by Borrower at a manufacturing facility located in The City of a
type and size necessary to consolidate therein Borrower's present manufacturing operations and
to increase its manufacturing resources (the "Project"), as all more fully set for in an Economic
Development Memorandum of Understanding between the South Bend Redevelopment
Commission and Borrower dated June 20, 2014 ("MOU"), and the related Equipment Lease
Agreement executed July 21, 2014 (the "Equipment Lease");
As part of the agreement in the MOU and Equipment Lease, Borrower and the City have
agreed that upon the satisfaction of certain requirements the Borrower may purchase the
equipment from the City for One Dollar ($1.00);
Grantor understands that Lender is willing to grant the Loan to Borrower only upon
certain conditions, one of which is that Grantor grant to Lender a security interest in that
equipment purchased for the benefit of Borrower as set forth above.
NOW, THEREFORE, the parties hereto, each in consideration of the other's promises,
agreements, representations, warranties and covenants hereinafter contained, agree that the
Recitals above set forth in this Security Agreement are a part of this Security Agreement for all
purposes and agree as follows:
1.0 Grant of Security Interest by Grantor. Grantor grants to Lender a continuing
security interest in:
1.1 All of Grantor's right, title and interest in that certain equipment purchased, and
to be purchased, for the benefit of Borrower in accordance with the MOU and the related
Equipment Lease Agreement, which includes, but is not limited to, the following
equipment designated as Year 1 Equipment under the MOU: (i) BSCO, Inc. Steel Pole
Welding Operation; (ii) ALLTRA HG30-11S Precision Gantry Shape Cutting Machine;
(iii) CC-10-120-PWR Power Medium Turning Roll and CC-10-120-IDL Idler Unit with
Hand Wheel; and (iv) Two "Fabri-K" Series DNC Hydraulic Press Brakes in Tandem,
Model FK 1250-30/26's Serial #A1889 & Al890 as stated in Proposal #91714GB1AC1-
2. .
1.2 . All of Grantor's right, title and interest in additional equipment that is purchased
pursuant to the Equipment Lease Agreement and the MOU.
All of the above property in which a continuing security interest has been granted to Lender by
Grantor is collectively referred to as the "Collateral".
2.0 Indebtedness Secured by Agreement.
2.1 Indebtedness. The continuing security interest granted to Lender by Grantor in
this Agreement is to secure only the payment of Borrower's original repayment
obligation under the Note (as stated above) (the "Indebtedness").
3.0 Representations and Warranties.
3 .1 Agreement Binding and Enforceable. This Agreement is a legal, valid and binding
obligation of Grantor, enforceable in accordance with its terms.
3.2 Collateral Ownership. Grantor is the sole owner of all existing Collateral.
3.3 Collateral Free of Lien. Other than the security interest herein granted, all existing
Collateral and Collateral hereafter arising or acquired is and shall be free and clear of any
security interests, liens, encumbrances, claims or rights of others, and Grantor does and
shall warrant and defend the Collateral against any person, firm or entity claiming an
interest in the Collateral adverse to the interest of Lender.
3 .4 Location and Use of Collateral. All of the Collateral is and will be kept at the
location of Borrower and in accordance with the terms of the MOU and the Equipment
Lease, and neither Grantor nor Borrower will remove any part of the Collateral therefrom
without the prior express written consent of Lender, and the Collateral will only be used
for the Project and in accordance with the terms of the MOU and the Equipment Lease.
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4.0 Agreement of Grantor. Grantor covenants and agrees with Lender from and
after the date of this Agreement, and until all of the Indebtedness is fully paid and satisfied and
this Agreement is terminated in accordance with paragraph 8.9.
4.1 · Perfection of Security Interests. Grantor authorizes Lender to file or record such
financing statements or other documents in any public office deemed necessary by
Lender to perfect or continue the perfection of Lender's security interests in the
Collateral.
5.0 Rights and Remedies of Lender. In the Event of Default by the Borrower under
the Note or Loan Agreement, Lender shall have all the rights and remedies permitted under the
Uniform Commercial Code of Indiana and in effect in each jurisdiction in which Collateral is
located, permitted under other laws and authorized under this Agreement, and without limitation
of other rights and remedies, the following:
5.1 Accelerate Indebtedness. Lender may, without notice or demand, at Lender's
option and notwithstanding any time or credit allowed by an instrument evidencing an
Indebtedness, accelerate and declare the entire unpaid balance of any and all
Indebtedness immediately due and payable.
5 .2 Take Possession of Collateral. Lender may take possession of the Collateral and,
for that purpose, Lender may enter in or on to any premises on which the Collateral or
any part of it may be situated and remove the Collateral.
5.3 Require Collateral to be Made Available. Lender may require Borrower and
Grantor to make the Collateral available to Lender at a place to be designated by Lender
that is reasonably convenient to Lender, Borrower and Grantor.
5.4 Preservation of Collateral. Lender may, but in no way is obligated to, take steps to
preserve rights in the Collateral against any third party.
5.5 Use of Collateral while in Lender's Possession. When in possession of the
Collateral, Lender may use it for any purpose or in any manner or cause it to lose its
identity without an obligation to account for such use, except when used for a purpose not
connected with performing Borrower's obligations with respect to it, preservation or
disposal of the Collateral unless otherwise authorized by law. Lender may use, without
charge, any and all equipment, machinery or appliances necessary to unload and remove
any Collateral from storage facilities in the event that the removal of the Collateral is
necessary for purposes of repossession by Lender to realize on Lender's security interest.
The standard of care imposed upon Lender as to the use of the Collateral in its possession
is that of a prudent person without any special skill or knowledge.
5.6 Sale of Collateral. Unless the Collateral is perishable, threatens to decline
speedily in value or of a type customarily sold on a recognized market, Lender shall give
Grantor and Borrower at least ten (10) days prior written notice of the time and place of
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any public sale or of the time after which any private sale or other intended disposition is
to be made. Lender may sell any of the Collateral, at public or private sales, or a
combination, for cash or on credit as a unit or in lots. The order of sale of times in lots
shall be as Lender shall determine. Lender may become purchaser at any sale.
5. 7 Expenses Incurred in Connection with a Sale of Collateral. Expenses of retaking,
holding, preparing for sale, selling or the like shall include Lender's costs, expenses and
reasonable attorneys' fees which are secured under this Agreement and all such expenses
shall be first paid out of the proceeds of any disposition of Collateral.
6.0 General.
6.1 Waivers by Grantor. With respect to both the Indebtedness and the Collateral,
Grantor assents to any and all extensions, renewals or postponements of the time of
payment or any other indulgence, to any substitutions, exchanges, or releases of
Collateral, to the additions or releases of any party or person primarily or secondarily
liable, to the acceptance of partial payments and the settlement, compromising or
adjusting of any of them, all in such manner and at such time or times as Lender may
deem advisable, provided, however, that Grantor does not consent or agree to any
increase in Borrower's original repayment obligation under the Note (as stated above).
6.2 No Duty of Lender to Act on Collateral. Lender shall have no duty:
6.2.0 To take possession of any of the Collateral or to take any action for the
care, preservation, protection or insurance of any of the Collateral;
6.2.1 To collect, foreclose on or otherwise realize on the Collateral; or
6.2.2 To collect, foreclose on or otherwise realize on the Collateral in any
particular manner, in any particular sequence or at all.
6.3 Notices. Any demand upon or notice to Grantor that Lender may elect to give
shall be effective if personally delivered; sent by ordinary mail, certified or registered
mail; transmitted by telegraph, wireless or radio company and/or sent by overnight
courier addressed to Grantor at the address identified at the beginning of this Agreement
or, if Grantor has notified Lender in writing of a change of address noted in its records, to
Grantor's last address so notified. Demands or notices addressed to Grantor's address at
which Lender customarily communicates with Grantor shall also be effective. Notices
and demands of Lender to Grantor shall be effective upon their personal delivery,
mailing, transmission, or delivery to an overnight courier, as the case may be, whether or
not actually received by Grantor.
6.4 Form of Words. When applicable, use of the singular form of any word shall also
mean or apply to the plural, and the masculine form shall mean and apply to the feminine
or the neuter.
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6.5 Severability of Agreement. If and to the extent that applicable law confers any
rights or imposes any duties inconsistent with or in addition to any of the provisions of
this Agreement, the affected provisions shall be amended to conform to such law, and if
any provision of this Agreement shall be invalidated, all other provisions shall remain in
full force and effect.
6.6 Successors and Assigns. All rights of Lender shall inure to the benefit of its
successors and assigns, and obligations of Grantor shall bind the Grantor's successors
and assigns.
6.7 Governing Law. This Agreement and all rights and obligations under it, including
matters of construction, value and performance, shall be governed by the Uniform
Commercial Code, as amended from time to time, in effect in the state of Indiana and by
other applicable laws of the state of Indiana.
EXECUTED AND DELIVERED by Grantor and Lender as of the date first written
above.
"GRANTOR":
South Bend Redevelopment Commission
By: _____________ _
Printed: _______________ _
Title: _______________ _
"LENDER":
The Industrial Revolving Fund of South Bend,
Indiana, 1st Source Bank, South Bend,
Indiana, Trustee
By: ______________ _
Patrick M. McMahon, Chairman
CONSENT OF BORROWER
By executing below, Borrower hereby consents to and accepts the terms of the above
Security Agreement.
BORROWER:
Nello Inc.
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By: ___________ _
Daniel Ianello, President
4000.0000050 60563563.002
F:\Clients\Industrial Revolving Fund -!0031 \15002\Security Agreement -City of South Bend.docx
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SUBORDINATION AGREEMENT
THIS SUBORDINATION AGREEMENT ("Agreement") is made and entered into this
_day of , 2015 by and between SOUTH BEND REDEVELOPMENT
COMMISSION
("Commission"), INDUSTRIAL REVOLVING FUND OF SOUTH BEND,
INDIANA 1 ST SOURCE BANK, SOUTH BEND INDIANA, TRUSTEE ("IRF"), and
NELLO INC. ("Borrower").
RECITALS
1. IRF has agreed to loan to Borrower the sum of One Million Four Hundred
Thousand Dollars ($1,400,000.00) pursuant to the terms of a certain Loan Agreement and
Promissory Note dated , 2015, as amended from time to
time ("the IRF Note"). The Note is secured by the following:
All of Borrower's right, title and interest in and to, and all contract rights under, that
certain Equipment Lease Agreement by and between South Bend Redevelopment
Commission and Borrower dated July 21, 2014 ("Equipment Lease"), including all
equipment Borrower is now leasing and may subsequently purchase according to the
Equipment Lease and the Economic Development Memorandum of Understanding
("MOU"), which includes, but is not limited to, the following equipment designated as
Year 1 Equipment under the MOU: (i) BSCO, Inc. Steel Pole Welding Operation; (ii)
ALLTRA HG30-l 1S Precision Gantry Shape Cutting Machine; (iii) CC-10-120-PWR
Power Medium Turning Roll and CC-10-120-IDL Idler Unit with Hand Wheel; and (iv)
Two "Fabri-K" Series DNC Hydraulic Press Brakes in Tandem, Model FK 1250-30/26's
Serial #Al889 & A1890 as stated in Proposal #91714GB1AC1-2.
All of Borrower's right, title and interest in additional equipment that is leased and/or
purchased pursuant to the Equipment Lease Agreement and MOU.
The proceeds and products of the foregoing in whatever form the same may be,
including, but not limited to, proceeds from insurance policies (including, without
limitation, proceeds of credit insurance policies).
All of the above property in which a continuing security interest has been granted to IRF by
Borrower is collectively referred to as the "MOU/Equipment Collateral".
2. Prior to execution of the IRF Note, the Commission had entered into agreements
with the Borrower whereby Commission agreed to purchase certain equipment and subsequently
lease said equipment to Borrower, all as more particularly set forth in the MOU and the related
Equipment Lease Agreement.
3. The Equipment Lease provides that to the extent the Equipment Lease is
considered a secured transaction under the Indiana Uniform Commercial Code, Borrower
granted to Commission a purchase money security interest in the MOU/Equipment Collateral.
4. In order to induce IRF to make the above-referenced loan to Borrower,
Commission has agreed to subordinate its security interest in the MOU/Equipment Collateral to
the IRF's security interest in the MOU/Equipment Collateral, solely, and to no other interest.
NOW, THEREFORE, for valuable consideration, the parties agree as follows:
1. Recitals. The Recitals above set forth are a part of this Agreement for all
purposes.
2. Commission's Agreement. Commission agrees that IRF will hold a first position
security interest in the MOU/Equipment Lease Collateral at all times that the Borrower's original
repayment obligation under the IRF Note remains outstanding, including the period of time that
the City of South Bend owns the MOU/Equipment Collateral and is leasing the same to
Borrower, which interest shall be superior to any right, title, interest, claim or lien which the
Commission may now or in the future have in that same MOU/Equipment Collateral, and its
proceeds, if any.
3. Lien Priorities. Notwithstanding the date, manner, or order of perfection of the
security interests with respect to the MOU/Equipment Collateral granted by Borrower to
Commission and IRF, and notwithstanding any provisions of the Uniform Commercial Code as
enacted by the State of Indiana, or any applicable law or any prior agreement between the parties
hereto, or whether any of the parties hereto holds possession of the MOU/Equipment Collateral;
as between Commission and IRF, IRF shall hold a first and prior security interest in the
MOU/Equipment Collateral during the time that the Borrower's original repayment obligation
under the IRF Note remains outstanding.
Commission and IRF agree that, as between themselves, the priorities of Commission and
IRF established by this Agreement shall be effective, and distribution shall be made in
accordance with this Agreement.
In the event of a foreclosure sale or any other sale of the Borrower's assets, including the
MOU/Equipment Collateral, by Borrower with prior written consent of Commission and IRF, all
net proceeds realized from the sale of the MOU/Equipment Collateral shall be paid first to the
IRF for application to the IRF Note, with any residual proceeds thereafter paid to Commission.
Nothing in this Agreement will be construed as the Commission's consent or agreement
to the subordination of its purchase money security interest in the MOU/Equipment Collateral to
any interest at any time other than the IRF's interest as stated in this Agreement.
4. Waiver, Modification or Cancellation. Any waiver, alteration or modification
of any of the provisions of this Agreement, or cancellation or replacement of this Agreement,
shall not be valid unless such is in writing and signed by all of the parties hereto.
5. Benefit and Burden. This Agreement shall inure to the benefit of, and bind the
parties hereto and their respective legal representatives, successors and assigns.
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6. Application. This Agreement shall constitute a continuing agreement of
subordination, and IRF may continue to grant modification or extensions to the IRF Note without
affecting this Agreement, provided, however, that (a) IRF must give Commission prompt written
notice of any such modification or extension, and (b) that the subordination of the Commission's
security interest under this Agreement will immediately cease in the event that Borrower's
original indebtedness under the IRF Note (as stated above) increases.
Further, Commission agrees that IRF may enter into such agreement with Borrower as
IRF may deem proper extending the time of payment or renewing or otherwise altering the terms
of the Note of Borrower to IRF or affecting any security underlying the Note, or may exchange,
sell, or surrender or otherwise deal with any such security, without, in any way, impairing or
affecting this Agreement, provided, however, that IRF must give Commission prompt written
notice of the same.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day
and year first above mentioned.
"IRF":
The Industrial Revolving Fund of
1st Source Bank, South Bend
Indiana, Trustee
By: _________ _
Patrick M. McMahon, Chairman
4000.0000050 58056045.002
"COMMISSION":
South Bend Redevelopment Commission
ATTEST:
AGREED AS TO FORM AND CONTENT:
Nello Inc.
Daniel Ianello, President
F:\Clients\Industrial Revolving Fund -10031 \15002\Subordination Agreement -City of South Bend.docx
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