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EDA Agenda 09-19-2006 . AGENDA MONTICELLO ECONOMIC DEVELOPMENT AUTHORITY Tuesday, September 19, 2006 - 4:00 p.m. City Hall - Academy Room Chair Bill Demeules, Vice Chair Barb Schwientek, Assistant Treasurer Ron Hoglund, Council members Wayoe Mayer and Tom Perrault, Darrin Lahr, and Susie Wojchouski. MEMBERS: STAFF: 1. 2. 3. 4. . 5. 6. 7. . Treasurer Rick Wolfsteller, Executive Director Ollie Koropchak, Recorder Angela Schumann. Call to Order. Roll Call. Consideration to approve the November 29, 2005 and September 5, 2006 EDA minutes. Bills and Communications. Executive Director's Report. Committee Reports. Unfmished Business: A. Update on GMEF Loan No. 019 (GWJ, LLC.) 8. New Business: A. Public Hearing - Consideration to approve the Business Subsidy Agreement and authorize entering into the Loan Agreement between Karlsburger Foods, Inc. and the Monticello EDA. 9. Adjournment. . MINUTES MONTICELLO ECONOMIC DEVELOPMENT AUTHORITY Tuesday, November 29th, 2005 505 Walnut Street - Academy Room Commissioners Present: Darrin Lahr, Ron Hoglund, William Demeules, Tom Perrault, Susie Wojchouski Commissioners Absent: Barb Schwientek, Wayne Mayer Staff Present: Ollie Koropchak, and Angela Schumann. 1. Call to Order. Chairman Demeules called the meeting to order at 4:00 PM and declared a quorum, noting absence of Commissioners Schwientek and Mayer. 2. Consideration to approve the October 25th. 2005 HRA meeting minutes. . MOTION BY COMMISSIONER WOJCHOUSKI TO APPROVE THE MINUTES OF THE EDA MEETING OF OCTOBER 25th, 2005. MOTION SECONDED BY COMMISSIONER PERRAULT. MOTION CARRIED, 5-0. 3. Consideration of adding or removing items from the agenda. Koropchak added under item number 8 a potential EDA application. 4. Consideration to review and discuss proposed modification to the GMEF Guidelines to accommodate re-use of Federal dollars. . Koropchak noted that at the previous meeting, the commissioners had asked Koropchak to further research the fund payback from the TCDC loan. Koropchak reported that when fully paid back, the amount will be close to $600,000. The EDA also looked at modification to GMEF guidelines in order to encourage use of Federal dollars as compared to the current guidelines. In that regard, Koropchak stated that she had followed up with Carol Pressley Olson. The City would need to adopt a resolution designating the EDA as an LDO (Local Development Organization). That resolution, along with the revised guidelines would go to DEED for final approval. As part of this resolution, the Council would recognize that they transfer development funds to the EDA and would no longer have control over the funds. If the Council does not agree to that, then the funding stays under the federal guidelines for its life. If the funds were under the EDA as the LDO, the first re-use of funds are subject to the more restrictive EDA Minutes 11/29/2005 . guideslines. Koropchak explained that the EDA attorney had drafted proposed guidelines. His recommendation was to modify the current guidelines. Koropchak discussed the changes that had been made within the guidelines as requested by the EDA. If the EDA agrees with the proposed changes, the EDA would need to call for a public hearing date as required. Demeules asked about the financial control and decision-making authority clause. Koropchak stated that the Council is the fmal authority in the current grant agreement. If the Council authorizes the LDO resolution, the Council gives up that authority. Koropchak also noted that if the Council had designated the EDA as the LDO prior to authorizing the grant, the EDA wouldn't have to follow guidelines at all. . Lahr stated that the premise is that the EDA becomes an LDO, so once the money cycles through once, the Federal HUD guidelines do not apply. Koropchak confirmed. Koropchak indicated that she would note to the Council in her report that once the EDA is designated as the LDO, the City could not recall those funds. Lahr asked what the Council could do with the funds without the EDA. Koropchak responded that they could manage their own loan program, but they would have to continuously follow the Federal HUD regulations. MOTION BY COMMISSIONER LAHR TO RECOMMEND THAT THE CITY COUNCIL CONSIDER FOR APPROVAL THE MODIFICATION TO THE GMEF GUIDELINES AND APPROVAL OF THE RESOLUTION REQUESTING DESIGNATION AT THE DECEMBER 12TH, 2005 MEETING. MOTION SECONDED BY COMMISSIONER HOGLUND. MOTION CARRIED, 5-0. 5. Consideration to call for a public hearing date for modifications to the EDA Business Subsidv Criteria. Koropchak recommended a public hearing for Decemberl3th at 4:00 PM, assuming Council approves modifications and designation of ED A as an LDO. MOTION BY COMMISSIONER PERRAULT TO CALL FOR A PUBLIC HEARING FOR THE MODIFICATION TO THE EDA BUSINESS SUBSIDY CRITERIA ON TUESDAY, DECEMBER 13th, 2005 AT 4:00 PM. MOTION SECONDED BY COMMISSIONER LAHR. MOTION CARRIED, 5- O. . 6. Consideration to ratify the Mortgage Subordination Agreement between the SBA. EDA and Tapper Holdings. LLC. 2 EDA Minutes 11/29/2005 . Koropchak referred to the mortgage subordination agreement, stating that the EDA had previously discussed this item, which refers to the position of the EDA. The action required would ratify the EDA had decision, which was to allow the SBA to take position before the EDA. MOTION BY COMMISSIONER WOJCHOUSKI TO RATIFY THE MORTGAGE SUBORDINATION AGREEMENT BETWEEN THE SBA, EDA AND TAPPER HOLDINGS, LLC. MOTION SECONDED BY COMMISSIONER PERRAULT. MOTION CARRIED, 5-0. 7. Consideration of the Executive Director's Report. Koropchak noted that she had followed up with a letter to Bruce and Cindy Hammond regarding their loan and reminded them of their balloon payment deadline. They have until January I, 2006 to make payment. . Koropchak reported that Demeules' 6-year term is up. Koropchak stated that the Mayor thought that perhaps they would open up all Committees for application. Another Council member indicated that they thought they were operating well. Demeules indicated that he would be willing to serve another term, if asked. 8. Other Business Wojchouski asked about utilities in the area of the interchange project, as some businesses had interruptions in service. Koropchak stated that they have noted electrical surges and other power outages, however no cables had been cut. Lahr reported that years ago they had looked at a feeder line in the area and he hadn't heard of any other problems until Koropchak had called. City Engineer Bruce Westby had indicated to Koropchak that there had been some other work near 39 east and west of project. Demeules stated that he thought the problem may have started after crews stopped dewatering for the sewer project. Lahr stated that the services are underground, but the feeder is overhead. If everyone is having problems, it is more likely a feeder problem. Lahr asked if they are long interruptions. Demeules stated that the interruptions are approximately 5 minutes. Lahr stated that he would look into the matter further. . Mayer stated that the Fiber Optics task force will be seeking RFPs from companies interested in installing and operating fiber optics in the community. Lahr asked if these companies install and manage the systems. Mayer replied that there is one that does both. 3 EDA Minutes 11/29/2005 . Koropchak reported that she had visited with the company who has a purchase agreement on the Clow Stamping building. Koropchak encouraged them to complete application information, as the EDA could be part of financing. This company wants to use all ofthe building and hopes to expand. Koropchak stated that she cannot bring the application forward at this time, as the bank board is reviewing their application and the EDA is subordinate to the lender. She did note that the company is publicly held and does not have a personal guarantee. If the SBA is involved, the president of the company has to give a personal guarantee. Koropchak stated that she doesn't know if EDA would be involved with equipment or building purchase. The company does not do production, only engineering. They are projecting 38 new jobs with starting production, moving to a total of 52 new jobs. This location would be their headquarters. Koropchak advised that this application may be on the agenda on December 13th. 9. Adjournment MOTION BY COMMISSIONER HOGLUND TO ADJOURN AT 4:40 PM. . MOTION SECONDED BY COMMISSIONER. LAHR. MOTION CARRIED 5- O. Secretary . 4 . . . MEETING MINUTES MONTICELLO ECONOMIC DEVELOPMENT AUTHORITY Tuesday, September 5, 2006 - 4:00 p.m. City Hall - Academy Room MEMBERS PRESENT: Chair Bill Demeules, Vice Chair Barb Schwieutek, Tom Perrault, Ron Hoglund, Wayne Mayer, Darrin Lahr, and Susie Wojchouski. MEMBERS ABSENT: None STAFF: Executive Director Ollie Koropchak, Recorder Angela Schumann. GUEST: Mike Maher, Karlsburger Foods 1. Call to Order. Chairman Demeules called the meeting to order at 4:00 PM. The Chairman requested that the EDA move directly to item 8 to discuss the loan application for Karlsburger Foods, due to the presence of company president Mike Maher. 2. RollCall. All EDA Commissioners preseut. 3. Consideration to approve the November 29.2005 and April 25th. 2006 EDA minutes. The minutes of the November 29,2005 meeting will be preseuted at an upcoming meeting. MOTION BY COMMISSIONER WOJCHOUSKI TO TABLE ACTION ON THE MINUTES OF THE NOVEMBER 29th, 2005 EDA MEETING TO TUESDAY, SEPTEMBER 19th, 2006. MOTION SECONDED BY COMMISSIONER PERRAULT. MOTION CARRIED UNANIMOUSLY. Perrault noted that the second vote relating to item number five on page 2 of the April minutes was not included in the minutes. Schumann stated that the motion had beeu carried. Demeules noted a spelling correction on his name on the bottom of page 1 of the minutes MOTION BY COMMISSIONER SCHWIENTEK TO APPROVE THE MINUTES OF APRIL 25th, 2006 AS AMENDED. MOTION SECONDED BY COMMISSIONER PERRAULT. MOTION CARRIED UNANIMOUSLY. 4. Bills and Communications. NONE. . . . EDA Minutes - 09/05/06 5. Executive Director's Report. Koropchak reported that she had received an inquiry on relocation to the City's industrial park from an outstate aluminum and glass manufacturer. She will be providing them with information. Koropchak stated that TJ Martin had paid off their loan. And that the GWJ balloon payment is due. 6. Committee Reports Mayer reported that the feasibility study had come back. The task force would be meeting to review the report on the 6th and would present a formal recommendation to the City Council on September 25th.. 7. Unfinished Business A. Consideration to review the revised EDA Fund Balances. Koropchak reported that she had worked with the Finance department on reconciling EDA fmancial statements dating back to the EDA's inception. In working through the reconciliation, there was an approximately $180,000 adjustment that needed to be made to the cash balance report, She noted that the revised reports were included in the EDA packet for reference. Mayer inquired when the last reimbursement payment had been made to the liquor store and what the EDA's reasoning was in paying back the funding. The Commissioners indicated that the last payment had been made about 2 years prior. Demeules stated that the EDA had sought to pay back the funding to become a self-sufficient organization. Hoglund noted that at the time the EDA was founded, there was no discussion on paying the funding back. Mayer stated that if the funding can be better utilized in aiding businesses, then it should stay in the EDA's fund balance. 8. New Business A. Consideration to review the preliminary GMEF Loan application from Karlsburger Foods, Inc. Koropchak reviewed information regarding the loan application from Karlsburger Foods. Karlsburger is constructing a 20,000 square foot building in the City's industrial park and is anticipating approximately $315,250 in equipment and machinery costs. Koropchak noted that the EDA has three options for choice of loan amount. However, any amount over $100,000 requires a public hearing. . EDA Minutes - 09/05/06 Koropchak stated that the uses and sources statements provided did not seem to balance. Maher stated that it may have been due to the inclusion of the line of credit use. Koropchak stated that based on the EDA's guidelines for machine and equipment loans, 60% ofthe funding must be from the lender, with 30% from the EDA. As such, the maximum loan for machine and equipment that the EDA could approve would be $95,000. However, ifthe EDA chooses to look at the building projects as a whole, versus just the estimated costs of machinery, the 30% amount allowable is greater. Koropchak stated that Karlsburger expects to employ approximately 20 people within the next 2 years. Maher stated that he believes the number to be 22. Mayer inquired about what would occur if the company did not employ the stated amount by the end of the two years. Koropchak stated that Karlsburger would need to make up that pro-rated share of the loan, according to the business subsidy agreement. Koropchak reported that the prime rate as of September 5th, 2006, per US Bank is 8.25%. . Koropchak also noted that the company is expected to contribute $31,000 in tax base, with approximately $21,000 staying within Monticello. Koropchak stated that she had received a letter from Karlsburger's lender regarding credit in good standing and a copy of Articles of Incorporation. Demeules inquired as to the amount Karlsburger was seeking. Maher stated that they would ask for the maximum amount. Koropchak stated that pending the method the EDA chooses to use, the EDA could loan anywhere between $95,000 for a calculation based on machinery and equipment; $200,000 if the calculation were based on jobs, or $339,000 based on EDA cash balance. Wojchouski noted that essentially, the EDA has three different methods available for determining a loan amount. Demueles noted that the loan would support the economic development goals for the EDA and the park. Schwientek stated that she supports the $200,000 amount calculated by job creation. B. Consideration to approve or deny GMEF No. 025 (determine business subsidy amount) for Karlsburger Foods, Inc., and if applicable, call for a public hearing. . MOTION BY COMMISSIONER SCHWIENTEK TO APPROVE GMEF LOAN NO. 025 FOR KARLS BURGER FOODS, INC. IN THE AMOUNT OF $200,000, WITH TERM OF 7 YEARS, INTERST RATE OF 6.25% AND A LOAN FEE OF $200. COLLATERLA, GUARANTEES AND OTHER CONDITON REQUIREMENTS TO BE DETERMINED AND PREPARED BY . . . EDA Minutes - 09/05/06 THE GMEF ATTORNEY. THE GMEF LOAN APPROVAL IS SUBJECT TO PUBLIC HEARING ON BUSINESS SUBSIDY, LENDER LINE OF CREDIT AND COUNCIL RATIFICAITON OF EDA ACTION. MOTION SECONDED BY COMMISSIONER HOGLUND. MOTION CARRIED UNANIMOUSLY. MOTION BY COMMISSION WOJCHOUSKI TO CALL FOR A PUBLIC HEARING ON SEPTEMBER 19TH, 2006 AT 4:00 PM FOR THE PROPOSED BUSINESS SUBSIDY TO KARLSBURGER FOODS, INC. MOTION SECONDED BY COMMISSIONER PERRAULT. MOTION CARRIED UNANIMOUSLY. 9. Adjournment. MOTION BY COMMISSIONER LAHR TO ADJOURN. MOTION SECONDED BY COMMISSIONER MAYER. MOTION CARRIED UNANIMOUSLY. RECORDER ANGELA SCHUMANN . . . EDA Agenda - 09/19/06 7. Unfmished Business: A. UDdate on GMEF Loan No. 019. On September 8, 2006, I phoned Pat Jensen, president of GWJ, LLC., to inquire about the balloon payment due on September 1, 2006, for GMEF Loan NO. 019. Pat appreciated the reminder letter and thereafter began the process to refinance and is seeking a new lender. He said it would be another 10 days to 2 weeks. I suggested he call prior to issuance of the balloon payment for the amount of accrued interest. 1 . . . EDA Agenda - 09/19/06 SA. Public Rearm!!: - Consideration to approve the Business Subsidy A!!:reement and authorize enterin\: into the Loan A!!:reement between Karlsbur!!:er Foods. Inc. and the Monticello EDA. A. Reference and back!!:round: OPEN THE PUBLIC HEARING The public hearing notice appeared in the local newspaper on September 7, 2006, meeting the requirements of the Business Subsidy Act. A local government assistance of$100,000 or greater requires a public hearing and a copy of the business subsidy agreement must be on file at City Hall for review. The EDA legal firm of Kennedy & Graven drafted the Business Subsidy Agreement and the Loan Agreement in accordance with the EDA approval of September 5, 2006. The HRA Purchase and Development Contract and the Loan Agreement are consistent with job creation at twenty (20). In addition to the Business Subsidy Agreement located within the Loan Agreement is a copy of the EDA approval form and public hearing notice. A second line-of-credit letter from Wells Fargo states: a low six figure revolving line of credit available for the purchase of equipment. The line of credit from First Federal Savings Bank was $100,000. The Council will consider ratifying the EDA's approval ofGMEF Loan No. 025 on September 25, 2006. CLOSE THE PUBLIC HEARING After closing the public hearing, please consider the following alternative action. Mike Maher, president of Karlsburger Foods, Inc., has concerns with the amortization schedule of 7 years for machinery and equipment as this causes a relatively high monthly principal and interest payment. I believe he is going to request a 15-year amortization with a balloon payment in year five. The EDA should consider his request and if so desired, amend the approved loan term for GMEF No. 025. 1 . EDA Agenda - 09/19/06 B. Alternative Action: 1. A motion to approve the Business Subsidy Agreement and authorize entering into the Loan Agreement between Karlsburger Foods, Inc. and the Monticello EDA. 2. A motion to deny approval of the Business Subsidy Agreement and deny entering into the Loan Agreement between Karlsburger Foods, Inc. and the Monticello EDA. State reasons. 3. A motion to table any action. C. Recommendation: EDA Treasurer Wolfsteller and Executive Director Koropchak recommend alternative no. 1 as the loan agreement is consistent with the EDA action of September 5, 2006. D. SUPt;lortinl!: Data: . Loan Agreement (Business Subsidy Agreement within), EDA approval form, public hearing notice, and letter from Wells Fargo. . 2 . LOAN AGREEMENT This Loan Agreement ("Agreement") is made this _ day of , 2006, by Karlsburger Foods, Inc., a Minnesota corporation ("Borrower") and the Economic Development Authority in and for the City of Monticello, Minnesota, a public body corporate and politic under the laws of Minnesota ("Lender"). RECITALS A. In consideration for the loan contemplated by this Agreement, Borrower is executing and delivering to Lender this Loan Agreement. B. Lender agrees to loan to Borrower the maximum amount of $200,000 to finance the acquisition of the machinery and equipment described in Exhibit A attached hereto ("Machinery and Equipment"), for placement at a new production and warehouse facility under construction at 3236 Chelsea Road West ("Property") in the City of Monticello, Minnesota (the "City"). ACCORDINGLY, to induce Lender to make the Loan to Borrower, and for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: . I. The Loan Amount. Subject to and upon the terms and conditions of this Agreement, Lender agrees to loan to Borrower the sum of Two Hundred Thousand and nollOOths Dollars ($200,000), or so much thereof as is disbursed to Borrower in accordance with this Agreement ("Loan"). The Loan shall be evidenced by a promissory note ("Note") payable by Borrower to Lender and substantially in the form of Exhibit B attached to this Agreement, which shall be dated as of the date of this Agreement. Proceeds of the Loan shall be disbursed in accordance with Section 3 hereof. 2. Reoavment of Loan. The Loan shall be repaid with interest as follows: (a) Interest at the rate of six and one-quarter percent (6.25%) per annum shall accrue from the Loan Closing Date (as hereinafter defined) until the Loan is repaid in full. (b) Payments of principal and interest shall commence on , 20_ (the "Initial Payment Date") and continue on the first day of each and every month thereafter until paid in full. The entire remaining unpaid balance of principal and interest shall be due and payable on the first day of the eighty-fourth (84th) month following the Initial Payment Date. 3. Disbursement of Loan Proceeds. . (a) The Loan proceeds shall be paid to Borrower on such other date as the parties hereto agree ("Loan Closing Date"). , 2006 or I . (b) The following events shall be conditions precedent to the payment of the Loan proceeds to Borrower on the Loan Closing Date: (i) Borrower having executed and delivered to Lender, prior to the Loan Closing Date and without expense to Lender, executed copies of this Agreement, the Note, and a security agreement in substantially the form set forth as Exhibit C hereto (the "Security Agreement"), and Borrower further having caused to be executed and delivered to Lender a guaranty in substantially the form set forth hereto at Exhibit D (the "Guaranty"); (ii) Borrower having provided evidence satisfactory to Lender that Borrower has established a separate accounting system for the exclusive purpose of recording the receipt and expenditure of the Loan proceeds; and (iii) Borrower having paid $200 to Lender as a loan origination fee; and (iv) Borrower having paid to Lender the full amount of the legal fees incurred by Lender in the negotiation and preparation of this Agreement and any other agreement or instrument securing the Loan. . (v) Borrower having provided evidence satisfactory to Lender that Borrower has obtained adequate financing to complete all activities related to Borrower's undertakings on the Property. 4. Representations and Warranties. Borrower represents and warrants to Lender that: (a) Borrower is duly authorized and empowered to execute, deliver, and perform this Agreement and to borrow money from Lender. (b) The execution and delivery of this Agreement, and the performance by Borrower of its obligations hereunder, do not and will not violate or conflict with any provision of law and do not and will not violate or conflict with, or cause any default or event of default to occur under, any agreement binding upon Borrower. (c) The execution and delivery of this Agreement has been duly approved by all necessary action of Borrower, and this Agreement has in fact been duly executed and delivered by Borrower and constitutes its lawful and binding obligation, legally enforceable against it. . (d) Borrower warrants that it shall keep and maintain books, records, and other documents relating directly to the receipt and disbursements of Loan proceeds and that any duly authorized representative of Lender shall, at all reasonable times, have access to and the right to inspect, copy, audit, and examine all such books, records, and other documents of Borrower pertaining to the Loan until the completion of all closeout procedures and the final settlement and conclusion of all issues arising out of this Loan. 2 . (e) Borrower warrants that it has fully complied with all applicable state and federal laws pertaining to its business and will continue to comply throughout the terms of this Agreement. If at any time Borrower receives notice of noncompliance from any governmental entity, Borrower agrees to take any necessary action to comply with the state or federal law in question. (f) Borrower warrants that it will use the proceeds of the Loan made by Lender solely for the Machinery and Equipment. (g) Borrower warrants that it will not create, permit to be created, or allow to exist any liens, charges, or encumbrances prior to the obligation created by this Loan Agreement, except as otherwise authorized in writing by Lender. 5. Event of Default bv Borrower. The following shall be Events of Default under this Agreement: (a) failure to pay any principal or interest on the Loan when due; (b) any representation or warranty made by Borrower herein or in any document, instrwnent, or certificate given in counection with this Agreement, the Note, or the Security Agreement that is false when made; . ( c) Borrower fails to pay its debts as they become due, makes an assignment for the benefit of its creditors, admits in writing its inability to pay its debts as they become due, files a petition under any chapter of the Federal Bankruptcy Code or any similar law, state or federal, now or hereafter existing, becomes "insolvent" as that term is generally defined under the Federal Bankruptcy Code, files an answer admitting insolvency or inability to pay its debts as they become due in any involuntary bankruptcy case commenced against it, or fails to obtain a dismissal of such case within thirty (30) days after its commencement or convert the case from one chapter of the Federal Bankruptcy Code to another chapter, or be the subject of an order for relief in such bankruptcy case, or be adjudged a bankrupt or insolvent, or has a custodian, trustee, or receiver appointed for, or has any court take jurisdiction of its property, or any part thereof, in any proceeding for the purpose of reorganization, arrangement, dissolution, or liquidation, and such custodian, trustee, or receiver is not discharged, or such jurisdiction is not relinquished, vacated, or stayed within thirty (30) days of the appointment; (d) a garnishment summons or writ of attachment is issued against or served upon Lender for the attachment of any property of Borrower in Lender's possession or any indebtedness owing to Borrower, unless appropriate papers are filed by Borrower contesting the same within thirty (30) days after the date of such service or such shorter period of time as may be reasonable in the circumstances; . ( e) any breach or failure of Borrower to perform any other term or condition of this Agreement not specifically described as an Event of Default in this Agreement and such breach or failure continues for a period of thirty (30) days after Lender has given written 3 . . . notice to Borrower specif'ying such default or breach, unless Lender agrees in writing to an extension of such time prior to its expiration; provided, however, if the failure stated in the notice cannot be corrected within the applicable period, Lender will not unreasonably withhold its consent to an extension of such time if corrective action is instituted by Borrower within the applicable period and is being diligently pursued until the Default is corrected, but no such extension shall be given for an Event of Default that can be cured by the payment of money (i.e., payment of taxes, insurance premiums, or other amounts required to be paid hereunder); (f) any breach by Borrower of any other agreement between Borrower, and Lender, the City of Monticello, Minnesota, or the Housing and Redevelopment Authority in and for the City of Monticello, Minnesota (the "HRA"). 6. Business Subsidv Agreement. The provisions of this Section constitute the "business subsidy agreement" for the purposes of the Business Subsidy Act. (a) General Terms. The parties agree and represent to each other as follows: (i) The subsidy provided to the Borrower consists of the principal amount of the Loan described in Section 1. (ii) The public purposes of the subsidy are to purchase the Machinery and Equipment for placement at the Property, thereby increasing net jobs in the City and the State and increasing the tax base of the City and the State. (iii) The goals for the subsidy are: to purchase the Machinery and Equipment for placement at the Property; to maintain such Machinery and Equipment at the Property; and to create the jobs and wage levels in accordance with Section 6(b) hereof. (iv) If the goals described in clause (iii) are not met, the Borrower must make the payments to the Lender described in Section 6(c). (v) The subsidy is needed to purchase the Machinery and Equipment for placement at the Property. (vi) The Borrower must continue to use the aforementioned Machinery and Equipment at the Property for at least five years after the Benefit Date (defined hereinafter). (vii) The Borrower does not have a parent corporation. (viii) The Borrower has not received, and does not expect to receive, financial assistance from any other "grantor" as defined in the Business Subsidy Act, in connection with the Property. 4 . (b) Job and Wage Goals. The "Benefit Date" of the assistance provided in this Agreement is the Loan Closing Date. Within two years after the Benefit Date (the "Compliance Date"), the Borrower shall (i) retain at least 16 full-time permanent jobs permanent to the Property from another location outside the City, (ii) cause the average hourly wage of the 16 retained jobs to be at least $21.37 per hour, exclusive of benefits; (iii) cause to be created at least four new full-time permanent jobs on the Property (above and beyond the 16 retained jobs); and (iv) cause the average hourly wage of the four new jobs to be $18.00 per hour, exclusive of benefits. Jobs created by tenants of the Property will count toward the requirements of this Section. Notwithstanding anything to the contrary herein, if the wage and job goals described in this paragraph are met by the Compliance Date, those goals are deemed satisfied. The Lender may, after a public hearing, extend the Compliance Date by up to one year, provided that nothing in this section will be construed to limit the Lender's legislative discretion regarding this matter. (c) Remedies. Ifthe Borrower fails to meet the goals described in Section 6(a)(iii), the Borrower shall repay to the Lender upon written demand from the Lender a "pro rata share" of the outstanding principal amount of the Loan together with interest on that amount at the implicit price deflator as defined in Minnesota Statutes, Section 275.50, subd. 2. The term "pro rata share" means percentages calculated as follows: (i) if the failure relates to the number of jobs, the jobs required less the jobs created, divided by the jobs required; . (ii) if the failure relates to wages, the number of jobs required less the number of jobs that meet the required wages, divided by the number of jobs required; (iii) if the failure relates to use of the Machinery and Equipment at the Property in accordance with Section 6(a)(vi), 60 less the number of months of use of the Machinery and Equipment at the Property (where any month in which the Machinery and Equipment is in use for at least 15 days constitutes a month of use), commencing on the Benefit Date and ending with the date the Machinery and Equipment ceases use as determined by the Authority Representative, divided by 60; and (iv) if more than one of clauses (i) through (iii) apply, the sum of the applicable percentages, not to exceed 100%. . Nothing in this Section shall be construed to limit the Lender's remedies under Section 7 hereof. In addition to the remedy described in this Section and any other remedy available to the Lender for failure to meet the goals stated in Section 6(a)(iii), the Borrower agrees and understands that it may not a receive a business subsidy from the Lender or any grantor (as defined in the Business Subsidy Act) for a period of five years from the date of the failure or until the Borrower satisfies its repayment obligation under this Section, whichever occurs first. 5 . . . (d) Reports. The Borrower must submit to the Lender a written report regarding business subsidy goals and results by no later than February 1 of each year, commencing February 1, 2007 and continuing until the later of (i) the date the goals stated Section 6(a)(iii) are met; (ii) 30 days after expiration of the period described in Section 6(a)(vi); or (iii) if the goals are not met, the date the subsidy is repaid in accordance with Section 6( c). The report must comply with Section 116J .994, subdivision 7 of the Business Subsidy Act. The Lender will provide information to the Borrower regarding the required forms. If the Borrower fails to timely file any report required under this Section, the Lender will mail the Borrower a warning within one week after the required filing date. If, after 14 days of the postmarked date of the warning, the Borrower fails to provide a report, the Borrower must pay to the Lender a penalty of $100 for each subsequent day until the report is filed. The maximum aggregate penalty payable under this Section $1,000. 7. Lender's Remedies upon Borrower's Default. Upon an Event of Default by Borrower and after provision by Lender of written notice, Lender shall have the right to exercise any or all of the following remedies (and any other rights and remedies available to it): (a) declare the principal amount of the Loan and any accrued interest thereon to be immediately due and payable upon providing written notice to Borrower; (b) suspend its performance under this Loan Agreement; ( c) take any action provided for at law to enforce compliance by Borrower with the terms ofthis Agreement and the Note; (d) exercise its rights under the Guaranty; and ( e) exercise its rights under the Security Agreement. In addition to any other amounts due on the Loan, and without waiving any other right of Lender under any this Agreement or any other instrument securing the Loan applicable documents, Borrower shall pay to Lender a late fee of $250 for any payment not received in full by Lender within 30 calendar days of the date on which it is due. Furthermore, interest will continue to accrue on any amount due until the date on which it is paid to Lender, and all such interest will be due and payable at the same time as the amount on which it has accrued. 8. Lender's Costs of Enforcement of Agreement. If an Event of Default has occurred as provided herein, then upon demand by Lender, Borrower shall payor reimburse Lender for all expenses, including all attorneys fees and expenses incurred by Lender in connection with the enforcement of this Agreement and the Note, or in connection with the protection or enforcement of the interests and collateral security of Lender in any litigation or bankruptcy or insolvency proceeding or in any action or proceeding relating in any way to the transactions contemplated by this Agreement. 9. Indemnification. 6 . (a) Borrower shall and does hereby agree to protect, defend, indemnifY and hold Lender, and its officers, agents, and employees, harmless of and from any and all liability, loss, or damage that it may incur under or by reason of this Agreement, and of and from any and all claims and demands whatsoever that may be asserted against Lender by reason of any alleged obligations or undertakings on its part to perform or discharge any of the terms, covenants, or agreements contained herein. (b) Should Lender, or its officers, agents, or employees incur any such liability or be required to defend against any claims or demands pursuant to Section 9, or should a judgment be entered against Lender, the amount thereof, including costs, expenses, and attorneys fees, shall bear interest thereon at the rate then in effect on the Note, shall be secured hereby, shall be added to the Loan, and Borrower shall reimburse Lender for the same immediately upon demand, and upon the failure of Borrower to do so, Lender may declare the Loan immediately due and payable. ( c) This indemnification and hold harmless prOVlSlon shall survive the execution, delivery, and performance of this Agreement and the creation and payment of any indebtedness to Lender. Borrower waives notice of the acceptance of this Agreement by Lender. . (d) Nothing in this Agreement shall constitute a waiver of or limitation on any immunity from or limitation on liability to which Borrower is entitled under law. 10. Miscellaneous. (a) Waiver. The performance or observance of any promise or condition set forth in this Agreement may be waived, amended, or modified only by a writing signed by Borrower and Lender. No delay in the exercise of any power, right, or remedy operates as a waiver thereof, nor shall any single or partial exercise of any other power, right, or remedy. (b) Assignment. This Agreement shall be binding upon Borrower and its successors and assigns and shall inure to the benefit of Lender and its successors and assigns. All rights and powers specifically conferred upon Lender may be transferred or delegated by Lender to any of its successors and assigns. Borrower's rights and obligations under this Agreement may be assigned only when such assignment is approved in writing by Lender. (c) Governing Law. This Agreement is made and shall be governed in all respects by the laws of the state of Minnesota. Any disputes, controversies, or claims arising out of this Agreement shall be heard in the state or federal courts of Minnesota, and all parties to this Agreement waive any objection to the jurisdiction of these courts, whether based on convenience or otherwise. . (d) Severabilitv. If any provision or application of this Agreement is held unlawful or unenforceable in any respect, such illegality or unenforceability shall not affect 7 . . . other provisions or applications that can be given effect, and this Agreement shall be construed as if the unlawful or unenforceable provision or application had never been contained herein or prescribed hereby. (e) Notice. All notices required hereunder shall be given by depositing in the U.S. mail, postage prepaid, certified mail, return receipt requested, to the following addresses (or such other addresses as either party may notify the other): To Lender: Economic Development Authority in and for the City of Monticello, Minnesota 505 Walnut Street, Suite I Monticello, MN 55362 Attn: Executive Director To Borrower: Karlsburger Foods, Inc. 12450 Fernbrook Lane Dayton, MN 55327 Attn: Michael Maher (f) Termination. If the Loan is not disbursed pursuant to this Agreement by March _,2007 or within 180 days of date of ED A approval, this Agreement shall terminate and neither party shall have any further obligation to the other, except that if the Loan is not disbursed because Borrower has failed to use its best efforts to comply with the conditions set forth in Section 3 of this Agreement then Borrower shall pay to Lender all reasonable attorneys fees, costs, and expenses incurred by Lender in connection with this Agreement and the Note. (g) Entire Agreement. This Agreement, together with the Exhibits hereto, which are incorporated by reference, constitutes the complete and exclusive statement of all mutual understandings between the parties with respect to this Agreement, superseding all prior or contemporaneous proposals, communications, and understandings, whether oral or written, concerning the Loan. (h) Headings. The headings appearing at the beginning of the several sections contained in this Agreement have been inserted for identification and reference purposes only and shall not be used in the construction and interpretation of this Agreement. 8 . . . IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the proper officers thereunto duly authorized on the day and year first written above. ECONOMIC DEVELOPMENT AUTHORITY IN AND FOR THE CITY OF MONTICELLO, MINNESOTA By: Title: By: Title: [SIGNATURE PAGE TO LOAN AGREEMENT -KARLSBURGER FOODS, INC.] 9 . KARLSBURGER FOODS, INC. By: Title: . [SIGNATURE PAGE TO LOAN AGREEMENT -KARLSBURGER FOODS, INC.] . 10 . Item No. HPS3672 1590-2 912-2 SKIOB . . EXHffiIT A DESCRIPTION OF MACHINERY AND EQUIPMENT Description Marion Mixer Lee Steam Kettle, Style D Volumetric Technology Twin Head Piston Filler Volumetric Technology Twin Lane Cup Filler Sure Kaps Hand Capper A & K Equipment Warehouse Racking Boiler A-I . . . EXHIBIT B TO LOAN AGREEMENT PROMISSORY NOTE -$200,000- -6.25%- ,2006 Karlsburger Foods, Inc., a Minnesota corporation ("Maker"), for value received, hereby promises to pay to the Economic Development Authority in and for the City of Monticello, Minnesota, a public body corporate and politic under the laws of Minnesota or its assigns (Authority and any assigns are collectively referred to herein as "Holder"), at its designated principal office or such other place as the Holder may designate in writing, the principal sum of Two Hundred Thousand and nollOOths Dollars ($200,000) or so much thereof as may be advanced under this Note, with interest as hereinafter provided, in any coin or currency that at the time or times of payment is legal tender for the payment of private debts in the United States of America. The principal of and interest on this Note is payable in installments due as follows: 1. Interest at the rate of six and one-quarter percent (6.25%) per annum shall accrue from the Loan Closing Date, as defined in the loan agreement of even date between Borrower and Lender ("Loan Agreement") until the Loan is repaid in full. 2. Payments of principal and interest shall commence on ,20_ (the "Initial Payment Date") and continue on the frrst day of each and every month thereafter until paid in full. The entire remaining unpaid balance of principal and interest shall be due and payable on the first day of the eighty-fourth (84th) month following the Initial Payment Date. 3. The Maker shall have the right to prepay the principal of this Note, in whole or in part, on any date a principal and interest payment is due and payable. 4. This Note is given pursuant to the Loan Agreement, a security agreement of even date herewith delivered by the Maker (the "Security Agreement"), and a guaranty of even date herewith delivered by Michael Maher, Paul Cserpes, and Lisa Taylor (the "Guaranty"). If either the Loan Agreement, the Security Agreement, or the Guaranty is found to be invalid for whatever reason, such invalidity shall constitute an Event of Default hereunder. All of the agreements, conditions, covenants, provisions, and stipulations contained in the Loan Agreement, the Security Agreement, the Guaranty, or any other instrument securing this Note are hereby made a part of this Note to the same extent and with the same force and effect as if they were fully set forth herein. It is agreed that time is of the essence of this Note. If an Event of Default occurs under the Loan Agreement, the Security Agreement, the Guaranty, or any other instrument securing this Note, then the Holder of this Note may at its right and option, without notice, declare immediately due and payable the principal balance of this Note and interest accrued thereon, together with reasonable attorneys fees and expenses incurred by the Holder of this Note in collecting or enforcing payment hereof, whether by lawsuit or otherwise, and all other sums due B-1 . . . hereunder or any instrument securing this Note. The Maker of this Note agrees that the Holder of this Note may, without notice to and without affecting the liability of the Maker, accept additional or substitute security for this Note, or release any security or any party liable for this Note or extend or renew this Note. 5. The remedies of the Holder of this Note as provided herein, and in the Loan Agreement, the Security Agreement, the Guaranty, or any other instrument securing this Note shall be cumulative and concurrent and may be pursued singly, successively, or together, and, at the sole discretion of the Holder of this Note, may be exercised as often as occasion therefor shall occur; and the failure to exercise any such right or remedy shall in no event be construed as a waiver or release thereof. The Holder of this Note shall not be deemed, by any act of omission or commission, to have waived any of its rights or remedies hereunder unless such waiver is in writing and signed by the Holder and then only to the extent specifically set forth in the writing. A waiver with reference to one event shall not be construed as continuing or as a bar to or waiver of any right or remedy as to a subsequent event. This Note may not be amended, modified, or changed except only by an instrument in writing signed by the party against whom enforcement of any such amendment, modifications, or change is sought. 6. If any term of this Note, or the application thereof to any person or circumstances shall, to any extent, be invalid or unenforceable, the remainder of this Note, or the application of such term to persons or circumstances other than those to which it is invalid or unenforceable shall not be affected thereby, and each term of this Note shall be valid and enforceable to the fullest extent permitted by law. 7. It is intended that this Note is made with reference to and shall be construed as a Minnesota contract and is govemed by the laws thereof. Any disputes, controversies, or claims arising out of this Agreement shall be heard in the state or federal courts of Minnesota, and all parties to this Agreement waive any objection to the jurisdiction of these courts, whether based on convenience or otherwise. 8. The performance or observance of any promise or condition set forth in this Note may be waived, amended, or modified only by a writing signed by the Maker and the Holder. No delay in the exercise of any power, right, or remedy operates as a waiver thereof, nor shall any single or partial exercise of any other power, right, or remedy. 9. IT IS HEREBY CERTIFIED AND RECITED that all conditions, acts, and things required to exist, happen, and be performed precedent to or in the issuance of this Note do exist, have happened, and have been performed in regular and due form as required by law. B-2 . IN WITNESS WHEREOF, the Maker has caused this Note to be duly executed as of the day of , 20 . KARLSBURGER FOODS, INC. By: Title: . [SIGNATURE PAGE FOR PROMISSORY NOTE - KARLSBURGER FOODS, INC.] . B-3 . . . EXHIBIT C SECURITY AGREEMENT THIS SECURITY AGREEMENT, dated as of July _, 2006, is made and entered into by and between KARLS BURGER FOODS, INC. (the "Debtor"), a Minnesota corporation with its principal place of business at 12450 Fernbrook Lane, Dayton, Minnesota 55327 and the ECONOMIC DEVELOPMENT AUTHORITY IN AND FOR THE CITY OF MONTICELLO, MINNESOTA (the "Secured Party"), a public body corporate and politic, with its principal place of business at 505 Walnut Street, Suite I, Monticello, Minnesota 55362. 1. Securitv Interest and Collateral. To secure the payment of the Note in the original aggregate principal amount of $200,000, issued pursuant to a Loan Agreement dated as of , 20--, between the Debtor and the Secured Party, the proceeds of which will be applied to the acquisition of machinery and equipment for use at a production and warehouse facility located at 3236 Chelsea Road West in the City of Monticello, Minnesota (the "Facility"), the Debtor hereby grants the Secured Party a security interest (herein called the "Security Interest") in the following property (herein called the "Equipment"): any and all machinery and equipment acquired with the proceeds of the Note and installed in, attached to, or used in connection with the Facility, as described in Exhibit A of the Loan Agreement, together with all parts, additions, replacements, and repairs to the Equipment now or hereafter installed in, attached to, or used in the Facility, and the proceeds thereof (collectively with the Equipment, the "Collateral"). 2. Debtor's Reoresentations. Warranties. and Covenants. Debtor represents, warrants, covenants, and agrees as follows: (a) Organization. The Debtor is a Miunesota corporation, and Debtor has full power and authority to execute, deliver, and perform this Security Agreement, and to own its property and conduct its business as presently conducted and as proposed to be conducted. (b) Authorization. The execution, delivery, and performance of this Security Agreement by the Debtor has been duly authorized by all necessary action and will not: (i) require any consent or approval of any entity which has not been obtained; or (ii) violate any material provision of any indenture, contract, agreement or instrument to which Debtor is a party or by which it is bound. (c) Performance bv Debtor. Unless Debtor obtains Secured Party's written consent to the contrary, or except as provided in the Loan Agreement, Debtor shall not: C-I . (i) terminate its interest in any ofthe Collateral; or (ii) sell, transfer, or assign, or offer to sell, transfer or assign all or any part of the Collateral or permit all or any part of the Collateral to be sold, transferred, or assigned; or (iii) remove or consent to the removal of any of the Equipment from the Facility. (d) Title to Collateral. Debtor shall keep good marketable title to all ofthe Collateral, and none of the Collateral is subject to any lien or security interest except for the security interest created by this Security Agreement and other security interests consented to in writing by Secured Party. Debtor has not granted, and will not grant or permit to exist, any lien or security interests in all or a portion of the Collateral other than the liens in favor of Secured Party and other liens consented to in writing by Secured Party. Debtor shall defend the Collateral against all claims and demands of all and any other persons at any time claiming any interest therein adverse to Secured Party. (e) Actions and Proceedings. There are no actions at law, suits in equity, or other proceedings before any governmental agency, commission, bureau, tribunal, or other arbitration proceedings against or affecting Debtor, that if adversely determined would adversely affect Debtor's interest in the Collateral or would adversely affect the rights of Debtor to pledge and assign all or a part of the Collateral or the rights and security afforded Secured Party hereunder. . (f) Insurance. The Debtor agrees it will keep the Equipment insured, or cause the Equipment to be kept insured, at all times against loss by fire or other hazards concerning which, in the judgment of the Secured Party, insurance protection is reasonably necessary and in amounts sufficient to protect against loss or damage of the Equipment. Such policy or policies will contain a loss payable clause in favor of Secured Party or its successors or assigns, in form satisfactory to Secured Party, provided, however, that Debtor may, at its reasonable discretion, self-insure the Equipment. (g) No Fixture. If any of the Collateral is or becomes a fixture, Debtor agrees to furnish Secured Party, at Secured Party's request, with a statement or statements signed by all persons who have or claim an interest in the real estate concerned, which statements shall provide that the signer consents to the security interest created hereby and disclaims any interest in the Collateral as fixtures. . (h) Understandings Regarding Collateral. Debtor acknowledges that the Collateral is or will be of the design, capacity, and manufacture specified for and by Debtor, and that Debtor is satisfied that the same is or will be suitable for its intended purposes. Debtor further acknowledges and agrees that Secured Party has not made, and does not make, any representation, warranty, or covenant with respect to merchantability, fitness for any purpose, durability, patent, copyright or trademark infringement, suitability, or capability of any item of Collateral in any respect or in connection with any other purpose or use of Debtor, or any other representation, warranty, or covenant of any kind or character expressed or implied with respect thereto. Debtor accordingly agrees not to assert any claim whatsoever against Secured Party C-2 . . . based thereon. Debtor further agrees, regardless of cause, not to assert any claim whatsoever against Secured Party for loss of anticipatory profits or consequential damages. (i) Use of Collateral. The Collateral will be used for its intended business purpose and will at all times be located at the Facility, except as provided in the Loan Agreement. G) Condition of Collateral. Debtor will keep the Collateral in good condition and repair, reasonable wear and tear excepted, and will permit Secured Party to enter the Facility at reasonable times and upon reasonable notice for the purpose of examining the Collateral. (k) Costs of Collection. In the event of any action or proceeding to collect or realize upon the Collateral or to enforce any of Secured Party's rights hereunder, the Debtor shall pay: (i) all of Secured Party's attorneys fees and legal expenses, with interest thereon, incurred by the Secured Party; (ii) all taxes, levies, insurance expenses, and costs of repairs to, or maintenance of, the Collateral; and (iii) all costs of the Secured Party reasonably incurred in taking possession of, disposing of, or preserving the Collateral after any Event of Default (defined below). 3. Event of Default. Upon the occurrence of a default in the payment of the Note, in the Loan Agreement dated as of , 2006, between the Debtor and the Secured Party (the "Loan Agreement") or in this Security Agreement, the Secured Party may exercise any remedy available to it under the terms of the Loan Agreement, the Note, or this Security Agreement, and may, without limiting any other right or remedy available to it, exercise and enforce any and all rights and remedies available upon default to a secured party under the Uniform Commercial Code as enacted in the State of Minnesota, Minnesota Statutes, Chapter 336, as amended (the "UCC"), and the Secured Party and all representatives of the Secured Party are hereby granted the right to enter upon any property of the Debtor, without a hearing or prior notice thereof, for the purpose of taking possession of the Collateral. If notice to the Debtor of any intended disposition of the Collateral or any other intended action is required by law in a particular instance, such notice shall be deemed commercially reasonable if given (in the manner specified in this Security Agreement) at least ten calendar days prior to the date of the intended disposition or other action. 4. Further Assurances. The Debtor shall execute and deliver to the Secured Party, promptly and at the Debtor's expense, fmancing statements, including without limitation a UCC- I Financing Statement listing the Equipment and all proceeds thereof as collateral. Debtor agrees that the Secured Party is authorized, at its option, to file a photocopy or other reproduction of this Security Agreement as a financing statement and such photocopy or other reproduction shall be sufficient as a financing statement under the UCC, and the Debtor hereby irrevocably appoints the Secured Party as the Debtor's attorney-in-fact to execute and file, from time to time, on its behalf, one or more financing statements with respect to the Collateral and to execute such other documents and instruments on behalf of the Debtor as the Secured Party, in its sole C-3 . . . judgment, shall deem necessary or desirable for the purposes of effectuating this Security Agreement, such power being coupled with an interest. 5. Cumulative Remedies. All of the Secured Party's rights and remedies herein are cumulative and in addition to any rights or remedies available at law or in equity, including the DCC, and may be exercised concurrently or separately. The Debtor shall pay all costs, expenses, losses, damages, and legal costs (including attorneys fees) incurred by the Secured Party as a result of enforcing any terms or conditions of this Security Agreement. 6. No Liabilitv Imposed on the Secured Partv. The Secured Party shall not be obligated to perform or discharge, nor does it hereby undertake to perform or discharge, any obligation, duty, or liability, nor shall this Security Agreement operate to place responsibility for the control, care, or management of the Equipment upon Secured Party; provided, that upon payment in full of the Note, the Secured Party shall execute and file DCC termination statements in the offices in which financing statements with respect to the Collateral are effective. 7. Indemnification. The Debtor hereby agrees to indemnify and to hold the Secured Party harmless of and from any and all liability, loss, or damage which it mayor might incur under or by reason of this Security Agreement, and of and from any and all claims and demands whatsoever which may be asserted against it by reason of any alleged obligations or undertakings on its part to perform or discharge any of the terms, covenants, or agreements contained herein. Should the Secured Party incur any such liability or be required to defend against any such claims or demands, or should a judgment be entered against the Secured Party, the amount thereof, including costs, expenses, and attorneys fees, shall bear interest thereon at the rate then in effect on the Note, shall be secured hereby, and shall be added to the obligations of the Debtor secured hereunder. The Debtor shall reimburse the Secured Party for such additional obligations immediately upon demand, and upon the failure of the Debtor to do so, the Secured Party may declare such additional obligations immediately due and payable. 8. Expenses of Secured Partv. All expenses paid or incurred in protecting, storing, warehousing, insuring, handling, and shipping the Collateral, all costs of keeping the Collateral free of liens, encumbrances, and security interests (other than the security interest created by this Security Agreement), and the removing of the same and all excise, property, sales, and use taxes imposed by state, federal, or local authority on any of the Collateral or with respect to the sale thereof, shall be borne and paid for by the Debtor and if the Debtor fails to promptly pay any amounts thereof when due, the Secured Party may, at its option, but shall not be required to, pay the same, and upon such payment the same shall constitute additional obligations of the Debtor and shall bear interest at the rate specified in the Note and shall be secured by the security interests granted hereunder. 9. Continuing Rights. The rights and powers of the Secured Party hereunder shall continue and remain in full force effect until the Note (and any additional obligations referred to in Sections 7 and 8 hereof) is paid in full. 10. Books and Records. The Debtor will permit the Secured Party, and its representatives, at reasonable times and upon reasonable notice, to examine the Debtor's books C-4 . and records (including data processing records and systems) with respect to the Facility and the Collateral and make copies thereof at any time and from time to time, and the Debtor will furnish such information reports to the Secured Party and its representatives regarding the Collateral as the Secured Party and its representatives may from time to time request. The Secured Party shall have the authority, at any time, to require the Debtor to place upon the Debtor's books and records relating to the Collateral and other rights to payment covered by the security interest created in this Security Agreement a notation stating that any such Collateral and other rights of payment are subject to a security interest in favor of the Secured Party. 11. Successors and Assigns. This Security Agreement and each and every covenant, agreement, and provision hereof shall be binding upon the Debtor, and its successors and assigns, and shall inure to the benefit of the Secured Party, and its successors and assigns. 12. Governing Law. This Security Agreement is executed pursuant to and shall be governed by the laws of the State of Minnesota. . 13. Severabilitv. It is the intent of this Security Agreement to confer to the Secured Party the rights and benefits hereunder to the full extent allowable by law, including all rights available under the DCe. The unenforceability or invalidity of any provisions hereof shall not render any other provision or provisions herein contained nnenforceable or invalid. Any provisions judicially determined to be unenforceable shall be severable from this Security Agreement. 14. Miscellaneous. (a) Waiver. The performance or observance of any promise or condition set forth in this Security Agreement may be waived only in writing. No delay in the exercise of any power, right or remedy operates as a waiver thereof, nor shall any single or partial exercise of any other power, right or remedy. (b) Assignment. This Security Agreement shall be binding upon the Debtor, and its successors and assigns, and shall inure to the benefit of the Secured Party, and its successors and assigns. All rights and powers specifically conferred upon the Secured Party may be transferred or delegated by the Secured Party to any of its successors and assigns, including any successor holder of the Note. (c) Certain Defined Terms. Capitalized terms used in this Security Agreement and defined in this Security Agreement or the Note are used with the meanings given in this Security Agreement or the Note. . (d) Other Matters. If any provision or application of this Security Agreement is held nnlawful or unenforceable in any respect, such illegality or nnenforceability shall not affect other provisions or applications which can be given effect, and this Security Agreement shall be construed as if the nnlawful or unenforceable provision or application had never been contained herein or prescribed hereby. All representations and warranties contained in this Security Agreement or in any other agreement between Debtor and Secured Party shall survive the C-5 . . . execution, delivery, and performance of this Security Agreement and the creation and payment of any indebtedness to Secured Party. Debtor waives notice of the acceptance of this Security Agreement by Secured Party. (e) Notice. All notices required hereunder shall be given by depositing in the u.S. mail, postage prepaid, certified mail, return receipt requested, to the following addresses (or such other addresses as either party may notify the other): To Debtor: Karlsburger Foods, Inc. 12450 Fernbrook Lane Dayton, MN 55327 Attn: Michael Maher To Secured Party: Economic Development Authority in and for the City of Monticello, Minnesota 505 Walnut Street, Suite I Monticello, Minnesota 55362 Attn: Executive Director (The remainder ofthis page is intentionally left blank.) C-6 . . . IN WITNESS WHEREOF, the Debtor and the Secured Party have executed this Security Agreement as of the date set forth above. THIS DOCUMENT DRAFTED BY: Kennedy & Graven, Chartered (MNI) 470 U.S. Bank Plaza 200 South Sixth Street Minneapolis, MN 55402 (612) 337-9300 KARLSBURGER FOODS, INC. By: Its C-7 . . . DEBTOR'S ACKNOWLEDGMENT to the Security Agreement, dated as of July _, 2006 STATE OF MINNESOTA ) ) ss. COUNTY OF ) The foregoing instrument was acknowledged before me this _ day of , 2006, by , the of Karlsburger Foods, Inc., a Minnesota corporation, on behalf of the corporation. Notary Public C-8 . . . Signature of the Secured Party with respect to the Security Agreement, dated as of ,2006. ECONOMIC DEVELOPMENT AUTHORITY IN AND FOR THE CITY OF MONTICELLO, MINNESOTA By: President By: Executive Director C-9 . . . SECURED PARTY'S ACKNOWLEDGMENT to the Security Agreement, dated as of , 2006 STATE OF MINNESOTA ) ) ss. COUNTY OF ) The foregoing instrument was acknowledged before me this _ th day of , 2006, by and , the President and Executive Director, respectively, of the Economic Development Authority in and for the City of Monticello, Minnesota, a public body corporate and politic, on behalf of the Authority. Notary Public C-lO . . . EXHmIT D GUARANTY AGREEMENT This Guaranty Agreement is made and entered into this _ day of , 20-, by Michael Maher, Paul Cserpes, and Lisa Taylor ("Guarantors") for the benefit of the Economic Development Authority in and for the City of Monticello, Minnesota ("Lender"), a public body corporate and politic. WITNESSETH: WHEREAS, Karlsburger Foods, Inc., a Minnesota corporation (the "Borrower") proposes to borrow the sum of $200,000 from Lender for machinery and equipment acquisition for a production and warehouse facility located in the City of Monticello; and WHEREAS, pursuant to the loan agreement of even date herewith between Borrower and Lender (the "Loan Agreement") Borrower has agreed to repay to Lender $200,000 together with interest thereon at the rate and within the time stated in Borrower's promissory note of even date herewith ("Note"); and WHEREAS, to secure payment of the Note, Lender has required, and Guarantors have agreed to provide, a guaranty of the indebtedness above described between Borrower and Lender; and WHEREAS, Guarantors will receive a direct financial benefit from the loan to Borrower by Lender pursuant to the Note. NOW, THEREFORE, to induce Lender to make the loan to Borrower, Guarantors hereby covenant and agree with Lender, for the benefit of all who at any time become holders of the Note, as follows: Section 1.1. Guarantors hereby unconditionally guarantee to Lender for the benefit of the Holder (as defined in the Note) from time to time of the Note: (a) the full and prompt payment of the principal of the Note when and as the same shall become due, whether at the stated maturity thereof, by acceleration or otherwise; (b) the full and prompt payment of any interest on the Note when and as the same shall become due; and (c) any other amounts due Lender under the Loan Agreement or the Note. All payments shall be paid in lawful money of the United States of America. Each and every default in payment of the principal of or interest on the Note shall give rise to a separate cause of action hereunder, and separate suits may be brought hereunder as each cause of action arises. Section 1.2. The obligations of Guarantors under this Guaranty shall be absolute and unconditional and shall remain in full force and effect until the entire principal of and interest on the Note shall have been paid, and such obligations shall not be affected, modified or impaired upon the happening from time to time of any event, including, without limitation, any of the following: 0-1 . . . a. The compromise, settlement, or release of less than all of the obligations, covenants or agreements of Borrower under the Note; b. The failure to give notice to any person of the occurrence of an event of default under the terms and provisions of this Guaranty or the Note executed by Borrower: c. The extension of the time for payment of principal of or interest on the Note or under this Guaranty; d. Any failure, omission, delay, or lack on the part of Lender to enforce, assert or exercise any right, power, or remedy conferred on Lender in this Guaranty or other instruments executed and delivered in connection with the loan contemplated thereby, or any other act or acts on the part of Lender or any of the holders from time to time of the Note; e. The default or failure of Guarantors to perform any of the obligations set forth in this Guaranty. Section 1.3. No set-off, counterclaim, reduction, or diminution of any obligation, or any defense of any kind or nature that Borrower has or may have Lender shall be available hereunder to Guarantors against Lender. Section 1.4. In the event of a default in the payment of principal of the Note when and as the same shall become due, whether at the stated maturity thereof, by acceleration or otherwise, or in the event of a default in the payment of any interest on the Note when and as the same shall become due, or upon the occurrence and continuance of any Event of Default under the Agreement, Lender may proceed hereunder; and Lender, in its sole discretion, shall have the right to proceed first and directly against either Guarantor or both Guarantors for the full amount due without proceeding against or exhausting any other remedies it may have as to Borrower. Section 1.5. Guarantor hereby expressly waives notice from Lender or the holders from time to time of the Note of acceptance of or any reliance upon this Guaranty. Guarantors agree to pay all the costs, expenses, and fees, including attorneys' fees, which may be incurred by Lender in enforcing or attempting to enforce this Guaranty whether the same shall be enforced by suit or otherwise. Section 1.6. This Guaranty is entered into by Guarantors with Lender for the benefit of Lender and the holders from time to time of the Note, all of whom shall be entitled to enforce performance and observance of this Guaranty. Section 1.7. Guarantors are duly authorized and empowered to execute, deliver, and perform this Agreement and to borrow money from Lender. Section 1.8. The performance or observance of any promise or condition set forth in this Guaranty may be waived, amended, or modified only by a writing signed by Guarantors and D-2 . . . Lender. No delay in the exercise of any power, right, or remedy operates as a waiver thereof, nor shall any single or partial exercise of any other power, right, or remedy. Section 1.9. This Guaranty is made and shall be govemed in all respects by the laws of the state of Minnesota. Any disputes, controversies, or claims arising out of this Guaranty shall be heard in the state or federal courts of Minnesota, and all parties to this Guaranty waive any objection to the jurisdiction of these courts, whether based on convenience or otherwise. Section 1.10. If any provision or application of this Guaranty is held unlawful or unenforceable in any respect, such illegality or unenforceability shall not affect other provisions or applications that can be given effect, and this Guaranty shall be construed as if the unlawful or unenforceable provision or application had never been contained herein or prescribed hereby. Section 1.11. All notices required hereunder shall be given by depositing in the u.S. mail, postage prepaid, certified mail, return receipt requested, to the following addresses (or such other addresses as either party may notify the other): To Lender: 505 Walnut Street Suite 1 Monticello, MN 55362 Attn: Executive Director To Michael Maher: To Paul Cserpes: To Lisa Taylor: Section 1.12. This Guaranty constitutes the complete and exclusive statement of all mutual understandings between the parties with respect to this Guaranty, superseding all prior or contemporaneous proposals, communications, and understandings, whether oral or written, conceming the Guaranty. Nothing contained herein shall effect or impair Lender's rights under the Loan Agreement, the Note, or the Security Agreement. Section 1.13. The obligation of each Guarantor under this Guaranty shall be jointly and several with the obligations of each other Guarantor, shall be binding upon the heirs and estate of both Guarantors, and shall survive the death, divorce, or any other change in situation or relationship of any or all Guarantors. D-3 . . . IN WITNESS WHEREOF, Guarantors have caused this Guaranty to be executed as of the date first above written. Michael Maher Paul Cserpes Lisa Taylor [SIGNATURE PAGE FOR GUARANTY- KARLSBURGER FOODS, INC.] 0-4 / /!A J DEVELOPMENT SERVICES Economic Development Director Phone: Fax: E-mail: (763) 271-3208 (763) 295-4404 o [lie .koropchakUV.ci .monticello.mn. us MONTICELLO Economic Development Authority in and for the City of Monticello, Minnesota GREATER MONTICELLO ENTERPRISE FUND APPROV ALlDISAPPROV AL Preliminary Loan Application Approval. Business Subsidy Public Hearing _September 5,2006 _September 19,2006 Loan terms negotiated and agreed upon between the developer, the lending institution, and the EDA Executive Director. Yes Formal Loan Application and Financial Statements analyzed by the lending institution or City Staff. _Analyzes by lender and declared creditworthy business Building and Site Plan Preliminary and/or Final Review. . Building Permit approval or construction connnitment. Final approval _Yes, permit issued August 17, 2006_ Loan documentation reviewed and/or prepared by the EDA Attorney. _To be prepared by EDA Attorney_ ECONOMIC DEVELOPMENT AUTHORITY APPROVAL OR DISAPPROVAL: LOAN NUMBER: GMEF No. 025 LOAN APPROVED: Yes BORROWER: _ Karlsburger Foods, Inc. ADDRESS: _12450 Fernbrook Lane, Dayton, MN 55327 DISAPPROVED: LOAN AMOUNT: _Two Hundred Thousand Dollars and no cents_ ($200,000.00) RATE: YIXED RATE AT 6.25% DATE: _September 5, 2006 TERMS: _Amortized over seven years _Machinery and Equipment Loan FEE: _$200 Loan Fee due and payable not later than September 29,2006 ** OTHER (SECOND PAGE) A motion was made by EDA Connnissioner _Barb Schwientek to (approve) Greater Monticello Enterprise Funds in the amount of _Two Hundred Thousand Dollars and No Cents _dollars and cents to developer _ Karlsburger Foods, Inc. this_5th _dayof_September_,_2006_. Seconded by EDA Connnissioner _Ron Hoglund . Monticello City Hall. 505 Walnut Street. Suite I. Monticello. MN 55362-8831 . (763) 295-271) . Fax (763) 295-4404 Office of Public Works. 909 Golf Course Rd.. Monticello. MN 55362 . (763) 295-3170 . Fax (763) 271-3272 . GMEF Approval/Disapproval Page 2 YEAS: Barb Schwientek Ron Hogluund, William Demeules, Tom Perrault, Wayne Mayer, Darrin Lahr, and Susie Wojchouski NAYS: None. ABSENT: None. GMEF disbursed EDA Treasurer. by Check No. CITY COUNCIL MAY REVERSE AN EDA LOAN DECISION WITHIN TWENTY -ONE DAYS OF EDA APPROVAL. TO CITY COUNCIL Jo Council September 25, 2006 ACCEPTANCE OF TERMS I (We) hereby accept the terms stated above as approved by the Economic Development Authority in and for the City of Monticello. DATED: Developer . ** Approval subject to receipt ofletter relative to line of credit in the amount of $200,000 from Wells Fargo. Creation of 20 full-time jobs and wages as attached. Equity amount at least 10% of ED A Loan or $20,000. Collateral determined by EDA Attorney (Machinery & Equipment Liens). GMEF No. 025 becomes null and void if funds are not drawn upon or disbursed within 180 days of date of ED A approval or March 5, 2007. Failure to pay principal and interest when due may result in the loan being immediately called. Legal fees responsibility of applicant. Machinery and equipment for placement at new facility under constmction located at 3236 Chelsea Road West, Monticello, MN, 55362. . . . (,) .Em cn:J "00 ~ CI) o c: ~:c CI) (,) O')~ :i:E .0 ~ .!E. CI) ~z X': . OJ U 'c a.. >< o .... 0.. 0.. <( t: o ~ 0.. 'c U (J) OJ Cl OJ '0 o ~ E OJ .:!: .... OJ .... :l +-' U ('I:l .... :l t: ('I:l ~ 00000000 00000000 00000000 OOOOLDOOLn OOOONOON I'- c:0 co co c:0 0 0 Ln" CO..-NO '<tCO..... ..- M Y';Y';Y';Y';WY';Y';~ (ij +-' CL 0 I I- o c:0 ..... o o IJ.. c .S:! 0 .a ro ::lC) Uo LDLD "<t..- N 'N 0, N OlN I'- LD..- coo..-Olro ~Ql.gj.gj~ CLcOo~ IU):::?::::?:U) "" o o N - CD co .... Ql l- ii: Ql g> Cii: .:Y- o u tl 0. CIl Qlo::::ll-O::: ..... U ~ (\) 1iJ "0 Ql C/l roco.::l ~Qlrouroo EI...J ..el- m ro .s .s -g ~ (\) .~ .ill ~ ~ ro CIl 0 :::?:U)I-I-ISCCl >. >. OJ OJ o 0 o 0 c c ..e ..c u u (\) Ql 1-1- u u 'C 'C ..... ..... c (\) Ql o E E 'C ::l::l ~~gg ..... c (\) E 0. C/l 'S 0.0- row ~~I- Ql (\) I-~== ::l 0 U)<(ro 1{'!J.nL~_rpn~>=p Ff"';.........l.fl. ,,-!~ UHI ........U......~.d ULl..Ju,I':;-:"', 12450 Fernbrook Lane Dayton, MN 55327 DEVELOPMENT SERVICES Phone~ (763)271.3208 Fax (763) 2li5-4404 Emili I 0 l! iC:.koroDchakraki. mOflticcllo.mn.lls .- Economic Development Directof MONTICELLO CITY OF MONTICELLO, MINNESOTA II JOB AND WAGE LEVEL - EXISTING JOBS II Please indicate number of current permanent employees at each level ancl indicate the corresponding benefit level. Number of .lobs HOUl'lv \Va~e Level Hourlv Value of Voluntarv Benefits IS) Full-time Part-time (Excl. benefits) e- Less than $7.00 $7.00 to $7.99 $8.00 to $9.99 $10.00 to $11. 99 $12.00 to$13.99 $14.00to$15.99 ~\ "leo $16.00 to $17.99 $18.00 to$19.99 3 S2000 to $2 1.99 \':'\,tiL{D S,-\q i \ '). 0 ~ 1 I '3v 0 ~ ?-\ ' ~ ~ S ~ c, C2l-' LJ 'c...C1f- (Z- \\j $22 .00 and higher _w'\CtrxISTINr; CUR \.1 Mnnticel1n City Hall, 505 \Valnut Sm~ct, SlIi[c J, Monticello, /l.fN 55362-8831 . (763) 295-2711 . Fax.: (763) 295.4404 Office of Public \\forks, 909 Golf Course Rd.. MomlceJJo, MN 55]62 .(63) 295-3170 . Fax: 063; 2--;1-3272 KARLSBURGER FOODS, INC. 12450 Fernbrook Lane Dayton, MN 55327 DEVELOPMENT SERVICES Phone (763.1271.3208 Fax (763) :295-4404 Email ollie.kororJChakrZhcl.rr:olltlcello.mr..us Economic Development Director MONTICELLO CITY OF MONTICELLO, iVIINNESOTA II JOB AND WAGE LEVEL GOALS - NEW JOBS II Please indicate number oFadclitional employees at each level and indicate the corresponding benefit level. Number of new permanent jobs anticipated to be created over the first two years of relocation or expansion. Job Creation Hourlv Wa~e Level HOUl'lv Vallie oFVoluntarv Benefits (S) FlIll-time Pan-time (bcl. bendits) e- Less than $7.00 $7.00 to $7.99 $8.00 to $9.99 $10.00 to $11.99 $12.00to$13.99 2. $14.00 to $15.99 L';;l ~i c) 0 $16.00to$17.99 $18.00 to $19.99 ;J.. $20.00 to $21.99 '~,r-l \ '~ ld 0 $22.00 and higher ~ y lyG1/F[bIJ " \?:: ~U f\ \\ ~(JSSl \; I.J.-O^..G-'i:-f-' '-' '- e3WACjESNEI,V FURI'.,I Monticello City Hall. 505 \.Valnu! 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U.II)Ul :::J_O~ lI>;;c :I::t:=~ oW d)~o afUJ:l >.;;C 0.0 ~()lD~d)~E_ ti.~:Ql:l~g- wla~5~!~-gQ)g!~~~~ O_ilD'E>-mO~.c:~~~Q):::':::o i=oC/) o.c.QS E ~;.~ Ul:::J ~ 4l~ O_>.~"OQjOa:l<D~...~~'E= ~ z ~ ~Q)u0,E.>...f!Q)""'-Of'. ~~1'E~~1"5~.E.s~<lti ~.5 ~ 0.6- a:I"U ~ Ol III .=FW Ol~~.= E~ ~ ~ !;Q. --;L- . . . 09/06/2006 10:19 7633231745 KARLS BURGER FOODS FAX NO. B126673622 AUG-31-2008 THU 04:55 PM WELLS FARGO ANOKA II MAC N9214-ll20 2015 n,l,d ^vC!nu~ North AnolCEJ, MN 55303 Twin Cilielll Buainl'td Da"Jc.jng Anoia. Office Av....:J ~ or....U-e... August 31, 2006 To Whom It May Concern: RE: Karlsburger Foods Inc. 12450 Fembrook LN N Dayton MN 55327 The above named company currently has slow six figure revolving line of credit available for the purchase of equipment. Karlsburger Foods Inc. h!\S been a vatuI'd customer ofilie bank since October, 1968 and their accounts and borrowings have been handled as agr=d. If you require any additional infonnation, please give me a call lit 612-316-1933. Sinc;erely, ~d/ Tl'd Verlee Assistant Vice President PAGE 01/01 p, 02