Loading...
HomeMy WebLinkAbout2020-12-8666ORDINANCE NO. 2020-12-8666 AN ORDINANCE AMENDING ORDINANCE NO. 2020-6-8641; AUTHORIZING CITY OF PADUCAH TO EXECUTE A FORGIVABLE LOAN AGREEMENT WITH SPROCKET, INC., IN AN AMOUNT UP TO $900,000 TO PARTIALLY FUND THE CONSTRUCTION COST OF A RENOVATED FACILITY THAT WILL BE USED FOR THE CREATION OF NEW START-UP BUSINESSES AND JOB OPPORTUNITIES WITHIN THE CITY OF PADUCAH, AND TO EXECUTE THE OTHER AGREEMENTS AND DOCUMENTS THAT ARE A PART THEREOF. WHEREAS, Sprocket, Inc., (hereafter the "Borrower") is a non-profit corporation that was duly organized under KRS Chapter 273, and duly qualified as an exempt organization under Section 501(c)(3) of the Internal Revenue Code; and WHEREAS, the Borrower's primary purpose is to advance the cause of science, technology, and entrepreneur education through a network that enables new start-up businesses and entrepreneurs to avail themselves of resources and educational programming that are beneficial to the establishment and growth of their business enterprises; and WHEREAS, the Borrower has leased from Musselman Properties, LLC, approximately 8,800 square feet of warehouse feet in the Coke Plant facility that will be used for the Borrower's place of operation, a portion of which will be sublet to start-up businesses and entrepreneurs who utilize the Borrower's network in the establishment and growth of their business enterprises; and WHEREAS, the Borrower must construct various facilities, systems and improvements within the lease space to accommodate its intended use of that space, and the needs and requirements of the sublessees who will be located within the lease space; and WHEREAS, the Borrower has requested a line of credit loan from the City to fund the construction cost of the facilities, systems and improvements to be constructed within the lease space, and in relation thereto, has warranted to the City that its proposed use of that space will generate the creation of new start-up businesses within the City, and provide new employment opportunities for its residents; and WHEREAS, the City has a substantial interest in promoting economic growth within the City, which includes the creation of new start-up businesses and job opportunities; and WHEREAS, the City Commission has determined that the Borrower's proposed development within the Coke Plant facility, and Borrower's proposed use of that facility, constitutes a valid public purpose, and by reason thereof, the City has agreed to extend to Borrower a line of credit loan up to and including the amount of $900,000.00 to fund seventy five percent (75%) of the construction costs of Borrower's proposed renovation to the lease space, subject to the terms and conditions that are contained in this Agreement. NOW, THEREFORE, BE IT ORDAINED, by the City of Paducah, Kentucky as follows: SECTION 1. Budget Amendment. That the annual budget for the fiscal year beginning July 1, 2020, and ending June 30, 2021, as adopted by Ordinance No. 2020-6-8641, be amended by the following re -appropriations: Transfer $900,000 from Debt Service Undesignated Fund Balance (3000) to the General Fund Note Receivable Account 1000-101055. SECTION 2. Forgivable Loan Agreement. That the Mayor of the City of Paducah, Kentucky is hereby authorized and directed to execute a Forgivable Loan Agreement with Sprocket, Inc., (the "Borrower") in an amount up to $900,000.00, in substantially the form attached hereto and made part hereof (Exhibit A), which terms are not inconsistent with this Ordinance and not substantially adverse to the City, together with such other agreements, instruments or certifications which may be necessary to accomplish said Forgivable Loan. SECTION 3. Loan Guaranty Agreement. That the Mayor of the City of Paducah, Kentucky is hereby authorized and directed to execute a Loan Guaranty Agreement with the Guarantor, upon such terms as may be approved by the Mayor which are not inconsistent with this Ordinance and not substantially adverse to the City, together with such other agreements, instruments or certifications which may be necessary to accomplish the City's guarantee of the loan. SECTION 4. Severability. That if any one or more of the provisions of this Ordinance should be determined by a court of competent jurisdiction to be contrary to law, then such provisions shall be deemed to be severable from all remaining provisions and shall not affect the validity of such other provisions. SECTION 5. Inconsistent Actions. All prior ordinances, resolutions, orders or parts thereof inconsistent herewith are hereby repealed. SECTION 6. Effective Date. This Ordinance shall be read on two separate days and will become effective upon summary publication pursuant to KRS Chapter 424. ATTES A:IACIb0J--I', Pa A t -)k ay Parish, CityL-r Introduced by the Board of Commissioners, December 8, 2020 Adopted by the Board of Commissioners, December 15, 2020 Recorded by Lindsay Parish, City Clerk, December 15, 2020 Published by The Paducah Sun, December Jb_, 2020 \ORD\Sprocket Forgivable Loan 12-2020 2 MAY 249941 EXHIBIT A FORGIVABLE LOAN AGREEMENT THIS FORGIVABLE LOAN AGREEMENT is made and executed on this day of , 2020, between the CITY OF PADUCAH, a Kentucky municipality, hereafter the "City", and SPROCKET, INC., a Kentucky non-profit corporation, hereafter the "Borrower". RECITALS WHEREAS, the Borrower is a non-profit corporation that was duly organized under KRS Chapter 273, and duly qualified as an exempt organization under Section 501(c)(3) of the Internal Revenue Code; and WHEREAS, the Borrower's primary purpose is to advance the cause of science, technology, and entrepreneur education through a network that enables new start-up businesses and entrepreneurs to avail themselves of resources and educational programming that are beneficial to the establishment and growth of their business enterprises; and WHEREAS, the Borrower has leased from Musselman Properties, LLC, approximately 8,800 square feet of warehouse feet in the Coke Plant facility that will be used for the Borrower's place of operation, a portion of which will be sublet to start-up businesses and entrepreneurs who utilize the Borrower's network in the establishment and growth of their business enterprises; and WHEREAS, the Borrower must construct various facilities, systems and improvements within the lease space to accommodate its intended use of that space, and the needs and requirements of the sublessees who will be located within the lease space; and WHEREAS, the Borrower has requested a line of credit loan from .the City to fund the construction cost of the facilities, systems and improvements to be constructed within the lease space, and in relation thereto, has warranted to the City that its proposed use of that space will generate the creation of new start-up businesses within the City, and provide new employment opportunities for its residents; and WHEREAS, the City has a substantial interest in promoting economic growth within the City, which includes the creation of new start-up businesses and job opportunities; and WHEREAS, the City Commission has determined that the Borrower's proposed development within the Coke Plant facility, and Borrower's proposed use of that facility, constitutes a valid public purpose, and by reason thereof, the City has agreed to extend to Borrower a line of credit loan up to and including the amount of $900,000.00 to fund seventy five percent (75%) of the construction costs of Borrower's proposed renovation to the lease space, subject to the terms and conditions that are contained in this Agreement. NOW THEREFORE, in consideration of the mutual covenants and conditions contained herein, and for other good and valuable consideration, the receipt, mutuality and sufficiency of all of which is hereby acknowledged by the parties hereto, the City and the Borrower hereby agree as follows: SECTION 1 Definitions Each of the following terms as used in this Agreement shall have the meaning that is ascribed to that term under this Section 1: 1.1 "Agreement" shall mean this Forgivable Loan Agreement, and any amendments and renewals that are made thereto. 1.2 "Approved Plans and Specifications" shall mean the plans and specifications, duly approved by Musselman and the City, for the construction of the Renovated Facility. 1.3 "Effective Date" shall mean the date on which this Agreement is executed by the parties, which is stipulated to be , 2020. 1.4 "Estimated Construction Cost" shall mean the estimated cost of constructing the Renovated Facility, which is stipulated to be $1,200,000.00. The term "Funded Estimated Construction Cost" shall mean the Estimated Cost of Construction that will be funded from the Loan. A general itemization of the Estimated Construction Cost of the Renovated Facility is provided in Appendix "A " to this Agreement. 1.5 "Facility Employee" shall mean either: (i) a new Full -Time Employee hired by a Start-up Business that subleases space at the Renovated Facility, or (ii) a retained Full -Time Employee that was hired by a Start-up Business while it was a sublessee at the Renovated Facility, and remains employed by the Start-up Business after it relocated out ofthe Renovated Facility. The term "Facility Employee" shall not include any employee that was hired by a Start-up Business after it relocated from the Renovated Facility, or any employee whose place of work is located outside of the City. 1.6 "Full -Time Employee" shall mean a person that is employed by a Start-up Business to work an average work week of thirty-five (35) hours per week; provided that the employee's place of employment is located within the City. 1.7 "Lease Agreement" shall mean the lease agreement that was entered into between Musselman Properties, LLC, and Borrower on the day of , 2020, and any amendments and renewals that are made thereto. 1.8 "Loan" shall mean the line of credit loan not to exceed $900,000.00 that will be used to fund 75% of the construction cost of the Renovated Facility, which loan which shall be evidenced by and repaid in accordance with the Note. 1.9 "Musselman" shall mean Musselman Properties, LLC, who is the landlord under the Lease Agreement. 1.10 "New Business Enterprise" shall mean a proprietorship or legal entity that was formed after the Effective Date of this Agreement for the purpose of engaging in a business enterprise for profit. 1.11 "Note" shall mean the promissory note that is issued by Borrower in relation to the Loan, and any renewals, replacements and extensions that are made thereto, a copy of which is provided in Appendix "B" to this Agreement. 1.12 "Renovated Facility" shall mean the facility that is depicted and constructed in accordance with the Approved Plans and Specifications. 1.13 "Start-up Business" shall mean a New Business Enterprise that sublets a portion of the Renovated Facility for its business operations, and participates in the educational programming that is offered at the Renovated Facility. SECTION 2 Loan Amount — Disbursement of Loan Proceeds 2.1 Loan Amount. Subject to Borrower's compliance with the terms and conditions that are contained under this Section 2, the City shall extend to Borrower a Loan of up to $900,000.00 to fund 75% of the total cost of the Renovated Facility, which loan shall accrue interest at the rate of one percent (1%). The Loan shall be disbursed in accordance with the disbursement provisions that are contained in this Section 2. 2.2 Permitted Draws on Loan. The Borrower shall have the right to obtain periodic draws against the Loan to cover the costs that Borrower actually incurred in the construction of the Renovated Facility. To obtain a draw against the Loan, the Borrower must satisfy each and all of the following conditions precedent: (a) The Borrower must submit a written request for a draw. The written request must be made in a format acceptable to the City, and must be signed and certified by the Borrower and its general contractor. Each written draw request shall contain the following information: An itemization of the construction costs that will be paid from the draw, and copies of the invoices, bills and purchase orders that evidence those construction costs; 2. A statement of the draw amount that is being requested, which shall not exceed seventy five percent (75%) of the construction costs itemized in the request; 3. A statement of the total cost of construction that the Borrower has incurred through the date of the request, and the amount that is being retained from payment; 4. A statement of the total cost of construction that the Borrower has paid through the date of the request; 5. A certification by Borrower that the requested draw will be applied to the costs that are itemized in the request; 6. A certification by Borrower which certifies its full and timely compliance with all of the warranties, covenants, obligations and undertakings that Borrower assumed under this Agreement, specifically including the construction requirements that are contained in Section 2.3; and 7. Such other information as the City may request. (b) The Borrower must provide the City with interim mechanics or materialmen lien waivers duly executed by each contractor, subcontractor and material provider which contains (i) a statement of the total amount that was paid to each party, and (ii) a release of that party's lien interest against Borrower's leasehold and the Renovated Facility to the extent of the amount paid. The Borrower must also provide the City with any other document or certification that may be requested by the City. (c) The Borrower must be in full compliance with all of its covenants, warranties, obligations and undertakings under this Agreement. (d) The Borrower must have fully complied with all of the construction requirements contained in Section 2.3. (e) The amount of the draw request and the other draws previously granted shall not exceed the Completion of Construction Ratio. The term "Completion of Construction Ratio" shall be defined as the Funded Estimated Construction Cost multiplied by the percentage of completion of construction as determined by the City. In the event the requested draw amount and the other draws previously granted exceed the Completion of Construction Ratio, Borrower shall only be entitled to withdraw an amount that does not exceed the ratio. (f) The amount of the draw request and the other draws previously granted do not exceed 75% of the accrued costs of construction or the loan amount of $900,000.00. In the event the requested draw amount and the other draws exceed either of these amounts, the Borrower shall only be entitled to withdraw an amount that does not exceed those amounts. 2.3 Construction Requirements. In prosecuting the construction work on the Renovated Facility, the Borrower shall faithfully and timely comply with each and all of the following construction requirements: (a) Borrower shall construct the Renovated Facility in accordance with the Approved Plans and Specifications. Borrower shall ensure that all construction work is performed in a good and workmanlike manner, and in compliance with all applicable building codes and requirements. (b) Borrower shall require the general contractor to procure and maintain contractor liability coverage which indemnifies Borrower and the City from any liability that may arise from the construction work performed on the Renovated Facility. The contractor's liability policy shall contain such terms and amounts of indemnity as approved by the City. Borrower shall also procure and maintain an approved builder's risk policy on the Renovated Facility until such time that the Renovated Facility is fully constructed. Borrower shall provide the City with written documentation which certifies the procurement of the coverages that are to be provided under this Section. (c) Borrower shall assume and timely pay all of the construction costs of the Renovated Facility, including but not limited to labor and material costs, permit and inspection fees, equipment rentals, and costs attributable to the services provided by the general contractor; provided, however, Borrower may withhold a five percent (5%) retainage on all construction costs until completion of the Renovated Facility, subject to any reductions that are required under Kentucky's Fair Construction Act. Upon completion of the construction, Borrower shall obtain final lien waivers from the general contractor, and its subcontractors and material providers, which effectively release their lien interests against Borrower's leasehold, and the Renovated Facility constructed thereon. 2.4 Verification of Draw Request. The City shall have the right to review and evaluate the information contained in each draw request. In performing that evaluation, the City shall have the right and authority to verify the construction costs and information provided in the request, to consult with the general contractor's superintendent, and its employees, subcontractors and suppliers, to inspect the construction work that has been performed on the Renovated Facility, and to take any other action that the City deems necessary to carry out its evaluation. 2.5 Rejection of Draw Request. The City shall have the right to reject a draw request (or any part thereof) for nonconformance, incompleteness, inaccuracy, nonperformance of work, nonconforming work, failure to perform, and other valid grounds. In the event the City rejects a draw request (or any part thereof), the City shall issue a written directive which sets forth (i) the portion of the request that has been rejected, (ii) the grounds for the rejection, and (iii) the portion of the request that has been approved for processing. The City shall consult with the Borrower and the general contractor on any rejection made by the City, and shall advise them of the measures to be taken to resolve the rejection. No rejected application (or part thereof) shall be processed and paid until such time that the Borrower has provided the required cure and remedy, and obtained the City's approval on the cure and remedy provided. 2.6 Use of Draw Proceeds. Upon receipt of a permitted draw, the Borrower shall ensure that the proceeds are applied to the construction costs that were itemized in the draw request. Borrower shall also ensure that any remaining construction costs are timely paid from its own funds. The City shall have the right to require the Borrower to provide written receipts of the payments that were made, and the right to pay any part of a loan disbursement directly to the creditors who are entitled to receive a payment under the request. 2.7 Material Change Orders. Borrower shall not issue any material change order to the Approved Plans and Specifications without the City's prior written consent. In the event Borrower is desirous of implementing a material change order, Borrower shall provide the City with a written statement which describes the proposed changes to be made to the Approved Plans and Specifications, and the additional construction costs that will be incurred therewith. The City shall have the right to reject a material change order if (i) the proposed change order constitutes a substantial deviation to the Approved Plans and Specifications as determined by the City, (ii) Borrower does not have sufficient funds to cover the additional construction costs attributable to the proposed change order, or (iii) Borrower has failed to fully and timely comply with any of its covenants, warranties, obligations, and undertakings under this Agreement, or the construction requirements contained in Section 2.3. 2.8 Completion of Construction. Borrower shall complete the construction of the Renovated Facility, and obtain a Certificate of Occupancy for the Facility, on or before December 31, 2021. Borrower shall obtain all certificates, licenses, and approvals that are required for the operation of the Renovated Facility, and commence its operations in that Facility, within thirty (30) days following date of completion. 2.9 Additional Costs. Borrower understands and agrees that Borrower shall be solely responsible for paying twenty five (25%) of the construction costs on the Renovated Facility, and that the City shall have no obligation to fund those costs, or provide any loan advance in excess of the $900,000.00 loan amount provided hereunder. The Borrower shall assume and pay all construction costs that are not funded from the Loan from its own funds, and provide to the City documentation that evidences the source of those funds. An itemization of Borrower's funding sources, and the amount of funding provided by each source, is provided in Appendix "C" to this Agreement. 2.10 Borrower's Assumption of Risks. Borrower shall be solely responsible for and shall assume all risks of loss with respect to the construction of the Renovated Facility. Any assistance which the City may provide to Borrower under this Agreement, or in the construction of the Renovated Facility, shall not be construed as the City's assumption of any liability for the Renovated Facility, all of which liability is expressly disclaimed by the City. 2.11 Release of City. The City's sole obligation and duty under this Agreement is limited to that of a lender. The City shall have no obligation or liability to Borrower with respect to any aspect of the construction process, including but not limited to the supervision, management, and inspection of the construction work, the approval or rejection of work or materials provided to the Renovated Facility, and the payment of monies owed to the general contractor, and its subcontractors and material providers. The Borrower hereby releases and discharges any claims that it may have against the City with respect to such matters. SECTION 3 Loan Repayment — Forgiveness of Loan 3.1 Loan Repayment. Unless a portion of the Loan is forgiven as provided in Section 3.2 of this Agreement, the Borrower shall repay the Loan amount that was extended by the City, which shall be the principal of the Loan, plus the interest accrual of one percent (1%), in fifteen (15) annual installment payments. The first annual installment payment shall be due and payable on or before the 1' day of January, 2027. The remaining annual installment payments shall be due on or before the lst day of January in each successive year. The City shall issue to Borrower a written notice of the amount due under each annual installment payment at least thirty (30) days prior to the due date. In the event the Borrower fails to pay any annual installment payment within ten (10) days following the due date, the Borrower shall pay to the City a late charge equal to five percent (5%) of that payment. 3.2 Forgiveness Adjustment to Loan Payments. Provided that Borrower has fully and timely complied with all of its warranties, covenants, obligations, and undertakings under this Agreement, the Borrower shall be entitled to the forgiveness adjustment that is provided in this Section 3.2. The forgiveness adjustment shall be dependent on Borrower's compliance with the following requirements: (a) Start-up Business Requirement. The Borrower shall procure and maintain subleases with Start-up Businesses that equal or exceed the minimum Start-up Business requirements that are designated in the following table on or before the scheduled compliance dates. Compliance Date Start-up Businesses December 31, 2022 3 December 31, 2023 6 December 31, 2024 12 December 31, 2025 18 (b) Jobs Requirement. The Start-up Businesses shall maintain employment with Facility Employees that equal or exceed the minimum number of job positions that are designated in the following table on or before the scheduled compliance dates. Compliance Date Facility Employees December 31, 2022 5 December 31, 2023 15 December 31, 2024 37 December 31, 2025 59 (c) Verification of Jobs and Start-up Requirements. The Borrower shall submit to the City an annual Program Verification Certificate within fifteen (15) days of each Compliance Date certifying the extent of Borrower's compliance with the Start-up Business and Jobs requirements. The Certificates shall comport with the Certificate forms that are provided in Appendix "D" to this Agreement. The City shall have the right to verify the information that is provided in the Certificates, and to perform any investigation or inquiry that is required to complete its verification. (d) Forgiveness Adjustment. the event the City determines that Borrower has fully and timely satisfied all of the Job and Start-up Business requirements for any compliance period that is defined in Section 3.2, the Borrower shall be entitled to receive a fifteen percent (15%) reduction to the principal of the Loan for each of those compliance periods. In the event the City determines that Borrower has satisfied all of the Job and Start-up Business requirements for all of the compliance periods defined in Section 3.2, the Borrower shall be entitled to receive a cumulative seventy-five percent (75%) reduction to the principal of the Loan. The Borrower shall repay the reduced principal amount, plus the interest accrual, in accordance with the installment payment terms that are defined in Section 3.1. 3.3 Prepayment. The Borrower shall have the right at any time without penalty to prepay the Note in whole or in part. Prepayment in full shall operate to discharge the Borrower's obligations on the date the prepayment is received. 8 SECTION 4 Collateral 4.1 Security for Loan. Borrower hereby assigns to the City a security interest in all of its assets, now owned or hereafter acquired, to secure the full and timely payment of the Note, and Borrower's full and timely performance of the obligations, duties, undertakings and liabilities that Borrower has assumed under this Agreement and the Note. The assets pledged hereunder shall specifically include but not be limited to all of the following property, whether now owned or hereafter acquired, whether now existing or hereafter arising, and wherever located (hereafter the "Collateral"): (a) All inventory, accounts, contracts, documents, instruments, chattel paper, general intangibles, equipment, fixtures, and all other personal property owned or to be owned by the Borrower; and (b) All attachments, accessions, accessories, replacements of and substitutions for any of that property, and all accounts, contract rights, general intangibles, instruments, rents, monies, payments, and all other proceeds arising out of the sale, lease, destruction or other disposition of the property. Borrower authorizes the City to file anyfinancing statement that is required to protect or preserve the security interest that is assigned hereunder. Borrower shall pay to the City, upon the City's written demand, any filing fee or charge that the City incurred in perfecting its assigned security interest. 4.2 Assignment of Leases and Rentals. Borrower shall also assign to the City the Lease Agreement, and any sublease agreement that Borrower maintains with Start-up Businesses at the Renovated Facility, and all of its rights and interests thereunder. The assignment of the Lease Agreement and subleases shall comport with the Assignment of Leases and Rentals that is provided in Appendix "E" to this Agreement. 4.3 Guaranty of Loan. Borrower shall also provide to City a duly executed written guaranty wherein (hereafter the "Guarantor") has guaranteed payment of C_%) of the principal under the Note. The written guaranty shall comport with the guaranty that is provided in Appendix "F" to this Agreement. SECTION 5 Borrower's Warranties and Covenants 5.1 Warranties. The City's commitment to provide the Loan hereunder is predicated on the representations and warranties that are made by Borrower under this Section 5. 1, all of which representations and warranties shall remain in full force and effect following the consummation of the Loan. Borrower expressly acknowledges that the City is relying upon these representations and warranties in executing this Agreement, and in consummating the Loan under this Agreement. The representations and warranties made by Borrower under this Section 5.1 are as follows: (a) Borrower is a non-profit corporation duly organized and existing in good standing under the laws of the Commonwealth of Kentucky, and has all requisite power and authority, corporate and otherwise, to conduct its business, to own its properties, and to execute, deliver and perform all of its obligations under this Agreement and the Note. (b) The execution, delivery and performance of this Agreement and the Note have been duly authorized by all necessary or proper action, including the consent and approval of its members. Upon execution, this Agreement and the Note shall constitute legal, valid and binding obligations of the Borrower. E (c) All financial information provided to the City, including the financial statements of Borrower, are true and correct, and fairly present the financial condition of the Borrower. Since the date of submission, the Borrower has not incurred any obligation or liability that would materially and adversely affect its business operations or financial condition. (d) The Lease Agreement was duly executed by Borrower and Musselman, and duly approved by their respective members and owners. Borrower hereby certifies that (i) the Lease Agreement is a valid and enforceable lease with respect to use and operation of the premises that is defined therein, (ii) no default has occurred under the Lease Agreement, and no event has occurred or is occurring which could constitute an event of default thereunder, (iii) Borrower holds merchantable title and ownership to the Leasehold defined in the Lease Agreement, free of all liens and adverse interests, and (iv) Borrower has the right and authority to construct the Renovated Facility in accordance with the Approved Plans and Specifications. (e) The Borrower has the ability to generate the creation of Start-up Businesses and new job opportunities which equal or exceed the Start-up Business and Job requirements that are defined in Section 3.2. (f) The Borrower has secured the necessary funds to construct the Renovation Project in accordance with the Approved Plans and Specifications, specifically including the twenty five percent (25%) of the construction costs that is to be assumed and paid by Borrower. Borrower shall notify the City of any event that could impair its ability to fund those costs. 5.2 Affirmative Covenants. During the term of this Agreement, and for so long as Borrower shall have any obligations to the City under the Note and this Agreement, Borrower shall faithfully comply with the following affirmative covenants: (a) Borrower shall preserve and maintain its legal existence as a non-profit corporation in good standing, and its exempt status under Section 501(c)(3) of the Internal Revenue Code. (b) Borrower shall operate the Renovated Facility in a prudent and reasonable manner, and in full compliance with all applicable federal, state and local law. Borrower shall keep accurate and complete records and accountings of its business operations that are consistent with sound business practices, and shall maintain those records and accountings until the Loan is fully paid. (c) Borrower shall timely pay all of the costs and expenses that are incurred in the operation of its business, including the rentals that are owed to Musselman under the Lease Agreement, and perform all the obligations and undertakings that it has assumed under that Agreement. Borrower shall utilize its best efforts to procure and maintain subleases on the rental spaces within the Renovated Facility, and comply with the obligations and undertakings that Borrower has assumed thereunder. (d) Borrower shall maintain the Renovated Facility, and the equipment, fixtures, and other property that are a part thereof, in a state of good condition and repair, and shall pay and discharge the cost of repairs and maintenance of same. Borrower shall not sell, encumber or otherwise dispose of any of its assets except in the ordinary course of business. (e) Borrower shall procure and maintain (i) comprehensive general liability insurance on its operations at the Renovated Facility as required under the Lease Agreement, and (ii) adequate casualty coverage on its business properties at replacement value. Borrower shall assume and timely pay all of the premium charges that are required for those coverages. 10 (f) Borrower shall pay all taxes, assessments and charges that are imposed upon its business operations and properties, and all payroll taxes and withholdings on its employees. Borrower shall maintain sufficient deposits to cover the amounts that Borrower is required to pay on employee and other required withholdings. (g) Borrower shall take all necessary steps to preserve and maintain any licenses and certifications that are required for its business operations, and shall comply with all present and future laws that are applicable to those operations. Borrower warrants that all of its existing licenses, certifications, and governmental approvals are currently valid and in good standing, and that Borrower is in full compliance with all legal requirements thereunder. (h) Borrower and the Guarantor shall submit to the City a copy of their federal income tax returns and an annual financial statement and balance sheet on their respective businesses, all of which shall be submitted within six (6) months following the close of each calendar year. SECTION 6 Events of Default — Remedies for Default 6.1 Events of Default. The occurrence of one or more of the following events shall constitute an event of default under this Agreement and the Note: (a) Borrower has failed to make an annual installment payment under the Note within a period of ten (10) days following the scheduled due date for that payment. (b) Borrower has failed to perform or comply with any covenant, warranty, obligation or undertaking under this Agreement within ten (10) days following receipt of the City's written notice of default. (c) Borrower has failed to satisfy the Jobs and Start-up Business requirements defined under Section 3.2 of this Agreement for two (2) successive year periods. (d) Borrower has failed to use the Renovated Facility for the purposes defined in the recitals to this Agreement, or has discontinued its business operations at the Renovated Facility. (e) Borrower has assigned this Agreement, or any of its rights or liabilities under this Agreement, without the prior written consent of the City. (f) An eviction, repossession or other adverse action is taken against the Renovated Facility, or any of the Collateral that Borrower has pledged under this Agreement. (g) Borrower or the Guarantor has furnished the City with any financial statement, representation, warranty or certificate that is materially false, incorrect, or incomplete when made. (h) Borrower or the Guarantor files any type of bankruptcy proceeding, including a proceeding for reorganization and readjustment of their debts, or a receiver or trustee is appointed to take control of their business or its assets. (i) The City determines in its reasonable discretion that Borrower is unable to perform or satisfy any of the covenants, warranties, obligations and undertakings that Borrower assumed under this Agreement, or the Borrower or the Guarantor admit their inability to pay its debts as they mature. 6.2 Remedies upon Default. Upon the occurrence of an event of default, the City shall have the absolute and unconditional right, at its sole option, to exercise any or all of the remedies that are provided under this Section 6.2. All of the rights and remedies of City under this Section 6.2 shall be cumulative to the greatest extent permitted by law, and may be exercised successively or concurrently. 11 (a) The City shall have the right to accelerate the indebtedness under the Note and this Agreement, and to make a written demand upon the Borrower and the Guarantor for the full payment of same. The City shall also have the absolute and unconditional right to terminate the Borrower's line of credit loan, and to refuse any draw requests that are made thereon. (b) The City shall have the right to take possession of Borrower's assets, and to sell that property, in whole or in part, through a public or private sale. Any notices required thereon shall be deemed reasonable if mailed to the persons entitled thereto at their last known address at least ten (10) days prior to disposition of the assets and, in reference to a private sale, need state only that the City intends to negotiate such a sale. Any sale or other disposition of such property shall be deemed commercially reasonable if made to a public offering advertised at least once in a newspaper of general circulation in the community where the collateral is located. (c) The City shall have the right to take control over the accounts of Borrower, including its accounts with its sublessees, and to collect and retain the proceeds that are payable therefrom. In relation thereto, the City shall have the right to (i) notify the account debtors of its right to collect the accounts, (ii) demand and receive from the account debtors any information that pertains to their account, (iii) forward invoices to the account debtors directing them to make account payments directly to the City, (iv) enforce the accounts against the account debtor in the City's or the Borrower's name, including enforcement through legal action, and (v) exercise any and all rights and remedies of Borrower in connection with the accounts. (d) The City shall have the right to apply the proceeds received from the liquidation of Borrower's assets against the costs, expenses, and attorney fees that the City incurs in exercising its remedies hereunder, and then to the balance owed under the Note, as the City may determine. (e) In the event of a default during the construction of the Renovated Facility, the City shall have the unconditional right, at its option, to proceed with the construction of the Renovated Facility through Borrower's general contractor, or through such other contractors as the City may select, and to pay all of the costs and expenses that are incurred in the construction process. All expenditures made and incurred by the City under this subsection shall be added to the principal under the Note, and accrue interest at the rate defined in the Note, all of which shall be fully secured under this Agreement. In exercising its rights hereunder, the City shall have the unconditional right to enter into and upon the renovation site, and take possession and control of the construction materials that are located thereon, and to complete the construction of the Renovated Facility in accordance with the Approved Plans and Specifications, and any changes, alterations, additions or modifications that the City deems necessary or expedient, and to do whatever other act it deems necessary to complete the Renovated Facility. (f) The City shall have the right to recover from Borrower and the Guarantor any and all of the costs and expenses that the City incurs in enforcing the remedies that are provided hereunder, including its reasonable attorney fees. (g) The City shall have the right to exercise all other rights and remedies that are available under law, both legal and equitable. —' SECTION 7 Miscellaneous Provisions 7.1 Inspection of the Facility. The City, and its appointed agents, shall have the right to come upon the Renovated Facility upon reasonable advance notice and at reasonable times to examine and inspect the Renovated Facility for purposes of insuring Borrower's compliance with the terms and provisions in this agreement. 12 7.2 Waiver. Each party shall have the right to enforce the provisions of this Agreement, in strict accordance with the terms hereof, notwithstanding any prior conduct or custom. The failure of a party to enforce its rights under this Agreement shall not be construed as having created a custom which is contrary to specific provisions of this Agreement, or as having in any way or manner modified or waived such provisions. All rights and remedies of the parties shall be cumulative, and the exercise of one right or remedy shall not be deemed a waiver or release of any other right or remedy. 7.3 Entire Agreement. This Agreement and the attached Appendices embody the entire agreement that was made between the parties with respect to the Loan. There are no representations, terms, conditions, covenants or agreements between the parties relating thereto which are not contained herein. This Agreement shall completely and fully supersede all other prior agreements, both written and oral. 7.4 Notices. All notices that are to be made hereunder shall be sent to each of the parties in accordance with the information that is provided in this Section 7.4. A notice shall be deemed effective upon a party's actual receipt, which receipt shall be evidenced by documentation evidencing the receipt: City: Attention: James Arndt, City Manager Borrower: Attention: 7.5 Assignments. The Borrower shall not have the right to assign this Agreement, or any of its rights and interests hereunder, without the prior written approval of the City. Any assignment made without that approval shall constitute an event of default under this Agreement. 7.6 Disputes. This Agreement shall be construed and enforced in accordance with the laws of the state of Kentucky. All actions taken under this Agreement shall be submitted to McCracken Circuit Court, which court shall have exclusive jurisdiction over the matter. Each party irrevocably attorns to the jurisdiction of that court, and waives all rights to protest that jurisdiction. Each party also waives their right to a jury trial. 7.7 Captions. The article and paragraph headings and captions contained hereunder are included for convenience only, and shall not be considered a part hereof or effect in any manner the construction or interpretation of this Agreement. 7.8 Severability. The invalidity or unenforceability of any provision of this Agreement does not affect the validity or enforceability of any other provision hereunder. If a court of competent jurisdiction determines that any provision is invalid, the remaining provisions of this Agreement are to be construed as if the invalid provision had never been included. 7.9 Mutual Construction. By signing this Lease Agreement, each party acknowledges that this Agreement is the product of arms -length negotiations between the parties, and should be construed as such. No party may claim that an ambiguity in this Agreement should be construed against the other party. 13 7.10 Amendments. No provision of this Agreement may be amended or modified except by a written instrument duly signed by the parties. 7.11 Counterparts. This Agreement may be independently executed in any number of counterparts, each of which when executed and delivered shall constitute an agreement which shall be binding upon all parties notwithstanding that the signatures of all parties and/or their designated representatives do not appear on the same page. Facsimile signatures shall have the same effect as original signatures. 7.12 Binding Agreement. This Agreement shall become enforceable on the Effective Date, and upon that date, each parry shall be legally bound to the terms in this Agreement. IN WITNESS WHEREOF, the City and the Borrower have executed this Agreement as of the day, month and year indicated below, and the Agreement shall be effective on ,20 CITY OF PADUCAH By: Date: BORROWER: SPROCKET, INC. By: Title: Date: 14 Mayor