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I2. MOU - NW DrywallrrTYOF City of Kalispell r R Post Office Box 1997 - Kalispell, Montana 59903 Telephone: (406) 758-7701 Fax: (406) 758-7758 AlON7AIVA MEMORANDUM To: Mayor Johnson and City Council From: Doug Russell, City Manager Re: Memorandum of Understanding- Northwest Drywall, Flathead County Economic Development, and the City of Kalispell Meeting Date: January 17, 2017 BACKGROUND: As a major component of the Core Area redevelopment effort in the City of Kalispell, the existing railroad tracks require abandonment by the provider. Subsequently, they will be replaced with a linear trail to accommodate pedestrian and bicycle travel along the east - west corridor. Burlington Northern railroad has previously stated that in order to abandon the rail, support for the abandonment would be required from its current users. CHS has previously documented support for the abandonment and relocation efforts and have been working with Flathead County Economic Development Authority on the terms of that relocation. Burlington Northern has identified that they are looking for Northwest Drywall's support of this effort to move forward with the abandonment process. The City of Kalispell, Flathead County Economic Development Authority and Northwest Drywall have been engaged in discussions related to a potential relocation and have come to a general agreement regarding how that would be accomplished. While final terms may fluctuate based upon tax implications, legal requirements, etc., the general negotiated agreement is as follows: 1) FCEDA agrees to sell to Northwest Drywall 2.1 acres of property located within the Glacier Rail Park for approximately $275,000. 2) The City agrees to provide financing to Northwest Drywall in a sum equivalent of the appraised market value of the building improvements on their current property (approximately $750,000). Northwest Drywall will maintain ownership of the structures located on the subject property. 3) The City agrees to pay the sum equivalent of the appraised value of the subject real property (approximately $275,000) directly to FCEDA for the purchase of property in the Glacier Rail Park to be owned by Northwest Drywall. 4) The City agrees to pay the balance of the relocation costs of Northwest Drywall to the Glacier Rail Park that will provide facilities that are like or similar to such facilities it currently enjoys on the subject property (estimated to be $575,000). 5) Northwest Drywall shall relinquish all rights and privileges of receiving rail transportation services to 160 8th Street West North, Kalispell, Montana as well as any rights to assign such rights and privileges to any other party. The attached Memorandum of Understanding formalizes the intent of the agreement between the three parties and would be sent to Burlington Northern to demonstrate the ability to move forward with the trail abandonment process. Following approval of the agreement, staff will work with the Urban Renewal Agency and the Revolving Loan Committee to facilitate terms of the agreement. Final approvals for some components are anticipated to be placed before the City Council at a future time for action in accordance with appropriate statutes, etc. FISCAL IMPACT: The fiscal impact of this agreement includes the relocation expenses required to enact the goals of the West Side Urban Renewal Plan for estimated expenses of $275,000 (land), $575,000 (buildings), and a loan of $750,000 to Northwest Drywall for contribution to the structure in the Glacier Rail Park. RECOMMENDATION: It is recommended that the City Council approve of the Memorandum of Understanding between Northwest Drywall, Flathead County Economic Development, and the City of Kalispell, and authorize the Mayor to sign the documents. ATTACHMENTS: Memorandum of Understanding MEMORANDUM OF UNDERSTANDING between THE CITY OF KALISPELL and THE FLATHEAD COUNTY ECONOMIC DEVELOPMENT AUTHORITY and K & E LLC, NORTHWEST DRYWALL AND BUILDING SUPPLY INC., AND NORTHWEST DRYWALL & ROOFING SUPPLY, INC. The CITY OF KALISPELL, hereinafter referred to as "the City", a municipal corporation duly formed and authorized pursuant to Montana state law and with business offices located at 201 First Avenue East, Kalispell, Montana, and the FLATHEAD COUNTY ECONOMIC DEVELOPMENT AUTHORITY, hereinafter referred to as "FCEDA" a corporate public body established pursuant to Montana state law and with business offices located at 44 Second Avenue West, Kalispell, Montana and K & E LLC, NORTHWEST DRYWALL AND BUILDING SUPPLY, INC. and NORTHWEST DRYWALL AND ROOFING SUPPLY, INC., all Montana domestic entities in good standing with interests in that real property located at 160 8th Avenue West North, Kalispell, Montana hereby enter into agreement as set forth below. RECITALS WHEREAS, the City is a municipal corporation of the State of Montana located within Flathead County, Montana and is duly organized and in existence pursuant to the terms of MCA Title 7 Chapter 3 Part 43; and WHEREAS, FCEDA is a corporate public body duly organized and in existence pursuant to the terms of MCA Title 7, Chapter 14, Part 11 enabling the creation of a Port Authority and by Resolution No. 1346 of the Flathead County Commissioners for the stated purposes of stimulating commerce, maximizing employment opportunities and expanding the tax base; and WHEREAS, K & E LLC, Northwest Drywall and Building Supply, Inc. and Northwest Drywall & Roofing Supply, Inc., are all Montana domestic business entities in good standing under common ownership which entirely own and/or have ownership interests in that real property located at 160 8t" Avenue West North, Kalispell, Montana; and WHEREAS, on December 17, 2012 the Kalispell City Council, through Resolution No. 5601, adopted an amendment to its Growth Policy referred to as the "Kalispell Core Area Plan" based upon the findings of fact it accepted and approved in Kalispell Planning Department staff report #KGPA-12-01; and Memorandum of Understanding —Page 1 WHEREAS, on February 4, 2013 the Kalispell City Council, through Resolution No. 5605, adopted the Kalispell Core Area Plan as an amendment to the Kalispell West Side Urban Renewal District Plan, overlaid with a Tax Increment Financing District, making elements of the plan eligible for Tax Increment Fund financing; and WHEREAS, essential elements of the Kalispell Core Area Plan are the removal of the railroad tracks traversing it, as well as removing the industries served by rail to a location outside of the Core Area; and WHEREAS, the real property at 160 8t" Avenue West North, Kalispell, Montana consisting of approximately 1.6 acres identified as Tract 2821X07-MDC-2 in the Meridian Complex East Subdivision of the City of Kalispell, identified above, in addition to a private easement area of approximately .5 acres that benefits the subject property [hereinafter referred to as the "subject property"], has been served with railroad transportation by Burlington Northern Santa Fe Railway [BNSF]; and WHEREAS, by letter dated, July 10, 2015, BNSF advised the CITY and FCEDA, that it agreed to abandon the railroad services and existing rail transportation infrastructure in the city upon the support of existing rail users located on the rail section proposed for abandonment; and WHEREAS, the parties to this Memorandum of Understanding agree that those entities receiving rail transportation services at 160 8t" Avenue West North, Kalispell, Montana [hereinafter referred to as "NORTHWEST DRYWALL"] shall finally and forever relinquish all rights and privileges of receiving such services as well as any rights to assign such rights and privileges, in consideration for the benefits to be received as set forth below. NOW THEREFORE, THIS MEMO -RAND UM OF UNDERSTANDING IS EXPRESSED AND AGREED UPON by and between all parties, above named, that it is to their mutual benefit to adopt this Agreement as follows: PURPOSE: The purpose of this Memorandum of Understanding is to set forth the intent and agreement of the parties that rail transportation services to 160 81h Avenue West North, Kalispell, Montana may be discontinued, as well as setting the general terms of such discontinuance, allowing existing rail transportation infrastructure to be removed from within the Kalispell Core Area so that projects in the Kalispell Core Area Urban Renewal Plan may be executed. CONSIDERATION GIVEN BY FCEDA: For the purposes of effectuating the relocation of the businesses located at the subject property, FCEDA agrees to sell to NORTHWEST DRYWALL, or their assigns, a total of 2.1 acres of property located within the Glacier Rail Park for the equivalent market value appraisal price of the real property and easement described above and enjoyed by those named parties (approximately $275,000). Memorandum of Understanding — Page 2 CONSIDERATION GIVEN BY THE CITY. For the purposes of effectuating the relocation of the businesses located at the subject property estimated to have a total cost of $1,600,000: 1) The City agrees to provide financing to K&E, LLC in a sum equivalent of the appraised market value of the building improvements on the subject property (approximately $750,000). This loan shall be for a term of twenty (20) years and shall bear an annual interest rate of 3.0%. NORTHWEST DRYWALL will maintain ownership of the structures located on the subject property. 2) The City agrees to pay the sum equivalent of the appraised value of the subject real property (less buildings) (approximately $275,000) directly to FCEDA for the purchase of property in the Glacier Rail Park to be owned by K&E, LLC. 3) The City agrees to pay the balance of the relocation costs of NORTHWEST DRYWALL and K&E, LLC to the Glacier Rail Park that will provide facilities that are like or similar to such facilities it currently enjoys on the subject property (estimated to be $575,000). CONSIDERATION GIVEN BYNORTHWEST DRYWALL: For the purposes of effectuating the relocation of the businesses located at the subject property NORTHWEST DRYWALL shall finally and forever relinquish all rights and privileges of receiving rail transportation services to 160 8"' Avenue West North, Kalispell, Montana as well as any rights to assign such rights and privileges to any other party. TAX CONSEQUENCE CONSIDERATION GIVEN TO STRUCTURE OF TRANSACTION: The parties agree that it is essential to K&E LLC that the tax consequences of the transaction to K&E LLC must be taken into consideration if it is going to have the necessary financial capacity for the bargain. Therefore the parties agree to structure the transaction to minimize the tax consequences to the cash flow operations of K&E LLC, including use of IRS Section 1033 Exchange, if appropriate, graduated equity vesting or other appropriate tax structure. EXECUTION OFDOCUMENTS: The parties agree that this Memorandum of Understanding sets forth the general understanding of the parties only and that further documentation and agreements will be necessary to fully effectuate the terms of this agreement and that it will therefore be necessary for the parties to execute such future agreements to meet the terms of this agreement. COMPLIANCE WITHLAW. The primary purpose of this agreement is to provide for the relocation of businesses [NORTHWEST DRYWALL] so that projects identified in the Kalispell Core Area Urban Renewal Plan may be assembled. For this purpose the CITY may utilize tax increment financing pursuant to MCA Title 7, Chapter 15, Part 42, and specifically §7-15-4288. The CITY shall also ensure, and all other parties to this agreement shall cooperate in the compliance with any other laws that may be applicable to the relocation of businesses. EFFECTIVE DATE: The effective date of this agreement shall be upon the execution of thi document as authorized by the governing bodies of each party. Memorandum of Understanding — Page 3 L1 1 l APPLICABLE LAW.• The parties agree that this Agreement is governed in all respects by the laws of the State of Montana and the parties expressly agree that venue for any legal action arising under this agreement will be Flathead County, Montana, and no other venue. NO THIRD -PARTY BENEFICIARY. This Memorandum of Understanding is for the exclusive benefit of the parties, does not constitute a third -party beneficiary agreement, and may not be relied upon or enforced by a third party. COUNTERPARTS. This Agreement may be executed in counterparts, which together constitute one instrument. AUTHORITY. • Each party represents that it has full power and authority to enter into and perform this Agreement and the person signing this Agreement on behalf of each party has been properly authorized and empowered to sign this Agreement. Dated this It day of January, 2017. CITY OF KALISPELL C Mark Johnson, Mayor K&ELLC FLATHEAD COUNTY ECONOMIC DEVELOPMENT AUTHORITY By: v� Turner Askew, Chairman NORTHWEST DRYWALL AND BUILDING SUPPLY INC. By By: C /' NORTHWEST DRYWALL & ROOFING SUPPLY, INC. Memorandum of Understanding — Page 4 STATE OF MONTANA ss. County of Flathead On this _ day of January, 2017, before me the undersigned, a Notary Public for the State of Montana, personally appeared MARK JOHNSON, known to me to be the person whose name is subscribed to the foregoing instrument and acknowledged to me that he executed the same in her authorized capacity as Mayor of the CITY OF KALISPELL. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal the date and year first above written. STATE OF MONTANA : ss. County of Flathead Printed Name: Notary Public for the State of Montana Residing at My Commission expires: On this 'I t day of January, 2017, before me the undersigned, a Notary Public for the State of Montana, personally appeared TURNER ASKEW, known to me to be the person whose name is subscribed to the foregoing instrument and acknowledged to me that he executed the same in his authorized capacity as Chairman of the FLATHEAD COUNTY ECONOMIC DEVELOPMENT AUTHORITY. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal the date and year first above written. USSELL NOTARY PRuBUC for ft smle Of Monum �°' � Mf► 0 tjW 28 2017 Printed N me: � U Notary Public for the State of Montana Residing at , My Commission expires: �5, 2—C)1:7— Memorandum of Understanding — Page 5 STATE OF MONTANA : ss. County of Flathead On this _ day of January, 2017, before me the undersigned, a Notary Public for the State of Montana, personally appeared P,4--4 (C • O hlw k., known to me to be the person whose name is subscribed to the foregoing instrument and acknowledged to me that (s)he executed the same in his/her authorized capacity as Principal of K & E LLC, NORTHWEST DRYWALL AND BUILDING SUPPLY INC. AND NORTHWEST DRYWALL & ROOFING SUPPLY, INC. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal the date and year first above written. LEONARD D SMITH NOTARY PUBLIC for the 4EAi r State of Montana Resisting at Kalispell, Montana MY Commission Expires May 10, 2018 Printed Name: � -'-,;Z� /. Notary Public for the Sta e of M ntana Residing at My Commission expires:5-- `5����lY Memorandum of Understanding — Page 6