05.02 - Tax Increment Financing Project - Lonesome Cottage

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EXHIBIT B Form of Tax Increment Note No. R-1 $ UNITED STATES OF AMERICA STATE OF MINNESOTA COUNTY OF CROW WING CITY OF PEQUOT LAKES TAX INCREMENT REVENUE NOTE (LONESOME COTTAGE FURNITURE COMPANY PROJECT) The City of Pequot Lakes, Minnesota (the "City"), hereby acknowledges itself to be indebted and, for value received, hereby promises to pay the amounts hereinafter described (the "Payment Amounts") to Lonesome Real Estate, LLC (the "Developer") or its registered assigns (the "Registered Owner"), but only in the manner, at the times, from the sources of revenue, and to the extent hereinafter provided. The principal amount of this Note shall equal from time to time the principal amount stated above, as reduced to the extent that such principal installments shall have been paid in whole or in part pursuant to the terms hereof; provided that the sum of the principal amount listed above shall in no event exceed $102,600 as provided in that certain Development Agreement, dated as of August , 2007 as the same may be amended from time to time (the "Development Agreement"), by and between the City and the Developer. The unpaid principal amount hereof shall bear interest from the date of this Note at the simple non-compounded rate of six and no hundredths percent (6.00%) per annum. Interest shall be computed on the basis of a 360 day year consisting of twelve (12) 30-day months. The amounts due under this Note shall be payable on August 1, 2009, and on each February 1 and August 1 thereafter to and including February 1, 2018, or, if the first should not be a Business Day (as defined in the Development Agreement), the next succeeding Business Day (the "Payment Dates"). On each Payment Date the City shall pay by check or draft mailed to the person that was the Registered Owner of this Note at the close of the last business day of the City preceding such Payment Date an amount equal to the Tax Increments (hereinafter defined) received by the City during the six month period preceding such Payment Date. All payments made by the City under this Note shall first be applied to accrued interest and then to principal. The Payment Amounts due hereon shall be payable solely from 90% of tax increments from the Development Property within the City's Tax Increment Financing District No. 1-13 (the "Tax Increment District") within its Development District No. 1 which are paid to the City and which the City is entitled to retain pursuant to the provisions of Minnesota Statutes, Sections 469.174 through 469.1799, as the same may be amended or supplemented from time to time (the "Tax Increment Act") in an amount not to exceed $17,100 in any calendar year (the "Tax 2055837v2 B-1