Committee Minutes

MINUTES/GROWTH FUND AUTHORITY (JDA)
Tuesday, September 2, 2003 - 7:00 p.m.--------___________

The city council of the City of Grand Forks sitting as the JDA (Growth Fund Authority) met in the council chambers in City Hall on Tuesday, September 2, 2003 at the hour of 7:00 p.m. with President Gershman presiding. Present at roll call were Council Members Brooks, Hamerlik, Glassheim, Christensen, Kerian, Kreun, Gershman - 7; absent: none.

President Gershman welcomed Boy Scout Troop 319, with Scout Masters Robert Braden and Dan Marcum, and asked the Scout members to come to the microphone and state their names; Boy Scout Troop 319 then led the council in the pledge of allegiance.

HOLD PUBLIC HEARING ON APPLICATION
FOR FUNDING FOR APPLIED PRODUCTS

The matter of the request by Applied Products to the Growth Fund Authority for loan from the Grand Forks EDA Revolving Loan Fund to finance the purchase of additional manufacturing equipment and supply working capital. The total project cost is $136,000 with bank and company equity funding 40% or $54,400 and a requested loan of $81,600, five-year loan term with monthly payments.

The Grand Forks Growth Fund Committee recommended:
1. To hold a public hearing on the proposed funding for Applied Products
2. To approve the application of Applied Products as summarized:
Borrower: Applied Products
Loan Amount: $81,600
Lending rate: 4.0%
Repayment terms: 5-year amortization
Funding source: EDA Revolving Loan Fund
Use of proceeds: purchase of equipment, inventory and injection die
Security: first position in new and used equipment purchased from the loan proceeds. second position on all other company assets on a pro-rata
basis with Harwood State Bank.

President Gershman opened the public hearing on the application by Applied Products.

It was moved by Council Member Hamerlik and seconded by Council Member Christensen to approve the recommendation.

Jim Melland, EDC, stated that Applied Products is the developer of a new product RETRAX, a pickup box cover, the company has been in business for 6 or 7 years, the last 3 have been profitable for the company, they are currently employing 8 full-time people and 8 part-time people and have submitted a list of distributors and customers and the company is doing very well. He stated to help them grow more rapidly they have requested a loan from the Growth Fund in the amount of $81,600, which will also be matched by a bank loan and equity from their own business to help them add more inventory and to finance the manufacturing equipment. He stated the loan will be secured by the equipment that will be purchased, and a general filing on the other assets to secure the Growth Fund loan, the loan is for a 5-year term, standard term for equipment loans, interest rate of 4% and monthly payments paid back. The company expects to add 8 more full-time people in next two years, and also a number of part-time people and will increase that from 8 to 12. This company begins their people at competitive wages, average pay above average in manufacturing industry, averaging around $12 for full-time employees and they anticipate that growing over the next 2 years. Council Member Hamerlik stated that there were also bonuses paid in addition to that.

President Gershman closed the public hearing.

Upon call for the question and upon voice vote, the motion carried 7 votes affirmative.

AUTHORIZE SALE OF PROPERTY TO MERIDIAN
ENVIRONMENTAL TECHNOLOGY

The Grand Forks growth Fund recommendation:
1. To obtain city attorney opinion on how to dispose of the property held by the Grand Forks Growth fund as a result of the loan default of WebSmart so as to not endanger the Growth Fund's grantor security position.
2. To approve a cash sale of the property requested by Meridian Environmental Technology to follow the disposition process as determined by the city attorney.

Keith Lund, Urban Development, asked in addition to the requested action by the Growth Fund, staff would also like the authority of this board to process sales in an expeditious manner, not necessarily coming back to the board for the approvals. He stated that if staff was to identify a company or other organization that was willing to pay either the established price or something between 80 and 100%, that the Growth Fund would give staff the authority to process that sale in a manner which is approved by the city attorney - property exclusively from WebSmart.

Council Member Christensen stated there are personal guarantees in this loan, and that he had voiced his concerns regarding the procedure they should follow to make sure those personal guarantees are in place, and asked that they speak with Mr. Swanson on that, but is very concerned that a procedure is followed and that you get in writing from the city attorney a procedure to follow so that you preserve the opportunity of this city to proceed against the guarantees of the individuals who gave us the guarantees because we have a $400,000 issue and for the viewing public, they are asking to sell approx. $6800 worth of property - but the issue is proceeding in a reasonable fashion so that we don't create a defense for the guarantors, and is in favor of their proceeding to sell it based on your appraisal but only after Mr. Swanson has given you written instructions as how to proceed
on the sale of this property or any subsequent items of property that you choose to sell which are secured by our security agreement and the underlined guarantees.

Council Member Christensen moved that staff be authorized to sell this property as they have suggested so long as staff proceeds based upon a written opinion of Mr. Swanson as to how to proceed so that we do not create any defenses that may arise in favor of the guarantors regarding whether or not we proceeded in a commercially reasonable fashion.
Council Member Brooks seconded the motion.

Mr. Swanson stated he had no objections to that suggestion from Council Member Christensen, that he has not spoken to Mr. Christensen about it but has had some conversations with staff, but thinks that is appropriate.

Mr. Lund asked if that motion would include a discretionary percentage of value. Council Member Christensen stated it is extremely important that you proceed in a commercially reasonable fashion and believes that Mr. Swanson will assist you in outlining a procedure to follow and that he wanted to make sure that you proceeded along the way as any other bank would proceed when it came time to liquidate assets when there is an individual guarantor.

Council Member Glassheim stated assuming the procedure is okay with Mr. Swanson, is it okay with the city council to sell between 80 and 100% of appraised value, should Mr. Swanson find that process acceptable. Council Member Christensen stated that is the motion and also that the Growth Fund said that they didn't want them to do this over time, that we wanted cash, and in the memo there is a 3-year installment contract, so that his motion does not include that they sell it to Meridian on a 3-year installment contract, but his motion is cash on the barrel head. Mr. Lund stated that the recommended action is a cash sale.

Upon call for the question and upon voice vote, the motion carried 7 votes affirmative.

Mr. Swanson stated for their information, those people who have issued personal guarantees have been placed on notice in the default of the loan and the Growth Fund's intent to pursue those guarantees, the Corporation has also been placed on notice with respect to the default on the loans and the pursuit of indebtedness on that part. He stated he doesn't intent to discuss publicly our plans, our intent or our strategy, etc. but would invite any of them to contact him at your convenience and discuss that further.

ADJOURN

It was moved by Council Member Hamerlik and seconded by Council Member Brooks that we adjourn. Carried 7 votes affirmative.

Respectfully submitted,



John M. Schmisek
City Auditor