Committee Minutes

Growth Fund Committee
Tuesday, March 21, 2006, 4:00 p.m.
Urban Development Conference Room
1405 1st Avenue North, Grand Forks, ND 58203


Mr. Hamerlik called the meeting to order.

Roll Call:

Present were: Terry Smith, Gerald Hamerlik, Doug Christensen (via conference call), Eliot Glassheim (via conference call), and Jon Ramsey.

Also present were: Klaus Thiessen, Keith Lund, Peggy Kurtz, Connie Mangan, John Hitchcock, Hal Gershman, and Greg Hoover.

Approval of Minutes (2/14/06 and 3/6/06):

Doug Christensen moved and Eliot Glassheim seconded to approve the minutes of the 2/14/06 and 3/6/06 meetings. Voting “aye”: Gerald Hamerlik, Eliot Glassheim, Jon Ramsey, and Doug Christensen. Voting “nay: None. MOTION CARRIED.

Cirrus Back-up Generator:

Keith introduced John Hitchcock from Cirrus Design. Keith referred to Greg’s 3/15/05 memo explaining the request. The initial budget for the Cirrus project was established at $9 million, which has since been increased by $180,000. The project came in over budget when it was first bid and Cirrus and City staff has worked hard to keep the budget in check. Cirrus did, however, take out some of the components of the project, one of which was their back-up generator. Now, Cirrus has found an alternative funding source for the generator through Nodak Electric and is asking the Growth Fund to co-sign a loan, which will require no cash from the Growth Fund but will put the generator back into the project. Eliot asked who would be paying off the loan. John Hitchcock replied that Cirrus would have a peak savings agreement with Nodak. He felt the loan would end up at 7.75% for 7 years. Cirrus will take the cost savings and put that rate towards payment of the capitalization of the equipment. Eliot asked if Cirrus will pay this with the energy savings and needs the Growth Fund to co-sign because we are the owner of the property. Mr. Hitchcock agreed. Mr. Hitchcock stated that Cirrus would be taking care of the maintenance of the equipment as well as the fuel supply in order to make the equipment ready when the peak savings is asked for from Nodak. Jon Ramsey came to the meeting at this time. Gerald asked Greg to read the summary paragraph from his memo. Greg read, “the proposed loan has a five-year term, and projections estimate that off-peak payback would fully amortize the generator cost in approximately 4.5 years. Thereafter, the generator is expected to reduce Cirrus’ energy costs by approximately $73,000 in year 5 and approximately $106,000 in year 6+. Further, if purchase of the generator is postponed, new EPA guidelines will apply, resulting in a cost increase of approximately $70,000”. Doug said he didn’t understand why Nodak would be afraid to lend the money to the sole source customer without the City’s guaranty of the loan. We are at risk as a community. Nodak has a captured customer but yet they still want our guaranty. Doug felt that we could provide a guaranty for a couple of years, and after the loan was paid down by $150,000, they should be on their own. Mr. Hitchcock stated that the building remains the property of Grand Forks Growth Fund and JDA and that’s where this request stems from. Doug stated this is a matter of principle; at some point companies that we help have to stand on their own feet. John stated that the issue is more that the building is under the ownership of the City and that’s the tie into it. Doug stated we would agree, if Cirrus leaves town, to pick up the balance of the debt. It seems at some point the public has to get out of these transactions. Eliot asked how much Cirrus was on the hook for on these various loans that we have partial guaranty of. Doug stated we are on the hook for 100%. Keith stated that the Growth Fund is financing $6.5 million of this project. Doug asked if the lease has been prepared and Keith replied it had. Doug asked if there was a requirement in the lease if they leave, they have to pay us one years rent. Keith replied that the lease requires them to pay all rent regardless of whether they leave before the term expires. Doug asked if the lease has an acceleration clause that gives us the right to reduce the unpaid rent to its fair value, i.e. the unpaid rent on the bond. Keith replied that it does not have an acceleration clause; it simply requires them to make all the payments regardless of when they leave. Jon Ramsey stated there is no cash outlay from Cirrus’ pocket; they are simply taking that savings and putting it into a generator with a 4½-year repayback. He wasn’t sure what really was the risk in this transaction. Doug replied that someone has to be in business in that facility to make the revenue to pay Nodak. If they leave, the lights are off and there is no electricity being used and no money going to Nodak to pay for the generator. Jon stated that if they are not there to make the payments, then we aren’t getting paid back on our $6.5 million. We expect that they are going to be there and we expect that they are going to make the payments. He asked whether Nodak is simply looking for security or collateral. Mr. Hitchcock stated it was his understanding that Nodak requested this because the City owns the building. John spoke with his management and there were no qualms about this. Terry stated he gives Cirrus credit for being creative and finding money for the generator by going to Nodak. He felt the worst-case scenario means that we end up with a generator. Jon Ramsey asked if Mr. Christensen would be open to a guaranty of collection versus a guaranty of payment. Doug replied he would, after they have sold the generator. Eliot Glassheim moved and Terry Smith seconded to approve the request as submitted. Voting “aye”: Gerald Hamerlik, Eliot Glassheim, Terry Smith, and Jon Ramsey. Voting “nay: Doug Christensen. MOTION CARRIED.

Matter of prospective location, relocation or expansion of business or industry: (Committee may adjourn into executive session pursuant to NDCC 44-04.19.2.)

Jon Ramsey moved and Eliot Glassheim seconded to go out of regular session and convene into executive session as provided by NDCC 44-04-19.2 to consider and discuss business relating to negotiating strategy or instructions as provided by NDCC sections 44-04-19.1, 44-04-19.2, and 44-04.18.4. Voting “aye”: Gerald Hamerlik, Eliot Glassheim, Terry Smith, Jon Ramsey, and Doug Christensen. Voting “nay: none. MOTION CARRIED. Mr. Hamerlik convened the meeting into executive session at 4:25 p.m. and recognized for the record all present: Jim Satrom, Peggy Kurtz, Hal Gershman, Gerald Hamerlik, Klaus Thiessen, Keith Lund, Terry Smith, Jon Ramsey, Greg Hoover, and via phone, Eliot Glassheim and Doug Christensen. Mr. Hamerlik asked if there was anyone within listening distance of those on the phone and Doug and Eliot replied there were not.
Executive Session

Mr. Hamerlik reconvened the Growth Fund Committee meeting at 4:42 p.m. Jon Ramsey moved and Eliot Glassheim seconded to accept the pre-application and invite a full application, and that we support a five-year tax abatement on a declining basis. Voting “aye”: Gerald Hamerlik, Eliot Glassheim, Terry Smith, Jon Ramsey, and Doug Christensen. Voting “nay: none. MOTION CARRIED.

Aatrix Loan Restructuring:

Connie Mangan distributed the loan information and said that she has been working with Aatrix, who has a loan balance of $457,993. They have paid $76,000 in principal and $81,000 in interest. We have a $400,000 mortgage on their building and a personal guaranty of $451,000 from Steve Lunseth and another personal guaranty from Arthur Jenson that secures the Growth Fund, EDA, and PACE loans. Connie reported that we also had a loan with them back in 1988, which was converted in 1992 to $100,000 of equity. Aatrix was behind in their payments but have been paying $4,200 a month since December 2005. We met with Aatrix in February 2006 and we came up with the following recommendations: (1) Aatrix will make monthly payments of $4,200 per month for the next 6 months, (2) Aatrix will provide audited financial statements by June 30, 2006, (3) Aatrix will provide a professional business plan by June 30, 2006, and (4) Aatrix will reactivate the board of directors by April 30, 2006. We are recommending that we go with the above recommendations until September of 2006 when we will make a formal recommendation as to restructuring. Jon asked Mr. Lunseth if Aatrix and the City were in agreement with these recommendations. Mr. Lunseth replied they were basically, however, they would like a slightly lower payment. Mr. Lunseth also expressed concern about the 4th recommendation, reactivation of the board, because of the cost of board insurance. They have had several members of their board decline or resign because of the board insurance. They have no objection to having an oversight committee and asked if that would be a reasonable alternative to reactivating their board. Doug asked how much board insurance costs. Mr. Lunseth replied it was about $7,000 to $9,000 many years ago. Doug asked what would a board do for these people that could give them insight as to what they should do. Mr. Lunseth stated they are in the software industry and he was not sure that there was anyone that has the expertise in the region that could advise them. Doug stated he would much rather see regular reports and Mr. Lunseth agreed. Eliot felt the point of having someone on the board was to push towards financial soundness and make sure deadlines are being met and to ask questions on behalf of the banker, i.e., us. Doug stated that whoever sits on the board must then assume the liability and since he assumed that Aatrix had 90-95% of the stock, they would then have the majority of votes. Jon felt we could get the same information if Connie were to receive regular reports and meet with Steve on a regular basis. Mr. Lunseth stated he appreciated the partnership between the City and Aatrix and the City has helped Aatrix enormously. They have made great strides in the last couple of years in the electronic form business and have the nation’s only center for e-file payroll reports. They will do their utmost to provide that the City’s trust is worthwhile. Greg summarized that, before restructuring the loan in September, we accept monthly payments of $4,200 plus require audited financial statements and a business plan by June 30th, and rather than the activation of the board, we would accept monthly financial reports. Jon Ramsey moved and Doug Christensen seconded to approve the recommendations as summarized by Greg. Voting “aye”: Gerald Hamerlik, Eliot Glassheim, Terry Smith, Jon Ramsey, and Doug Christensen. Voting “nay: none. MOTION CARRIED.

Project Update:

Klaus reported no update at this time.

Monthly Report – February 2006:

Greg stated the report was distributed with the agenda and asked if there were any questions. Steve Lunseth and Arthur Jensen left the meeting.

2005 Annual Growth Fund Report:

Connie distributed the 2006 Annual Growth Fund report. Greg said he would get copies over to Eliot and Doug’s mailboxes at City Hall, as well as the rest of the City Council and the EDC.

Other Business:

Doug asked if we would get a report from the EDC regarding the University research park. Klaus stated they are preparing something for the next Growth Fund meeting. Doug asked if we could anticipate an additional request from the Growth Fund of additional monies. Klaus stated they are not expecting a request for any additional financial support other than what was initially discussed. Doug asked if there had been any additional discussions about the governance of the park. Klaus stated they are meeting with Jim Petell this Friday and we would then like to have meetings with the Growth Fund Committee members starting with the Chair to discuss the specifics of the project. Mr. Hamerlik stated the idea was to be in contact with all Committee members, not just the Chair. Jon said that when it comes to a vote, he would recuse himself because, subsequent to the meeting where the Committee voted on this project, he was approached about providing a proposal for financing a portion of the project.

Doug said he would like to deal with the process. There have been some issues regarding involvement and now it seems we are going back to the old way where you are going to have one-on-one meetings, which is called lobbying. We need some order back in the process. We should start meeting on Wednesdays and begin a conversation as to what we think should be incorporated in a tech park and how it should be governed. We should start participating in this as a group. Doug stated he would rather have a Growth Fund meeting where we go into executive session and discuss what we feel we should have as far as governance and ownership inasmuch as it’s our land. Doug asked Greg to get this on an agenda and Greg agreed. Doug stated this is an important project for our city and he doesn’t want to see private meetings anymore.

Adjournment:

As there was no further business, Mr. Hamerlik adjourned the meeting.

Respectfully submitted,


Peggy Kurtz
Community Development Specialist


Gerald Hamerlik
Acting Chair