6.1 EDSR 12-16-2013 p Request for Action
River
To Item Number
Economic Development Authority 6.1
Agenda Section Meeting Date Prepared by
General Business December 16, 2013 Jeremy Barnhart,Deputy Director, CODD
Item Description Reviewed by
Ethanol Technology Default
Reviewed by
Action Requested
Approve by motion the resolution writing off Ethanol Technology's microloan in the amount of
$66,729.66 as recommended by the EDA Finance Committee and make recommendation to the City
Council on same.
Background/Discussion
On November 5, 2013, the EDA Finance Committee directed staff to determine if the City can go after
personal guarantee assets. Staff contacted First National Bank and it was determined that there are
personal assets. However,the bank didn't pursue those assets because it was cost prohibitive. The process
may take several months and it could end up in court.The legal fees, time,and resources required,may
outweigh the benefits.The EDA attorney looked into the matter and she will be present to offer any
comments.
The company defaulted on its loan in 2010 and went bankrupt shortly thereafter. First National Bank has
written off this loan. The remaining balance is $66,729.66. The City of Elk River's Finance Department is
asking that this loan be closed out by the end of 2013.The City's attorney has written a resolution to
close out this account.
Staff is asking that the Finance Committee make a recommendation to the EDA to write off this loan so
that it can be closed out by the end of 2013.
Financial Impact
N/A
Attachments
• EDA Attorney Memo
• November 5, 2013 Staff report
• Ethanol Technology Amortization
• Resolution to write off loan
r 1 ■ E I E I 1 1
INA1UREI
0 Elk -... - Request for Action
River
To Item Number
EDA Finance Committee 4.1
Agenda Section Meeting Date Prepared by
General Business December 10, 2013 Brian Beeman, Director of Economic
Development
Item Description Reviewed by
Ethanol Technology Default Jeremy Barnhart,Deputy Director, CODD
Reviewed by
Action Requested
Consider Ethanol Technology default and make recommendation to the EDA.
Background/Discussion
The company defaulted on its loan in 2010 and went bankrupt shortly thereafter. First National Bank has
written off this loan. The remaining balance is $66,729.66. The City of Elk River's Finance Department is
asking that this loan be closed out by the end of 2013. The City's attorney has written a resolution to
close out this account.
ak On November 5, 2013, the EDA Finance Committee directed staff to determine if the City can go after
IIIF personal guarantee assets. Staff contacted First National Bank and it was determined that there are
personal assets. However, the bank didn't pursue those assets because they deemed it cost prohibitive.
The process may take several months, and could require intervention by the court system. The legal fees,
time, and resources required may outweigh the benefits.
Staff recommends the Finance Committee write off this loan so that it can be closed out by the end of
2013. The EDA attorney looked into the matter and she will be present to offer any comments.
Financial Impact
N/A
Attachments
• EDA Attorney Memo
• November 5, 2013 Staff report
• Ethanol Technology Amortization Chart
• Resolution to write off loan
•
IPOIEREI i1
INATURE
3 � o
CAMPBELL KNUTSON
TO: Elk River EDA Finance Committee
FROM: John Kelly
Andrea McDowell Poehler
DATE: December 3,2013
RE: Borrower: Ethanol Technology of Minnesota,LLC
Originating Lender: First National Bank of Elk River
Participation Lender: Elk River EDA
Loan Amount: $74,000.00
Date of Loan: August 25,2008
Maturity Date: August 25,2013
I have reviewed the following documents that you have provided me with
concerning the above-entitled matter:
• 1. Promissory Note executed by Ethanol Technology of Minnesota,LLC
("Borrower")dated 8/25/08 in the amount of$74,000.00 ("Note").
2. Security Agreement executed by the Borrower securing the Note ("Security
Agreement").
3. Mortgage executed by Barton C. Wells,LLC ("Mortgage") securing the
Note with certain real property in Sherburne County("Property").
4. Guaranty executed by Hitech Motor Sports,Inc. ("Hitech") guaranteeing
the obligations of the Borrower under the Note("Hitech Guaranty").
5. Guaranty of Barton C. Wells("B. Wells") guaranteeing the obligations of
the Borrower under the Note("B. Wells Guaranty").
6. Agreement between First National Bank of Elk River,the Borrower, Hitech
Motor Sports,Inc.,Barton C. Wells,individually,Barton C. Wells,LLC
and Barton C. Wells Enterprises,Inc.,hereinafter jointly referred to as the
"Guarantors"and relating to the modification of two Notes held by the First
National Bank of Elk River including the Note of the Borrower.
•
173697v2
Elk River EDA Finance Committee
Decembe 3,2013
Page Two
7. Participation Certificate and Agreement between First National Bank of Elk River and the
Elk River EDA wherein Elk River EDA agreed to advance 100% of the Loan to the
Borrower.
In addition I reviewed various emails and letters relating to this matter between the First
National Bank of Elk River and the Elk River EDA.
You have asked me to discuss the possibility of the Elk River EDA collecting the amount owed by
the Borrower and/or the Guarantors under the Note and the Guaranties,respectively. Based upon
my review of the foregoing documents,the first action that the Elk River EDA should take is to
determine if the Borrower and/or the respective Guarantors have any assets that could be attached
and sold in order to collect the amount of any judgment that the Elk River EDA might obtain
against the Borrower and/or the Guarantors in the event they should start a lawsuit under the terms
of the Note and Guaranties. At this time the only method of determining what assets of the
Borrower and/or the Guarantors might be available would be to review all financial statements
provided by the Borrower and the Guarantors to the Elk River Bank;unfortunately,these financial
statements are probably very old and if some of the memos in the file are accurate,then the actual
• financial statements provided to the Elk River Bank were not in and of themselves accurate and,
therefore. it would be very hard to determine if there are any assets that could be used to satisfy
any judgment obtained by the Elk River EDA.
If the Elk River EDA determines that the Borrower and/or the Guarantors have assets that could be
used to satisfy any judgment against them or decides that notwithstanding the inability to
determine whether or not there are any assets of the Borrower and/or the Guarantors to collect
under any judgment,and that they still want to pursue a judgment against the Borrower and/or the
Guarantors,they should have the Elk River Bank assign the Note,Mortgage, Security Agreement
and Guaranties to them. Although the Note is secured by the Mortgage, it appears from the
various documents that there are several Mortgages ahead of the Elk River EDA Mortgage and
therefore it appears that there is not any equity in the property covered by the Mortgage and it
would not be cost effective to foreclose the Mortgage.
The cost to the EDA to pursue collection under the terms of the Note and various Guaranties
would be approximately as follows:
1. Drafting of the Summons and Complaint,$750.
2. Service of Process on the Borrower and the Guarantors,approximately$200.
3. Filing fees with the County, approximately$322.
173697v2
Elk River EDA Finance Committee
Decembe 3,2013
Page Three
If the Borrower and Guarantors default and do not answer the Summons and Complaint,the
following amounts would be necessary to enter the default judgment against each of the parties so
that the EDA could take the actions necessary to collect therefrom.
1. Enter the judgments and transcribe the judgments to the counties where the parties are
located if there are not located in Sherburne County, approximately$700.
2. Take the deposition of the applicable parties to determine what assets they have in order to
collect on the same, $700 to $1,000 per party or approximately$1,000 since Mr. Barton
would be able to answer most questions. If any assets are found,then there would be
additional cost to secure the same and have a sale thereof,the amount to do this would
depend upon what assets are actually found and the value thereof.
If the Borrower and the Guarantors answer the Summons and Complaint,there would be
significant cost in attempting to collect in that the matter would have to proceed to a summary
judgment motion or trial and the EDA would have to prove up the actual amount owing and there
would have to be no defenses to said action. This cost would range upward of$2,500 to $3,000
• and take considerable time to get on the court calendars to actually have a trial if needed.
•
173697v2
of
..>4\4j.
`Elk Request for Action
River
To Item Number
EDA Finance Committee 2.1
Agenda Section Meeting Date Prepared by
General Business November 5, 2013 Brian Beeman, Director of Economic
Development
Item Description Reviewed by
Ethanol Technology Default Jeremy Barnhart, Deputy Director, CODD
Reviewed by
Action Requested
Consider Ethanol Technology default and make recommendation to the EDA.
Background/Discussion
In August 2008 the EDA approved a Micro Loan in the amount of$74,000 for Ethanol Technology to
assist in the purchase of equipment and complete remodeling for the expanded business venture.The
term of the loan was a 10 year amortization with a 5 year balloon at 3%. The loan was secured by a 2nd
position lien on equipment,inventory, accounts receivable,real estate and personal guarantee. The loan
was structured as a participation loan with First National Bank of Elk River. There last payment was
411 February 25, 2010.
The company defaulted on its loan in 2010 and went bankrupt shortly thereafter. The First National Bank
has written off this loan. The remaining balance is $66,729.66. The City of Elk River's Finance
Department is asking that this loan be closed out by the end of 2013. The City's attorney has written a
resolution to close out this account.
Staff is asking that the Finance Committee make a recommendation to the EDA to write off this loan so
that it can be closed out by the end of 2013.
Financial Impact
N/A
Attachments
• Ethanol Technology Amortization
III
0
INATUREI
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ELK RIVER ECONOMIC DEVELOPMENT AUTHORITY
Sherburne County,Minnesota
RESOLUTION#
AUTHORIZING THE WRITE OFF OF AN UNCOLLECTIBLE DEBT IN THE
AMOUNT OF $66,729.66,RELATING TO A MICRO LOAN WITH ETHANOL
TECHNOLOGY OF MINNESOTA,LLC
WHEREAS, the Elk River Economic Development Authority entered into a
Participation Agreement with the First National Bank of Elk River("Bank") on August 8, 2008,
for the administration of an EDA funded Micro Loan for Ethanol Technology of Minnesota,
LLC ("Borrower") in the amount of$74,000.00 ("Loan") of which $66,729.66 remains unpaid
("Balance"); and
WHEREAS, the Bank has determined that the Balance of the loan is uncollectible and
has determined to write off the debt under the terms of the"Participation Agreement"; and
WHEREAS,the EDA agrees with the Banks finding in this matter and desires to write
off the Balance of the loan;
NOW, THEREFORE,be it resolved by the Elk River Economic Development
• Authority that the efforts to collect the Balance of Borrower's debt relating to the Loan have
been unsuccessful by the Bank,the Bank has determined that the appropriate action is to write
173175v2 1
off the Balance of the debt and the EDA,therefore, deems the debt uncollectible hereby
11) authorizes to write off the debt of the Borrower in the amount of$66,729.66 from the EDA's
loan accounts.
Passed and duly adopted by the Elk River Economic Development Authority this day
of , 2013.
Daniel Tveite, President
ATTEST:
Brian Beeman, Executive Director
•
•
173175v2 2