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HomeMy WebLinkAbout95-114 Resolution No. 95-114 RESOLUTION AUTHORIZING THE EXECUTION OF A MEMORANDUM OF AGREEMENT (GREASE GUARD, INC . PROJECT) WHEREAS, Grease Guard, Inc . (the "Borrower" ) wishes to finance the acquisition of land and construction of an approximately 20, 000 square foot building located near the intersection of Route 31 and Interstate 90 in Elgin, Illinois (the "Project" ) and wishes to have the City of Elgin, Illinois (the "Issuer" ) issue its industrial revenue bonds to finance the acquisition and construction of such facilities; and WHEREAS, a Memorandum of Agreement has been presented to the Issuer under the terms of which the Issuer agrees, subject to the provisions of such Agreement, to issue its industrial revenue bonds to finance the acquisition and construction of such facilities . NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF ELGIN, ILLINOIS : Section 1 . That the Mayor of the Issuer is hereby authorized to execute, and the Clerk of the Issuer is hereby authorized to attest a Memorandum of Agreement with the Borrower in substantially the form of such agreement appended to this resolution as Exhibit A. Section 2 . That the officers and employees of the Issuer are hereby authorized to take such further action as is necessary to carry out the intent and purposes of the Memorandum of Agreement as executed and to issue not to exceed $1 , 500, 000 of its industrial revenue bonds upon the terms and conditions stated in such Memorandum of Agreement for the purpose of defraying the cost of acquiring the Project and that the same is declared to be for public purpose. Section 3 . That this resolution shall be in full force and effect upon its passage and approval . s/ Kevin Kelly Kevin Kelly, Mayor Presented: May 24 , 1995 Adopted: May 24 , 1995 Omnibus Vote: Yeas 6 Nays 0 Attest : s/ Dolonna Mecum Dolonna Mecum, City Clerk STATE OF ILLINOIS ) SS COUNTY OF KANE ) I, the undersigned, do hereby certify that I am the duly qualified Clerk of the City of Elgin, in the County and State aforesaid; and as such Clerk, I am the keeper of the official journal, records and files of the City Council of said City. I do further certify that the attached and foregoing is a full, true and correct copy of: RESOLUTION NO. 95-114 A RESOLUTION AUTHORIZING THE EXECUTION OF AND MEMORANDUM OF AGREEMENT (GREASE GUARD, INC. PROJECT). Passed and Approved: May 24, 1995 as adopted by the Mayor and City Council of the City of Elgin, at a legally convened meeting in the City of Elgin, Illinois. IN WITNESS WHEREOF, I have hereunto affixed my official signature and the corporate seal of said City of Elgin, Kane County, Illinois this 3/4ay of May, 1995. Clerk (VILLAGE SEAL) 3 Grepth Guard wc. Gr a Containment Systems 605 Church Road Elgin, IL 60123 708.931.9500 708.931.9629FAX 800.284.8273 June 21, 1995 Raymond H. Moller Director of Business Services & Properties City of Elgin 150 Dexter Ct. Elgin, IL 60120-5555 Dear Ray: We are excited about building our new Corporate Headquarters in Elgin, IL. We feel that our company will generate many job and career opportunities for the people of your city as well as, generate tax revenues to help the community. We appreciate your support in assisting us obtain the IRB Funding for our project. We very much appreciate your efforts. Enclosed is our signed copy of the memorandum of agreement. If you need any additional information, please call me at 708-931-9500. Warmest regards, Jean L. Jodoin President JLJ/jb EXHIBIT A MEMORANDUM OF AGREEMENT THIS MEMORANDUM OF AGREEMENT is between the City of Elgin, Illinois (the "Issuer") and Grease Guard, Inc. (the "Borrower"). 1. Preliminary Statement. Among the matters of mutual inducement which have resulted in this Agreement are the following: (a) The Issuer is authorized under the Industrial Project Revenue Bond Act, 65 ILCS 5/11-74-1 to 5/11-74-14 (1992 State Bar Edition), as from time to time supplemented and amended (the "Act"), to issue industrial revenue bonds for the purpose of financing, in whole or in part, the cost of the acquisition, purchase, construction, reconstruction, improvement, betterment or extension of any industrial project and to enter into a loan agreement with the Borrower pursuant to which the proceeds of such industrial revenue bonds may be lent to the Borrower to finance the costs of the acquisition and construction of such an industrial project. (b) The Borrower wishes to obtain satisfactory assurance from the Issuer that the proceeds of the sale of such industrial revenue bonds of the Issuer will be made available to it to finance the costs of acquisition of land and construction of an approximately 20,000 square foot building located near the intersection of Route 31 and Interstate 90 in Elgin, Illinois (the "Project"). (c) Subject to the conditions contained herein and to the due compliance with all requirements of law, the Issuer, by virtue of such statutory A-1 authority as may now or hereafter be conferred by the Act, will issue and sell its industrial revenue bonds in an amount not to exceed $1,500,000 (the "Bonds") to finance the costs of the Project. (d) The Borrower has presented the Issuer with evidence of its intention to reimburse itself for expenditures relating to the Project which it may pay from funds which are not proceeds of the Bonds. 2. Undertakings on the Part of the Issuer. Subject to the conditions above stated, the Issuer agrees as follows: (a) That it will authorize the issuance and sale of the Bonds pursuant to the terms of the Act as then in force. (b) That it will, at the proper time and subject in all respects to the prior advice, consent and approval of the Borrower, adopt or cause to be adopted, such proceedings and authorize the execution of such documents as may be necessary and advisable for the authorization, issuance, and sale of the Bonds as aforesaid, and that it will enter into a loan agreement whereby the Borrower will pay to or on behalf of the Issuer such sums as shall be sufficient to pay the principal and interest and redemption premium, if any, on the Bonds as and when the same shall become due and payable. (c) The Issuer hereby declares its intent to assist the Borrower under Treasury Regulations Section 1.150-2 to reimburse any expenditures made on costs of the Project prior to the issuance of the Bonds with proceeds of the Bonds. A-2 3. Undertakings on the Part of the Borrower. Subject to the conditions above stated, the Borrower agrees as follows: (a) That it will use all reasonable efforts to find one or more purchasers for the Bonds. (b) That contemporaneously with the delivery of the Bonds it will enter into a loan agreement with the Issuer under the terms of which the Borrower will obligate itself to pay to the Issuer sums sufficient in the aggregate to pay the principal of and interest and redemption premium, if any, on the Bonds as and when the same shall become due and payable. 4. General Provisions. (a) All commitments of the Issuer under Paragraph 2 hereof and of the Borrower under Paragraph 3 hereof are subject to the condition that on or before 365 days from the date hereof (or such other date as shall be mutually satisfactory to the Issuer and the Borrower), the Issuer and the Borrower shall have agreed to mutually acceptable terms and conditions of the loan agreement and of the Bonds and other instruments or proceedings relating to the Bonds. The decision not to approve or agree to any term or condition of any document or not to take any action prior to issuance of the Bonds shall rest solely within the complete discretion of the parties to this Agreement. (b) If the events set forth in (a) of this Paragraph 4 do not take place within the time set forth or any extension thereof and the Bonds in an amount not exceeding the amount stated above are not sold within such time, the Borrower agrees that it will reimburse the Issuer for all reasonable and necessary direct out-of-pocket expenses which the Issuer may incur at the A-3 Borrower's request or as a result or arising out of this Agreement including but not limited to the payment of attorney and other consultant fees arising from the execution of this Agreement and the performance by the Issuer of its obligations hereunder, and this Agreement shall thereupon terminate. (c) The closing of the Bonds in regard to the Project is subject to sufficient volume cap allocation, and such allocation in 1996 shall be first applied for such purpose. IN WITNESS WHEREOF, the parties hereto have entered into this Agreement by their t- ZONE. officers thereunto duly authorized as of the I' day of Mar, 1995. CITY OF ELGIN, ILLINOIS • � CAE Mayor (SEAL) ATTEST: JA-124.444, Clerk GREASE GUARD, INC. By: y President wswZ p y� S cyy Secretary A-4 . . , . E1 ' in ----..;__----: :/ J.gp ,z?,,, Agenda Item No . -,'1? May 3, 1995 TO: Mayor and Members of the City Council FROM: Richard B. Helwig, City Manager SUBJECT: Industrial Development Bond ( IDB) Application for Grease Guard, Inc. PURPOSE The purpose of this memorandum is to approve an Inducement Resolution with Grease Guard, Inc. using a portion of the City' s 1996 IDB authority. BACKGROUND Provisions in the Federal Tax Code allow home rule cities to issue private activity revenue bonds (also called industrial revenue or industrial development bonds) not to exceed $50/capita per calendar year. In Elgin's case, this would amount to approximately $3 . 8 million per year. Qualified "small issue" private activity revenue bond financing permits a,'state or local governmental entity to finance manufacturing facilities for a business entity at a lower interest cost than they could obtain by the issuance of their own taxable debt. Interest on the bonds issued by the City of Elgin for _ such purposes is not included in federal gross income of the I - bondholder. When bonds are to be issued, the City would enter into an agreement with the company in which they agree to acquire, equip, renovate or construct manufacturing facilities . Simul- taneously, the City agrees to issue its bonds to finance a portion or all of the costs of the project. The private entity agrees to make all payments in amounts sufficient to meet debt service on the City' s bonds . Since the bonds are payable solely from revenues derived from the business, it is the credit of the business (or if there is a guaranty, an insurance policy or a letter of credit securing the bonds, the credit of the guarantor, the insurer or the issuer of the letter of credit) that will determine the interest rate of the bonds . This year, Elgin Corrugated Box, through American National Bank - Elgin, requested a portion of the City' s IDB 1995 authority to help finance their expansion. ' r Industrial Revenue Bond Application May 3, 1995 Page 2 Project Grease Guard, Inc. is applying for City approval of a $1,500, 000 industrial revenue bond, to be sold to NBD Capital Markets . Proceeds will be used to: purchase land for $350,000; construct a new 20,000 square foot building for $1, 000, 000; and purchase equipment and pay legal and financ- ing costs . The project is located in Fox Valley Business Center near their existing location. The company has been manufacturing its product. in Algonquin as well as Elgin. Space limitations have become severe due to recent rapid sales growth. The project will enable all services to be under one roof, including marketing, manufac- turing and management. Additionally, a second company owned by the same individuals will share space in the new build- ing. This is Spotless Touch, Inc. , an industrial cleaning service. The product of the company is manufacturing roof top grease containment systems, which is a filtering system consisting of aluminum hardware and absorbent filter material . The market region is continental . Some 42 people work for the company, of which 13 live in Elgin. New job generation will be 15 positions . The initial 15 positions will be a mix of jobs, with ten full time and five part time, of which five are clerical, five factory, two supervisory and three manage- rial . Average salaries are $23,500, with supervisory/manage- rial salaries in excess of $30,000. Benefit to the City's tax base will likely be some $300, 000 to $400, 000 of equal- - ized assessed valuation. At a tax rate of $1 . 90 and $7 . 80 . for the City and all governments, expected revenues will be $6 '000 and $30, 000, respectively. Review Process _ Speer Financial performed a financial analysis of the compa- ny. Additionally, NBD, which is lending the money, has com- pleted an analysis of the company and feels comfortable that their loan will be repaid. Speer's report, which recommends approval of Grease Guard's IDB application, is attached to this memorandum. COMMUNITY GROUPS/INTERESTED PERSONS CONTACTED None. FINANCIAL IMPACT All costs pertaining to the IDB issuance will be borne by Grease Guard, the issuer. In no way is the City responsible for the repayment of the bonds . Should the company default, the actual lender of the money (NBD) will suffer the loss . Industrial Revenue Bond Application May 3, 1995 Page 3 Approximately $2 . 3 million would remain available in IDB funding for 1996 . It is anticipated that Gibson String will soon submit an application for $2 million of this authority. Grease Guard, along with the new IDB application, has paid the required $2 , 500 fee. LEGAL IMPACT The inducement resolution expresses the City's intent to issue the requested bonds if the terms and conditions of sale are agreed upon. RECOMMENDATION It is recommended that an Inducement Resolution be passed for $1 .5 million in Industrial Development Bonds . Re ectfully )submitte , a4.#1'4 "-aCti - ames R. Nowicki Finance Director Raymond H. Moller, Director Business Services and Properties Richard B. Helwig City Manager amp - - Attachments PUBLIC FINANCE CONSULTANTS SINCE 1954 r'i SPEER FINANCIAL, INC. ELWOOD BARGE RICHARD A.PAVIA KEVIN W.McCANNA DAVID F.PHILLIPS LARRY P.BURGER DANIEL D.FORBES CNARMA.N EMERITUS MAILMAN EMEPJT S PRESIDENT SR.VIM PR;c!T (T VICE PR;trT1iWT VICE PRESIDENT • May 2, 1995 The Honorable Kevin B. Kelly and Members of the City Council City of Elgin 150 Dexter Court Elgin, IL 60120 Dear Mayor and Council: Pursuant to the request of the City, Speer Financial, Inc. has reviewed the industrial revenue bond application, and supporting documentation including unaudited financial compilations, of Grease Guard, Inc.. The compilations are on a calendar year basis and are prepared by Ward, Lane & Associates, P.C., Elgin. Grease Guard, Inc. is applying for City approval of a $1,500,000 industrial revenue bond, to be sold to NBD Capital Markets. Proceeds will be used to purchase land for $350,000, construct a new 20,000 square foot building for $1,000,000 and purchase equipment and pay legal and financing costs. The project is located in Fox Valley Business Center near their existing location. The company has been manufacturing its product in Algonquin in addition to Elgin. Space limitations have become severe due to recent rapid sales growth. The project will enable all services to be under one roof, including marketing, manufacturing and management. Additionally, a second company owned by the same individuals will share space in.the new building. This is Spotless Touch, Inc., an industrial cleaning service. The product of the company is manufacturing roof top grease containment systems, which are a filtering system consisting of aluminum hardware and absorbent filter material. The market region is continental. Some 42 people work for the company, of which 13. live in Elgin. New job generation will be 15 positions. The initial 15 positions will be a mix of jobs, with ten full time and five part time, of which five are clerical, five factory, two supervisory and three managerial. Average salaries are $23,500 with supervisory/managerial salaries in excess of $30,000. Benefit to the City's tax base will likely be some $300,000 to $400,000 of equalized assessed valuation. At a tax rate of$1.90 and $7.80 for the City and all governments, expected revenues will be $6,000 and $30,000, respectively. Financial Analysis As the accompanying table indicates, the company has been rapidly growing over the past five years. SPEER FINANCIAL, INC. -2- Sales revenues have been growing rapidly, with a 85% increase 1993 to 1994 and an annualized 45% increase 1994 to 1995. Expenses have grown at a somewhat slower rate (71% and 42%, respectively). Net income has been stable to increasing as a percentage of sales over the past three full years: 15.9%, 15.1% and 21.7%. The expansion of sales has been reflected in the balance sheet for 1994 and 1995. Accounts receivables increased dramatically. This was explained as due to an approximate base of $100,000 of receivables in addition to the current month's billing, where December, 1994, and March, 1995, have both been very busy billing months($267,000 and$290,000). Inventory has also risen, although not unexpectedly for a growing business. As accounts receivable have risen, so have accounts payable. However, Dun & Bradstreets reports a fairly normal bill payment history. The $1,500,000 of bonds are to be retired over 15 years at $100,000 of principal plus interest annually. The bonds will pay interest on a floating rate. Maximum annual debt service (at an estimated high rate of 9%) should be no more than $235,000. Results of 1994 provide 139% coverage of this amount, without considering income tax benefits. A comfortable number would be 150% or greater. Assuming net income continues to grow and as interest expense lessens each year due to principal retirement, coverage should improve. Conclusion In summary, we find the company, based on its unaudited financial information, to be financially .viable. The IRB project will expand its presence in Elgin. We find this a good credit and worthwhile project and recommend that the City proceed with the inducement resolution. We would be pleased to discuss this with you. Sincerely, � cJ24"/ Kevin W. McCanna President KWM/dv CALENDAR YEARS 1990 1991 1992 1993 1994 Partial 1995 • (3 Months) Revenue - Net Sales $69,228 $465,665 $702,011 $808,975 $1,497,241 $544,777 Expenses: Direct Costs $31,742 $242,430 $280,090 $282,2.94 $566,779 $225,145 Indirect Costs - 36,182 152,330 296,135 376,787 561,055 176,180 Total Expenses $67,942 $394,760 $576,225 $659,081 $1,127,834 $401,325 Other Expenses $1,074 $7,319 $13,819 $27,519 $44,224 $7,972 Net Income $229 $63,586 $111,966 $122,375 $325,182 $135,479 balance Sheet - Partial Assets Cash $11,516 $6,698 $5,366 $(9,047) $1,130 $49,055 Accounts Receivable 13,148 29,886 120,969 101,073 420,565 412,306 Inventory 7,267 2,267 2,267 2,267 46,532 41,385 Intangibles 3,674 3,674 4,709 4,709 124,709 124,709 Liabilities - 26,275 2,806 35,480 7,700 212,320 174,629 Accounts Payable Equity 4,262 38,849 103,406 119,094 333,776 455,307 May 2, 1995 ', KWM/dv CITY OF ELGIN APPLICATION FOR INDUSTRIAL DEVELOPMENT BOND FINANCING Business Name: Grease Guard, Inc. Address : 605 Church Road City, State: Elgin, IL 60123 Representative: Christopher Barry, Executive Vice-President Telephone: (708) 931-9500 Federal Tax ID Number: #363772621 Amount of Proposed Bond Issue: $1,500,000 Name of Bond Purchaser: NBD Capital Markets Form of Organization of Borrower: Bank Name of Bond Counsel: Gerald J. Neal Foley & Lardner Chicago, IL 60611 Name of Corporate Lawyer: Mr. Peter Bazos Proposed Use of Proceeds : To build a 20,000 .Square Foot manufacturing facility on approximately 3.2 acres of land. Is proposal a new facility? Yes Is the proposal Industrial/Commercial/Retail? Industrial What is the principal product of the company? Rooftop grease containment systems What are the proposed financing arrangements? Industrial Revenue Bonds Give the approximate dates of construction: 6/1/95 - 1/1/96 ECONOMIC -A. . Project Costs 1 . Construction Costs $1,000.000 Total 2 . Financing Costs $ 35,000 3. Equipment Costs $ 10,000-$50.000 4 . Land $ 350,000 5. Architectural $ Included in constnietinn rm t 6 . Legal $27,500 7 . Other $ B. Financial Stability (provide the following) 1. Prospectus- Not Applicable 2. Reports to stockholders- Not Applicable 3. 5 years independently audited financial statement 4. Most recent interim financial report- Enclosed 5. Dun & Bradstreet report 6. Name and address of project lender 7. Commitment letter for financing (including length of commitment) 8. Name, address and contact of bond purchaser- Purchaser of the bonds will be unknown until the bonds are placed the day of closing. Common purchasers of these $100,000 bonds from NBD are money market funds, insurance companies, companies with ideal cash, and high net worth individuals. 9. Estimated tax yield to City- $35,000 year taxes 10. Estimated increased payroll- $200,000 11. Estimated assessed value of additional and total real property- $1,500,000 12. Number of years in business- 6.5 years Is any litigation pending by or against company? Yes X No Type of Product Rooftop grease containment systems Description of Product Filtering system consisting of anodized . ' aluminum extrusious hardware, multi layers of absorbent filter material, deflective aluminum flashings and hold down poles Market Area Served North America, Puerto Rico, Mexico C. Employment 1. Number of Current Employees: Full Time: 36 Part Time: 2 Managers: 6 Employees living in Elgin: 13 2 . Number of new jobs created/retained (please specify) a. Permanent Full Time: 10 b. Permanent Part Time: —7— c. Seasonal/Temporary: 2 3. Type of new jobs created/retained a. Clerical: 5 b. Labor: 5 c. Supervisory: 2 d. Managerial: 3 4 . Average Employee Salary (present) : $23,500 5 . Yearly Payroll (present) : Approximately $1,000,000 6. Employee Skills Required: Accounting, manufactur- ing, shipping, assembly, marketing, sales, etc. D. Environmental A. Plant 1. Location: Fox Valley Business Center Northeast side of Corporate Drive 2. Land Size: Approximately 3.25 acres_ Square Feet: 139,000 Sq. Ft 3. Present Plant: 8,000 Sq Ft New Plant: Approximately 20,000 sq. ft. 4 . Land Coverage: 14% B. Pollution 1 . Water/Sewer effluent domestic grease X industrial unusual wastes 2 . Air/foreign or toxic substances : N/A 3. Odors : N/A 4 . Glare: N/A 5 . Noise: N/A 6 . Pollution devices required: N/A 7 . According to City Engineer, are there adequate number of Water and Sewer Connection to the site? X Yes No E. Community Services A. Traffic 1 . Number of Vehicles into Site per day: Trucks : 15 Cars : 45 Other Vehicles : 2 . Ability of Street to Carry Additional Land a. Access - sketch of ingress/egress patterns b. Safety - plans to facilitate any substantial traffic movement B. Utility Requirements 1 . Water used per day: 748 gallons Fire Protection adequate? Yes, fully sprinkled Additional water or sewer requirements : (i .e. pretreatment, extensions) STD 2 . Type of Sewage: STD 3 . A. Projected annual electrical usage: 5, 000 KWH month B. Projected annual gas usage: 26 . 14 therms day 1 C. Schools increase school _ Will you project significantly enrollment? [ 1 No AWARENESS it A lv Y r LCIVIC civic 1. provide evidence of past act port local civic activities? 2. How will your company su P information required and application will financial documents before supportive suppliedof Elgin. All supP must be the City by the City of Elginthe City Council of be considered by in applicable We agree to all the conditions as specified city ordinances . Signed: �. Signed '� Title: Title: �Pcv,''Chief Corporate Office Chief Financial Officer r Date: