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Rochester Hills

Minutes

Economic Development Corporation

Dan Casey, Kurt Dawson, Tim Jacobson, L. Bruce Kingery, Vince Mungioli, Ralph Pisani,

Michael Powning, Keith Sawdon, Samuel Seabright

5:30 PM

1000 Rochester Hills Drive

Tuesday, September 28, 2010

CALL TO ORDER

Chairperson Dan Casey called the Special Meeting to order at 5:35 p.m. in

Conference Room 221.

ROLL CALL

Kurt Dawson, L. Bruce Kingery, Michael Powning, Samuel Seabright, Dan

Casey and Keith Sawdon

Present

6 -

Vince Mungioli, Ralph Pisani and Tim Jacobson

Absent

3 -

Quorum Present

Also present: Ed Anzek, Director of Planning and Development

John Staran, City Attorney

John Dalton, Past City Council President and

Resident

Bob Schwartz, Attorney at Clark Hill, PLC

Maureen Gentry, EDC Secretary

APPROVAL OF MINUTES

2010-0400

April 22, 2010 Regular Meeting

A motion was made by Kingery, seconded by Seabright, that this matter be

Approved as Presented. The motion CARRIED by the following vote:

Aye

Dawson, Kingery, Powning, Seabright, Casey and Sawdon

6 -

Absent

Mungioli, Pisani and Jacobson

3 -

COMMUNICATIONS

There were no Communications brought forward.

NEW BUSINESS

2010-0399

Request for Resolution of Inducement and Intent to Issue

Revenue Bonds to proceed with a Project under the

Economic Development Corporations Act and to appoint

bond counsel

After introductions, Chairperson Casey gave some historical background

and summarized that the purpose of the Economic Development

Corporation (EDC) was to generate projects that would result in new jobs

and investment in the City. The EDC was formed in the early 1970’s, and

he noted that since that time, the Board had funded over 40 projects -

typically industrial buildings and also some non-profits. The EDC had

been largely inactive for many years, because the industrial corridor of

the City was built out. In recent years, the Board met annually to approve

its budget and minutes, and to pass ownership interest in projects back to

the property owners after bond closeouts.

Chairperson Casey disclosed that the City had received a new project for

consideration. Mr. Schwartz, bond counsel at Clark Hill, PLC was present

to help educate the Board as to how bonds for the project would work and

about the process, which would take about 60 days. Chairperson Casey

recalled that the City purchased the property in 1999. It included four

parcels housing two smaller facilities and a manufacturing building. The

two smaller parcels were sold, and the manufacturing building was

demolished about three years ago, leaving two parcels totaling15.65

acres. The City had tried to sell the property since 2002, hoping to see a

single user or a campus-style development on the properties, which were

in the LDFA district. A few years ago, the LDFA approved a plan to fund

$751,000 of site improvements, such as a road or an environmental

study, as a precursor to development.

Chairperson Casey advised that the project would be going public soon,

but there were restrictions relating to announcing the company’s name,

since it was going to the State’s MEGA board for incentives. That process

required that the project not be announced at the local level prior to the

Governor announcing it on October 26th. The companies involved had

five operations currently located in Troy. They planned to consolidate

those operations into a single building, and originally approached Troy.

The site was not big enough, and it required a Zoning Variance, which

was denied. They looked at opportunities in other cities and at the

subject site. Rochester Hills proposed using Recovery Zone Bonds as

one incentive, and the company liked the savings that would offer and

also has a very good relationship with Rochester Hills.

Chairperson Casey continued that City Council had recently met

regarding the project, and the majority of the members were in favor of

using EDC bonds in a unique proposal as a way to fund the project. The

EDC would issue the bonds and ultimately own the building. The City

would deed the land to the EDC on a land contract, but the EDC would not

pay any money to the City for the land until the bonds had been retired.

From the 16th year of the lease, the EDC would pay the revenues

generated from the project directly to the Water and Sewer (W&S) Fund,

from which the land was originally purchased. That was a critical issue for

City Council, given the fact that the land value today was not nearly as

high as what was owed to the Water and Sewer Fund. This method made

a lot of sense; the company would generate savings on the bonds, and

the City would generate enough revenue to repay the W&S fund. At the

end, the EDC would own a building and the land. It could continue to

lease it or sell it beginning in the 16th year. The company was willing to

commit to a 15-year lease, with two five-year extensions.

Chairperson Casey believed the process would be a natural role for the

EDC. There would be 302 new jobs transferred to Rochester Hills and 50

new jobs created. The cost for the building was estimated at $14,500,000,

and the proposed bond issue was $16,000,000. Mr. Anzek explained that

the $14,500,000 was a working number based on a program analysis of

the spatial requirements, and the company wanted another $500,000 for

onsite retention. Chairperson Casey asked if there were any questions.

Mr. Seabright asked the product/process that would be used.

Chairperson Casey stated that it would be a corporate headquarters and

research and development facility. There would be four stamping

presses used for prototype development; they might also do some limited

production runs for local customers on an as needed basis. The building

would house the engineering, administrative and technical staff. Mr.

Seabright asked if they would use any hazardous materials during testing,

which Chairperson Casey denied. Mr. Anzek mentioned that the

company began by manufacturing truck chassis and had evolved into

other commercialization, such as solar panels and R&D development.

Mr. Seabright pointed out that the property was low, and he was

concerned about flooding. He asked who would be liable for fire or other

disasters. Chairperson Casey advised that the company would be

responsible for all building maintenance costs, insurance and property

maintenance. He agreed that the property sloped, but said that it was not

in a flood zone. Mr. Seabright asked about fire or wind damage, and Mr.

Anzek assured that the company had to maintain insurance on the

building for everything. Everything out of pocket, from fixing things to

mowing the grass, would be the responsibility of the company.

Mr. Staran indicated that there would be a number of details worked out

over the next few weeks. The City would be the insured party, but the

lease would be triple net, and the cost of insurance would be paid by the

company. The EDC would want to ensure that it did not absorb the risk of

loss. Mr. Seabright confirmed that the EDC would be named as an

additional insured party for any liability.

Mr. Dalton asked if the property would generate property taxes. Mr.

Staran agreed, and said it was one of the benefits. The City was not

getting tax money because the property was currently tax exempt. Mr.

Anzek added that even with a short-term abatement, the City would start

out receiving about $100,000 per year, which would double after the

abatement expired. Chairperson Casey noted that a portion of the taxes

would be collected by the SmartZone and transferred to the OU

INCubator at Oakland University.

Mr. Seabright asked what would happen if the total cost was more than

$16,000,000. Chairperson Casey advised that the company would be

required to pay any cost overruns. Mr. Powning asked if there was a

timeframe for the project, and was told that it would take about a year.

The bonds would be issued and sold by the end of this year; the

architectural design would be done during the winter months, and the Site

Plan process would be done in the spring. The construction phase would

take about six months.

Mr. Sawdon advised that he had been going through the application

process with Oakland County, and they found an underwriter (Fifth Third)

to give a soft letter to the City. He explained that the bonds were tax

exempt, and that the City could not generate revenue from the project

until the bonds retired, which was why they set up the land contract.

Mr. Schwartz discussed tax exempt Recovery Zone Bonds, which were

first introduced in President Obama’s stimulus bill in 2008. The EDC

could not issue bonds to private companies that performed functions

other than manufacturing until the law changed. He reminded that the

EDC would be acting like a private developer. Tax exempt bonds

represented borrowing by a municipal entity. They would use the lease

revenues to pay off the bonds. They would want the interest rate as low as

they could get and to protect the City and the EDC. Mr. Staran addded

that they were looking at the parent company to guarantee the lease.

Chairperson Casey noted that City Council brought up the risk of

bankruptcy. He stated that the subject company was the number one

automotive supplier in the world, and they were the strongest financially of

existing suppliers. They were sitting on about $6 billion of cash and $1.4

billion of unencumbered cash. They were very conservative, and they did

not want to own the building. The City pursued selling the land to a

developer, but the lease rates would have been passed along to the

company, and the costs and timeframe would have put it over what the

company was willing to pay for the lease. It made sense to do bonds, and

he emphasized that the EDC would generate significant revenue some

day from the project through the sale of the building and land.

Mr. Dalton asked about the interest rate, and Mr. Schwartz said it was very

hard to determine at this point. It depended on the security and how the

financing was structured, which was being worked on.

Mr. Seabright asked if the EDC would own the stamping presses, and

Chairperson Casey advised that the equipment purchases would not be

included in the bond. Mr. Schwartz added that the $16,000,000 included

room to add things like furniture without having to amend the resolution.

He stressed that the resolution did not commit the EDC to anything. The

members would just be preliminarily approving the project, thereby

“inducing” the company to come, but they did not have to do it. He

explained the process the EDC and City Council would go through, and

said that City Council would eventually hold a Public Hearing regarding

approving the project plan.

Mr. Seabright questioned how they arrived at the project cost, and Mr.

Anzek explained that the company had done a great deal of preliminary

design. Chairperson Casey noted that the City had received quotes from

five developers for the project, from $12.5 to $23 million, and two came in

at $14.5 million.

Mr. Schwartz stated that everything had to be signed and delivered before

December 31st. The legislation could be extended, but they could not

count on that. Chairperson Casey discussed other deadlines: The City

had to have a soft letter by October 8; the bond counsel had to issue a

letter indicating that the project was feasible and eligible; City Council

had to do a Resolution of support; and the application had to be

submitted. They should be ready for the bond sale by the middle of

November, which would give only about six weeks for the issuance.

Mr. Seabright asked if an environmental study would be submitted, and

Chairperson Casey said that process had started for a Phase One study.

There was a study done in 1999 when the City purchased the property.

Hearing no further questions, Chairperson Casey asked for consideration

of the first motion.

The following preamble and resolution were offered by Director

Kingery and supported by Director Powning:

WHEREAS, there exists in the City of Rochester Hills (the “City”)

and the State of Michigan (the “State”) the need for programs to alleviate

and prevent conditions of unemployment, to assist and retain local

industrial and commercial enterprises, and to encourage the location and

expansion of such enterprises in order to strengthen and revitalize the

City's and State’s economy and to provide needed services and facilities

to the City and its residents; and

WHEREAS, the Economic Development Corporations Act, Act

No. 338 of the Michigan Public Acts of 1974, as amended (the "Act"),

provides a means for the encouragement and assistance of industrial

and commercial enterprises in locating, purchasing, constructing,

reconstructing, modernizing, improving, maintaining, repairing, furnishing

and equipping facilities in the City; and

WHEREAS, The Economic Development Corporation of the City

of Rochester Hills (the "EDC") has preliminarily determined to undertake

a "project" within the meaning of the Act in the City of Rochester Hills (as

further described below, the "Project") for the benefit of Vehma

International of America, Inc., and/or one or more of its affiliates

(collectively, the "Company"), which Project is designed for and capable

of providing needed services, facilities and employment to the residents

of the City; and

WHEREAS, the Project will consist of the construction of an

approximately 180,744 square foot building suitable for engineering,

research and development and general office activities desired by the

Company and will be leased to the Company by the EDC pursuant to

mutually agreeable terms and conditions; and

WHEREAS, the costs of the Project, including land, construction,

equipment, architectural, administrative, legal and financial costs, are

estimated not to exceed $16,000,000; and

WHEREAS, the EDC is authorized by the Act to issue revenue

bonds to finance the costs of the Project and to lease the Project to the

Company; and

WHEREAS, the issuance of revenue bonds by the EDC for the

Project will induce the Company to establish and/or expand its business

within the City; and

WHEREAS, all administrative, legal, financial or other costs

incurred by the EDC are includable in the costs of the Project and will be

repaid out of the proceeds of the bonds and/or lease payments by the

Company; and

WHEREAS, the EDC deems it desirable, reasonable and

necessary to commence the appropriate proceedings pursuant to which

bonds may be issued by the EDC to finance the Project under the Act;

RESOLVED:

The EDC finds that there is a public purpose in the Project.

In order to induce the Company to consolidate its business in the

City and lease the Project from the EDC, and subject to the provisions of

this Resolution, the EDC will issue its limited obligation economic

development revenue bonds in an amount presently estimated not to

exceed $16,000,000, for the purpose of paying all or part of the costs of

the Project and the costs incidental to the issuance of the bonds. Such

bonds will be issued pursuant to the Act in form and substance

acceptable to this EDC, its counsel and Bond Counsel, subject to the

completion of all necessary proceedings, hearings, approvals and other

requirements of the Act.

The proceedings and agreements relating to the EDC's

involvement with the Project and issuance of the bonds shall contain

such provisions and details as shall absolutely and unequivocally make

certain that under no circumstances will the EDC or the City or any of the

City’s taxpayers or citizens, ever be required to pay the principal of and

interest on, or any costs relating to, the bonds from tax revenues or other

funds of the EDC or the City, shall contain provisions fully protecting the

EDC and the City against any other liability and all costs relating to the

bonds and the Project, and shall provide for the payment of all debt

service on the bonds from lease revenues or other sources acceptable to

the EDC.

By adoption of this resolution the EDC assumes no obligation or

liability to the Company for any loss or damage that may result to the

Company from the adoption of this resolution, from costs and expenses

in connection with the Project, and from costs of the issuance of the

bonds. Any and all costs relating to the acquisition, financing, ownership

or operation of the Project shall be paid from the proceeds of sale of the

bonds or by the Company.

Each revenue bond, when, as, and if issued in connection with the

Project, shall clearly recite in substance that the principal of, interest, and

premium, if any, on such bond are payable solely from the revenues

received from the Project or the Company, and do not constitute a debt or

liability of the EDC or the City. The property which constitutes the Project

may be pledged or mortgaged as security for the payment of the bonds,

as permitted by the Act.

The firm of Clark Hill PLC, Birmingham, Michigan, is hereby

designated and retained by the EDC as Bond Counsel with respect to the

revenue bonds to be issued in connection with the Project, and is

authorized and directed to prepare and submit to all appropriate parties

all proceedings, agreements and other documents as shall be necessary

or appropriate in connection with the issuance of such bonds, to make

application on behalf of the EDC to the United States Internal Revenue

Service and other governmental agencies for such income tax and other

rulings and approvals as may be necessary in relation to the issuance of

such bonds, and any one or more officers of this EDC are authorized to

execute such powers of attorney and other documents as may be

appropriate in connection with the foregoing. The legal fees of Bond

Counsel for work done in connection with the Project shall be paid from

the proceeds of sale of such bonds or by the Company and in no event

shall be a liability of the EDC or the City.

The EDC makes the following declarations for the purpose of

complying with the reimbursement rules of Treas. Reg. § 1.150-2

pursuant to the Internal Revenue Code of 1986, as amended:

This declaration of official intent is specifically made

pursuant to Treas. Reg. § 1.150-2.

The EDC reasonably expects to reimburse itself with

proceeds of the bonds for the expenditures related to

the Project, including costs of issuing the bonds.

The maximum principal amount of debt expected to be

issued for reimbursement purposes described herein

is $16,000,000.

Reimbursement of the expenditures described in (b) above

with the proceeds of the borrowing described herein

will occur not earlier than the date on which the

expenditure is paid and not later than (1) the date

that is 18 months after the date on which the

expenditure is paid, or (2) the date on which the

project is placed in service (but in no event more

than 3 years after the original expenditure is paid),

and the reimbursement will comply with the rules

described in Treas. Reg. § 1.150-2(d).

The expenditures described in (b) above are "capital

expenditures" and costs of bond issuance as defined

in Treas. Reg. § 1.150-2(d)(3).

All resolutions and parts of resolutions insofar as they conflict with

the provisions of this resolution be and they are hereby rescinded.

YEAS: Directors: Casey, Dawson, Kingery, Powning, Sawdon,

Seabright

NAYS: Directors: None

ABSENT: Directors: Jacobson, Mungioli, Pisani

ABSTENTIONS: Directors: None

RESOLUTION DECLARED ADOPTED

A motion was made by Kingery, seconded by Powning, that this matter be

Approved. The motion CARRIED by the following vote:

Aye

Dawson, Kingery, Powning, Seabright, Casey and Sawdon

6 -

Absent

Mungioli, Pisani and Jacobson

3 -

Chairperson Casey stated for the record that the motion had passed

unanimously. He asked for a motion for the second request. Mr.

Dawson made corrections to the Parcel Numbers in the legal

description.

2010-0401

Request for Resolution Designating Project Area and Project

District Area and Requesting Appointment of Additional

Directors

The following preamble and resolution were offered by Director

Seabright and supported by Director Kingery:

WHEREAS, there exists in the State of Michigan (the “State”)

and in the City of Rochester Hills (the “City”) the continuing need for

projects to alleviate and prevent conditions of unemployment, to

assist and retain local industrial and commercial enterprises, to

strengthen and revitalize the economy, and to encourage the location

and expansion of industrial and commercial enterprises to more

conveniently provide needed services and facilities to the State and

to the City; and

WHEREAS, the Economic Development Corporations Act, Act

No. 338 of the Michigan Public Acts of 1974, as amended, (the "Act")

provides a means for the encouragement of such projects in the City

by this Economic Development Corporation ("EDC") through the

issuance of its revenue bonds for the benefit of such projects; and

WHEREAS, this EDC has commenced proceedings under the

Act by adoption of a Resolution of Inducement for the benefit of the

captioned Project (the "Project") and desires to continue such

proceedings as hereinafter provided;

RESOLVED:

In accordance with Section 8(1) of the Act, the EDC hereby

designates a Project Area as set forth in "Exhibit A" annexed hereto.

The territory surrounding said designated Project Area will not

be significantly affected by the Project because the surrounding

territory is devoted to uses deemed compatible with the nature of the

Project and, therefore, this EDC recommends to the City Council of

the City of Rochester Hills (the “City Council”) that it designate a

Project District Area having the same description as and boundaries

coterminous with the Project Area herein designated.

The EDC commence preparation of a Project Plan, as defined

in the Act.

The Secretary be instructed to direct a request to the City

Council to certify its approval of the designation of said Project Area

and to designate the Project District Area as recommended, without

the formation of a Project Citizens District Council as further

recommended, all in accordance with the requirements of Section

8(1) and 12(1) of the Act.

Pursuant to Section 4(2) of the Act, the Secretary of this EDC

be further directed to deliver a copy of this resolution to the Mayor of

the City with the request that the Mayor promptly appoint two (2)

additional directors to this EDC with the advice and consent of the

City Council, in accordance with the requirements of Section 4(2) of

the Act, all upon the conditions that such two (2) additional directors

be representative of neighborhood residents and business interests

likely to be affected by the Project, be authorized to serve and to vote

only on issues that directly affect the subject Project, and be

authorized to serve only until the earlier of the time the Project is

completed in accordance with its Project Plan or the Project is

abandoned by the EDC.

All resolutions and parts of resolutions insofar as they conflict

with the provisions of this resolution be and they are hereby

rescinded.

YEAS: Directors: Casey, Dawson, Kingery, Powning,

Sawdon, Seabright

NAYS: Directors: None

ABSENT: Directors: Jacobson, Mungioli, Pisani

ABSTENTIONS: Directors: None

RESOLUTION DECLARED ADOPTED

A motion was made by Seabright, seconded by Kingery, that this matter be

Approved. The motion CARRIED by the following vote:

Aye

Dawson, Kingery, Powning, Seabright, Casey and Sawdon

6 -

Absent

Mungioli, Pisani and Jacobson

3 -

Chairperson Casey stated for the record that the motion had passed

unanimously.

ANY OTHER BUSINESS

There was no Other Business discussed.

NEXT MEETING DATE

To be determined as necessary.

ADJOURNMENT

Hearing no further business to come before the Economic Development

Corporation and upon motion by Powning, seconded by Kingery, the Chair

adjourned the Special Meeting at 6:40 p.m., Michigan time.

Respectfully Submitted,

___________________________

Daniel B. Casey, Chairperson

Rochester Hills

Economic Development Corporation

___________________________

Maureen Gentry, EDC Secretary