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HomeMy WebLinkAbout2006-04-24 06-154 ORDERItemRo_ 06 154 Date: April 24, 2006 Item/Subject: ORDER, Authorizing Execution of Lease Agreement and Purchase Option Agreement— Hallowell international, LLC -110 Hildreth Street Responsible Department: Community and Economic Development Hallowell International, LLC would like to lease space in 110 Hildreth St., Bangor for six (6) years N manufacture, assemble, and distribute cold weadum heat pumps. The company has had a lease with the City of Bangor for a portion of the building from August 2005 to April 30, 2006. The technology used by Hallowell makes its heat pump capable of achieving the efficiency and capacity needed at low temperatures experienced in cutler regions. After a period of research and development, Hallowell projects to employ 31 persons at the end of the first year of production, 280 at the and of the second year, and in excess of 900 at full production at the end of the third year. Staff recommends that the City of Bangor enter a lease agreement with Hallowell International, LLC under the terms and conditions contained in the attached Council Order. Staff Porcher recommends Nat the City of Bangor loan $200,000 to Hallowell International, LLC under the terms and conditions contencol In a separate Council Resolve elsewhere on tonight's agenda. Please see the attached background Information. ,Xd� ho�a.j�.(wn-uqu.r+rdair3 u7M-9e.H�a�v,Q �'hrf D'*£D aV4Ar,W . Mandated Information: Further background information. v � P" City Manager Finance Director Legal Approval: City Solicitor Kf Introduced for X Passage _ First Reading Page _ of _ Referral 06 15 AssignedioCwMilor Greeve April 24, 2006 Fi ar-.,i CITY OF BANGOR (TULE.) Order, Authorizing Execvdon of Lease Agreement and Purchase Opdon Agreement— Hallowell International, LLC-110 HIIdre h Street WHEREAS, the City proposes to enter Into an Indenture of Lease with Hallowell International, LLC, which proposes to use He property at 110 Hildreth Street for the purpose a manufacturing, assembling, and dlsMbudng cold weather heat pumps; and WHEREAS, Hallowell international, LLC will proWde substantial new employment opportunities for area residents, and WHEREAS, Hallowell Intarnmonal, LLC has proWded evidence, satisfactory to the City Solicitor, of equity financing/In itstnent apRal of not les than $1.5 million; and WHEREAS, as of Apol 30, 2006, Hallowell international, LLC has me or exceeded the minimum employment level set forth in Council Order 05-273; NOW, THEREFORE, BE IT ORDERED BY THE CI COUNCIL OF THE CRY OF BANGOR, THAT U* City Manager is hereby authorized to enter Into an Indenture of Lease leasing 110 Hildreth Street to Hallowell International, LLC; substantially under the following terms and conditions and in a final form approved by the City Solidmr or Assistant City Solicitor. Location: 110 Hildreth St., Bangor, Maine Premises (sq. ft.): May 1, 2006 through Apnl 30, 2007: Rost floor Office, 2,176 sq. ft. Office Mezzanine 2,176 W. ft. 10,000 sq. ft. ManufacturingfWarehouse Area May 1, 2007 through Apnl 30, 2008 First floor Office, 2,176 sq. It. Office Mezzanine 2,176 sq. ft. 1%(X10 sq, ft. Manufactudng/Warehouse Area May 1, 2006 though Apri130, 2012: Entire building Addidoaal Space: Upon 60 days advance notice to the City and during the period from May 1, 2006 through April 30, 2006, Hallowell Inderrational, LLC may Increase the space B occupies in the building at a lease rate of $3.00 per square W of space occupied. IN CTTY COOPCIL April 24. 2006 MCiov Mede and Secanded for PoAsage Pass fi CI1R CL V 06-154 010gA QRL6d du[Loriviv¢ 6 ecuClov of Lease Agreement and Purchase Cftlov Agremevt Mallavell Ivternatiovel. LLC - 110 vlldreth Street Amlgeaaw CaamOsr �aSNV� 06 154 Lease Fuel May 1, 2006 through Aprn 30, 2007: $3.00 per square foot of space occupied by Hallowell International, LLC, not to exceed $30,00D, payable on a monthly basis. May 1, 2007 through April 30, 2006: $3.00 per square foot of space occupied by Hallowell InumatiaMl, LLC, not to exceed $52,000, payable on a monthly basis. May 1, 2006 though Apnl 30, 2012: $130,000 annually, payable on a monthly basis. Term: May 1, 2006 through April 30, W12 wtth annual options for the City to terminate the lease g certain agreed on employment thresholds on the premises are not reached and maintained by Hallowell International, LLC Lease Conditions: During the telco of the lease, Hallowell International, LLC maintains certain agreed on employment levels on property or In Bangor as follows: May 1, 2006 through April 30, 2007: Minimum 20 employees May 1, 2007 though April 30, 2006: Minimum 50 employees May 1, 2006 though April 30, 2012: Minimum of IOD employees. Note: The above employment levels ro be measured at the end of the time period. Occupancy Costs: Telephone: 100% resporadbility of Hallowell International, LLC throughout tans. Electritity: If all electricity on the property is consumed by Hallowell Intemadoml, LLC, thm Hallowell International, LLC would have 100% responsibility. If not, the electricity cost would be M rated on the percentage of total building space occupied by Hallowell International, LLC through Apnl 30, 2006. Fran May 1, 2006 and thereafter, Hallowell International, LLC would have 100% resparsibility. Fuel Oil: A pro rata amount of the heating costs based on the percentage of total building space occupied by Hallowell Intemational, LLC through April 30, 2006. From May 1, 2006 and thereafter, Hallowell International, LLC will have 100% responsibility. Water & Sewer Fees: M long as all water and sewer services are provided to Hallowell International, LLC, exduswely, the fees will be the 100% responsibility of Hallowell International, I.I.C. Otherwise the water and sewer user fee will be based pro rats on the percentage of total building space occupied by Hallowell Ino m monal, LLC. From May 1, 2006 and thereafter, Hallowell International, LLC will have 100% responsibility. Grounds landscaping & Snowplowing: As long as Hallowell International, LLC remains the primary occupant of the property, the grounds landscaping and snowpiowing costs will be the 100% G6-154 responsibility of Hollowell Imanadonal, LLC Otherwise the grounds landscaping and snowplowing costs will be based pro rata on the percentage of total building space occupied by Hallowell International LLC. From May 1, 2008 and thereafter Hallowell Mounabonal, LLC will have 100%respor�Mliry. Insurance: Hallowell Intemational, LLC will provide comprehensive public and property damage liability insurance to limits of $900,000 per eaN orwmer¢e. M of May 1, 2008 Hallowell International, LLC will provide comprehensive Fire Damage (Hoard Insuance) M a limit of $1,900,000 each accurrmce. Torres— Real EsbM: Beginning whh any real estate loxes due the City after Jury 1, 2008 for oauancy and use of the space leased by Hallowell International, LLC, Hallowell International, LLC will be resporsible for real estate taxes assessed by the City of Bangor on the space occupied by Hallowell International, LLC. My real estate taxes assessed to Hallowell International, LLC and due the City prior to July 1, 20M for Its use and occupancy of the property will be the responsibility of the City of Bangor. Taxes—Persca al isroperty: Hallowell International, LLC w01 be responsible for personal property taxes assessed by the City on machinery and equipment owned by Hallowell International, LLC and hated on the properly. Inde: The premises will be used In a businesslike, clean and safe manner for the manufacture of a cold weather heat pump and related products and for no other purposes without the consent athe City a Bangor. Maintenance: Hallowell International, LLC will be responsible for all ordinary and routine maintenance of the following: all fixtures, Including electrical, heating and plumbing fixtures, doors, windows, floor coverings, callings, walls, and interior paint surfaces. The Tenant will also be responsible for cleaning, snowplowing, rubbish removal, parking areas and grounds landscaping. The City of Bargor will be responsible for all ordinary and mubne maintenance of the following: like building's major sbuclural camponerns: roof, structural walls, foundation, operating systems, Including heating, plumbing, ventilation and elecbical systems except electrical, heating and plumbing fixtures, and exterior paint surfaces. Other: During the tern of the lease, the any of Bangor shall have the right b Issue those areas of the propend not leased by Hallowell International, LLC to others for uses compatible to, and not dismpbA to, the use of the areas lased by Hallowell International LLC. Purchase Option: Hallowell International, LLC AN have an option to purchase the property during the term of the lase at fair market value as long as Hallowell Inlematlonal, LLC is in compliance with the terms of the lase. 06 154 BACKGROUND The City Council has previously passed Council Orders leasing 110 Hildreth St. to Hallowell International, LLC and malting a $200,0001oan. Those agreements required Hallowell International, LLC to provide evidence of a minimum of $1.5 million in equity financing/investment capital. Hallowell International, LLC has provided evidence satisfactory to dte City Solicitor of raising $1.5 million In equity finanang/investment capital. Council Order 05-273 passed August 8, M05 authorized the lease of space in 110 Hildreth Street with extension provisions through April 2012 and with an option to purchase the property conditioned upon reaching certain employment levels and raising a minimum of $1.5 million in equity financing before December 31, 2005. Minimum employment levels required were 4 employees by April 30, 2006, 20 by May 1, 2007, 50 by May 1, 2008 and 100 by May 1, 2008. Hallowell had not rased the full $1.5 million by the end of December, and the long term lease authorized by th Council was not entered into. Council Order 05-272 passed August 8, 2005 approved a7 year Community Development loan not to exceed $200,000. $100,000 was to be used for lease payments due the City and Me balance for the purchase of machinery and equipment working capital, or other uses approved by the City. Annual payments would be forgiven in any year Hallowell met the employment levels outlined in the above paragraph. The loan, which has not yet been made, was contingent on Hallowell meeting equity financing/investment capital and employment level requirements. In December, Hallowell International, LLC provided the following information on its progress over the prior 4.5 months: 1. It had been organized legally as a Limited Liability Corporation (LLC) and applied for and was granted eligibility as a Pine Tree Zone Company. 2. It had established general and administrative offices at 110 Hildreth Street and employed six people: a president 3 engineers, 1 office manager, and 1 part time indirect laborer. 3. It had constructed test cells fully equipped to handle present and future product development needs and a full test facility for low temperature Nat Pump applications. 4.. It was testing components and performance of its low temperature, hot water beating and air exchange systems. The systems were performing as expected, delivering BTU output rapacity and high efficiencies at conditions to minus 40 degrees below zero. 5. A test facility had been developed far its domestic hot water systems. Initial safety testing was scheduled for mid January 2006. 06 154 6. Hallowell International, LLC had talked to many people within the u01ity and private industries who have expressetl a strong desire to work with them In the development and distribution of its products. 7. Hallowell international, LLC had raised $1,000,000 of equityrinvestment capital as of December 15, 2005, had over $500,000 in cash on hand, and had spent about $500,000 thus far. Of this, approximately $300,000 went into the Bangor economy. a. Hallowell Intema0onal, LLC was in discussions with 10 investor groups for further capital contributions/Investment in the company. Indicatmns from these groups are that it would have enough capital contributions to satisfy the $1.5 million threshold with the City.