CDF Minutes

July 27, 2015

Page 2

COUNCIL ON DEVELOPMENT FINANCE

July 27, 2015

PUBLIC HEARING 413

THOSE PRESENT:

Mr. Andy Lubin, Chairperson Director Bernice Whaley

Honorable Nancy Cook Mrs. Kirsten Wolfington

Mr. Tarik Haskins Mrs. Rachael Mears

Mr. Richard Rowland Mrs. Amber Mudri

Mr. Fred Sears Mr. Jimmy Pennewell

Mrs. Richelle Vible Ms. Emily Baird

Mrs. Barb DeHaven

Mr. Dave Archer

Larry Lewis, DAG

Mrs. Karen Smith

Mr. Tim McLaughlin

ALSO PRESENT: Techmer Engineered Solutions, LLC – Mr. Tom Drye and Mr. Farokh Kheradi; Resource International, Inc. – Mike Sullivan; Ms. Lindsay Lewis, Office of Management and Budget; Mrs. Courtney Stewart, Controller General’s Office; Mr. Scott Goss, The News Journal; Ms. Melinda McGuigan, EDIS; Mr. John D. Flaherty, and Mr. Nick Wosileski

LOCATION: Buena Vista

TIME: 9:00 A.M.

CALL TO ORDER:

The meeting was called to order at 9:00 A.M. by Chairman Lubin, on Monday, July 27, 2015.

Chairman Lubin introduced and welcomed Mrs. Bernice Whaley as the new Director of DEDO. Mrs. Whaley thanked the Council, and asked Mrs. Mears to introduce the additional new personnel, Kirsten Wolfington as Deputy Director, and Emily Baird as Portfolio Administrator.

OLD BUSINESS:

Mr. Lubin made a motion that the minutes of the June 22, 2015, Council on Development Finance meeting be approved as presented. Mr. Rowland seconded the motion which was then adopted by unanimous vote.

NEW BUSINESS:

Techmer Engineered Solutions, LLC (“TES” or the “Applicant”) – The Applicant is requesting a Delaware Strategic Fund performance grant in an amount not to exceed $315,879 and a Strategic Fund capital expenditure grant in an amount not to exceed $60,000. The Applicant proposes to use the funds to relocate to a new facility in Delaware, creating new employment opportunities in New Castle County, Delaware.

Mrs. DeHaven presented this request to the Council. She stated that TES is a thermal plastic compound engineering company that is requesting a Delaware Strategic Fund performance grant in the amount of $315,879 for the creation of a minimum of 42 full-time Delaware positions as it establishes its new location in New Castle County. TES is also requesting a capital expenditure grant in an amount not to exceed $60,000 based on 3% of qualified capital expenditures of $2,000,000. Therefore the total grant amount being requested is $375,879.

Mrs. DeHaven stated that TES plans to create 75 positions, 54 of which would have a minimum starting salary of $30,000 annually. The company manufactures and sells engineered thermal plastic compounds for the plastic industry, to be used in processes such as injection molding, melting, and molding products. The primary customers of TES are injection molders. In September 2014, TES was potentially looking to relocate the manufacturing business; DEDO worked with them to scout potential locations in the area. The Applicant has outgrown their current facilities, and is looking to consolidate plants all under one roof. By relocating to Delaware, TES intends to invest several million dollars in a new facility, and therefore bring new jobs to Delaware. They are looking to initially adding a large pool of jobs, with more jobs added over the next few years. TES intends to use the grant for building upgrades, outfit, and relocation costs, particularly for the equipment. The Applicant has currently identified a site at 1600 Johnson Way in New Castle, which seems to be a perfect size and fit for expansion. There is the potential for the relocation of 42 new full-time positions in Delaware, with 12 additional positions by December 31, 2018.

Mr. Tom Drye, Managing Director, spoke to the Council, and introduced Farokh Kheradi, Director of Manufacturing for TES. Mr. Drye thanked Mrs. DeHaven for her support throughout the process, and stated that he was excited about the opportunity to grow within the state of Delaware. The Applicant’s industry consists of custom compounding, including polycarbonate, nylon (of which DuPont is a supplier), and incorporating glass and carbon fibers to create specialized plastic material. The Applicant’s customers include injection molders, extrusion companies, and large corporations like Xerox, that utilize the tiny pellets of specially engineered compounds. TES has expanded beyond their current facility, and would like to consolidate under a larger roof. Last year, TES saw a 12-13% growth, and this year is already ahead of last year. TES is also looking forward to adding jobs to the facility.

Chairman Lubin thanked Mr. Drye for choosing to bring business to the State.

Mrs. Vible asked if the employees would be moving to Delaware or commuting from Pennsylvania. Mr. Kheradi stated that he was confident that the majority of employees would be moving, adding that 10% of personnel already live in the state. TES is also actively looking to fill 6 open positions that they hope will be with Delaware residents.

Mr. Drye added that New Castle was an ideal transfer for residents from Aston. Mrs. Mears stated that they encourage employees who are not already Delaware residents to spend 90% of their time in the state in order to generate a return on the investment. Mr. Sears asked how they were able to verify these statistics. Mrs. Mears stated that this was known through reporting.

Mr. Sears asked if the equipment used in production would be moved to Delaware, or would new equipment be purchased in or potentially manufactured here in Delaware. Mr. Kheradi stated that the equipment would be both moved from Pennsylvania, and new equipment would have to be purchased for the Delaware facility. It is estimated that moving the equipment would take approximately 2-3 months, and, in the meantime, both the Pennsylvania and Delaware facilities would be operational in order to meet demand.

Mr. Sears asked if the product was made-to-order. Mr. Kheradi stated that it was, typically with a lead time of 3-4 weeks.

Mr. Sears asked if it was a competitive business, and if it was a better business strategy to have more regional offices. Mr. Drye stated that he wished that there was more competition available, and that location was indeed important, particularly in relation to the highway system.

Mr. Lubin asked if rail was often utilized to move product. Mr. Drye stated that the Tennessee plant typically uses rail for that facility, but that the Mid-Atlantic region more often uses trucks and the highway system.

Mr. Lubin asked about the 13% decline in sales between 2014-15, as stated in the report. Mr. Drye stated that this was a misprint, as they anticipated growth during that timeframe.

Chairman Lubin asked if there were any public comments; there were none.

Motion Made By: Mr. Rowland

Seconded By: Mrs. Sears

MOTION: After duly considering, inter alia, the nature of the business, its competitive situation in Delaware, its location, the employment and other requirements under applicable statutory and regulatory provisions, the Council made the following findings: (i) the Project will contribute to maintaining or providing gainful employment of the citizens of the State, (ii) the Project will serve a public purpose by contributing to the prosperity, health or general welfare of the State; (iii) the Project will require a capital investment of at least $10,000, which funds, including the grant proceeds, will be available or expended on the date on which The Delaware Economic Development Authority disburses the requested grant funds; (iv) the grant will effectuate the purposes of Chapter 50, Subchapter IV of Title 29 of the Delaware Code, and (v) the Applicant is a financially responsible person to the extent required by statute and has not been convicted of a major labor law violation or other illegal conduct involving moral turpitude by any agency or court of the federal government or agency or court of any state in the two-year period immediately prior to the approval of the Applicant’s application for assistance, the Council shall recommend to Mrs. Bernice Whaley, Chairperson, The Delaware Economic Development Authority, approval of a performance grant in an amount not to exceed Three hundred fifteen-Eight hundred seventy nine ($315,879) and a capital expenditure grant in an amount not to exceed Sixty Thousand Dollars ($60,000), to be disbursed from the Delaware Strategic Fund for the Project, contingent upon the approval remaining in effect through and including July 26, 2016.

Approved By Vote of 6 to 0.

Resource International, Inc. (“RI” or the “Applicant”) – The Applicant is requesting a Delaware Strategic Fund Convertible Loan in an amount not to exceed $119,925. The Applicant proposes to use the funds to relocate to a new facility in Delaware, creating new employment opportunities in New Castle County, Delaware.

Mr. Archer presented this request to the Council. He stated that RI is requesting a Delaware Strategic Fund Convertible Loan in the amount of $119,925 for the creation of a minimum of 24 full-time Delaware positions in New Castle County.

Mr. Archer stated that RI plans to utilize the funds for equipment, recruitment, and relocation to a new warehouse, creating 24 full-time, qualified positions. RI is a privately held S-Corporation founded by owner Mike Sullivan in 2005, and produces high performance cooling products for the sport market. RI is represented by its flagship brand Mishimoto, a world-renowned manufacturer of performance engine cooling products. The Applicant was previously approved for a strategic fund performance grant in the amount of $61,474 to retain five jobs and create 26 additional jobs. RI was also approved at that time for a capital expenditure grant in the amount of $21,149 for a new office location in New Castle. The most recent compliance check performed by DEDO indicates that RI has met its requirements, and each year has seen significant sales growth.

Mr. Archer stated that the Applicant intends to utilize the loan in order to facilitate first prototypes and first production run products. Due to the difficulty in finding qualified applicants within the immediate area, as the majority of their competition is situated on the West Coast, RI has an incentive to pay lucrative wages and recruiting fees for employees to relocate within the state of Delaware. The Applicant had considered moving out of state, but Mr. Sullivan was committed to the state of Delaware and growing business here.

Mr. Pennewell reviewed the loan structure of the agreement, including a 2.25% interest rate for five years. Mr. Pennewell stated that DEDO staff reviewed financial statements for RI, showing an improved position of liquidity and at a rate higher than the industry average. The Applicant has also seen strong sales growth.

Mr. Sullivan stated that the DEDO staff did a tremendous job assisting his company in preparation for this application, and that the previous DEDO loan granted to his company greatly assisted in the growth and development of RI. Mr. Sullivan stated that he was also excited to continue to have his business grow within the state of Delaware.

Mr. Lubin asked if the current facility would be retained or would the entire operation be moved to a new facility. Mr. Sullivan stated that they would be adding a new facility, and continue to utilize the old facility, as well.

Mr. Haskins asked if Mr. Sullivan could talk about who the customers are for RI. Mr. Sullivan stated that their customers range from Pep Boys, to Amazon, to larger wholesale distributors.

Mr. Lubin asked if the product was used in original manufacturing. Mr. Sullivan stated that it was not currently, but it would be an opportunity for expansion.

Mrs. Vible asked if Fulton Bank was the primary bank for the loan. Mr. Sullivan stated that they were initially working with Fulton, but that Fox Chase has prepared a package for them. They were transitioning from Fulton to Fox Chase as their primary lender.

Mrs. Vible asked if Fox Chase considered the loan with DEDO acceptable. Mr. Sullivan stated that Fox Chase was aware and accepting of the loan.

Mr. Lewis asked if the total amount convertible was based on employee goals. Mr. Pennewell stated yes, that the payment structure is set up for 24 incentivized positions, and able to be converted towards principle.

Mrs. Vible asked if Fox Chase would provide additional financing. Mr. Sullivan stated that Fox Chase would provide additional financing, and that it would be tied to their inventory, which is why the DEDO loan was sought.

Mr. Lubin asked what was the estimated timeframe of adding 24 new employees on the payroll. Mr. Sullivan stated that the estimate was 12-24 months, the reason being because they were retaining the current facility and adding the new facility in order to increase manufacturing. Research and development was currently done in a stateside facility that outsourced manufacturing overseas, particularly to Southeast Asia. They found that they were able to manufacture cost-effectively in Delaware.

Chairman Lubin asked if there were any public comments; there were none.

Motion Made By: Mr. Sears

Seconded By: Mrs. Vible

MOTION: After duly considering, inter alia, the nature of the business, its competitive situation in Delaware, its location, the employment and other requirements under applicable statutory and regulatory provisions, the Council made the following findings: (i) the Project will contribute to maintaining or providing gainful employment of the citizens of the State, (ii) the Project will serve a public purpose by contributing to the prosperity, health or general welfare of the State; (iii) the Project will require a capital investment of at least $10,000, which funds, including the grant proceeds, will be available or expended on the date on which The Delaware Economic Development Authority disburses the requested grant funds; (iv) the grant will effectuate the purposes of Chapter 50, Subchapter IV of Title 29 of the Delaware Code, and (v) the Applicant is a financially responsible person to the extent required by statute and has not been convicted of a major labor law violation or other illegal conduct involving moral turpitude by any agency or court of the federal government or agency or court of any state in the two-year period immediately prior to the approval of the Applicant’s application for assistance, the Council shall recommend to Mrs. Bernice Whaley, Chairperson, The Delaware Economic Development Authority, approval of a performance grant in an amount not to exceed One hundred nineteen-nine hundred twenty five ($119,925), to be disbursed from the Delaware Strategic Fund for the Project, contingent upon the approval remaining in effect through and including July 26, 2016.