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HomeMy WebLinkAboutDoc 039 - Amend Humane Soc of Redmond AgrmtDeschutes County Board of Commissioners 1300 NW Wall St., Suite 200, Bend, OR 97701-1960 (541) 388-6570 -Fax (541) 385-3202 -www.deschutes.org AGENDA REQUEST & STAFF REPORT For Board Business Meeting of February 26, 2014 DATE: February 19,2014 FROM: Mark Pilliod, Legal Counsel TITLE OF AGENDA ITEM: FIRST AMENDMENT TO REHABILITATION LOAN AGREEMENT, Document No. 2014-039 PUBLIC HEARING ON THIS DATE? No BACKGROUND AND POLICY IMPLICATIONS: Deschutes County and the Humane Society of Redmond (now known as BrightSide) entered into a Rehabilitation Loan Agreement in 2008 under which the County helped BrightSide reorganize by negotiating and paying off certain outstanding financial obligations. This included the County lending Brightside approximately $1 million, extending a line of credit, and, in order to secure the same, accepting a deed to the real property and shelter facilities. Recently, BrightSide negotiated the sale ofthe "Event Center" to COCC-Cascades to enable the college to establish a veterinary tech program. This transaction requires the County's cooperation, as owner of the property. This transaction will also require a partition of the parcel, to legally separate the portion of the lot on which the Event Center is located. The Rehabilitation Loan Agreement anticipates the possible sale of the Event Center but requires the County to apply the proceeds (after deducting the costs and expenses involved in the transaction) to BrightSide's outstanding loan balance, now estimated at $650,000. However, BrightSide has asked that the County not apply all of the proceeds to its outstanding loan, but rather donate to BrightSide a portion of the net proceeds for its current operational needs. The County is willing to accommodate BrightSide's request, provided that it agree to implement certain changes in operating procedures, which would be recommended by a management consultant hired by the County. FISCAL IMPLICATIONS: Staff estimates that the $300,000 purchase price will be reduced by approximately $40,000 for the costs involved in the partition and closing the purchase transaction. From the $260,000 net proceeds, the County would apply $141,000 to outstanding loans. From the balance of $119,000, the County would apply not more than $7,000 for the cost of a management consultant. After deducting its costs and expenses, the County would issue a check for the remaining funds to the humane society. RECOMMENDATION & ACTION REQUESTED: Approve and sign FIRST AMENDMENT TO REHABILITA nON LOAN AGREEMENT, Document No. 2014-039. ATTENDANCE: Mark Pilliod, Legal Counsel DISTRIBUTION OF DOCUMENTS: Property and Facilities Finance Humane Society of Redmond, Mark Crose, President REVIEWED LEGAL COUNSEL For Recording Stamp Only DOCUMENT NO. 2014-039 FIRST AMENDMENT TO REHABILITATION LOAN AGREEMENT­ Document No. 2008-619 PARTIES: DESCHUTES COUNTY (County), a Political Subdivision of the State of Oregon, and HUMAN SOCIETY OF REDMOND (HSR), a Nonprofit Oregon Corporation. RECITALS: WHEREAS, the Parties entered into a Rehabilitation Loan Agreement dated December 10,2008 ("Agreement"); and WHEREAS, in order to secure loans made by the County pursuant to the Agreement, HSR transferred title to its capital assets to the County, which so long as HSR has outstanding obligations for those loans, or unless any are sold in accordance with the Agreement, County continues to hold title thereto; and WHEREAS, the Agreement identifies several sources of funds which may be available to repay loans made by the County to HSR, including the sale the Event Center, described below; and WHEREAS, the Agreement requires that the County apply the net proceeds of the sale of HSR assets (owned by the County) first and foremost to pay off the principal and accrued interest on the several outstanding loans made by the County to HSR; and WHEREAS, while the Rehabilitation Loan Agreement requires HSR to prepare and deliver to the County monthly financial statements, these reports have not provided the level of regularity, detail or accuracy that the County reasonably expected; and WHEREAS, based upon County concerns over the financial condition of HSR, the parties have agreed that the County be authorized to select and contract with a professional management consultant or CPA who would examine the bookkeeping practices of HSR management, including but not limited to operating revenues and expenses, and prepare a report and recommendation to County and HSR concerning how HSR might establish better business practices, maintain more complete and accurate records ofHSR's financial condition, more accurately report its financial condition to the County, all of which would enable HSR to avoid seeking additional operating capital from the County; and Page 1 DOC. NO. 2014-039-FIRST AMENDMENT TO REHABILITION LOAN AGREEMENT WHEREAS, the parties have obtained an appraisal of the market value of the Event Center, which is Three Hundred Thousand Dollars ($300,000), subject to the costs of partition, separate utility service and separate metering, and WHEREAS, HSR has negotiated with Oregon State University -Cascades (OSU) for the partition and sale of the Event Center, at the appraised value, which OSU would use to establish and operate a learning center for its Veterinary Tech Program; and WHEREAS, currently HSR has outstanding loans to the County that were made pursuant to the Agreement of approximately Six Hundred Fifty Thousand Dollars ($650,000), which loans are due and payable in full no later than December 31, 2015; and WHEREAS, at HSR's request the County is willing to distribute the net proceeds of the sale of the Event Center in part to reduce the outstanding principal on HSR's loans, but also to reimburse the County for the cost of the partition and sale, the cost of retaining a management consultant, and to distribute the remaining funds to HSR to cover current and anticipated operational needs; and WHEREAS, the purpose of this First Amendment to Rehabilitation Loan Agreement Document No. 2008-619 (Amendment) is to modify the Agreement and to set forth the Parties' agreement with respect to the distribution of proceeds of the sale of the Event Center; AGREEMENT NOW, THEREFORE, the Agreement is hereby amended as follows: Section 1. The County will enter into a Purchase and Sale Agreement with OSU concerning the Event Center property, generally described as: a metal clad light industrial type building of approximately Five Thousand Five Hundred Fifty Six Square Feet (5556), located on the mostly unimproved portion of the HSR premises north of the animal shelter, on Jackpine Avenue in Redmond, Oregon. The terms of said Purchase and Sale Agreement are as follows: a. OSU will cause to be prepared certain necessary surveys, plans and applications and present and process the same with the City of Redmond with the objective of partitioning the HSR facilities into two parcels, consisting of the Animal Shelter Parcel on one and the Event Center Parcel on the other. OSU will observe and satisfy any required conditions imposed by the City of Redmond on the partition approval. As fee title holder, the County would cooperate with OSU to allow the submittal of the aforesaid application. The final partition plat shall be properly recorded. b. OSU will contract for, secure and install any utility lines or feeds required for use of the Event Center Parcel outside the boundaries of the remaining portion of the HSR premises containing the animal shelter, including without limitation the installation of a waterline and necessary metering from the City of Redmond water main, and to pay any required fees in connection therewith. Page 2 -DOC. NO. 2014-039-FIRST AMENDMENT TO REHABILITION LOAN AGREEMENT c. The County will obtain a title report demonstrating the condition of title to the Event Center Parcel acceptable to OSU. The County will take appropriate steps to remove from the title any conditions or encumbrances identified by OSU as unacceptable. d. After completion of the above-described partition, satisfaction of any conditions imposed by the City of Redmond and recording of the partition plat the County will prepare, submit for OSU's review and acceptance and tender a fully executed Bargain and Sale Deed over the Event Center Parcel. e. OSU will pay the County Three Hundred Thousand Dollars ($300,000) less the actual costs of the tasks described in paragraphs a and b of this Section 1. f. The transaction described in this Section 1 will close outside of escrow. Section 2. The County will enter into a Personal Services Contract with a management consultant, either a CPA or other qualified financial advisor. The scope of work for such consultant will be as generally described on Exhibit A, attached hereto and incorporated by reference. The results of the scope of work will be contained in the consultant's report to the County concerning the financial management and condition of HSR, together with recommendations on how through the implementation of certain business practices, the same may be improved. The County shall furnish a copy of the completed report to HSR. The cost of the consultant services shall not exceed Seven Thousand Dollars ($7,000). Section 3. Promptly after receiving notice from the County that the consultant, described in Section 2 immediately above has been retained, HSR management and staff shall permit said consultant full access to HSR's books and records and otherwise assist and cooperate with the consultant in promptly and diligently fulfilling its tasks as described in Exhibit A. Section 4. Upon completion and receipt of the report described in Section 2 above, HSR shall meet with County representatives and the consultant for the purpose of implementing recommendations to HSR contained in the consultant's report. Section 5. Upon completion of tasks described in Sections 1 and 2 of this Amendment, the County shall distribute the proceeds of the Event Center Parcel sale as follows and in the following sequence: a. From the proceeds of the sale of the Event Center Parcel to OSU as described in Section 1, paragraph e above, the County would retain the costs of preparing the real property appraisal referred to in the recitals, the cost of the title report on the Event Center Parcel, any costs associated with clearing title to the Event Center Parcel, document recording costs and any other closing expenses. b. After deducting the costs and expenses described in this Section 5, Page 3 DOC. NO. 2014-039-FlRST AMENDMENT TO REHABlLlTION LOAN AGREEMENT paragraph a immediately above, the County would apply One Hundred Forty One Thousand Dollars ($141,000) toward the outstanding principal and accrued interest on HSR's outstanding loans, pursuant to the terms of the Agreement. c. After distribution of funds as described in the this Section 5, paragraphs a and b, County will distribute the balance by check payable to HSR. Section 6. Section 5.3b of the Agreement is amended to read: "(b) No later than January 15, 2009, and the 15th day of each consecutive calendar month thereafter, HSR will deliver to County a written statement of its financial operations (i.e. a profit and loss statement), prepared on the accrual basis, for the calendar month next preceding the calendar month that such statement is to be delivered along with a description, and the results of, any fundraising activities that took place during that month. Such statements shall reflect the receipt of any advances made under the above-mentioned Optional Advance Note during the month subject of such statement and may be included in the total amount of revenues reported for that month for purposes of disclosure of the financial results of operations during that period. The report shall be prepared in accordance with programs and procedures recommended to HSR in the consultant report concerning HSR's financial operations, dated 2014 and prepared on behalf of Deschutes County. The contents of each of these reports will be maintained in strictest confidence by County to the fullest extent authorized by law and to be used solely for the purpose of undertaking the actions described in subsection 7.4 below." Section 7. The distribution by the County to HSR of the proceeds of the sale of the Event Center Parcel as described in Section 5c may be characterized as a grant and should be prudently used by HSR to meet its immediate financial obligations. The transactions described in this Amendment shall be construed as in full compliance with the requirements of the Agreement with respect to the partition and sale of the Event Center Parcel and the distribution of proceeds therefrom. Notwithstanding the immediately preceding sentence, under no circumstances shall this Amendment or the distribution of proceeds from the partition and sale of the Event Center Parcel be construed as a waiver or release ofHSR's liability for the full payment and satisfaction of the principal and interest owing on loans made by the County pursuant to the Agreement. Furthermore, the deadline for HSR to fully satisfy its obligations under the Agreement remains December 31, 2015. III III III III Page 4 -DOC. NO. 2014-039-FIRST AMENDMENT TO REHABILITION LOAN AGREEMENT --- Section 8. Except as otherwise provided in this Amendment, the terms and conditions of the Agreement remain in effect. Dated this ____, 2014 BOARD OF COUNTY COMMISSIONERS OF DESCHUTES COUNTY, OREGON TAMMY BANEY, Chair ANTHONY DEB ONE, Vice Chair ATTEST: ALAN UNGER, Commissioner Recording Secretary HUMANE SOCIETY OF REDMOND Mark Crose, President Page 5 -DOC. NO. 2014-039-FIRST AMENDMENT TO REHABILITION LOAN AGREEMENT Exhibit A Deschutes County -Accounting Procedures On behalf of BrightSide Animal Center (Humane Society of Redmond) Purpose: The following procedures have been identified by Deschutes County to support the ongoing evaluation of financial position of the BrightSide Animal Center (HSR) and to aid HSR in being thorough and accurate in its financial accounting. Scope: The most current accounting information for the most recent month and fiscal year where the accounting has been closed (anticipated being January 31, 2014 and June 30, 2013). It is understood the accounting is on an accrual basis of accounting prepared through QuickBooks. Deschutes County will select an independent CPA for applying the procedures, described below. The CPA will have experience with accounting procedures by a non-profit organization and their application in a QuickBooks accounting environment. Compensation to the CPA for services will be fixed in advance (not to exceed) based upon the scope of work described below. Each element of the stated procedures will be performed, unless based upon the professional opinion of the CPA that the procedure is not applicable in the given period. Any significant adjustments to the anticipated procedures will be approved in advance with Deschutes County. The CPA is to be selected and paid by Deschutes County. The results will be shared with HSR. The CPA selection and these procedures will be confirmed by HSR management with the understanding that HSR Board and management will be responsible for implementation of any corrective actions and management recommendations coming from the CPA HSR management and staff will cooperate with and provide access to its personnel, facilities and records to complete the requested analysis. The CPA will not issue an audit, review or compilation opinion on any of the financial statements. The report will be limited to addressing the procedures below. Source: The financial statements utilized will be from HSR's QuickBooks accounting system as prepared for County and HSR management. The statements do not generally include notes. Performance of Agreed Upon Procedures: The current Agreed Upon Procedures engagement shall be performed in accordance with professional standards identified by the CPA The sufficiency of the procedures is solely the responsibility of Deschutes County. Page 1 -Exhibit A -Deschutes County Accounting Procedures Agreed Upon Procedures: 1. Gaining an understanding of processes for internal control over revenue from cash handling at the HSR thrift store and shelter. Develop appropriate recommendations based upon observations and anticipated/expected controls. 2. Gaining an understanding of monthly and fiscal period closing procedures to assure accrual accounting is properly developed. Inquiry and review should include (but is not limited to): a. Bank reconciliations. b. Payroll liabilities and payroll taxes (reconcile and determine that they are current). c. Assess cutoff procedures for the accrual accounting. d. Review established chart of accounts and segment reporting setup. e. CPA's report should include recommended journal entries to correct any identified accounting issues. Any accounting procedures and practices found to be deficient should be addressed. 3. Identify any issues with the current accounting presentation that should be addressed. a. For example, non recurring non-cash revenues may have been improperly included in the operational income statements. 4. Analyze and present common financial ratios and analyses for the statements (based on the CPA's jUdgment) that would compare them to their peers. Identify any potential issues. 5. Assist HSR in developing the standard reporting process through QuickBooks for financial information to be provided to Deschutes County as well as the HSR Board, including: a. Comparative balance sheets. b. Comparative income statements with budget information (YTD and Monthly), i. With sufficient detail for major programs and expense categories. c. Cash flow statements. d. Identifying and providing explanatory comments with statements to point out important topics. 6. CPA will develop an appropriate agreed upon procedures report summarizing results of procedures, findings and recommendations. Page 2 -Exhibit A -Deschutes County Accounting Procedures