2. Memorandum of Understanding - Stream InternationalCity of Kalispell
Charles A. Harball Office of City Attorney
City Attorney 31.2 First Avenue East
P.O. Box 1997
Kalispell, MT 59903-1997
MEMORANDUM
TO: Mayor Pamela B. Kennedy
and Kalispell City Council
FROM: Charles Harball, City Attorney
Chris Kukulski, City Manager
Tel 406.758,7708
Fax 406.758,7771
charbal l',W.'kalispcll.com
SUBJECT: Memorandums of Understanding with Stream
International, Inc. for Buyout Terms and with TeleTech
for a Leasehold Agreement
MEETING DATE: Monday, December 22, 2003
BACKGROUND: The City has been in negotiations, simultaneously, with a new
tenant, TeleTech Holdings, Inc., for the Stream space at the City's Gateway West
property, and with Stream regarding buyout provisions of its leasehold obligations.
Stream is currently legally obligated to the City as follows:
1. Base rent of $275,000.00 per year for the remainder of the lease term
(6.5 years).
2. Guaranteed minimum tax payment of $140,000.00 per year for the
remainder of the lease term (6.5 years).
3. Repayment on the loan made by the City to Stream at 11.5% interest
with a current principal balance of $767,394.28.
These payments guarantee that the City can and will meet its debt obligations and
will awn the real property free and clear at the end of 6.5 years and will have 100%
return, plus interest, of its UDAG funds that it loaned.
What the City currently lacks from this current situation is a fully utilized
structure and the technical jobs within the City, which was the purpose of this
arrangement in the first place.
Therefore, the City and the Flathead County Economic Development
Authority have been in discussions with a potential new tenant, TeleTech Holdings,
Memorandum to Council
Stream/TeleTech
December 17, 2003
Page - 2
Inc. This entity operates a Call -In Center, similar to Stream's operations and
anticipates providing the number of jobs that will fully utilize the property. Both
Stream and TeleTech require that Stream fully buys out its obligations with the
City and TeleTech steps into the primary position.
Stream is offering to pay the City a lump sum of $1,360,711.84 for the base
rent it owes for the balance of rental term (6.5 years). This is the net present value
of the $275,000.00 per year on the remaining term discounted at 4% (the implied
rate at which we could invest those cash flows) less the advance rent that was paid
by Stream to acquire an additional 10,000 square feet of space at the inception of
the lease. Stream is only legally bound to pay such amounts as the City is not able
to recoup from a new tenant. This offer is therefore quite favorable to the City.
Stream, is further offering to immediately pay off the balance of its loan to the
City, in the amount of $767,394.28 so that the City can replenish its UDAG funds.
There is no prepayment penalty to this loan.
Stream is further offering to pay the City's closing costs (up to $50,000) in the
legal preparation of the Buvout Agreement. Dorsey Whitney handled the initial
transaction for about $80,000 and has the most intimate knowledge of the details.
It is estimated that it will be able to handle this buyout for something probably
significantly less than $50,000.00.
Finally, Stream is offering to pay the City's brokerage fees (which the City
negotiated at the market price) for bringing TeleTech to the site. This fee could be
as much as $300,000.
Stream will also be assigning its interests in the lease agreement to its
parent corporation, Selectron, prior to or contemporaneously with the buyout. The
purpose of this is to allow the transaction to pass through the books of Selectron
and has no real effect on the City. Further, the City is bound by its previous
agreement with Stream to allow such assignment to a succeeding corporation.
TeleTech is offering to enter into a lease structured similar to Stream's. Rent
abatement is tied to the pay ($8.00 per hour plus 20% for benefits) and number of
jobs created and maintained.
TeleTech will pay the guaranteed minimum tax payment of $140,000 per
year regardless of pay and number of jobs. This insures that the City will be able to
meet its end of its debt obligation. If TeleTech exercises its option to be released
from the lease at five years, the remaining 1.5 years of the debt will be retired from
Office of City Attorney
City of Kalispell
Memorandum to Council
Stream/TeleTech
December 17, 2003
Page - 3
the funds paid by Stream in its buyout, which will be held and reserved by the City
for such contingency.
The City will, under this agreement, offer up to $1,179,317.94 in loan funds
at 4% interest to TeleTech for the purposes of upgrading the capital and
communications infrastructure of the leasehold over the term of the ten year lease.
The City will further insure that adequate parking is provided to the
employees of TeleTech, either on or off premises.
The goal of the City and the Authority in negotiating these terms with
Stream and TeleTech has been to preserve the consideration that the City and the
Authority were receiving as a benefit of the existing agreement with Stream while
insuring that this asset of the City is fully utilized and jobs are created at this site
as was originally anticipated.
RECOMMENDATION: That Council fully consider the Memorandums of
Understanding that are presented and to direct the Mayor to sign them if Council
believes this arrangement will be in the best interests of the City.
FISCAL EFFECTS: As set forth in the Memorandums of Understanding
Respectfully sub itted,
Charles Harball, City Attorney
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Chris Kukulski, City Manager
Office of City Attorney
City of Kalispell
ASSIGNMENT OF AND CONSENT TO ASSIGNMENT OF LEASE
This Assignment of and Consent to Assignment of Lease is made as of this day
of December, 2003, by and among (a) the City of Kalispell, a body politic, and the
Flathead County Economic Development Authority, A Body Politic ("Landlord")
("Lessor"), (b) Stream International Inc., a Delaware corporation, whose headquarters are
located at 85 Dan Road, Canton, Massachusetts 02021 ("Assignor"), and (c) Solectron
Corporation, a Delaware corporation, whose headquarters are located at 847 Gibraltar
Drive, Milpitas, California 95035 ("Assignee"), who agree as follows:
1. Recitals, This Assignment of and Consent to Assignment of Lease is made with
reference to the following facts and objectives:
a. Lessor and Assignor, as lessee, entered into a written lease which commenced
March 8, 2000 (the "Lease"), in which Lessor leased to Assignor and Assignor
leased from Lessor the premises located at Gateway West Mall, 1203 Highway 2,
Kalispell, Montana 59901 (the "Premises").
b. Assignor desires to assign all of its right, title and interest in the Lease to the
Assignee ("Assignment").
c. Lessor hereby consents to the Assignment and releases the Assignor on the
conditions set forth in this Assignment.
2. Effective Date of Assignment. The Assignment of the Lease shall be effective on
December 15, 2003 (the "Effective Date"), and Assignor shall give possession of the
Premises to Assignee on such date.
3. Assignment and Assumption. Assignor assigns and transfers to Assignee all of its
rights, title and interest in the Lease, and Assignee accepts the Assignment and
assumes and agrees to perform, as a direct obligation to Lessor, all of the provisions
of the Lease. Assignee hereby expressly assumes all liens, debts, dues, liabilities,
covenants, promises, bills, damages and demands of every kind and nature, of
Assignor arising out of or in any way connected to the Premises and/or the Lease.
4. Lessor's Consent. Lessor consents to the Assignment without waiver of any
restrictions in the Lease concerning further assignment or subleasing.
5. Release of Assignor. Effective as of the Effective Date, Lessor on behalf of itself and
its past, present and future heirs, subsidiaries, and affiliates and of its executors,
administrators, agents, servants, stockholders, employees, representatives, assigns,
officers, directors, partners, consultants, trustees, advisers and successors (hereinafter
collectively "Affiliates"), releases, remises and forever discharges the Assignor and
its Affiliates from all rights, claims, actions, causes of action, suits, agreements,
controversies, liens, debts, dues, liabilities, covenants, promises, bills, damages and
demands of every kind and nature, whether known or unknown, absolute or
contingent, direct or indirect, suspected or unsuspected, arising out of or in any way
connected to the Premises and/or the Lease.
6. Prepaid Rent, Security Deposit and Last Month's Rent. The parties acknowledge that
Lessor now holds a letter of credit and prepaid funds to be applied to rent, subject to
the provisions of the Lease. Assignor releases all claims to such sum, and the sum
shall be held by Lessor for the benefit of Assignee, subject to the provisions of the
Lease.
7. Miscellaneous.
a. Attorney Pees. If any party commences an action against any of the other parties
arising out of or in connection with this Agreement, the prevailing party or parties
shall be entitled to recover from the losing party or parties reasonable attorney's
fees and costs of suit, at trial or on appeal.
b. Notice. Any notice, demand, request, consent, approval or communication that
any party desires or is require to give to any other party or any other person shall
be given in the manner provided for notices in the Lease at the address set forth in
the introductory paragraph of this Agreement. Any of the parties may change its
address by notifying the other parties of the change in address in writing.
c. Successors. This Agreement shall be binding on and inure to the benefit of the
parties and their successors.
d. Choice of Law. This Agreement shall be subject to the choice of law provisions
in the Lease.
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IN WITNESS WHEREOF, the parties below have entered into this Assignment as
of the last date below written on this signature page.
LESSOR:
THE CITY OF KALISPELL, A BODY POLITIC
By:
Title:
Date
THE FLATHEAD COUNTY ECONOMIC DEVELOPMENT AUTHORITY, A
BODY POLITIC
By:
Title:
ASSIGNOR:
STREAM INTERNATIONAL ZINC.
By:
Title:
ASSIGNEE;
SOLECTRON CORPORATION
By:
Title:
Date
Date
Date
STATE OF }
} ss.
COUNTY OF }
I certify that I know or have satisfactory evidence that is the
person who appeared before me, a Notary Public in and for the State of
duly commissioned and sworn, and acknowledged that she/he is the
of The City of Kalispell, A Body Politic, who executed the within and foregoing
instrument, and acknowledged the instrument to be the free and voluntary act and deed of
said company for the uses and purposes therein mentioned, and on oath stated that affiant
is authorized to execute said instrument on behalf of said company.
IN WITNESS WHEREOF I have hereunto set my hand and affixed my official seal on
the day of December, 2003.
Notary
STATE OF }
} ss.
COUNTY OF }
I certify that I know or have satisfactory evidence that is the
person who appeared before me, a Notary Public in and for the State of
duly commissioned and sworn, and acknowledged that she/he is the
of the Flathead County Economic Development Authority, A Body Politic, who executed
the within and foregoing instrument, and acknowledged the instrument to be the free and
voluntary act and deed of said company for the uses and purposes therein mentioned, and
on oath stated that affiant is authorized to execute said instrument on behalf of said
company.
IN WITNESS WHEREOF I have hereunto set my hand and affixed my official seal on
the _ day of December, 2003.
Notary
4
STATE OF }
} ss.
COUNTY OF
I certify that I know or have satisfactory evidence that
person who appeared before me, a Notary Public in and for the State of
duly commissioned and sworn, and acknowledged that she/he is the
of STREAM INTERNATIONAL INC., a Delaware, who executed the within and
foregoing instrument, and acknowledged the instrument to be the free and voluntary act
and. deed of said company for the uses and purposes therein mentioned, and on oath
stated that affiant is authorized to execute said instrument on behalf of said company.
is the
IN WITNESS WHEREOF I have hereunto set my hard and affixed my official seat on
the _ day of December, 2003.
Notary
STATE OF }
} ss.
COUNTY OF }
I certify that I know or have satisfactory evidence that is the
person who appeared before me, a Notary Public in and for the State of
duly commissioned and sworn, and acknowledged that she/he is the
of SOLECTRON CORPORATION, a Delaware, who executed the within and foregoing
instrument, and acknowledged the instrument to be the free and voluntary act and deed of
said company for the uses and purposes therein mentioned, and on oath stated that affiant
is authorized to execute said instrument on behalf of said company.
IN WITNESS WHEREOF I have hereunto set my hand and affixed my official seal on
the — day of December, 2003.
Notary
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