Winsted-Lester Prairie Journal, Feb. 21, 2000

Formative Engineering may be sold

By Luis Puga

A new owner may be on the horizon for Formative Engineering, according to Dale Woodbeck, current owner of the Lester Prairie injection molding company.

The possible new owner will be David S. Smith Co., a British $1.8 billion injection molding company, Woodbeck said at a special meeting of the Lester Prairie City Council Tuesday.

Woodbeck said the purchase will be the new owner's first foray into North America. He said that he was referred to David S. Co. as a potential Formative Engineering customer.

Woodbeck added that he was not looking to sell, but the deal will be a good fit for the company.

Woodbeck said he will be staying on with Formative Engineering for awhile.

He also expects that the new owners will be expanding the current site. According to Woodbeck, the new owners will be considering adding some of this product line, such as nozzles for detergent bottles, to Formative Engineering's current offerings.

He also felt the new company would keep the Formative Engineering name.

The reason for the special meeting was to discuss the transfer of outstanding loans and deals Formative Engineering has with the city.

In 1991, Formative Engineering moved to a new location with the help of an economic development tax increment financing (TIF) district with the city.

Council Member Galen Hochstein explained that the city borrowed $180,000 on a bond, and gave $150,000 to Formative Engineering for the project. The other $30,000 was used for TIF expenses. The term of the TIF was 11 years.

That TIF required the city to pay a local contribution of non-tax dollars. The total was 10 percent or $30,739.

Also, an economic development grant was obtained from the state to establish a revolving loan fund of $100,000 for a 10-year term at 2 percent interest. That amount was being paid back monthly by the firm and about $90,000 is approximately left to be paid.

Lastly, a business loan of $18,500 was to be paid back by the company over 11 years.

To fulfill its local contribution, the city forgave Formative Engineering 6 percent interest on the revolving loan fund and 8 percent on the business loan. This covered the city's required contribution. As of April, Hochstein said the city still owed $27,324 on that amount.

As such, Woodbeck asked the council to transfer the obligations the company has with the city to the new owners.

However, the problem for the city was that a transfer might mean that the new owners may choose to pay back all the loans at once. This would mean that the city would no longer have the ability to forgive interest, and would have to pay the $27,324 balance at once.

Initially, it was also thought that not only could that be the case, but that the state's Department of Trade and Economic Development (DTED) would require Woodbeck to settle the loans before the sale. This was according to information received by City Clerk Marilyn Pawelk and Hochstein.

Hochstein said, "It's a catch-22 for us."

City Attorney Kerry Olson said that according to the agreements the firm was not required to settle its obligations with the city, so DTED's determination was news to him. He felt that DTED might have misspoke or was responding from the perspective that the city objects to the sale, which it does not.

Hochstein said that the requirement of paying off the loan may not be part of an agreement between the city and Formative Engineering, but a requirement from the state. Pawelk said the requirement may be from the state's grant agreement that established the revolving loan.

However, it was determined the next morning that the state did not require that the monies be paid upon sale.

The problem remains that the new owner may choose to pay the loans off, leaving the city responsible for the lump sum payment.

The city may have to pay its local contribution off from its liquor fund. Whether that will be necessary is still pending.

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