Alaska Industrial Development and Export Authority
BOARD MEETING MINUTES Tuesday, March 2 , 2011 Anchorage and Juneau, Alaska; Dallas , Texas ; Phoenix , Arizona ; and Bea ver Creek, C olorado

1. CALL TO ORDER

Acting Chair man Mike Felix asked Mr. Robert Sheldon to chair the meeting. Mr. Sheldon called t he meeting of the Alaska Industrial Development and Export Authority to order on March 2 , 2011 at

10:32 a .m. A quorum was established.

2. ROLL CALL: BOARD

Members present in Anchorage : Ron Arvin (Public Member); Robert Sheldon (Public Member)

. Member participating from Juneau: Susan Bell (Commissioner, Department of Commerce,

Commu nity, and Economic Development). Member participating from Arizo na: Gary Wilken (Public Member). Member participating from Col orado: Hugh Short (Public Member)

. Member participating from Texas: Vice

- Chair Mike Felix (Public Member). Joined the meeting in progress: Bryan Butcher (Commissioner, Department of Revenue).

3. AGENDA APPROVAL

Mr. Leonard requested an addition to New Bu siness after 8E r egarding the investment policy, with discussion and participation by AIDEA money managers from Alaska Permanent Capital Management and Callan Associates

. The agenda was approved as amended.

4. ROLL CALL: STAFF, PUBLIC

Staff present in An chorage: Ted Leonard (Exe cutive Director); Chris Anderson (Deputy Director

Commercial Finance); James Hemsath (Deputy Director

- Development Finance); Valorie Wa lker (Deputy Director

- Finance); Mike Catsi (Business Development Officer ) ; Bill Phelan (Loan

Offi cer); Karl Reiche (Project Development Manager); Mark Schimscheimer (Project Manager); Karsten Rodvik (External Affairs Project Manager); Sherrie Siverson (Executive Assistant); Sandy Burrows (Administrative Assistant); and Teri Webster (Administrative Ass istant).

Others present in Anchorage: Brian Bjorkquist (Department of Law); Chris Brechbuhler and Jeff Pantages (Alaska Permanent Capital Management); Jeff Backlund (Northern Pacific Seafoods ); John Hanrahan (Ocean Beauty Seafoods); Dennis Fe nerty ( Groh E ggers ); Scott Johanne s (C5

, LL C); Craig Thorn and J ay Pag e (First National Bank): Kennis Brady (Student at UAA) ; Ron Bailey (Bailey’s Furniture); Catherine Claxton (Northrim Bank ) ; Brandon Spoerhase ( J ac k White

Commercial ); Mayo r Siikauraq Martha Whiting a nd Walter Sampson (Northwest Artic Borough); and Scott Bernstein (Buccaneer)

.AIDEA Board Meeting Minutes

March 2, 2011 Page 2 of 15

Others attending via conference call : Harold Barnett (National Marine Fisheries Service ); Ga r ry White (Sitka Economic Development Association ) ; and Cliff Kelly (Callan Associate s)

.

Listen to the full audio recording of the 3/2/2011 meeting at http://www.aidea.org/boardmin.html

5. PUBLIC COMMENTS

Gary White

, Executive Director, Sitka Economic Development Assn.

Mr. White wanted to show support for the project in Sitka ( funding of a fish waste plant ) . Th e City and Borough of Sitka passed a resolution last August in support of the project . In January of this year, the City and Borough assembly approved the sale of approximately 26 ,000 square feet of property to Sitka Economic Development Association for the construction of the plant.

Mr. White stated the project will solve a huge community issue with disposal of fish waste and will allow Sitka to be ground zero for this new technol ogy. It will cr eate jobs and be a statewide example to others interested in this new technique.

John Hanrahan, Executive Vice President of Production, Ocean Beauty Seafoods

Mr. Hanrahan was representing his company in giving support to the proposed Sitka fish processing plant project. Comments made by Mr. Hanrahan are incorporated as an attachment

to the minutes.

Jeff Backlund , Northern Pacific Seafoods

Mr. Backlund explained that his company owns and operates four processing facilities in Alaska

and was in attendance to give support to the Sitka fish processing plant project. Comments made by Mr. Backlund are incorporated as an attachment to the minutes.

6. PRIOR MINUTES

The December 15, 2010 and January 31, 2011 meetings were approved as presented. The December 3, 2010 and January 13, 2011 minutes were approved as amended.

7. OLD BUSINESS

There was no old business.

8. NEW BUSINESS

8A. Loan Resolution No. L11

- 02 C5, LLC

Mr. Leonard said Loan Resolution No. L11

- 02 is a request for AIDEA to participa te in a $4

million loan for long term financing. AIDEA ’s 90% participation would be $3.6 million.

Ms. Anderson reviewed the information regarding Loan Resolution No. L11

- 01 as out lined in the

Memo to the Board.

Several board members commented that it was good to see a loan with such a large number of new created jobs.

Mr. Short asked if anyone looked into the rumors that Costco was talking about building a store in the Wasilla area and what impact this would cause for Three Bears.AIDEA Board Meeting Minutes

March 2, 2011 Page 3 of 15

Mr. Scott Johannes, on e of the guarantors on the credit, replied that they talked to Costco
management and veri fied that there w eren’t any plans for them to build in th e area. They also

checked with Sam’s Club and w ere told they would not put a store in th e area but instead are investing in their current Wasilla Walmart store.

There were more confirmations from staff and board that the cit y base population does not meet

Costco ’s requirements to build.

MOTION: Commissioner Butcher moved to approve Resolution No. L11

- 02. Mr. Sh ort seconded. There being no discussion, the question was called. A roll call vote was taken and the motion passed with Mr. Wilken, Mr. Short, Mr. Sheldon, Mr. Arvin, Mr. Felix, Commissioner Bell, and Commissioner Butcher voting yea.

8B. Loan Resolution N o. L11

- 03 Bailey Family Partnership

Mr. Leonard introduced this resolution stating that this is a refinance loan with AIDEA taking a 70% participation. This loan was in the pipeline before the board started having serious

discussions about refinancing lo ans. The bank did modify the participation amount from a 90%

loan to the current 70% loan.

Ms. Anderson reviewed the information regarding Loan Resolution No. L11

- 03 as out lined in the

Memo to the Board.

Commissioner Butcher state d for the record a pote ntial conflict of interest. His second

c ousin, Heather, is married to Buddy Bailey, who although not attached legally to this, is the public face of the business. Mr. Butcher stated he would refrain from voting if that is

the will of the board.

Mr. Bjorkq uist stated that u nder the executive branch ethics act, a second

- cousin, or even a

cousin does not fall within the immediate family member. Mr. Bjorkquist also stated that there is

not a financial interest at that level

, and that for both of those reasons, Mr. Butcher does not have a conflict for purposes of the executive branch ethics act.

A discussion ensued regarding receiving a dashboard report for each loan

, its impact and overall summary. Mr. Leonard confirmed that he can adjust his memo for each loa n to include

this information.

Mr. Arvin asked if the change in participation percentage from 90% to 70% was because of a new direction the board is taking regarding refinancing

. It was discussed that the board and staff

did not make a formal direction ch ange, but refinancing loans are now lower on the priority.

Mr. Arvin asked about 70/30 on refinance loans.

Mr. Leonard stated that AIDEA has started asking bank s to take a larger amount of th e participation on refinance loans

.

Mr. Felix asked about the correlation, targets notwithstanding, between every loan AIDEA

make s and cash flow ability for the year

.AIDEA Board Meeting Minutes

March 2, 2011 Page 4 of 15

Mr. Leonard replied that there is not a direct correlation on what AIDEA can finance, because

AIDEA does have the ability to go to the market

, and AI DEA’s business model is based on large projects being financed through that market. T he loan dashboard show s what our target is for our cash at year end

. Mr. Leonard stated that staff is in the process of working with the board on doing true budgets.

Mr. Sheldon asked Ms. Anderson to elaborate more on this loan and when it started being

reviewed

.

Ms. Anderson explained the loan process and stated that it is a long process and this particular loan was initially brought to AIDEA i n September. A preliminary look was done and AIDEA then gave it back to First National to submit a loan package. In December it was complete on their

side and submitted back to AIDEA. The loan came before the loan committee in February and now to the board today. Ms. Anderson state d t his particular loan took 6 months.

Mr. Sheldon asked about the dollar value of other additional loans of similar nature, i

. e.

, low job

creation that may be in the pipeline

. Ms. Anderson said she does not have the loans broken out

in that manner but AI DEA has over 70 million dollars in the pipeline

- both refinance and new

loans.

Mr. Leonard stated that the 70 million included these loans being considered today. AIDEA has 37 million in pending loans in various stages of the loan process.

Mr. Short sta ted that he thinks the board and staff owe the public a definitive policy statement.

Mr. Short stated that AIDEA needs to come up with a policy that is clear and concise that the

banks in Alaska can look at and know that is the expectation. Mr. Short indic ated he hopes to be able to spend some time on this in the board’s April meeting.

Mr. Sheldon agreed and asked Mr. Leonard to take that under advisement.

Mr. Leonard stated that this item is already planned to be on the agenda.

MOTION: Mr. Short moved to approve Resolution No. L11

- 03. Commissioner Bell seconded. There being no discussion, the question was called. A roll call vote was taken and the motion passed with Mr. Wilken, Mr. Short, Mr. Sheldon, Mr. Arvin, Commissioner Bell, and Commissioner Butch er voting yea

. Mr. Felix vot ed nay.

8C. Resolution No. G 11

- 05 Making emergency regulations related to the Loan Participation Program permanent

Mr. Leonard summar ized this regulation stating that a t the January 31, 2011 board meeting emergency regulations were passed dealing with setting interest rates for taxable and tax

exempt loans and this resolution would make those rates permanent. T he variable rate loan basis points were increased from 100 to 200 basis points over the federal home loan bank index

an d the floor based on the variable rate loans were changed from 185 basis points to 290 basis points. He informed the board that more of these emergency regulations will be coming to the

board based on changes in the economy since the board is the rate sett ing committee for the

agency

. By doing emergency regulation, the effective date is shorter and has positive affect to

the finances of the AIDEA faster.AIDEA Board Meeting Minutes

March 2, 2011 Page 5 of 15

MOTION: Mr. Short moved to approve Resolution No. G11

- 05. Mr. Arvin seconded. There being no discussi on, the question was called. A roll call vote was taken and the motion passed with Mr. Felix, Mr. Wilken, Mr. Short, Mr. Sheldon, Mr. Arvin, Commissioner Bell, and Commissioner Butcher voting yea.

8D. Resolution No. G09

- 01B Building Maintenance, Amended

Mr. Leonard gave the board the background on the original resolution that was brought to the

board in May of 2010. Due to increased staff and to bring better efficiency to the organizations,

the board approved $1.6 million dollars to do modifications to th e AIDEA/AEA building.

He continued to explain that once AIDEA started going through the process of getting architect plans and building modifications

, the environmental portions d ramatically increased in price . Mr. Leonard stated the request for an addit ional $1.2 million to make the modifications.

Mr. Bjorkquist brought forth a correction to the original resolution of G09

- 01A. On the third line

of the second whereas clause it sta tes fiscal years 2009 and 2010. Instead it should be fiscal years 2009 thro ugh 2012 as originally approved as stated on page 2, section 3.

Mr. Wilk en asked about the contingency. The original estimate at 10% conceptual design shows a contingency was 25%. Mr. Wilken stated that at present it is at 65% conceptual design

. He

asked about cont ingency percentage

.

Mr. Reiche said that AIDEA receive d a new architect’s estimate at 65%, which increased by $80,000. Mr. Reiche stated t here is a trend towards the architect’s estimate increasing, which in effect, reduces the contingency

. Mr. Reiche stated staff will have one additional estimate before we bid the project and receive a market price

. He indicated staff is hoping that the bids are competitive and come in well under the architect’s estimate.

Mr. Wilken asks if these building modif ications anticipate changes in the mission of AEA that may or may not be brought forth by the pending legislation

.

Ms. Walker answered that the projected increase of the internal expansion, creating more offices, creating a board room that is better suite d, additional conference rooms, are intended to

fit current employee level and several more relating to the expanded mission for AEA. However, employees identified with the Susitna project would not be able to be accommodated in this building

. Ms. Walker s tated that one of the fiscal notes takes the project office for Susitna into account with leased space, not in this office.

Mr. Wilken said he was not comfortable with AEA undertaking the biggest project it has ever

done from a satellite location

.

Mr. Le onard confirmed that the Susitna project is planned for a satellite location.

Mr. Wilken commented on p age two, paragraph five, starting with

, “The building upgrades will reduce energy costs

. ” He indicated this statement should be backed up with supportin g information

.

Mr. Leonard said that information can be e

- mailed to the board.AIDEA Board Meeting Minutes

March 2, 2011 Page 6 of 15

Mr. Wilken asked for a clarification on the second to the last paragraph that stated the staff

intends to use the existing building management contract to implement a portion of the proposed work.

Mr. Reiche stated t he building manager P TP is assisting on a small part of the remodel, which means that they bid the work and they are managing the general contractor. They may participate during the bulk of the remodel with contrac t administration and inspections.

Mr. Wilken asked if P TP is the firm that take s care of the maintenance and operation of the building

.

Ms. Walker said that Karl Reiche is the project manager. AIDEA intend s to go out for construction proposals and solici t a construction contract. Ms. Walker stated that Karl will be managing the overall project. She indicated AIDEA may utilize the services of the existing manager but they will not

, in her understanding

, have the overall responsibilities.

Mr. Sheldon broug ht up the fact that we shouldn’t discuss what we are willing to increase our budget to in a public venue when we are going to be looking for public bids in the future to fulfill these requirements.

Mr. Bjorkquist agreed that when you’re getting into the s pecifics of what the authority would be willing to pay, and in particular if you’re in a pre

- negotiation type phase, then executive session could be appropriate.

Mr. Wilken stated he would like to see more numbers and better numbers for a future

discussio n

.

Mr. Sheldon suggested that the board reject this resolution and the increase that it contemplates

and come back at a fu ture meeting

. He asked Ms. Walker if this renovation is set in stone already and the board is merely just stamping an increase

.

Ms. Walker answered that it is not. She stated that w e cannot proceed under the original authorization, given the increase in costs. When we did the preliminary design estimate amounts last year , t here w ere no architectural services per se

, and now there are a lot more people than originally intended. We found a number of things t hat had not been identified : ADA upgrades, we know there’s asbestos, there’s additional costs, and it i s a 40 year old building, so by no means does it have to be voted “yay

. ”

Mr. Sho rt asked if these are currently under contract or if AIDEA will go out to bid for the additional asbestos, and if it will be a competitive bid process for the lowest bid possible.

Ms. Walker answered in the affirmative and said staff did not want to go ou t to bid given the fact

that staff believe s the costs would be above the original board authorization.

Mr. Short stated that t he fact that the board has given an authorized amount does not mean that

that’s the amount that’s going to come back in the compe titive bidding process

.

Mr. Leonard said that this resolution means that we could not go over th e amount that the board agreed upon.AIDEA Board Meeting Minutes

March 2, 2011 Page 7 of 15

Ms. Walker said this is AIDEA money. If we don’t spend it, we keep it. So the incentive to spend to the budget just isn’t there . W e understand this is a lot of money , we understand that this building is never, even with modific a tions , going to be the perfect office building because of the constraints of the original construction. However, we’re trying to make it workable. We ’ve have doubled staff since we moved into this building. We weren’t in the basement, we had empty offices. We’ve added offices. This will be adding more , m ore conference rooms. It’s trying to

make it work. There are other alternatives

- l easing, in my opi nion, is just totally too expensive ;

p ossibly purchasing an existing building. My sense, the numbers that I’ve run, would indicate that this would be still the cheaper option what with the proposal before you today.

Mr. Leonard commented that he t hink s th at if the board isn’ t comfortable with the numbers that we have right now, staff could come back with more numbers that would make the board feel

comfortable . Mr. Leonard stated that the timeframe is just a timeframe , and that t he board does

not have to re act today.

Mr. Sheldon said that we need to watch some of these areas very closely and that we essentially contemplated an open session certain variances on certain areas where perhaps the

funds wouldn’t be spent

. He stated his discomfort primarily reside s in those areas

. He indicated

that if this board were to remove or

- not necessarily move itself into executive session, but I’m interested myself in having maybe a mild reboot until the next meeting

– that he would entertain

a motion to do that so that w e did not have quite so much granularity out in the public space and we can reconsider these items to be good stewards of our own funds.

MOTION: Commissioner Butcher made a motion to table this resolution until the next

AIDEA board. Mr. Wilken second ed

.

Mr. Wilken asked Mr. Leonard if AIDEA is constrained by municipal parking code in pushing the existing building out to house the Susitna people , or whomever. He is concerned that if AIDEA spend s $2

- 3 million

, at the end they may wish they would have spent more and done a better job, if indeed AEA is going to take on a project that has a 20

- year life

. Mr. Wilken asked that people think a little bit bigger

. He indicated that m aybe there is a way to push the building out to

add whatever space has to be added

.

Mr. Leonard stated that this can be looked at

. He expressed concern about being under

constrain t on the parking spaces. He said that a challenge is the uncertainty of how large AEA

will become . He asked Ms. Walker if she had any numbers.

Ms. Walker said that i n the fiscal notes, she believes there are ten identified positions.

Mr. Leonard said that once this process gets going, he is sure that number will start to multiply as they move forward. So, in two to three years it could be a totally different nu mber of employees.

Mr. Sheldon said these are a ll items to take under discussion. He called for further

discussion on this and h earing none , t he motion was to table the discussion. Hearing no objections

, the motion has been tabled until the April 20 , 2011 meeting.

The board took a short recess at 11:52 a.m. and reconvened at 12:05 p.m.

Roll call was taken and a quorum was established.AIDEA Board Meeting Minutes

March 2, 2011 Page 8 of 15

7E. Resolution No. G11

- 06 Sitka Fish Waste Processing Plant

Mr. Leonard introduced the resolution which would give the authority approval of initial funds fo r the development of the Sitka Fish Waste Processing P lant and engagement of SMOG, LLC as

the user. SMOG stands for Sitka Meal Oil and Gelatin. AIDEA has been involved in looking at this project for the last six month s. AIDEA has a reimbursement agreement with the developer in looking at the process and AIDEA is at the point that we need to invest some initial funds to insure that we have enough information to go through the complete process. Mark

Schimscheimer and Mr. Hemsath will go through the project with you to know where we are at and to answer any questions that the board may have.

Mr. Hemsath said that Resolution G11

- 06 is a continuation of the previous Resolution G10

- 05, which was for due diligence. Due dilige nce is substantially complete. Included in that due diligence is that a market analysis, a variety of stress analysis on product price and processing capability, supply agreements including

, as heard earlier today

, from a regional supplier of fish

waste, r eview of the technology and a review of the estimates.

The project specifically is AIDEA will own and operate through SMOG, LLC a fish waste processing plant that will process approximately 15 million pounds a year of fish waste product, with the capacit y of possibly even up to 30 million pounds a year. This fish waste processing will create a value added product, including fish meal, fish oil, fish gelatin, chondroitin, a whole host

of nutraceutical products t hat there is a significant world

- wide market for. Staff believes that this project meets the mission of AIDEA in terms of economic development, not only through jobs, but the project itself, as also heard this morning and through some of the letters in the packets, are key to enhancing the southeast fishing industry, which is approximat ely a billion dollar industry.

That enhancement comes in the creation of a value

- added product, which is a new revenue street for that industry, as well as meeting certain environmental challenges that are there with

r egards to the disposal of fish waste and keeping our fishing industry competitive in the

southeast. Specifically in Sitka, it also resolves a problem that two of the suppliers of product have right now which is an issue with the FAA and disposal of fish wa ste and bird strikes as

some of the things that are occurring. So it meets a very immediate problem there, coming to

the attention of FAA. One last thing as it relates to economic development is the project itself, while not dependent on , will provide a ba se load for the Blue Lake Hydro expansion that fits in the region, which also brings and continues a long stream of economic energy costs for the region which would enhance other economic development as it comes along. This project meets a really large and broad aspect of economic development.

The resolution is for initial release of funds, specifically for engineering legal support which will result in conceptual design, then solicitation for the procurement construction of the plant, bid review and nego tiations for the procurement of land which the plant will sit on. This is schedule critical, and part of the i nitial release of funds is specifically to move into the design phase to allow a February 2 012 startup of the plant and provide the relief that th e fish processors need

from some of the e nvironmental concerns going on.

Where we are outstanding on the project, other than th is resolution, is the engineering and

construction . W e are still waiting for a procurement waiver for the professional service agreement, wh ich is a sole

- source agreement. A comment might be made here if AIDEA had itsAIDEA Board Meeting Minutes

March 2, 2011 Page 9 of 15

own procurement regulations this may h ave been alleviated. We also need to solicit, review and advice from the City and Borough of Sitka. We know that the City a nd Borough is in support of

it. They’ve passed a general resolution on the fish waste and you heard from Gary White this morning, as well as a resolution authorizing the City to sell land to AIDEA specifically for the project. S tatute requires a review of spe cific solicitations , as well as a finance plan for the overall funding of the project in total of $9.1 million which we will be doing through bonding.

W e’ve acquired services and bond council . D uring this period we’re paralleling with engineering

to comp lete the development of the bonding as well as determining how to handle the accounting for the first year commissioning and startup costs

. We will have t wo chances to

review the costs. The first is after the e ngineering is done for the conceptual review, which will verify and validate the $8 plus million in capital costs that we assume for the plant and then agai n after the bid process itself. Both these points also allow for termination of the user agreement which we expect tomorrow

. We wi ll define the us er agreement as a reimbursement agreement for the $450,000. Our revised e valuation will occur prior to coming to the board for
request of release of the balance of funds which w e anticipate to be in late May, possibly June. As you’ve heard today

, and in yo ur packet

, the project has both the support of both the business and community. Staff feels that this is an excellent project. It applies an existing technology in a

new way and enhances the fishing industry . Mr. Hemsath stated that staff requests approval of

Resolution G11

- 06.

Mr. Wilken asked about Silver Bay Seafoods in Sitka, referring to the investment that the AIDEA board approved in January . Mr . Wilken wondered if there would be a synergy between the two

.

Mr. Hemsath said that o ne of the proposed p roponents and supplier of feed stock or fish waste was Silver Bay Seafoods , but that Silver Bay Seafoods, at this time, is not a participant

. Mr.

Hemsath stated that if Silver Bay wishes to move their fish waste into this facility, there is the potential capacity for them to do that.

Mr. Leonard commented that the loan participation has been paid off

.

Mr. Wilken asked if this is the first commercial application of this technology.

Mr. Hemsath said they he want s to be careful on the term “new technology ” because it really is a new application of existing technology. Technology for stabilization of fish waste through acid is proven and is being used in Europe to provide stabilized fish waste for animal feed. This technology uses slightly less acid to stab ilize fish waste, which allows it to be used for human consumption. The drying technology us ing drum dryers is faster drying which leaves more

nutrients in the fish meal vs. the old technology of plate dryers

. It is, however, energy

- intensive

, which makes the location of Sitka very valuable with the hydro power

. The fisheries at Sitka have demonstrated that there is a statistical improvement of the fingerlings’ survival rate when

fed meal done with this process.

Mr. Short asked if a feasibility plan had b een completed, and if so, is it something that can be

seen.

Mr. Hemsath said the feasibility or the due diligence is substantially complete and in a variety of pieces. A fairly extensive marketing analysis was done by a consultant. Mr. Hemsath stated that

there is a variety of spreadsheets on the stress tests but they are not pulled together in a reportAIDEA Board Meeting Minutes

March 2, 2011 Page 10 of 15

yet. He said that staff anticipate s doing that with the addition of the engineering work and the updated cost estimate when there is a release of the major ity of the funds.

Mr. Short asked if $450,000 were put into this project , how much would the previous amount for the feasibility estimate be

.

Mr. Hemsath replied e ighty

- five thousand dollars.

Mr. Short stated that we’re going to have somewhere around $5 35,000 into this project without having a business plan to make a decision on. He asked if that is correct

.

Mr. Hemsath replied that is n ot entirely true

. He said t here is a business plan

, but in terms of the

documents that we provide to the board for the resolution , we’ve not included the bulk of that

document.

Mr. Leonard stated that the $85,000 is th rough a reimbursement agreement . I f this project does not go forward, it will be paid back by the project sponsor.

Mr. Hemsath added that the $450,000 wil l also b e in a reimbursement agreement.

Mr. Arvin asked if fish meal is being produced at this plant or if it produc es the bulk materia l and

then sourc es it to others who turn it into something else

.

Mr. Hemsath said that this plant will create fish meal , fish oil, and chondroitin.

Mr. Arvin asked if this includes the fish meal that is broadcast over the water to feed farmed fish

.

Mr. Hemsath replied that it was , a nd because of the different seasons and stability it could also

be from a salmon stock and the herring stock . T he Sitka fish hatchery is very interested in the herring stock . T hey have done tests on this process of fish meal produced from that and the

results showed it made a difference.

Mr. Sheldon noted that the original resolution contempla ted researching whether or not there was licensable technology in relation to this. He asked if there is licensable technology

.

Mr. Hemsath replied that the research we’ve done, the answer is “no

. ” He stated that is why the point was made about using ex isting technology in a new way

. Mr. Sheldon said that before he started he meant to give a disclosure about himself . He was responsible for a group which fund ed Yummy Chummies

. He see s no conflict so he did not

recuse him self and doesn’t see the need to a sk a n opinion of counsel.

He continued with his questions and asked about previous meeting minutes that stated Montlake Mining received funding from a private entity. After a discussion, it was determined that the funding was not from a private entity but from Alaska Fisheries Development

Foundation.

Mr. Sheldon asked what levels have this equipment been run

. He asked if it i s a 6 x 6 foot area

or a much larger production run

.AIDEA Board Meeting Minutes

March 2, 2011 Page 11 of 15

Mr. Hemsath said the tests ha ve been done at the pilot scale and not done at f ull

- production

scale. He said we are moving from a pilot scale facility to a production scale plant

.

Mr. Sheldon asked if there a phasing in or if this is the jump

. He wondered i f this doesn’t work

what would happen to the equipment

.

Mr. Hemsath replied that it is phased in as the plant begins one train after another. Staff felt that

the entire first season of operation is best classified as a start

- up and commissioning as they work their way through that. With the equipment, it is inten ded to buy used e quipment m ostly

because the drum dryers are already cured . I f the process doesn’t work

, some of the options

would be modify ing financing , amortization, sale of equipment or salvag ing the equipment.

Mr. Sheldon asked about the advanced costs. He stated w e have been discussing what the $450,000 go es to , and asked what the remaining $430,000 is set aside for

. Mr. Schimscheimer said the $880,000 funds include the reimbursement agreement which has already been approved and the money is spent. It also includes all the construction administration that this project would take through the completion of construction

. It includes independent engineering analysis that would need to be done into the future and i t includes the professional services agreement with t hese gentlemen . This is on a time and materials basis that if this project stops at any of its contract termination points, so does the money.

Mr. Sheldon asked if we have people that are experienced in this area on staff, in fisheries, and

these sorts of exa ct projects or if we are relying on the two gentlemen promoting the process.

Mr. Schimscheimer replied by saying AIDEA doesn’t have anyone on staff with any great depth of experience in this field, but we are going to retain experts in the field as AIDEA ’s independent engineering experts, to oversee this project. That’s part of the upfront costs . W hile we have a professional services agreement with two gentlemen that is necessary because they are the holders of the process, we will be watching them with o ur own independent experts.

Mr. Hemsath added there are a number of checks and balances that the scale

- up is confirmed with engineering expertise in the fish processing and fish meal business. These are from the companies that build fish processing plants and looking at the design and seeing if it would

work.

Mr. Sheldon asked about the $1,900,000 of cost of operations for Year 1

. H as operating capital ever been eligible in a development and finance deal?

Ms. Walker said that i n the way the question is b eing phrased

, the strict answer is “ as part of the development project

. ” No . We have never done it. My und erstanding of one of the projects that we worked on, we purchased some preferred stock which allowed for the working capital but it was not part of th e development project. It was a preferred stock investment.

Mr. Leonard asked Mr. Bjorkquist if there is anything in the statutes that state s that you cannot fund operating costs as part of the development project

.

Mr. Bjorkquist replied that it is a com plicated question

. The statute under the particular fund, specifically allows money to be used by AIDEA for various parts of a development finance project, including operating it. He stated that The Economic Development A ccount reads

, “ While money is on de posit in the economic development account, the money may be used only toAIDEA Board Meeting Minutes

March 2, 2011 Page 12 of 15

finance, acquire, manage and operate development projects that the Authority intends to own and operate .” So the account can be used for those purposes, but when you get into the

appr opriation issues, AIDEA’s operating budget is sub ject to appropriation. The capital budget is not, so there is a little twist to it. The other component is, and possible fina ncing for operating

expenses

, is under the loan participation program where the de finition of “ project ” is broader

than the definition of “ project for purposes of development and finance ” and can include business activity. S o it can, statutorily include operating expenses and I believe th e other avenue that authority staff will be looki ng at for purposes of possible financing of that first year operating cost s.

Mr. Sheldon asked to have access to feasibility studies as part of the board’s packet in the

future.

Mr. Felix asked if AIDEA has an obligation to e nsure that there is proper ac counting treatment for those by the receiving entity

.

Mr. Hemsath said yes, but again

, in this specific resolution

, we are looking at $450,000 specifically for proceeding with the front

- end engineering design to the bid phase. The application of some of t he operating capital a nd accounting aspects i s something that we are looking at as part of the completed analysis

.

Mr. Felix asked i f it was appropriate to put some sort of gate or measurement in there in order to get access to that $1.9 million of operat ing costs

. They have to complete it for the money that’s being loaned, otherwise we may set ourselves up for the receiving entity to borrow against that operations fund to complete their project and that is pretty dangerous territory for us to be in.

Mr. Hemsath said yes, that p art of the reason on the initial funds is to provi de an aspect of that gate . I nstead of requesting the full $7 million or $8 million of capital costs, we’re requesting approval for the initial fund at year end so we have a better sc ale or definition on the estimate. Other gates would be appropriate in terms of anything we achieve . E ven though we’ve got a bid to do the project, we could put a gate in relative to capital equipment to make sure that we don’t

have those cost overruns . T h e $1.9 most definitely will be reserve d for those c ommissioning and startup costs as opposed to being used to fund the operating costs.

Commissioner Butcher asked w hat would be the effect of delaying this decision to the next board meeting

.

Mr. Hemsath s aid we would miss the equipment procurement aspect and the majority of the 2012 season, which not only put the processers that are supplying the waste at a certain

amount of risk , but delays the revenue a full calendar year

.

Mr. Hemsath stated that i n two weeks staff can assemble a report that hopefully will bring the board up to the same level of comfort we have, both with the market process and the economics

behind it.

Mr. Arvin stated that farmed fish is illegal in Alaska . Mr. Hemsath explained that th e salmon fish meal specifically is not to a salmon fishery, it is going in to trout. The herring and the fish meal, relative to the hatchery, i s not farming fish , i t is growing fish which then are released into the

wild. T his project doesn’t creat e feed for farmed fish . It is a trout hatchery for the salmon and for the herring that’s produced in the area.AIDEA Board Meeting Minutes

March 2, 2011 Page 13 of 15

Mr. Schimscheimer talked about the independent marketing study that was conducted by an industry expert through our financial advisor . T he results showed that there was quite an extensive market all over the country and world for lots of different products that you could go

to. It is not the intent of SMOG to sell this but t hey have been approached by a lot of different companies that could turn this into p et food for dogs and cats , for cows, and the whole

nutr a ceutical market is very large.

Mr. Hemsath said SMOG would be for a broker who turns the product around to those that wish to buy it.

Mr. Felix said that o ne of the key responsibilities we have as a board is for economic development . I t’s helpful to understa nd market issues and sensitivities relative to the risk of the portfolio, but there is also a very, very fine line between being a developer that understands market risk and being a market maker

, or creating barriers to markets and we’ve got to be

careful as a board not to do that.

MOTION: Mr. Short made a motion to table this resolution until the next AIDEA board meeting in two weeks. Mr. Felix seconded.

Mr. Wilken want ed to get a firm commitmen t from the staff that in two weeks they will be prepared with this information. Mr. Hemsath confirmed

.

A roll call vote was taken and the motion to table the resolution passed unanimously with Mr. Wilken, Mr. Short, Mr. Sheldon, Mr. Arvin, Commissioner Bu tcher, Commission Bell and Mr. Felix voting yea.

8F. AIDEA Investment Policy Update

The final item under New Business is the new insert ed agenda item.

Jeff Panta ges

, the chief investment officer and Chris Brechbuhler

, the portfolio manager from

Alaska Permanent Capital Management along with Kelly Cliff from Callan were present to

continue the discussion started at t he work session on February 23, 2011.

The discu s s ed items were to possibly make a change to the investment policy statement . One option wa s to limit or preclude the investment in GSE’s and talked about how the investment managers felt they would be impacted and how costly or how disruptive that would be to the portfolio to make those changes

.

They discussed the government sponsored agencie s, Freddie and Fannie Mae , and the credit

worthiness of these two agencies

. Hi storically these two agencies have had an implicit guarantee by the government as to supporting their programs, but they have not had an explicit guarantee, and that is why the c redit

- worthiness question has been brought up. Ginn ie Mae is another entity that actually does have an explicit guarantee similar to the US Treasury ’s

.

Other factors were suggested as to leaving sufficient room in the investment policy statement

for the i nvestment managers to continually succeed with investment results, which they have for the authority. Also

, should the GSE’s read that Fannie and Freddie be excluded, maybe Ginn ie

Mae’s would still be included?AIDEA Board Meeting Minutes

March 2, 2011 Page 14 of 15

The board decided they would like to have th e discussed proposed options in front of them at the next meeting and have the experts come with some recommendations

9. DIRECTOR COMMENTS

9A. Director’s Status Report of AIDEA Programs and Projects

Mr. Leonard pointed out the reports o n loan activity a nd delinquency reports, and the project updates in the board packet.

9B. Next regularly scheduled AIDEA Board Meeting is Wed., Apr. 2 0 , 2011

10

. BOARD COMMENTS

Mr. Bjorkquist gave a preliminary report on the question of liability of board members . He

d iscussed this with his colleagues and the view is that immunity from 9.52

- 53 would apply to

board members. He is still looking at that and at the legislative history. If it’s the least bit unclear, he is going to suggest that AIDEA request a formal AG opin ion so th ere will be something in writing.

Mr. Bjorkquist reported that w hat that does is cover state employees

, which can include board

members

, while acting within the scope of employment and covers any type of claim that might be made with the exceptio n of con stitutional violations or statu tory claims which impose liability on an employee. A n example would be the executive branch ethic s act. I f you have a conflict of interest in a financial conflict of interest, y ou can have an obligation to return gain obtained through your office

. Even if th e statute didn’t apply, there’s also the common law which provides qualified immunity for discretionary acts within the scope of authority done in good faith and without malice and corruption. That covers errors in judgment, errors in interpretation of what law applied, basically as long as you’re acting in good faith and not corruptly or with malice, you’re covered at the first step.

T he courts look at what is t he action involved, wha t is the nature and importance of the function,

what i s the likelihood of suits against the employee, and what i s the availability of other

remedies or forums of relief

. T hey look at those three things to determine whether immunity applies or not. W ith the board and it’s conduct, focusi ng on that last one, the availability of other remedies or forums of relief, the board ’ s actions here are decisions of AIDEA and people have the ability to go to court if they disagree with a decision and so, there is an alternative forum of

relief and so therefore, the court would be more likely to grant immunity than less. The nature and importance of the functions, you’re making decisions for AIDEA, important functions, at a board level, that type of thing and the likelihood of suits that should be just discouraged because nobody would volunteer for a board if suits were allowed. Mr. Bjorkquist said he is pretty

comf ortable in saying that there should be immunity for board members in what they are doing, as long as you act in good faith, and you make sure that that’s your mantra as you’re going

forward.

Mr. Bjorkquist said he will have something in writing one way or the other when it comes to a

conclusion

.Alaska Industrial Development and Export Authority

BOARD MEETING MINUTES Thursday, March 31 , 2011 Anchorage and Juneau, Alaska ; Phoenix , Arizona ; Peru; Taiwan

1. CALL TO ORDER

Acting Chairman Mike Felix called t he meeting of the Alaska Industrial Development and Export Authority to order on March 31 , 2011 at 9:35 a .m. A quorum was established.

2. ROLL CALL: BOARD

Members present in Anchorage : Acting Chair Mike Felix (Public Member); Jerry Burnett (Deputy Commissioner, Department of Revenue ) ; and Hugh Short (Public Member)

.

Member par ticipating from Juneau: Susan Bell (Commissioner, Department of Commerce, Community

, and Economic Development)

. Member par ticipating from Taiwan: Ron Arvin (Public Member)

. Member par ticipating from Peru: Robert Sheld on (Public Member)

. Member par ticipating from Arizona: Gary Wilken (Public Member).

3. AGENDA APPROVAL

The agenda was approved as presented.

4. ROLL CALL: STAFF, PUBLIC Staff present in Anchorage: Ted Leonard (Exe cutive Director); Chris Anderson (Deputy Director

Commercial Finance); James Hemsath (Deputy Director

- Development Finance); Karl Reiche (Project Development Manager); Mark Schimscheimer (Project Manager); Karsten Rodvik (External Affairs Project Manager); Sherrie Siverson (Executive Assistant); Sandy Burrows (Administrative Assistant); and Teri Webster (Administrative Assistant).

Others present in Anchorage: James Browning (Alaska Fisheries Development Foundation ); Dennis Fenerty (Groh Eggers); Rob Zuanich (Silver Bay Seafoods); Peter Sti tzel ( S itka Meal Oil & Gelatin ( SMOG); Erik O’Brien ( Southwest Alaska Municipal Conference ( SWAMC ); and Mark

Gard i ner (W estern Financial Group ).

Others attending via conference call : Brian Bjorkquist (Department of Law); Mike Rust ( National Oceanographic & Atmos pheric Association ( NOAA ) Fisheries ); Jeff Backlund (North Pacific Seafoods); Mark Palmer

, John Hanrahan and Jan Koslowsk i (Ocean Beauty Seafoods ); Pete Nicklason and Harold Barnett from (NOAA Fisheries, NW Fisheries Science Center) ; John Lotzg esell (Silve r Bay Seafoods); Ga r r y White (Sitka Economic Development Association ) ; Pete Lanzendorfer ( SMOG) ; Pat Clancy and Kieu

- Oahn Nguyen ( Western Financial Group ); and

John Winther ( former AIDEA Board Chairman )

.

Join ed the meeting in progress: John Woodruff ( Ici cle Fo ods )

.AIDEA Board Meeting Minutes

March 31, 2011 Page 2

Listen to the full audio recording of the 3/31 /2011 meeting at http://www.aidea.org/boardmin.html

5. PUBLIC COMMENTS

Gar r y White

, Sitka Economic Development Association

Mr. White expresse d his full support for th e Sitka Fish Waste Processing Plant P roject (SFWPP)

and stated the community of Sitka is also fully behind th e project . He said the C ity and Borough

Co u ncil passed a resolution to sell a portion of an industrial park to AIDEA to fu lfill th e plan to

process fish waste. F ish waste in the community has become a real issue due to the proximity of the airport . With t wo major fish processors in the community, the FAA and the DOT &PF ha ve started coming down on Sitka because it has more air plane bird strikes than any other airport in

Southeast Alaska. A dditionally , they are getting some pressure from the DEC and the EPA on

fish w aste discharge

. Sitka is a large fishing community and an environmentally conscious community . T he town would like to keep fish waste out of the channel and see the fish fully

utilized in usable product s

.

Mark Palmer, Ocean Beauty Seafoods

Ocean Beauty Seafoods is a large process or in Alaska and is part owner of a fishmeal plant on

Kodiak Island. Mr. Palmer has seen positive effects of being able to utilize fish waste

. This is a

year

- round facility so the y have the ability to supply th e plant on an ongoing basis which makes

the economics work

. It is a challenge in other parts of the state that primarily operate

seaso nally, but they have six other facilities accomplishing the same thing being done in Kodiak.

T his project is a chance to collaborate with other communities and other processors to find

utili zation for the waste stream and to meet EPA requirements . It also bring s value to th e waste

stream that is currently being ground up and discarded. St eps have to be taken toward this. If

th e project works, i t c a n be a model for other areas, like Bristol Bay, and for other locations that have plants

. Mr. Palmer think s the re would be willing participants among his competitors

. I t is important th is technology is tested and proven

.

James Browning, Alaska Fisheries Development Foundation (AFDF)

AFDF has been around 33 years . They started in 1978 after the passage of the Magn uson

Stevens Fisher y Conservation and Management Act and were formed to build infrastructure for the commercial fishing industry. They brought Surimi Technology t o the Alaska and built the first

Surimi shor e plan t in Kodiak with Saltonstall

- Kennedy Funds. T hey co nt r ac t ed with Be e chnut and Ocean Beauty to make the first wild Alaska salmon baby food on the market. A variety of grant funding for promising technologies has been done. AFDF became aware of S MOG and the Montlake Mining Process in 2007 and funded a pproximately $ 200,000 demonstration scale project for the technology. As a result of that, approximately eighteen major processors came to

observe the technology and were impressed. Since then, they have supported the technology

. Mr. Browning stated that i n Sitka meetings

, many people were nodding their heads in agreement regarding the need for a plant like this. T here may be some folks in the industry who have salmon oil plants and they may not want the competition. However, he point ed out that this

techno logy is using the entire waste stream and therefore, comes closer to full utilization of what

is harvest ed from the ocean. This technology can bring a value

- added industry to many other parts of the state . T here are other p l a n ts aware of the technology who are watching but do not

want to be the first to build the plant. Mr. Browning feels there will be spin

- off benefit to other areas of the state from this project.AIDEA Board Meeting Minutes

March 31, 2011 Page 3

Mike Rust, NOAA Fisheries

Mr. Rust said his laboratory co

- developed the Montlake Process wi th this group and sa id that

this is an issue beyond Alaska

. Fish w aste i s a national issue. There are areas in the Pacific

Islands

, east coast, west coast, and Gulf coast that all produce small amounts of trimming waste and this process has a lot of univer sal application. NOAA and the nation are watching and Alaska is a great place for it to start.

Rob Zuanich, Silver Bay Seafoods

Mr. Zuanich is a managing member of Silver Bay Seafoods. They are located in Sitka at the sawmill industrial park where this s ite would be located. Silver Bay Seafoods is a relative ly new company started in 2007

. After rejection from other lenders, in 2007 AIDEA made a $2 million

dollar loan out of a $7 million dollar project

. Mr. Zuanich t hank ed AIDEA profusely . The loan was

rep aid in nineteen months. He said they fully embrace full utilization of salmon and herring. This year h is plant will process approximately 70 to 80 million pounds of salmon and herring, so

waste is an issue.

Silver Bay Seafoods may apply for additional fun ding from AIDEA in the future. Mr. Zuanich said competition is great and they would welcome a neighbor . However, he asked that they not be preclude d from a potential loan application because AIDEA m ay be part of a business utilizing

this model.

Mr. Wilken noted Silver Bay was not one of the processors who signed up to use the new

facilities . He asked Mr. Zuanich to expand on why they are not a signatory or are not going to be a supplier to the new plant

. Mr. Zuanich said t he y look ed at the plan

, the supply agreements,

and the possible bonus awards under the program

. They currently have contracts to sell large

volumes of waste . They grind and freeze at 40 times what a profit bonus and supply agreement would provide and from a pro fitability standpoint, it did not make sense.

Mr. Wilken said Silver Bay is a beneficiary of the deep water outfall and use s nothing from the City of Sitka

. He asked Mr. Zuanich to confirm they c an do it themselves and make 40 times the profit on the products as opposed to running it through the new plant

. Mr. Zuanich said i t is a bit

of an overstatement. He know s there is a supply agreement and pot ential bonus payment starting the third yea r. He felt that from the economic well

- being of Silver Bay Seafoods, the

waste ha s much higher value than what they would receive under the supply agreement.

Mr. Felix said Silver Bay Seafoods is supplying fish waste to another company. Mr. Wilken

asked if th e other company is based in Alaska . At the request of the board, Mr. Zuanich explained thei r process. He said the fish waste is frozen and transported in container vans to

the Lower 48 . They expect to freeze 1.8 million pounds of finished product a day. Silver Bay has

a new large facility in Craig, Alaska and opened a plant in Valdez, Alaska las t summe r, but Sitka

is their main hub. Silver Bay is the largest herring and salmon harvester in the southeast. T he economics of doing business there is solid and may expand to Craig.

Mr. Felix asked Mr. Zuanich what share of the market they have as a pro cessor

. Mr. Zuanich

said h erring is 40

- 45% and s almon 30

- 32%.AIDEA Board Meeting Minutes

March 31, 2011 Page 4

Eric O’Brien, South West Alaska Municipal Conference (SWAMC)

Mr. O’Br i en introduced himself as an advocate for an expanded business environment

. He said this sounds like an interesting project and he is just he re to learn about it.

John Winther, Former AIDEA Board Member

Mr. Winther support s this project because it is very much needed

. F ish waste and processing

are thing s of the future but he feels very uncomfortable to have AIDEA assume all of the risk and own the plant

. He would like the principal s to also invest in it.

6

. OLD BUSINESS

Resolution No. G11

- 06 Sitka Fish Waste Processing Plant

Mr. Stitzel gave a PowerPoint presentation on the proposed Sitka Fish Waste Processing Plant.

In his presentation he said 450,000 tons of fish waste is available in Alaska which is equivalent

to a billion pounds. There are standard fishmeal plants in Kodiak , Sand Point, King Cove and

Dutch Harbor . T here are two hydrolysate plants, one in Cordova and o ne in Ketchikan. Hydrolysate is a liquid fertilizer.

Mr. Sh ort asked what s tandard fishmeal plants do

. Mr. Stitzel said s tandard fishmeal processing involves grinding up and cooking fishmeal. D ecanter s spin off the w ater and oil

, similar to making soup

. O il float ing on the surface is sp un off, clarif ied, and dried in roto

- disk dryer s

. T his process has been around for 100 years. T he oil typically ends up in aqua

- feeds because it i s not
food

- grade

.

Cordova and Ketchikan plants make food

- grade oil. They set aside $1.5 million dollars in their budget for c ollection of heads and guts which can’t touch the floor

. Salmon oil is very special

because i t contains astaxanthin, a powerful antioxidant , which c an go directly into capsules , b ut

it has to be made in a fo od

- grade manner.

Mr. Stitzel said t he biggest problem is that approximately 450,000 pounds of waste each day is produced in a 50

- day period , so building a five

- million dollar plant is not economical. Three

solutions are required to make this economical

. 1. N eed to find a way to stabilize the material without refrigeration.

2. Need to make sure that the finished production was a higher value than standard.

3. Need to find an economical way to ship the feedstock to a central processing facility.

To stabilize the mat erial without refrigeration, t h e y drop the PH down to around four

, to not destroy the protein. It is a very delicate balance

. Mr. Stitzel circulated a jar of stabilized fish

waste that was at least three weeks old. There was no smell or off

- flavor. To achi eve a higher

valued product they use a different dryer. Drum dryers are used for approximately twenty seconds to dry. The protein is in much better shape after it is dr ied so the flavor is much better

. F ish oil for industrial grade crude oil can be sold at sixty cents a pound. P et

- food grade oil can

sell

, if it’s not in food

- grade

, for eighty cents a pound . If i t is sold to companies that capsulize it,

it can sell for approximately three to four dollars a pound. T he only way to get into th is market is

to co llect and produce it in a food

- grade manner.

Mr. Short asked if those are molecularl y distilled. Mr. Stitzel replied n o

, they are not and t hat is what makes wild salmon oil so special. It has to be clarif ied to get the water content to a half

-AIDEA Board Meeting Minutes

March 31, 2011 Page 5

percent in o rder to put in the capsules. They add rosemary extract to keep it stable

, but the

astaxanthin keeps it stable.

Mr. Short asked what FDA testing is required. Mr. Stitzel said th is is called a food supplement. The food supplement world is unregulated. If it is not a food or a drug

, then it is a food supplement and there are fewer regulations.

Mr. Schimscheimer remind ed the board that the product produced by the fish plant is wholesale,

not retail. They will not be producing capsules or jars.

In response to Mr. Short ’ s question about liability, Mr. Stitzel said they will have product liability

insurance and it is part of the user agreement

. I t is the responsibility of the company that purchases the fish waste to meet FDA regulations if they plan to add value by putting it in capsules and pet foods. SFWPP produces industrial ingredients which other companies purchase

.

Another part to the high

- value product is mak ing a chondroitin

- rich gelatin. It is made from cartilage

- rich snouts vs. bovine tracheas. He expl ained production and said the plant would produce stabilized fish wast e, fish meal, and fish oil and gelatin. This product was tested in eight

states with ten different fish: White S ea B ass in California : R ed D rum in Texas ; Pampano in

Florida ; C obia in Vir ginia ; Rainbow T rout in Idaho ; MOI, Steelhead and Domsea Coho in

Montana ; and Kampachi in Hawaii. Mr. Stitzel explained how the gelatin is made and showed the design of the plant, equipment used, and volume the plant would produce. He said six

million poun ds will come from Sitka

, ten

- million from Petersburg and Excursion Inlet

, five

- million

from Juneau

, seven

- million from Wrangell and another five

- million from P etersburg i s available

. The plant will have the capacity and the ability to process th ese amount s

.

Mr. Felix asked where the fish waste presently go es

. Mr. Stitzel said they are grinding and discharging it

. In the future, the EPA may not allow J uneau or Petersburg to grind and discharge

in to the wate r. These cities will then be required to barge and discharge. Each one of th e companies is facing the same issue as the entire industry , which is, what to do with the fish

waste.

Mr. Leonard said it costs Juneau processors approximately $ 90 ,000 to $ 100 ,000 a year to barge and discharge the fish

. Mr. Stitz el said this translates into five to ten cents a pound

. Freezing fish waste makes sense for only a few processors

, like Silver Bay

.

Mr. Stitzel said the standing offer Mr. Zuanich referred to has changed . A ll of the processors will get the same deal. 50% of the cash flow goes back to the suppliers on a pro

- rata basis. Mr. Erik

O’Brien asked w hat return they estimate for th e waste product compared to the five cents a pound it costs Juneau to discard it. M r. Sti t zel said ap proximately five cents a pound.

M r. Stitzel discussed costs of ship ping the feedstock using a specially designed twenty

- foot van. The biggest cost is load ing a container on the barge

. T he leasing cost of the container and the shipping cost come to approximately three

- and

- a

- half cents a po und. They go from the plant in Petersburg, on the barge, out to Sitka, back on a chassis, out to the plant and then they take that empty and return it back to Petersburg, all for three

- and

- a

- half cents a pound. That is probably one of the most significant developments of this whole process

, the logistics which Ocean Beauty contributed a lot of.AIDEA Board Meeting Minutes

March 31, 2011 Page 6

The annual fish meal production over the last twenty years has been six to seven m illion. The worldwide demand keeps increasing for fish meal. Yet pet food markets , the pig markets, the carp, all of these industries are demanding more and more fish meal. Fish meal is a very special protein. It’s got a very unique amino acid profile that will grow animals faster than any other protein, whether it’s meat and bone meal , soy meal, corn gluten meal, or feather meal

. It is the highest order protein they can buy.

The fishmeal market is 1300 tons. The people that produce the wild salmon meal se ll most of

their product direct ly to Mars and Purina

. Mars is the largest pet fo od company on the planet

. They feed 500 million dogs and cats a day. Nestle

- Purina buy s both dry and frozen . The f rozen product is the market that Silver Bay is going into . This plant will be making the dry. This can be

sold directly to these large compan ies or to a very large feed and meal trader

. This will be done

in food

- grade manner and would sell directly to people rather than to an animal someday

.

Fish oil is the other market and it’s also fixed. It can sell for sixty cents if in crude

, and the

aqu aculture market buys it for sixty cents. Pet food grade is approximately 80 cents. The human

nutra c euticals sell for approximately $3 dollars a pound to a giant clearing house, the J

. Edwards Company , and then they do the bottling or the capsulate for thes e companies. There is a hug fish oil shortage looming. E very doctor says to either eat more fish or take fish oil capsules

. Twenty

- thousand tons of fish oil was sold in the human grade in 2001. In 2009 that

increased to 90,000 tons. Five hundred tons of wi ld salmon oil is now sold.

Mr. Short asked what price he u sed for their 2011 and 2012 income statement

. Mr. Stitzel replied t he price is approximately $1.50 a pound. Mr. Short then asked if they are going to sell a

blend between nutra c eutical and pet food grade

. Mr. S titzel said that it will all go nutra c eutical.

Mr. Hemsath added that t he pro

- form a used w as based upon a range of twenty projected market prices for the fish meal, the oil, and the gelatin . They would all use the low range. The

salmon oil fo r the low range was $4,000 a metric ton and $1150 per metric ton for non

- salmon

oil. The bottom range price was used on what the market was in October and the market has

firmed since then.

Mr. Felix asked h ow large this market is. Mr. Hemsath replied he d o esn ’t know about the

nutraceutical market but the fish meal and fish oil market is approximately nine billion pounds a year of which this facility is going to produce probably less than three million pounds a year.

Mr. S t itzel added that salmon oil i s a very niche market. Mr. Short said that it is very important to the business plan then

, so if you don’t have one of those three products you’re toast

. Mr. Stitzel replied no

. I f he c ould not sell this for $1.50 a pound, he would blend it back into the fish meal.

It is worth

. 85 to . 90 cents there.

Mr. Short quoted from the Tony Bimbo document s on page 80 “In order to penetrate the

nutraceutical market it will be necessary

, at a minimum

, to meet the voluntary monograph specifications for fish oils as shown below.” This consultant said

, at a minimum, these requirements need to be met on dioxins, PCBs, lead, cadmium, mercury, arsenic etc. Mr. Short

asked h ow these requirements are being met

.

A discussion ensued about what tests are done and how often. Mr. St itzel said the testing is minimal because tests were directed toward the Europeans where much of the fish that are caught are contaminated. Being in the Northern Pacific vs. the North Atlantic

, there is no industry that contaminates the fish. Very few of t he seafood companies, whether they are inAIDEA Board Meeting Minutes

March 31, 2011 Page 7

food

- grade or animal pet foods actually do those tests. In the twenty years of being in fish meal production he stated he never went through a PCB or a dioxin test. However, it is the buyer’s responsibility, the J

. Edwards and such, to test the incoming product of all they buy. Mr.

Hemsath said the pro

- forma has a line item on quality control, so there is an accounting for having bodies on hand to do the testing. As they go through th e next phase, those requirements

will be better determined.

Mr. Short wanted to highlight the importance of this point . I f AIDEA is going to get into the business of operating a SMOG plant and there is not a good understanding of the quality control and the necessary requirements of the wholesale market, and there are no clear answer to that question , then it is a problem. There are s erious liability questions when selling something that is humanly consumed. AIDEA will have a liability on the books at that point until AIDEA can own an LL C . T his is a new era of investment and the board has to be very careful to not expos e AIDEA to some sort of liability.

Mr. Leonard said that i n the final due diligence report and plan, those questions will b e answered.

Mr. Stitzel continue d his presentat ion with t he chondroitin sul f ate gelatin market

. A company in Sioux Falls, South Dakota take s approximately 100,000 pounds of bovine tracheas a day. They

start at 1% pure and the n extract the sugar. It is a carbohydrate, a sugar, and they produce it to

90% purity and then sell it to companies like Alfa Chem or AHD International. This plant w ill not

need to purify it because it can be sold directly to the pet food market at 6% pure chondroitin

sul f ate which is excellent for pet joint health.

The average p rofit of a fish company is ten cents a pound on a good season selling wet fish

. Th e SMOG plant cost is approximately twenty

- one cents because it is a dry product plus the fish

cost is zero . Once AIDEA is paid

, the processors and the sponsors will share in the profit. The processors will receive 50% and Mr. Stitzel and his partner will each get 25%. T his structure is open to any processors.

T he biggest risk of running a fish plant is pay ing too much . For this plant, the tender cost is what needs to be kept low. An option is to charge a tipping fee or a few cents to process if that becomes necessary. There is approximately an eleven to fifteen cent cost to goods sold. Any

other additional material from Juneau pre

- deferred or Wrangell will have zero overhead to it and

so the profit would be approximately ten cents. O nce AIDEA is taken care of, it should be

a round five cents a pound. This plant would only have three suppliers and they service over 950 fisherman. This plant ’ s season is longer at 90 days vs. a no rmal seafood company at 60 days because of storing the product.

Mr. Wilken asked about the EPA ’s demands and their influence into this. Is there anything official or is this just conversation from them? Mr. Sti t zel said there is nothing official yet. The EPA goes through this threatening stage. They do an economic impact study and ask questions about costs to barge material etc. Then they take public comment. They might have their new rule in place either this fall or next year. Mr. Wilken asked i s this b eing held out of the northwest

EPA or the EPA out of Washington, DC

. Mr. Stitzel said t he DEC has primacy to take care of all these regulations but the EPA doesn’t trust them, so the EPA out of DC is doing this. Mr. Wilken

asked if it was in conjunction wi th DEC or in place of them

. Mr. Stitzel replied he would say in place of them. Mr. Wilken asked e ven though we have primacy? Mr. Stitzel said I guess that doesn’t mean primacy, does it?AIDEA Board Meeting Minutes

March 31, 2011 Page 8

Mr. Wilken asked w hen this effort beg a n. Has this been ongoing for ye ars ? Mr. Stitzel said i t

start ed over thirty years ago with Senator Stevens

. With the clean water act in ’76, it forced all of lower forty

- eight plants to deal with their fish waste, but A l aska

, through Senator Stevens

, got a pass. Since that time plants h ave been built here

. The challenge now is short seasons. Mr.

Wilken asked if this current effort

, on behalf of the EPA

, is just a continuation or a maturation of

what’s occurred over the last decade

. Mr. Stitze l said this has been going on for the last thr ee decades and he would not call it maturation. AFDF sponsored a conference for the entire industry. All of the industry sat down with the EPA and the DEC earl ier this summer and filled

them in. Mr. Wilken asked that someone find the date of when the EPA i s expect ed to make a decision

.

Mr. Sheldon read from a document dated March 18, titled “Frequently Asked Questions” created by project sponsor Peter Stitzel, in section 2 under the heading “Winners and Losers” “We have

received word that Ar c tic Paws of Anchorage and Alaska Protein Recovery have identified themselves as Alaskan companies that may be hurt by this facility.” This concerned him as he

has a small, less than 1% of his net worth, position in Arctic Paws . I f this assertion o f fact were
true, he feels he should potentially recuse him self from the rest of this process. He contacted

Arctic Paws executives for confirmation. They denied that they would be harmed by SMOG, and they never identified themselves to anyone that they would be harmed

. He is d isappointed in this inaccuracy that was left unchecked by staff , and if it were not checked by him, it ma y have

led him to remove him self from this process, thus denying th e board one of its member’s votes, and the public of his opinion. He asked Mr. Stitz el, to explain who told him or what

documentation he received to substantiate that Arctic Paws might be impaired due to the SMOG LLC and just might cause a collateral effective removal of a director from this process.

Mr. Stitzel replied that at the last board meeting of March 2

, Mr. Sheldon brought up Arctic

Paws

. Mr. Stitzel was not aware that Mr. Sheldon owned a piece of that company , b ut said that

Mr. Sheldon mention ed Arctic Paws and felt that, in Mr. Tetzel’s interpretation

, this company

may be threa ten ed at some point. Mr. Sheldon said that was incorrect. He didn’t say such a thing and was merely disclosing his interest at that point in time. He was very disturbed, that in a formal tract of frequently asked questions, this showed up as an assertion t hat “you have

received word .” In the future, h e would like cit ations

.

Mr. Leonard said to Mr. Sheldon that it was not posted to the general public and are not using the sponsor’s statement in any of the preliminary analysis. It was not based in the anal ysis. I t

was a sponsor’s view only

. Mr. Sheldon s tated that i f this authority is going to be an owner of something of which AIDEA ha s complete liability, the board cannot merely take these people at

their word

.

Mr. Sheldon asked Mr. Stitzel to describe h ow this sixty year old process is some sort of a technological advance. Mr. Stitzel said there are three of them. O ne is that if you stabilize fish waste the way they do in Europe, they add approximately 3 to 4% chemical. His company adds approximately 1% as to not destroy the protein. They destroy the protein but it is okay because

it ends up in pig feed. No one adds that little amount of chemical like th e y do and then still dries

it. The second is the way they extract that Chondroitin

- rich g elatin out o f the salmon head. No

one does that. Th ird

, they process it on drum dryers

.

Mr. Sheldon asked if staff approach ed the Alaska Fisheries Development Foundation as a group for their participation in this project

. Mr. Hemsath gave background of what Mr. Shel don was referring to. T he AFDF asked

, by letter, for twenty seafood processors to meet with themAIDEA Board Meeting Minutes

March 31, 2011 Page 9

for a demonstration which generated a great deal of interest. The question being, why AFDF is not participating in an equity position ?

Mr. Browning

, who was t he author of that letter , was present a nd replied. He said t his technology was unique because of the preservation of protein and the cessation of bacterial vital action, therefore allowing the product to be stabilized and stored. That capability was a majo r point because of the storage and transportation cost issues associated with remote,

western Alaska communities. He noted the technology is definitely unique . T here was a great deal of interest generated by the processors signing up for an appointment and coming to Montlake lab to see this process and there is current ly interest on the part of the processors to see this technology move forward. They have various reasons why they have not had their checkbook out at this point. They want to see it work. He c hose not to spe ak about why the
processors are not initiating investment in plant building, but stated this process has a lot of support from industry and said AIDEA can address the question to them.

Mr

. Palmer from Ocean Beauty Seafoods said there is a m arket value for waste. There is a current market for frozen in the pet food, and a market for oil. He does not see how the board

can consider the waste stream that they have committed to for the next five years to have no

value. There is a value that they are committing their waste streams as processors to this

venture

, where they will get no return on it until AIDEA has gotten their return. They do not get a

penny. AIDEA is first in lin e for the value of their waste stream and that is a serious commitment

on their part. He also committed to support quality control with an extensive quality control staff, as well as many of the other two processors. In Sitka he will assist in the quality assurance and product specifications that were talked about earlier and they have already invested in the logistics support of this operation and design of those containers. They have a lot of expertise

that they bring to the table, and if this were a grant, an in

- kind match or anything else, this would

be consider ed an inves tment.

Mr. Felix said no one suggest ed there was no value. T he question was if there was value, why

ha ven’t other people sign ed on for an equity position.

Mr. Sheldon asked staff why they did not address his questions in previous meetings about the $ 1.9 million dollars in the next , non

- traditional and non

- conventional financing process that he

asked them to do. He want ed to know w hy his questions were not addressed

. Mr. Leonard

stated he was planning on covering this in his presentation

. The 1.9 is ident ified on how that will

be funded. It will be funded through a loan

- participation for the working capital. He will cover that

in his presentation and preliminary due diligence.

Mr. Short directed a question to Mr. Palmer. Y ou mentioned the waste stream for three years and the quality assurance, and the quality control you’re going to provide. If you were going to put a value on that or an opportunity cost for entering into this venture, what would that value

be? Mr. Palmer said t he value depends on where it can be ship ped from and the logistics. For

the pe t food industry and what they are willing to pay, a nickel return is possible , as w as referred to earlier for the frozen market. But if that facility is in a remote part of Alaska, that could be a negative return just from the logistics alone. I f something is approximate to the highway system, and the waste stream, it’s somewhere between two and five cents a pound, depending on how close you are to the market. T here is a financial value to that . As far as qu ality control support,

he said he would have to get back to the board to give some kind of an hourly rate of what those

services could be contracted out. He ha s not thought that through specifically, but is putting his

financial where

- with

- all toward the s upport and future success of this. It is important to him

. H e do es n’t want to see a failure either.AIDEA Board Meeting Minutes

March 31, 2011 Page 10

Mr. Short s tated we are talking about Sitka and about the fish that would be put through this plant . I n simple math, it is what is the cost of doing someth ing else with this fish versus entering

into this agreement

, times the pounds over an average of the past three years

. T hat would be

the value

. I f the value of the quality assurance and the consulting is added in , it seems easy enough to get a number and t he board would be interested in getting that. Mr. Short ask ed Mr. Palmer to clarify his statement of “don’t discard that” regarding value. He asked him how he

monetize s that. If this is a grant application with in

- kind support, what is the value that is

co mmitting to the project? Mr. Short asked that those answers be provide d to the AIDEA board

as a document so they are able to review it to help with making a decision. Mr. Palmer replied

that t here is a very established market on the frozen fish waste for p et food and he can do that.

Mr. Sheldon asked Mr. Zuanich fr om Silver Bay Seafoods for his opinion of what a project of this magnitude would cost him if he put it together

. Mr. Zuanich replied they are looking at variations

and their project would be more expansive than this project due to the variations

. T he $9 million

dollar request is very sizable and he sees this as a $7 million dollar project. The notion of a $1.9 million in operating costs surely would not be part of any loan application he makes. Mr

. Sheldon thanked him and said he is looking forward to getting the request from his company in

the future.

Deputy Commissioner Burnett move d that Resolution No. G11

- 06 be opened for

discussion. Mr. Short s econded

.

A previous statement was made that UD SA was not able to participate because of the non

- profit requirement of the program. Mr. Short said the USDA’s B usiness and I ndustry P rogram (B&I) allows “for profits” to get loans and loan guarantees up to 90%

. He asked if th e option to utilize

the USDA B &I program for a loan guarantee was made available

. Mr. Hemsath said Dean

Stewart from USDA brought the project to AIDEA and said, “ W e are unable to fund this project and we think this would be a good project for AIDEA’s consideration

. ” He asked Mr. Stewar t if there were any USDA programs that could partner with AIDEA or fund the entire project , and

the answer was “no

. ” Mr. Short said USDA probably could not partner with AIDEA, but was certain there is a way for AIDEA to provide a loan guarantee. The challe nge is , USDA requires 20% equity . T he 20% equity may not have been available which is why it wasn’t considered by

the USDA.

Mr. Leonard reviewed R esolution No. G11

- 06 . Staff is requesting $450 ,000 to complete final due diligence to determine estimated pro ject costs.

Mr. Felix said that if AIDE A does not do this project , the l ikelihood of recover ing the $450 ,000 is

zero. Mr. Leonard s aid staff can show why they believe th is is a risk

- assessed investment and

should move forward. Mr. Leonard confirmed that A IDEA will own 100% of the project and

SMOG will operate it. This is the same type of development project AIDEA has done in the past, Skagway Ore Terminal, DeLong Mountain Transportation System (road and port at the Red Dog mine) and the Federal Express Mai ntenance Hang a r.

In response to Mr. Arvin’s question about who owns the R esearch and Development process, Mr. Hemsath said there is no monetized property that is either patented or has a copy write and

this wa s developed through a grant from AFDF to find a specific solution . T he Montlake M ining

process was created using existing technology in a unique way and SMOG developed a business plan for AIDEA to commercialize th e process. A s AIDEA go es through the design

, build and completion phase

, they will own th e operating process and procedures

.AIDEA Board Meeting Minutes

March 31, 2011 Page 11

Mark Gard i ner with Western Financial Group said AIDEA’s strategic plan is to aggressively

pursue a development finance program and look for opportunities in targeted industries and regions of the state with a focus on t rade sector industries. T his project is at a very early stage

but meet s th e criteria

. T he development finance program ’s target is to increase by $50 million

per year

.

Mr. Short feels it is premature to s pend $250,000 on bid solicitation packages, bid resp onses, and permitting

. Mr. Hemsath said t he largest risk in this project is capital risk

. AIDEA has been working with preliminary numbers and contingenc ies to determine what makes economic sense. The en gineering stage w ill define the plant design and cost estimate s

. I nformation will be gathered to answer B oard member’s questions regarding quality issues

. AIDEA ’s br eak point to

make a decision will be when approximately $270 ,000

- $ 300,000 has been expended.

Mr. Feli x said the problem he has with this proposa l is that AIDEA is the only entity that has equity ; if it is such a good deal, why does n’t anyone else ha ve an equity stake

, least of all the

owners ? AIDEA is taking all the risk and the owners a re getting all the reward

. Mr. Short asked

if c redit checks a nd financial background checks were done on the operators

. Mr. Hemsath said

no, this project is not very different from the Skagway Ore Terminal

. The difference is the Sherwood Mining Company had significantly more collateral tha n SMOG does.

Mr. Leonard said staff believes there are certain development authority projects, different from

those found in an investment bank, which would commercialize the technology or bring a value

added product to the Alaska economy worth the investment. I t is not based on w hether or not

there is an equity person in volved. It is based on the four factors mentioned in the suitability
report . This development is important enough for the economy of Alaska and its trade sector to go forward with the request to the B oard to fund t he project.

Deputy Commissioner Burnett asked about the commitment of the raw materials to this plant

, “Will there be a long term supply contract ? ” Mr. Hemsath said a ten

- year supply agreement for 100% of the waste product from each of these facilities is included

.

B ased on the presentation , on Mr. Wint h er’s expression of discomfort with regard to risk

, on his belief that this is not new technology , and because zero capital is being provided and zero liability is being assumed by the project sponsor , Mr. Sheldon said he would be unwilling to vote in favor of the resolution at this point.

Mr. Short would be willing to v ote affirmative if industry and the operators contributed 10% of the $450,000 or 10% of the construction costs as a good

- will gesture

. It i s not unreasonable to ask

for $700,000 out of a $7 million project and hoped t here would be some willingness to step up to the plate. Mr. Short would not vote for th is resolution unless there were additional requirements or an equity injunction.

Commissio ner Bell is interested in looking at th e next tier and adding la nguage allowing the

board to explore Mr. Shor t’s suggestions

.

Deputy Commissioner Burnett expressed concern about the lack of equity and does not think all

the work has been completed . He wo uld like to go forward but not ex pend the entire $450,000 at this point.From: "Peter Stitzel" <peterstitzel@speakeasy.net>

To: <Anderson.Donaldf@epamail.epa.gov>

CC: <Betsy.Bicknell@erg.com>, "'Pete Nicklason'" <zoomfish@earthlink.net>

Date: 5/26/2011 12:13 PM Subject: Project on Hold

Attachments: PWS & SE Waste may 19, 2011.ppt

Potential suppliers have since demanded a price for their fish waste which makes my process uneconomical. These suppliers represent communities that are designated both remote and non

- remote. It is clear to me that the

in dustry feels they have the political power to keep the EPA at bay, (as it has since the 1980's grand waiver from the Clean Water Act). So unless the Alaskan Seafood Industry is facing clear direction from the EPA, they will not simply "give" me their wast e. I can say that the processors from the

non

- remote communities are the most belligerent.

Attached is a map of the waste which 90% of the waste all be processed in 2 centrally located plants, one in Sitka and the other in Whittier. Note: the

Whittie r facility can take all the Valdez and Cordova product because it is where the Prince William Sound shipping lines all stop off before heading south. This facility can handle all of the Kenai Peninsula product as well, and interestingly enough, it costs a bout 30% more to truck in the product from say Homer than it does to barge the product from Valdez, even though

Homer is much closer.

These plants have blueprints, the land identified, the markets are ready and the cash raised to build the plants. Howev er the only thing missing from keeping 100 million lbs of annual waste out of the waterway is a mandate from the EPA. I don't see how the industry can reconcile their complaint that the cost of compliance is too high while at the same time insisting that their waste is more valuable than my business plan can afford.

PeterBoard of Directors

March 2, 2011 Page 2

attorneys to accomplish all steps necessary for s taff to bring the Project back to the Board for

final consi deration. If either party terminates the User Agreement and Project, SMOG is obligated to reimburse AIDEA’s expenditures.

Impact of Project :

This value

- added Process will enhance the current fishing business in Sitka while creating a new product that can be marketed. Additionally, fish processors are faced with pressure from the EPA and FAA to find an alternative to the current practice of discharging fish waste into the bay at Sitka. The fish waste attracts birds into the Sitka airport flight path and th e waste concentration presents an environmental concern related to the bay. T h is Project will not create significant direct employment but it will confer other immeasurable benefits on the Southeast Alaska fishing industry, addressing regulatory and practi cal problems of disposing of fish waste and polluting Alaska waters, and potentially turning a liability into a profitable asset, all as evidenced by the significant amount of indust ry support for this Project. T he Authority’s Staff has received expression s of support for the SFWPP Project from :

Alaska Fisheries Development Foundation, Inc., by letter dated December 1,
2010;

Icicle Seafoods, Inc., by letter dated February 10, 2011;

Ocean Beauty Seafoods, LLC, by letter dated January 4, 2011; and

N orth Pa cific Seafoods, by letter dated January 10, 2011

.
C opies of these Letters of Support are attached

.

Estimated Cost :

Staff estimate s the following rough costs to pursue development of this Project to completion :

Advanced Costs (including $4 50 ,000 for Engine ering, consultations and legal effort in connection with preparation of the C onceptual D esign R eport , the Bid Solicitation and Bid Review and negotiation and preparation of other contracts) $ 880,000

Building $ 610,000

Equipment $3,300,000

Off

- Site Equipment $1,200,000

Sub

- Total $5,990,000

Contingency (20%) $1,200,000

Capital Costs (CAPEX) $7,190,000

Cost of Operations Year 1 $1,900,000

TOTAL $9,090,000Board of Directors

March 2, 2011 Page 3

Current Status:

SMOG h as agreed to the terms of the User Agreement by letter dated Februa ry 17, 2011, and has agreed in this letter to execute the User Agreement upon Board approval

of Resolution G11

- 06

. SMOG has already entered into contracts with two suppliers of raw materials and a memorandum of understanding with a third, and has initiated negotiatio ns for acquisition

of a site.

Feasibility activities to date have shown that this project warrants continued AIDEA participation

.

Next Steps (authorized by Resolution G11

- 06):

Execute User Agreement with SMOG

. Complete negotiations, and execute , with SMOG a Professional Services Agreement on a “time and materials” basis to capture SMOG’s expertise to assist AIDEA and the engineers in preparing the Conceptual Design Report and the Bid Solicitation.

Pursue necessary procurement waivers

. Seek commu nity review and advice from the City and Borough of Sitka under AS 44.88.177. (The City and Borough has already passed a Motion supporting a sale of land to the Authority for this Project.)

Staff to prepare a Finance Plan under AS 44.88.173

Negotiate a lan d purchase agreement with the City and Borough of Sitka

. Engage counsel to assist in contract negotiation and drafting

. Engage engineers to prepare the Conceptual Design Report and Bid Solicitation

. Staff expects to bring this Project to the Board for full funding in the second quarter of 2011 if the Project still merits the Authority’s participation

.

Staff recommends approval of Resolution No. G11

- 06

.Resolution No. G11

- 06 Page 1 ALASKA INDUSTRIAL DEVELOPMENT AND EXPORT AUTHORITY

RESOLUTION NO. G11

- 06

RESOLUTION OF THE ALASKA INDUSTRIAL DEVELOPMENT AND

EXPORT AUTHORITY RELATING TO THE APPROVAL OF INITIAL FUNDS

FOR DEVELOPMENT OF THE SITKA FISH WASTE PROCESSING PLANT

AND ENGAGEMEN T OF SMOG, LLC AS USER

WHEREAS, SMOG has developed a process (the “ Process ”) for processing fish waste

produced by seafood processors in Alaska and turning it into a consumable end

- product for pet

foods and other animal and human nutritional consumption purposes (the “ End Product ”) that

can be sold to third partie s who make such consumables;

WHEREAS, SMOG LLC (“ SMOG ”) previously requested that the Alaska Industrial

Development and Export Authority (the “Authority”) finance and own under AS 44.88.172 et

.

s eq . a proposed processing plant in Sitka, Alaska, to convert discarded fish waste into very high

quality proteins for aquaculture and animal feed, which project is known as the “Sitka Fish

Waste Process Plant Project” (“ SFWPP ” or the “ Project ” );

WHEREAS, the Board previously approved Resolution No. G10

- 05 authorizing the

Authority to enter into a Reimbursement Agreement with SMOG for the Authority to perform a

project feasibility study, evaluation, and preparation of the requisite financing agreements and

certain other tasks relating to the SFWPP Project (collectively the “ Feasibility Activities ”) in

accordance with the requirements for a project financed under AS 44.88.172 and SMOG did

sign the Reimbursement Agreement;

WHEREAS, Authority Staff has complet ed Feasibility Activities to the extent necessary

that Staff believes it appropriate to seek initial f unding of the SFWPP Project;

WHEREAS, SMOG and Staff of the Authority have developed proposed terms and

conditions based upon what SMOG initially propose d dated January 31, 2010, revised under

date of December 27, 2010 (the “ Proposal ”):

A. General Outline of Proposal :

1. The Authority will enter into a purchase and sale agreement with the City and

Borough of Sitka for accomplishing the subdivision of a la rger parcel within the Sawmill Cove

Industrial Park in Sitka to create the proposed site for the SFWPP (the “ Proposed Site ”) and for

purchase of the Proposed Site;

2. The Authority will engage engineers and other appropriate professionals

(“ Engineers ”) to create a conceptual design report (the “ CDR ”) for the SFWPP in advance of

and in support of a solicitation (the “ Solicitation ”) for design

- build bids (the “ Bids ”) for completionResolution No. G11

- 06 Page 2

of the conceptual design and for construction, with cost estimates, of the SFW PP on the

Proposed Site;

3. The Authority will engage a general contractor from among the Bids received

in response to the Solicitation and enter into a design

- build contract (the “ Design

- Build Contract ”

and the contractor, the “ General Contractor ”) to des ign and build the Proposed Facility on the

Proposed Site, bringing all required utilities to the Proposed Site, to acquire and install the

equipment necessary to operate the SFWPP (the “ General Contractor’s Work ”); and

4. The Authority will engage SMOG to use the SFWPP on the Proposed Site to

employ the Process, to accept and process fish waste, to turn it into the End Product, to sell the

End Product, and to dispose of fish waste byproducts (the “ Operations ”); and

B. User Agreement : Staff has negotiated wi th SMOG a User Agreement for

development and operation of the SFWPP Plant (the “ User Agreement ”) which SMOG has

stated, by letter dated February 17, 2011, it is unequivocally prepared to execute upon approval

of the SFWPP Project by the Authority’s Board

, under which:

1. The Authority will engage SMOG under a Professional Services Agreement

on a “time and materials” basis (which expenditures will be repaid by SMOG with interest as

part of the Authority’s Investment Base defined below), to ensure that SMOG’s expertise is

available to AIDEA and its Engineers and General Contractor to create an appropriate CDR, an

appropriate Solicitation for Bids, and an appropriate Design

- Build Contract, and to ensure the

SFWPP Plant is built to meet the needs of the Process;

2. SMOG is obligated to repay all sums incurred by AIDEA in connection with

the SFWPP Project, together with interest at 7% from the date of each expenditure (the

“ Investment Base ”), to be paid in equal annual installments starting after commencement of

Operations, over a period of 15 years from the completion of the first year’s Operations of the

SFWPP Plant and by not later than November 1, 2026;

3. Because SMOG’s ability to make a full annual payment to the Authority

against the Investment Base during the first four (4) years of Operations is uncertain; the User

Agreement provides that it will not be an event of default if SMOG is unable to make full annual

payments during this grace period; in that event, the Investment Base will be re

- amortized each

year that SMOG does not make full payments during the grace period over the remaining term

of the User Agreement and SMOG will be required to make full annual payments starting at the

end of the fifth year of Operations, leaving a balloon payment due at th e end of the term of the

User Agreement;

4. SMOG is obligated to accumulate cash reserves sufficient: (i) to pay the costs

of Operations as they come due; (ii) to fund the following year’s costs of Operations; (iii) to pay

the annual installment due the A uthority against the Investment Base; and (iv) to fund eachResolution No. G11

- 06 Page 3

following year’s annual installment due the Authority against the Investment Base, all before use

or distribution of excess operating income as profits;

5. SMOG and the Authority will have the ri ght to terminate the User Agreement

and the SFWPP Project for any reason in their discretion exercised reasonably and in good

faith, at two distinct points in time: (i) after receipt and review of the CDR when the scope and

preliminary cost estimate of the SFWPP Project will be known; and (ii) again after receipt and

review by the Authority of Bids in response to the Solicitation when the price of construction and

acquisition and installation of equipment will be known (the “ Contract Termination Points ”); i n

either event SMOG will be obligated to repay AIDEA’s expenditures to the date of termination;

6. SMOG has an option to purchase the SFWPP Plant and assets at any time

during the term of the User Agreement, and must purchase the SFWPP Plant and assets at the

end of the term of the User Agreement, by paying the Authority: (i) the unpaid portion of the

Authority’s Investment Base including unpaid interest; plus (ii) three percent (3%) of the unpaid

portion of the Authority’s Investment Base then outstanding; plus (iii) one

- half of an annual

installment owed to AIDEA against the Investment Base;

WHEREAS, SMOG has selected a site in the Sawmill Cove Industrial Park in Sitka,

Alaska that it considers to be appropriate, well

- suited, and well located for developme nt,

construction and operation of the SFWPP;

WHEREAS, on January 25, 2011, the City and Borough of Sitka passed a Motion (the

“ Sitka Resolution ”) approving the sale of approximately 26,250 square feet of property to the

Authority for use as a fish waste pr ocessing plant;

WHEREAS, SMOG has entered into supply contracts for the provision of seafood waste

with Seafood Producers Coop and with North Pacific Seafoods, Inc., each dated August 6, 2010

(each such supplier to be paid cash for the fish waste), and a M emorandum of Understanding

for a supply contract with Ocean Beauty Seafoods, LLC dated December 3, 2010 (said supplier

to be compensated only by a share of net profits) (together, the “ Suppliers ” and the contracts,

the “ Supply Contracts ”, respectively);

W HEREAS, the Authority engaged Western Financial Group (“ Western ”) as a financial

consultant and Western engaged Anthony Bimbo, an expert on fishmeal and oil, to assist with

the Authori ty’s Feasibility Activities;

WHEREAS, as described in a separate memoran dum, Western, in preliminarily findings,

concludes that the Process does work at the experimental level and that the SFWPP Project

and business plans have the potential to repay AIDEA’s investment;

WHEREAS, Staff’s own analyses make conclusions simila r to those drawn by Western;Resolution No. G11

- 06 Page 4

WHEREAS, Authority Staff expects that the Authority will expend approximately

$450,000 through receipt and review of the CDR and through receipt and review of the Bids,

including charges for Engineers and legal effort ;

WHEREAS, the Authority intends to use assets of the Economic Development Account,

AS 44.88.172, to initially fund this SFWPP Project and may pursue bonding to fund all or a

po rtion of the entire Project;

WHEREAS, the Authority will develop a procurement plan that may require procurement

waivers from certain agencies of the State to implement all or parts of this Project and Staff

belie ves these will be available;

WHEREAS, the SFWPP Project will not create significant direct employment but it will

confer other imme asurable benefits on the Southeast Alaska fishing industry, addressing

regulatory and practical problems of disposing of fish waste and polluting Alaska waters, and

potentially turning a liability into a profitable asset, all as evidenced by the significan t amount of

industry support for this Project;

WHEREAS, the Authority’s Staff has received expressions of support for the SFWPP

Project from the Alaska Fisheries Development Foundation, Inc., by letter dated December 1,

2010; from Icicle Seafoods, Inc., by letter dated February 10, 2011; from Ocean Beauty

Seafoods, LLC, by letter dated January 4, 2011; and from North Pacific Seafoods, by letter

dated January 10, 2011; and

WHEREAS , it is in the best interests of the Authority that it enter into the User

Agre ement and the Professional Services Agreement with SMOG and expend up to $450,000

so that the SFWPP Project may proceed through at least through the Contract Termination

Points, with the Authority retaining the ability to terminate the project if the Board determines not

to proceed at one of the Contract Termination Points.

NOW THEREFORE, BE IT RESOLVED BY THE ALASKA INDUSTRIAL

DEVELOPMENT AND EXPORT AUTHORITY AS FOLLOWS:

Section 1

. Staff of the Authority is authorized to prepare the procurement plan and

s eek all procurement waivers necessary for this Project.

Section 2

. Staff of the Authority is authorized to utilize the services of Engineers to

assist in creating the CDR and the Solicitation for the Bids and to analyze and review the Bids,

and to engage c ounsel to assist in negotiating and drafting additional required contracts, on

terms as in the judgment of the Executive Director are appropriate.

Section 3

. The Executive Director is hereby authorized to negotiate and execute the

User Agreement and the Professional Services Agreement with SMOG on the terms discussedResolution No. G11

- 06 Page 5

above, with such non

- material modifications as the Executive Director, in his discretion, may

deem appropriate.

Section 4 . The Executive Director is hereby authorized to negotiate and exec ute a

purchase agreement for the Proposed Site with the City and Borough of Sitka, conditioned on

no termination of the User Agreement at the Contract Termination Points and on such other

terms as in the judgment of the Executive Director are appropriate.

Section 5 . Staff of the Authority is authorized to seek review and advice of the SFWPP

Project by the City and Borough of Sitka pursuant to AS 44.88.177.

Section 6

. Staff of the Authority is directed to prepare a Finance Plan for the entire

SFWPP Project pursuant to AS 44.88.173.

Section 7

. The Authority may utilize up to $450,000 in assets of the Economic

Development Account, AS 44.88.172, to undertake performance of the obligations of the User

Agreement through the Contract Termination Points, including charges for Engineers,

consultations and legal effort in connection with preparation of the CDR, the Bid Solicitation and

Bid Review and negotiation and preparation of the other contracts, and with the Authority

retaining the ability to terminate the proj ect if the Board determines not to proceed at one of the

Contract Termination Points.

Section 8

. Staff of the Authority will bring the SFWPP Project before the Board at an

appropriate time relating to the Contract Termination Points to seek final approval to proceed

with the balance of the SFWPP Project if Staff believes the SFWPP Project should be pursued

to completion after review of the CDR, after tentative selection of a General Contractor from

among the Bids, and after completion of all other tasks nec essary to proceed.

Dated at Anchorage, Alaska, this 2nd day of March 2011.

Chair

SEAL

ATTEST:

SecretaryFI NANCE PLAN

FOR INITIAL FU NDING OF

SITKA FISH WASTE PROCESSING PLANT PROJECT

Pursuant to AS 44.88.173, the Alaska Industrial Development and Export Authority hereby submits this Finance Plan for Initial Funding of the Sitka Fish Waste Processing Plant

Pr oject addressed in Board Resolution No. G11

- 06 :

1. Background

a. SMOG , LLC, an Alaska limited liability company, has developed a process for processing fish waste produced by seafood processors in Alaska and turning it

into a consumable end

- product for pet foods and other animal and human nutritional consumption purposes that can be sold to third parties who make such

consumables . The proposed processing plant in Sitka, Alaska, to convert discarded fish waste into very high quality proteins for aquaculture and ani mal feed, is known to the Authority as the “Sitka Fish Waste Process Plant Project”

. b. SMOG requested in a written proposal dated January 31, 2010, revised under date of December 27, 2010, that the Alaska Industrial Development and Export Authority (the “Aut hority”) finance and own the Project under AS 44.88.172 et

. seq

. c. T he Board previously approved Resolution No. G10

- 05 authorizing the Authority to enter into a Reimbursement Agreement with SMOG for the Authority to perform a project feasibility study, eval uation, and preparation of the requisite financing agreements and certain other tasks relating to the SFWPP Project in accordance with the requirements for a project financed under AS 44.88.172 and

d. SMOG did s ig n the Reimbursement Agreement.

e. Authority Staf f has completed such Feasibility Activities to the extent necessary that Staff believes it appropriate to seek initi al funding for the design and conceptual development of the SFWPP Project. SMOG h as agreed to the terms of a User Agreement by letter dated February 17, 2011, and has agreed in this letter to execute the User Agreement upon Board approval of Resolution G11

- 06.

2. Source and Use of Proceeds

a. Upon approval of Board Resolution No. G11

- 06, t he Authority will use up to $450,000 in assets of the Econom ic Development Account, AS 44.88.172, to undertake performance of the obligations of the User Agreement through the points at which either party to the User Agreement may terminate the U ser Agreement and the Project.

b. The Authority’s expenditures will inclu d e cha rges for Engineers, consultant s and legal effort in connection with preparation of a C onceptual D esign R eport of the Project , Bid Solicitation and Bid Review

, and negotiation and preparation of the

other contracts

. c. Under the terms of the User Agreeme nt SMOG is obligated to reimburse the Authority if the User Agreement and the Project are terminated. If the Project still merits the Authority’s participation and neither party terminates the User Agreement and Project, SMOG is obligated to reimburse the Authority under the payment terms of the User Agreement.

3. In this initial funding covered by Board Resolution G11

- 06, the Authority will not expend any funds for the construction or for operational expenses.

# Whittier Valdez

12

Cordova

9 Kenai

5 Anchorage

1

Petersburg

10 Yakutat

3



# Sitka

16 Juneau

4

Wrangell

9

Ketchikan/M

etlakatla

6
Prince Rupert

6 m Craig

4 XIP

5 Seward

3

Homer

2

Other

4 

# Total 65 M Total 35 M 

# 100 M lb Fishery