Alaska Industrial Development and Export Authority

BOARD MEETING MINUTES

Tuesday, March 2, 2011

Anchorage and Juneau, Alaska; Dallas, Texas; 

Phoenix, Arizona; and Beaver Creek, Colorado

1. CALL TO ORDER 

Acting Chairman Mike Felix asked Mr. Robert Sheldon to chair the meeting. Mr. Sheldon called the 

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, 

Community, and Economic Development).

Member participating from Arizona: Gary Wilken (Public Member).

Member participating from Colorado: 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 Business after 8E regarding 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 Anchorage: Ted Leonard (Executive Director); Chris Anderson (Deputy DirectorCommercial Finance); James Hemsath (Deputy Director-Development Finance); Valorie Walker 

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

Officer); 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: 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 Fenerty (Groh Eggers); Scott Johannes (C5, 

LLC); Craig Thorn and Jay Page (First National Bank): Kennis Brady (Student at UAA); Ron

Bailey (Bailey’s Furniture); Catherine Claxton (Northrim Bank); Brandon Spoerhase (Jack White 

Commercial); Mayor Siikauraq Martha Whiting and 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); Garry 

White (Sitka Economic Development Association); and Cliff Kelly (Callan Associates).

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). The 

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 technology. It will create 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 participate 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 outlined 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, one of the guarantors on the credit, replied that they talked to Costco 

management and verified that there weren’t any plans for them to build in the area. They also 

checked with Sam’s Club and were told they would not put a store in the area but instead are

investing in their current Wasilla Walmart store.

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

Costco’s requirements to build. 

MOTION: Commissioner Butcher moved to approve Resolution No. L11-02. Mr. Short 

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 No. 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 loans. 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 outlined in the 

Memo to the Board.

Commissioner Butcher stated for the record a potential conflict of interest. His secondcousin, 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. Bjorkquist stated that under 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 loan 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 change, 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 banks to take a larger amount of the

participation on refinance loans.

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

makes 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 AIDEA’s business model is based on large 

projects being financed through that market. The loan dashboard shows 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 in 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 stated this 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 AIDEA 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 stated 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 indicated 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 Butcher voting yea. Mr. Felix voted nay.

8C. Resolution No. G11-05 Making emergency regulations related to the Loan 

Participation Program permanent

Mr. Leonard summarized this regulation stating that at the January 31, 2011 board meeting 

emergency regulations were passed dealing with setting interest rates for taxable and taxexempt loans and this resolution would make those rates permanent. The variable rate loan 

basis points were increased from 100 to 200 basis points over the federal home loan bank index 

and 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 setting 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 discussion, 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 the 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 dramatically increased in price. Mr. 

Leonard stated the request for an additional $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 states fiscal years 2009 and 2010. Instead it should be fiscal 

years 2009 through 2012 as originally approved as stated on page 2, section 3.

Mr. Wilken 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 contingency percentage.

Mr. Reiche said that AIDEA received a new architect’s estimate at 65%, which increased by 

$80,000. Mr. Reiche stated there 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 modifications 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 suited, 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 stated 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. Leonard confirmed that the Susitna project is planned for a satellite location.

Mr. Wilken commented on page two, paragraph five, starting with, “The building upgrades will 

reduce energy costs.” He indicated this statement should be backed up with supporting 

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 the building manager PTP 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 contract administration and inspections.

Mr. Wilken asked if PTP is the firm that takes care of the maintenance and operation of the 

building.

Ms. Walker said that Karl Reiche is the project manager. AIDEA intends to go out for 

construction proposals and solicit 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 brought 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 specifics 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 

discussion.

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

and come back at a future 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 we cannot proceed under the original 

authorization, given the increase in costs. When we did the preliminary design estimate

amounts last year, there were no architectural services per se, and now there are a lot more 

people than originally intended. We found a number of things that had not been identified: ADA

upgrades, we know there’s asbestos, there’s additional costs, and it is a 40 year old building, so 

by no means does it have to be voted “yay.”

Mr. Short 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 out to bid given the fact 

that staff believes the costs would be above the original board authorization.

Mr. Short stated that the 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 competitive bidding process.

Mr. Leonard said that this resolution means that we could not go over the 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. We understand this is a lot of money, we understand that this 

building is never, even with modifications, 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, more conference rooms. It’s trying to 

make it work. There are other alternatives - leasing, in my opinion, is just totally too expensive; 

possibly 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 thinks that 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 the board does 

not have to react 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 resides 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 we 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 seconded.

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

spends $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 maybe 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 

constraint 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 in 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 number of 

employees.

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

discussion on this and hearing none, the 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 for 

the development of the Sitka Fish Waste Processing Plant 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 months. 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 diligence 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, review 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 capacity 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 that 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 approximately 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 

regards 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 waste 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 base 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 negotiations for the procurement of land which the plant will sit on. This is schedule 

critical, and part of the initial release of funds is specifically to move into the design phase to 

allow a February 2012 startup of the plant and provide the relief that the fish processors need 

from some of the environmental concerns going on.

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

construction. We are still waiting for a procurement waiver for the professional service 

agreement, which is a sole-source agreement. A comment might be made here if AIDEA had its 
AIDEA Board Meeting Minutes

March 2, 2011 Page 9 of 15

own procurement regulations this may have been alleviated. We also need to solicit, review and 

advice from the City and Borough of Sitka. We know that the City and 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. Statute requires a review of specific 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.

We’ve acquired services and bond council. During this period we’re paralleling with engineering

to complete 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 two chances to 

review the costs. The first is after the engineering 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 

again after the bid process itself. Both these points also allow for termination of the user 

agreement which we expect tomorrow. We will define the user agreement as a reimbursement 

agreement for the $450,000. Our revised evaluation will occur prior to coming to the board for 

request of release of the balance of funds which we anticipate to be in late May, possibly June. 

As you’ve heard today, and in your 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 one of the proposed proponents 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 wants 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 stabilize fish waste, which allows it to be used for human 

consumption. The drying technology using 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 been 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 report
AIDEA Board Meeting Minutes

March 2, 2011 Page 10 of 15

yet. He said that staff anticipates doing that with the addition of the engineering work and the 

updated cost estimate when there is a release of the majority 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 eighty-five thousand dollars.

Mr. Short stated that we’re going to have somewhere around $535,000 into this project without 

having a business plan to make a decision on. He asked if that is correct.

Mr. Hemsath replied that is not entirely true. He said there 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 through a reimbursement agreement. If this project does 

not go forward, it will be paid back by the project sponsor.

Mr. Hemsath added that the $450,000 will also be in a reimbursement agreement.

Mr. Arvin asked if fish meal is being produced at this plant or if it produces the bulk material and 

then sources 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, and because of the different seasons and stability it could also 

be from a salmon stock and the herring stock. The Sitka fish hatchery is very interested in the 

herring stock. They 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 contemplated 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 existing 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 funded Yummy Chummies. He sees no conflict so he did not 

recuse himself and doesn’t see the need to ask an 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 is 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 have been done at the pilot scale and not done at full-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 if 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 intended to buy used equipment mostly 

because the drum dryers are already cured. If the process doesn’t work, some of the options 

would be modifying financing, amortization, sale of equipment or salvaging the equipment. 

Mr. Sheldon asked about the advanced costs. He stated we have been discussing what the 

$450,000 goes 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 it includes the 

professional services agreement with these 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 exact 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. While 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 our 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. Has operating capital 

ever been eligible in a development and finance deal?

Ms. Walker said that in the way the question is being phrased, the strict answer is “as part of the 

development project.” No. We have never done it. My understanding 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 the development project. It was a preferred stock investment.

Mr. Leonard asked Mr. Bjorkquist if there is anything in the statutes that states that you cannot 

fund operating costs as part of the development project.

Mr. Bjorkquist replied that it is a complicated 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 Account reads, “While 

money is on deposit in the economic development account, the money may be used only to 
AIDEA 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 

appropriation issues, AIDEA’s operating budget is subject to appropriation. The capital budget is 

not, so there is a little twist to it. The other component is, and possible financing for operating 

expenses, is under the loan participation program where the definition of “project” is broader 

than the definition of “project for purposes of development and finance” and can include 

business activity. So it can, statutorily include operating expenses and I believe the other 

avenue that authority staff will be looking at for purposes of possible financing of that first year 

operating costs.

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 ensure that there is proper accounting 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 the operating capital and accounting aspects is something that we are 

looking at as part of the completed analysis.

Mr. Felix asked if it was appropriate to put some sort of gate or measurement in there in order to 

get access to that $1.9 million of operating 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 part of the reason on the initial funds is to provide an aspect of that 

gate. Instead 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 scale or definition on the estimate. 

Other gates would be appropriate in terms of anything we achieve. Even 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. The $1.9 most definitely will be reserved for those commissioning 

and startup costs as opposed to being used to fund the operating costs.

Commissioner Butcher asked what would be the effect of delaying this decision to the next 

board meeting.

Mr. Hemsath said 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 in 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 the salmon fish 

meal specifically is not to a salmon fishery, it is going into trout. The herring and the fish meal, 

relative to the hatchery, is not farming fish, it is growing fish which then are released into the 

wild. This project doesn’t create 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. The 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 they have been approached by a lot of different 

companies that could turn this into pet food for dogs and cats, for cows, and the whole 

nutraceutical 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 one of the key responsibilities we have as a board is for economic 

development. It’s helpful to understand 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 wanted to get a firm commitment 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 Butcher, Commission Bell 

and Mr. Felix voting yea. 

8F. AIDEA Investment Policy Update

The final item under New Business is the new inserted agenda item.

Jeff Pantages, 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 the work session on February 23, 2011.

The discussed items were to possibly make a change to the investment policy statement. One 

option was 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 agencies, Freddie and Fannie Mae, and the credit

worthiness of these two agencies. Historically 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 credit-worthiness question has been brought up. Ginnie 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 investment 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 Ginnie

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 the 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 on loan activity and delinquency reports, and the project 

updates in the board packet. 

9B. Next regularly scheduled AIDEA Board Meeting is Wed., Apr. 20, 2011

10. BOARD COMMENTS

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

discussed 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 opinion so there will be something in 

writing.

Mr. Bjorkquist reported that what 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 exception of constitutional violations or statutory claims which impose liability 

on an employee. An example would be the executive branch ethics act. If you have a conflict of 

interest in a financial conflict of interest, you can have an obligation to return gain obtained 

through your office. Even if the 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.

The courts look at what is the action involved, what is the nature and importance of the function, 

what is the likelihood of suits against the employee, and what is the availability of other 

remedies or forums of relief. They look at those three things to determine whether immunity 

applies or not. With the board and it’s conduct, focusing 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 

comfortable 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 the 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 participating from Juneau: Susan Bell (Commissioner, Department of Commerce, 

Community, and Economic Development).

Member participating from Taiwan: Ron Arvin (Public Member).

Member participating from Peru: Robert Sheldon (Public Member).

Member participating 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 (Executive Director); Chris Anderson (Deputy DirectorCommercial 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 Stitzel (Sitka Meal Oil 

& Gelatin (SMOG); Erik O’Brien (Southwest Alaska Municipal Conference (SWAMC); and Mark 

Gardiner (Western Financial Group).

Others attending via conference call: Brian Bjorkquist (Department of Law); Mike Rust (National 

Oceanographic & Atmospheric Association (NOAA) Fisheries); Jeff Backlund (North Pacific 

Seafoods); Mark Palmer, John Hanrahan and Jan Koslowski (Ocean Beauty Seafoods); Pete 

Nicklason and Harold Barnett from (NOAA Fisheries, NW Fisheries Science Center); John 

Lotzgesell (Silver Bay Seafoods); Garry White (Sitka Economic Development Association); Pete 

Lanzendorfer (SMOG); Pat Clancy and Kieu-Oahn Nguyen (Western Financial Group); and 

John Winther (former AIDEA Board Chairman).

Joined the meeting in progress: John Woodruff (Icicle Foods). 
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

Garry White, Sitka Economic Development Association

Mr. White expressed his full support for the Sitka Fish Waste Processing Plant Project (SFWPP)

and stated the community of Sitka is also fully behind the project. He said the City and Borough 

Council passed a resolution to sell a portion of an industrial park to AIDEA to fulfill the plan to 

process fish waste. Fish waste in the community has become a real issue due to the proximity 

of the airport. With two major fish processors in the community, the FAA and the DOT&PF have

started coming down on Sitka because it has more airplane bird strikes than any other airport in 

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

fish waste discharge. Sitka is a large fishing community and an environmentally conscious 

community. The town would like to keep fish waste out of the channel and see the fish fully 

utilized in usable products.

Mark Palmer, Ocean Beauty Seafoods

Ocean Beauty Seafoods is a large processor 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 they have the ability to supply the plant on an ongoing basis which makes

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

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

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

utilization for the waste stream and to meet EPA requirements. It also brings value to the waste 

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

the project works, it can be a model for other areas, like Bristol Bay, and for other locations that 

have plants. Mr. Palmer thinks there would be willing participants among his competitors. It is

important this 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 MagnusonStevens Fishery Conservation and Management Act and were formed to build infrastructure for 

the commercial fishing industry. They brought Surimi Technology to the Alaska and built the first 

Surimi shore plant in Kodiak with Saltonstall-Kennedy Funds. They contracted with Beechnut 

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 SMOG and 

the Montlake Mining Process in 2007 and funded approximately $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 in Sitka meetings, many people were nodding their heads in 

agreement regarding the need for a plant like this. There may be some folks in the industry who

have salmon oil plants and they may not want the competition. However, he pointed out that this 

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

is harvested from the ocean. This technology can bring a value-added industry to many other 

parts of the state. There are other plants 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 with this group and said that 

this is an issue beyond Alaska. Fish waste is 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 universal 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 site would be located. Silver Bay Seafoods is a relatively 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 thanked AIDEA profusely. The loan was 

repaid in nineteen months. He said they fully embrace full utilization of salmon and herring. This 

year his 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 funding from AIDEA in the future. Mr. Zuanich said

competition is great and they would welcome a neighbor. However, he asked that they not be 

precluded from a potential loan application because AIDEA may 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 they looked 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 profitability standpoint, it did not make sense.

Mr. Wilken said Silver Bay is a beneficiary of the deep water outfall and uses nothing from the 

City of Sitka. He asked Mr. Zuanich to confirm they can do it themselves and make 40 times the 

profit on the products as opposed to running it through the new plant. Mr. Zuanich said it is a bit 

of an overstatement. He knows there is a supply agreement and potential bonus payment 

starting the third year. He felt that from the economic well-being of Silver Bay Seafoods, the 

waste has 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 the other company is based in Alaska. At the request of the board, Mr. Zuanich

explained their 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 last summer, but Sitka 

is their main hub. Silver Bay is the largest herring and salmon harvester in the southeast. The 

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 processor. Mr. Zuanich

said herring is 40-45% and salmon 30-32%.
AIDEA Board Meeting Minutes

March 31, 2011 Page 4

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

Mr. O’Brien introduced himself as an advocate for an expanded business environment. He said 

this sounds like an interesting project and he is just here to learn about it.

John Winther, Former AIDEA Board Member

Mr. Winther supports this project because it is very much needed. Fish waste and processing

are things of the future but he feels very uncomfortable to have AIDEA assume all of the risk 

and own the plant. He would like the principals 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. There are two hydrolysate plants, one in Cordova and one in Ketchikan. 

Hydrolysate is a liquid fertilizer.

Mr. Short asked what standard fishmeal plants do. Mr. Stitzel said standard fishmeal processing 

involves grinding up and cooking fishmeal. Decanters spin off the water and oil, similar to 

making soup. Oil floating on the surface is spun off, clarified, and dried in roto-disk dryers. This 

process has been around for 100 years. The oil typically ends up in aqua-feeds because it is not 

food-grade. 

Cordova and Ketchikan plants make food-grade oil. They set aside $1.5 million dollars in their 

budget for collection of heads and guts which can’t touch the floor. Salmon oil is very special

because it contains astaxanthin, a powerful antioxidant, which can go directly into capsules, but 

it has to be made in a food-grade manner.

Mr. Stitzel said the 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. Need 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 material without refrigeration, they 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 achieve a highervalued 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 dried so the flavor is much better.

Fish oil for industrial grade crude oil can be sold at sixty cents a pound. Pet-food grade oil can 

sell, if it’s not in food-grade, for eighty cents a pound. If it is sold to companies that capsulize it, 

it can sell for approximately three to four dollars a pound. The only way to get into this market is 

to collect and produce it in a food-grade manner.

Mr. Short asked if those are molecularly distilled. Mr. Stitzel replied no, they are not and that is

what makes wild salmon oil so special. It has to be clarified to get the water content to a half-
AIDEA Board Meeting Minutes

March 31, 2011 Page 5

percent in order 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 this 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 reminded 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. It 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 making a chondroitin-rich gelatin. It is made from 

cartilage-rich snouts vs. bovine tracheas. He explained production and said the plant would 

produce stabilized fish waste, fish meal, and fish oil and gelatin. This product was tested in eight

states with ten different fish: White Sea Bass in California: Red Drum in Texas; Pampano in 

Florida; Cobia in Virginia; Rainbow Trout 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 sixmillion pounds will come from Sitka, ten-million from Petersburg and Excursion Inlet, five-million 

from Juneau, seven-million from Wrangell and another five-million from Petersburg is available. 

The plant will have the capacity and the ability to process these amounts.

Mr. Felix asked where the fish waste presently goes. Mr. Stitzel said they are grinding and 

discharging it. In the future, the EPA may not allow Juneau or Petersburg to grind and discharge 

into the water. These cities will then be required to barge and discharge. Each one of the

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. Stitzel 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. All 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 what return they estimate for the waste product compared to the five cents a 

pound it costs Juneau to discard it. Mr. Stitzel said approximately five cents a pound. 

Mr. Stitzel discussed costs of shipping the feedstock using a specially designed twenty-foot van.

The biggest cost is loading a container on the barge. The leasing cost of the container and the 

shipping cost come to approximately three-and-a-half cents a pound. 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 million. 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 sell most of 

their product directly to Mars and Purina. Mars is the largest pet food company on the planet. 

They feed 500 million dogs and cats a day. Nestle-Purina buys both dry and frozen. The frozen 

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 companies 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 

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

nutraceuticals 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 these companies. There is 

a hug fish oil shortage looming. Every 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 wild salmon oil is now sold.

Mr. Short asked what price he used for their 2011 and 2012 income statement. Mr. Stitzel

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

blend between nutraceutical and pet food grade. Mr. Stitzel said that it will all go nutraceutical.

Mr. Hemsath added that the pro-forma used was 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 for 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 how large this market is. Mr. Hemsath replied he doesn’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. Stitzel added that salmon oil is 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. If he could 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 documents 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 how these requirements are being met.

A discussion ensued about what tests are done and how often. Mr. Stitzel 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 the seafood companies, whether they are in 
AIDEA 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 the next phase, those requirements

will be better determined.

Mr. Short wanted to highlight the importance of this point. If 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 serious 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 LLC. This is a new era of investment and the board has to be very careful to not expose

AIDEA to some sort of liability.

Mr. Leonard said that in the final due diligence report and plan, those questions will be

answered.

Mr. Stitzel continued his presentation with the chondroitin sulfate gelatin market. A company in 

Sioux Falls, South Dakota takes approximately 100,000 pounds of bovine tracheas a day. They

start at 1% pure and then 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 will not 

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

sulfate which is excellent for pet joint health. 

The average profit of a fish company is ten cents a pound on a good season selling wet fish. 

The 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%. This structure is 

open to any processors. 

The biggest risk of running a fish plant is paying 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. Once AIDEA is taken care of, it should be 

around 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 normal 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. Stitzel 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 is this being held out of the northwest

EPA or the EPA out of Washington, DC. Mr. Stitzel said the 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 with DEC or in place of them. Mr. Stitzel replied he would say in 

place of them. Mr. Wilken asked even 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 when this effort began. Has this been ongoing for years? Mr. Stitzel said it 

started 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 Alaska, through Senator Stevens, got a 

pass. Since that time plants have 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. Stitzel said this has been going on for the last three 

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 earlier this summer and filled 

them in. Mr. Wilken asked that someone find the date of when the EPA is expected 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 Arctic 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. If this assertion of fact were 

true, he feels he should potentially recuse himself 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 disappointed in 

this inaccuracy that was left unchecked by staff, and if it were not checked by him, it may have 

led him to remove himself from this process, thus denying the board one of its member’s votes, 

and the public of his opinion. He asked Mr. Stitzel, 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, but said that 

Mr. Sheldon mentioned Arctic Paws and felt that, in Mr. Tetzel’s interpretation, this company 

may be threatened 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 that “you have 

received word.” In the future, he would like citations. 

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 analysis. It 

was a sponsor’s view only. Mr. Sheldon stated that if this authority is going to be an owner of 

something of which AIDEA has complete liability, the board cannot merely take these people at 

their word.

Mr. Sheldon asked Mr. Stitzel to describe how this sixty year old process is some sort of a 

technological advance. Mr. Stitzel said there are three of them. One 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 they do and then still dries 

it. The second is the way they extract that Chondroitin-rich gelatin out of the salmon head. No

one does that. Third, they process it on drum dryers. 

Mr. Sheldon asked if staff approached the Alaska Fisheries Development Foundation as a 

group for their participation in this project. Mr. Hemsath gave background of what Mr. Sheldon 

was referring to. The AFDF asked, by letter, for twenty seafood processors to meet with them 
AIDEA 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 the author of that letter, was present and replied. He said this 

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 

major point because of the storage and transportation cost issues associated with remote, 

western Alaska communities. He noted the technology is definitely unique. There 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 currently 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 chose not to speak 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 market 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 line 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 considered an investment.

Mr. Felix said no one suggested there was no value. The question was if there was value, why 

haven’t other people signed 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 wanted to know why his questions were not addressed. Mr. Leonard

stated he was planning on covering this in his presentation. The 1.9 is identified 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. You 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 the value depends on where it can be shipped from and the logistics. For 

the pet food industry and what they are willing to pay, a nickel return is possible, as was 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. If 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. There is a financial value to that. As far as quality 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 has not thought that through specifically, but is putting his 

financial where-with-all toward the support and future success of this. It is important to him. He 

doesn’t want to see a failure either.
AIDEA Board Meeting Minutes

March 31, 2011 Page 10

Mr. Short stated we are talking about Sitka and about the fish that would be put through this 

plant. In simple math, it is what is the cost of doing something else with this fish versus entering 

into this agreement, times the pounds over an average of the past three years. That would be 

the value. If the value of the quality assurance and the consulting is added in, it seems easy 

enough to get a number and the board would be interested in getting that. Mr. Short asked Mr. 

Palmer to clarify his statement of “don’t discard that” regarding value. He asked him how he 

monetizes that. If this is a grant application with in-kind support, what is the value that is 

committing to the project? Mr. Short asked that those answers be provided to the AIDEA board 

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

that there is a very established market on the frozen fish waste for pet food and he can do that.

Mr. Sheldon asked Mr. Zuanich from 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. The $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 moved that Resolution No. G11-06 be opened for 

discussion. Mr. Short seconded. 

A previous statement was made that UDSA was not able to participate because of the non-profit 

requirement of the program. Mr. Short said the USDA’s Business and Industry Program (B&I)

allows “for profits” to get loans and loan guarantees up to 90%. He asked if the 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, “We are unable to fund this project 

and we think this would be a good project for AIDEA’s consideration.” He asked Mr. Stewart 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 challenge is, USDA requires 

20% equity. The 20% equity may not have been available which is why it wasn’t considered by 

the USDA.

Mr. Leonard reviewed Resolution No. G11-06. Staff is requesting $450,000 to complete final 

due diligence to determine estimated project costs.

Mr. Felix said that if AIDEA does not do this project, the likelihood of recovering the $450,000 is 

zero. Mr. Leonard said staff can show why they believe this is a risk-assessed investment and 

should move forward. Mr. Leonard confirmed that AIDEA 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 Maintenance Hangar.

In response to Mr. Arvin’s question about who owns the Research and Development process, 

Mr. Hemsath said there is no monetized property that is either patented or has a copy write and 

this was developed through a grant from AFDF to find a specific solution. The Montlake Mining

process was created using existing technology in a unique way and SMOG developed a 

business plan for AIDEA to commercialize the process. As AIDEA goes through the design, 

build and completion phase, they will own the operating process and procedures.
AIDEA Board Meeting Minutes

March 31, 2011 Page 11

Mark Gardiner 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 trade sector industries. This project is at a very early stage 

but meets the criteria. The development finance program’s target is to increase by $50 million 

per year.

Mr. Short feels it is premature to spend $250,000 on bid solicitation packages, bid responses, 

and permitting. Mr. Hemsath said the largest risk in this project is capital risk. AIDEA has been 

working with preliminary numbers and contingencies to determine what makes economic sense.

The engineering stage will define the plant design and cost estimates. Information will be 

gathered to answer Board member’s questions regarding quality issues. AIDEA’s break point to 

make a decision will be when approximately $270,000-$300,000 has been expended.

Mr. Felix said the problem he has with this proposal is that AIDEA is the only entity that has 

equity; if it is such a good deal, why doesn’t anyone else have an equity stake, least of all the 

owners? AIDEA is taking all the risk and the owners are getting all the reward. Mr. Short asked 

if credit checks and 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 than 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 valueadded product to the Alaska economy worth the investment. It is not based on whether or not 

there is an equity person involved. 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 Board to fund the 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.

Based on the presentation, on Mr. Winther’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 vote affirmative if industry and the operators contributed 10% of the 

$450,000 or 10% of the construction costs as a good-will gesture. It is not unreasonable to ask 

for $700,000 out of a $7 million project and hoped there would be some willingness to step up to 

the plate. Mr. Short would not vote for this resolution unless there were additional requirements 

or an equity injunction.

Commissioner Bell is interested in looking at the next tier and adding language allowing the

board to explore Mr. Short’s suggestions. 

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

the work has been completed. He would like to go forward but not expend 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

industry 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 waste. 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

Whittier 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 about 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. However 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. 

Peter 

Board of Directors

March 2, 2011

Page 2

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

final consideration. 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 the waste 

concentration presents an environmental concern related to the bay. This Project will not create 

significant direct employment but it will confer other immeasurable 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 significant amount of industry support for this Project. The Authority’s Staff has 

received expressions 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 

North Pacific Seafoods, by letter dated January 10, 2011.

Copies of these Letters of Support are attached.

Estimated Cost:

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

Advanced Costs (including $450,000 for Engineering, 

consultations and legal effort in connection with 

preparation of the Conceptual Design Report, 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 $9,090,000
Board of Directors

March 2, 2011

Page 3

Current Status:

SMOG has agreed to the terms of the 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.

SMOG has already entered into contracts with two suppliers of raw materials and a 

memorandum of understanding with a third, and has initiated negotiations 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 community 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 land 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 ENGAGEMENT 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 parties 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. 

seq. 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 completed Feasibility Activities to the extent necessary 

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

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

conditions based upon what SMOG initially proposed 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 larger 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 completion 
Resolution No. G11-06 Page 2

of the conceptual design and for construction, with cost estimates, of the SFWPP 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 design 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 with 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 the 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 Authority against the Investment Base; and (iv) to fund each 
Resolution 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 right 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”); in 

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 development, 

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 processing 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 Memorandum 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);

WHEREAS, 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 Authority’s Feasibility Activities;

WHEREAS, as described in a separate memorandum, 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 similar 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 

portion 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 

believes these will be available;

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

confer other immeasurable 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 significant 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 

Agreement 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 

seek 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 counsel 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 discussed 
Resolution 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 execute 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 project 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 necessary to proceed.

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

Chair

SEAL

ATTEST:

Secretary
FINANCE PLAN

FOR INITIAL FUNDING 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 

Project 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 animal 

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 “Authority”) finance and own the Project under AS 44.88.172 et. 

seq. 

c. 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 in accordance 

with the requirements for a project financed under AS 44.88.172 and 

d. SMOG did sign the Reimbursement Agreement.

e. Authority Staff has completed such Feasibility Activities to the extent necessary 

that Staff believes it appropriate to seek initial funding for the design and 

conceptual development of the SFWPP Project. SMOG has 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, the Authority will use 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 

points at which either party to the User Agreement may terminate the User 

Agreement and the Project.

b. The Authority’s expenditures will include charges for Engineers, consultants and 

legal effort in connection with preparation of a Conceptual Design Report of the 

Project, Bid Solicitation and Bid Review, and negotiation and preparation of the 

other contracts.

c. Under the terms of the User Agreement 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

Total 65 M 4

Total 35 M

100 M lb Fishery