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City mulls buy-out proposal

| May 21, 2004 12:00 AM

By Brent Shrum, Western News Reporter

The Libby City Council is reviewing a proposal to participate in an $800,000 financing package for a buyer interested in Kootenai Paving with a decision scheduled for a special meeting on Monday, May 24.

The council discussed the recommendation from the Libby Area Development Co. at a meeting on Monday, May 17. The LADC voted 4-2 last week to cooperate with First National Bank in offering a loan to George and Sheryl Niemi, who are looking to purchase Kootenai Paving from current owner Don Brown. Under loan guidelines based on a Small Business Administration program, the bank would provide 50 percent of the funding, the LADC 40 percent and the Niemis 10 percent. The city would make $320,000 available to the bank, which would administer the loan and provide the city with a monthly payment for seven years at 4-percent interest.

The bank would be in first position to collect on the loan in the event the Niemis ran into trouble making payments.

Because the Niemis are hoping to close the deal by June 1, the council scheduled a special meeting to decide on the LADC¹s recommendation. The council also scheduled a working committee meeting for Thursday, May 20, to talk with city attorney Scott Spencer about some concerns he expressed in a letter to Mayor Tony Berget and council members.

In the letter, Spencer said it is not acceptable that the ³due diligence² on the loan was conducted by the bank. The bank does not have the same interests as the city and did not provide the LADC with a report or summary of the loan request, Spencer said.

Spencer also told the council it must determine which documents relating to the loan are subject to public disclosure and which documents may be protected if the Niemis¹ right to privacy outweighs the public¹s right to know.

At Monday¹s meeting, George Niemi told the council that he appreciates the city¹s desire to conduct business in the open but added that there is some personal information in his loan application ³that isn¹t anybody¹s business but the bank.²

Niemi said there is some information concerning things such as equipment costs, payroll and loan payments that would put him at a competitive disadvantage if disclosed. Other information in the application could make him vulnerable to identity theft if made available to the public, he said.

³It¹s bad for business and it¹s bad for me as an individual,² he said.

Niemi hopes to expand Kootenai Paving from its current eight seasonal employees to 20 employees working year-round by 2007.

³We sold everything we own and put everything we have into buying this business, and we¹re committed to making it work in Libby,² he told the council.

Speaking from the audience, attorney Ann German echoed the concerns voiced in Spencer¹s letter. German said she found it disturbing that the LADC approved the loan proposal by a secret ballot and called it ³an incredible conflict of interest² that the bank¹s due diligence was used by the LADC to make its decision. She added that the LADC apparently had little information on the collateral used to secure the loan and said the city should hire its own consultant to review the loan application.

³It strikes me that you people are entitled to have an independent evaluation of the decision making that went into this loan,² she said.

First National Bank board member Wayne Haines told the council that the bank is not asking the city to participate in the loan but is providing the conditions on which it will make the loan. He agreed that the LADC or the city should independently review the loan, as the Small Business Administration does when it partners with banks through the program on which the LADC has based its newly adopted loan guidelines.

³The customer submits the information to the SBA and they evaluate it,² he said.

The bank cannot release personal financial information to the city, Haines said.

³It¹s been submitted to us, and it¹s up to George to submit it to you,² he said.

Councilman Gary Huntsberger said he thinks the city is moving in the right direction with the LADC¹s new loan guidelines but needs to have some questions answered before moving on.

³We¹re actually going to get some money back on a loan,² he said. ³We haven¹t gotten money back before because we haven¹t charged a percentage rate on the loans we¹ve done in the past.²

Berget asked Niemi to have his attorney talk to Spencer in an effort to sort out what information is private and what is public. A policy on the issue needs to be developed, said Kootenai River Development Corp. director and LADC adviser Paul Rumelhart.

³If we can develop a policy that protects the right to know and the rights of the borrower, that¹s great,² he said.