Minutes

Durham Food Co-op/PIFC No. 1, Inc. Special Meeting Called by Interim Board for

4:00 PM, September 21, 2008, at 1101 West Chapel Hill Street, Durham, NC

Meeting notice/agenda mailed USPS First Class 9/10/08; posted on web site 9/10/08; emailed 9/11/08

James Junker circulated the sign-in sheet, which was signed by the following 14 persons: James Junker, Christine Westfall, Phil Nelson, Wells Eddleman, Dan Read, Sandy Demeree, Pam Campa, Rachel Hardy, Polly Harris, Tom Harris, Hope Taylor, Laura Hall, Jeff Ensminger, and Jeane Bross

Jeane Bross, President, called the meeting to order at 4:14 PM. Christine Westfall, Corporate Secretary, asked Wells Eddleman,
Co-op member, to take notes; these minutes are typed from said notes.

Member quorum not present: would need 16 members (10% of membership) for a quorum, and only 14 persons signed the attendance sheet (not all of whom are paid up Co-op members).

Motion: Read moved that the Interim Board, a quorum of the Board being present, meet and act on the agenda in the absence of a member quorum. Eddleman asks, and Read clarifies, that members may address the Board.

Seconded: Westfall.

Vote: unanimous (Bross, Read, Westfall, Harris: 4-0)

Discussion of Agenda Item 1(a) -- identify prospective buyers for PIFC/DFC‘s building:

Building valuation: Self Help Credit Union summer 2008 estimated value between $145,000 and $180,000. Was appraised in late 1990s at $180,000. Commercial realtor (Maverick Partners) provided comprehensive opinion of value July 2008, including comparables, with a recommended listing price of $250,000 (handout circulated). Tax valuation 2008 approximately $140,000. Nearby commercial building appraised September 2008 at approximately $61 per square foot, which could, if applied to our building, put value at roughly $235,000. (NOTE: $61 per square foot is an appraisal, not a sold price.)

Process: Westfall placed an informal request for bids and received three, including Self Help Credit Union: Restaurant partnership (Rocketship) submitted an unsigned offer at $160,000; Self Help withdrew its tentative offer due to its belief that a restaurant is preferred use for property; third party (a developer) did not follow through with a signed offer. Rocketship will have significant expense to convert building to a restaurant, can get a first mortgage of only $110,00 (from Self Help Credit Union), and requests a second mortgage from DFC/PIFC for $50,000. The Interim Board has responded informally to Rocketship’s tentative offer by requesting the following conditions: (1) an option to rent space in the building for a buying club at $100 per month including utilities, with this option for one year, possibly two years, to be exercised within 60 days of closing; (2) upon future resale by Rocketship of the building, right of first refusal to Self Help Credit Union at a discount of 11%; (3) deed restrictions to (a) protect and preserve the two murals and (b) prevent future sale of building to inappropriate businesses, such as pawn shop, gun shop, sales of tobacco, sales of bottled/canned/boxed alcoholic beverages except as part of a meal consumed on premises. The Interim Board has approved the above described conditions. Westfall mentioned, however, that the conditions may need a bit of tweaking. President Bross stated that she supports the sale of the building to Rocketship for a restaurant, which would be a beneficial business to this neighborhood, and reminded those present that DFC/PIFC is a not-for-profit corporation. Availability of the building was made known to neighborhood associations by electronic mail, apparently was included on at least one electronic bulletin board, and was mentioned in articles in the News and Observer as well as in Herald Sun as a building for sale.

Questions/Discussion: Hope Taylor asked what is the utility of the $50,000 second mortgage, to which Westfall replied the Co-op would need to receive payments on that over five years, and members would have to decide on use of the proceeds when paid. Read explained that if Rocketship does not pay, our choice would be to accept the loss or take over the building (again) if we pay off Rocketship’s first mortgage to Self Help. Eddleman added that the purpose is to get the sale to Rocketship completed, and DFC/PIFC would have an asset with the second mortgage. James Junker: Second mortgage payments could pay for the buying club’s space rental. Sandy Demeree: What is the effect of the commercial appraisal of the nearby building? Can we appraise our building? Bross reported that a commercial appraisal could cost between $2,000 and $3,000, and the Board decided against that expense. Tom Harris explained that the value used to compute the 11% discount was based on Self Help’s valuation. Westfall added that Rocketship’s bank declined to finance a mortgage on this property; the critical need in her opinion is to find a buyer who is good for this neighborhood. Demeree asked: If the value of this building goes up, who benefits? Eddleman replied: If value goes higher and Rocketship decides to sell, Self Help could bid 11% less than the highest and best bid. Bross reported a question she had received about the possible perception of self-dealing by Self Help since they set the valuation the Board is using to calculate the 11% discount. Eddleman added that the value of the loan from Self Help to Rocketship, however, is based on the tax value of this building, which many financial institutions are now using to determine how much to lend on property since the tax value is established completely independently of the lendor. Bross reported receiving an email from a member unable to attend meeting that expressed request to get as close to market value for the building as possible. It’s not clear how much this member knew of the Board’s marketing efforts. Westfall noted we could hire a realtor to market the building for one year. Bross said she had given the conditions/restrictions described above to Maverick Partners, to which Eddleman pointed out that the restrictions were not referenced in Maverick Partners opinion of value document. Westfall explained that no Co-op member is getting money from the sale of the building, however, we could ask for a steeper discount, say 20% or 25% instead of 11%. Tom Harris calculated that if we required a 20% discount, that would place the valuation of our building at $200,000; with a 25% discount, it would be $213,000 versus the $160,000 offer from Rocketship. Bross pointed out that the commercial building appraised at $61 per square foot is one where the owners can wait until they get the price they ask. In contrast, Eddleman reminded folks that we cannot wait; if we fail to pay our debts we can be sued, with resulting a forced sale of the property. Rachel Hardy asked if there will be funds left over from sale proceeds after paying debts (yes, but see discussion under Agenda Item 3). Taylor: Creditors have been very gracious to us, and we need to get them paid soon. Polly Harris reported being more pessimistic about the economy, having heard about potential loss of 30% of property values in next 10 years, so the sale needs to proceed soon. Unknown person asked: what is the question: Bross: Loan versus estimated values. Taylor: SHCU's lending ability may not continue. Eddleman: Danger of credit being cut off, building being sold for little, creditors get something and we may have nothing left for Co-op or nonprofit use.

Motion: Read moved that Interim Board reaffirm its readiness to do this on the terms/conditions previously agreed upon by the Board, although we can revisit the discount percentage as discussed.

Seconded: Westfall

Questions/Discussion: Ensminger asked: Sale to Rocketship is not final if a better offer arrives before they send signed offer? Read replied: If there is no signed contract with Rocketship we can sell to others. In response to a question from Bross about interest from Immaculate Conception Church in this property, Westfall explained to them we had an interested buyer; they might rent, not buy, so she suggested they contact the Walltown Community Center for space.

Vote: unanimous (Bross, Read, Westfall, Harris: 4-0)

Sense of the meeting/show of hands including Board and all others present: 10 yes, 0 no, 3 abstain

Discussion of Agenda Item 1(b) -- seek a secured bridge loan to pay long-term debt, vendors, etc.:

Bross reported that Self Help Credit Union has approved a bridge loan for $80,000, with a one-year balloon payment, at 7.5% interest, which includes funds to maintain the building. Noah Rubin-Blose, part-time bookkeeper, is totaling up how much we owe. (Tentative list of outstanding debts offered to those who wished to review.) We have a verbal assurance that Sisters of Saint Elizabeth has forgiven the loan they provided (about $7,000 per QuickBooks), although this has not yet been confirmed in writing. During the interim between loan approval and today, our CPA firm has completed the final two year’s worth of income tax returns, so their bill has increased by about $3,000. Closing costs would be 1% to Self Help ($800) and $500 attorney fee. Read indicated that, once the loan proceeds are in hand, he will see if some of the creditors will settle for less than the full amount. Read also pointed out that the Board can arrange loans without member approval. Nevertheless, in response to a call for a show of hands, those present gave unanimous support for proceeding with the Self Help loan.

Discussion of Agenda Item 1(c) -- appoint additional Interim Board members:

Bross noted that former President, Regina Dyson, resigned in July; Jodi Lasseter was elected at the April 2008 annual meeting, but agreed to serve only if we have directors and officers insurance (which we do not), so she withdrew during summer 2008. In August 2008, Read volunteered to serve on the Board; subsequently, Westfall, Lasseter, and Tom Harris also agreed to serve on an interim basis. The current Interim Board comprises Bross, Harris, Lasseter, Read, and Westfall. Westfall pointed out that the Board needs help from members to explore ways to distribute remaining assets once the building is sold and the second mortgage is repaid by Rocketship.

Discussion of Agenda Item 1(d) -- determine how, assuming sufficient member interest, to proceed with reverting to a buying club business model:

Eddleman requests Board reconsideration of its decision to withhold funds from buying club operation, since a small sum is needed to get it started. Bross indicated we have in excess of $2,000 in checking, currently unencumbered.

Motion: Read moved that $500 total be allocated for buying club support.

Seconded: Westfall

Questions/Discussion: Bross noted that she and Read are signatories on the checking account, so they will review requests for buying club funds. Junker added that the $500 would not be a subsidy, but rather a loan. Hardy requested clarification of the $50,000 second mortgage, to which Eddleman replied in a worst case scenario, the Co-op would end up with $30,000 ($110,000 cash from Rocketship purchase less our $80,000 bridge loan repayment to Self Help). In the best case, we would end up with $80,000 (repayment of the $50,000 loan plus that $30,000 described above). The question is: how should the Co-op distribute the proceeds? Westfall recommended giving membership two to three months time to consider/decide what to do with the eventual funds. Westfall asked whether the buying club could arrange deliveries/pick ups to be made near the Durham Farmers Market on Saturday mornings.

Vote: unanimous (Bross, Read, Westfall, Harris: 4-0)

Sense of the meeting/show of hands including Board and all others present: 10 yes, 1 no, 2 abstain

The member voting against the motion explained that it would be better to close up the Co-op and set up a completely independent buying club. Junker mentioned that United Foods will not deliver to this building until after our debt to them is resolved. Taylor added that the buying club should pay its own way, a point with which Eddleman agreed. Tom Harris noted that a buying club would actually be a continuation of PIFC’s original purpose.

Discussion of Agenda Item 2 -- consider and ratify the following or adopt a new course of action: If no sale is made during the term of the loan (1 year) then the loan agreement provides that the Self Help Credit Union (the lendor) would offer to buy the building.

Bross indicated that Self Help Credit Union would purchase the building for no less than $100,000 if it has not sold within ten months of our loan date.

Motion: Read moved that Board approve the Item 2 as stated in bold type above.

Seconded: Westfall

Questions/Discussion: None recorded

Vote: unanimous (Bross, Read, Westfall, Harris: 4-0)

Sense of the meeting/show of hands including Board and all others present: 12 yes, 0 no, 1 abstain

Agenda Item 3 -- Consider how the Co-op will remain in operation (if at all) and how its remaining assets might be used to best benefit the community. (Note well: Under the articles of incorporation there will be NO distribution of assets to members if the corporation is dissolved.)

Discussion on this item was tabled.

Special meeting adjourned at 5:54 PM

Board meeting continues:

Other Business:

Taylor suggested that the Board consider a 50% discount instead of the current 20% discount.

Motion: Read moved that we adopt a 50% discount in order to liquidate stock on hand, commencing today.

Seconded: Westfall

Questions/Discussion: None recorded

Vote: unanimous (Bross, Read, Westfall, Harris: 4-0)

Sense of the meeting/show of hands including Board and others present: 13 yes, 0 no, 0 abstain

Board meeting adjourned at 5:56 PM