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4A Wichita Falls Economic Development Minutes - 06/29/2012MINUTES OF THE WICHITA FALLS ECONOMIC DEVELOPMENT CORPORATION June 29, 2012 PRESENT: Gary Shores, President Dave Lilley Lanham Lyne Gary McLendon Glenn Barham, Mayor Tim Ingle, Councilor District 4 Brian Hooker, Councilor District 3 Miles Risley, City Attorney Ramona Coln, Recording Secretary Tim Chase, President Kevin Pearson, Vice President Jim Johnson, Chairman Jay Carter Mark Arciero ABSENT: Dick Bundy, Vice President /Sec.- Treasurer 1. CALL TO ORDER Members City Council City Staff Chamber of Commerce & Industry Carter Aviation Member President Gary Shores called the meeting to order at 4:00 p.m. 2. APPROVAL OF MINUTES Dave Lilley moved for approval of the June 18, 2012 minutes. Kevin Pearson noted that his name was not included in the list of attendees. Mr. Lilley amended his motion to correct this omission. Seconded by Lanham Lyne, the amended motion carried. 3. UPDATES AND POSSIBLE ACTION ITEMS RELATED TO CARTER AVIATION Jay Carter informed the WFEDC that he reduced the workforce at Carter Aviation today by 10 employees due to lack of cash flow. His first priority is to get the aircraft performing, but that has taken longer than expected. He has retained the team that flies the aircraft, the engineers, and enough employees to finish the AAI aircraft. Several of his investors have told him his "burn rate" is too high, and if he reduces that amount they will give him more funds. Carter Aviation experienced some electrical and mechanical issues that had nothing to do with the slow rotor compound and software. They spent a year working on the software to allow the aircraft to be flown autonomously except for the pilot controlling the stick, rotor pedals and HA legal \4A & 4B \4A Corp\ Minutes \2012\2012.6.29\2012.6.29 4a minutes.doc I WFEDC — Minutes of June 29, 2012 2 throttle. Mr. Lyne asked if all the software and electrical issues have been resolved. Mr. Carter said he thinks so. They still have concerns regarding the oil temperature. Mr. Lyne asked the timeline of the project. Mr. Carter said he thought they would have achieved mu -1 by now. They intend to be back in the air by mid -July. They still have to tweak the software, but the aircraft can be flown safely. Mr. Lyne said the Board has often heard that Carter Aviation is right there, but they have a couple of issues to tweak. He asked what is different today. Mr. Carter said they had a problem with the software a month ago; the program worked, but was slow to respond. The aircraft flew at 150 mph and the rpm was stable, but less than desired. The pilot over - controlled the aircraft and got into a frightening situation. Mr. Lyne asked when the previous aircraft broke mu -1. Mr. Carter said it was in 2005. They had a flight simulator then. This time, he thought they could do without it. That was a big mistake on his part, and they are building one for this aircraft. Mr. Carter said he has to make sure they get the aircraft through mu -1 and achieve these performances. The second goal is to make sure the AAI aircraft gets finished. He understands the Board is nervous. However, he cannot depend on Wichita Falls as he does not know when he will get any funding from the WFEDC. He met with Gary Shores three weeks ago and said this matter had to be resolved and he still has not seen anything. Mr. Lyne asked if the WFEDC made a proposal to Mr. Carter. Miles Risley said the Board made its decision the first week of June. Carter Aviation rejected that proposal and made a counter - proposal. Based upon that counter- proposal, attorney Hank Rugeley has drafted a set of documents. There has been quite a bit of discussion between Tim Chase, Mr. Rugeley and Mr. Shores. Mr. Shores added that the agreement was finalized this morning. Mr. Carter said he wants to work with the Board. When AAI's upper management visited Wichita Falls, a team of Carter Aviation, AAI and the WFEDC was formed to make this happen. The WFEDC agreed to rely on AAI's expertise. AAI put in $8 million and the WFEDC put in $4 million. Everything was the same between these parties except for two milestones. He realizes that the original intent was that the Board's agreement tracked the agreement Carter Aviation had with AAI. The agreement with AAI was amended because the milestone payment agreement did not work. He should have come back to the WFEDC when the AAI agreement was amended. He did not think at the time there was a need to do that. However, when he did request a change in the agreement, he met real resistance. Mr. Lyne said the only milestone that matters to anyone is the mu -1. Mr. Carter said mu -1 is not an issue with AAI; it is only an issue for those who do not understand the technology. Mr. Lyne said mu -1 has been the focus in many presentations over the years concerning this aircraft. Mr. Arciero said mu -1 is a critical milestone for the company and they will achieve it again. It would open the door to potential investment. Mr. Chase asked how much money that might be. Mr. Carter is optimistic it would be a quarter of a billion dollars. Textron bought AAI for $1.1 billion. AAI has done well because they do a good job of satisfying the military, but they do not have the technology. That is why they bought the license from Carter; otherwise, they cannot compete. Mr. Chase asked for confirmation that Carter laid off nine hourly wage earners and one 1099 employee. He asked how many employees remain. Mr. Carter said he has about 23 employees. Mr. Chase asked if those 23 employees are sufficient to finish the aircraft. Mr. Carter WFEDC — Minutes of June 29, 2012 3 said these folks would be sufficient if they have funding. Mr. Chase commented that the 10 employees laid off must not have been integral to achieving mu -1 or to building the aircraft. Mr. Carter said they were developing a core of expertise that would be helpful during production. Mr. Chase commented that Carter laid off his president and CEO. Mark Arciero said he relinquished his post to help with the financials. Mr. Carter said Mr. Arciero is leaving to reduce the company's cash burden. If its financial situation improves and Mr. Arciero is still available, his position will be waiting for him. The company has sufficient funds to get through three months. He is hoping to get some support out of Wichita Falls, AAI or investors. Mr. Chase reiterated that Carter Aviation is good financially for 90 days. Mr. Carter said that would be pushing it. He will need to talk to other shareholders. When it gets down to six weeks he will make some other decisions. Mr. Chase asked if others had agreed to provide more money for the operation. Mr. Carter said he was promised $400,000 provided his expenses are lowered to a certain amount. That figure is calculated into the 90 days. 4. EXECUTIVE SESSION Mr. Shores adjourned the meeting into executive session at 4:45 p.m. pursuant to TEXAS GOVERNMENT CODE § §551.071, 551.072, and 551.087. He announced the meeting back into regular session at 5:19 p.m. The subjects posted in the Notice of Meeting were deliberated, and no action was taken on these items in executive session. Mr. Lyne moved that the President of the WFEDC be authorized to execute all documents necessary to transfer or release security interests in equipment and /or inventory owned by Gel Solutions, LLC and related parties to third parties in exchange for funds that are determined by the President to exceed the value of such interest to the WFEDC. The President is further authorized to execute documentation ancillary to a transfer or release, such as a participation agreement or other instrument, that authorizes a third party to participate in the enforcement of the WFEDC security against such equipment and /or inventory. The President's execution of the aforementioned documents and instruments should not devalue, imperil, or reduce the value of the WFEDC's notes, collateral, and /or guarantees to a greater extent than the $1,000,000 note executed in August, 2010 and the current value of the Gel Solutions, LLC collateral. Documents are to be confidential to the maximum extent permitted by law. Seconded by Dave Lilley, the motion unanimously carried. 5. ADJOURN The meeting adjourned at 5:30 p.m. Gary ores, President