CITY COUNCIL AGENDA MEMORANDUM

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1 City and County of Broomfield, Colorado CITY COUNCIL AGENDA MEMORANDUM To: Mayor and City Council From: George Di Ciero, City and County Manager Prepared by: Pat Soderberg, Finance Director Ken Rutt, Wastewater Superintendent Meeting Date Agenda Category Agenda Item # March 8, 2011 Council Business 9(h) Proposed Resolution No Approving an Agreement with Mount Farms LLC, the United States Department of Agriculture, and Joli Lofstedt, Chapter 7 Trustee for the Bankruptcy Estate Agenda Title: of Robbin Lynn Peppler and Gwyn Marie Peppler for Assumption of the Lease of Broomfield's Farmland in Weld County Summary In 1996 Broomfield's Wastewater Enterprise fund acquired farmland in Weld County to facilitate disposal of biosolid materials from the wastewater treatment plant. In 2000 Broomfield entered into a lease agreement with Peppler Farms to allow farming on the property and arrange for spreading of the biosolids material on the farmland. That lease expires December 31, In December 2010 the tenant, doing business as Peppler Farms and Genesis Turf Farms, filed for bankruptcy. The tenant is not current on the lease payments. Past due lease amounts under the agreement with Broomfield will total $86,995 as of March 30, The tenant is not financially able to continue to farm the property. At the time the tenant filed bankruptcy the company discontinued the spreading of biosolids on the property. This has resulted in additional costs to Broomfield in the amount of approximately $2,100/week to compost the material in lieu of spreading it on the farmland. Mount Farms, LLC approached Broomfield and the bankruptcy trustee with a proposal to assume the lease and take over farming of the land. In order to save the growing crop and make the land productive for the 2011 growing cycle, Mount Farms LLC would require access to the land as of April 1, The parties have proposed a Settlement Agreement and Agreement to Assume and Assign Lease (copy attached). The agreement would give Mount Farms access to the planted, but unharvested crops; require Mount Farms to comply with the terms of the lease, including the biosolids disposal provisions; and address outstanding credit issues. Resolution No would approve the proposed Settlement Agreement and Agreement to Assume and Assign Lease. The bankruptcy court can take up to three weeks to process the agreement that would be presented to them if Resolution is approved by the City Council. To allow for the April 1, 2011 date to be met, the bankruptcy court would need to be presented with a signed agreement by March 10, All other parties to the agreement have given their approval and are willing to sign it. Prior Council Action On November 28, 2000 City Council approved Resolution to authorize an agreement with Peppler Farms for the lease of Broomfield's Weld County Biosolids Farm. Financial Considerations If the agreement allowing Mount Farms to assume the lease is approved, Broomfield will be able to receive lease payments for 2011 from the property. If it is not approved, no lease payments are anticipated from the current tenant through the bankruptcy process and Broomfield will continue to incur approximately $2,100/week in excess costs associated with composting of the biosolids material from the wastewater plant. Alternatives Do not approve the agreement. This will eliminate all 2011 lease revenues and cause additional costs to continue. Proposed Actions/Recommendations Based on the above, it is recommended THAT Resolution No adopted.

2 Weld County Biosolids Farm Assignment of Lease Page 2 of 3 BACKGROUND In 1996 the City and County of Broomfield, through the Wastewater Enterprise Fund, purchased farmland in Weld County Colorado to finalize the implementation of the "Biosolids Master Plan." The farm consists of six parcels located between Weld County Roads 44 and 42 (north to south) and Weld County Roads 45 and 53 (west to east) that contain approximately 1,426 acres, of which 1,036 acres are irrigated land suitable to farm. Biosolids are a by-product of the wastewater treatment process. Because of its high nutrient content it makes an excellent "fertilizer" product. Broomfield sets aside approximately acres of irrigated land on the farm each year for biosolids beneficial reuse. The actual number of acres set aside each year varies annually. On November 28, 2000, City Council approved a cash lease agreement between the City and County of Broomfield and Robbin L. Peppler, dba Peppler Farms, a farm management company. This lease allowed the tenant to farm the acreage not in use for biosolids distribution and committed the tenant to spread biosolids from Broomfield on the property. The term of the current lease ends December 31, 2011 and requires an annual payment to Broomfield of $171,072 less a reduction of $165/acre for any acres that are set aside as noted above for biosolids distribution. The parties have proposed a Settlement Agreement and Agreement to Assume and Assign Lease (copy attached). The agreement would give Mount Farms access to the planted, but unharvested crops; require Mount Farms to comply with the terms of the lease, including the biosolids disposal provisions; and address outstanding credit issues. Resolution No would approve the proposed Settlement Agreement and Agreement to Assume and Assign Lease. CURRENT STATUS OF LEASE WITH PEPPLER FARMS In December 2010, Peppler Farms filed for bankruptcy. At that time, they were delinquent in their annual lease payment to Broomfield in the amount of $62,971. As of March 30, 2011 the next lease installment of $24,024 will be due, bringing the total amount owed by Peppler Farms to $86,995 as of that date. In September of 2010, the tenant seeded winter crops which are scheduled to be harvested in summer of The bankruptcy trustee has reported that Peppler Farms is not financially able to continue to farm the property and harvest the crops. In addition, the tenant has discontinued the spreading of Broomfield's biosolids on the farm property (which is a requirement of the lease) and this is generating additional expenses to Broomfield for composting of the material in the amount of approximately $2,100/week.

3 Weld County Biosolids Farm Assignment of Lease Page 3 of 3 PROPOSAL FROM MOUNT FARMS, LLC Another party, Mount Farms LLC, has expressed its interest in buying the growing crop as it exists today and assuming the remainder of the lease. To meet the agricultural needs of the crop in place, fertilizing and watering should start up April 1, In order to accomplish this, Mount Farms LLC would like to petition the bankruptcy court to approve the attached agreement. Parties to this agreement are Mount Farms, LLC; the United States Department of Agriculture through the Farm Services Agency (FSA); The City and County of Broomfield; and Joli Lofstedt, the Chapter 7 Trustee for the bankruptcy estate. If all parties sign the agreement and present it to the bankruptcy court, the court can take action to allow the agreement to go forward. This process by the bankruptcy court can take up to three weeks. In order to meet the April 1, 2011 date to salvage the existing crop, the agreement should be presented to the bankruptcy court by March 10, If Mount Farms, LLC is able to assume the lease for the remainder of 2011 under this process it will make the 2011 lease payment to Broomfield, for the period starting with the date of the assignment of the lease through the term of the lease, December 31, In addition, Mount Farms will uphold the obligations under the lease to spread the biosolids on the property resulting in a reduction of $2,100 a week in current operating costs as a direct result of eliminating the composting cost associated with this material. The trustee and FSA have reviewed the agreement and given their approval. Mount Farms is an LLC with its corporate office located at th Street, Suite 260, Greeley, Colorado, The partners in Mount Farms have over 65 years of combined experience farming in Northern Colorado. Currently they farm approximately 4,000 acres in the Fort Collins/Greeley area. In addition Mount Farms feeds 1,000-1,500 head of cattle. Jack Mount is also a 50% owner in Norcocpa LLC, a Greeley Colorado agricultural consulting firm working with farmers to assist them in managing agricultural business, marketing of crops, cattle, financial planning, banking, improving business performance and providing CPA services. The net worth of the Mount Farms Partners is in excess of $4 million dollars. Between now and the end of 2011, staff will work on a proposal for a long term lease arrangement to be brought before City Council and put in place after the current lease expires. PROPOSED RESOLUTION NO Proposed Resolution No would authorize the mayor, or mayor pro tem, to sign the Settlement Agreement and Agreement to Assume and Assign Lease for the property. Staff recommends approval of the resolution.

4 RESOLUTION NO A RESOLUTION APPROVING A SETTLEMENT AGREEMENT AND AGREEMENT TO ASSUME AND ASSIGN THE LEASE FOR THE CITY AND COUNTY OF BROOMFIELD'S WELD COUNTY BIOSOLIDS FARM BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY AND COUNTY OF BROOMFIELD, COLORADO: Section 1. The mayor or mayor pro tem is authorized to sign and the city clerk to attest, in form approved by the city and county attorney, a settlement agreement and agreement to assign the lease, attached hereto, by and between the City and County of Broomfield, Mount Farms LLC, the United States Department of Agriculture through its agency the Farm Service Agency, and Joli A. Lofstedt, Chapter 7 Trustee for the bankruptcy estate of Robbin Lynn Peppier and Gwyn Marie Peppier. Section 2. This resolution is effective upon its approval by the City Council. APPROVED on March 8, THE CITY AND COUNTY OF BROOMFIELD, COLORADO Mayor ATTEST: City & County Clerk City & County Attorney

5 SETTLEMENT AGREEMENT AND AGREEMENT TO ASSUME AND ASSIGN LEASE This Settlement Agreement and Agreement to Assume and Assign Lease ( Agreement ) is entered into this day of March, 2011, between Mount Farms, LLC ( Mount Farms ), the United States Department of Agriculture through its agency the Farm Service Agency (the FSA ), the City of Broomfield ( Broomfield ), and Joli A. Lofstedt, Chapter 7 Trustee for the bankruptcy estate of Robbin Lynn Peppler and Gwyn Marie Peppler (the Trustee ). The parties hereby stipulate and agree as follows: I. RECITALS A. On December 27, 2010 (the Petition Date ), Robbin Lynn Peppler and Gwyn Marie Peppler (collectively the Debtors ) filed for relief under Chapter 7 of Title 11 of the United States Code in the United States Bankruptcy Court for the District of Colorado (the Bankruptcy Court ). B. The Trustee is the duly appointed trustee of the Debtors Chapter 7 bankruptcy estate (the Estate ). C. On October 31, 2000, Mr. Peppler entered into a Cash Farm Lease agreement with lessor Broomfield (the Lease ) to lease certain real property in Weld County, Colorado more commonly known as API farm and consisting of approximately 1,426 +/- acres together with all buildings and improvements thereon (the Premises ). The term of the Lease expires on December 31, D. Under the terms of the Lease, prior to filing for relief the Debtors used the Premises for farming and to dispose of biosolids from Broomfield. E. Prior to the Petition Date, the Debtors planted 300 acres of planted but unharvested triticale and 120 acres of planted but unharvested winter wheat (the Crops ) on the Premises. The term Crops as used herein includes any and all proceeds realized from the harvest and sale of said Crops. F. Broomfield is a creditor of the Debtors. The Debtors owe the aggregate amount of $86,995 to Broomfield through April 1, 2011 for pre-petition and post-petition defaults under the terms of the Lease (the Lease Default ). G. The Estate has no funds with which to continue farming operations on the Premises, pay the cost of bringing the Crops to maturity and harvest, or cure the Lease Default to Broomfield. H. Prior to the Petition Date, the FSA loaned the Debtors the total amount of $300,000 (the FSA Loan ).

6 I. On April 6, 2010, to secure the Debtors repayment obligations under the FSA Loan, the Debtors granted the FSA a security interest against certain assets of the Debtors, including but not limited to the Crops, pursuant to a Farm Service Agency Financing Statement and Security Agreement. J. The FSA is a secured creditor of the Debtors, and as of the Petition Date the balance due the FSA under the FSA Loan is approximately $175,000. K. Prior to the Petition Date, the Debtors, through a third-party, tendered the FSA a check in the amount of $130, as partial repayment of the FSA Loan (the Check ). L. The FSA is holding the Check. Post-petition, the Trustee instructed the FSA not to deposit the Check, pending her investigation of the financial affairs of the Debtors. M. Mount Farms is a creditor of the Debtors. Mount Farms has the ability to bring the Crops to maturity and harvest. N. In order to timely resolve any and all issues in connection with the Crops, the Lease, the Lease Default, and the FSA Loan before April 1, 2011 when the Crops will require additional labor, fertilizer, water and power, the parties have agreed to enter into this Agreement on the terms and conditions set forth herein and agree that this Agreement is reasonable and in the best interest of all parties. II. TERMS NOW, THEREFORE, in consideration of the foregoing and the agreements, promises and covenants set forth below, and for other good and valuable consideration the receipt and sufficiency of which is hereby acknowledged, THE PARTIES HEREBY STIPULATE AND AGREE AS FOLLOWS: 1. Upon entry of an order by the Bankruptcy Court approving this Agreement, the FSA is authorized to deposit the Check. 2. Pursuant to 11 U.S.C. 365, the Trustee shall assume the Lease and assign the Lease to Mount Farms for the remaining term of April 1, 2011 through December 31, Mount Farms shall comply with the terms of the Lease, including the biosolids disposal provisions. However, the Trustee and Mount Farms shall not be obligated in any way to cure any portion of the Lease Default. Broomfield consents to the Trustee s assumption and assignment of the Lease to Mount Farms under these terms. 3. Mount Farms shall purchase the Crops and accept the assignment of the Lease for the total purchase price not to exceed $58,500, to be paid as follows: (a) Mount Farms shall provide one payment to the Trustee in the total amount of $15,000 on or within seven (7) days following Bankruptcy Court approval of this Agreement; and

7 (b) after applying the full amount of the Check to the balance of the FSA Loan, Mount Farms shall provide one payment to the FSA in an amount not to exceed $43,500 to pay any outstanding amounts owed to the FSA under the FSA Loan. This payment to the FSA shall be made on or within seven (7) days following Bankruptcy Court approval of this Agreement to be applied to the FSA Loan to pay said loan in full. 4. Upon entry of an order by the Bankruptcy Court approving this Agreement, any and all administrative claims raised or which could have been raised by Broomfield for the Lease Default from the Petition Date through the date Mount Farms assumes the Lease are forever discharged, completely released and waived. 5. This Agreement shall not be construed more strictly against one party as compared to another, as the parties consider that each has contributed materially and substantially to its preparation. 6. This Agreement may not be altered, amended, or modified in any respect, except in writing duly executed by the parties. 7. This Agreement shall inure to the benefit of, and be binding upon, the respective agents, predecessors, successors, and assigns of the parties, the creditors and the estate. 8. This Agreement shall be governed by and construed in accordance with the law and rules applicable in the United States Bankruptcy Court for the District of Colorado. Where state or substantive law other than the Bankruptcy Code controls, this Agreement shall be governed by the substantive law of the State of Colorado, without regard to its choice of law rules. 9. Any controversies regarding this Agreement shall be resolved in the United States Bankruptcy Court for the District of Colorado. Any action relating to, based upon, or arising from a breach of this Agreement shall be brought only in the United States Bankruptcy Court or the United States District Court for the District of Colorado, which shall retain jurisdiction over the subject matter and parties for this purpose. 10. The undersigned represent and warrant that they have full power and authority to enter into this Agreement and to bind the parties for which they have executed this Agreement. 11. The parties hereby affirm and acknowledge that they have read and reviewed the Agreement, and that they fully understand and appreciate the meaning of each of its terms, and that it is a voluntary, full and final compromise of the claims and actions referred to herein. 12. This Agreement may be executed in counterparts with the same force and effect as though all signatures appeared on one original document. Facsimile signatures

8 are binding and enforceable as if they were originals. 13. The terms of this Agreement are conditioned upon entry of an Order by the Bankruptcy Court approving this agreement. Counsel for Mount Farms shall file an application with the Bankruptcy Court for approval of this Agreement and serve notice required under Federal Rule of Bankruptcy Procedure In addition to all other available remedies, this Agreement shall be specifically enforceable by any party, and in the event of the failure of any party or parties to comply with the terms of this Agreement, equitable and/or legal relief may be sought by the party to the defaulting or breaching party. In the event of litigation to enforce the provisions of this Agreement, the prevailing party or parties shall recover reasonable attorney fees and costs from the non-prevailing party or parties. IN WITNESS THEREOF, Mount Farms, LLC, the United States Department of Agriculture through its agency the Farm Service Agency, the City of Broomfield, and Joli A. Lofstedt, Chapter 7 Trustee for the bankruptcy estate of Robbin Lynn Peppler and Gwyn Marie Peppler, have caused this Agreement to be executed as of the date written above. MOUNT FARMS, LLC, U.S. DEPARTMENT OF AGRICULTURE through the FARM SERVICE AGENCY, By: Jack Mount, President For: Mount Farms, LLC By: For: JOLI A. LOFSTEDT, CHAPTER 7 TRUSTEE THE CITY OF BROOMFIELD, Joli A. Lofstedt, Chapter 7 Trustee By: For the City of Broomfield