CEDAR RAPIDS — The state of Iowa wants its money back.
An upstart company that surfaced in Cedar Rapids in 2011, secured support from local economic-development officials and won public incentives for two technologies that didn’t perform as promised has been told to return a $250,000 state grant and not to use other public aid awarded to it.
The Iowa Economic Development Authority has ruled that the company — once called AgSugar International and now Vertecra Inc., the travails of which were featured in a Gazette investigative story on Jan. 15 — is in default on its contract with the state for “non-compliance with (contract) covenants” and “material misrepresentation.”
In a letter that the company received March 26, Craig Block, the agency’s chief operating officer and general counsel, states that AgSugar International/Vertecra did not comply:
—- With project performance obligations and the requirement to use award funds only for (the) project.
—- With a stipulation that the contract not be materially changed unless approved in writing by (IEDA) before the change.
—- With a requirement that the company promptly provide (IEDA) with written notice of any major changes that would impact the success of the project.
The letter concludes: “Due to the nature of this default and the impossibility of cure, demand is hereby made for full repayment of the award in the amount of $250,000. This notice also will prevent the claiming of any tax credits associated with this award.”
A small $17,000 piece of the incentive package — the whole package was worth an estimated $600,000 and included worker-training assistance — involved a local property-tax break from the city of Cedar Rapids.
The Cedar Rapids City Council intends to end its financial commitment to the project, City Manager Jeff Pomeranz said.
In response to the state action, Dan Kazanas, Vertecra’s chief operating officer, responded in writing to the agency on March 30. He disagreed that the company is in default on its contract and asked the agency to reconsider.
Kazanas wrote that the company had spent the $250,000 state grant before it signed the state contract in October for it and before it got the money in November. The money was spent on testing and related expenses on the two bio-based technologies specified in the contract, he stated. Those tests proved in September that the two technologies “were probably not viable” for the commercial market, Kazanas wrote.
The company is moving ahead on other bio-based projects, which he said the company earlier had told IEDA it would do. In the near term, though, the company plans to assemble LED lighting products in a new building that the company will lease at 615 J Ave. NE.
Don Ross, a Cedar Rapids builder and developer who has been listed as a partner with Kazanas and others in the initial AgSugar venture, owns the new building, the cost of which he puts at $800,000. He is upbeat about the LED-assembly venture.
The LED venture is with Hybra Energy Corp. in Traverse City, Mich. Last week, Joe Thiel, Hybra’s managing director, said Hybra is “currently finalizing contract negotiations for the assembly rights” with Vertecra.
Walter “Skip” Emig, the AgSugar International/Vertecra CEO, was in Ross’ building late last week but declined to come out of the locked building to talk. Kazanas and Emig reside in the St. Louis area. Ross said Emig did not want to comment.
A Gazette story on Jan. 15 reported that company officials acknowledged they had determined in September that the two technologies that were the basis of the state award did not do what the inventor, former Missouri dentist Ted Lewis, said they would do. Company officials ended their relationship with the inventor that month.
The company’s application to the state for economic development help and the subsequent signed contract with the state specified the grant award was to help AgSugar International/Vertecra assemble those two technologies.
Tina Hoffman, IEDA’s marketing and communications director, said the agency’s decision to end its contract with AgSugar International/Vertecra came after a meeting with company officials on Jan. 30.
Economic development representatives from the Cedar Rapids Metro Economic Alliance also attended. The alliance and the Cedar Rapids Entrepreneurial Development Center helped AgSugar International prepare its application for state assistance.
Hoffman said the agency will review Vertecra’s letter of response to the demand that it return its grant money.
She added, though: “If you don’t follow the terms of the contact — that’s the standard we’re holding companies to — even if you mean well, that doesn’t mean that a contract got met.”