Equity buy-in offering on hold

Creamery hoped to raise $5 million from community; $400,000 sold in first month

Originally published in the "2-26-09" issue.

Suspended. That’s the word to describe the current status of an offering to buy into Humboldt Creamery, making the rounds of Ferndale and the rest of the county over the past month.

The two individuals hired on contract by the creamery to make contacts with potential investors did not know Monday morning of the weekend meltdown at the creamery.

Ferndale’s Gregg Foster, former executive director of the Redwood Region Economic Development Corporation and Patrick Cleary, owner of KHUM, chair of the county’s Headwaters Fund and a former investment banker, were notified of the resignation of the creamery’s CEO and the suspension of the preferred securities offering by The Enterprise on Monday morning. The two quickly descended on the creamery’s Fernbridge office building to learn of the details surrounding the cryptic message in Rich Ghilarducci’s letter to suspend the sale because there “may be financial irregularities.”

“I’m disappointed,” said Foster, who now works in business development at KHUM. “You put a lot of trust in people who you work with for years, and what’s crazy for me is I didn’t know.”

Foster called the creamery a “bright spot” in the county but was busy emailing associates on Monday, notifying them of the suspension. He said about a dozen meetings with prospective investors had been held over the past 30 days.

The creamery’s Interim CEO Len Mayer said Monday that the cooperative hoped to raise $5 million to help “feed the growth of the company.” So far, he said, $400,000 had been committed. As to what happens to that money, Mayer said Tuesday, returning the funds was at the “top” of a priority list for the company.

“We had several projects that made sense,” he said, “and record sales. All kinds of good things. We don’t know where we stand now.”

Cleary said he was, like most others, “stunned” by the news. “But, I’m hopeful they are going to be okay,” he said, adding that “they’ve done so many great things.”

Cleary did confirm that the creamery had made a request to the Headwaters Fund last week for a $2.5 million investment in the preferred securities. Cleary said on Wednesday morning he had recused himself as board president from the meeting and from any conversations dealing with the creamery’s request, since he had entered into a contract with the company.

The Series B Preferred Equity Securities were pitched to dozens over the past month and represented a non-voting equity in the company. The minimum buy in was $10,000 and dividends would accumulate at a rate of 7-7/8 percent yearly.