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Council Votes To Sue
Bill Beierwaltes
City Attorney Unlikely to Test Agreement In Court
Loveland - December 17, 2010

Loveland’s City Council voted for a second time Tuesday night, this time unanimously, to litigate against Loveland resident Bill
Beierwaltes and his company vNet in an attempt to recover $500,000 of a $900,000 2008 cash subsidy his company received in
and City Attorney John Duval to litigate but the direction was largely ignored and later changed.  Staff negotiated another agreement
with the company that purchased the assets of vNet, Russound.  Russound created a subsidiary named vNet LLC and was working
with Beierwaltes to novate his agreement with the city to the new entity.

Former Hewlett-packard employee and Loveland resident Bill Beierwaltes and his wife received a $900,000 subsidy from
Loveland taxpayer's in 2008 to move their company, Colorado vNet, to the old Water Pic building in south Loveland in exchange
for promising to consolidate at least 250 jobs at the new location by the end of 2012.  Councilmen Gutierrez and Solt asked that a
"clawback" be included to allow the city to recover all its money should Beierwaltes fail to perform under the agreement.  The
amendment, offered by Solt in 2008, failed to gain approval by his colleagues so a lesser clawback was approved.  The March
2008 agreement required Beierwaltes to payback upto $500,000 of the $900,000 should his company fail to meet the 250 job
requirement by 2012.

At a December 7, 2010 council meeting, Councilwoman Donna Rice, during council comments, inquired as to the status of the city’
s previously approved resolution to transfer the 2008 vNet agreement to Russound.  Loveland City Attorney, John Duval, reported
Russounds’ vNet LLC was negotiating a “lease swap” with yet another entity that may lease the space improved by the city’s
subsidy for vNet in 2008 and therefore was likely no longer interested in signing the newly approved agreement they negotiated.  
Rumors have abounded in the past month that vNet LLC has also laid-off employees and  is looking to move into a smaller facility.

Earlier this year, a slight majority of Loveland’s council voted to accept a newly negotiated agreement with Russound that would
replace the original agreement with Beierwaltes by lowering the liability by $100,000.  Russound was to give the city the original
2008 agreement guarantee of consolidating 250 jobs by 2012 at the improved facility.

At the December 7, meeting Klassen stated his colleagues didn’t want the new agreement with Russound to work since they didn’t
support it.  Shaffer corrected Klassen stating she voted against the revised agreement with Russound not because she didn’t want it
to work but because she had a low level of confidence the agreement would work.  Klassen asked whether they could give
Russound more time to counter-sign the agreement.  Councilwoman Donna Rice who supported the compromise commented
earlier in the meeting, “I cannot believe they haven’t signed it.”

Duval reminded the council that even if they file a lawsuit the council could negotiate a compromise with Beierwaltes to avoid going
to court.  Duval has shown timidity in the past about testing the city’s original 2008 agreement which he prepared in court as it
doesn’t contemplate a sale of the assets acquired with the subsidy only the company itself.  The Northern Colorado Business
Journal mistakenly reported December 16, that Colorado vNet was purchased by Russound from Beierwaltes.  In fact, Beierwaltes
never sold the legal entity that received the city’s money and signed the agreement but instead the assets of the company to
Russound which placed the assets into a newly created subsidiary named vNet LLC.

Russound's vNet LLC  has no agreement with the City of Loveland and therefore no legal obligation to accept the terms of
Beierwaltes' original 2008 agreement.  Now, it appears the lease-holder improvements and office furnishings purchased with the
city's money by Beierwaltes back in 2008 will be changing hands again for a second time if vNet indeed swaps its lease for the
former Water Pic building to yet another tenant.  The City of Loveland has no legal claim to those improvements or furnishings
purchased with city money only a personal garmented by the Beierwaltes.  Until last Tuesday, most of Loveland's council was not
willing to take Beierwaltes to court to recover the lost funds.


Origins of The vNet Debacle

In January of 2008 Rocky Scott, then head of McWhinney Enterprises of Loveland, pitched the Loveland City Council during their
annual retreat about a new way to bring jobs to the city.  As a board member of NCEDC, Northern Colorado Economic
Development Council, Scott was promoting the use of taxpayer cash subsidies to incentivize businesses to create local jobs.  

Ironically, the two newly elected Democrats on Loveland’s council at the time, Cecil Gutierrez and Kent Solt, urged caution over
the grand stimulus scheme to their colleagues, who were nearly all registered Republicans and self-described fiscal conservatives.  
Former councilmen Walt Skowron, Gene Pielin and Dave Clark quickly endorsed the subsidy for jobs pitch along with their
colleagues Larry Heckel and Daryle Klassen who still serve on Loveland’s City Council.  Scott enjoyed significant influence over
the five councilmen at the time who were often referred to as the “McWhinney five."

Today, Gutierrez and Solt along with their new colleagues are struggling to fix the legal and financial quagmire that resulted from the
stillborn subsidy agreement for vNet to bring jobs which was the result of Rocky Scott’s 2008 brainchild during the council’s annual
offsite retreat.

Less than a month after Scott’s pitch, the Loveland City Council voted to enter into an agreement with longtime Loveland
businessman and personal friend of several councilmen, Bill Beiewaltes, to move his privately owned firm, Colorado vNet, from
downtown Loveland into the old Water Pic building on 14th Street in south Loveland in hopes the company would grow.
Former Mayor Gene Pielin refused to allow public comment at the February 5, 2008 council meeting against the urging of both his
council colleagues and members of the audience who attended the meeting to argue against the subsidy.

Gutierrez pointed out to his colleagues during the February 2008 council meeting that the same early January morning Scott was
selling them the idea of providing cash subsidies for jobs in Loveland, the Pueblo Chieftain reported their city was taking Adam
Aircraft to court for accepting a $2.3 million subsidy but failing to create new jobs.  In what might be viewed today as an incredibly
prophetic moment, Gutierrez asked his colleagues in 2008 if they would be willing to litigate against a failing company that was
unable to meet their commitment for the subsidy once the money had been spent.

Gutierrez's question prompted the offer of a personal guarantee by Bill Beierwaltes who also spoke at the February 2008 council
meeting.  The council ultimately voted to approve the agreement to subsidize Colorado vNet but included the personal guarantee for
the money by Beierwaltes.

The December 14, 2010 council decision to litigate against Beierwaltes to payback $500,000 of the $900,000 he received will be a
test of whether the City Attorney properly crafted the agreement to protect the city's interest as directed by council in 2008 as the
result of Gutierrez and Solt's requests of their colleagues and staff.
Beierwaltes honor that gaurantee