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MAPI Questions

Subject: Re: Questions to Ask
From: "Roger Johnson"
Date: Mon, 24 Nov 2008 11:01:48 -0700
To: "Nick Baker"

Nick,  

I only sent you the questions because rhetorical questions aren't accusations but lead to the same conclusions.  In response to your questions:  

1.  We negotiated with Altus from October 2005 through March 2006.  Up until March the concept was that (FSB Altus vis-a'-vis Altus Ventures) would partner with 4S Development and Grassy Creek Holding Co.  Altus would provide capital (equity financing), debt financing and accounting and tax reporting services.   

2.  Representations by Altus went like this: "We are a bank, we have a vault, and we have a network/consortium of 250 banks that we participate loans with. It usually takes 48 to 72 hours to subscribe out an offering to those banks if we take the lead role."  " We are a regulated entity with sophisticated accounting systems in place, and we close out our accounting at the end of each business day so we know right where we are with each project we are involved with."  "Bill Grissom is our CFO/CPA.  He's an asshole, but he's our asshole."  (sorry about the language...this is how they talk).  

3.  Ron and I were to take charge of planning, development and marketing.  By March 21st 2006, Altus had begun to introduce new parties to the "team."..Robinson Construction, Private Capital Group (PCG) and a planning firm...PDA out of Newport Beach, CA. Don Anderson promoted the use of Robinson because Robinson was a big construction firm with billings of $30 million per month, and had all of the men and equipment to do all three  projects at once.  The representations went like this..."Robinson can throw all the necessary men and equipment at the projects to get them done professionally, on time, and at lower cost than local vendors, and what's more, he will extend us use of his $100 million credit lines and bonding so that we only have to pay for development costs once per year (each June)  when we've had the winter and spring to get sales in place."  It was represented initially that he would extend $8 million in credit to MAPI, and do the work for his cost plus 5%."  "If we give him part of the project (membership interest) on a phase-by-phase basis he will have the incentive to keep his costs low and work efficiently for the bottom line."   

4.  It was in April of 2006 that we had a meeting in Phoenix with all of the potential  members...Anderson, Doughty, Keys (Oasis), the Sills family (4S Development), Randy Robinson and his entourage (Robinson Construction) and myself (Grassy Creek Holding Company).  to determine the final make-up of MAPI ownership and go-forward strategies.  Anderson proposed the 15%-23%-47% and 14% split+/-.  I  was not happy with the 14.25% but reasoned that if Altus put in the capital and paid my loans off, bought out my partners, and were able to provide for on-going capital requirements for all three projects, I wold have a smaller piece of a much larger pie. I chose not to be greedy.  (Also, if it didn't work out with Robinson, and he was only involved on a phase-by-phase basis, I reasoned that the 15% would be re-distributed and things would level out.  I was too stupid to see at that point that Altus was really after Robinson's financing and not necessarily lower cost or his expertise.  

5.  We formed MAPI in 2006 and started production in July 2006.  Right away, Robinson's numbers went off the chart.  He hired local vendors and front-range vendors as well as bringing in his own equipment and staff from Oregon. His mobilization costs were $300,000 to $400,000.  He over graded the Lake Village 41 acre site by 18" and had to then go back and replace the 18" he scraped off.  He screwed up the road base and gravel on Mt. Harris moving the same dirt several times and mis-applied road base at irregular depths until a local vendor (whom I had used for years) had to be called in to go back and fix it for them, etc. His $8 million in available financing became $5 million.  They never consulted on anything and did what they pleased on the projects...causing more expense in all the wrong places.  They still did not finish lake Village or Mt. Harris by November.  Altus was getting the invoices and so Ron and I were not up to speed on a day-to-day basis, When accounting was requested, we got jerked around and told that they would send them but did not follow up.  I had my hands full with marketing and sales so I did not pay attention the way I would have if I were doing the work.  While the sales were closing, and the work was getting done, and the money was flowing, everyone took the attitude that we were just going through the learning curve with each other and it would all work out...after all, we have a 20 year project. We assumed Altus had a handle on the finances since that was their job.  Things moved quickly as three projects phases (Mt. Harris, Hidden Springs Ranch, and Lake Village) were substantially finished between July and November of 2006.     

6.  MAPI took out a development/construction loan from Vectra Bank in September of 2006 for $3.3 million.  This should have been the big red flag.  Altus was going to our local bankers to raise (short term) capital for reimbursement of Robinson Construction costs and for homes at the Lake Village.  Ron and I and Don and Robert Keys were the guarantors.  This financing should have been obtained from Altus and should not have required required personal guarantees.  According to Altus, this was an efficient use of credit and we could "keep our powder dry" for expenses and ongoing development.  Again, in retrospect, they didn't have access to capital, and had sweet talked the Vectra Bank President, David Bruni into making the loan in return for a promise of a creative position as President of MAPI with a $100,000 signing bonus, $180,000 salary, benefits, paid vacation, and participation in 10% of the revenue of the company as a "bonus."   These facts were not discovered until after Bruni was hired by Anderson in May of 2007 and Ron and I finally got a copy of Bruni's employment agreement in June of 2007.     

7.  Grassy Creek Holding Company deeded the 23 Mt. Harris lots to MAPI at $750,000 each or $17.5 million to MAPI in October of 2006.  I didn't want to deed any land until I had seen some evidence of capital from Altus.  Altus came up with operating and development capital from July to October of 2006 in amounts that corresponded to the invoices being supplied by Robinson.  They called this capital "loans" to GCHC and to 4S from MAPI in advance of the land being deeded into MAPI.  GCHC and 4S then, in turn paid Robinson the amount of the invoices.  The understanding was that once the land was deeded into MAPI, these "loans" would go away (be converted to capital contributions into MAPI).  This was Grissom's plan.  Instead, as we sold lots to third parties, Altus repaid themselves out of lot proceeds, distributed down payments back to "buyers" , paid themselves "consulting fees," contracted for condos, bought a house in Steamboat, reimbursed themselves for trips, dinners, hotels, paid themselves "bonus's," etc.  all in the interest of doing MAPI business.  It turned out that everything had been funded out of Mt. Harris lot sales and that Altus was not covering all of the expenses. 

We didn't realize all of this at the time.  We are still waiting for accounting from 2006.  

8.  In November 2006, Altus wanted to have an auction with Sheldon Good for lots at all three projects.  Ron and I both thought that this was a bad idea.  My experience with auction companies has all been negative.  Altus said it would create more exposure for the projects over the winter and help us jump-start sales for the spring.  Ron and I still were thinking that Altus had money and so we acquiesced. We got killed at the auction like Ron and I knew we would.  It turns out that Altus was trying to raise cash through sales proceeds because they were not able to get capital together through their own sources or through Robert Keys at PCG (who is also part of Oasis/Altus Ventures).    

9.  We didn't get formal plat approval for Lake Village until about April of 2007.  My company had been marketing for pre sales, working with design firms, decorators, lenders etc. to get homes set up for sale to end-users through the winter.  We had about 23 contracts and a number of soft reservations for homes by May of 2007.  I didn't want to get to far ahead of construction because delivery delays create a lot of stress for buyers.  That, and the Altus "team member."..John Price who was heading up the vertical construction at Lake Village was appearing inept in that he was constantly changing prices, taking too long to put up models, etc.  I think he and Bruni were so busy counting up their "bonus" money that they weren't doing their jobs and felt protected by Altus.   

10. By June of 2007, we had been contacted by an Altus investor from another unrelated project, who told us to be careful, and to "Goggle" Altus Ventures.  We did so.  What we found, in combination with an obvious shortage of funding (Bruni, Anderson and Doughty had been supposedly putting together construction financing with Textron and others for months) and the terms of the Bruni contract, made Ron and I very nervous.  It actually became necessary for Ron and I to go to our own sources for financing just to meet short term obligations because Altus could not.    

11.  In July I told Altus that I was beginning the process of finding additional capital and had set up meetings.  I was told that I should turn over my sources to Anderson and Bruni because they had the "right skill sets" to put the deal together.  I ignored the ri requests and began a series of meetings.  By the end of July, Ron and I ad determined that we needed to precipitate a crisis...Altus obviously couldn't provide capital or even debt financing, they were spending money in ways that were not approved by the managers or majority members of MAPI, and they refused to enter into a "Unit Purchase Agreement" that required them to follow through on their financing commitments until Ron and I had deeded several thousand more acres into MAPI.  They wanted the Unit Purchase Agreement to give them complete authority of MAPI, including the additional acreage they wanted, and they would only be held to a "best efforts" performance standard...without any capital contribution whatsoever. 

  12.  On August 2, 2007, Ron and I called a members meeting to which Altus and Robinson were invited, and we appointed additional managers, and then passed a resolution to have a full outside audit commissioned to determine the real financial status of MAPI.   

13.  Altus an Robinson went berserk.  They resigned, they threatened, they filed liens (through Robinson), they called notes, they've intimated foreclosure, they've blocked new financing, blocked reorganization, etc. This has now been going on for 15 months.   

Sorry for the length of this narrative.  I just want to give you the favor and the answer to some of your questions. 

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