Part One, November l984 to
November 12 of l987
This summary begins just prior to a June 30, 1987 submission of a Proposal for a joint venture between Associates and NIS Development Corp. (NISD), a wholly owned subsidiary of HeritageNIS Bank for Savings (Heritage), for the development of the Cummington Farms and Berkshire Snow Basin property.
Berkshire Snow Basin
In November 1984, Edwin Waszkelewicz purchased two parcels of land, consisting of at 1east 49 acres, in Cummington, Massachusetts, known as the Berkshire Snow Basin ski area on Bryant Mountain, from Ski Slopes, Inc. (Slopes). Waszkelewicz paid Slopes $150,000 for the real estate, goodwill and tangible personal property which it owned. The terms of the purchase required $75,000 in cash and a $75,000 note for 3 years, at 13%, amortized over 10 years, secured by a second mortgage. Northampton Institution for Savings (NIS) lent Waszkelewicz $133,000 secured by a first mortgage on this property.
In December of the same year, Waszkelewicz purchased an additional two parcels of land, consisting of approximately 353 acres, in Cummington, Massachusetts, (on the upper half of Bryant Mountain) for $60,000, from Harold C. Jr. and Barbara Z. Gardenier (the Gardeniers). The Gardeniers financed $50,000 of the purchase price by taking back a note and first mortgage on the 353 acres of land.
Between November 1984 and February 1985, NIS lent Waszkelewicz $75,000 on these two parcels of land secured by a second mortgage.
With ownership of one side and a portion of the plateaulike top of Bryant Mountain, Waszkelewicz planned on developing a year round resort. His plan included more than 1,000 feet of ski trails with lights for night skiing; chair lifts to the top of the mountain; an artificial snowmaking operation; and, condominiums. At the top of the mountain, Waszkelewicz envisioned a nine hole golf course; a restaurant with a panoramic view, and cross-country skiing. Additionally, there was another 270 acres of land adjacent to the land Waszkelewicz owned on the top of the mountain, that if acquired, would allow for an 18 hole golf course.
On February 27, 1985, Huntley issued a report relative to their review of the engineering feasibility of the proposed improvements to BSB. The Huntley report cautioned that “We have attempted to prepare a conceptual report with limited data and under very tight time constraints for budgetary purposes only.” They recommended that “a detailed engineering evaluation of the options including meetings with the reviewing agencies be conducted prior to the expenditures of substantial amounts of capital.”
The Huntley report identified the three major areas of review as: 1) the access road to the top of the mountain; 2) the sewage disposal system; and, 3) the water supply systems. Huntley also concluded that the total estimated costs for these improvements to BSB would be between $1.165 million and $1.840 Million.
A meeting of the Town of Cummington Planning Board was held on September 19, 1985 to discuss with Waszkelewicz his plans for a proposed resort at the Basin. Town support for his project was considered essential to his ability to obtain financial backing of between $8$20 million for the project. No decision was reached at the town…’meeting; however. Town officials and property owners left the meeting with concerns relative to Waszkelewicz’s vagueness about this project that would double the size of the town and the demands on its municipal services.
As of February 6, l986, the NIS loan balance on the account was approximately $365,000. Including in this amount was an unsecured loan said to be supported by a guaranty from Attorney Donald Todrin. According to a July 8, l986 letter from Labovitz to Waszkelewicz’s attorney, a meeting was held at Heritage Bank on June 25, to discuss the BB loan. At that meeting, Waszkelewicz requested a “status quo” on matured obligations owed Heritage while he attempted to obtain funds for a feasibility study to assist with the sale of the ski area and adjoining property. He also indicated that he had: taken control over harvesting activities of growing timber a the site; contacted Huntley to seek an early accommodation for a feasibility study; been meeting with town officials to clarify prior proposals and obtain the supportive back by the town of Cummington “as such comfort remains an obvious condition-precedent to any potential implementation of any feasibility study and development”
On August 6, l986, Goggins & Whalen was given the exclusive right to sell the 480 acres of the Basin for $1.1 million. The listing brokers were Denny Nolan and Charles Dole. On August 27, l986, Huntley presented Smith with a proposal of $32,000 for the preparation of a feasibility study/development impact statement. On September 30, Walter LaBonte of LaBonte Co. Inc. appraised the machinery and equipment at the Basin for Smith. His estimate of value was $115,530 (fair market value) and $52,500 (liquidation value). On October 3, l986, Goggins & Whalen wrote to Mike Smith in support of the need for a feasibility study to assist with the sale of the property. They indicated that negotiations were taking place with one party who had a serious interest in becoming involved with the ski area.
On October 6, 1986, Cooley-Shrair officially notified Waszkelewicz of his default on his loan and the bank’s right to accelerate the debt if the default was not cured. On October 30, 1986, Snoengineering, Inc. (Snow) provided Heritage Vice President Michael P. Smith with a proposal to perform a preliminary site evaluation of the ski development on BSB. Editing changes to this proposal were suggested by Labovitz.
At a meeting held on November 26, 1986, Smith informed the Heritage Board that the bank had agreed to pay for a preliminary survey of BSB to be performed by Snow. In return, Waszkelewicz had signed an agreement holding Heritage harmless from previous misunderstandings with David W. Shearer, prior to his resignation. Additionally, the foreclosure process would continue; however, it was expected to take at least 90 days.
Snow issued its preliminary site evaluation report of BSB on January 9, 1987. Relative to its existing potential, Snow concluded that “The existing ski development is basically of very limited nature, has a comfortable carrying capacity ‘ of approximately 500-600 skiers per day, and is comprised of rather old equipment and structures of somewhat marginal nature. The area can certainly be made operational and can continue to provide ski experience of rather spartan nature, but by no means can the Berkshire Snow Basin be considered to be economically viable within its regional competitive framework.” Snow estimated the cost to rehabilitate the existing ski facilities and expand them to their ultimate capacity of 1500 skiers per day to be approximately $4$5 million, exclusive of the cost of an access road or the real estate development of other amenities such as the golf course.
As part of its site evaluation, representatives from Snow met with the Cummington Planning Board and Selectmen. As a result of their meeting, Snow concluded that “… current zoning laws would undoubtedly preclude any commercial attractive real estate development, especially in view of the high cost of extending utilities service which would be required for oneacre lot subdivisions under marginal soil conditions.” Additionally, planning board members provided a list of other town concerns, including water, sewerage, parking, roads, traffic, real estate values, population growth, character of the town, schools, emergency services, real estate values, etc. The Snow report stated that most of these concerns could be addressed by an environmental impact study; however,”…it is doubtful that anyone with a prudent pocketbook would be motivated to undertake such a study unless there were commitments in writing from the town that they would allow a form of Planned Unit Development or provide a major variance to town zoning which would permit the development of an economically viable real estate program.
At a January 21, 1987 meeting, Smith informed the Heritage Executive Committee that the Snow report had been completed and that it indicated that a substantial upfront and end result financial investment would be required to develop the Basin. He further indicated that foreclosure proceedings were underway and that Heritage had loans in excess of $300M on the property.
The BSB property was discussed at a May 27, 1987 Associates side meeting, attended by Pichette, Goggins and Beggs. One of the group informed the others that Smith had indicated that the Basin would be auctioned in June. Smith had suggested that if no one were willing to buy out the bank for the money it had into the Basin at the auction, Associates would be in a position to negotiate with Heritage to take over the property. Smith encouraged the Partners to attend the auction.
According to notices of foreclosure prepared by Cooley Shrair on June 4, 1987, the Basin debt was $320,000 plus accrued interest of an additional $38,000. On June 17, 1987, two days before the auction, Tom Butova of Smith & Reynolds provided Mike Smith with an appraisal. Butova estimated the value of the approximately 485 acres of land and four buildings thereon to be $350M.
At a meeting of Associates held on June 17, 1987, Pichette and Beggs confirmed that they would attend the auction to observe the results and reconfirm Associates’ interest level to Smith.
On June 24, 1987, Smith reported to the Heritage Board that the BSB foreclosure had taken place on June 19, 1987. Smith felt that Heritage was in a fairly good position as it had bid $275M on the property and had acquired adjacent parcels of land in the process. He further indicated that he would now entertain bids from interested parties and was optimistic that no loss would be incurred.
The auction was discussed at a June 24, 1987 Associates meeting. The Partners reported that a discussion would be held with Mike Smith relative to the possibility of doing a joint venture with Heritage to develop the property in conjunction with Cummington Farms. The Partners were informed that Pichette was developing a proposal for both properties to present to Heritage on July 1, 1987.
The Cummington Farms property consisted of an old dairy farm, of approximately 550 acres, with a large hay barn as its centerpiece, located about nine miles from the Basin and within the towns of Plainfield (20%), and Cummington and Ashfield (80%). Sometime during 1984 or 1985, the owners of the property, The Franklin Group, listed the property for sale with Goggins & Whalen for $880,000.
In September 1986, Art Pichette of Valley Design & Development met with one of the partners of Franklin, Ms. Jean Dawson, at Goggins &Whalen. The purpose of the meeting was to discuss a proposal by Associates to lease/purchase the property. Following this meeting, on September 12, 1986, Pichette formally outlined the proposal options in a letter submitted to Dawson. Each of the two proposals included the future purchase of the Cummington Farms real estate and personal property.
The first option consisted of the straight acquisition of the property for $630,000. Under this option, the actual purchase of the property was to take place six months from the date that an actual purchase and sale agreement was executed. This option would enable Franklin to operate the crosscountry facility during the current season and would allow Associates time to conduct percolation tests and to arrange financing. The purchase of the property would be subject to positive perk testing and Associates’ ability to obtain financing.
The second option also provided for the purchase of the property within six months of the signing of a purchase and sale agreement. However, the purchase price proposed under this option was $650,000 and Associates was to lease the property during the interim six months. The lease amount of $5,000 per month was to be applied to the purchase price.
On September 16, 1986, Pichette acknowledged Dawson’s reply to his September 12, 1986 lease/purchase proposal, which bad been conveyed through Dole. It appears that Dawson submitted a counter proposal which included: monthly lease payments of $6,000 that would not be applied to the purchase price; a purchase price of $660,000; the sharing of profits during the lease period; and 90 and 30 day windows for obtaining bank financing and performing perch tests, respectively. Pichette agreed to the $6,000 monthly lease amount, the $660,000 purchase price, and to the sharing of profits in excess of $100,000. However, he insisted that 120 days was required for bank financing and that the lease payments be applied to the purchase price. Pichette also proposed a purchase price of $640,000 in the event that Dawson wished to execute a straight sale.”
During an interview with a FDIC representative, Dawson indicated that Dole came to her home in late 1986 with an offer from Associates to purchase the property for $660M. Dawson informed Dole that she only had part of the controlling interests and was not authorized to sign for the group; however, he was persuasive and indicated that it was a nonbinding offer. On September 30, 1986, Dawson signed a real estate agreement to sell the property for $660,000
The terms of the real estate agreement required that: a $50,000 brokerage commission be paid to Goggins & Whalen; the property be leased for $6,000 per month by Associates; the lease payments be applied to the purchase price; the seller be paid 15% commission of gross receipts above $100,000; perk tests be taken within 30 days of October 15, 1986; a purchase and sale agreement be signed by October 15, 1986; and, all obligations of both parties would cease and the $30,000 deposit would be returned to the buyer, if bank financing was diligently sought and could not be obtained before January 31, 1987.
In October 1986, Art Pichette and his brother, Attorney Richard G. Pichette, unsuccessfully attempted to schedule meetings with Dawson to develop an inventory listing and to draft the P&S. According to Dawson, after she had signed the September 30, 1986 real, estate agreement, she had trouble getting the other owners to agree to it. The Associates filed a $1 million lawsuit against Franklin on November 17, 1986 and obtained a “Lis Pendens” on the property in February 1987.
On November 1, 1986, Tom Beggs informed Pichette and Goggins that a group of Cummington residents were preparing a petition to oppose the acquisition and/or development of the property. Beggs suggested the development of a public strategy and the hiring of a publicist. On November 12, 1986, Beggs suggested that P. Sackrey be retained as publicist as she had many contacts and was leaving her position as Hampshire County Commissioner in a few months.
Following Associates’ filing of the lawsuit against Franklin, Dawson filed a complaint against Goggins & Whalen with the Massachusetts Board of Registration, of Real Estate Brokers and Realtors (Mass. Realtors) in Boston, Massachusetts. Mr. Occhipinti of the licensing board scheduled an April 7, l987 hearing on the matter. Three days prior to the hearing, Pat Goggins contacted Dawson and offered to drop the lawsuit and purchase the Cummington Farms property for $630,000. After consulting with her attorney and striking an agreement with Goggins to drop the Goggins & Whalen broker’s commission, Dawson agreed to drop her charges against Goggins & Whalen with the Mass. Realtors.
On June 1, 1987, Attorney Pichette informed Associates that a settlement was expected from Dawson and her partners within the week. Franklin had agreed to fully cooperate in getting the Mass. Realtors complaints dismissed. Attorney Pichette had spoken to Mr. Occhipinti of the Mass. Realtors and was assured that the file would be closed upon the presentment of a signed settlement agreement between the parties involved. Additionally, Attorney Pichette cautioned Associates partners that they should use extra care in meeting their obligations under the Purchase and Sale agreement that was negotiated as Dawson and Franklin “…would probably be thrilled if the sale was never consummated.”
A purchase and sale agreement was executed on June 12, 1987 between Dawson, Franklin and the Cummington Farm Associates. The Associates provided the sellers with a $30,000 deposit and agreed to pay a total of $630,000 for approximately 700 acres of land by August 15, 1987. The purchase of the property was subject to several conditions including but not limited to:
1. Associates being able to obtain bank financing of $504,000 prior to July 31, 1987;
2. the right of Associates to inspect, perform perk testing, and survey the property by July 15, 1987; and
3. the right of Associates to have the property inspected for hazardous material by July 31, 1987.
The agreement also provided Associates with the right to cancel the contract without liability based upon their dissatisfaction with any of the above test results. However, the return of the deposit was subject to a June 1987 Memorandum of Agreement between the parties which purportedly set forth the terms concerning the final resolution of the pending litigation between the parties.
At June 17th and 24th meetings of Associates, Partners reported their progress in arranging for inspections and testing of the property by the deadlines contained in the P&S. Most inspections were scheduled to be completed by July 1, 1987, the date of a scheduled meeting with Mike Smith at Heritage. The Partners also decided that Pat Sackrey should play a role in the development of the project because of her experience in the Hilltowns.
On May 27, 1987, approximately eight months after the execution of a real estate agreement to purchase the property, Goggins & Whalen Real Estate, Inc. ; Valley Design and Development Corp. ; consisting of Arthur Pichette , Dennis Gray , Christopher Riddle , John Kuhn, and William Gillen ; and, Thomas Beggs , (collectively and as restructured referred to hereafter as “Partners”), met with Nordic Group International (NGI) and Berkshire Design Group (BDG). The purpose of the meeting was to discuss the parameters and costs associated with their coordinated effort to study the development potential of the property.
By June 17, 1987, arrangements were in process for building inspections, land tests and a title search of the property. Additionally, the Partners notified Nordic Group International and Berkshire Design Group to proceed in. accordance with their proposed plan of action. Proforma financial information developed by Beggs were reviewed and modifications suggested.
On June 30, 1987, Pichette provided Mike Smith with a financing and joint venture proposal. The proposed joint venture project consisted of a four-season resort on the Cummington Farms property with crosscountry skiing and a second home housing component. The Berkshire Ski Basin property was to be incorporated within the plans to develop the CF property; thereby complimenting the planned crosscountry skiing facility with downhill skiing. According to Pichette “Even though the Snow Engineering report prepared for Heritage painted a gloomy picture, given the current conditions and limitations noted therein, it would seem that the opportunities for sharing of equipment, staff, and perhaps activities and housing developments might well make the development viable.”
The financial information attached to Associates’ proposal related solely to the CF project and did not include acquisition, planning or development costs associated with BSB. Pichette indicated that “we would suggest that additional planning monies be added to the budget to include Cummington Snow Basin as a part of the overall development”. The information did not contain any specifically identified construction or rehabilitation costs for either property until “…planning activities are completed and the development team is confident of viability.” The Cummington Farms proformas essentially revealed that $1.5 million would be needed for costs associated with acquisition, planning, and debt service during the first year of ownership.
Under the Purchase and Sales Agreement with the owners, the Partners had until July 15, 1987 to backout of the purchase offer if perk tests yielded unfavorable results. Prior to the July 15, 1987 deadline, 32 deep hole explorations had been completed without any successful perk tests and the Partners elected not to backout of the P&S. At a July 14, 1987 Associates meeting, the Partners were informed that the frontage lots did not perk at all and that 5 of the 32 pits tested positive. This information is inconsistent with the Almer Huntley, Jr. & Associates, Inc. (Huntley) soil logs which indicate that 32″ deep hole tests were conducted with no percolation tests performed on any of the 32 test pits.
Cummington Farms Associates (Associates)
The original partners in Associates were Goggins, Pichette and Beggs. This association appears to have been informally organized in 1986 for the purpose of acquiring and developing the CF property.
A draft of the Associates Agreement had been distributed to Beggs, Pichette and Goggins in June 1987 for review. According to a June 24, 1987 memorandum from Beggs to Goggins and Pichette, he was concerned about Associates as a “viable and mutually beneficial partnership”. Beggs indicated that Goggins and Pichette had made it clear that they were an ongoing entity and that he was a new person wanting to participate. It appears that Beggs was upset with the lack of equality built into the drafted Associates Agreement and viewed Attorney Pichette’s involvement as a move to ensure that the interests of his brother, Pichette, and Goggins were protected.104 According to Associates minutes of the same date, the role of the executive secretary needed to be clarified as administrative and not as an authority or policy making role. 105
A redraft of the Associates Agreement was completed on July 10, 1987. This redrafted Associates Agreement named Beggs as the initial Managing Partner, responsible for management and administration of the day to day operations of the partnership.
However, no Partner could enter into agreements in excess of one year; incur any liability, borrow or lend money; mortgage or pledge assets; release, settle or compromise any debts or claims; or, sell, transfer or exchange any assets without a vote of the Partners having a majority interest in the partnership. This redrafted Associates Agreement reflected the following ownership interests:
Thomas J. Beggs 23 1/3%
Goggins and Whalen Insurance Agency, Inc. 23 1/3%
Valley Design and Development Corp. 23 1/3%
NIS Development Corp. 30%
CHRONOLQGY OF EVENTS
Heritage Directors Loan Committee Meeting July 1, 1987111
Smith indicated that he was meeting with a potential buyer of the BSB property on that day. It appears that Smith was referring to the meeting scheduled with Pichette to discuss the joint venture proposal relative to CF and BSB.
<a name=”Top”>On July 2, 1987, Pichette informed Associates that fifteen deep hole tests had been conducted for purposes of analyzing soil conditions relative to perk testing. Only two of the holes showed favorable results. Pichette did not feel that this was as discouraging as it might be in light of the number of areas left to be tested and the prospect of using Berkshire Ski Basin for some if not all of the housing. Pichette also indicated his belief that it was unlikely that the Partners would choose to back out of the acquisition at this point.112 Huntley’s soil log records reflect that no perk tests were performed on these fifteen test pits.113 <a name=”Bot”>
Summary Associates meeting July 14, 1987114
Representatives from Huntley were present during this meeting. The Partners were informed that only 5 of 32 deep holes dug, tested positive. The positive area was approximately 1 km. square and west of the pond. The frontage lots did not perk at all. It was suggested that building could occur anywhere and that water could be pumped to the area that tested positive. The property was reported to be largely ledge, clay, and hardpan a couple feet below the surface. Huntley suggested that it would be best to be a condo water/sewer company and avoid the public utilities at all costs. Although west of the pond was good, east of the pond may not be. Additionally, the drinking water supply may not be adequate for 100 units and the cost of wells for each unit would be approximately the same as a central system for 100 units: (1) sewer $5,000$10,000 per unit, and (2) water $2500$5,000 per unit. Huntley’s soil logs confirm that 32 deep hole tests were conducted through July 9, 1987; however, no perk tests were performed on any of these 32 test pits.115
Summary Associates meeting July 23, 1987116
The Partners decided that development fees would not be preapportioned to partners. A fee for each stage of the project was to be decided upon and all developers were to draw against that amount. A system and schedule was to be developed for partners to submit fee and expense invoices. Partners were asked to review the proposed Associates Agreement by the next meeting. Additionally, the partners were informed that the bank’s share of the partnership was proposed to be 33.4% and not the 30% contained in the draft Associates Agreement. The remaining ownership could then easily be divided among the three remaining partners.
During the inspection period the partners became aware that the CF property consisted of much less acreage than the 700 acres indicated in the June 12, 1987 P&S. It was decided that Associates should not pursue a sales price reduction to compensate for the lesser number of acres of land.
On July 28, 1987, Butova of S&R submitted an appraisal of Cummington Farms to Smith. Butova’s opinion of value of $800,000, as of July 10, 1987, was based on the market value of the property and included “the new addition.” 117
Summary Associates meeting August 3, 1987118
The purpose of this meeting was to discuss NISD’s participation in the joint venture. Beginning with this meeting, Smith regularly attended the Associates meetings. The Partners were informed that the bank needed a positive earnings per share (EPS) proforma, including depreciation and debt service. Associates would have certain expense requirements with the bank as a partner, i.e., certified audits. Associates should consider bringing the bank on as a partner on January 1, 1988 as the bank cannot show negative earnings in any calendar year on any given project. The bank could lend money to CF in 1987 with enough to cover debt service charges.
Summary Associates meeting August 6, 1987119
The Partners were informed that a meeting with HDS and Attorney Andrew Siegel had taken place on August 5, 1987. The loan closing was delayed due to several issues that had surfaced. There were missing heirs to the CF property involving approximately 177 acres. A resolution would take approximately six to eight months and would require a filing with the Northampton probate court. The cost would be approximately $9M: $7.5M for legal fees and $1.5M for other fees. The seller’s attorney agreed to inquire about the possibility of a $9M escrow to resolve this matter.
The Partners discussed the issue of the actual CF acreage being closer to 550 than the 700 stated in the P&S. While Associates had the documents in escrow relative to the previous law suit, the sellers had the $30,000 deposit in escrow. It was noted that the cost of a survey is the responsibility of the purchaser unless stipulated otherwise in the P&S. HDS was uncomfortable with approximate descriptions and the Partners agreed that Attorney Siegel should be asked directly if a survey was needed. The Group also decided that they would not sue the sellers on the probability of minimal net
gain to Associates.
There could be a problem with Lawyer’s Title Insurance and coverage might require a $25,000$50,000 escrow to be taken from the seller’s proceeds. Without coverage, a 177 acres could be in jeopardy with a maximum probable value of $80,000 $90,000. The sellers might not agree to the escrow; however, they would have problems selling the property because they would be required to reveal these deficiencies now that they were aware of them.
Summary Associates meeting August 7, 1987120
At this meeting suggestions from the bank’s attorney relative
to the Associates Agreement were reviewed. Partners indicated that their willingness to accept terms proposed by the bank’s attorney was on the basis of their ability to work with Smith
as the bank’s representative. It was also stated that this point probably could not be written into the Associates Agreement, but that it needed to be understood by all. Additional issues discussed included the possibility of other equity partners, with John Oliver specifically mentioned; an inquiry of Powell Road Associates relative to the 94 acres of land that they own on the top of BSB; and, revised proformas for BSB incorporating the purchase price of $360,000, engineering costs of $40,000, trail work of $100,000 and $16,000 in back taxes.
Summary Associates meeting August 12, 1987121
This meeting was essentially devoted to a three-hour presentation by NGI and BDG of their preliminary site investigation of the CF property. Areas of concern included: access to CF would be through Cummington Village, traffic issues were bound to surface; many locals considered the CF property to be their own; there was a very strong concern for the environment on the part of the locals; potential refuse problems existed; locals were known to rally to causes very rapidly and forcefully; no records were available relative to water and sewerage; Accurate maps were needed to do any serious work; a serious insect problem was experienced on the property; trail development costs could run as high as $500,000; strong bridges and culverts were needed and gravel or stone would have to be trucked in; approximately 270 acres appeared suitable for building with 200 acres better than the other 70 acres.
As a result, the following needs were identified: an understanding of Environmental Impact Restrictions (EIR); soil tests for the Burnell Hill area; local input on attitude toward the project; a topo map (very important); reliable boundary information; preliminary pond studies; information on road corridors; tax advantages of sanctuaries; hauling costs for stone, stumps and refuse; a coordinated market study and site analysis; more percolation testing; and, a move to the conceptual planning stage.
Associates Partners decided not to operate CF during the winter of 19871988; to move ahead with the conceptual stage; and, to determine how debt would be serviced without operating CF for 12 months.
In a section labeled “soils” within the Preliminary Site Investigation and Analysis of CF, prepared by NGI and BDG, it was concluded that “The entire site is characterized by soils which are not conducive to building development.” “All soil types pose a problem for waste water disposal that can only be resolved with greater than optimum costs.” “Most areas where fair to good percolation was expected did not perk well, tempering their value as building zones.” Additionally, in a section labeled “building potential”, the report indicates that “Construction feasibility of septic and sewer systems has not yet been determined.” The report essentially reveals numerous problems that could be resolved with significant expenditures; however, it does not analyze the financial practicality of such. This report should have caused severe apprehensions concerning the economic feasibility of the development of this property.122
In October of 1987, NGI and BDG issued their concept plan relative to the CF property.123 This concept plan addressed the positive and negative aspects of three potential development plans as follows:
Concept A consisted of a centrally located village cluster development with an Inn/.hotel with approximately 5080 condominiums. Concerns were the sewage disposal distance and the lack of maximization afforded by a 150200 unit development.
2. Concept B consisted of a range of dispersed housing and housing clusters with restricted access “wilderness” type cabins/cottages. A total of 164 units were involved with this concept. Concerns were: most of the site would be utilized; difficulties in accessing some cabin/cottage sites; difficulties in servicing some sites (sewage pumping, etc.); and, concern over zoning restrictions.
3. Concept C consisted of an intense recreational/ residential second home development with 200 homes/condos. Concerns were:
gaining approval from Cummington/Plainfield authorities; high visual impact; environment impact approvals would be difficult; out of character with other land uses; impacts public accessibility; and, its exclusiveness may limit outsiders.
Among the conclusions contained in this concept plan were the
1. “Although many interesting site opportunities unveiled themselves during field investigations, many unexpected constraints were also identified.”
The actual size of CF had been previously found to be closer to 500 acres than 700 acres. “Apart from the fact that this can affect the total scope of development to some degree, the major concern over the smaller acreage relates to the fact that many of the key trails are technically no longer on the property. In fact, the major trail junction and crossing over the Swift River at the north end of site may be off the property.”
“Overall terrain is quite rolling and rocky posing potential development difficulties from a construction perspective.”
“Wetlands are more extensive than previously considered posing potential restrictions on site uses and forcing a significant E.I.R. study.”
5. “A number of areas around the property were soil tested but did not perk well, raising a concern over building potential.”
6. “The condition of the barn complex could affect the scale of development or major and costly rehabilitation will have to occur.”
The concerns mentioned in the previous site analysis and this concept plan should have caused Associates to reconsider the economic feasibility of the development of this property. At this juncture, Associates was also aware of major concerns with BSB raised by the Snow report.
On October 6, 1987, a proforma was prepared for the CF property including the construction and sale of 150 dwelling units. The proforma resulted in an estimated profit of $6.3 million.124 on the same day, Smith extended a $40,000 unsecured two-month time loan to Trust for soft costs associated with the purchase of Cummington Farms. The note was to be paid with proceeds from the permanent financing. 125
The Cummington Farm Realty Trust (Trust) was formally created on October 20, 1987 with Associates as its sole beneficiary. Beggs and Goggins were sole trustees.”‘
In an October 7, 1987 letter to Labovitz, Attorney Joseph C. Hutcheson, III of HDS addressed several general issues relative to the proposed loan documents for a postponed September 29, 1987 closing. The following were among the issues addressed:
1. Attorney Hutcheson hoped that something other than a strict demand note would be used.
2. Since the 21E rider to the mortgage contained an indemnity in favor of Heritage, Attorney Hutcheson felt that the borrower should have the right to participate in any cleanup or compliance work as a condition to the indemnity.
3. Attorney Hutcheson questioned the need for guarantees from individual shareholders of the corporate partners. He indicated that he would have Pichette speak to Smith as to whether the bank needed recourse beyond the property of the partnership, and if so, how far up the chain of indirect ownership of general partnership interests recourse should go.
4. The guarantees as drafted were several for each general partner interest and unlimited in aggregate dollar amount. Again Attorney Hutcheson questioned if the partners wished to have this type of openended guaranty arrangement, particularly if the loan continues to be on a recourse basis and is guaranteed by individual shareholders.
5. Attorney Hutcheson was seeking greater flexibility under the Subordination Agreement. He suggested that the agreement allow for payments for services rendered by partners, . and as long as there was no default, loan repayments and distributions (to partners).126
On October 19, 1987, Smith extended $5,000 to Trust on an unsecured basis for two months, to cover costs associated with the acquisition of CF. 127
Heritage Executive Committee October 21, 1987
Smith presented the proposal for a joint venture relative to the CF and BSB property. He informed the committee that consultants, hired to recommend ski trail improvements to the CF property, had become aware of the availability of the nearby BSB and recommended that the possibility of an alpine skiing operation in such close proximity to crosscountry skiing be investigated. According to Smith, Associates approached the bank following foreclosure of the BSB property in an attempt to determine the willingness for a joint venture.
The proposal included an initial loan of $1.5 million secured by a first mortgage on the CF and BSB property with 900 acres of land and buildings. NISD would be a 34% participant with G&W (22%), VDD (22%), Beggs (17%) and P. Sackrey(5%). Personal guarantees would be provided by Goggins, Whalen, Beggs and P. Sackrey. NISD exposure of approximately $500,000 would replace the current ownership position of BSB at $380,000. Marketing, architectural and six months of interest added to the CF portion of $715,000 elevated the total amount required. to $1.5 million.
Smith also indicated that approximately 150 homes could be built on the property resulting in a projected profit of $6.3 million. Once building permits were secured, a determination would be made whether to sell the permits for their existing market value or to proceed with the construction project, requiring a much more substantial analysis and a further vote of the Board. The proposal was approved subject to all permits necessary to completely protect the bank and NISD from litigation.
Summary – Associates meeting October 30, 1987129
Smith informed the Partners that the Heritage loan closing might occur within two weeks. All agreed that the closing on BSB should occur at the same time. Each of the Partners provided reports on their progress of assigned responsibilities. Of concern was whether or not CF would relinquish its right as a recreation area if it were not operated during the upcoming winter. Additionally, P. Sackrey indicated that she would be meeting with the Cummington and Plainfield PBs on November Sth. and 16th., respectively. It was agreed that these meetings should be very low key so as not to overpower these 3 to 5 person boards. Art agreed to attend these meetings with P. Sackrey to aid in information backup.
On November 3, 1987, Smith extended $30,000 to Trust, unsecured for three months. The funds were used to purchase personal property auctioned at the CF site for used in the operation of CF.130
Articles of organization for Swift River Hills, Inc. (Swift) were filed on November 6, 1987 by Shrair and Pamela Fernandes of CSALD. Shrair was listed as President, Clerk and sole director. Pamela Fernandes was listed as Treasurer. 108
Swift stock certificates were issued on the same date to the following shareholders:109
Shareholder Number of Shares
Patrick Goggins 1,100
Peter Whalen 1,100
Thomas Beggs 1,650
Pat Lewis Sackrey 550
Arthur L. Pichette 1,100
William V. Gillen 275
Christopher E. Riddle 275
Dennis J. Gray 275
John W. Kuhn 275
Summary Associates meeting November 6, 1987131
The Partners were informed that the CF and BSB loan closing should occur during the following week. An update on the BSB operations was provided, including work in progress as well as the purchase of new and used equipment. Pichette and P. Sackrey reported on their meeting with the Cummington PB. Contained among the many favorable comments reflected in the minutes were the following issues of concern: there was opposition to development on Bryant Mountain; there were concerns about police, fire, sewer and roads; there would be a general resistance to housing of any kind, not necessarily preclusionary; concerns about permanent families living in the housing because of the burden on schools, etc.; people who spent the least time in the Hilltowns (investors) were most in favor of development because it would have a positive affect on the value of their investment; and Steve Philbrick was much more vocal and articulate than the others, but he didn’t necessarily represent the general sentiment.
Pichette indicated that he would take up the question of lapsed use of CF at the Plainfield PB meeting. Beggs had received reports that certain elements in the area are waiting for the use to lapse so that they could use the need for Associates to reapply as leverage for their position. Beggs also reported that John Sackrey (J. Sackrey) and his wife would be living in the small house at CF over the winter, which would enhance security and represent a convenience for J. Sackrey who would work for Associates in closing up the site and performing some repairs.
It was suggested that the operations be placed under another entity so as to shelter the real estate ownership. During the meeting Smith contacted the bank’s lawyer to set up the operating company (Swift River, Inc.), and informed the Partners that the operating company would be formalized by Monday.
The Partners were informed that the Heritage loan to acquire, and operate CF and BSB for the first season was $1.5 million; however, the proforma costs projected the need for $1.7 million. Smith felt that there was some excess in the proforma. Smith also notified the partners that it might be necessary for them to contribute cash at the next level of financing. Beggs indicated that this was not his current understanding and that the entire financial relationship needed to be clarified.
On November 12, 1987, Heritage extended $30,000 to Trust on an unsecured basis for one
Part Two: November 13, l987 to September 9, l988
Summary Associates meeting November 13, 1987133
Among the issues discussed were the scheduled opening of BSB, payment for the snow making equipment purchased, and the payment of developer fees. Beggs anticipated that BSB operations would commence the weekend before Christmas. Additionally, he had purchased snow making equipment for which, he arranged delayed payment on a portion of the invoice. He also indicated that financing was available through First Interstate Corp. Smith stated that it would not be necessary to finance the acquisition in an attempt to reduce capital outlay. Pichette reported that the Swift River name was already in use but that the lawyers were checking on variations such as Swift River Hills, etc.
Smith reported on discussions with Goggins, Pichette and Beggs relative to developer fees. Essentially, the bank would agree to provide for development work done after its involvement by way of a developer line item in the budget. Developer time prior to the bank’s involvement could be provided for on a draw basis from net proceeds after the bank received its 34% share. The bank felt that there should be no compensation for time spent in general partnership meetings, nor for outofpocket expenses prior to the bank’s involvement. The Partners agreed to the concept that time spent prior to the bank’s involvement was the “sweat equity” that justified the bank allowing the Partners to keep 66% of the equity.
On November, 16, 1987, Pichette reported on the meeting that he and P. Sackrey had with the Plainfield Planning Board. Although the conversation was friendly and ideas were numerous, the following significant comments were noted:
1. The use of the cross country facility should be conducted in some fashion this winter in order to preserve the grandfathering of this use.
2. The uses that existed were nonconforming (there was never a special permit granted for them because they started before the need for such), and consequently, Associates’ desire to expand upon these uses would be an extension of a nonconforming use which is obtained through the Board of Appeals as a special permit.
3. There was not any outright endorsement of second homes as it was perceived that they would eventually convert to first home use. 134
On November 16, 1987, Heritage extended a $30,000 unsecured one month time loan to Trust. 135
Summary Associates meeting November 19, 1987136
A projected time line for CF exclusively was presented. Essentially, the time line reflected that rehabilitation work on existing trails and structures would occur throughout 1988. The hearing process was expected to run between March and August 1988. The time line was designed to defer as many expenses as possible until after permits were secured. The Partners were hopeful that the Zoning Boards would make decisions contingent on further information needs and not defer their decisions until after the information was gathered.
The closing for the $1.5 million Heritage loan occurred on November 20, 1987. Loan disbursements included the payoff of mortgages from the seller, unpaid taxes, $6,600 to CSALD for legal services, $62,300 to HDS for legal services, $386,800 to the sellers, $380M to Heritage for Berkshire Ski Basin , and $136,100 to payoff the unsecured time loans previously granted to Trust. Additionally, $9,000 was escrowed with Cooley Shrair subject to the clearance of a title problem.137
Although not reflected on the loan disbursement statement, Dawson indicated to an FDIC representative that an additional $10,000 was held in escrow for a title problem. In 1991 Dawson field a complaint with the Bar of Overseers against Heritage’s attorney, John Davis and Goggins’ attorney, Andrew Siegel, regarding these escrows. Both attorneys were censored by the Bar and Dawson was returned the $10,000 escrow.
Summary Associates meeting November 20, 1987139
Pat Sackrey reported that approximately 100 people turned out for the BSB welcome meeting on one of the coldest days on record for November. They all exhibited a great deal of interest. The name of Swift River Hills has been confirmed for the operating company. A November 30, 1987 meeting of the Associates “A” group was announced to discuss outstanding developer fee earnings.
Summary Associates meeting December 1, 1987140
Smith presented a draft of the dispersals of the $1.5 million loan to Associates. Only $297,000 remained after purchases, legal and tax payments, and, the payment of $137,000 in short term loans made for the benefit of BSB and CF. Swift was to be owner of all equipment purchased for BSB, as well as the leasee of any equipment leased. Target opening for BSB is December 17, 1987. Pat Sackrey discussed Cummington Select meeting of November 30, 1987. Most of the meeting discussion centered around BSB operations, need for traffic control on RT. 9, and, trash disposal, etc. Although suggestions were made that a food and alcohol beverage facility be operated in the base lodge, is was considered too late for the current winter season. Additionally, existing insurance did not cover alcohol. Fee lift passes for Cummington children were determined to be financially unlikely due to limited lift capacity and existing low lift prices.
Discussion of a fixed interest rate was deferred until Smith had the information needed. Pichette presented the workup on development fee guidelines resultng from a November 30, 1987 partnership meeting. Concepts were all agreed upon, with discussion about start date of earnings from loan (August 86 to March 87). The Partners agreed to itemize activity during that time for further discussion.
Summary Associates meeting December 11,1987141
John Ryan discussed his proposal. The study is to be broken down into two parts: items that can and cannot be accomplished by January 31, 1988. Various BSB operating issues were discussed, as well as Goggin’s suggestion that a review of pricing be completed. Public feedback has suggested that fees were high. The search is on for a part time program director/group sales manager, for the season $395 $400 per week.
Summary .Associates meeting December 17, 1987142
An update was provided on BSB operations. Although BSB was ready to open, the startup date was postponed to December 26, 1987 due to the lack of snow and cold temperatures needed to make snow. Additionally, the balance of cash left from the $1.5 million Heritage loan was $160M. Smith pointed out that $80M of this amount was needed to pay interest for the next few months and that the remaining $80M was to cover the permitting process for CF and operating expenses for BSB. Pichette indicated that the $1.5 million loan did not anticipate the capital expenditures relative to BSB and that they would have to “go back to the well” sooner than anticipated.
Pichette suggested that the Gillen, Kuhn, Riddle and Gray (GKRG) winter party be held at CF this year in an attempt to satisfy zoning needs requiring usage of the property. Beggs indicated that some of the BSB trails were on the property of an abutter, William Seaman. Approximately 70 feet of trails are on his property and Mr. Seaman was willing to sell Associates a strip of land that included the 70 feet of trail for $6,000 $7,000. Mr. Seaman owned 150 acres on the side of the CF property and Pichette and Goggins agreed to review the maps and plans to see if any of the expansion potential for BSB actually utilizes any part of the 150 acres.
Summary Associates meeting December 23, 1987
The Partners were informed of equipment problems that had been experienced at BSB. Beggs estimated that it would cost $2,500 to repair the water pump and as much as $10,000 to replace the uphill air pipe. Beggs further estimated that snow making operations would be ready by December 30, 1987. The Partners were also informed that Attorney Shrair of CSALD was unable to attend this meeting. He has advised that all property and equipment be owned by Trust and that Swift serve as the operating company.
Summary Associates meeting December 31, 1987144
Beggs reported that operations at the Basin were ready for skiing, weather permitting. He indicated that enough snow should be on the ground for skiing by Saturday, January 2, 1988. Goggins asked what it would cost to expand lift operations to the top of the mountain with a chair lift in place of the existing Tbar. It was noted that the Snow report estimated a cost of $2 million to complete operations to the top of the mountain. Pichette agreed to clarify in writing to the appropriate boards, just what was required to retain the CF operating permit through the winter. Pichette informed the Partners that there was approximately $110,000 left of the Heritage $1.5 million loan. He projected that it may take an additional $200,000 to get through the permitting stage, depending on BSB cash flow during the winter. Smith was concerned as to the total number of building permits that the property would support relative to the amount needed to support debt of $1.7 million versus $1.5 million.
Summary Associates meeting January 5, 1988145
Goggins, Pichette and Beggs discussed whether management, employees or suppliers of BSB were taking advantage of the bank being a general partner of the operation. Tom responded that management and the employees were not; however, food suppliers may be trying to “make up ground that they lost from the previous ownership.” The suppliers of services appeared to be above board. Beggs and Pichette felt that it would be counter productive to have CF partners speak to the staff to try and increase productivity. The staff was said to lack experience not energy or good will.
The subject of opening BSB midweek for the January holidays of the colleges and university in the area was discussed. Beggs had calculated that 90 skiers would be necessary to break even on a midweek day. It would require using three or four of the employees currently making snow and performing other duties to operate the lift. It was agreed that the subject would be discussed at the next meeting.
Summary Associates meeting January 8, 1988146
This meeting included a discussion of the cost of insurance coverage; a report on current BSB marketing activities; an update on BSB operations; an update on CF; an update on the Seaman property; and a discussion relative to developer compensation.
Beggs reported on the problems with the snow making equipment and suggested that a second pump be considered for backup and tandem operations prior to the next operating season. His current focus was on getting the main compressor hooked up to enable the operation of five snow guns instead of the existing three. The pump engineer had accepted another job and someone was needed immediately to get the compressor in operation. A replacement for the pump engineer had to be located. A memorandum detailing all of the problems with the snow making equipment was provided to the Partners.147
Pichette reported that he was working on closing up the buildings and locating a source of water for the house that Alan Streeter would be occupying. The cabins could not be operated on a bed and breakfast basis due to their condition and because they were all frozen up. He had not spoken to GKRG about utilizing the property for their winter party, nor had he determined the degree of use necessary to hold on to the existing permits.
Pichette also reported that William Seaman was willing to sell Berkshire Ski Basin the strip of his property containing a portion of the BSB trails for $7,000. Mr. Seaman was also interested in selling BSB 150 acres of his property on the other side of the hill from BSB. He agreed to postpone the sale of the land involved in the encroachment until later in the ski season when BSB cash flow improved. Additionally, Mr. Seaman agreed to provide BSB right of first refusal on the 150 acre parcel. The Partners were asked to consider management candidates for CF and BSB for next year.
Arthur Pichette further reported that he was working on a scope of services proposal. Pat Sackrey inquired as to how the scope of services list would relate to the ability of the developers to get compensated for work that they had done. Smith indicated
that the developer should submit an invoice for the work done and that the amount would be incorporated into the budget and compensated as soon as it was approved. It had previously been agreed that partnership meetings and time spent at the
three CF closinqs in Springfield would not be billable time. Pat Sackrey pointed out that 19 hours had been spent at those closings.
Summary Associates meeting February 5, 1988148
Partners were given responsibility for every area contained on a scope of services listing developed by Pichette. A discussion relative to a wholesale rate of compensation followed. Pat Goggins’ immediate impression was that his time should be billed to the partnership as the partner in charge of real estate development and that the actual sale of the real estate be handled by a real estate agency, most likely Goggins &Whalen. It was decided that the subject would be discussed at the next meeting.
The staffing needs of BSB and CF were discussed. Beggs then reported that there were 210 and 260 paid skiers during the previous Saturday and Sunday. The only problem experienced was a slowdown in the food service line. The compressor was expected to be online today with the capability of handling seven guns for snow making purposes.
Pichette reported that the CF closeup was nearly completed. The GKRG winter party was held at CF during the past week which was anticipated would constitute use of the property for preserving the future rights of the property.
Beggs reported that the two month lease on the generator that powers the snow making pump and air compressor was due to expire. He agreed to attempt to lease the generator on a week by week basis through the end of March. He also reported on his meeting with a representative of Kodak relative to their Snomax product, a produced vegetable protein that is introduced into the water to increase snow production capacity anywhere from 30% to 100%. He indicated that he was placing an order for the mixing tank ($5,000). Approximately five to six cases of the Snomax product would be used over the span of a winter season at a cost of $670.00 per case.
Summary Associates meeting February 12, 1988149
Real estate and architectural fees relative to the project were to be negotiated by the partnership at the appropriate time; however, it was not expected that they would follow the same “wholesale” rates that the developers were charging for their time. A snow storm forced the rescheduling of John Ryan’s presentation of the marketing research report. Other staffing and operational matters were discussed.
Summary Associates meeting February 18, 1988 150
The Partners discussed the shortfall of BSB income versus projections. It was suggested that future projections be based on this year’s income and not on the historic projections previously used. A discussion ensued as to whether or not BSB should be held onto as part of the larger project or sold as an owner operated area.
Summary Associates meeting February 29, 1988151
The Partners agreed that no programs would be held at CF this summer due to the potential conflict with construction. Pichette discussed his proposal to rehabilitate the base lodge facilities at CF this year into 22 to 28 bed and breakfast type rooms within the existing facilities, with a modest amount of recreational amenities, i.e., swimming pool, tennis courts, and some cross country trails. Rental cabins and then vacation homes would be built on the property in subsequent
phases. Smith felt that the master plan would be something similar to Pichette’s proposal of less than 100 units. He also felt that the format should be more along the New England Village style, as proposed by the consultants, rather than the wilderness or fairway side style. The Partners agreed that Pichette should put together the figures for rehabbing the base lodge. Goggins felt that not much master planning would be done before the end of the summer or the beginning of the fall. There was some sentiment that the time line needed to be pushed harder.
Summary Associates meeting March 11, 1988 152
Pat Sackrey briefed the Partners on the WFCR editorial on the Hampshire Snow Basin. She had been interviewed by WFCR without having been forewarned about the subject matter. She was confident that by working openly with the towns and the local government bodies that the conflict of interest matter would be resolved. Pat Sackrey had received a ruling from the Ethics Commission of the State of Massachusetts that there was no conflict of interest.
The results of a staff meeting at BSB were reported. Staff concerns about future employment were alleviated and the need for improved communications was evident.
Pichette led a discussion on the budget and was developing proformas for two scenarios: (1) developing the skiing facilities only, and (2) developing the skiing facilities and transient rooms at CF. Improvements would have to be made to the base lodge at BSB.
The line of credit was down to about $14,000 and was expected to be used up within two weeks. Smith indicated that the approach to the shortterm cash needs would be to have the bank put cash into the project pending the additional financing of the project. He suggested getting current appraisals on both properties by some organization familiar with ski areas. Beggs agreed to develop some cash flow projections for the next thirty days.
The Partners reacted positively to J. Sackrey’s interest in the position of Vice President of Operations.
On March 29, 1988 Beggs provided the Partners with instructions for the completion of weekly compensation forms. According to his memorandum, the information required on the forms had resulted from meetings with the CPA and the bank’s auditor. 153
On April 4, 1988, Smith provided Attorney Robert W. Ritchie with guaranties to be signed by P. Sackrey and Beggs and their spouses. Attorney Ritchie was requested to record mortgages on their personal residences in support of personal loans being made to P. Sackrey and Beggs for the purpose of contributing capital to Cummington Farms. Attorney Ritchie had previously informed Smith, in a letter dated March 22, 1988, of mortgages outstanding to Community Savings Bank from Beggs and P. Sackrey.154
Summary Associates meeting April 7, 1988155
Areas of concern by the consultants relative to CF and BSB were discussed and assigned to individual partners for resolution. The Partners agreed that one of the proposed vacation homes should be constructed this year as a model. The Partners were instructed to suhmit their hillable hours and expenses to Beggs. Beggs and Pichette were to meet and finalize figures on interim financing needs through May 3, 1988. Smith indicated that he could have the loan monies available within one day or two after receiving the necessary financial information.
Summary Associates meeting April 15, 1988156
Space plans for CF were presented to the Partners. The barn and far wing would be revitalized for the summer of 1989. It was hoped that the near wing, with anywhere from 11 to 16 country inn style rooms, would be ready for the winter of 1988. Pat Sackrey reminded the Partners that the BSB base lodge badly needed rehabilitation. Additionally, she was scheduled to meet with the Cummington and Plainfield select boards on April 18th. and 19th. Pichette reported that additional perc tests were to be conducted. Partners financing would cover the partnership until May 15th. Bank financing was to begin on May 15th. and continue through the permitting stage. However, bank financing was not to be reliant on the number of permits but rather upon financial reusability (assume he meant adequate cash flow to support debt). Subsequent stages of financing from the bank would be reliant upon whatever permits were acquired during this current year and in subsequent application periods.
Beggs indicated that interim financing needs through the middle of May would be approximately $230M. He was scheduled to meet with Smith to secure this financing.
Between April 12, 1988 and April 15, 1988, the Partners contributed $113, 850. to Associates; however, these contributions were made possible by the following loans from Heritage:
Date Loan Borrower Amount
4/12/88 11314953 Arthur Pichette $ 25,300 22.2%
4/15/88 11314956 William Gillen 6,325 5.5%
4/15/88 11304902 P. Sackrey/Beggs 37,950 33.3%
4/19/88 11314954 Dennis Gray 6,325 5.5%
4/19/88 11314949 Peter Whalen 25,300 22.2%
4/19/88 11314952 Christopher Riddle 6,325 5.5%
4/19/88 11314955 John Kuhn 6,325
All of the above loans were unsecured with the exception of the P. Sackrey and Beggs loan which was secured by a second mortgage on property located at 133 High Point Drive, Amherst, Massachusetts. 157
Summary Associates meeting April 25, 1988 158
Beggs reported that the bank had deposited $150,000 of the needed $230,000 in the Swift account on behalf of VDD, G&W, P. Sackrey and Beggs. The bank would be depositing its contribution within the next day or two. Whalen was to obtain the amount that the partnership owes to Pine Street. Concerns expressed at the Plainfield meeting were: capacity and viability of the current septic system; the idea of 100 units plus a new Inn; traffic, landfill, fireplace, schools, local jobs, and tax revenue. “Large decisions” would require a special town meeting while more immediate decisions could go directly to the Zoning Board. A special town meeting should be held in May to acquire a bylaw change in June. Five to six months and perhaps one year might be required for any sort of variance.
The Partners were informed that forty four deep holes had been dug to date and of those, two may perc. The state will do humane trapping of beavers in June and may issue trapping permits out of season so that the beaver population can be controlled. Goggins will use the beaver pelts to make hats to use as purchase incentives for potential buyers of vacation homes at CF. Partners felt that the land should be held under the ownership of a common entity so as to not encourage vacation owners to become permanent residents.
Summary Associates meeting April 29, 1988159
A proposed master plan for CF, consisting of three residential pods with 60 units and twenty cabins, was presented to the Partners. A complete inventory and analysis of BSB was suggested for a full scope of what Swift actually has to offer. Pichette was to coordinate obtaining studies required by the various town boards relative to the permitting process, e.g., fire and police, trash, traffic, school, taxes and jobs. The Partners were reminded that they needed to conclude the issue of trails that were not on CF property. The land must either be acquired or given up.
Summary Associates meeting May 6, 1988160
It was estimated that the rehabilitation of the barns for the 1988 construction season would cost $712,000. Permits were needed to rehabilitate the existing structures and a special permit would be needed for the change of their use to Inn rooms. The CF master plan was viewed at the Cummington PB Meeting. Some people in attendance were “crushed” by the size of the project. A joint town meeting has been set for June 11, 1988. The Partners felt that it should be held in the barns and that Pat Sackrey should coordinate the planning for the meeting. A strategy was needed to diplomatically inform the voters that subdivision rights do exist at the property, since community cooperation was viewed as the best approach to success in receiving permits. Heritage’s Executive Committee was to meet on May 18, 1988. Proformas were to be prepared showing the subdivision, master plan and all operations. A four wheel drive tractor was available through Bacons in Williamsburg with financing of 9.75% for five years. Smith suggested that this financing be taken as the interest rate was lower than Heritage could provide.
Summary Associates meeting May 13, 1988161
J. Sackrey and Beggs had been working on the development of proformas. A proforma for building 75 cabins/cottages at CF rather than 75 vacation homes was to be incorporated into the proforma being prepared for the bank.
The Group discussed a town meeting to be held at Cummington Farms on June 11, 1988. They agreed that the attendees were to be informed that the conventional approach of developing CF, the method that the Group had by right of an existing zoning bylaw, was less attractive than the form that was being proposed. All agreed that this had to be handled delicately so that it was not perceived as a threat.
Proformas developed by Beggs, Sackrey and Pichette revealed substantial net losses at both CF and BSB for the winter of 1988 89. However, the losses would be absorbed in subsequent years when profitable operations were projected. P. Sackrey was asked to secure an attorney to provide a legal opinion as to just exactly what it is that could be done “by right” in the Hilltowns.
Paul Cheda had suggested that the Partners needed to be on sound ground in requesting a particular number of building permits at CF, and needed to understand the associated financial rationale. Someone stated that “in fact, we do not know at this time how many dwelling units we have to build in order to make this whole project profitable to the degree that we want it to be.”
Smith suggested that Pichette attend the Wednesday bank board meeting when the proforma was to be presented.
A newly adopted strategy was outlined in a May 16, 1988 memorandum from Pichette to the CF partners. The strategy involved a multistage permitting approach with the simultaneous filing of a proposed bylaw amendment for a planned unit residential district (PURD) and an application for a special permit for a 13 room inn planned for the existing complex. An application for a sanitary treatment permit would be submitted at the same time as the application for a special permit for the existing complex. Subsequent to the zoning bylaw amendment establishing a PURD, an application would be filed with the Zoning Board of Appeals for a special permit for a 100120 unit PURD.162
On May 19, 1988, the previously drafted pretax cash flow schedule for CF and BSB, containing actual and projected costs, was finalized as follows:
Acquisition and basic soft costs $ 1,180,787 $ 608,615
Site improvements 5/15/88 4/1/89 1,081,038 147,795
First Year Operations both sites (including the portion of acquisition costs attributable to operations):
Profit/(Loss) ( 54,793)
Summary Associates meeting May 20, 1988163
Due to the lack of lead time, Smith had postponed the presentation of the CF financing request to the Heritage Board until May 25, 1988. Pichette would attend the May 31, 1988 Board of Health meeting in an attempt to get contingent approval to proceed with the development of 13 Inn rooms for the upcoming winter with a fortified sewage system, pending the installation of the main sewer treatment plant. Add it for the Partners.
get an opinion in writing from him prior to Smith’s meeting
with Heritage’s Board. The west wing at CF was completely
gutted and J. Sackrey was instructed to begin lining up sub
contractors for the construction. Although the financing had
not been formally secured, Smith felt confident that it was
forthcoming. Pichette agreed to develop numbers on
syndicating the resort facilities development and operations.
Uncommitted funds remaining in the Swift account were $12M.
Bills were to be paid on a thirty day cycle in order to cover payroll and not run out of cash before the permanent financingwas approved. It was decided that the four wheel drive tractor would be financed through Heritage.
On May 24, 1988, Attorney Ritchie provided Smith with a land use and zoning opinion. Attorney Ritchie indicated that “for the project to be fully implemented, relief from existing zoning applicable to both parcels is prerequisite, whether in the form of special permits or rezoning of the land.” Additionally, Attorney Ritchie qualified his opinion as preliminary to further inquiry into other applicable laws and regulations, e.g., Massachusetts Wetlands Act, regulations of the Boards of Health of the respective towns, and state and federal environmental laws and regulations. Essentially, Attorney Ritchie opines that nothing in the subdivision regulations of the Planning Boards would jeopardize the owners right to subdivide along lines essentially similar to those depicted on the concept plans. However, the rules and regulations of the Planning Boards governing subdivisions may place reasonable conditions on (rather than prohibit) the construction of dwellings on lots within the subdivision.
On May 25, 1988, Pichette provided Smith with a letter and proformas relative to fallback development proposals for CF and BSB. According to Pichette, these singlefamily, residential subdivision fallback plans would be implemented at CF and BSB in the event that the towns voted to oppose Associates’s proposed plans. Pichette referenced Attorney Ritchie’s May 24, 1990 letter in this regard. The BSB subdivision proforma reflected the sale of 67 lots at $50,000 and resulted in total revenues of $3.2 million, costs of $2.1 million and a profit of $1.1 million. The CF subdivision proforma reflected the sale of 80 lots at $50,000, with total revenues of $3.8 million, costs of $2.7 million and a $1.1 million profit. The proformas did not appear to reflect a sufficient profit to retire the debt. Debt service represented interest only and was based on debt of approximately $2.5 million.
Heritage Board meeting May 25, 1988
Smith and Pichette provided the Heritage Board with an update on the status of Cummington Farms and Berkshire Ski Basin; and, requested an additional $500,000 for major renovations to the main property at CF. The Board was informed that a second phase of the project included a plan to develop as many as 120 units under a planned unit development project requiring a zoning bylaw change to be presented to the residents of the Hilltown communities on June 11, 1988. Much discussion followed relative to the strength of the project and the downside risk involved in increasing the existing indebtedness beyond the present level. Smith stated that because of the people involved, he felt assured that the project would be approved. H e also indicated that hewas in the process of securing other banks to participate in lending to the overall project. The loan was approved with one abstention.
Summary Associates meeting May 27, 1988164
Pichette addressed the Partners on behalf of Smith. Due to the merger of Heritage with Community Savings Bank, Heritage had found it necessary to solicit participating banks in on some of its joint ventures. Smith was to solicit a second bank to participate in the financing of CF. The submitted proforma was reviewed and accepted as presented and operations were to proceed as planned. Associates had been allocated $250,000 with other amounts to follow as needed. Associates did not have to reapply each time funds were required. Roy Scott of Community Savings had requested that more definition, narration, and preplanning accompany the proforma. Most of the remainder of the meeting was spent addressing issues related to the upcoming June 11, 1988 joint town meeting.
Summary Associates meeting June 3, 1988,165
Additional perc testing was recommended. Pichette confirmed that a sewerage treatment plant would cost $300,000. Smith informed the Partners of a correction to the prior minutes. Although Heritage approved $250,000, subsequent funds would become available as participating banks are brought into the project. Smith expected that participating banks would be on board in approximately one month. Beggs reported that funds were down to the last few dollars and that he would speak with Smith about the transfer of funds from the new loan.
Beggs reported that the proformas submitted to Heritage were conservative and were used for financing purposes. The permit request would be for 100 units not the 86 shown in the proforma. There was some question as to whether the construction costs of garages for each dwelling unit and the treatment plant were included in the proformas.
Pichette reported that eighty test holes had been dug on the property to date and that only four good holes had been located. The good holes reveal an area of 300′ X 400′ that isdry, deep and sandy. This area could be used to replace the existing leach field which reportedly was almost non-functional.
Huntley soil logs confirm that 80 test holes had been dug to date, there were 3 unsuccessful and 6 successful perc tests.166
Frado reported that the development potential at BSB was significantly better than that of Cummington Farms. BSB view, soil and access were specifically identified as better than that of CF. Frado felt that the draw backs to the property could be overcome. He recommended that the Partners seriously consider acquiring a parcel of land on the northeast corner at the top of the hill. Additionally, he recommended that much more study be done at the Basin to determine the feasibility of improving the skiing facility, developing dwelling units and the potential of shifting some of the development pressure from CF.
Summary Associates meeting June 8, 1988167
This meeting was devoted entirely to issues relative to the joint town meeting on June 11,1988. Partners indicated that it should be made clear to the attendees that “do nothing” is not an option.
In a June 14, 1988 memorandum to Smith, William Stapleton of Heritage provided salient facts relative to the June 11, 1988 joint town meeting. P. Sackrey did an excellent job in presenting plan A (standard subdivision) and plan B (cluster development). There was clearly not a majority in favor of the project. The major questions concerning the project had to do with the economic and social impact. Several were clearly in opposition to the project under any circumstances and some were somewhat supportive in not wanting to give up the benefits that the project would bring. Riddle believed that the fallback position of the Partners should be to find a way to develop the project through gerrymandering lots that would enable the use of the existing bylaw.168
Summary Associates meeting June 17, 1988169
Pat Sackrey reported on the joint town meeting. A dozen people were identified who supported option B and it was believed that there were a lot of “silent supporters. ” A number of specific issues were identified for further followup, including a suggested third option for a resort only. J. Sackrey reported that the public water supply approval could take twelve months (changed to 60 days at June 24th. meeting). He also reported that cash flow needs would be approximately $35 $40,000 per week. Pichette reported that the special permit application would be submitted during the week of June 20, 1988.
Summary Associates meeting June 24, 1988170
Pichette reported that a special permit application would be submitted that day to the Plainfield Zoning Board. It was important that the application be moved through quickly as it was a low controversy plan and construction had to begin. As a result of the Plainfield Planning Board Meeting held on June 20, 1988, Pichette learned that the Plainfield PB did not want a part in developing language for the bylaw; however, they wanted Associates to develop the language and submit it to them for their input. Additionally, a medium pace was desired on the application process; a cosponsored meeting with Cummington was not desired; and, a July 18th. meeting had been scheduled for Associates’s responses to outstanding questions. The Partners agreed to advise the consultants to complete all of the needed studies by July 11th.
On June 29, 1988, Butova of S&R submitted an appraisal of Berkshire Ski Basin to Mike Smith. Butova estimated BSB’s value at $700,000, as of June 15, 1988.171
On this same date, Butova also provided Smith an appraisal of the CF property. Butovals assessment of value of $1.735 million was based on the market value of the property as of June 15, 1988, as an improved subdivision.172
Summary Associates meeting June 30, 1988173 J. Sackrey recommended that the BSB master plan be completed as soon as possible. Pichette reported that he was invited to attend the Plainfield Zoning Board meeting on July 5, 1988 to explain the special permit application. Subsequent to the meeting, a public meeting would be scheduled by the Zoning Board. P. Sackrey reported on preparations for the July 18, 1988 community meeting in Plainfield. Randall Arendt would like to meet with the Plainfield PB before the meeting to bring them up to speed on the subject. He had already met with the Cummington PB and Board of Selectmen. An opposition group to CF was forming and was being led by Judith Leibenow. Associates needed to get the existing subdivision laws off the books. There was a feeling in Cummington that the Basin was trying to avoid paying the personal property taxes that it owed for 1988. Beggs indicated that he had not received a bill but would look into it. A Zoning Board meeting was scheduled for July 28, 1988 and Pichette believed that special district zoning for CF was an easier route than getting rezoning for the entire town. Special district zoning would require that, when something was done with BSB, Associates would have to go back through the same procedures of a special town meeting. Smith reported that delivery of the property appraisals from Butova were due that day. Additionally, he felt that July 15th. was a safe date for participating financing organizations to be online. Whalen was to speak to Shrair relative to the possibility of self insuring and the liability involved. Historic and land preservation was also discussed.
In June 1988, NGI and BDG completed the CF master plan. This master development plan included the new construction of 97 housing units/cabins; the construction and upgrade of trail systems; and the establishment of an infrastructure; including utilities, parking, water and sewerage, tennis courts, swimming pool, pond renovations, fencing, and general landscaping. As detailed below, the estimated cost to complete this master plan was $15 million. 174
Trail infrastructure 691,200
Landscape infrastructure 4,312,250
Engineering, Design, Supervision 678,932
Total estimated cost $ 15, 615,447
Summary Associates meeting July 7, 1988175
This meeting predominately addressed issues relative to a draft master plan presented to the Partners and resulted in the need for additional studies.
Summary Associates meeting July 14, 1988176
Huntley reported that the contiguous leach field could only hold one 15,000 gallon leach field system. This would handle the 40 rooms in the Inn, the restaurant and skiing facilities, and approximately 2025 cabins. J. Sackrey estimated that one pumping station would be required to get the discharge from the buildings to the leach field. Smith reported that not having the permits in hand to build the Inn was slowing down the ability to bring participating banks on board. There was approximately $100,000 available in the line of credit. if participating financing was not available once the $100,000 was used, Heritage would provide additional financing on a limited basis.
A comment was overheard at the last town meeting that, if option B were rejected, Associates would not do A and it would take two to three years to turn the property over to another buyer. The Partners agreed on a response to the potential question as to whether or not option A would be pursued if option B were rejected. It was agreed that the response should be that Associates was ready, willing, and able to sell the property if option B were rejected. Additionally, there were buyers who were willing to step in and buy property that had 113+ permitted building lots in place (reference to byright subdivision).
Summary Associates meeting July 21, 1988177
John Sackrey reported that there had been some positive feedback as a result of the July 18, 1988 Plainfield Planning Board meeting. Ron Scott, the building inspector, made a point of telling J. Sackrey that he felt more positive as a result of the meeting and that he could now openly support Associates. Whalen talked to Shrair regarding the amount of liability coverage that should be carried at BSB. Shrair indicated that $500,000 would represent judicious management and adequate coverage. J. Sackrey was given approval to purchase a backhoe and bulldozer for approximately $92,000. J. Sackrey was to work out the financing details with Smith. The sequence of filing for the amended bylaw and the filing of the PURD overlay plan was outlined.
Summary Associates meeting August 4, 1988178
Attorney Ritchie attended this meeting and provided input based on his attendance at the Cummington public meeting and his experience. The Partners agreed that some version of plan A, that could be done under current zoning bylaws, needed to be filed as soon as possible. Beggs felt that Associates would appear inconsistent to the voters of Cummington and Plainfield if swayed from its plans by requests and demands from some people in the Hilltowns. The filing of Plan A, a byright plan, would make a very concrete statement. It would be important to have a plan to submit immediately in the event Plan B were rejected. Package plant concerns raised at the Cummington meeting could be overcome by the formation of a homeowners association. A consensus was taken on the filing of Plan A and each partner’s view was recorded in the minutes. The Partners, with the exception of Beggs, agreed to pay David Alvord $1,000 to turn over written information that he had regarding the historic operations of CF.
Sometime after September 15, 1988, a report was generated on Swift stationary relative to CF and BSB expenditures. Although the report identifies the expenditures as those incurred from January 1988 through September 15, 1988, acquisition costs are included. The report indicates that $2.9 million had been borrowed from Heritage with an additional $146,000 in loans for equipment. Total acquisition costs and expenditures were $2.5 million, leaving $411,000 unaccounted for.
Summary Associates meeting August 12, 1988 179
J. Sackrey reported that the bulldozer and the backhoe were on site and being used. He was training the staff to work more efficiently and without the direct input from the consultants. J. Sackrey had met with the Plainfield police department, fire department, highway department, Zoning Bord of Appeals and Planning Board to describe the project and solicit information on requirements. The fire department had raised concerns relative to: ability to reach onsite buildings; safety aspects of the building; the unacceptable capacity provided by the pond as a source of water for fires; access around the building; and egress from the loft in the rooms. A special permit hearing was scheduled for August 16th. and Associates was hopeful that the permit would be granted, contingent on compliance with fire regulations before it is issued.
The well was pumped and the recharge rate of 25 gallons per minute appeared to offer an adequate water supply for CF needs. The septic tank would consist of a 20,000 gallon unit placed in the courtyard with waste subsequently pumped up to the leachfields. This was expected to cover the main building as well as the cabins, but not vacation homes.
Pichette outlined CF option A alternatives as follows:
AlA 106 building lots, cabins and vehicle bridges to cross Swift River.
A1B 73 building lots, rental cabins and no need to cross Swift River.
A2 58 building lots, rental cabins; however, economic drawbacks because of its smaller size.
A3 40 building lots, crosscountry trail system, requires a package plant, does not work financially.
A4 19 building lots, no package plan and no roads.
The Partners agreed that A1A was the subdivision plan that should be filed after the special permit is issued.
The Mass. Audubon Society liked the idea of selling off the land that was not going to be used for the barn to prevent housing from being constructed; however, they were too busy to work on the project. They suggested that the Department of Environmental Management (DEM) or perhaps the Fish & Wildlife may have available funds.
There may be a two year moratorium in place while the state develops a generic EIR (Environmental Impact Report) requirement. A package plant may require a condo association.
Summary Associates meeting September 9, 1988180
Goggins was to inquire further on the availability of abutting land at BSB. There were reports that 94 acres of land adjacent to the property had recently been purchased. John Sackrey met with the building inspector from the town of Plainfield who confirmed that Associates was allowed to use the existing septic system if it only conducted the activities that were on the property in previous years (cross country skiingno overnight accommodations). A special permit hearing had been scheduled in Plainfield for September 27th. Beggs was still working on revising the existing proforma to arrive at selloff projections.
Part Three: September 16, l988 to October 6, l989
Summary Associates meeting September 16, 1988181
John Sackrey and Pichette had met with a representative from Plainfield regarding fire systems at CF. Requirements are seen as sprinkler systems, monitoring boards, direct hook in to dispatchers, paved roads, etc. The consultants believed that the requests were excessive. Beggs reported that he was still working on coming up with a revised proforma for the buyout option. P. Sackrey, Goggins and Pichette were trying to schedule a meeting with John Oliver to pursue the discussion of selling development rights. Goggins reported that he and another person, on his behalf, continued investigating the availability of abutting land. Beggs was to ask Attorney Ritchie to draft a letter to State Representative Healey regarding the status of package treatment plants. It appears that Representative Healey was under the impression that there was still a moratorium on package treatment plants in Massachusetts.
Summary Associates meeting September 23, 1988182
Pat Sackrey reported on a September 21st. meeting at Cummington Farms, with citizens from Cummington and Plainfield. These citizens had met several times previously with State Representative Jonathan Healey on Associates’s plans to build housing at CF. Representative Healey was mainly interested in assisting Associates and the local citizens in finding common ground from which to work. He suggested the possibility of the state purchasing the development rights at CF and wondered if Associates would be willing to discuss reducing the number of houses built in exchange for the sale of the rights. P. Sackrey indicated that she believed Associates would consider such an approach. Their was “almost palpable relief throughout the room” and the attitudes of the representatives from Cummington and Plainfield became positive. P. Sackrey informed the group that an estimate of the amount of cash needed to rehabilitate the 40 room Inn and construct 25 cabins, would be available toward the end of the week.
Summary Associates meeting September 30, 1988 183
Relative to the latest Zoning Board meeting: town officials were complimentary about the work being done at CF; Frank Altschuller was against the project in any form; the press was not picking up on the positive aspects of the meetings; and a Zoning Board decision might be forthcoming by October 7th. Relative to a scheduled DEM visit to CF, the Dawsons unsuccessfullv tried to sell this land to the DEM several years ago; John Oliver was against the Dawson proposal but was in favor of Associates’s proposal; and Smith was going to get a revised appraisal on CF based on 103 subdivision lots for the DEM, as the existing appraisal from S&R is for $1.4 million with the base lodge structures.
On October 9, 1988, an brief analysis was performed by Smith on the amount of funds needed from housing development at CF to cover costs and debt service associated with the development (exclusive of housing construction) of BSB and CF. It was estimated that acquisition, rehabilitation and debt service costs through December 1989 would total $3.8 million. The value of the renovated CF and BSB was estimated at $2.2 million based on the income approach to value. Therefore, $1.6 million was identified as the debt coverage shortfall to be offset by housing development.184
Summary Associates meeting October 14, 1988185
Smith informed the Partners that he had developed a sellout proforma which arrived at a figure of $1.6 million to justify Associates’s request for 1.46 million. Other items discussed essentially consisted of operational matters and status reports on commissioned studies.
Summary Associates meeting November 4, 1988186
Individual partners shared their impressions of the Berkshire Ski Basin following a recent site visit. The general consensus was that it had been significantly improved and could be marketed as is or as improved. It appeared to offer good development potential once Cummington Farms was up and running. If not developed with housing, BSB could include a more sophisticated base lodge and rental cabins.
Relative to the Department of Environmental Management meeting held in Boston on November 2, 1988, Goggins reported that chances of doing anything in the near future with DEM were slim. The State had announced a budget shortfall of $49 million. Pichette concurred and indicated that it was going to be some time before Associates could get permits to put up houses. He suggested that Associates do its best to run the property in a first class manner so that it enhances the chance for getting permits to do housing.
Summary Associates meeting November 18, 1988187
Smith was attempting to look for another bank to participant in the financing of CF and needed a very firm development and operations plan for CF and BSB. Heritage planned on retaining its share of the partnership. J. Sackrey presented yearly income projections for CF and BSB. Revenues for CF were based on food service, special events, and rental income from 24 rooms and 25 cabins. Smith suggested that the rooms and cabins be placed on line as soon as possible since they appear to offer the greatest amount of revenue. Pichette and others pointed out that there were some DEQE and permitting matters regarding the cabins and additional rooms that would first have to be overcome. Goggins was to pursue acquisition of the Ahrens property of 4+ acres, located on Route 9, adjacent to the BSB base lodge, for $10M.
Summary Associates meeting November 28, 1988188
Pichette and Goggins discussed the concept of developing more cabins in place of vacation homes. This approach would be an expansion of a nonconforming use which the property is already under. It would be important that the cabins remain under the control of CF so that there is no chance of them becoming permanent homes. The cabins as well and the Inn could be syndicated as an entire package with the tax credits involved. The DEQE suggested that a hydrologic study be done now rather than after the wells are drilled. It was suggested that the head of the department of geology at UMass be approached to work with Associates on the hydrologic study. The Partners agreed that NGI and BDG should develop a site plan with 35 cabins and no houses.
Summary Associates meeting January 6, 1989189
Smith reported that Butova of S&R had provided a preliminary appraisal of the finished product at CF in the neighborhood of $3 million. He also reported that the current debt was at $3 million and that the partnership had to give immediate consideration to financing options. Goggins was to meet with Smith to begin discussions on the financing situation. Beggs was to contact hospitality industry accounting firms to inquire about assistance relative to establishing appraisals for resort and hotel operations as opposed to real estate value. Discussions had started with an abutter, Wzorek, who offered to lease CF his 150 acres of land. Full time snow making operations were to be changed to part time operations designed to patch bare spots.
Summary Associates meeting January 13, 1989190
The cost of $3,000 to $5,000 for a marketing model of the CF buildings was considered too expensive. Pat Sackrey was to look into a video option. Constraints were identified with the BSB property. The Seaman property appeared to be the most important for program expansion. The Brown property across Route 9 from BSB, the original base lodge, was identified as the next important property. Because BSB languished for so many years, something significant needed to be done to get the product moving again. The value of the top half of BSB was to be assessed for a potential sale. The snowmaking crew had been cut back approximately 60%. A buffet service was to be offered at CF on weekends. The liquor license was in hand and hay rides were to be available. Wednesday evenings would be Italian night at CF. The concept of moving snowmaking equipment to CF for the programs scheduled with colleges was deemed to be too expensive.
Smith reported that no further funds were available from the bank and that the partnership would be responsible for meeting the approximately $100,000 in expenses per week for at least one month. Once an appraisal of the property and permits for expansion of the Inn were in hand, more funds might be available from the bank. The Partners were informed that they would be required to contribute caDital of approximately $700,000. Additionally,, the Partners agreed that the CF plan at this point was to develop a 40 room Inn plus 35 twobedroom cabins. An application for a special permit to extend the size of the currently permitted 24 room Inn had to be filed immediately.
Summary Associates meeting January 18, 1989191
The purpose of this meeting was to discuss the need for capital contributions. Pichette, Goggins and Whalen indicated that they would be able to come up with their required $77,000 each. Gillen and Gray could each come up with their share of approximately $19,250. However, Gillen wanted some assurance that capital contributions would be paid to contributing Partners at some point, and that the finished product was going to be worth the amount invested. Gillen also asked if contributors would get their money back when they proved the value of the property. Smith responded that: there were no assurances when contributions would be returned; the bank’s stockholders were asking a lot of questions; the bank also had $4.5 million in Greylock, which probably accounted for some of the pressure being placed on Associates; and, he suggested that funds spent on marketing be curtailed but not on construction related expenditures that would show visible and obvious appreciable value.
P. Sackrey agreed to borrow against her land to come up with
her contribution of $38,500. Kuhn and Riddle wanted to divest of their real estate holdings, including CF. Kuhn indicated that he would like to withdraw immediately if possible. Pichette indicated that it could not be done.
Beggs indicated that he was not in a position to come up with his share of approximately $115,000. He suggested that the remaining Partners proportionately pick up his share of the contribution and his equity; provide him a loan; or, that he sell his shares first to Partners and then outside of the partnership. Pichette expressed his belief that the shares held by the Partners had no resale value. Beggs stated his concerns with the current state of management of the hospitality operations and that without the addition of qualified hotel management and marketing personnel, the future value of the finished product “vis-a-vis its ability to service debt was at best questionable.” Several of the Partners expressed surprise at the degree of expression of concern displayed by Beggs.
Summary Associates meeting January 20, 1989192
John Sackrey expressed his feelings that too much money had been spent on marketing, $90,000 since acquisition, and that the budget did not warrant hiring a marketing director. Pat Sackrey felt that it was now time to have a marketing person on board. John Sackrey and Gillen reported that it would cost $1.8 million to complete the 24 rooms, food service, and meeting rooms. Pichette reported that it was premature to have filed a special permit application until certain questions were resolved. After meeting with a representative from the DEQE, a package treatment plant will most likely be needed for the rooms and cabins. The cost of such a plant, with capacity for 75 rooms, was estimated at less than $100M. Septic systems are approved by the DEQE not the town. Pichette indicated that he would propose a special permit application strategy at the next meeting.
Smith suggested that Beggs, Riddle and Kuhn be taken off of the partnership completely without liability continuing to them. Goggins proposed that Smith request that Shrair send written registered notices to all the Partners of the requi.sition for capital contributions.
On January 23, 1989, Beggs submitted a confidential memorandum to Associates. Essentially, the memorandum reflected Begg’s desire to remain involved with the partnership as a joint venture. Additionally, he specifically addressed a number of comments that he had heard, concerning himself, since leaving the partnership. His belief that a marketing professional was needed represented his honest assessment for the good of the partnership and was not “sour grapes”. He was encouraged to speak his mind by Smith for the good of the partnership, despite the fact that his comments would be critical of his former business partner (P. Sackrey). Between October 1988 and January 1989, Smith advanced another $927,000 without authority from the Board. As stated by Pichette at an earlier meeting, Associates went “back to the well” again. These additional funds were advanced without the execution of a new or modified loan note, as permitted under a provision in the original loan note.
In a January 20, 1989 letter to John Frado (Frado) of NGI, Beggs applauded NGI and BDG for their professionalism in working with the Partners who had often been “undirected or misdirected.” He also stated that he was disappointed that the Partners had elected not to go forward with their plans for a major vacation home development largely because of Nordic Group International and Berkshire Design Group’s insight into the local sociopolitical environment. Beggs further indicated that “retrospectively, we see that we would have spent tens of thousands of dollars and many months chasing an elusive permit that had no chance of being granted.”28 Beggs was allowed to withdraw from the partnership with no continuing liability. At the end of January 1989, Beggs executed an agreement covering the sale of his ownership interest in the partnership for $1.00. This agreement along with a “Covenant Not To Sue” from Heritage was prepared by Cooley, Shrair, Alpert, Labovitz & Dambrov, P.C. (CSALD) and faxed from their office to Beggs.29 Riddle and Gray would later be allowed to withdraw from the partnership with no continuing liability.
On January 28, 1989, the Certified Public Accounting firm of Cycz & Pascucci, P.C. (C&P) provided the Partners with financial statements on CF and Swift as of December 31, 1988 and September 30, 1988, respectively. Swift had suffered a $462,000 loss for the first ten months of operation. C&P expressed doubt about the ability of both CF and Swift to continue as going concerns.
Heritage President, Richard Covell’s (Covell) attention became focussed on the CF and BSB projects after reports of over advances and other problems with the Associates loans at a weekly management meeting held in early February 1989. On February 13, 1989, Smith provided Covell with a memorandum relative to the status of the CF and BSB projects. In this memorandum, Smith disclosed that $2,927,227 had been loaned to Associates and, that it would cost an estimated $7.8 million to complete a 79 Room Inn (including 19 2 bedroom cabins) with a conference facility, health club and center for cultural events. During a February 15, 1989 meeting with Covell, Smith admitted to making “a serious error in judgement” by advancing loans to Associates beyond Board approved limits.30 On February 23, 1989, Thomas Butova (Butova) of Smith & Reynolds (S&R) provided Smith with a $4 million appraisal of CF. In arriving at his opinion of value, Butova used the market approach and stated that the appraisal was prepared “as if the renovations were completed”. It appears that Smith obtained this appraisal in order to justify the almost $3 million loaned to Associates.31
In early March 1989, Covell learned from an internal audit, that in addition to the construction loan to Associates, Smith had provided $113, 850
in loans to Goggins, Whalen, Pichette, Riddle, Gray, Kuhn, Gillen and P. Sackrey; and, $263,825 in loans to Swift. 32 on March 7, 1988, Smith prepared a proposal for the upcoming Heritage Board meeting requesting that the Associates loan be increased from $2.9 million to $3.8 million. The prioposal reflected the need for $4,926,748 to be provided as follows.33
Source.of Funds Amount Investment thru 3/3/89
Heritage $3,800,000 0
NISD 349,095 239,200
Goggins 112,942 102,300
Whalen 112,942 102,300
Pichette 112,942 102,300
Gillen & Gray, Inc. 112,942 102,300
P. Sackrey 56,471 51,125
New Partner 169,414 0
Sale of Assets 100,000 0
Summary Associates meeting February 3, 1989193
Discussion centered around the upcoming appraisal of CF, CF and BSB development and operations, and a scheduled Fiddle Festival at CF in July. Relative to CF, property on Brunnell Road was discussed as well as whether or not it had potential for housing. The Partners agreed with a proposal for a 40 room inn with a conference room as every inch of space should be revenueproducing. Additionally, the Partners agreed that permits should be sought for 19 cabins.
Summary Associates meeting February 10, 1989194
Pricing was received from New England Log Homes and a computer design of the cabins was needed. The layout for the barn, including the placement of the fireplace was discussed. Pichette indicated that he was going to file a notice of intent for 19 cabins. No special pumps would be needed as the 15,000 gallons per day would be within the limit.
Budget numbers presented to the Partners indicated that $3.1 million had been spent to date on CF with an additional $4.9 million projected for completing the rehabilitation and construction of a new wing on the Inn, constructing the 19 cabins, furnishings, landscaping and carrying costs. The Partners discussed various ways to cut the costs of the cabins. Someone suggested that the Partners could decide about the cabins if an appraised value of $6.7 million is not achieved with the 19 cabins included.
John Sackrey reported on BSB. Labor costs were decreasing but would be offset by higher debt service. Plans for the restaurant were discussed. Kitchen equipment would cost $22,700 including a pizza oven. The possibility of selling 300 acres of land was discussed and it was decided that the Partners needed to know what such a sale would generate as well as how much in taxes was being paid on the 300 acres. Also discussed was the sale of the lot and house across the street and the use of the funds to complete the parking lot.
CF was experiencing an increased volume in food sales. Telephone inquiries for weddings, reunions and other functions were also being received. Five colleges had contracted for programs and Smith College would be referring people to the lodge at CF. Thirteen rooms should be ready by May 15th.
On February 13, 1989, Smith provided Covell with a written status report on CF and BSB. The following points of significance were included:
1. The ownership percentages of the Partners were outlined, including the 16.5% ownership interest left open by the resignation of Beggs.
2. Since the purchase of BSB and CF in 1987, funds had been expended on upgrading BSB and construction on CF buildings.
3. Associates had met with the Towns of Cummington and Plainfield to reveal their plans for a 100+ unit housing complex.
4. In the first winter of 19871988, Associates only operated BSB as there was not enough time to complete the amount of repair work required at CF.
5. Much construction had taken place during the summer months on both the physical structures and landscaping at both facilities.
6. There was no snow during the ski season and consequently no crosscountry skiing took place at CF and only $70,000 in revenues were taken in at BSB.
7. CF received permits for a 24 room Inn in November 1988.
8. ..The CF outstanding loan balance at Heritage was $2,927,227. Additionally, the Partners had contributed $500,000 (including NISD).
9. An additional $400M was scheduled to be injected within the next four to five weeks.
10. Partners had been funding monthly operating requisitions for labor, construction and debt service since January 13, 1989.
11. The services of HVS had been engaged to conduct an extensive appraisal of both properties.
12. S&R had recently appraised the property at $3.5 million.
13. Application would soon be made to the Towns of Plainfield and Cummington for an additional 16 rooms to be added to the Inn along with 19 two bedroom cabins.
14. If the above was approved, CF would consist of a 79 room Inn, with a hotel and conference facility, health clubf and center for cultural events (40 Inn rooms and 19 twobedroom cabins).
15. It would cost an estimated $7.8 million to complete the construction necessary for the 79 room Inn, conference facility, health club and center for cultural events.
16. Associates understood that no additional funds would be forthcoming from Heritage until an appraisal was completed and permits have been approved.
17. The Town had made a dramatic turnaround in its acceptance of the project.
On the same date, Covell wrote a confidential memorandum for the
file. According to the memorandum, the topic of overadvances and
other items related to the CF loan were discussed. Subsequently,
a meeting was held with Tom Burton to discuss various items,
including Cummington Farms. Reference was made to the recent Grant Jamieson audit of the northern and southern commercial loan departments and apparent findings relative to CF. This prompted a meeting with Mr. Jamieson later in the day and a scheduled meeting with Smith on February 15, 1989.
A summary of the February 15, 1989 meeting between Covell and Smith was added to the February 13, 1989 confidential memorandum. At this meeting, Smith admitted to making a serious error in judgement relative to the Cummington Farms overadvance. Covell asked Smith for a detailed report on partner cash contributions to support the $300,000 stated in the February 13, 1989 memorandum.
On February 15, 1989, Smith provided Vanguard Savings Bank (Vanguard) with background information on the CF project in an attempt to get Vanguard to take over the construction loan. Vanguard responded that greater detail about the project was needed, including detail plans of the project, copies of permits, and cash flow information. 195
Summary Associates meeting February 17, 1989196
The Partners discussed Steve Rushmore’s recommendations resulting from his initial visit. Pichette reported that the application for rooms and cabins would be submitted to the Zoning Board that day. The Partners also discussed what to do with the vacant 16.5% partnership share. It was felt that this large share may have to be broken up into smaller ownership blocks. The Partners agreed that any new partners had to be financially stable and that the gap needed to be filled as quickly as possible to avoid a cash shortfall. Smith was asked if the bank was willing to give up part of its 34% share if it was necessary to attract a new partner. Whalen agreed to talk to Fridlington.
On February 23, 1989, Butova of Smith & Reynolds submitted an appraisal of the CF property to Smith. The appraised value of $4 million was based on the market approach, as if the renovations were completed.
In a confidential letter to the file dated March 1, 1989, Covell summarized a meeting held that day with Smith regarding the CF relationship. Between June 1988 and January 1989, three loans were made to Swift totaling $263,825, representing partner equity contributions (excluding NISD). Smith was to continue to work on a complete accounting of monies borrowed and contributed to the project, beyond the $2.927 million loan balance. Smith indicated that S&R had completed an appraisal valuing CF at $4 million and that the bank appeared to be the only party concerned about the project. Additionally, Smith continued to argue that the existing loan policy was not flexible enough and that he should have a $ 2 million lending limit because of the number of accounts that Heritage had between $1 million $2 million.
Summary Associates meeting March 3, 1989197
Associates and Swift financial statements for December 31,1988 and September 30, 1988, respectively, were presented by David Pascucci. The Partners discussed, at length, the possibility of selling Berkshire Ski Basin. They all agreed that, if it were not for financial constraints, it would be best to open everything at one time. The Partners also discussed closing down the facility in three weeks and laying off the kitchen staff. Goggins indicated his belief that this would be a financially difficult period. The Partners would have another gap to fill; additional financing from another bank would likely be needed; and, someone was still needed to absorb the 16.5% ownership vacancy.
On March 7, 1989, Smith prepared a proposal to increase the existing Associates loan from $2,927,227 to $3.8 million. The purpose of the loan was to carry the project through completion with an estimated total cost of $4,926,752. The costs would be covered with the increase of the Heritage loan to $3.8 million; $100,000 from the sale of assets; a $169,414 capital contribution from a new partner; and, contributions totaling $857,338 from the existing partners. A total of $699,525 had been contributed by the existing partners to date, including $239,200 from NISD. The proposal also reflected that the combined properties were appraised at $4.7 million by Smith & Reynolds on February 23, 1989.
Heritage Executive Committee Meeting March 8, 1989
Smith reported on the status of the CF project, including the principal balance of the Heritage loan and NISD’s investment. A lengthy discussion followed and the directors asked many questions. Heritage officers with the exception of Smith and Auditor Jamieson, were excused from the meeting. The directors expressed concern over the amount of the loan and further discussion followed. The directors voted to ratify and approve the increase in the principal amount of the loan to CF from $2 million to $2,927.727, with one director opposing. Smith then left the meeting and the directors discussed certain confidential personnel matters. Auditor Jamieson then left the meeting and certain other officers returned.
After a further discussion it was voted to delay consideration of increasing the principal amount of the loan to Associates in excess of $3 million until the requested project studies and reports were completed and analyzed; and to authorize the advancement of up to $100,000 to Associates through NISD.
On March 9, 1989, Covell wrote a confidential memorandum to the file summarizing a meeting held with Smith that day. According to the memorandum, Covell had reviewed the details of the executive session of the March 8, 1989 Executive Committee Meeting with Smith. The Board was concerned but restrained regarding the extensions of credit to CF without approval. Although no one suggested dismissal, all agreed that disciplinary measures were warranted at some point, in the form of lesser compensation or reduced bonus. Additionally, Fridlington or his assignee would work with Smith on CF and other loan relationships where close friends or relatives were involved. Smith was advised that this had not been a “witch hunt.”
Following a March 8, 1989 meeting with the Heritage Board, during which the unapproved loan advances to Associates were discussed, Covell and Heritage Executive Vice President, John Fridlington (Fridlington) met privately with Smith. Smith was informed that the Board had agreed that disciplinary measures in the form of lesser compensation or reduced bonus (not dismissal) be taken at some point. Additionally, Fridlington or his assignee would work with Smith on the CF project, and any other loan relationships where close friends or relatives were involved.” At a subsequent Associates meeting, Smith informed the Partners that Heritage would not lend any additional funds to the CF project.
Summary Associates meeting March 10, 1989198
Smith reported the results of a recent meeting of the Heritage Board. Following a recent audit, the bank believed that they were financing a restaurant instead of a housing project/Inn. The bank would not lend any more money. Smith was to meet with Vanguard Bank that morning. Heritage believed that the project was overfunded by $1 million. The Rushmore income projections and appraisal were discussed at length. The Partners discussed ways to raise money including: selling land; finding a 16.5% partner; selling equipment; selling the house across the street; bringing in another bank; and, historic tax credits. Smith indicated that the bank’s feelings would not change even if Associates got someone to take their 34%.
Summary Associates meeting March 31, 1989199
The Partners discussed the Monday evening meeting and were informed that Associates would be requesting a 63room Inn, plus 8 cabins with roads. The location of the cabins was discussed as well as why Associates had to pave roads when some town roads weren’t paved. Lengthy discussions followed relative to budget cutbacks. If an additional $1 million was not received from Heritage, $840,000 must be cut from the budget. The possibility of staff layoffs was also discussed as salaries were approximately $14,000 $15,000 per week.
Summary Associates meeting April 7, 1989200
This meeting was devoted entirely to discussing financial issues. Goggins was willing to take over the 16% ownership interest if he could get backup from the bank. He would know the answer to this by Monday. The Partners agreed that BSB should be sold and not included in the marketing budget for next season. Goggins discussed a recent meeting which he had with Brockmyre about his becoming a new member. Mr. Brockmyre will be discussing the matter with his attorney.
On April 13, 1989, a letter from Smith was faxed to Brockmyre from the offices of CSALD. The letter set forth the basic format for Brockmyre’s purchase of NISDIs 34% interest in Associates. Essentially, by signing the letter, Brockmyre would agree to acquire Northampton Institute for Savings Development Corporation’s (NISD’s) interest in Associates for $278,200, the amount of NISD’s cash investment. The $278,200 was to be represented by a promissory note to Associates, payable in 24 months with accrued interest. Brockmyre was to provide Heritage with a guaranty for 34% of Associates’s outstanding obligation. Prepayment of the note was required in the event of a refinancing of the Heritage debt. In April of 1989, Associates applied for a special permit from the Town of Plainfield to increase the number of rooms at the Inn from 24 to 78 (62 Inn rooms and 8 2 bedroom cabins) . 35 Additionally, a special meeting of the Heritage Board was held at CF for a presentation and review of the project.36
The Partners had been previously informed of Heritage’s desire to divest of its real estate holdings due to Federal Reserve requirements associated with the formation of a bank holding company. Goggins met with Clifford Brockmyre (Brockmyre) relative to purchasing Heritage’s 34% interest in Associates. Brockmyre agreed to purchase Heritage’s 34% interest in Associates for its contributions to date of $278,200. In April 1989, a letter of intent was drafted by CSALD and faxed from CSALD to Brockmyre for his signature.37 However, upon learning of Brockmyre’s interest, Heritage President Richard Covell (Covell) intervened and discouraged Brockmyte’s participation38 Due to Heritage’s refusal to lend any additional funds to the project and Covell’s
interference with the sale of Heritage’s 34% ownership interest, the Partners contemplated a lender liability suit against Heritage.
Heritage Board meeting April 28. 1989
The purpose of this optional meeting of the Heritage Board was to visit the CF project. At CF, a presentation was made by John Sackrey on the construction elements; by Pat Sackrey on marketing; and by David Berenson on food service. Partners Gillen, Pichette and Whalen were also present. A special meeting of the Executive Committee was called for May 3, 1989.
Heritage Executive Committee Meeting May 3,1989
At this meeting Covell and Smith reported on the status of the Cummington Farms project. A lengthy discussion followed with the directors asking many questions. The directors voted to approve an extension of credit to Associates in an amount not to exceed $l00,000.
Heritage Executive Committee Meeting May 10, 1989
At this meeting Covell, Fridlington, and Smith reported on the status of the Cummington Farms project. After consideration of the effect of the loan on the Heritage’s capital requirements as established by the Federal Reserve Board, the directors voted to approve an additional $2.350 million to complete phase one of the project, provided that the loan was secured by additional collateral, acceptable to the bank, with a value of at least $1 million. Additionally, the purchase by the bank of BSB for $600,000 was authorized, provided that the partnership interest of NISD in Associates was purchased for $278,200.
On May 11, 1989, Pichette and Goggins borrowed $200,000 on an unsecured basis from Heritage. The loan was made by Smith. According to a credit file memorandum,the proceeds were used for furnishings and plumbing at CF.201
At a special Heritage Executive Committee meeting held on May 3, 1989, Smith and Covell reported on the status of the CF project. After a lengthy discussion, the directors voted to approve an additional extension of credit to Associates, not to exceed $100M.”
Several partners met with Covell on May 8, 1989 to request an additional $1.6 million from Heritage. These additional funds would increase the CF loan to $4.7 million and, along with Partner contributions of $1.6 million (including $750,000 received from a proposed buyout of BSB by Heritage), would satisfy the estimated total project cost of $6.3 million. The project was to be syndicated to assist with the financing of operating losses as weil as other hard and soft costs incurred in the early years. Pichette indicated to Covell that “It is clear that recent events have caused considerable consternation and concern regarding the projects’ future.” A second meeting was held between Goggins and .Covell (perhaps others) on May 9, 1989.40
Given the prospects of a lender liability suit, and Heritage’s interest in divesting its equity ownership to expedite approval for forming a bank holding company, the Heritage Executive Committee approved a restructuring of the Associates loan on May 10, 1989. The approved restructure resulted in an increase to the loan to Associates by an additional $2.350 million upon certain conditions. Heritage was to purchase Berkshire Ski Basin and all relative equipment for $600,000. NISD’s 34% interest in Associates was to be purchased by the existing Associates partners for $278,200. (It was subsequently discovered that NISD had actually made $308,200 in capital contributions.)” Additionally, the loan increase was to be secured by at least an additional $1 million in collateral, acceptable to Heritage.
Prior to Heritage refinancing the Associates loan, Smith provided individual partners with interim financing to support construction costs at Cummington Farms. On May 11, 1989, Smith provided Goggins and Pichette with a $200,000 demand unsecured loan. Whalen was provided with a $150,000 loan for one month on May 26, 1989. Additionally, on May 26, 1989, Smith received letter from Hospitality Valuation Service (HVS) with a preliminary estimate of value for CF of $7 million. The value was based on a ten year projection of net income for the proposed 70 room Inn. However, no detail was provided relative to the assumptions used in arriving at this value.”
Smith was negotiating the purchase of a one third ownership in Goggins & Whalen at the time the loan was being restructured. As a one third owner, Smith would acquire a beneficial interest in the CF project. A first draft of an agreement by which Smith was to purchase one third of G&W appears to have been prepared by Attorney David A. Shrair (Shrair) of CSALD. The subsequent drafts and finalized Agreement executed September 1, 1989, were also prepared by Shrair. 45 Additionally, it appears that this Purchase Agreement may have been structured to preclude Heritage from applying one half of the amount of compensation received by Smith from G&W against compensation to be provided to Smith by Heritage, in accordance with a setoff provision contained in Smith’s Employment and Separation Agreements with Heritage. 46 A Massachusetts Annual Report on Goggins & Whalen, filed on March 16, 1990, reflects that Smith was a director of the corporation and Shrair was the clerk. 47
The Heritage closing on the new $5.150 million loan to Trust occurred on June 9, 1989. A total of $3,433,710 from the loan was used to payoff the original Heritage loan ($3,081,187, including $1,527,227 in over advances); the Goggins and Pichette loan ($201,853, including interest); and the Whalen loan ($150,671 including interest). Documentation for the restructured loan did not include a corporate guaranty from G&W as was the case with the original loan. Guarantees were executed by the following individuals, limiting their exposure to the percentages indicated below. 49
Patrick M. Goggins 36.66%
Peter J. Whalen 26.66%
Arthur L. Pichette 14.,66%
Gillen & Gray , Inc.
William V. Gillen
Dennis J. Gray 14.66%
Pat Lewis Sackrey 7.36%
Attached to each of the guarantees was a marshalling rider requiring Heritage to first foreclose on CF and then on the three additionally pledged properties, before proceeding against the guarantors individually. The limited guarantees were witnessed by Attorney Alan S. Dambrov and the marshalling riders were witnessed by Attorney John W. Davis of CSALD. These guaranties “greatly inhibited the Bank’s collection effort after the joint venture loan went into default.”50
The loan documentation included an Indemnification Agreement executed by the original guarantors, and witnessed by Attorney John Davis of CSALD, agreeing to hold Heritage harmless against any claims (in light of the previously threatened lender liability suit). In turn, Smith executed a Covenant Not To Sue VDD, Pichette, Gray, Riddle, Kuhn, Gillen, Goggins, Whalen and G&W relative to the previous loan, on behalf of Heritage. The file also contains an unsigned Covenant Not To Sue P. Sackrey. On June 13, 1989, four days after the Associates loan closing, Smith released Kuhn, Riddle, VDD and G&W from this obligation with a letter faxed from the offices of CSALD. CSALD invoice number 29029 to Heritage contains entries covering the preparation of these documents and side agreements.51
On June 12, 1989, three days after the Associates loan closed, Smith executed a modification to the loan. The modification allowed Trust to reborrow, once during the term of the loan, the amount of a principal repayment made following the full advance of the loan. This modification was prepared by CSALD as the computer billing file reference number matches that of other correspondence and documents prepared by CSALD relative to CF. 52
Smith accepted three properties for the additional $1 million in collateral required by the Heritage Board. All of the properties are located in Northampton, Massachusetts. Jack Patterson, former Vice President and workout officer for Heritage, told an FDIC representative that this additional collateral accepted by Smith was worthless.
One of the properties was condominium unit A on 71 King Street, owned by G&W and housing their offices. This property was purchased by Goggins in 1985 for $450,000 and financed by the Northampton Institution for Savings (NIS) for $225,000. In 1986, Smith originated a $350,000 loan to G&W secured by a mortgage on the same property. With a total mortgage of $575,000 on this property, the property was subdivided into three units: A, B, and C. Subsequently, Smith released Heritage’s mortgage on unit C without receiving a principal pay down on the loan. In 1987, unit B was sold for $125,000; however, there is no indication of a pay down on the loan. Heritage subsequently increased the loan by $75,000 to $650,000, secured only by a mortgage on unit A. In February 1989, G&W refinanced the property with Heritage for $900,000. The new monies received from the loan were used by G&W for its capital contributions to Associates. Prior to the refinancing, an appraisal of the property had been prepared for G&W by Michael Crowley of S&R, who estimated the value of the property at $1.065 million. The FDIC has determined that the estimated value contained in this appraisal is “inconclusive, unsupported, and unsubstantiated.” Upon the transfer of the loan to Fleet Bank of Massachusetts, N.A. (Fleet) in 1993, the property was appraised at $440M by JL Appraisers.
Also pledged as collateral were properties owned by Whalen and located on 7 & 13 old South Street. These properties were mortgaged by Heritage in 1986 for $850,000. Upon the transfer of the loan to Fleet in 1993, the two properties were appraised at $850,000.
The third property, owned by Goggins and located at 79 King Street, was listed on his December 31, 1990 financial statement with a value of $750M and a corresponding mortgage of $701,000 (little equity). FSI Appraisal Company (FSI) had appraised this property for Goggins on June 1, 1989 and estimated its value at $1.050 million. The FDIC has determined that the estimated value contained in this appraisal ‘is “baseless, unexplained, and not substantiated. “After Smith left Heritage in June 1989, he and Goggins appeared to have acquired an ownership interest in FSI.53 Summary Associates meeting May 12, 1989
The latest partnership breakdown was reported to be: Goggins 36.66%; Whalen 26.66%; Pichette 14.66%; Gillen/Gray 14.66%; and P. Sackrey 7.33%. Heritage had agreed to purchase BSB for $600,000. The Partners discussed the need to obtain a new attorney and several were suggested.
On May 26, 1989, Whalen borrowed $150,000 from Heritage on an unsecured basis. According to a credit file memorandum by Smith, the funds were used for construction at CF while “the lawyers are working out the paperwork and moving to closing.”
The closing on the new $5.150 million loan to Trust occurred on 6/9/89.
On June 12, 1989, Smith on behalf of Heritage provided Associates with a modification to the $5,150 million refinancing construction loan note. The modification provided Associates with the ability to reborrow, once during the eighteen month term of the note, the amount of any prepayment on the loan, as long as the note was not in default. This modification is not on Heritage letterhead and appears to have been produced at the office of CSALD. This letter contains the same computer file reference number used on other CSAID loan documents relative to this refinancing transaction.
Summary Associates meeting June 16, 1989
Partners agreed to maintain BSB property even though Heritage was now the owner. Partners were requested to bring in checks or bank statements indicating contributions made to the partnership. Projections indicated the cost in excess of income to operate Cummington Farms would be $30,000 $40,000 per month.
Heritage Board Meeting June 29, 1989
At this meeting it was voted to accept the resignation of Smith, effective the close of business August 1, 1989 and to authorize and empower the Chairman and CEO to execute and deliver severance and termination agreements between the bank and Smith.
Summary Associates meeting August 24, 1989
Smith was working closely with Coopers and Lybrand and a number of other possible brokers relative to syndication efforts. The payment of final subcontractor bills would have to be temporarily delayed to ensure enough cash on hand for opening month operating deficits.
Summary Associates meeting September 5, 1989205
Financing for the north wing and cabins was discussed. Smith was searching for refinancing and new money to finance the entire project. Grand opening plans were discussed.
Summary Associates meeting September 8, 1989206
There was a shortage of funds due to cost overruns. A letter was being sent to Heritage for additional funds. Managers had been asked to provide budgets by department.
On September 8, 1989, a letter was sent from Whalen to Guyette. An unsigned copy of the letter indicates that it was originally prepared for Smith’s signature. The letter indicates that: proformas for a $1.5 million syndication were prepared by Coopers and Lybrand (enclosed); it was believed that a closing of the syndication would occur in 90 days; Hospitality had recently appraised the property at $7.5 million; 20 weddings had been booked; and, bookings were increasing. Whalen proposed that Heritage lend Associates an additional $400M for cost overruns and operating reserves until syndication. In addition to the $1 million of outside collateral already pledged, Gillen would offer a mortgage on his farm which had equity of $250M.
After his resignation from Heritage on June 28, 1989
(effective August 1, 1989),
Smith became one third owner of Goggins &Whalen and comptroller of the CF project. On September 9, 1989, the Town of Plainfield approved a special permit to construct a 41 room Inn and 8 twobedroom cabins along with the previously permitted 24 room
Inn.54 Goggin’s files contained portions of a draft appraisal ofCF, from HVS, dated September 12, 1989. The estimated value of $7.5 million was based on the income approach relative to a 78
As of October 3, 1989, only $12, 100 of unadvanced funds remained from the $5.150 million refinanced loan. 56 On November 8, 1989, HVS provided Pichette with an appraisal of CF indicating an estimated value of $9 million. The appraisal was based on the income approach relative to a 78 room Inn. The net income projections in this appraisal had increased substantially from those in the September 12, 1989 appraisal. Smith headed an effort to raise capital to complete the 78 room project by marketing the property for sale or syndication.58
The 24 room Inn opened in September 1989 with the hosting of a hot air balloon festival.59 on September 8, 1989, Whalen requested a $400M loan, on behalf of Associates, to cover cost overruns and operating expenses until syndication. This request was denied.60
On October 3, 1989, Guyette provided Goggins with a breakdown of the disbursements relative to the June 30, 1989 restructured $5.150 million loan to Associates. The letter indicates that $12,000 was disbursed to CSALD for expenses and other disbursements. Additionally, $12.1,000 remained unadvanced on the loan. A draft copy of this letter attached to the file copy contains hand written changes, said to have been made by Labovitz, including a change in description of the $12,000 payment to CSALD from legal fees to expenses and disbursements. It should be noted that the working copy of the closing disbursement statement reflects that $6.167,000 was disbursed to CSALD.
Summary Associates meeting October 6, 1989207
Department managers had been asked to reduce their budgets by 25%. Smith had volunteered to serve as a part time comptroller. Response to the Barbecue Festival had not been good and the Partners discussed canceling the event. A telephone call was received regarding an ad in the N.Y. Times on CF. Some Japanese investors were interested. The Partners were to meet on Tuesday to discuss financing. Smith cautioned the Partners to have a positive attitude and be extremely well prepared as he believes that Heritage does not believe in the appraisal.
Part Four: October 6, l989 to end. Underwriting problems, observations, and conflicts of interest
Summary Associates meeting October 6, 1989207
Department managers had been asked to reduce their budgets by 25%. Smith had volunteered to serve as a part time comptroller. Response to the Barbecue Festival had not been good and the Partners discussed canceling the event. A telephone call was received regarding an ad in the N.Y. Times on CF. Some Japanese investors were interested. The Partners were to meet on Tuesday to discuss financing. Smith cautioned the Partners to have a positive attitude and be extremely well prepared as he believes that Heritage does not believe in the appraisal.
Summary Associates meeting October 17, 1989208
Several partners agreed to start work on “the little house” on Saturday. Steve Rushmore’s visit to CF was discussed. He had taken a personal interest in CF and provided names of four people to contact. The Partners agreed to investigate all possible uses for the land.
Summary Associates meeting October 20, 1989209
Twentytwo calls were received as a result of the New York Times advertisement. Some functions could not be booked because of the lack of breakout rooms needed for conferences. The financial status of the project was discussed.
Summary Associates meeting October 25, 1989210
There were problems with having no hot water in the center wing over the weekend. Weddings were beginning to be booked and the Partners discussed offering a buffet during the week to attract people. “The new figures for the appraisal were discussed 9 million.”
Heritage Executive Committee Meeting November 8, 1989 211
Fridlington reported on the status of Associates and informed the directors that management had denied a request for an additional loan of $500M. He also indicated that the bank had received a request to defer interest while the borrowers attempted to sell the property. Mr. Fridlington also reported on the status of BSB and summarized proposals received concerning the leasing and sale of the property.
On November 27, 1989, Fridlington informed Associates that Heritage agreed to forbear from requiring the interest only payments for the months of October, November and December 1989. The interest was to be capitalized, subject to accrue and due at maturity. This accommodation was also contingent upon the receipt of all outstanding items due to Heritage as described in CSALD’s letter dated August 29, 1989.212
On November 27, 1989, with $111M in interest due on the Associates loan, Heritage agreed to forbear the collection of interest for the months of October, November and December 1989. The interest was to be capitalized and collected upon the maturity of the loan.61
On January 8, 1990, a loan workout meeting was held at Heritage relative to the CF project. In attendance were Patterson, Fridlington, Guyette, Goggins, Pichette, P. Sackrey, and Attorneys Craig Brown and Irving Labovitz (Labovitz) . The issue of a potential conflict of interest was raised relative to Labovitz. Labovitz indicated that the conflict had to do with his (or Shrair’s) representation of Goggins with the purchase of a Northampton office building in early 1989. As a result, Labovitz did not take part in the meeting.62
On January 17, 1990, four months after it had opened, Cummington Farms closed.63
On March 15, 1990, an agreement was executed between New England Adolescent Research Institute, Inc. (NEARI) and Gray, Gillen, Pichette, P. Sackrey, Whalen and Goggins. The agreement called for the sale of 98 acres of the CF property to NEARI for $2.5 million and its personal property for $175M. The $2.5 million and $175M was to be paid to Heritage to be applied against the debt of Trust and Swift, respectively. Additionally, the Partners were to assume $200M in NEARI debt at Heritage as well as provide Heritage a secured note for $500M in exchange for the release of their individual guarantees relative to the Trust loan. The sale to NEARI was never consummated.65
In June of 1990, due to cash flow problems and law suits filed by people who were owed money, Associates filed for bankruptcy protection. The property was sold in March of 1991 for $1,337,500 to Lincoln Green Incorporated. Heritage lost $3,572,713 prior to its seizure by the FDIC.65
In 1992, Goggins and Whalen settled on their $3 million guarantees for $110,000 and $100,000, respectively. Heritge felt that it had to settle for any reasonable amount as Smith had released the guarantees of Goggins and Whalen with no consideration provided66
Heritage Board Meeting February 28,1990
Fridlington and Patterson presented a restructuring proposal relative to Associates that had been approved by the Executive Committee. Directors Whalen and Elder left the meeting prior to this discussion. The directors were also informed that NISD had been named a defendant in certain litigation commenced by creditors of Associates. The restructured proposal required NEARI, Inc., a Massachusetts Corporation, to purchase the Associates real estate and Associates to assume an existing loan to NEARI, Inc. Additionally, the guarantors of Associates proposed the release of their individual guarantees in exchange for a $500M secured note. The directors voted to approved the settlement and restructure proposal. Directors Whalen and Elder then returned to the meeting.
1. At the October 21, 1987 Heritage Executive Committee meeting, Smith indicated that the $1.5 million Associates loan was to acquire Berkshire Ski Basin and Cummington Farms and seek permits for the construction of 150 housing units. He further stated that once the permits were granted, a decision would be made as to whether to sell the property or construct the housing, at which time a more substantial analysis would be needed as well as further Board approval. Although Associates had not obtained housing permits, Smith advanced approximately $1 million to Associates excluding the additional $500M approved by the Board on May 25, l988.
Smith signed the Associates Agreement on behalf of NISD on September 10, 1987. In so doing, he committed NISD to a 34% equity interest in Associates prior to receiving Board approval on October 21, 1987.
Smith originated two loans to Trust totaling $45M prior to October 20, 1987, the date on which Trust was formally established.
Smith allowed Beggs, Riddle and Kuhn to withdraw from the partnership with no continuing liability. No evidence has been found to suggest that Heritage was provided with any reasonable consideration for releasing these individuals from their guarantees.
4. The project was almost entirely funded by Heritage and NISD. At a November 13, 1987 Associates meeting, the Partners agreed with Smith that their time spent prior to Heritage’s involvement would be “sweat equity” that justified the bank allowing them to keep 66% of the equity.
5. There was inadequate control over the advancement of Heritage funds. The directors expected Smith to monitor the use of the funds advanced to Associates.
6. The revolving line of credit promissory note, relative to the $1.5 million loan to Associates, permitted Heritage, at its own discretion, to make advances in excess of the stated maximum dollar amount without the requirement of the execution of additional promissory notes. The elimination of the requirement for a new note may have provided an opportunity for additional advances to Associates, thereby escaping reports of new loans to management and the Board.
CONFLICTS OF INTEREST
1. A disclosed conflict of interest existed between Smith (the loan officer for the project) and Goggins (his brother inlaw).
2. There is no evidence that Smith, Goggins, or Pichette disclosed to Heritage, the conflict of interest represented by their ownership interests in Fiftytwo/Fiftythree Clark Avenue Associates, Inc. (Clark Avenue).
3. The loan documentation package was sent by Labovitz to Attorney Pichette of HD&S for review. Attorney Pichette is the brother of Pichette. Therefore, the documentation review was not completely independent.
4. Attorney Richard G. Pichette did not provide his opinion on CF loan documents until five days after the closing, November 25, 1987. As legal counsel for Heritage, Labovitz had a responsibility to see that all documents were in order before the loan was closed and funds disbursed.
Labovitz and his law firm allowed a clear conflict of interest to exist by serving as legal counsel for Heritage in connection with loans from which his business associates benefited.
There is no evidence that Labovitz disclosed to Heritage, at any time during the life of this project, his ownership interests in Clark Avenue and Investment Partners, Inc. (IPI) with Smith, Goggins and Pichette.
There is no evidence that Labovitz disclosed to Heritage, at any time during the life of this project, his ownership interests in TSL, Inc. and VI Condo with Smith.
There is no evidence that Labovitz or Shrair disclosed to Heritage, at any time during the life of this project, their ownership interests with Smith in TSL, Inc. and IPI.
6. When the conflict of interest issue was raised during a Trust loan workout meeting at Heritage, relative to Labovitz representing the bank,Labovitz deliberately failed to disclose the true extent of his conflicts of interest. When asked the nature of the conflict, Labovitz referenced his, or his firms’, representation of Goggins with the purchase of property in Northampton. Labovitz did not disclose his above listed interests with Smith, Goggins or Pichette.
Labovitz failed to act in the best interest of Heritage with respect to the preparation of several loan documents and side agreements relative to the $5.150 million loan to Trust.
a. the side letter releasing partners from their indemnity agreement not to sue Heritage, faxed from CSALD,
b. the loan modification side agreement allowing Trust to re borrow, once during the term of the loan, the amount of a principal payment made following the full advance of the loan,
c. the marshalling riders attached to the individual guarantees of the partners, requiring that Heritage first foreclose against the CF property, and then against the additional collateral provided by Goggins and Whalen, before proceeding against the individual guarantors, and
e. the absence of corporate guarantees from G&W and VDD.
While Labovitz may have been directed by Smith in these matters; however, his loyalty should have been to Heritage and not to his business associate. There is no evidence to suggest that Labovitz advised Smith’s superiors of these side agreements before their issuance; or that he counseled Heritage relative to potential collection constraints posed by the issuance of marshalling riders and the nonrequirement of corporate guarantees.
8. At the time that the Heritage loan documents were being prepared for the $5.150 million loan to Trust, including the above described side agreements, Shrair was preparing an agreement for Smith’s onethird purchase of G&W. As onethird owner of G&W, Smith would become a partner in Associates. Therefore CSALD, breached their fiduciary duty to Heritage by assisting Smith in the structuring of documents that would benefit him and disadvantage Heritage. Namely:
a. the side agreements described in item 7, and
b. the G&W purchase agreement. This agreement was structured so that Heritage was precluded from offsetting onehalf of the compensation Smith received from G&W against the amount of severance compensation due from Heritage.
The directors of Heritage believed that Labovitz would protect
the bank’s interests.
1. Prior to Associates’s acquisition of the BSB property, Smith was well aware of the conclusions contained in the Snow report. Included were that the cost to rehabilitate the ski facilities and expand them to their ultimate capacity would be between $4 and $5 million and, BSB could not be considered to be economically viable wihtin its regional competitive framework. Smith had also been informed of the numerous problems that would be involved in pursuing real estate development on the property, including zoning, utilities and community opposition. Pichette’s reference to the Snow report in his June 30, 1987 joint venture proposal to Heritage suggests that he was also aware of these problems.
It appears that a quid pro quo existed. Heritage had a parcel of foreclosed property which Smith needed to sell, and Associates needed financing to develop its property nine miles away.
2. Goggins and Pichette were the driving forces for the CF project. Certainly Beggs was under this impression from the beginning as evidenced by his statement in a letter to them that “they had made it clear that they were an ongoing entity and that he was a new person wanting to participate.”
There was a close working relationship between Goggins, Pichette and Smith. This probably was the result of their longtime personal friendship and common ownership in other real estate development projects. At the August 7, 1987 meeting, someone stated that their willingness to accept terms proposed by the bank’s attorney was on the basis of their ability to work with Smith as the bank’s representative.
Smith was certainly accommodating to Associates in not requiring equity contributions from the Partners upfront; providing loans to Associates without Board approval; providing the Partners with loans to enable them to meet their capital contribution requirements; and, the execution of side agreements that would benefit the Partners as well as himself.
P. Sackrey was brought into the project to overcome the anticipated opposition from the Hilltown communities. Although construction and/or engineering problems had been reported, with enough money, nearly any problem could be overcome (not necessarily cost effectively). Smith was the easy source of money.
The project clearly lacked sufficient upfront research, focus and adequate control during its construction phase. At a May 13, 1988 Associates meeting, someone indicated that “we do not know at this time how many dwelling units we have to build in order to make this whole project profitable to the degree that we want it to be.”
At the point in which it was clear to the Partners that the project was in trouble, they were in the position of having to sink or swim together. Efforts to find other investors or participating banks failed. The project would not generate sufficient income as an Inn to repay the Heritage loan.
It appears that Labovitz would accommodate Smith’s desires in order not to jeopardize their relationship.
2. At the time of the original Associates loan closing, Goggins had an ownership interests in Clark Avenue with Smith. At approximately the same time, Pichette had been brought into the group on an informal basis. Additionally, Pichette, Gillen, Riddle, Gray and Kuhn (collectively VDD) were involved in the Saddle Hill project, financed by Smith.
3. Despite the failure to locate adequate soil for conducting perc tests prior to July 15, 1987, the Partners elected not to exercise their right to back out of the P&S. It is possible that the potential continuation of Dawson’s complaint against G&W with the Mass. Realtors was a motivating factor.
4. Despite the discrepancy between the 700 acres of CF land indicated on the P&S and the actual acreage of 550, the Partners decided not to sue the prior owners or renegotiate the sales price. Since the discrepancy was not discovered until after the July 15, 1987 P&S deadline for the Partners to survey the property; and, since the Partners had not even ordered a survey, it is probable that an attempt to negotiate a new sales price or not consummate the purchase would have resulted in a suit by the prior owners. Included among the possible consequences would have been the loss of the $30M deposit, the loss of substantially greater sums for damages and, the continuation of the Dawson complaint against G&W with the Mass. Realtors.
5. According to Goggins’ testimony, he confronted Covell relative to his discouraging Brockmyre from investing in Associates. If this is the case, it appears likely that it would have occurred at either his May 8th. or 9th., 1989 meeting with Covell.
6. Although Labovitz and Shrair did not have an ownership interest in Associates, they and other members of CSALD handled various legal matters for Associates as well as Included were:
a. Representing Heritage, as legal counsel, with the workout and foreclosure of the BSB property owned by Waszkelewicz.
b. Representing Heritage, as legal counsel, relative to the preparation of the loan documents for the $1.5 million and $5.150 million Associates loans.
c. Representing Heritage, as legal counsel, at the November 20, 1987 and June 9, 1989 Associates loan closings.
d. Drafting of the Associates Agreement.
e. Drafting of the Beggs agreement for the sale of his ownership interest.
f. Drafting of the Brockmyre letter of intent.
g. Legal counsel for NISD.
h. Corporate counsel for Swift.
7. Partner concerns over appraised values and proformas were directly related to requests for additional capital contributions from them. The Partners expressed little or no concern about the principal of the loan being repaid to Heritage. Additionally, there was little or no discussion about the return of NISD’s equity contributions. However, when the partners were eventually required to contribute capital, questions were raised about the return of their equity contributions and assurances were sought that their equity contributions were adequately protected by the value of the project.
8. It is likely that Goggins and Whalen were aware that the additional properties pledged for the $5.150 million loan, in accordance with the Heritage Board requirement of $1 million in additional collateral, did not provide Heritage with $1 million in additional equity.
9. Between June 1986 and July 1990, CSALD billed Heritage at least $3,757.85 for legal services relative to BSB.
Period of Services Legal Expenses Total
6/17/86 7/21/86 931.35 100.35 1,031.35
8/26/86 35.00 0 35.00
9/17/86 10/1/86 297.00 0 297.00
10/3/86 11/6/86 560.00 396.75 956.75
11/13/86 1/8/87 104.50 6.44 110.94
5/7/87 6/30/87 1,800.00 0 1,800.00
7/12/90 30.00 0 30.00
10. Between July 1987 and March 1990, CSALD billed Heritage at least $16,622.25 for legal services relative to CF.
Period of Services Legal Expenses Total
7/18/87 8/18/87 1,150.00 10.09 1,160.09
9/21/87 9/24/87 3.86.50 0 186.50
11/6/87 11/19/87 900.00 0 900.00
9/25/87 12/1/87 6,500.00 100.00 6,600.00 at closing
12/7/87 8/25/88 0 0 0
12/10/87 4/5/88 0 0 0
1/18/89 8/29/89 6,167.00 100.00 6, 267.00 at closing
9/28/89 2/12/90 1,718.75 6.10 1,724.85
3/13/90 0 36.25 36.25
11. The working copy of the June 9, 1989 closing disbursement
statement for the Associates loan reflects that CSALD was paid
$6.167M in legal fees. This is consistent with the invoice
listed in item 10 above for the period of 1/18/898/29/89.
However, an October 3, 1989 letter from Guyette to Goggins
indicates that CSALD was paid $12,029.23. Attached to this
letter is a draft which includes a hand written change, by
Labovitz, of the reason for the CSALD fee of $12.1M from
“legal fees” to “expenses and other disbursements.”
12. Between January 1989 and June 1989, CSALD billed Heritage at least
$8,585 for legal services performed for NISD relative to CF and BSB.
Period of Services Legal Expenses Total
1/18/89 11/15/89 7,000.00 434.60 7,434.60
10/2/89 12/19/89 1,585.00 55.00 1,635.00
12/21/89 2/24/90 0 45.00 45.00
12/7/89 2/9/90 0 0 0
5/31/89 6/20/89 0 1,173.50 1,172.50
13. CSALD invoice number 290292 for legal services performed for CF, and invoice number 32153 for legal services performed for NISD, contain several duplicate entries.
14. At the June 16, 1989 Associates meeting, the Partners aqreed to maintain the BSB property even though Heritage was now the owner.
15. Check #1911, dated October 27, 1989, drawn on the account of CFA Construction at Heritage, signed by John Sackrey, was paid to Pat Sackrey in the amount of $1,603.77. The discription on the check indicates “Eastern electric bill”. If thhis is a CF expenditure, it is not known why the check was not made payable directly to Eastern Electric.
16. Checks drawn off of the Swift River Hills, Inc. account at Heritage were paid to Sackrey & Beggs for billable time and reimbursements. These checks were signed by Beggs. While minutes of Associates contain numerous discussions relative to the reimbursement of Partners for time expended on behalf of Swift, it is not known what services the entity of Sackrey and Beggs performed.
17. CF files contain numerous monthly telephone bills for amounts ranging between $lM and $3M.
18. The following Swift checks, payable to Partners or their business’, were located in the CF files.
Date Payee Reason Amount
4/18/88 Goggins & Real estate $ 15,000.00
4/18/88 Valley Design Dev. Fees 4/10 $975.00
4/18/88 Sackrey & Dev. Fees 4/10 $ l9,328.05
4/18/88 T.J. Beggs Dev. Fees 4/10 $ 6,011.46
7/8/88 Sackrey & Dev. time Apr. $ 1,368.28
7/8/88 Sackrey & Dev. time May $ 3,712.50
7/8/88 Sackrey & Dev. time June $ 1,837.50
19. At the August 6, 1987 Associates meeting, the Partners discussed a recently discovered discrepancy in the CF acreage. They noted that while they had the documents in escrow relative to the previous law suit, the sellers had their $30M deposit. The Partners decided not to sue the sellers. it appears that there was some concern over the potential loss of the $30M deposit. It also appears that the $30M deposit was provided by the original CF Partners (A Partners) of Goggins, Pichette, and Beggs.
20. The copy of the Real Estate Agreement signed by Dawson on
September 30, 1986 reflects that its was signed by the buyers ( Goggins, Pichette, and Beggs) subsequent to it having been signed by Dawson. This agreement includes the provision for the Goggins and Whalen $50M real estate commission. While correspondence reflects that Dawson might have known that Pichette was the buyer, at the time she signed the agreement, it is unclear as to whether or not she realized that Goggins was one of the buyers.