Background

As you may remember, in September John Miller called to find out if we want to sell Willow Farms.  At that time, I told him I would find out from the group.

In December, he called again, and we missed one another, but I finally told, via voicemail, that we would entertain and consider and offer to buy Willow Farms but that we would not consider any kind of partnership or joint venture and we wanted a straight sale.  I then told him that if he was still interested that he should give it his best shot, and we would consider whatever he sent us.

My Discussion of 1/30/02

John called me back on 1/17/02, and I returned his call today.  I told John the following:

1.  The group is still interested in whatever he would propose, but I wanted to make some things clear so he didn't think we were wasting his time.

2.  I told him that in reality, all don't want to sell, but 2 out of 3 do, and I won't stand in the way of a satisfactory sale.

3.  We still do not want to participate in any development or sale, the price cannot be dependent on success of sales and a sale must be all or nothing.  I told him that I could not agree to any sale that allowed a "cherry picking" of good lots and left other lots behind, because once sales started it puts pressure to complete the development or else all prices suffer under perception of "undesirable" development.

4.  I told him that the only reason we are having this discussion now is that due to the property tax revaluations the carrying costs of the lots has increased.  Therefore, any sale must be structured to take that carrying cost pressure off, hence, a sale of all or nothing.

After stating these ground rules, I told him that I would understand if he wasn't interested, but that if he was, he should just give us his "best" proposal.

He then asked how many lots, and I told him 8 with a 9th possible, but owned only by my mom.  He said let's keep that out for now.  I also told him that within the next 2 years, the lot with the house might also be sold, but that that was up to my parents.

He then said the following:

1.  He is interested too in reducing his risk, so he might be interested in deal where he would guarantee the purchase of 2 lots every year for 4 years.  It would be a guarantee.

2.  He asked me if we had any idea of the value we wanted for the lots.  I said there are different ideas and no consensus, so I said I had no number to give him.  I reiterated to him that he knows more than me (since I'm just a lawyer in Denver) and he should give it his best shot.

I then commented to him on his suggestion:

1.  I told him that any deal that did not ensure sale of all lots was just not acceptable, so the extent of his guarantee of 2 lots per year had to be firm as to 8 lots over 4 years to even be considered.  I told him then it would appear just to be a means of financing the sale (not reducing his risk) and allowing us to keep title to the unsold lots rather than tie them up with a mortgage.

2.  I told him that his proposal may not be worth considering if it allowed the kind of cherry picking I referred to above and the kind of pressure to pick up the remaining lots at lower prices that I referred to above. I told him to consider these concerns in his proposal.

3.  I told him that because what brought us to the table now is the increased carrying costs of the lots, any proposal by him that still puts pressure on us to carry these lots and expend finds, will not be well received.  For example, I told him that I have some concern that any 2 lot per year deal will result in immediately increased carrying costs resulting from revaluation of the remaining lots for property tax purposes based upon the first purchases.  I told him that that would not be well received by us.

How We Ended It

I told him that I wanted to make clear my concerns so that he doesn't waste his time and feel resentful if we reject his offer. I told him that I wanted to be above board and that my reputation was important to me. He said he understood and appreciated the details.

He said he will put a proposal together, and I told him to send it to Leonard at the office, since I am not good at being the middleman.

Let me know if I goofed up or did ok.

- Dan
1/30/02