Kevin Padrick & Obsidian Finance Presentation
The principals of Summit contracted with Kevin Padrick & Obsidian Finance in December of 2008 prior to filing for Chapter 11 Bankruptcy. Kevin Padrick had assured them that his company was the right one to use in order to get the maximum value returned to the creditors. The shareholders had been in the dark so long, they were growing concerned with the lack of action and communications from Summit’s Bankruptcy attorneys, Sussman Shank. Kevin Padrick had not communicated with Terry Vance (the Chief Restructuring Officer at this time, or rather, Obsidian Finance’s boss) since Obsidian Finance was hired by Summit 1031 back in December of 2008.
The people present at the meeting were as follows….
ME (Stephanie Studebaker-DeYoung) - Daughter, and one of the many LLC members being drawn into the Summit BK court.
Terry Vance – At this time was the Chief Restructuring Officer (CRO) for the Summit BK court.
Mark Neuman (My Dad) – Principal of Summit Accommodators Inc.
Jan Neuman (My Step-Mom, Dad’s Wife) – Substitute Teacher/Home-maker
Tim Larkin – Principal of Summit Accommodators Inc.
Lane Lyons – Principal of Summit Accommodators Inc.
Brian Stevens – Principal of Summit Accommodators Inc.
Kevin Padrick – Current Trustee for Summit & senior principal and cofounder of Obsidian
Ewan Rose – Employed by Obsidian Finance
Tension was palpable as we all sat down at the Summit conference table. The atmosphere of the place was sullen, quiet, empty, and sad. This used to be a prosperous business with a “family” of employees made up of many talented individuals working hard but having lots of good “family” fun. Not anymore. Now it was just four frustrated principals, Vance, Padrick, Rose, Norwood, Jan and I here to have a meeting to discuss Padrick’s plan to get the exchangers paid off. Instead of asking to see his presentation, Tim addressed Kevin Padrick with his concerns…
Tim: My concern, is that when we originally met back in December, there were several things that Obsidian put forward that they could do for us…move quickly, engage the insurance companies almost immediately, work fast enough perhaps so we could preserve some exchanges. At that time, the 45-day date had not passed. That was something that you, Kevin, put forth and there was a reason to engage you in the process. So we spent a week or so putting together all of the information that we could with our hopes that this thing was going to move forward quickly. And that, in fact, this thing was going to move forward quickly and that, in fact, because Obsidian was being retained by us in the process that we would be getting some communication from you. And in the process, at least from my perception, you guys are doing an end around us…selling yourself to the creditors’ committee. We are getting absolutely no feedback. We’re seeing absolutely no results that you put forth you were going to bring to the table. And so, obviously, we start getting concerned. We’re concerned because we start hearing things that perhaps at the presentation to the creditors’ committee you are presenting what we felt was a more complex position and structure than what we have going here. The things like the Three Sisters Development LLC were very complex when truly they don’t even come into play, or minimally, in this whole thing. That’s when I think all of us became concerned about what we have done here. We have put out $100,000 of exchanger money, essentially, and we’re seeing nothing from it and we’re getting no communication from this firm that we retained to help us with that. If you could, kind of respond to what it is you have been doing and why none of the communication is coming to us.
Kevin: OK, then, that sounds more like…umm…an interview and if you want to know what we’ve done….we started day one…
Stephanie: Yes, we would like to know what you’ve done.
Mark: Hey just answer the question. I don’t know what the problem is here. That’s a fair question. Just answer it Kevin. I want to hear it.
Kevin: Well that’s fine. I’m glad that you want to hear it. That’s not a question. It’s a question of whether it is appropriate to have Terry here when we are going through these questions.
Stephanie: I don’t see that if you don’t have anything to hide here…
Kevin: It’s not hiding anything.
Stephanie: Ok, can you give us the information that you can give us in front of Terry regarding this question?
Tim: Let me just say one other thing. In this engagement letter that you sent to us, you basically said you were working for the company under the direction of the CRO, who is Terry. So I don’t know when that changed or why now that is different and why you care if Terry is here or not.
Mark: Right. As far as I’m concerned, you’re still working for Terry. Why wouldn’t he be in on this meeting?
Kevin: Well, again, Terry knows what we are doing. I mean that’s not the issue.
Stephanie: Terry, do you know everything?
Terry: Not everything…absolutely not.
Stephanie: We are all actually not quite sure what you are doing.
Mark: Because there’s been no communication. So we’re just asking what happened here.
Kevin: Well, uh, we’ll start and answer a few of your questions, but if we’re going to move on…
Stephanie: We would like to move on, but we would like you to answer the question.
Kevin: I understand. If, uh, if we’re going to do all this…
Stephanie: Just answer.
Kevin: Ok…we started the very first night, the very first night with exactly what needed to be done in this case. We started moving the next day as to what needed to be done. We had a communication where we were told we were moving too fast and Sunday…that very first weekend. K. Just so you know what was going on.
Tim: That communication was from…
Kevin: It was from counsel and from Terry. And, ummm, we said there are issues with the bonds, issues with the insurance polices. Can we figure out how to mitigate our two jobs, that are to figure out how to maximize the value of the assets and look, if this is going to be a deposition, we’re going to stop. If you’re going to take notes here of everything I’m saying, we’re going to stop.
Mark: But, why…
Kevin: If you want your attorneys to depose me, then set up a …………
Mark: You can take notes on everything I say. I just want to know what’s going on…. Because you know frankly, you know you’ve had this thing…you came in just exactly how Tim put it and basically sold the job and as soon as you sold the job the communications stopped. And it is just very interesting here how scared you are to talk about this and say this is what’s going on. Just put everything on the table and let’s get a working relationship and an understanding going Kevin. This reaction you’ve got here isn’t going to take anything anywhere to getting a trusting relationship where we go, “Wow, we feel good about what these guys are going to do.” I mean, you haven’t told me what you do to bring value to this. I have no idea. Apparently, other than listing stuff with realtors. Let’s say you’ve got 6% commission with realtors. Whatever the proceeds are….. Let’s just throw out a number….. $10 million….. just by getting this job alone and listing this stuff with realtors, you get $900k on the table for your company. So that doesn’t motivate me to do anything other than just land the job. It’s kind of like a realtor…. They’re going to get a commission if they just land the listing and they don’t have to do much else. These are fair questions. I don’t understand why you seem to be hesitant to answer any questions and just have an open discussion about this.
Kevin: I’m happy to have an open discussion, but if you’re going to take down verbatim what I…
Mark: You thought that you were going to come over here and have a meeting and we weren’t going to take notes?
Kevin: No, I uh. As I’m speaking you’re typing.
Mark: That’s right. Cuz we want to take notes on what you’re saying Kevin. And I’m seeing you having a fear to being held to what you said.
Kevin: Well, look…I don’t want to have this thing blow up and then have a situation where you’re sitting there taking notes and this and this…and have you say, “Kevin said this…” That doesn’t promote an open discussion. If you want to have a deposition, that’s fine, we’ll have a deposition. If you want to have an open discussion, then let’s have an open discussion.
Mark: You write notes of everything we say, and we’ll write notes of everything you say, and that’s how we’ll get a working relationship. It will just be fair for both…
Stephanie: You guys, you know what, we’re just going to pass on the notes. OK.
Tim: I think that at the end of the day, our desire is to get as much value as possible as quickly as possible to the creditors. We have no other agenda.
Kevin: But that’s our agenda. That’s exactly our agenda.
Tim: We may not agree on everything that is discussed here at this table and there may be some tension that arises over that. I will say that we come to this meeting with a bit of a defensive stance because we feel like you did an end-around on us. Rightly or wrongly, lack of communication has put us in this position. Let’s get that communication out. Let’s talk about why Obsidian would be the best solution to this. So that we can evaluate that, and determine whether that is the best solution. I don’t know how to emphasize this enough. We just want to move as quickly as possible with the greatest value as possible for the creditors. That is all that we want. But there has to be this trust. Whether you’re talking about marriage, kids or whatever… if there’s not communication, you can’t have trust.
Kevin: That’s fine. We immediately started to analyze all the exchange transactions and started researching immediately how do we mitigate damages. Our view was that the exchange transactions needed to go forward as soon as possible. We needed to authorize them in blanket, because it is critical that we not have damages accruing because those damages are difficult to measure. As you know, because you’re experts in this. The damages are difficult to measure because could be taxed and normally you present value it back at some point in time. It’s hard to determine exactly when, because someone could say, look, I was going to die and get a stepped-up basis and I was never going to pay tax. It is a complicated matter, so our view was, let’s avoid the damages however we can. So we started on all the mitigation strategies and then we were told “stop, don’t do that”. Kevin said why. They said because we (Sussman), Terry and the law firm will handle it. Okay. That’s what we understood we were supposed to be doing. Okay, we’ll stop. And we tried to get involved a little bit again, and we were told send all of the files they had on exchanges to SussmanShank. And we did. K. So we no longer had the files. So we couldn’t do anything. We then went to the creditors’ committee. I’m just going to take the mitigation first and then the real estate. We met with the creditors’ committee and we were instructed to…. Initially we were all going to meet with the creditors and wanted to have an open meeting with them and present the information that you had presented to us and that we had supplemented. We were told we couldn’t present that information to the creditors, so we didn’t.
Mark: Did you understand why?
Kevin: It’s a confidential communication. The creditors’ committee has to keep it confidential and ultimately signed a confidentiality agreement, we were sent back. So remember the creditors’ committee at the request of Terry, we met with the creditors’ committee. We didn’t do any end-run. We were told to go to the creditors committee and work out an agreement with them. Okay. We then did that. Sat and we had hours of meetings, then we had phone calls and on and on and on and on.
Terry: Excuse me Kevin, hold it right there. Let me correct you. I never instructed you specifically to go to the creditors’ committee.
Kevin: Uhhh….. That’s what we were told, that you had instructed us. We were supposed to go meet with the creditors…
Terry: Did I say that to you? Did I say that to you?
Kevin: I don’t know whether you said it to me or Sussman said it to me.
Terry: Who the hell said it to you? That’s what I’m asking.
Kevin: We can go back and look through the emails and figure it out. I don’t know why it is important to know whether it was Sussman that said it to us or somebody else.
Terry: Don’t say that I’m saying things if I did not personally say them to you.
Kevin: I’m assuming if I was told by Sussman that you said it, that it was said….. But I don’t know.
Stephanie: Well, we would like to know who said this.
Kevin: Okay.
Mark: I know you don’t think it is important, but maybe it is important to us.
Kevin: Okay.
Mark: We really do need to know who said this. Anyway, go on….
Kevin: So we went to the creditors and we spent those hours. At the very first meeting we had with the creditors they said, we’re very concerned about mitigation. We said we completely agree. The mitigation damages are stacking up and it is to everybody’s disadvantage and something needs to be done. And they said, well we’ve got some ideas, and we listened to some of their ideas. Some of them were kind of off the wall and some of them showed some creativity. So they said please go and see what you can research. So with that, we went back and focused on how to mitigate. By the next day we came up with a strategy that we thought worked. And we went back to the creditors and to Sussman and said here’s our idea. This is how we think these damages can be mitigated. And they said, okay. We want to have our 1031 attorneys, creditors and Sussman talk about it. Right, but I said then let’s do it, let’s not wait. And they said okay, we’ll discuss it. And we were told that it was going to be handled by Sussman and the creditors’ committee. Okay? But you guys have a melting ice cube here and you need to do something about it. And, today we sit where we are and we are only handling certain 1031 exchanges on an individual basis and no blanket order. And the damages are stacking up in the millions of dollars. Now they could be present valued back and argue it was less. Somebody could argue that they are stacking up into the millions of dollars. Ummm, it’s clearly not our deal. Literally, on the second day we were drawing up an engagement letter. We think that it is crucial to mitigate these damages. We talked again to Sussman and said we’ve got to have a blanket order. Sussman said we’ll get to work on it right away. So I am expecting and I hope to have a blanket order one of our people talk to Sussman and try to get a blanket order going right away. Specifically for the forward exchanges.
Terry: Lane, how long have I been talking to you about a blanket order?
Lane: Since about right when we got here. Once he figured out what a reverse was, and we’ve been harping on it for six weeks but the communications with Sussman have been difficult. You send anything over to Sussman and it just dies. You get a bunch of explanations about how bankruptcy is complicated and Three Sisters isn’t under the jurisdiction and blah, blah, blah. And it’s just much to do about nothing. Like you said, damages have been stacking up and for no f-ing reason whatsoever…. none. Unless the creditors’ committee is off in left field and thinks that they should get these properties.
Kevin: No, they want damages mitigated, let me tell you.
Mark: Let me ask one question. Why did you choose to not communicate with us since early January?
Kevin: Because we weren’t in a position to communicate with you. What we were doing was to be responsive to doing what we were asked to do.
Mark: By who?
Kevin: We were asked to do so, specifically by Terry and Sussman. And honestly we didn’t even contemplate that we were supposed to come back and talk to you. We thought we had two jobs. That’s what we thought our two jobs were. And we embarked on both those jobs.
Terry: How much time did you spend with the creditors’ committee?
Kevin: I don’t know how many hours…I don’t know.
Terry: Because I’ve gotten communications back through the creditors’ committee regarding your guys’ work rather than getting it directly from you. I have a problem with that.
Kevin: Terry, if you felt that there wasn’t communication, all you had to do was talk to us.
