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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE YEAR ENDED DECEMBER 31, 1996
Commission File Number:
333-264
Exact name of Registrant as specified in its charter:
South Seas Properties Company Limited Partnership
State or other Jurisdiction of incorporation or organization:
Ohio
I.R.S. Employer Identification Number:
59-2541464
Address of Principal Executive Offices:
12800 University Drive, Suite 350
Fort Myers, FL 33907
Registrant's Telephone Number, including Area Code:
(941) 481-5600
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. X YES NO
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APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
YES NO
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SOUTH SEAS PROPERTIES COMPANY LIMITED PARTNERSHIP
FORM 10-K
DECEMBER 31, 1996
INDEX
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PAGE NO.
COVER LETTER 1-3
PART I
ITEM 1 - BUSINESS
ITEM 2 - PROPERTIES
ITEM 3 - LEGAL PROCEEDINGS
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS - NOT APPLICABLE
PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS - NOT APPLICABLE
ITEM 6 - SELECTED FINANCIAL DATA
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 8 - FINANCIAL STATEMENTS
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE - NOT APPLICABLE
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT
ITEM 11 - EXECUTIVE COMPENSATION
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
SIGNATURES
EXHIBITS:
EXHIBIT 10.1 - SAFETY HARBOR AMENDED LEASE AGREEMENT
EXHIBIT 10.2 - PURCHASE OF SEASIDE INN
EXHIBIT 10.3 - LETTER OF CREDIT
EXHIBIT 27 - FINANCIAL DATA SCHEDULE
EXHIBIT 99.1 - CALCULATION OF WEIGHTED AVERAGE
UNITS OUTSTANDING
EXHIBIT 99.2 - RATIO OF EARNINGS TO FIXED CHARGES
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BUSINESS
Overview
South Seas Properties Company Limited Partnership ("South Seas") is one of
the largest owners and operators of upscale beachfront destination resorts and
hotels in Florida. South Seas owns six resort and hotel properties, plus an 18
hole golf course, and manages two additional resort properties, all located on
Sanibel, Captiva, Estero and Marco Islands off Florida's gulf coast
(collectively referred to as the "Properties"). South Seas, through its 99%
owned subsidiary, South Seas Resorts Company Limited Partnership ("Management
Company"), also operates a resort and spa located on Tampa Bay, Florida. The
Properties are designed to appeal to families, leisure and retired travelers and
business groups. The Properties range in size and style from the 552-unit South
Seas Plantation resort on Captiva Island, to the 269 unit, 11 story Marco
Radisson, to the 30-unit Song of the Sea Inn, a bed-and-breakfast located on
Sanibel Island. By offering a wide variety of price points and vacation
experiences, South Seas is able to appeal to a broad section of the vacation
market. The Properties offer a combined total of approximately 1,700 condominium
and hotel units, consisting of approximately 2,300 guest rooms, including
luxurious beach homes, fully equipped condominiums, suites, cottages and hotel
rooms. South Seas also owns and operates The Dunes Golf and Tennis Club on
Sanibel Island, which features an 18-hole, par 70 golf course, seven soft
surface tennis courts, full banquet and restaurant facilities and other
amenities. Guests staying at any of the Properties have access to the amenities
and vacation activities offered at all of the Properties. South Seas believes
that this feature, combined with the Properties' attractive locations, enhances
customer satisfaction and guests' perceptions of value.
Overall management and marketing of the Properties is coordinated through
the Management Company, which is headquartered in Fort Myers. The day-to-day
operation of each Property is the responsibility of an on-site general manager.
Management functions provided on a centralized basis include marketing,
reservations, human resources, purchasing, property renovation and development,
management information systems, finance and accounting. By providing these
functions on a centralized basis, South Seas is able to achieve improved results
on a more cost-effective basis. Marketing of the Properties is accomplished
through a combination of South Seas' own sales force and arrangements with both
national and international representatives.
Lodging Industry
According to published industry data, the United States lodging industry
consists of approximately 45,000 different properties offering approximately 3.4
million rooms for daily rental. The most common classifications used to analyze
and compare properties within the lodging industry are location, average price,
size, region and age. Additionally, each such classification can be further
divided by service (i.e., luxury, upscale, mid-price, economy or budget). Toward
the end of the 1980s and through the early 1990s, the lodging industry
experienced increasing occupancy
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but declining profitability. This was due to a significant increase in the
supply of rooms that offset almost all of the increase in demand. Overall, the
lodging industry had net losses close to $15 billion in the five years ended
1992. Over the last four years, however, lodging industry profitability has
improved. It is believed that this increase in profitability is due principally
to a steady level of supply, moderately increasing demand, increased attention
to costs and lower interest rates. The lodging industry made profits of $8.5
billion in 1995.
The following chart profiles the U.S. lodging industry: (i) as a whole,
(ii) by service and (iii) by property location for the years ending December
31, 1994, 1995 and 1996.
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LODGING INDUSTRY PROFILE
Percentage Change
Average Occupancy Average Daily 1995-96
Segment Room Rate
1994 1995 1996 1994 1995 1996 Sales Supply Demand
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U.S.
Industry 64.7% 65.1% 65.7% $ 64.24 $ 67.17 $ 71.66 10.0% 2.3% 3.1%
By service:
Luxury 71.3% 72.2% 73.4% $112.79 $117.70 $125.96 10.3% 1.4% 3.0%
Upscale 68.1% 68.4% 68.1% $ 77.19 $ 81.17 $ 85.54 9.0% 3.4% 3.4%
Mid-price 65.9% 66.3% 66.3% $ 58.26 $ 61.50 $ 65.63 10.2% 3.3% 3.3%
Economy 62.0% 62.5% 62.6% $ 45.18 $ 47.87 $ 51.01 9.1% 2.3% 2.4%
Budget 61.4% 61.7% 61.7% $ 34.34 $ 36.27 $ 38.48 6.9% 0.7% 0.7%
By property
location:
Urban 67.0% 67.9% 69.2% $ 89.32 $ 94.01 $102.15 11.8% 0.9% 2.9%
Suburban 64.9% 65.7% 65.8% $ 57.44 $ 60.80 $ 64.59 9.9% 3.2% 3.4%
Airport 70.5% 70.8% 71.2% $ 62.67 $ 66.20 $ 71.01 9.0% 1.1% 1.6%
Highway 62.4% 62.7% 62.0% $ 45.32 $ 48.03 $ 50.73 7.5% 3.0% 1.8%
Resort 68.2% 68.6% 70.1% $ 95.31 $103.82 $109.72 8.4% 0.3% 2.5%
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Source: Smith Travel Research Lodging Outlook
The above table indicates that sales have increased 9.0% from 1995 to 1996
in the upscale hotel segment and that demand for rooms has remained steady with
supply. By property location, resort sales have increased 8.4% from 1995 to
1996, while demand has out paced supply by a margin of 2.2%.
It should be noted that Smith Travel Research has not provided any form of
consultation, advice or counsel regarding any aspect of, and is in no way
associated with, this document.
Strategy
South Seas' strategy is to capitalize on its position in the Southwest
Florida upscale resort and hotel market and to acquire and, to a lesser extent,
develop new resorts and hotels in targeted markets that have the demographic and
business characteristics that fit South Seas' market profile. In addition, South
Seas may from time to time enter into operating leases for and/or manage new
resorts and hotels that are owned by both related and unrelated parties. In
implementing this strategy,
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South Seas will build upon a base established over a 25-year period which
includes the following four key elements:
Leveraging Reputation and Extensive Local Market Knowledge. South Seas
believes that one of its primary strengths is its well-recognized name and
reputation in the South Florida market for high-quality, well-managed properties
and commitment to a high level of guest satisfaction. The Management Company has
sought to instill in all of its employees high standards of attentiveness to
guests' needs and thoroughness in property management and maintenance. The size
and structure of South Seas have given it the ability to implement such
standards through the accountability, control and flexibility that result from
having in-house capabilities to perform many maintenance and other guest
services that others obtain by contract with unrelated parties. South Seas will
attempt to enhance revenues, cash flow and profitability by relying on the
substantial base of information concerning rent levels, operating and
construction costs, comparable sales and regulatory processes and personnel that
it and the executive officers of the Management Company have accumulated from
having operated in the Southwest Florida market for over 25 years.
High Quality Product. South Seas intends to continue its focus on high
quality properties which are difficult to replicate and which provide high
quality accommodations and amenities in unique settings. By providing full
service, greater-than-usual amenities and outstanding guest service in such
unique settings, South Seas is able to attract a broad range of guests who
desire the look and feel of an upscale resort, and are willing to pay the
associated premium rate for that market.
Operating Cost Efficiencies. South Seas has made considerable investments
in recent years in order to develop an infrastructure permitting it to
centralize certain management functions for the Properties. South Seas believes
that its centralized management structure will enable it to achieve operating
cost efficiencies through shared staffing among Properties and large combined
purchasing volume. As one of the largest resort and hotel owners and operators
in the South Florida market, based on total rooms, South Seas is able to realize
substantial savings in purchasing both goods and services. In addition, through
concentration in the South Florida market, South Seas has acquired extensive
knowledge of prevailing pricing structures, goods and services suppliers and
contracting practices.
Owner/Operator. South Seas believes that its ownership or option interest
in the Properties results in product quality and service at a consistently
higher level than many of its competitors, which are often operated by
third-party management companies. South Seas' ownership and management of the
Properties permits immediate integration of new services and allows South Seas
to directly control expansion, effect pricing and execute other marketing
decisions on a local basis without the time delay of consulting third-party
owners or management companies. Management believes that the combined ownership
and management of the Properties will provide South Seas with significant
economies of scale thereby increasing South Seas' ability to control costs
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and allocate resources efficiently among the Properties. South Seas intends to
continue to be an owner and operator of resorts and hotels instead of strictly
an operator because of the existing competitive hotel management market. South
Seas plans to continue the business of managing resort and hotel properties of
owners (both related and unrelated with South Seas) with a view toward the
potential acquisition of certain of such properties, although there can be no
assurance in this regard.
Guaranteed Lease and Rental Programs
South Seas offers condominium and single family home owners at South Seas
Plantation, Sundial Beach Resort and Sanibel Inn the ability to participate in a
guaranteed lease or rental program (the "Rental Program"), pursuant to which
South Seas will either enter into a guaranteed lease or a best-efforts rental
agreement with the property owner. See "Description of Properties."
Under the guaranteed lease program, South Seas enters into a lease with the
property owner and pays the property owner a fixed lease payment every month
during the term of the lease. In addition to its fixed lease payment, property
owners are typically paid additional rent based on the amount by which a stated
percentage (typically 40%) of annual gross rental receipts exceeds the fixed
annual lease payments. Under the guaranteed lease program, the property owner is
restricted in its usage of the property. For example: the property owner may use
the property for two weeks during high season and two weeks during low season,
during which periods owners pay a per day rate of $10. If a property owner uses
the property in excess of the foregoing limit, the property owner is required to
pay some stated percentage (typically 80%) of the full published rate. The
typical guaranteed lease arrangement is for a period of two years.
Under the best-efforts rental program, South Seas does not lease the
property nor guarantee any level of fixed monthly payments. Rather, South Seas
and the property owner enter into a rental sharing agreement which typically
provides that the property owner receives approximately 42.5% of the rental
income and South Seas receives approximately 57.5%. Under the rental program,
the property owners are not restricted from occupying the property for their own
use. The rental program is typically terminable upon six months notice.
Marketing and Sales
Since the formation of South Seas, a number of initiatives have been taken
to enhance the marketing and sales of the Properties in national, international
and local markets. In late 1995, South Seas appointed a vice president of
marketing and sales at its centralized reservations center in Fort Myers to
coordinate individual resort marketing and sales efforts, as well as to identify
new cooperative strategies to achieve economies to improve the return on
investment from marketing and sales expenditures.
South Seas' core market consists of affluent leisure travelers to Florida
principally originating from the midwest, the northeast
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and Florida domestic markets, as well as certain European markets (principally
Germany and the United Kingdom). The profile of the target customer is a college
educated head of household with an annual income in excess of $70,000. South
Seas focuses on reaching its target customers through an integrated marketing
communications mix of advertising, direct mail and public relations. In 1995,
additional initiatives were launched to improve upon these efforts by
consolidating individual resort advertising with one agency to facilitate
cooperative programs, by building "South Seas Resorts" as a regional brand and
by centralizing media and brochure purchasing in order to reduce costs. These
initiatives were further developed in 1996 to include a South Seas magazine
("Shorelines") distributed in-room and via mail to past guests, a website
featuring all resorts and a cross property lead incentive program for group
sales.
Significant secondary target markets of South Seas include planners of
corporate, association and social meetings and travel agents who book individual
leisure travel. South Seas' marketing and sales force is divided between
Property dedicated directors of marketing and sales, with sales managers
responsible for group business, and a corporate travel industry sales team
representing all Properties. While the group sales effort remains Property
focused, initiatives have been made to enhance this segment's sales volume and
operating efficiency through shared participation in database profiling of
prospects, trade shows, sales calls and external, contracted representation. The
centralization of South Seas' travel industry sales was initiated in 1995 to
eliminate redundancy among the Properties, to expand the reach of South Seas'
sales effort without growth in corresponding expenditures, and to increase sales
from the travel agent and wholesale channels through cross-selling.
These efforts are further supported by new, internal, corporate service
bureaus providing research, database/electronic marketing, public relations and
graphic services. By centralizing these efforts as service bureaus, costs have
been reduced at individual Properties (which previously employed these services
on a dedicated basis) and these services have been made available to Properties
previously unable to fund these efforts.
Management believes that these initiatives, together with development of
South Seas' central reservations center, will achieve economies and greater
market penetration through consolidation/centralization and result in both
increased revenues as well as lower marketing and sales cost as a percentage of
revenues. Management also believes such initiatives will enable South Seas to
tap new markets on a cost-effective basis.
Acquisition and Development
South Seas has followed a strategy, of pursuing growth by developing,
acquiring, owning, operating and managing high-quality properties for long-term
income generation and value appreciation.
South Seas believes that current hotel market conditions and the outlook in
the South Florida market create acquisition and development opportunities that
South Seas can best realize as a
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larger, more diversified organization. Consequently, South Seas will seek to
expand its portfolio of Properties by acquiring existing properties and, to a
lesser extent, by developing new properties. In addition, South Seas will also
seek to increase earnings from its existing portfolio of Properties.
South Seas believes that there are a significant number of opportunities to
acquire properties in the South Florida market whose performance would benefit
from the application of South Seas' management expertise and capabilities. See
"Management." South Seas will actively pursue such acquisitions, both in
exchange for Units and for outright cash purchase. In both cases, South Seas'
approach will be to target specific situations in which it believes its
expertise will make a difference.
In seeking acquisitions in exchange for its partnership units ("Units"),
South Seas will target two types of potential sellers: (i) private and family
owners who may wish to exchange the risks and responsibilities of individual
property ownership for greater diversification and other benefits of the
ownership of Units in South Seas and (ii) owners who may particularly value the
possible tax deferral of an exchange of property for Units. In pursuing
acquisitions from both of these types of property owners, South Seas believes
its reputation and its experience as an operator of properties similar to those
of the potential sellers will provide important competitive advantages.
In pursuing direct cash acquisitions, South Seas will target hotel
properties that it believes have the potential for improved performance under
South Seas' management practices. South Seas believes that its experience in
acquiring properties will be of significant assistance in assessing acquisition
opportunities. See "Management." South Seas will also target for acquisition
hotel properties (including existing Properties) that it manages. South Seas
believes that managing properties prior to acquiring them presents it with
increased opportunities to purchase such properties and provides management with
better knowledge of the operating results of such properties prior to making any
acquisition decision.
In evaluating acquisitions of existing resort or hotel properties, South
Seas will consider the quality and condition of the physical facilities, design,
materials and construction as well as market potential, operating and
maintenance costs, average daily rates, occupancy rate, cash flow and other
relevant factors. South Seas will seek properties for acquisition that it
believes are under performing under current ownership and management and that
will permit South Seas to realize improved performance through the management
approach and capabilities of South Seas.
In developing new properties, South Seas intends to emphasize quality of
design, materials and construction in order to minimize ongoing operating and
maintenance costs and maximize market appeal and long-term investment value. In
selecting new development sites, South Seas will consider relevant factors,
including: (i) employment growth and other demographic characteristics of the
surrounding area; (ii) characteristics and performance of competitive properties
in the area; (iii) costs that affect
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profitability of the investment, including construction, financing, operating
and maintenance costs; and (iv) potential for periodic increases in room rates.
Acquisition and development activities will be primarily concentrated in
Florida.
Other than with respect to the Seaside Inn and Safety Harbor, South Seas
has not entered into options to purchase or definitive purchase agreements for
the acquisition of any specific properties, although South Seas in the normal
course of its business evaluates potential acquisitions and development
opportunities.
Operations/Management
The Properties are managed by the Management Company, a 99%-owned
Subsidiary of South Seas, pursuant to certain management agreements between
South Seas and the Management Company (the "Management Agreements").
Accordingly, 99% of net income or loss is consolidated and reported in the
results of operations of South Seas. Under the Management Agreements, the
Management Company collects all revenues generated by the Properties and remits
all revenues to South Seas or the owners of managed Properties, as the case may
be, after deducting (i) all expenses incurred in the operation of the Properties
(including salaries and other benefits of employees of the Management Company
and its general partner), (ii) base management fees ranging from 2% to 6% of
gross revenues and (iii) incentive management fees of up to 15% of all or a part
of net operating income.
Management of the Properties is coordinated by a management team at South
Seas' headquarters. This team is responsible for managing the financial and
strategic needs of South Seas and the Properties. The management team
administers insurance plans and business contract review, oversees human
resources, management information systems, financial budgeting and forecasting
for the Properties, and debt and capital negotiations and management, analyzes
the financial feasibility of new resorts and hotels and identifies new systems
and procedures to employ within the Properties to improve efficiency and
profitability. The management team also coordinates each Property's sales force,
designing sales training programs, tracking future business under contract and
identifying, employing and monitoring marketing programs aimed at specific
target markets. The management team also oversees refurbishment of the
Properties. The day-to-day operations of each Property are coordinated by an
on-site general manager of each Property.
Management of South Seas utilizes information systems that track each
Property's daily occupancy, average room rate, and revenues in room, food and
beverage and retail store operations. By having the latest available information
at all times, management is better able to respond to changes in the market by
focusing sales and field management efforts on periods of demand extremes and
controlling variable expenses to maximize the profitability of each Property.
Creating operating, cost and guest service efficiencies in each Property
is a high priority to South Seas. With a total of nine
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resort and hotel properties and one golf course under management in the same
geographic location, South Seas is able to realize significant cost savings due
to economies of scale. By leveraging off of the total hotels/rooms under its
management, South Seas is able to secure volume pricing from its vendors that is
not always available to smaller management companies.
Competition
Each of the Properties competes in its market area with numerous full
service hotels, especially in the resort segment, and with numerous motels and
other lodging establishments. Competitive factors in the lodging industry
include reasonableness of rates, quality of accommodations, service levels and
convenience of locations. South Seas believes it is competitively positioned to
take advantage of its unique position on Sanibel and Captiva Islands. The
Properties represent approximately 61% of the total available overnight rental
units on Sanibel and Captiva Islands, a market which has added no significant
new capacity over the last five years.
Regulation and Insurance
General
A number of states, including Florida, regulate the licensing of hotels and
restaurants, including liquor license grants, by requiring registration,
disclosure statements and compliance with specific standards of conduct. In
addition, various federal and state regulations mandate certain disclosure and
practices with respect to license agreements and the licensor/licensee
relationship. South Seas believes that each of the Properties has the necessary
permits and approvals to operate its business. Umbrella, auto, commercial
liability and workers' compensation insurance are provided to the Properties
under a "maximum loss" policy with Aetna and a property "maximum loss" policy
with AIG. The AIG policy includes a special rider to provide insurance against
interruptions of business. South Seas is self-insured up to the "maximum loss"
provided in each policy. Insurance expense for the Properties was approximately
$2.1 million, $2.7 million and $1.4 million in 1996, 1995 and 1994,
respectively. South Seas maintains property and casualty insurance on the
Properties in amounts that it believes to be adequate.
In 1994 and 1995, South Seas was self-insured on health insurance with
"maximum loss" caps (insurance provided on individual cases that could have
exceeded $75,000). Sufficient and appropriate reserves have been established for
claims (including future costs) incurred during that period. Effective January
1, 1997, South Seas entered into a fully insured program.
Americans with Disabilities Act ("ADA")
The Properties and any newly acquired or constructed resort/hotel
properties must comply with Title III of the ADA to the extent that such
properties are "public accommodations" and/or "commercial facilities" as defined
by the ADA. The ADA requires removal of structural barriers to access by persons
with
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disabilities in certain public areas where such removal is readily achievable.
Noncompliance could result in the imposition of fines or an award of damages to
private litigants. The ADA considers hotel properties to be public
accommodations. South Seas has taken into account an estimate of funds required
to make any changes required by the ADA in determining the appropriate level of
reserves and the expected level of debt service payments and distributions and
believes that such costs can be covered by funds from operations and established
reserves without any material adverse effect on South Seas' financial condition
or results of operations.
Environmental Matters
Under various federal, state and local laws, ordinances and regulations, an
owner or operator of real property may become liable for the costs of removal or
remediation of certain hazardous substances released on or in its property. Such
laws often impose such liability without regard to whether the owner or operator
knew of, or was responsible for, the release of such hazardous substances. The
presence of such substances when released, or the failure to remediate such
substances properly, may adversely affect the owner's ability to sell such real
estate or to borrow, using such real estate as collateral. In addition to
cleanup actions brought by federal, state and local agencies, the presence of
hazardous wastes on a property could result in personal injury or similar claims
by private litigants. South Seas Plantation, the largest of the Properties, has
purchased a Florida Storage Tank Third-Party Liability and Corrective Action
Policy insuring, subject to certain limits, against pollution emanating from its
storage tank systems. In addition, environmental surveys conducted within the
last five years in connection with the acquisition and/or financings of South
Seas Plantation, Sundial Beach and Tennis Resort, the Marco Radisson and The
Dunes Golf & Tennis Club have not revealed the presence of any hazardous wastes
or materials, the cost of remediation of which would materially adversely effect
South Seas.
Employee Relations
South Seas has no employees. As of December 31, 1996, the Management
Company had approximately 1,870 employees, and no organized labor union existed.
In mid-1996, a single employee at South Seas Plantation promoted unionization of
portions of the hourly employee force at that property. Support for further
activity did not and has not occured. Moreover, South Seas believes that labor
relations with employees of the Management Company are good, and does not
believe the aforementioned unionization activity will materialize. South Seas
provides housing to certain on-site employees at South Seas Plantation at
below-market rent. South Seas maintains employee incentive programs for
employees in areas such as housekeeping, maintenance, food & beverage and
retail.
Description of Properties
South Seas currently owns six resort/hotel properties and a golf and tennis
club, leases with an option to purchase one resort and manages two other resort
and hotel properties (Seaside Inn was
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purchased in January 1997). The Properties are all located in Southwest Florida
and are managed by the Management Company.
Owned Properties
South Seas Plantation. South Seas Plantation is the largest of the resort
properties in which South Seas owns an interest. South Seas holds a 99% limited
partnership interest in South Seas Resort Limited Partnership, the entity that
owns South Seas Plantation. San-Cap Resort, L.C., a Florida limited liability
company (owned equally by Mr. Taylor and Mr. Ten Broek. See "Management") holds
the remaining 1% ownership interest in South Seas Resort Limited Partnership.
South Seas Plantation is a 330-acre resort on the north end of Captiva Island,
Florida. The resort consists of approximately two miles of beach frontage on the
Gulf of Mexico, a major tennis facility, a nine-hole golf course, a major
conference center, a shopping complex, three restaurants and a major marina
complex accessible from the Gulf of Mexico and the Intracoastal waterway.
Approximately 900 dwelling units have been developed since 1972, including hotel
rooms (106) and employee housing owned by South Seas Resort Limited Partnership
(approximately 160), condominiums and single-family homes (580) and interval
ownership or time-share condominiums (110). South Seas Resort Limited
Partnership offers a rental program to condominium and single family home owners
at South Seas Plantation which includes a guaranteed lease or a sharing of
actual rental income between the owner of the property and South Seas Resort
Limited Partnership. See "Business - Guaranteed Lease and Rental Programs." Of
the 580 condominiums and single family homes at South Seas Plantation, 459 are
presently managed as rental units by South Seas on behalf of the owners. South
Seas Plantation benefited from a $2.0 million renovation in 1996 consisting of
substantial reconstruction of its fine dining restaurant (King's Crown) and a
complete facelift of its entrance, tennis center and south end common area
facilities.
Radisson Suite Beach Resort ("Marco Radisson"). The Marco Radisson, located
on 7.8 acres on Marco Island, Florida, consists of 269 hotel units, 168 of which
are one-bedroom suites, 46 of which are two-bedroom suites and 55 of which are
guest rooms. Amenities at the Marco Radisson include approximately 360 feet of
direct beach frontage overlooking the Gulf of Mexico, a swimming pool, tennis
courts, a game room, a conference facility and two restaurants. It was acquired
by South Seas in September 1994. The Marco Radisson has undergone approximately
$4.5 million in renovations through December 31, 1996. An additional $2.4
million in renovations are currently scheduled for 1997.
Sundial Beach Resort. Sundial Beach Resort is located on Sanibel Island,
Florida. All 407 condominium units at the Sundial Beach Resort are privately
owned, and 262 of these units are presently managed as rental units by South
Seas on behalf of the owners. See "Business Guaranteed Lease and Rental
Programs." The Sundial Beach Resort consists of a main registration building, an
administrative building and various recreational facilities, all located on
approximately seven acres, including approximately 2,300 feet of Gulf of Mexico
beach frontage. In addition to rental units, meeting and banquet rooms and
executive offices, the main registration building includes the Windows on the
Water
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<PAGE> 13
Restaurant, Noopies Restaurant, Beaches Bar & Grill, a Deli & Gift Shoppe and
Crocodile's Pool Bar. The Sundial Beach Resort complex also includes 12 tennis
courts as well as a tennis pro shop and a retail boutique. Other amenities on
this Property, some of which are owned by the condominium associations and not
by South Seas, include six swimming pools, shuffleboard courts and covered
outdoor recreation and banquet areas.
The Dunes Golf & Tennis Club. The Dunes Golf & Tennis Club on Sanibel
Island, Florida, is a private golf and tennis club and the only non-hospitality
property in South Seas' portfolio. Guests staying at any of the Properties are
generally granted temporary golf and tennis privileges at The Dunes Golf &
Tennis Club on a fee basis. The club features an 18-hole, par 70 golf course
designed by Mark McCumber, seven soft-surface tennis courts, a swimming pool,
volleyball courts, pro shop, full banquet facilities and a full-service
restaurant. In 1995, The Dunes Golf & Tennis Club underwent a $2.8 million
renovation providing a completely new clubhouse, kitchen, dining area, pro shop,
putting greens, maintenance building and significant renovations to the golf
course and irrigation system.
Sanibel Inn. The Sanibel Inn is located on Sanibel Island, Florida. The
Sanibel Inn offers 96 guest rooms and includes approximately 570 feet of direct
beach frontage on the Gulf of Mexico, two meeting rooms, a swimming pool, tennis
courts, sailing and windsurfing, a full service restaurant and cabana service.
Phase I of a refurbishment program was completed in 1995. The scope of Phase I
included renovations to its room interiors, grounds and building exteriors.
Phase II renovation program, estimated at $225,000 is scheduled for 1997.
Twenty-eight of the 30 condominium units at Sanibel Inn are presently managed as
rental units by South Seas on behalf of the owners. See "Business - Guaranteed
Lease and Rental Programs."
Best Western-Sanibel Island Beach Resort ("Best Western-Sanibel"). The Best
Western-Sanibel is located on Sanibel Island, Florida. It offers 46 guest rooms
and includes approximately 350 feet of direct beach frontage overlooking the
Gulf of Mexico, a swimming pool, tennis courts and shuffleboard courts.
Song of the Sea Inn. The Song of the Sea Inn is located on Sanibel Island,
Florida. The Song of the Sea Inn offers 30 guest rooms and includes
approximately 200 feet of direct beach frontage overlooking the Gulf of Mexico,
a swimming pool, whirlpool, tennis courts and laundry facilities.
The following table presents information concerning each Property owned by
South Seas for the years ended 1994, 1995 and 1996:
-11-
<PAGE> 14
<TABLE>
<CAPTION>
# of Average Occupanc. Average Room Rates REVPAR(4)
Units 1994 1995 1996 1994 1995 1996 1994 1995 1996
Property
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
South Seas
Plantation 565(1) 72.7% 71.1% 71.8% $216.23 $229.20 $231.25 $157.27 $163.00 $166.00
Marco Radis-
son(2) 269 75.6% 73.8% 79.5% $125.83 $136.56 $138.51 $ 95.13 $100.76 $110.07
Sundial Beach
Resort 262 77.0% 76.3% 73.1% $184.26 $192.28 $200.00 $141.88 $146.62 $146.23
Sanibel Inn(3) 96 68.2% 70.6% 68.0% $159.45 $174.99 $178.91 $108.74 $123.54 $121.63
Best Western-
Sanibel 46 86.1% 84.8% 84.6% $134.65 $146.21 $147.97 $115.93 $123.94 $125.12
Song of the
Sea Inn 30 86.0% 83.9% 83.8% $169.11 $177.38 $175.21 $145.43 $148.83 $146.87
Weighted Average 74.7% 73.6% 74.3% $179.08 $191.13 $193.61 $133.82 $140.66 %143.85
</TABLE>
(1) Includes 9 single-family homes located adjacent to South Seas
Plantation whose owners participate in South Seas' guaranteed
lease and rental programs.
(2) Acquired September 23, 1994.
(3) Acquired June 1, 1995, under management during all periods
presented.
(4) Revenue per available room night.
Leased Property
Safety Harbor Spa and Resort ("Safety Harbor"). Safety Harbor is located on
Tampa Bay in Safety Harbor, Florida, near Clearwater, Florida. The resort
consists of 172 guest rooms, a 16,500-square-foot conference center, a
50,000-square-foot spa and fitness center (including natural underground water
springs), a tennis facility and two dining facilities. Safety Harbor is operated
by the Management Company under the terms of a lease agreement between Safety
Harbor Spa & Fitness Center, Inc. (the owner of Safety Harbor) and Safety Harbor
Management Company, Ltd. (a wholly-owned Subsidiary of the Management Company).
The lease (as amended in January 1997, see subsequent event footnoote to the
audited financial statements) is through May 2000 and commenced in June 1995.
Safety Harbor Management Company, Ltd. has an option to purchase Safety Harbor.
The option is exercisable no later than May 31, 2000. The exercise price of the
option is $11.4 million with an additional earn-out arrangement, payable over a
number of years based on the financial results of the property, of $8.0 million.
The lease requires minimum capital improvements of $3.0 million during the term
of the lease. As of December 31, 1996, $1.9 million had been invested in rooms
refurbishment. An additional $750,000 is planned in 1997 in a refurbishment
program targeting areas such as the main lobby, meeting rooms, retail and
additional guest room improvements.
Managed Properties
Seaside Inn. The Seaside Inn on Sanibel Island consists of seven buildings
which house 32 rental units. This Property is located on approximately 200 feet
of direct frontage on the Gulf of Mexico and features a swimming pool and a "Key
West" type of atmosphere for its guests. In 1995, the Seaside Inn underwent a
renovation of its rooms and exterior at a total cost of approximately $1.0
million.
-12-
<PAGE> 15
In January 1997, South Seas exercised an option to purchase the Seaside Inn
from its owner, Florida Income Fund, L.P., for $6.5 million. The exercise price
of the option was determined by negotiation between South Seas and Florida
Income Fund, L.P. Mariner Capital Management, Inc., an Affiliate of South Seas,
and MCD Real Estate, Inc., an Affiliate of McDonald & Company, Securities, Inc.,
are the general partners of Florida Income Fund, L.P. An appraisal of the
Seaside Inn conducted subsequent to the execution of the option agreement
indicated that the fair market value of the Seaside Inn was $5,700,000,
excluding the value of the management contract. This appraisal made certain
valuation assumptions including a reserve for a lower number of rental units.
Management believes the purchase price for the Seaside Inn is representative of
the fair market value for the property at the time of purchase.
Best Western Pink Shell Beach Resort. The Best Western Pink Shell Beach
Resort is located on Estero Island, Florida, near Fort Myers Beach, overlooking
the Gulf of Mexico and Matanzas Bay. The 208 guest rooms consist of one-, two-
and three-bedroom cottages, one- and two-bedroom suites, gulf front
condominiums, efficiencies and hotel rooms. This resort features a 200 foot
fishing dock, meeting facilities, two swimming pools, two lighted tennis courts,
a beachfront bar and grill, a bayside cafe and award winning supervised
children's programs. The Best Western Pink Shell Beach Resort is owned by
Florida Income Fund III, L.P. Mariner Capital Management, Inc., an Affiliate of
South Seas, and MCD Real Estate, Inc., an Affiliate of McDonald & Company
Securities, Inc., are the general partners of Florida Income Fund III, L.P.
South Seas plans to negotiate to acquire this property in 1997. There can be no
assurance that an acquisition will be achieved.
Legal Proceedings
South Seas and the Management Company are involved in legal proceedings
that have arisen in the ordinary course of business. While complete assurance
cannot be given as to the outcome of any litigation, South Seas believes any
financial impact or effect on the business of South Seas of pending litigation
would not be material.
SELECTED HISTORICAL FINANCIAL DATA (dollars in thousands, except
ratios and notes)
The selected historical financial data presented below as of and for each
of the three years ended December 31, 1994, 1995 and 1996 are derived from the
audited consolidated financial statements of South Seas and should be read in
conjunction with such consolidated financial statements and related notes
thereto and "Management's Discussion and Analysis of Financial Condition and
Results of Operations." The selected historical data presented below for the
years ended December 31, 1992 and 1993 is also derived from the audited
consolidated financial statements of South Seas, which statements are not
presented separately herein.
The selected historical financial data includes operations of businesses
(as disclosed in Note 1 of the consolidated financial statements) for all
periods presented or since formation if the
-13-
<PAGE> 16
entity began operations after January 1, 1992. These controlled entities include
the businesses acquired from The Mariner Group on January 1, 1994 and the
resorts which were acquired from the Song of the Sea Company, Ltd., and Jolly
Roger Resort, Ltd. (formed July 23, 1992) on June 1, 1995. On December 31, 1993,
South Seas increased its ownership interest in South Seas Resort Limited
Partnership ("SSRLP") to 99% through the acquisition of the remaining limited
partnership interests. Prior to December 31, 1993, South Seas owned a 70.5%
interest in SSRLP. The Marco Radisson has been included since its acquisition on
September 23, 1994, the Sanibel Inn has been included since its acquisition on
June 1, 1995, and the Safety Harbor Resort and Spa has been included since the
commencement of its lease on June 1, 1995.
<TABLE>
<CAPTION>
Years Ended December 31,
1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Total Revenues $69,317 $73,243 $79,485 $ 98,854 $110,103
Operating Expense 49,350 51,466 54,228 65,720 74,311
Gen and Admin 9,287 10,665 13,773 20,008 20,076
Deprec and Amortiz 3,308 3,666 4,423 5,703 7,326
Interest expense 5,025 4,284 5,485 9,391 10,536
Other (income) exp 613 (2,844) (72) 606 181
Minority int income 71 1,301 14 13 10
Extraordinary item - - - - 2,046
Net income (loss) $1,663 $4,705 $1,634 $(2,587) $ (4,383)
Net income (loss)
per partnership
unit (b) 0.42 1.12 0.39 (.61) (1.00)
Distributions per
partnership unit 0.37 0.85 .40 (c) .28
Other data:
Ratio of earnings to
fixed charges (d) 1.169x 1.500x(f) 1.146X (e) (e)
EBITDA (g) $9,996 $12,655 $11,542 $12,507 $13,479
Capital expenditures (h) 6,184 1,391 25,403 8,389 8,969
Consolidated Net Operating
Profit (i) 10,067 11,112 11,484 13,126 15,716
Balance Sheet Data:
Total assets $ 53,808 $57,874 $84,938 $110,826 $111,042
Long-term obliga-
tions (incl current
portion) $ 51,905 (j) $54,317 $80,211 $105,049 $112,808
Partners' capital
deficiency $(10,674) $(7,529) $(9,522) $(13,527) $(18,529)
</TABLE>
(a) Included in operating results for 1991 and 1992 were costs of $1,400,000
and $613,000, respectively, related to repairs to certain condominium
units. In 1993, South Seas recovered $1,866,000 of these costs as a
result of a litigation settlement. Also in 1993, South Seas recorded a
gain in the amount of $978,000 in connection with the sale of a real
estate parcel.
(b) Includes distributions made by Song of the Sea Company, Ltd. and Jolly
Roger Resort, Ltd. Of $100,000, $479,000, and $759,000 in 1992, 1993,
and 1994, respectively.
(c) Distribution represents a return of capital.
-14-
<PAGE> 17
(d) For the purpose of calculating the ratio of earnings to fixed charges
(i) earnings consist of consolidated net income (loss) from operations
plus fixed charges (excluding capitalized interest) and (ii) fixed
charges consist of interest expense (including capitalized interest)
on all indebtedness, amortization of loan costs and that portion of
rental expense that is representative of interest.
(e) Earnings did not cover fixed charges by $2,587,000 in 1995 and
$4,383,000 in 1996. Fixed charges include $10,171,000 and $11,315,000
of interest and amortization of loan costs in 1995 and 1996,
respectively.
(f) The ratio of earnings to fixed charges for 1993 reflects the impact of
certain non-recurring revenues. Excluding the effect of such
non-recurring revenues, the ratio of earnings to fixed charges for
1993 would have been 1.278x.
(g) EBITDA (earnings before interest, depreciation, and amortization) is
presented here not as a substitute for operating income, net income or
cash flows from operating activities determined in accordance with
generally accepted accounting principles, but rather as a measure of
South Seas' operating performance and ability to service debt. South
Seas has included EBITDA because it is commonly used by certain
investors and analysts to analyze and compare companies on the basis
of operating performance, leverage and liquidity and to determine a
company's ability to service debt.
(h) Excludes capital expenditures incurred by acquired resorts prior to
acquisition.
(i) Consolidated Net Operating Profit is not determined in accordance with
generally accepted accounting principles and it is presented here not
as a substitute for consolidated net operating income as determined in
accordance with generally accepted accounting principles, but rather
as a defined term from the Indenture to determine compliance with
certain covenants contained in the Indenture. South Seas has defined
Consolidated Net Operating Profit as net income (loss) without regard
to depreciation and amortization, interest expense, minority interest
and any non-recurring, unusual items of income or expense.
(j) Included in current liabilities as of December 31, 1992 was
approximately $30,400,000 of mortgage notes payable. In 1993, South
Seas refinanced approximately $29,700,000 of mortgage notes payable,
which were classified as long-term indebtedness as of December 31,
1993.
-15-
<PAGE> 18
SOUTH SEAS PROPERTIES COMPANY LIMITED PARTNERSHIP
CONSOLIDATED FINANCIAL STATEMENTS,
TOGETHER WITH REPORT OF INDEPENDENT ACCOUNTANTS
DECEMBER 31, 1995 and 1996
<PAGE> 19
C O N T E N T S
<TABLE>
<CAPTION>
Page
<S> <C>
REPORT OF INDEPENDENT ACCOUNTANTS 1
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated balance sheets 2
Consolidated statements of operations 3
Consolidated statements of partners' capital deficiency 4
Consolidated statements of cash flows 5 - 6
Notes to consolidated financial statements 7 - 20
</TABLE>
<PAGE> 20
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
Advisory Board
South Seas Properties Company Limited Partnership
Fort Myers, Florida
We have audited the accompanying consolidated balance sheets of South Seas
Properties Company Limited Partnership as of December 31, 1995 and 1996 and the
related consolidated statements of operations, partners' capital deficiency, and
cash flows for each of the three years in the period ended December 31, 1996.
These consolidated financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of South
Seas Properties Company Limited Partnership as of December 31, 1995 and 1996 and
the consolidated results of its operations and its cash flows for each of the
three years in the period ended December 31, 1996 in conformity with generally
accepted accounting principles.
The consolidated financial statements give retroactive effect to the 1995
acquisitions which, because there was a high degree of common ownership and
control, have been accounted for as a reorganization, in a manner similar to a
pooling of interests, as described in Note 1 to the consolidated financial
statements.
COOPERS & LYBRAND, L.L.P.
Fort Myers, Florida
March 17, 1997
-1-
<PAGE> 21
SOUTH SEAS PROPERTIES COMPANY LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
December 31
-----------------------
ASSETS 1995 1996
---- ----
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $7,340 $6,459
Restricted cash 5,818 201
Accounts receivable, trade 6,261 6,743
Receivables from affiliates - 543
Inventories 1,847 1,677
Prepaid expenses and other 1,975 1,637
-------- --------
Total current assets 23,241 17,260
PROPERTY, PLANT AND EQUIPMENT, net 76,668 79,904
LOAN COSTS, net 2,450 5,660
GOODWILL, net 6,805 6,440
OTHER ASSETS 1,662 1,778
-------- --------
Total assets $110,826 $111,042
======== ========
LIABILITIES AND PARTNERS' CAPITAL DEFICIENCY
CURRENT LIABILITIES
Current maturities of notes and mortgages payable $13,602 $1,750
Current maturities of bonds payable 12,998 -
Current obligations under capital leases 398 265
Accounts payable 3,146 4,410
Accrued expenses 9,540 4,940
Customer deposits 4,708 4,976
Deferred revenue 1,073 1,585
-------- --------
Total current liabilities 45,465 17,926
NOTES AND MORTGAGES PAYABLE, less current maturities 75,555 65,357
BONDS PAYABLE, less current maturities - 43,500
LONG-TERM OBLIGATIONS UNDER CAPITAL LEASES,
less current obligations 1,112 631
OTHER LONG-TERM OBLIGATIONS 1,384 1,305
COMMITMENTS AND CONTINGENCIES - -
PARTNERSHIP UNITS SUBJECT TO REDEMPTION 825 825
MINORITY INTERESTS 12 27
PARTNERS' CAPITAL DEFICIENCY (13,527) (18,529)
-------- --------
Total liabilities and partners' capital deficiency $110,826 $111,042
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements
-2-
<PAGE> 22
SOUTH SEAS PROPERTIES COMPANY LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands)
<TABLE>
<CAPTION>
Year Ended December 31
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
REVENUES
Rooms $ 44,965 $ 58,259 $ 64,427
Food and beverage 13,957 17,060 18,007
Retail 5,427 5,948 6,632
Golf 2,568 2,331 2,868
Spa and fitness -- 1,230 2,448
Other 12,568 14,026 15,721
--------- --------- ---------
Total revenues 79,485 98,854 110,103
--------- --------- ---------
EXPENSES
Rooms 9,860 13,093 14,995
Food and beverage 10,521 12,972 14,306
Retail 3,884 4,348 4,670
Golf 1,003 902 2,148
Spa and fitness -- 731 1,408
Other 5,087 6,130 5,469
Condominium lease and rental expenses 14,800 16,823 18,296
Sales and marketing 4,186 6,107 7,773
Maintenance and grounds 4,887 4,614 5,246
General and administrative - resort properties 11,830 16,935 17,221
General and administrative - corporate overhead 1,943 3,073 2,855
Depreciation and amortization 4,423 5,703 7,326
Interest expense 5,485 9,391 10,536
--------- --------- ---------
Total expenses 77,909 100,822 112,249
--------- --------- ---------
Income/(loss) before non-operating items and extrao 1,576 (1,968) (2,146)
Net gain/(loss) on disposal/sale of fixed assets 72 (266) 4
Acquisition costs -- (340) (185)
Minority interests (14) (13) (10)
Income/(loss) before extraordinary item 1,634 (2,587) (2,337)
--------- --------- ---------
Extraordinary expense (write-off of loan costs) -- -- (2,046)
--------- --------- ---------
Net income/(loss) $ 1,634 $ (2,587) $ (4,383)
Net income/(loss) per unit before extraordinary exp $ 0.39 $ (0.61) $ (.53)
========= ========= =========
Net loss per unit for extraordinary expense $ -- $ -- $ (.47)
========= ========= =========
Net income/(loss) per unit $ 0.39 $ (.61) $ (1.00)
========= ========= =========
Weighted average units outstanding 4,219 4,271 4,370
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements
-3-
<PAGE> 23
SOUTH SEAS PROPERTIES COMPANY LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL DEFICIENCY
(In Thousands)
<TABLE>
<CAPTION>
Outstanding Units
----------------------------
General Limited General Limited
Partners Partners Total Partners Partners Total
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993 851 3,368 4,219 $ 347 $(7,876) $(7,529)
Net Income for the year ended
December 31, 1994 -- -- -- 295 1,339 1,634
Distributions ($.80 per unit) -- -- -- (681) (2,946) (3,627)
---- ----- ----- -------- ------- -------
Balance, December 31, 1994 851 3,368 4,219 (39) (9,483) (9,522)
Net loss for the year ended
December 31, 1995 -- -- -- (511) (2,076) (2,587)
Units issued to purchase resort property -- 71 71 -- 906 906
Units issued for conversion of debt to equity -- 18 18 -- 225 225
Partnership units subject to redemption -- -- -- -- (825) (825)
Distributions ($.40 per unit) -- -- -- (341) (1,383) (1,724)
---- ----- ----- -------- ------- -------
Balance, December 31, 1995 851 3,457 4,308 (891) (12,636) (13,527)
Net loss for the year ended
December 31, 1996 -- -- -- (44) (4,339) (4,383)
Distributions ($.28 per unit) -- -- -- (12) (1,217) (1,229)
Management equity units issued -- 118 118 -- 1,180 1,180
Notes receivable on management equity units -- -- -- -- (570) (570)
Units exchanged into limited partner units (807) 807 -- -- -- --
---- ----- ----- -------- ------- -------
Balance, December 31, 1996 44 4,382 4,426 $(947) ($17,582) ($18,529)
==== ===== ===== ===== ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements
-4-
<PAGE> 24
SOUTH SEAS PROPERTIES COMPANY LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
Page 1 of 2
(In Thousands)
<TABLE>
<CAPTION>
Year Ended December 31
-----------------------------------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers and others $ 78,538 $ 102,747 $ 109,233
Cash paid to suppliers, employees and affiliates (66,807) (86,985) (94,952)
Interest paid (4,157) (9,191) (12,527)
Interest received 202 520 656
--------- --------- ---------
Net cash provided by operating activities 7,776 7,091 2,410
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,749) (8,389) (8,969)
Purchase of resort property assets (23,654) -- --
Proceeds from sale of assets 3 202 2
Loans to affiliates, net of repayments (724) 433 (543)
Change in restricted cash (666) (4,896) 5,617
Acquisition costs -- (572) (185)
Cash acquired in purchase of resort property -- 353 --
Other (34) -- --
--------- --------- ---------
Net cash used in investing activities (26,824) (12,869) (4,078)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 25,821 28,589 70,480
Deferred loan costs (626) (1,173) (6,438)
Principal payments, long-term debt (2,410) (13,404) (38,645)
Principal payments, under capital lease obligations (219) (422) (613)
Principal payments, bonds payable -- (1,890) (12,998)
Payments under line of credit -- -- (11,885)
Draws under line of credit -- -- 1,500
Proceeds from sale of equity units under option plan -- -- 610
Distributions to partners (3,596) (1,724) (1,229)
Distributions to minority interest, net of contributions (13) (10) 5
Other -- (113) --
--------- --------- ---------
Net cash provided by financing activities 18,957 9,853 787
--------- --------- ---------
Net increase/(decrease) in cash (91) 4,075 (881)
Cash and cash equivalents, beginning of year 3,356 3,265 7,340
--------- --------- ---------
Cash and cash equivalents, end of year $ 3,265 $ 7,340 $ 6,459
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements
-5-
<PAGE> 25
SOUTH SEAS PROPERTIES COMPANY LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
Page 2 of 2
(In Thousands)
<TABLE>
<CAPTION>
Year Ended December 31
-----------------------------
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
RECONCILIATION OF NET INCOME/(LOSS) TO NET CASH
CASH PROVIDED BY OPERATING ACTIVITIES:
Net income/(loss) $ 1,634 ($2,587) ($4,383)
------- ------- -------
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation/amortization expense 4,423 5,703 7,326
(Gain)/loss on disposal/sale of fixed assets (72) 266 (4)
Minority interest 15 13 10
Acquisition costs -- 340 185
Extraordinary item - write-off of loan costs -- -- 2,046
Changes in assets and liabilities
(Increase) decrease in:
Accounts receivable, net (1,241) (93) (482)
Inventories (301) (150) 170
Prepaid expenses and other assets (822) (412) 222
Increase (decrease) in:
Accounts payable 1,400 (855) 1,264
Accrued expenses 2,134 2,651 (4,724)
Customer deposits 612 1,325 268
Deferred revenues (6) 890 512
------- ------- -------
Total adjustments 6,142 9,678 6,793
------- ------- -------
Net cash provided by operating activities $ 7,776 $ 7,091 $ 2,410
======= ======= =======
</TABLE>
Supplemental schedule of noncash investing and financing activities:
Capital lease obligations of $1,056 and $491 were incurred during 1994 and
1995, respectively, when South Seas entered into leases for the upgrade of
equipment. The significant increase in 1994 was due to opening of a
consolidated vacation planning center to combine all reservation activity
of the group.
In 1995, South Seas acquired the Sanibel Inn in exchange for 71,374
partnership units. As part of the ex- change, South Seas acquired $13.4
million in assets and assumed $12.3 million in liabilities.
In 1995, South Seas issued 17,730 partnership units for the satisfaction of
$225 of accrued interest payable.
In 1994, South Seas incurred a long-term obligation of $1.5 million related
to the acquisition of the Marco Radisson.
The accompanying notes are an integral part of these financial statements
-6-
<PAGE> 26
SOUTH SEAS PROPERTIES COMPANY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars In Thousands)
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of business
South Seas Properties Company Limited Partnership (South
Seas) is a beachfront and destination resort owner/operator
in Florida. South Seas owns six resort properties and a golf
and tennis club all located on Florida's southwest coast.
The properties range from the 552-room (including leased
condominiums) South Seas Plantation on the north end of
Captiva Island to the 30-unit Song of the Sea
bed-and-breakfast inn on the east end of Sanibel Island. The
resorts contain, numerous facilities and amenities,
including leased condominium units, hotel rooms,
restaurants, conference centers, retail outlets and
recreation facilities. In addition, South Seas' management
company subsidiary, South Seas Resorts Company, L.P. manages
two other hospitality properties located in southwest
Florida and operates a resort and spa located in the
Tampa/Clearwater area on Florida's west coast.
RISK FACTORS
The business of South Seas is substantially dependent on
tourism and leisure and business travel, which is dependent
on general economic conditions in the U.S. and Europe. South
Seas leases and rents condominiums units at three resort
properties. A decline in the number of property owners that
participate in the guaranteed lease and rental programs may
have a material adverse affect on South Seas' results of
operations and financial condition.
SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION AND ACQUISITION TRANSACTIONS
The accompanying consolidated financial statements include
the accounts of South Seas and its majority owned
subsidiaries and leased properties. All material
intercompany transactions and balances have been eliminated
in consolidation.
On January 1, 1994, South Seas acquired four operating
businesses from The Mariner Group, Inc. (Mariner) in
exchange for 591,758 partnership units. The acquired
businesses included a resort, golf course, reservation
system and related real estate sales and management
contracts and personnel. Because there was a high degree of
common ownership and control, the acquisition has been
accounted for as a reorganization, in a manner similar to a
pooling of interests. Accordingly, the accounts of the
acquired businesses and partnership units issued have been
included in the accompanying financial statements for all
periods presented, at historical cost.
In 1995, South Seas acquired two operating resort properties
(Song of the Sea Inn and Best Western-Sanibel Island Beach
Resort) in exchange for 673,884 partnership units. The
resorts were organized and managed by a Mariner subsidiary
which also served as general partner. Because there was a
high degree of common ownership and control, the acquisition
has been accounted for as a reorganization, in a manner
similar to a pooling of interests. Accordingly, the accounts
of the acquired businesses and partnership units issued have
been included in the accompanying financial statements for
all periods presented, at historical cost.
Both the January 1, 1994 and 1995 transactions consisted of
an exchange of assets for units of limited partnership
interest in South Seas. No cash payments or other monetary
payments were made in connection with the reorganizations.
-7-
<PAGE> 27
SOUTH SEAS PROPERTIES COMPANY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars In Thousands)
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES CONTINUED
In June 1995, South Seas purchased the Sanibel Inn from a
non-affiliated partnership. Pursuant to the agreement, the
former owners received 71,374 units of South Seas. Also in
June 1995, South Seas entered into a four year operating lease
agreement on the Safety Harbor Resort and Spa. Accordingly,
1995 results of operations and cash flows include the Sanibel
Inn and Safety Harbor for the seven months owned or operated
(see also Note 2).
CASH EQUIVALENTS
Cash equivalents consist of overnight repurchase agreements
with an initial term of less than three months. For purposes
of the statement of cash flows, South Seas considers all
highly liquid debt instruments with original maturities of
three months or less to be cash equivalents. There were no
amounts invested in such agreements at December 31, 1995 or
1996.
RESTRICTED CASH
South Seas holds restricted cash for future capital
expenditures as required under loan agreements. In addition,
deposits from purchasers of condominiums and interval
ownership condominium units are deposited in escrow accounts
until closing. At December 31, 1995, approximately $5.6
million of restricted cash was reserved to retire bonds
payable in January, 1996 (see Note 7).
INVENTORIES
Inventories are stated at the lower of cost (first-in,
first-out basis) or market.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost. Depreciation
and amortization, which includes the amortization of assets
recorded under capital leases, has been computed principally
on the straight-line basis over the estimated useful lives of
the assets. When depreciable assets are retired or sold, the
cost and related allowance for depreciation are removed from
the accounts, and the resulting gain or loss is included in
net income or loss. South Seas assesses the carrying value of
its fixed assets in order to determine whether an impairment
has occurred, taking into account both historical and
forecasted cash flows.
LOAN COSTS
Loan costs, including premiums paid for purchased interest
rate protection and interest rate swap agreements, incurred in
connection with financing agreements, have been deferred and
are being amortized over the term of the loans. Accumulated
amortization of loan costs was $1,294 and $514 at December 31,
1995 and 1996, respectively. Counterparties to the interest
protection and rate swap agreements are major financial
institutions. Credit loss from counterparty non-performance is
not anticipated.
GOODWILL
Goodwill represents the excess of the purchase price over net
assets of businesses acquired and is being amortized on a
straight line basis over 25 years. On a continual basis, South
Seas assesses the carrying value of goodwill in order to
determine whether an impairment has occurred, taking into
account both historical and forecasted cash flows. Accumulated
amortization of goodwill was $2,327 and $2,692 at December 31,
1995 and 1996, respectively.
-8-
<PAGE> 28
SOUTH SEAS PROPERTIES COMPANY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars In Thousands)
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES CONTINUED
REVENUES
Revenues from operations are recognized when services are
provided to guests.
INCOME TAXES
South Seas income or loss is passed through to the partners
for inclusion in their respective tax returns, therefore,
there is no provision for income taxes in the accompanying
financial statements.
MANAGEMENT'S USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements
and the reported amount of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
FAIR VALUE DISCLOSURE
South Seas values financial instruments as required by
Statement of Financial Accounting Standards (SFAS) No. 107,
"Disclosures about Fair Value of Financial Instruments." The
carrying amounts of cash and cash equivalents, short-term debt
and long-term, variable rate debt approximates fair value.
South Seas estimates the fair value of its long-term, fixed
rate debt generally using discounted cash flow analysis based
on South Seas current borrowing rates for debt with similar
maturities.
ALLOCATION OF NET INCOME
Income is allocated to the general partner and limited
partners based on partnership units owned compared to total
outstanding units. As of December 31, 1995, South Seas had
outstanding 4,308,568 units of which the general partners
owned 851,161 general partner units.
As of December 31, 1996, South Seas had outstanding 4,426,568
units of which the general partner owned 44, 273 general
partner units.
EARNINGS PER UNIT
Earnings per unit are based upon the weighted average number
of partnership units and partnership unit equivalents
outstanding during the year. Partnership unit equivalents are
excluded from the computation in periods in which they have an
anti-dilutive effect.
In February, 1997, the Financial Accounting Standards Board
(the FASB) issued Statement of Financial Accounting Standards
No. 128, EARNINGS PER SHARE (FAS 128). FAS 128 specifies new
standards designed to improve the EPS information provided in
financial statements by simplifying the existing computational
guidelines, revising the disclosure requirements, and
increasing the comparability of EPS data on an international
basis. FAS 128 is effective for financial statements issued
for periods ending after December 15, 1997, including interim
periods. The Company does not believe it will have any
material effect on its EPS calculation.
-9-
<PAGE> 29
SOUTH SEAS PROPERTIES COMPANY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars In Thousands)
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES CONTINUED
RECLASSIFICATIONS
Certain amounts in the financial statements have been
reclassified to conform with the current presentation. These
reclassifications had no effect on the results of operations
previously reported.
NOTE 2. ACQUISITIONS/LEASE OF RESORT PROPERTY
On September 23, 1994, South Seas purchased the Radisson Suite
Beach Resort (Marco Radisson) for $23.5 million (see also Note
8). The purchase price was funded through a first mortgage in
the amount of $18.5 million, a contractual payment obligation in
the amount of $3.1 million, which was discounted at 14.8% to a
current value of approximately $1.5 million ($1.4 million
long-term), and the balance in cash. Terms of the discounted
obligation require annual payments of $250 which commenced on
April 30, 1995 with a final payment of $383 on April 30, 2003.
On June 1, 1995, South Seas purchased the Sanibel Inn, a 96 room
hotel, for $13.4 million. In connection with the acquisition,
South Seas assumed liabilities of $12.3 million and issued
71,374 units valued at $906. Pursuant to an agreement between
the parties, the former owners may receive up to a maximum of
$700 of additional consideration based on a review of net
operating income of the acquired resort at December 31, 1997 or,
at former owners option, at December 31, 1998. The purchase
price related to the acquisition discussed above was allocated
primarily to property, plant and equipment. The contingent
consideration, if required to be paid, would be treated as
additional purchase price.
Had South Seas acquired the Marco Radisson and the Sanibel Inn
on January 1, 1994, unaudited proforma revenues for 1994 and
1995 would have been $92.8 million and $102.4 million,
respectively and 1994 net income and 1995 net loss would have
been $.9 million and $2.2 million, respectively.
In June, 1995, South Seas entered into a four year lease
agreement, with an option to extend the lease term up to an
additional six years and an option to purchase the Safety Harbor
Resort and Spa in Safety Harbor, Florida. The lease requires
annual rental payments of $1.23 million and minimum annual
capital improvements of $450. The option price is between $17.5
million and $22.5 million, depending upon date of exercise. (See
Note 13 for subsequent event in lease terms).
NOTE 3. INVENTORIES
INVENTORIES CONSISTED OF THE FOLLOWING AT DECEMBER 31:
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Food and beverage $ 460 $ 451
Retail outlets 866 912
Maintenance and rental unit merchandise 391 215
Supplies 130 99
------- -------
$ 1,847 $ 1,677
======= =======
</TABLE>
-10-
<PAGE> 30
SOUTH SEAS PROPERTIES COMPANY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars In Thousands)
NOTE 4. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
Property, plant and equipment consisted of the following at
December 31:
1995 1996
---- ----
<S> <C> <C>
Resort, restaurants and recreational facilities, including
property held under capital leases of $2,843 and $1,454 at
December 31, 1995 and
1996, respectively $110,643 $119,602
Less:
Accumulated depreciation (32,513) (38,806)
Accumulated amortization on property
held under capital leases (1,462) (892)
-------- --------
$ 76,668 $ 79,904
======== ========
</TABLE>
Included in property, plant and equipment is land with a
carrying value of $17.6 million at December 31, 1995 and 1996.
Refer also to Note 5 for indebtedness collateralized by
property, plant and equipment, and Note 2 regarding the
acquisition of the Marco Radisson.
Depreciation and capital lease amortization expense was $3,407,
$4,520 and $5,756 for the years ended December 31, 1994, 1995
and 1996, respectively.
During 1995, South Seas capitalized interest of approximately
$97 during the period that its' golf and tennis club was closed
for renovation. During 1996, South Seas capitalized interest of
approximately $44 during the period that it remodeled and
refurbished a major dining facility and retail center.
NOTE 5. NOTES AND MORTGAGES PAYABLE
Notes and Mortgages Payable consisted of the following at
December 31:
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Mortgage note payable to financial institution, interest at
LIBOR plus 225 to 300 basis points (the spread is
determined by loan covenants relating to South Seas'
financial performance each quarter), (8.475% at December
31, 1996) interest due monthly, quarterly principal
payments of $438 in 1997, $550 in 1998, $675 in 1999, $813
in 2000, and $937 in 2001, with a balloon payment of
approximately
$28.2 million in September, 2001 $ - $40,000
------------- -------
Subtotals carried forward $ - $40,000
</TABLE>
-11-
<PAGE> 31
SOUTH SEAS PROPERTIES COMPANY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars In Thousands)
NOTE 5. NOTES AND MORTGAGES PAYABLE CONTINUED
<TABLE>
<CAPTION>
December 31
-------------------------------
1995 1996
---- ----
<S> <C> <C>
Subtotals carried forward $ - $40,000
$40 million revolving credit note to financial institution,
interest at LIBOR plus 225 to 300 basis points (the spread
is determined by loan covenants relating to South Seas'
financial performance each quarter), (8.31% at December 31,
1996) interest due monthly, no principal payments required
until maturity in September, 2001 - $27,107
Mortgage note payable to financial institution, interest at
prime + 2% or LIBOR + 3%, interest due monthly, paid in
full in September 1996 45,000 -
Mortgage note payable to financial institution, interest at
10.8%, principal and interest payments due monthly based on
a 20 year amortization, (revolving line capability during 1996),
paid in full in September, 1996 19,235 -
First mortgage note payable to financial institution in equal
installments of $69, including interest at prime +.75%,
(revolving line capability during 1996)
paid in full in March, 1996 7,045 -
Mortgage note payable to financial
institution, interest at 10.5%, equal monthly
installments of $32, paid in full in March, 1996 3,226 -
Mortgage note payable at 10% interest per year, equal quarterly
installments of interest only, sum of which aggregates $150
for calendar year 1995 and aggregates $190 for calendar year 1996,
paid in full in March, 1996 3,206 -
Mortgage note payable to affiliate, quarterly installments of
interest only at prime plus 2.5%, with a minimum rate of
9.5% and maximum rate of 11.5%, paid
in full in March, 1996 2,784 -
Note payable to Connecticut Mutual
Life Insurance Company bearing interest at 8%,
paid in full in March, 1996 2,752 -
------- -------
Subtotals carried forward $83,248 $67,107
</TABLE>
-12-
<PAGE> 32
SOUTH SEAS PROPERTIES COMPANY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars In Thousands)
NOTE 5. NOTES AND MORTGAGES PAYABLE CONTINUED
<TABLE>
<CAPTION>
December 31
-------------------------
1995 1996
---- ----
<S> <C> <C>
Subtotals carried forward $83,248 $67,107
Unsecured notes payable to financial investment firms, interest
at average rate of 14%, interest payable
quarterly, paid in full in March, 1996 4,000 -
Other notes and mortgages payable 1,909 -
------- -------
89,157 67,107
Less current maturities (13,602) (1,750)
------- -------
$75,555 $65,357
======= =======
</TABLE>
Substantially, all assets are pledged as collateral on the above
debt at December 31, 1996.
Notes and mortgages payable are scheduled to mature
approximately as follows:
<TABLE>
<CAPTION>
Year Ending
December 31
-----------
<S> <C> <C>
1997 $ 1,750
1998 2,200
1999 2,700
2000 3,250
2001 57,207
---- --------
$ 67,107
========
</TABLE>
The weighted average interest rate on current maturities of
notes and mortgages payable was 11.4% and 8.5% on December 31,
1995 and 1996, respectively.
DEBT RELATED DERIVATIVES
In order to decrease its exposure to interest rate fluctuation
on its floating rate debt, South Seas entered into the following
agreements:
<TABLE>
<CAPTION>
Estimated
Notional Dates Fixed Fair
Hedge Amount Covered Rate Value
----- ------ ------- ---- -----
<S> <C> <C> <C> <C>
Swap $40 million Sept 96-June 98 5.475% $195
Collar $37.15 million June 98-Sept 01 7.50%, 5.00% 313
----
Net Value $508
====
</TABLE>
The estimated fair value of the hedge agreements is the
estimated amount that South Seas would receive to terminate the
hedge agreements at the reporting date, taking into account
current interest rates and the current credit worthiness of the
hedge counterparties.
As noted in Note 1, South Seas includes the cost of purchasing
these agreements in loan costs and amortizes them over the term
of the loan. Unamortized costs associated with these hedge
agreements was $465 at December 31, 1996.
-13-
<PAGE> 33
SOUTH SEAS PROPERTIES COMPANY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars In Thousands)
NOTE 5. NOTES AND MORTGAGES PAYABLE CONTINUED
Mariner had a limited guarantee of $1 million on the $45 million
mortgage note payable at December 31, 1995.
The notes and mortgages payable contain various covenants, the
more restrictive relate to restrictions on additional
borrowings, distributions to partners, and maintaining a minimum
cash balance of $1.0 million.
In accordance with Statement of Financial Accounting Standards
No. 107, "Disclosures about Fair Value of Financial
Instruments," management has determined that the carrying amount
of its debt approximate its fair value as of December 31, 1995
and 1996.
The revolving credit note has a maximum commitment of $40
million. Unused commitment fees are 3/8 of 1% per annum on the
unused portion to be billed quarterly in arrears, calculated on
the average balance during the preceding quarter.
In December, 1996, South Seas obtained an irrevocable
transferable letter of credit, in an amount not to exceed $3.26
million, for use as a replacement for a reserve fund established
in connection with the 10% subordinated Notes (see Note 7). No
amounts had been drawn at December 31, 1996.
NOTE 6. LONG-TERM OBLIGATIONS UNDER CAPITAL LEASES
<TABLE>
<CAPTION>
Long-term obligations under capital leases consisted of the
following at December 31: 1995 1996
---- ----
<S> <C> <C>
Capital leases payable to financial institutions, bearing
interest from 7.2% to 9.5% per annum, maturing
through 2001 (see Note 4) $ 1,510 $ 896
Less current maturities (398) (265)
------- -------
$ 1,112 $ 631
======= =======
</TABLE>
Long-term obligations under capital leases are scheduled to
mature approximately as follows:
<TABLE>
<CAPTION>
Year Ending
December 31
-----------
<S> <C>
1997 $ 265
1998 231
1999 253
2000 133
2001 14
------
$ 896
======
</TABLE>
The weighted average interest rate on current maturities of
obligations under capital leases was 9.6%, 9.6% and 8.8% at
December 31, 1994, 1995 and 1996, respectively.
-14-
<PAGE> 34
SOUTH SEAS PROPERTIES COMPANY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars In Thousands)
NOTE 7. BONDS PAYABLE
<TABLE>
<CAPTION>
Bonds payable consisted of the following at December 31:
1995 1996
---- ----
<S> <C> <C>
10% subordinated notes, interest paid monthly, principal
due March, 2003 $ - $43,500
1996 debentures, ($7.5 million original face amount)
collateralized by a junior mortgage on real estate owned by
South Seas, interest paid or added to principal (at option
of the bondholder) semi-annually,
principal due December, 1996 7,938 -
1996 mortgage notes ($5.0 million original
face amount) collaterized by a junior mortgage on
real estate owned by a wholly owned affiliate of South
Seas, interest paid or added to principal (at option of the
bondholder) semi-annually, interest at 13% per annum,
principal due December 1996 5,060 -
--------- --------
12,998 43,500
Less current maturities (12,998) -
--------- --------
$ - $ 43,500
========= ========
</TABLE>
The weighted average interest rate on current maturities of
bonds payable was 12.0% and 10.0% at December 31, 1995 and
1996, respectively.
The 1995 and 1996 debentures carried a face interest rate of
12% per annum and 11.5% per annum, respectively with pay rates
of 8% per annum and 8.75% per annum, respectively. The
difference between the face interest rate and the pay rate was
accrued and paid at maturity.
Both series of debentures provided for contingent interest
payments based on a percentage of the increase of net
operating income (if applicable) of the Sundial Beach and
Tennis Resort and The Dunes Golf and Tennis Club. Maximum
simple interest rates including the contingent interest rate
calculation, were 15% and 14% for the 1995 and 1996
debentures. No contingent interest was payable. Both series of
debentures were paid in full in March, 1996.
The security agreement to the 1995 and 1996 debentures
required South Seas to maintain the collateral value, net of
any superior mortgages or liens thereon, at 110% of the
outstanding principal indebtedness under these debentures.
Senior indebtedness amounted to approximately $17.9 million at
December 31, 1995. These debentures were redeemable at South
Seas's option and were called on March 28, 1996. There was no
redemption premium remaining on the 1995 or 1996 debentures.
As part of a refinance loan entered into in December, 1995,
South Seas had approximately $5.6 million in restricted cash
at December 31, 1995 to partially payoff 1996 debentures. This
paydown occurred January 12, 1996.
Mariner was co-obligor on the 1996 debentures.
In March, 1996, South Seas sold $43.5 million 10% subordinated
notes (the "Notes") which mature in 2003. The Notes are
redeemable, in whole or in part, at the option of South Seas
at various redemption prices (108.24% to 112.62% of principal)
during or after the year 2000. Subsequent to the occurrence of
certain events, the holders of Notes will be offered the
opportunity to exchange the
-15-
<PAGE> 35
SOUTH SEAS PROPERTIES COMPANY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars In Thousands)
NOTE 7. BONDS PAYABLE CONTINUED
Notes at an exchange rate of $12 per unit (subject to
adjustment in certain circumstances). Upon the stated maturity
of the Notes, holders of Notes will be offered the opportunity
to exchange the Notes at an exchange rate of $10.50 per unit
(subject to adjustment in certain circumstances).
NOTE 8. COMMITMENTS AND CONTINGENCIES
Lease Commitments
South Seas is obligated under various operating leases for
equipment, office space and use of a resort facility. Total
lease expense incurred under these leases was $659, $1,473
and $2,099 for the years ended December 31, 1994, 1995 and
1996, respectively.
The future minimum rental commitments under the equipment
leases, office space and resort facility leases are as
follows:
<TABLE>
<CAPTION>
Year
----
<S> <C>
1997 $ 844
1998 744
1999 670
2000 421
2001 324
--------
$ 3,003
========
</TABLE>
South Seas has rental and lease obligations to certain
owners of condominium units for the use of their units in a
revenue-sharing program.
The revenue-sharing program provides for variable monthly
income payments to owners based on the amount of income
generated by the owners' units each month. These rental
agreements are renewable on a yearly basis. Either party
may terminate the contract, provided a six-month written
notice is given to the other party.
The lease programs provide for fixed monthly payments to
owners based on the type, size, and condition of the units.
In addition, South Seas will pay additional rent to the
owners if 40% of the annual gross income generated by their
units exceeds the amount of base lease payments in a lease
year. These leases are renewable on a yearly basis. The
lease agreements may be terminated by either party in
writing. Termination shall occur on the second anniversary
date of the lease following receipt of written notice.
Total lease expense related to the lease programs for the
years ended December 31, 1994, 1995 and 1996 was $7.3
million, $8.3 million and $8.3 million, respectively. Based
on management's intentions to continue to renew these
leases on a yearly basis, the expected future minimum
rental commitments under condominium leases will
approximate $5.6 million for each of the next five years.
-16-
<PAGE> 36
SOUTH SEAS PROPERTIES COMPANY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars In Thousands)
NOTE 8. COMMITMENTS AND CONTINGENCIES CONTINUED
Other
In connection with the acquisition of the Marco Radisson on
September 23, 1994, South Seas entered into an agreement to
pay the seller of the property, on a contingency basis, an
amount in addition to the purchase price paid at closing.
The contingent payment is payable upon the following
events: i) the sale of the property in which the minimum
amount due the seller is $1.5 million or in the alternative
ii) prior to any sale, the seller may exercise an option to
be paid on 15% of the increased net value of the property
which is computed using a multiple of adjusted net
operating income less the cost basis of the property. Upon
exercise of the option which can occur annually, South Seas
is obligated to pay the seller the computed amount over a
five year period with interest at 8%. If exercised, this
amount would be treated as additional purchase price.
South Seas is contingently liable with respect to
litigation incidental to the ordinary course of its
operations. In the opinion of management, based on the
advice of legal counsel, the ultimate disposition of
lawsuits will not have a material adverse affect on South
Seas financial position, results of operations, or cash
flows.
South Seas is self-insured, subject to "maximum loss"
limits for employee health, workers compensation, property
and liability. The insurance program is maintained by an
affiliate who administers a loss pool reserve into which
South Seas pays based upon its experience. Management
believes the amount paid is sufficient to cover future
costs related to the program.
South Seas was contingently liable as co-obligor under a
Mariner loan. The guarantee under this debt was $415 at
December 31, 1995. The liability was extinguished in 1996.
South Seas has a redemption agreement with a senior
management officer to repurchase his partnership units.
Upon death or termination of his employment, South Seas is
obligated (at the officer's request) to repurchase 82,500
partnership units at a price equal to the greater of $12
per unit or such price as the advisory board of South Seas
determines. If it is a voluntary termination of employment,
South Seas will repurchase (at the officer's request)
82,500 units at $10 per unit.
South Seas entered into a purchase option agreement with an
affiliated limited partnership, for real and personal
property used in the operation of a resort on Sanibel
Island, Florida. This option was exercised on January 6,
1997 and the Seaside Inn was purchased for $6.5 million.
See Note 13.
CONCENTRATION OF CREDIT RISK
South Seas places cash deposits at major banks. At December
31, 1995 and 1996 bank account balances exceeded Federal
Deposit Insurance limits by approximately $11.9 million and
$6.5 million, respectively. Management believes credit risk
related to these deposits is minimal.
NOTE 9. RELATED PARTY TRANSACTIONS
South Seas entered into the following transactions with
companies (or individuals) affiliated with the general
partners (affiliates):
. Included in general and administrative expenses for the
years 1994, 1995 and 1996 are general partner fees of
$75, $78, and $81, respectively, for services performed
by the general partners of South Seas Resort Limited
Partnership.
. In 1994, 1995, and 1996, South Seas paid an affiliate,
acting as an administrator for insurance coverage
$2,936, $4,860 and $3,543, respectively.
-17-
<PAGE> 37
SOUTH SEAS PROPERTIES COMPANY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars In Thousands)
NOTE 9. RELATED PARTY TRANSACTIONS CONTINUED
. Included in notes and mortgages payable at December 31,
1995 is $1.1 million to related parties (individuals).
Interest expense on these notes approximated $54, $349
and $92 for the years ended December 31, 1994, 1995 and
1996, respectively, of which $18 and $109 was payable
at December 31, 1994 and 1995, respectively.
. Included in general and administrative expenses is rent
expense of $229, $236 and $261 for the years ended
December 31, 1994, 1995 and 1996, respectively, under
an operating lease with an affiliated entity for office
space.
. Included in other income for the year ended December
31, 1996, is $22 of interest income earned on notes
receivables from employees participating in the
Management Equity Incentive Plan (see Note 12), of
which $20 was receivable at December 31, 1996.
NOTE 10. ACQUISITION OF LIMITED PARTNERSHIP INTERESTS
On December 31, 1993, South Seas purchased all of Connecticut
Mutual Life Insurance Company's (CMLIC) interest in SSRLP,
leaving South Seas with a 99% interest in SSRLP. CMLIC's
interest was purchased for cash and notes totaling $3.6
million. The acquisition of CMLIC's interest in SSRLP has
been accounted for under the purchase method of accounting.
The excess of the purchase price over the carrying value of
net assets (related to CMLIC's interest in net assets of
SSRLP) of $4.4 million was allocated to goodwill. This
purchase money note was extinguished in 1996.
NOTE 11. DEFINED CONTRIBUTION PLAN
In 1994, South Seas established South Seas Resorts Company
Retirement and Savings Plan (the "Plan"), under Section
401(k) of the Internal Revenue Code for all eligible
employees. The Plan allows employees to defer up to $9 of
their income on a pre-tax basis through contributions. In
accordance with the Plan, for every dollar the employee
contributes (up to 4% of the employee's compensation), South
Seas will contribute fifty cents plus an additional ten cents
if length of service is between five years and ten years, or
an additional twenty-five cents if length of service exceeds
10 years. South Seas may also elect to contribute a
discretionary amount determined on an annual basis. South
Seas made contributions to the applicable plan on behalf of
the employees of $246, $280 and $314 for the years ended
December 31, 1994, 1995 and 1996, respectively.
NOTE 12. MANAGEMENT EQUITY INCENTIVE PLAN
In 1996, South Seas adopted a Management Equity Incentive
Plan (the "Incentive Plan"). Under the Incentive Plan,
eligible employees were offered to purchase a specific number
of partnership units at $10 per unit, which approximated fair
market value at the date of purchase. Terms provided for up
to one-half of the total purchase price being financed by a
full recourse promissory note receivable to South Seas. The
terms of the promissory notes are interest only at 7%, paid
annually, with total principal due at maturity (48 months).
With each unit purchased, options were granted to purchase
five additional units. Options may be exercised at $12 per
unit, all options expire April 1, 2006 and vest according to
the schedule below:
<TABLE>
<CAPTION>
% of Options
Date that can be exercised
---- ---------------------
<S> <C>
July 1998 25%
July 1999 50%
July 2000 75%
July 2001 100%
</TABLE>
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<PAGE> 38
SOUTH SEAS PROPERTIES COMPANY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars In Thousands)
NOTE 12. MANAGEMENT EQUITY INCENTIVE PLAN CONTINUED
If South Seas were to achieve a public offering of these units
at value in excess of $12 per unit, all options have an
immediate right to be exercised without regard to the vesting
schedule.
Under the terms of the Incentive Plan, 132,000 units remain
available for issuance at a price to be determined at the
discretion of the Compensation Committee.
A summary of South Seas Incentive Plan activity during 1996 is
presented below:
<TABLE>
<CAPTION>
Number of Weighted Average
Options Exercise Price Per Unit
------- -----------------------
(000)
<S> <C> <C>
Outstanding at beginning of year 0 0
Granted 590 $12
Exercised 0 0
Forfeited 0 0
--- ---
Outstanding at end of year 590 $12
=== ===
Options exercisable at end of year 0 0
=== ===
</TABLE>
The weighted average grant date fair value of options granted
during 1996 was $10 per unit, and the weighted average exercise
price was $12.
For purposes of following disclosures required by FAS No. 123,
"Accounting for Stock Based Compensation" the fair value of each
option granted has been estimated on the date of grant using the
minimum value method, with the following assumptions used for
grants in 1996: annual distributions (with slight growth)
consistent with South Seas current policy, which resulted in
payments of $.28 in 1996 and are projected at $.30 in 1997; a
risk free interest rate of 7%, and an expected life of 6-9.5
years. The minimum fair value of each option granted during 1996
was $1.24. Pro forma compensation cost for 1996 awards under the
Incentive Plan, recognized in accordance with FAS No.123, would
increase the South Seas net loss from $4,383 ($1.00 per unit),
to $4,447 ($1.02 per unit). Since the pro forma compensation
cost of the Incentive Plan is recognized over the six year
vesting period, the foregoing pro forma increase in South Seas'
net loss is not representative of anticipated amounts in future
years.
NOTE 13. SUBSEQUENT EVENTS
On January 6, 1997, South Seas purchased from an affiliated
limited partnership, real and personal property used in the
operation of a resort (Seaside Inn) on Sanibel Island, Florida
for $6.5 million. In connection with the acquisition, South Seas
assumed liabilities of $2.5 million. Unaudited revenues and net
income for the Seaside Inn for the year ended December 31, 1996
were $1.4 million and $43, respectively.
In January 1997, South Seas renegotiated the Safety Harbor
Resort and Spa lease agreement. The amended lease agreement
requires annual cash payments of $1.2 million for 1997 and 1998,
$920 in 1999, and $300 in 2000 (new expiration date of May,
2000). Of the $3.62 million in remaining payments, $3.11 million
will be treated as option payments with the remainder being
treated as lease expense, straight-lined over the remaining
term, beginning January 1997. The revised option price is $11.4
million, (which includes the $3.11 million in option payments)
with an additional earn-out arrangement payable to the
owner/lessor of $8.0 million, payable over a number of years
based upon the financial results of the property. Revised
minimum capital improvements are $450 annually in the first four
years of lease with a cumulative total of $3.0 million to be
spent by May 31, 2000.
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<PAGE> 39
SOUTH SEAS PROPERTIES COMPANY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars In Thousands)
NOTE 13. SUBSEQUENT EVENTS CONTINUED
South Seas anticipates amending the $80 million consolidation
loan in late March, 1997. This amendment would increase the $40
million revolver portion to $43.5 million. The additional
funding would be used to pay off the assumed liabilities on the
Seaside Inn ($2.5 million) with the remainder available for
capital expenditures.
NOTE 14. EXTRAORDINARY EXPENSE
During 1996, South Seas refinanced substiantially all of its
outstanding debt in a recapitalization plan designed to
consolidate and reduce interest costs. As a result, South Seas
recorded an extraordinary item expense of $2.046 million in the
write-off of unamortized loan costs and prepayment penalties.
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<PAGE> 40
PART I - FINANCIAL INFORMATION
Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the audited
consolidated financial statements for South Seas and the notes thereto.
GENERAL
South Seas is one of the largest owners and operators of upscale beachfront
and/or destination resorts and hotels in Florida. South Seas owns six resort and
hotel properties, leases, operates and manages one resort spa, owns a golf and
tennis club, and manages two additional resort properties located on Florida's
Southwest coast. South Seas consolidates the results of operations of its owned
properties and records management fees on the managed properties.
South Seas has implemented a growth strategy which focuses on improving
results at existing properties through increased revenues and increasing its
operating leverage through centralized management. South Seas' growth strategy
also focuses on acquiring and, to a lesser extent, developing new resorts and
hotels in targeted markets with demographic and business characteristics
consistent with its market profile. The Sanibel Inn was acquired on June 1, 1995
in exchange for 71,374 limited partnership units ("Units") plus a contingent,
deferred cash payment of up to $700,000. This acquisition was accounted for
under the purchase method for financial reporting purposes, and its results of
operations have been included in the consolidated financial statements of South
Seas for periods subsequent to the date of acquisition. In June 1995, South Seas
entered into a long-term lease agreement (the "Safety Harbor Lease" amended in
January, 1997) through a wholly-owned subsidiary, Safety Harbor Management
Company, Ltd. ("Safety Harbor Management Co.") with an unrelated party pursuant
to which it operates and manages the Safety Harbor Resort and Spa ("Safety
Harbor," Safety Harbor and the Sanibel Inn are collectively referred to herein
as the "New Resorts"). The lease period as amended expires May 31, 2000. The
Safety Harbor Lease also provides Safety Harbor Management Co., with an option,
expiring on May 31, 2000, to purchase Safety Harbor for an aggregate purchase
price of $11.4 million, with an additional earn-out arrangement of $8.0 million
payable over a number of years based upon the financial performance of the
property. Management views the Safety Harbor Lease as a turnaround opportunity
at an under-performing resort, as evidenced by its occupancy rate of
approximately 35% in 1994 and 1995. Management believes that the performance of
Safety Harbor can be improved by making certain renovations at the resort and
also utilizing South Seas' marketing resources and operating skills. The Safety
Harbor Lease requires that South Seas spend a minimum of $3.0 million in capital
toward renovation during the term of the lease. South Seas anticipates that it
will benefit, following a period where the resort will be renovated and
repositioned, from improved operating results at Safety Harbor.
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<PAGE> 41
SEASONALITY
Properties owned or operated by South Seas are affected by normally
recurring seasonal patterns. Room rates are substantially higher and occupancy
is somewhat higher during the months of January, February, March and April than
during the remainder of the year. Approximately 45% of South Seas' revenues is
earned in the first four months of each year. Accordingly, South Seas'
operations are seasonal in nature, with lower revenue and net income in the
second, third and fourth calendar quarters.
RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1996
COMPARED TO THE YEAR ENDED DECEMBER 31, 1995
Revenues. Revenues consist principally of room rentals, food and beverage
sales, retail sales, spa and fitness revenues, and golf course operations. Other
revenue includes marina operations, long distance telephone charges, fees for
the use of recreation facilities, commissions from realty sales, interest income
and other miscellaneous items. Revenues for the year ended December 31, 1996
increased by $11.3 million, or 11.4% over the prior period.
Rooms revenues increased by $6.2 million, or 10.6% over 1995. Approximately
$4.3 million, or 69.0% of the increase represents room revenues attributable to
Safety Harbor and the Sanibel Inn ("New Resorts"). Room revenues at resorts
owned throughout both periods ("Comparable Resorts") increased by approximately
3.4%. The increase in room revenues at Comparable Resorts resulted from an
increase in the average daily rate ("ADR"), and an increase in the percentage of
occupancy. ADR at Comparable Resorts was $194.79 for 1996, compared to $192.22
in 1995, an increase of $2.57, or 1.3%. Occupancy percentage at Comparable
Resorts increased to 74.8% for 1996 from 74.0% for 1995. The increase in ADR
reflects South Seas' efforts to maximize revenue per available room ("REVPAR")
during peak demand periods. During 1996, REVPAR for Comparable Resorts increased
$3.60, or 2.5% over 1995. The New Resorts had an occupancy percentage of 49.6%,
ADR of $137.55 and REVPAR of $68.29 during 1996. Management of South Seas
believes that the lower occupancy levels at the New Resorts can be attributed to
the continuing low occupancy levels at Safety Harbor. Management of South Seas
believes operating results at Safety Harbor will begin to improve over time as
South Seas operational skills and marketing resources are fully implemented.
Food and beverage revenues for 1996 increased by $947,000, or 5.6%. The
increase was primarily due to the additional food and beverage operations
related to the New Resorts. Food and beverage revenues for Comparable Resorts
for 1996 decreased slightly by $29,000 compared to the prior year. The decrease
was primarily due to a decrease of $448,000 at South Seas Plantation, attributed
to the closing for renovation of the King's Crown restaurant, offset by an
increase of $216,000, at The Dunes Golf & Tennis Club (closed for renovation in
1995), and an increase of $301,000 at the Marco Radisson due to an increase in
banquet revenues. Food and beverage sales at the New Resorts contributed
$977,000 to increased sales over 1995.
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<PAGE> 42
Retail revenues for 1996 increased by $684,000, or 11.5%. Retail operations
at the New Resorts were up by $165,000 or 127.9% over the prior period. Retail
revenues for Comparable Resorts for 1996 increased by $519,000, compared to the
prior year. The renovated Dunes Golf & Tennis Club's Pro Shop produced
approximately $213,000 of the growth over the prior period. South Seas
Plantation produced approximately $320,000 over the prior period, primarily
through increased sales at their grocery/convenience store outlets.
Golf revenues for 1996 increased by $537,000 or 23.0%. The increase in golf
revenues was primarily due to the reopening of the Dunes Golf & Tennis Club,
which was closed for six months in 1995 for renovations.
Spa and fitness revenues increased by $1.2 million, or 99.0% reflecting the
results of operations at Safety Harbor, which was leased effective June 1, 1995.
Thus, 1996 results reflect 12 months of activity versus seven months in 1995.
Other revenues for the year ended December 31, 1996 increased by $1.7
million or 12.1% over the prior period. Approximately $1.3 million of the
increase was attributable to the Comparable Resorts. Additional club membership
revenue at the renovated Dunes Golf & Tennis Club accounted for $257,000 of the
increase. Other revenues at Sundial were up approximately $236,000, primarily in
the recreation department. This is a result of termination of the bike and boat
concession agreement which provided only a percentage of rental income. This
operation is now owned and directly provided by the resort to its guests. Total
telephone fees company-wide increased by $263,000 due to a combination of rate
increases and due to improved systems to capture telephone charges by guests.
The New Resorts contributed $435,000 or 25.7% of the total increase in other
revenues.
Expenses. Expenses for 1996 increased by $11.4 million, or 11.3%, over the
prior year. As a percentage of revenues, expenses remained constant at 102.0%.
The dollar increase resulted principally from expenses associated with the New
Resorts, as well as increases in depreciation and amortization and interest
expense.
Room expense increased by $1.9 million, or 14.5% over 1995. Room expense at
Comparable Resorts increased $1.1 million, or 9.3%. Approximately $767,000 of
the total increase reflects the additional expenses associated with the New
Resorts. Also, in February, 1996, South Seas appointed a vice president of
reservations (see "Management"). Costs associated with this position are
included in room expense. As a percentage of room revenues, room expense
increased slightly from 22.5% to 23.3%.
Food and beverage costs increases $1.3 million or 10.3% over the prior year.
Approximately $720,000 or 54.0% of the total increase was attributable to the
New Resorts. As a percentage of food and beverage revenues, food and beverage
expense increased slightly from 76.0% to 79.4%.
Sales and marketing costs for the year ended December 31, 1996
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<PAGE> 43
increased $1.7 million or 27.3% over the prior period, of which $887,000 or
53.2% of the total increase was associated with operations of the New Resorts.
The $779,000 or 14.7% increase experienced at the Comparable Resorts is above
the percentage growth in revenues and reflects marketing efforts targeted for
the off-season. As a percentage of total revenues, sales and marketing increased
from 6.2% in the year ended December 31, 1995 to 7.1% in 1996, primarily due to
increased marketing effort to reposition Safety Harbor.
In 1996, maintenance and grounds expense increased by $632,000 or 13.7% over
the prior period, of which $232,000 or 36.7% of the total increase was
attributable to the New Resorts. Increase at the Comparable Resorts for the same
period was $400,000 or 9.7% and was consistent with expected maintenance costs
for 1996. The Dunes Golf & Tennis Club attributed approximately $241,000 of
60.2% of the increase from comparable resorts. This is due to the facility being
closed and under renovation in 1995. As a percentage of total revenues,
maintenance and grounds expense increased from 4.7% to 4.8%.
Total general and administrative expense increased slightly by $68,000, or
.3%, over 1995. As a percentage of revenues, general and administrative expense
decreased from 20.2% to 18.2%. Approximately $1.5 million of the increase was
attributable to general and administrative expenses associated with the
operations of the New Resorts. These costs were offset by a decrease at the
Comparable Resorts of $1.4 million. Effective January 1,1996, South Seas changed
its health insurance plan from a self-insured plan (with maximum loss caps) to a
fully insured program. This resulted in substantial savings company-wide, the
most significant of which was realized at South Seas Plantation (approximately
$250,000), Sundial Beach Resort ($130,000) and a reduction in reserves based on
expected claims from prior periods of $115,000. Also in 1996, South Seas
experienced reduced workers compensation claims, casualty reserve adjustments
resulted in reduced costs over 1995, the most significant of which were $359,000
at South Seas Plantation and $318,000 at Sundial Beach Resort. Finally, due to
results of operations, the bonuses paid to the Management Company's corporate
staff were reduced by approximately $362,000 in 1995 over 1996.
Depreciation and amortization expense increased by $1.6 million, or 28.5%
over 1995. As a percentage of revenues, depreciation and amortization expense
increased from 5.7% to 6.7%. The increase, both in dollars and as a percentage
of revenues, resulted from the impact of New Resorts acquired in June, 1995
($453,000 or 28.3% of the total), increased depreciation expense on the
significant fixed asset additions placed in service within the last year and
higher amortization of loan costs associated with the public debt offering and
the $80 million consolidation loan (see "Liquidity and Capital Resources").
Interest expense increased by $1.1 million, or 12.2% over 1995. The increase
was attributable to the additional indebtedness that was incurred in March 1996
with the issuance of $43.5 million of convertible bonds.
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<PAGE> 44
Extraordinary item - early extinguishment of debt. In March, 1996 and
September, 1996, South Seas obtained new loan facilities that paid off
significant amounts of debt prior to their original maturities. Therefore,
approximately $2.0 million in unamortized loan costs and pre-payment penalties
have been treated as an extraordinary item.
Net Loss. As a result of the foregoing factors, net loss for 1996 increased
by $1.8 million, or 69.4%, compared to 1995.
RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1995
COMPARED TO THE YEAR ENDED DECEMBER 31, 1994
Revenues. Revenues consisted principally of room rentals, food and beverage
sales, retail sales and golf course operations. Other revenue includes marina
operations, long distance telephone charges, fees for the use of recreation
facilities and spa facilities, management fees, commissions from realty sales,
interest income and other miscellaneous items. Revenues for the year ended
December 31, 1995 increased by $19.4 million, or 24.4%, over the prior year,
principally as a result of significant increases in room revenues, food and
beverage revenues and other revenues offset slightly by a decrease in golf
revenues.
Room revenues increased by $13.3 million, or 29.6%, over 1994. Approximately
$10.3 million, or 77%, of the increase represents room revenues attributable to
the New Resorts. Room revenues at resorts owned throughout both periods
("Comparable Resorts") increased by approximately 6.9%. The increase in room
revenues at Comparable Resorts resulted from an increase in the average daily
rate ("ADR"), partially offset by a decrease in the percentage of occupancy. ADR
at Comparable Resorts was $210.58 for 1995, compared to $199.61 in 1994, an
increase of $10.97, or 5.5%. Occupancy percentage at Comparable Resorts
decreased to 73.9% for 1995 from 75.3% for 1994. The increase in ADR reflects
South Seas' efforts to maximize revenue per available room ("REVPAR") during
peak demand periods. During 1995, REVPAR for Comparable Resorts increased $5.30,
or 3.5% over 1994. The New Resorts had an occupancy percentage of 67.4%, ADR of
$137.98 and REVPAR of $93.04 during the period of their ownership or operation,
as the case may be, by South Seas or the Management Company. Management of South
Seas believes that the lower occupancy levels at the New Resorts can be
attributed, in part, to the timing of the acquisitions (See "Seasonality"), the
major refurbishment work that was being undertaken at the Sanibel Inn and the
continuing low occupancy levels at Safety Harbor.
Food and beverage revenues for 1995 increased by $3.1 million, or 22.2%. The
increase was primarily due to the additional food and beverage operations
related to the New Resorts. Food and beverage revenues for Comparable Resorts
for 1995 increased by $531,000 compared to the prior year. The increase was
primarily due to growth in food and beverage revenues at existing properties of
$770,000, offset by a decrease of $238,000 due to the closing of The Dunes Golf
& Tennis Club for renovation. Food and beverage sales at the New Resorts
contributed $2.6 million to increased sales over 1994. Approximately $1.4
million was generated by the Marco Radisson (reflecting 12 months of activity
vs. three
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<PAGE> 45
months), and $1.2 million was generated by Safety Harbor.
Retail revenues for 1995 increased by $521,000 or 9.6%. The increase was
primarily due to retail operations at the New Resorts. Retail revenues for
Comparable Resorts for 1995 increased by $59,000, compared to the prior year.
The increase was primarily due to increased volume at existing Properties of
$155,000 offset by a decrease at The Dunes Golf & Tennis Club of $96,000 (due to
its closure for renovations).
Golf revenues for 1995 decreased by $237,000, or 9.2%. The decline in golf
revenues was primarily due to the closing of The Dunes Golf & Tennis Club for
renovations during 1995.
Other revenues for 1995 increased by $1.5 million, or 11.6%. Approximately
$978,000 of the increase was attributable to the addition of the New Resorts.
Expenses. Expenses for 1995 increased by $22.9 million, or 29.4%, over the
prior year. As a percentage of revenues, expenses increased from 98.0% to
101.9%. The dollar increase resulted principally from expenses associated with
the New Resorts. The increase in expenses as a percentage of revenues resulted
primarily from the timing of the leasing of Safety Harbor and the acquisition of
the Sanibel Inn after the peak tourist season. See "Seasonality."
Room expense increased by $3.2 million, or 32.8%, over 1994. Room expense at
Comparable Resorts increased $1.3 million, or 15.8%. Approximately $2.4 million
of the total increase reflects the additional expenses associated with the New
Resorts. As a percentage of room revenues, room expense increased from 21.9% to
22.5% The increase in room expense as a percentage of room revenues primarily
resulted from the lower occupancy percentage at the New Resorts and the decrease
in occupancy percentage at the Comparable Resorts.
General and administrative expense increased by $6.2 million, or 45.3%, over
1994. As a percentage of revenues, general and administrative expense increased
from 17.3% to 20.2%. Approximately $3.8 million of the increase was attributable
to general and administrative expenses associated with the operations of the New
Resorts. The balance of the increase, or approximately $2.4 million, reflected
increases in management and support personnel costs relating to South Seas'
centralized operations, including marketing, purchasing, sales, accounting and
management information systems and approximately $2.0 million of additional
insurance expense. The increase in insurance expense, both in dollars and as a
percentage of revenues, resulted from the impact of increased employee claims
under South Seas' health and workers' compensations self-insurance programs as
well as increases associated with the addition of New Resorts. Management
anticipates a significant reduction in insurance expense related to employee
health and workers' compensation due to a restructuring of insurance plans
(including a reduced aggregate cap on the amount of self-insurance claims)
combined with newly implemented safety programs at all of the Properties.
Management believes that the upward trend in general and administrative
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<PAGE> 46
expense as a percentage of revenues was due primarily to two factors: (i)
increased costs associated with establishing the corporate infrastructure (i.e.,
centralized operations, including marketing, purchasing, sales, accounting and
management information systems) needed to integrate and operate the New Resorts
and (ii) the effect of normally recurring seasonal patterns on revenues at the
New Resorts subsequent to their acquisition. Management anticipates that general
and administrative expense as a percentage of revenues will stabilize in the
future because a significant corporate infrastructure is now in place at South
Seas and because the New Resorts have been fully integrated and South Seas will
benefit from revenues generated at the New Resorts during the higher demand
first calendar quarter.
Depreciation and amortization expense increased by $1.3 million, or 28.9%,
over 1994. As a percentage of revenues, depreciation and amortization expense
increased from 5.6% to 5.7%. The increase, both in dollars and as a percentage
of revenues, resulted from the impact of New Resorts acquired in 1995 and the
opening of a centralized reservations facility.
Interest expense increased by $3.9 million, or 71.2% over 1994. The increase
was primarily attributable to the indebtedness that was incurred in late 1994
and early 1995 to acquire the Marco Radisson and provide funds for renovations.
South Seas incurred $23.5 million of debt to acquire the Marco Radisson (the
acquisition loan was in place for the last three months of 1994), $4.9 million
of debt in 1995 to make renovations at the Marco Radisson and assumed $11.35
million of debt in June 1995 in connection with its acquisition of Sanibel Inn.
Net Income. As a result of the foregoing factors (including the effect of
normally recurring seasonal patterns on revenues at the New Resorts subsequent
to their acquisition), net income for 1995 decreased by $4.2 million, or 258.3%,
compared to 1994. Net income was also adversely affected by a $340,000 charge to
operations associated with the write-off of certain offering and transfer costs
associated with the acquisition of the Best Western-Sanibel and Song of the Sea.
In addition, net income was adversely affected by a $458,000 non-cash loss
realized on the disposal of certain fixed assets related to renovations at The
Dunes Golf & Tennis Club.
RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1994
COMPARED TO THE YEAR ENDED DECEMBER 31, 1993
Revenues. Revenues for the year ended December 31, 1994 increased by $6.2
million, or 8.5%, over the prior year. A majority of the increase was
attributable to increased room revenues, although higher food and beverage,
retail and other revenues also contributed to the increase.
Room revenues increased by $3.5 million, or 8.5%, over the prior year.
Approximately $2.0 million, or 58.0%, of the increase represented room revenues
attributable to the Marco Radisson. Room revenues at Comparable Resorts
increased by approximately $1.5 million, or 42.0%. The increase in room revenues
at
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<PAGE> 47
Comparable Resorts resulted primarily from an increase in ADR. ADR at Comparable
Resorts was $199.46 for 1994, compared to $192.01 for 1993, an increase of
$7.45, or 3.9%. Occupancy percentage at Comparable Resorts remained constant at
75.3% during 1994 and 1993. During 1994, REVPAR for Comparable Resorts increased
$5.64, or 3.9% over 1993. During the portion of the year in which it was owned
by South Seas, the Marco Radisson had an occupancy percentage of 70%, ADR of
$109.60, and REVPAR of $76.72.
Food and beverage revenues for 1994 increased by $1.1 million, or 8.6%. Of
that increase, $401,000 was due to the additional food and beverage operations
at the Marco Radisson. Food and beverage revenues for Comparable Resorts for the
year increased by $703,000, or 5.5% over the prior year. The increase in food
and beverage revenues was primarily attributable to increased volume at the
Comparable Resorts.
Retail revenues for 1994 increased by $280,000, or 5.4%. The Marco
Radisson's retail revenues accounting for $98,000, or 18.9% of the increase.
Retail revenues for Comparable Resorts during 1994 increased by $182,000, or
3.5%, over the prior year. The increase in retail revenues was primarily
attributable to a combination of higher volumes and price increases.
Other revenues for 1994 increased by $1.3 million primarily as a result of
increased management fees associated with the Properties managed by South Seas.
Prior to January 1, 1994, the Management Company had not been formed. Therefore,
in prior periods, no outside management fee income was recognized and management
fees for all Properties, except South Seas Plantation, during such periods were
paid to third parties and reflected as expenses.
Expenses. Expenses for the year ended December 31, 1994 increased by $7.8
million, or 11.2%, over the prior comparable period. As a percentage of
revenues, expenses increased from 95.7% to 98.0%. Approximately $3.1 million of
the increase, or 39.7%, resulted from expenses associated with the operation of
the Marco Radisson. The increase in expenses as a percentage of revenues
resulted from significant increases in general and administrative expense,
maintenance and grounds expense, interest expense and depreciation and
amortization.
Maintenance and grounds expense increased by $919,000, or 23.2% over 1993.
Approximately $400,000 of the increase represented expenses incurred to improve
condominium lands and buildings at South Seas Plantation that are not owned by
South Seas, but are part of its pool of rental units. Because these expenses
were incurred with respect to non-owned assets, they were expenses as incurred
rather than being capitalized. The balance of the increase in maintenance and
grounds expense represents expenses incurred in connection with the renovation
of Comparable Resorts.
General and administrative expense increased by $3.1 million, or 29.1%, over
1993. As a percentage of revenues, general and administrative expense increased
from 14.7% to 17.3%. Approximately $738,000 of the increase was attributable to
general and administrative expense associated with the operations of the
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<PAGE> 48
Marco Radisson. The balance of the increase, or approximately $2.0 million,
reflected expenses associated with establishing South Seas' corporate
infrastructure in connection with the reorganization transaction.
Depreciation and amortization expense increased by $757,000, or 20.6%, over
1993. As a percentage of revenues, depreciation and amortization expense
increased from 5.0% to 5.6%. The increase, both in dollars and as a percentage
of revenues, resulted from the impact of new properties acquired in 1994 and
refurbishment efforts at several Properties.
Interest expense increased by $1.2 million, or 28.0% over 1993. The increase
primarily reflected the higher level of indebtedness outstanding during 1994 as
a result of the acquisition of the Marco Radisson.
Net Income. As a result of the foregoing factors, net income for 1994
decreased by $3.1 million, or 65.3%, compared to 1993. Net income for 1993 was
favorably impacted by 2.0 million due to $1.9 million in proceeds received from
a legal settlement and a $978,000 gain on the sale of land, offset by the effect
of minority interests of $848,000 on those two transactions.
LIQUIDITY AND CAPITAL RESOURCES
South Seas has historically financed its operations and capital expenditures
with cash generated from operations, bank borrowings, borrowings from private
investors, corporate bonds and short-term credit facilities.
On March 28, 1996, South Seas completed the public offering of $43,500,000
of its 10% subordinated notes as offered in the Form S-1 Registration Statement
("Notes Offering"). The total aggregate principal amount raised was $43,500,000,
including the full $3.5 million over allotment, with interest payable monthly at
10%, and with no principal reduction until maturity on April 15, 2003.
The Notes are non-callable during the first four years of the term then
become redeemable, in whole or in part, at the option of South Seas at various
redemption prices (108.24% to 112.62% of principal) during or after the year
2000. Subsequent to the occurrence of certain events, at any time during the
term of the Notes, the holders of Notes will be offered the opportunity to
convert the Notes at an exchange rate of $12 per partnership unit (subject to
adjustment in certain circumstances). Upon the stated maturity of the Notes,
holders of Notes will be offered the opportunity to convert the Notes at an
exchange rate of $10.50 per unit (subject to adjustment in certain
circumstances).
South Seas believes that cash generated by operations, together with the
proceeds from the Notes Offering will be adequate to meet its working capital,
debt service and capital expenditure requirements. South Seas' outstanding
indebtedness, together with the Notes, places certain debt service obligations
on the partnership. South Seas believes that it may be necessary to obtain
additional debt or equity capital in order to accommodate
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<PAGE> 49
its plan for growth and expansion in 1997 and in future periods. South Seas
intends to pursue resort and/or hotel acquisitions and to a lesser extent
development opportunities in order to achieve growth in its portfolio of
properties. A portion of the expenditures associated with this growth strategy
will be funded with cash generated from operations and proceeds from the Notes
Offering.
South Seas anticipates that implementation of its growth strategy will require
it to obtain additional debt or equity financing. The amount of additional
financing required by South Seas in order to implement its growth strategy will
depend on several factors, including the purchase price and renovation costs
associated with acquisitions and South Seas' available cash resources at the
time of a particular transaction. Although there can be no assurance as to South
Seas' ability to obtain financing in the amounts it requires on commercially
reasonable terms, if at all, South Seas believes that, based upon its current
financial condition and results of operations, such financing will be available
to it. South Seas' inability to obtain additional financing could have a
material adverse effect on its results of operations, financial condition and
future prospects. The indenture places restrictions on the amount of additional
Funded Indebtedness (as defined in the prospectus delivered in connection with
the Notes Offering) that South Seas may incur.
In December, 1996, South Seas obtained an irrevocable, transferable letter
of credit in an amount not to exceed $3.26 million, for use as a replacement for
a reserve fund established in connection with the 10% Subordinated Notes. No
amounts had been drawn at December 31, 1996.
In March 1997, South Seas retained an investment banking firm to advise
the partnership on various strategic financial alternatives, to meet its'
future capital needs.
On December 31, 1996, South Seas had cash and cash equivalents of $6.5
million; and restricted cash of $201,000. Cash and cash equivalents decreased by
$881,000 during the year ended December 31, 1996.
Cash flow from operations was approximately $2.4 million for the year ended
December 31, 1996 as compared to $7.1 million in the prior period. Cash flow
from operations was negatively impacted by a $3.3 million increase in interest
paid during 1996. This significant increase in interest paid was attributed to
the early retirement of numerous notes, bonds and accrued interest (of
approximately $1.1 million) thereon with the proceeds from the public offering
and now having higher debt balances with monthly interest payments. South Seas'
other major source of cash in the 1996 period was proceeds of $43.5 million from
the Notes Offering. In addition to funding its operating activities, South Seas'
major uses of cash during the 1996 period were principal payments and
refinancings on outstanding debt of approximately $64.1 million (primarily
through proceeds of the Notes Offering, including $11.9 million under revolving
lines), capital expenditures and asset purchases of approximately $9.0 million,
and distributions to partners of approximately $1.2 million.
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<PAGE> 50
Cash flow from operations was approximately $7.1 million in 1995 as compared
to $7.8 million in 1994. Cash flow from operations was negatively impacted by a
$5.0 million increase in interest paid during 1995. South Seas' other major
source of cash for 1995 was proceeds of approximately $28.6 million from the
issuance of long-term debt. In addition to funding its operating activities,
South Seas' major uses of cash during 1995 were principal payments and
refinancings on outstanding long-term debt of approximately $15.7 million,
capital expenditures and asset purchases of approximately $8.4 million, and
distributions to partners of approximately $1.7 million.
Cash flow from operations for the year ended December 31, 1994 was $7.8
million, as compared to $6.9 million for the year ended December 31, 1993. South
Seas' major uses of cash for 1994 were capital expenditures of $1.7 million and
asset purchases of $23.7 million (primarily associated with the acquisition of
the Marco Radisson), distributions to partners of $3.6 million and principal
payments on outstanding long-term debt of $2.4 million.
Under the terms of the Indenture, South Seas is obligated to make capital
expenditures in respect of the Properties in an amount equal to 2.5% of its
consolidated resort related revenues for the immediately preceding fiscal year.
South Seas' intends to make capital expenditures and additional refurbishment of
certain properties of approximately $8.0 million during 1997. In addition,
management plans anticipates spending $5.6 million in maintenance and repairs.
At December 31, 1996, South Seas had $65.3 million in aggregate principal
amount of long-term indebtedness (net of current maturities) outstanding under
two notes payable. These notes are secured by various mortgages on the
Properties and by security interests in substantially all of South Seas' other
assets. The outstanding principal of these notes is due in increasing annual
amounts until maturity in 2001. Approximately $40 million of these notes bear
interest at 8.475% per annum, while approximately $27.1 million bear interest at
8.31%. See Note 5 of Notes to Consolidated Financial Statements.
At December 31, 1996, South Seas had approximately $43.5 million in
principal amount of subordinated indebtedness, represented by bonds payable. The
interest rate on this subordinated indebtedness is 10% per annum.
Approximately $1.7 million of notes and $265,000 of capital leases represent
the aggregate principal amount of current maturities due as of December 31,
1996.
On September 26, 1996, South Seas secured a $80 million mortgage note
payable with $40 million in term and $40 million under a revolving credit
facility. Simultaneously with closing, South Seas entered into an interest rate
swap on the combined $26.75 million loan and the $18.25 million advance, which
effectively fixed the interest rate at 8.47% per annum, beginning September,
1996 through June, 1998. Beginning July 1998 through September 2001, South Seas
has purchased an interest rate collar on this amoritizing note with a ceiling of
7.5% and a floor of 5.0%.
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<PAGE> 51
The agreements governing South Seas' outstanding indebtedness contain
various covenants limiting its ability to incur additional indebtedness, merge
or sell a controlling interest in South Seas, dispose of or acquire assets,
issue securities, create liens, make capital expenditures, make distributions to
partners, or engage in transactions with related parties, and requiring it to
maintain certain levels of insurance, interest rate protection, specified levels
of net worth and operating income, make a minimum level of capital improvements
annually, maintain a minimum level of working capital, and satisfy certain
financial ratios. Beginning July 1998 through September 2001, South Seas has
purchased an interest rate collar on this amortizing note with a ceiling of 7.5%
and a floor of 5.0%.
South Seas exercised an option to purchase the Seaside Inn on Sanibel Island
in January, 1997. The purchase price was $6.5 million. South Seas assumed
approximately $2.5 million of aggregate principal indebtedness encumbering this
property, which it expects to refinance into the $80.0 million senior loan in
the first half of 1997. The funds used to pay the balance of the purchase price
were derived from the Offering. South Seas does not anticipate incurring any
significant additional general and administrative expense in connection with
integrating the Seaside Inn's operation.
Based on a lease amendment executed in January 1997, South Seas has an
option to purchase Safety Harbor from its current owner for an exercise price of
$11.4 million with an additional earn-out arrangement of $8.0 million, payable
over a number of years based on the financial results of the property. The
payment term is subject to a minimum payment with a maximum term of 40 years.
The option will expire on May 31, 2000. Management believes that it can
substantially improve Safety Harbor's operating results during future periods by
renovating the resort and utilizing South Seas' marketing resources.
Under the terms of its agreement with the former owner of the Marco
Radisson, South Seas is obligated to make an additional payment upon the sale of
the Property in an amount equal to at least $1.5 million. Prior to such a
transaction, the former owner of the property has an option to receive a payment
equal to 15% of the increase in the value of the property determined in
accordance with a formula based upon a multiple of the property's adjusted net
operating income less South Seas' cost basis in the property. Upon exercise of
this option, South Seas would become obligated to pay the former owner the
formula amount over a five year period together with interest thereon at the
rate of 8% per annum.
South Seas believes that cash generated by operations, together with the
proceeds from the Offering, will be adequate to meet its ongoing, regular
capital expenditure and debt service requirements. In addition, a key component
of South Seas' growth strategy is the acquisition and, to a lesser extent,
development of new resorts and hotels in targeted markets with demographic and
business characteristics consistent with its market profile. South Seas intends
to pursue acquisition and development opportunities in order to achieve growth
in its portfolio of resorts. South Seas anticipates that implementation of its
growth
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<PAGE> 52
strategy will likely require it to obtain significant additional debt or equity
financing. The amount of additional financing required by South Seas in order to
implement its growth strategy will depend on several factors, including the
purchase price and renovation costs associated with potential acquisitions, the
real estate purchase price, site improvement and construction costs associated
with development opportunities and South Seas' available cash resources at the
time of a particular transaction. Although there can be no assurance as to South
Seas' ability to obtain financing in the amounts it requires on commercially
reasonable terms, if at all, South Seas believes that, based upon its current
financial condition and results of operations, such financing will be available
to it. South Seas' inability to obtain additional financing could have a
material adverse effect on its results of operations, financial condition and
future prospects. The Indenture limits South Seas' ability to incur additional
Funded Indebtedness. See "Description of Notes Restrictions on Additional Funded
Indebtedness" in the Offering Prospectus.
In the opinion of management, no material adverse effect on either results
of operations or financial position is anticipated due to the modification or
replacement of existing information systems in order to accommodate year 2000
implications.
South Seas is not currently a party to any legal proceeding which, in
Management's opinion, is likely to have a material adverse effect on its
operating results or financial position.
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<PAGE> 53
MANAGEMENT
Directors, Executive Officers and Key Employees
South Seas does not have any directors, executive officers or
employees. South Seas does, however, have a seven-member advisory
board consisting of the following individuals: Robert M. Taylor,
Allen G. Ten Broek, Robert F. Anderson, Michael B. Peceri, Timothy
R. Bogott, Paul J. Powers and Peter C. Yesawich. The advisory
board's primary function is to render nonbinding advice to the
General Partner of South Seas with respect to strategic policies
and decisions affecting South Seas.
T&T Resorts, L.C., the General Partner of South Seas, has no directors or
employees but does have a manager and executive officers. Robert M. Taylor is
the sole manager, Chairman and Chief Executive Officer of T&T Resorts, L.C. and
Allen G. Ten Broek is the Vice Chairman and President of T&T Resorts, L.C. The
following is a biographical summary of the experience of Messrs.
Taylor and Ten Broek.
Robert M. Taylor. Mr. Taylor is Chairman and Chief Executive Officer of T&T
Resorts, L.C., a position in which he has served since its formation in February
1996. Mr. Taylor also serves as Chairman and Chief Executive Officer of S.S.
Resort Management, L.C. (the general partner of the Management Company), a
position in which he has served since its formation in 1994. In 1971, Mr. Taylor
founded The Mariner Group, Inc., a company that has developed and managed
numerous condominium resorts and other properties along Florida's southwest
coast. Before founding The Mariner Group, Inc., Mr. Taylor worked for McKinsey &
Company, a worldwide management consultant company, in the firm's Cleveland,
Ohio, office. Prior to that, he served in the U.S. Army for two years, during
which time he was stationed in Virginia and on the Island of Okinawa. Before his
military service, Mr. Taylor worked with AT&T in Chicago. Mr. Taylor served from
1983 to 1996 as a director of Acme Cleveland Corp., a maker of industrial
sensors and telecommunications equipment. Mr. Taylor also has served on the
boards of a number of corporate, banking and community organizations, including
the Miami branch of the Federal Reserve Bank and the Executive Committee of the
Florida Council of 100. He currently serves on the board of First Independence
Bank, and the board of the Foundation for Lee County Schools, as well as the Lee
County Port Authority Special Airport Management Committee. A native of
Columbus, Ohio, Mr. Taylor graduated from The Ohio State University in 1965 with
a master of business administration degree and was the University's outstanding
senior graduate in 1965.
Allen G. Ten Broek. Mr. Ten Broek is the Vice Chairman and President of T&T
Resorts, L.C., a position in which he has served since its formation in February
1996. Mr. Ten Broek is also President of The Mariner Group, Inc., a position in
which he has served since October 1995. Mr. Ten Broek is the immediate past Vice
Chairman and Managing Executive of Hilton Grand Vacations Company, a timeshare
sales, development and vacation club affiliated with Hilton Hotels. Mr. Ten
Broek is an original shareholder of The Mariner Group, Inc. and has been a
director of
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<PAGE> 54
The Mariner Group, Inc. since 1973. Mr. Ten Broek served as President of The
Mariner Group, Inc. from 1979 to 1992. Mr. Ten Broek resigned as President and
Chief Operating Officer of The Mariner Group, Inc., in 1992 to become Vice
Chairman of Hilton Grand Vacations Company, a position in which he served until
October, 1995. He is a former director of the Bank of the Islands and Florida
National Bank of Lee County, and was a founding director of Community Bank of
the Islands. He has held a variety of director and officer positions with local
community organizations. Mr. Ten Broek is the Chairman Emeritus of the Florida
Shore and Beach Preservation Association and has served as chairman of two
statewide task forces appointed by the Governor. He was recently elected
Chairman of the newly formed American Coastal Coalition. Mr. Ten Broek is an
officer or director of various other affiliates of the Partnership.
As noted earlier, each of the Properties is currently managed by the
Management Company, of which South Seas owns a 99% limited partnership interest
(the 1% general partnership interest in the Management Company is held by S.S.
Resort Management L.C., a Florida limited liability company). The Management
Company is a Florida limited partnership. The Management Company is responsible
for the day-to-day management of the Properties on behalf of South Seas. The
Management Company has general responsibility and authority for all aspects of
property management, including the establishment of operations policies,
leasing, marketing, advertising, maintenance and security of the Properties, the
supervision of construction, repairs and improvements and the employment and
supervision of on-site personnel and consultants. All costs and expenses of the
management of the Properties are borne by South Seas. The Management Company
also renders certain administrative services to South Seas, including
supervising the preparation of investor reports, handling investor inquiries,
coordinating federal and state tax filings, maintaining books and records,
handling financings and refinancings and investing uncommitted funds.
The Management Company does not have any directors or executive
officers. The general partner of the Management Company is S.S.
Resort Management, L.C., a Florida limited liability company. As
a limited liability company, S.S. Resort Management, L.C. does not
have any directors. Robert M. Taylor, Timothy R. Bogott and
Richard E. Krichbaum do, however, serve as the managers of S.S.
Resort Management, L.C. The managers of S.S. Resort Management,
L.C., by majority vote, have the power to appoint executive
officers of S.S. Resort Management, L.C.
The following sets forth certain information concerning the
executive officers of S.S. Resort Management, L.C.
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
Robert M. Taylor 55 Chairman and Chief Executive Officer
Michael B. Peceri 70 Vice Chairman
Timothy R. Bogott 50 President
Richard E. Krichbaum 41 Vice President of Finance & Administration
G. Scott Siler 47 Vice President of Development
Salvatore Dickinson 38 Vice President of Marketing
Leonard P. Myers 50 Vice President of Human Resources
</TABLE>
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<PAGE> 55
<TABLE>
<S> <C> <C>
Ralph Suda 50 Vice President of Reservations
Brian P. Garavuso 34 Vice President of Technology
</TABLE>
The following is a biographical summary of the experience of the executive
officers of S.S. Resort Management, L.C. (other than Mr. Taylor, whose
biographical summary is previously set forth):
Michael B. Peceri. Mr. Peceri is Vice Chairman of S.S. Resort Management,
L.C., a position in which he has served since its formation in 1994. Mr. Peceri
was the Vice President of the International Hotel and Motel Association and
became its president for a two-year term beginning in 1996. Mr. Peceri began his
hospitality industry career in 1972 as manager of the Song of the Sea Resort
Motel in southwest Florida. From the Song of the Sea, Mr. Peceri progressively
moved into additional senior positions, serving as executive vice president and
general manager of South Seas Plantation from 1976 to 1980, president of Marquis
Hotels and Resorts (an Affiliate of The Mariner Group, Inc. and South Seas) from
its inception in 1980 until 1991, when he became chairman (a position in which
he served until he was appointed vice chairman of S.S. Resort Management, L.C.).
Mr. Peceri was the 1994 chairman of the American Hotel and Motel Association,
past president of the Florida Hotel and Motel Association, the past president of
the Sanibel/Captiva Chamber of Commerce and former vice chairman of the Lee
County Tourist Development Council. Mr. Peceri also has served on the Advisory
Council to the State of Florida's director of tourism and on the Governor's Task
Force for Tourism Funding. Mr. Peceri was named "Florida Hotelier of the Year"
in 1986.
Timothy R. Bogott. Mr. Bogott is President of S.S. Resort Management, L.C.,
a position in which he has served since its formation in 1994. A veteran of both
the real estate and hospitality industries, Mr. Bogott joined The Mariner Group,
Inc. in 1976 as project manager and director of administration. In 1979, he was
elected as the secretary/treasurer of The Mariner Group, Inc., and in 1983 was
named its vice president of finance. From 1984 to 1993, Mr. Bogott served as
president and chief executive officer and as director of Mariner Capital
Management Inc. and Mariner Capital Investment Corporation, both Affiliates of
The Mariner Group, Inc. Before joining The Mariner Group, Inc., Mr. Bogott was
assistant vice president of Palmetto Savings and Loan Association in Ft. Myers,
Florida. Prior to that he held various management positions with The First
National Bank of Ft. Myers and the American National Bank of Denver, Colorado.
Mr. Bogott is a former member of Lee Memorial Hospital's Finance Committee. He
is a graduate of the University of Colorado business school. He also attended
the Florida School of Banking and the School of Banking of the South.
Richard E. Krichbaum. Mr. Krichbaum is Vice President of Finance and
Administration and Chief Financial Officer of S.S. Resort Management, L.C., a
position in which he has served since its formation in 1994. Mr. Krichbaum
joined The Mariner Group, Inc. in 1984 as director of project finance and was
promoted to treasurer and vice president of finance in 1987 before being named
vice president and chief financial officer in 1992. Before joining The Mariner
Group, Inc., Mr. Krichbaum worked seven years with the E.J. DeBartolo Corp. in
Youngstown, Ohio. Mr. Krichbaum
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<PAGE> 56
currently serves on the Advisory Board of the University of South Florida, Fort
Myers campus; as a director of the United Way of Lee County; a director and
officer of South Ft. Myers Little League baseball, and he has also served as a
director of the Boy Scouts of Southwest Florida. A native of Youngstown, Ohio,
Mr. Krichbaum graduated from Youngstown State University in 1979 with a
bachelors of science degree in accounting. He received his master's degree in
finance from Youngstown State University in 1986.
G. Scott Siler. Mr. Siler is Vice President of Development of S.S. Resort
Management, L.C., a position in which he has served since its formation in 1994.
Mr. Siler joined The Mariner Group, Inc. in 1972 as director of food and
beverage operations for South Seas Plantation, a post he held until 1977. During
his 20-plus years with The Mariner Group,,Inc., Mr. Siler has held a variety of
other management and senior management positions, serving as vice president of
food and beverage operations for Mariner Properties Inc., vice president of food
and beverage operations for Marquis, Hotels and Resorts, and vice president of
operations for Marquis Hotels and Resorts. Mr. Siler has also served as general
manager of Sundial Beach and Tennis Resort, vice president of development for
Marquis Hotels and Resorts, and president of Marquis Hotels and Resorts. Mr.
Siler is a member of the Tourist Development Council of Lee County, Florida, and
the Cornell Society of Hotelmen.
Salvatore Dickinson. Mr. Dickinson is Vice President of Marketing of S.S.
Resort Management, L.C., a position in which he has served since September 1994.
Prior to joining S.S. Resort Management, L.C. in 1994, Mr. Dickinson served for
more than nine years with Robinson, Yesawich & Pepperdine, Inc., the nation's
largest advertising, marketing and public relations firm specializing in serving
travel industry clients, during which time he managed accounts such as the Lee
County Visitor and Convention Bureau, Premier Cruise Lines (The Big Red Boat),
Hilton International and The Continental Companies (now Carnival Hotels and
Resorts). Mr. Dickinson is an active member of the Hospitality Sales & Marketing
Association International and the American Advertising Federation. He received
his bachelor's degree in advertising and master's degree in marketing
communications from Florida State University.
Leonard P. Myers. Mr. Myers is Vice President of Human Resources of S.S.
Resort Management, L.C., a position in which he has served since its formation
in 1994. Mr. Myers joined The Mariner Group, Inc. in 1981 to direct employee
relations, including recruiting, training, quality assurance and employee
services at South Seas Plantation. Prior to joining The Mariner Group, Inc., Mr.
Myers served as a psychologist at the Lee Mental Health Center in Ft. Myers,
Florida, as a training specialist at Sunland Training Center in Orlando,
Florida, and as personnel manager for Imhoff Brothers Inc., a restaurant
franchise company in Windom, Minnesota. Mr Myers is a board member on the Wages
Coalition and is also on the board for Organizational Flexibility Profile
Advisory Board. He also serves on the board for the Association for
International Practical Training. Mr. Myers is the past chairman of the Human
Resources Committee for the Lee County
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<PAGE> 57
School Board. He is a past president of the Health Care Coalition and the Career
Education Advertising Council. Mr. Myers received his masters degree in
community/industrial psychology in 1976 from the University of Central Florida
in Orlando.
Brian P. Garavuso. Mr. Garavuso is the Vice President of Technology for
S.S. Resort Management, L.C., a promotion from his previous title of Director of
Management of Information Systems, a position he has held since its formation in
1994. He has been with the company since 1983 and has held a variety of
management positions. Specific duties included the establishment of the
company's Vacation Planning Center, the central reservations facility. He also
served as vice president and controller for Marquis Hotels and Resorts, a
subsidiary of South Seas Resorts Company. Mr. Garavuso serves on the technology
sub-committee for the American Hotel & Motel Association and he is chairman of
the Springer-Miller Host Systems Users Group. A native of Long Island, New York,
he graduated from the University of South Florida in 1986 with a B.S. in
Business Administration.
Ralph Suda. Mr. Suda is the Vice President of Reservations for S.S. Resort
Management, L.C., a position he has held since February 1996. Prior to joining
S.S. Resort Management, L.C., Mr. Suda served as the Vice President of
Reservations for The Ritz- Carlton Hotel Company in Atlanta for two years.
Previously, he spent 19 years with the Hyatt Hotels Corporation in a variety of
positions and locations ranging from Rooms Director to General Manager. He is
past president of the Lexington Hotel/Motel Association, and has served on the
boards of the Lexington Chapter, Kentucky Restaurant Association, the Advisory
Board, University of Kentucky Hospitality Management Program. Mr. Suda also
served on the boards of Junior Achievement and Big Brothers/Big Sisters. He
received a Bachelor in Business Administration from the University of Hawaii.
General Partner
T&T Resorts, L.C., the General Partner of South Seas, has the power and
authority to manage and control the activities of South Seas and is liable for
all the debts of South Seas (to the extent not paid by South Seas), except with
respect to the Notes and any other indebtedness incurred by South Seas which is
nonrecourse to the General Partner.
South Seas does not directly employ any of the persons responsible for
managing its resort and hotel operations. Rather, South Seas' operations are
managed by the officers of S.S. Resort Management, L.C., the general partner of
the Management Company.
Compensation of the General Partner
T&T Resorts, L.C., the General Partner of South Seas, receives no
management fee or similar compensation in connection with its services as
general partner of South Seas and will receive no remuneration other than (i)
distributions in respect of its equity interest in South Seas and (ii)
reimbursement for all direct and indirect costs and expenses incurred on behalf
of South Seas and
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<PAGE> 58
all other expenses necessary or appropriate to the conduct of the business of,
and allocable to, South Seas.
Executive Compensation
The executive officers of S.S. Resort Management, L.C., the general partner
of the Management Company, manage and operate South Seas' business. South Seas
does not directly employ any of such executive officers. The following table
sets forth compensation for fiscal year 1996 of the chief executive officer and
executive officers of S.S. Resort Management, L.C. earning more than $100,000.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation
Other
Name and Bonus(1) Bonus(l) Annual
Principal Position Salary Incentive Profit Sharing Compensation(2)
<S> <C> <C> <C> <C>
Robert M. Taylor
Chairman/CEO $227,000 $45,000 $0 $17,000
Timothy R. Bogott
President $150,000 $30,000 $0 $17,000
Richard E. Krichbaum
Vice President $117,500 $22,000 $0 $3,000
G.Scott Siler
Vice President $115,000 $15,000 $0 $3,000
Salvatore Dickinson
Vice President $100,250 $15,000 $0 $2,836
</TABLE>
(1) The Management Company has adopted both an incentive bonus plan and a
profit sharing bonus plan in which all of the executive officers of the
Management Company are eligible to participate. Under the incentive bonus
plan, subject to the achievement of certain financial and other objectives,
Mr. Taylor and Mr. Bogott may earn up to 40%, which may be adjusted upward
based on exceptional performance, of their respective base compensation,
and each other executive officer may earn up to 30%, which may be adjusted
upward based on exceptional performance, of his respective base
compensation as an annual bonus. Under the profit sharing bonus plan, an
aggregate bonus pool is established in the amount of 25% of the excess of
actual net operating income over budgeted net operating income. The bonus
pool is then allocated to the executive officers and other employees of the
Management Company at the discretion of Mr. Taylor and Mr. Bogott. Both the
incentive bonus plan and the profit sharing bonus plan are payable in cash.
(2) Amounts reported as other annual compensation represent Matching
Contributions made by the Management Company under its Section 401 (k)
Plan. The 401 (k) Plan allows participants to defer up to the statutory
maximum of their annual salary on a pre-tax basis. Up to 4% of an
employee's salary deferred by such employee will be matched by a Management
Company contribution equal to 50% of the amount deferred. Contributions
made by the Management Company vest immediately. The amounts reported as
other annual compensation for Mr. Taylor and Mr. Bogott include Advisory
Board fees of $14,000 each, paid by South Seas.
Ownership of Interests in South Seas, The General Partner and the
Management Company
The following table sets forth certain information with respect to each
beneficial owner of more than 5% of South Seas' voting
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<PAGE> 59
securities.
<TABLE>
<CAPTION>
Amount and Nature Percentage
Name of Beneficial Owner of Beneficial Ownership of Class
<S> <C> <C>
T&T Resorts, L.C. (1) 44,273 General Partnership Units 100%
The Mariner Group, Inc. 610,385 Limited Partnership Units 13.93%
Robert M. Taylor 506,912 Limited Partnership Units (2) 11.57%
Robert F. Anderson 452,273 Limited Partnership Units 10.32%
Allen G. Ten Broek 407,219 Limited Partnership Units 9.29%
</TABLE>
(1) Mr. Taylor and Mr. Ten Broek are the sole equity owners of T&T
Resorts, L.C., the General Partner of South Seas. Mr. Taylor owns 51%
of the membership interests of T&T Resorts, L.C. and Mr. Ten Broek
owns 49% of the membership interests of T&T Resorts, L.C.
(2) Robert M. Taylor shares investment and voting power with his spouse
with regard to 20,000 units.
The following table sets forth the beneficial ownership interest in South
Seas held by each executive officer of S.S. Resort Management, L.C., the general
partner of the Management Company.
<TABLE>
<CAPTION>
Amount and Nature Percentage
Name of Beneficial Owner of Beneficial Ownership of Class
<S> <C> <C>
Robert M. Taylor (1) 22,579 General Partnership Units 51%
Robert M. Taylor 506,912 Limited Partnership Units (2) 11.57%
Timothy R. Bogott 150,000 Limited Partnership Units (3) 3.42%
G. Scott Siler 47,487 Limited Partnership Units 1.08%
Richard E. Krichbaum 33,060 Limited Partnership Units 0.75%
Leonard P. Myers 14,000 Limited Partnership Units 0.32%
Salvatore P. Dickinson 7,000 Limited Partnership Units 0.16%
Ralph G. Suda 7,000 Limited Partnership Units 0.16%
Brian P. Garavuso 3,000 Limited Partnership Units 0.07%
</TABLE>
(1) Owned indirectly through Mr. Taylor's 51% ownership interest in T&T
Resorts, L.C., the General Partner of South Seas.
(2) Robert M. Taylor shares investment and voting power with his spouse
with regard to 20,000 Units.
(3) Eighty-two Thousand Five Hundred (82,500) of Mr. Bogott's Units are
subject to a Redemption Agreement between Mr. Bogott and South Seas
(the "Redemption Agreement"). The Redemption Agreement reflects
certain rights that Mr. Bogott was entitled to as an officer of
Mariner Capital Management, Inc., that South Seas agreed to honor at
the time Mr. Bogott joined the Management Company. Generally, the
Redemption Agreement provides that if Mr. Bogott dies or his
employment with S.S. Resort Management, L.C. is terminated by S.S.
Resort Management, L.C., South Seas will repurchase, at Mr. Bogott's
request, 82,500 of Mr. Bogott's Units at a price equal to the higher
of $12 per Unit or such price as the advisory board of South Seas
determines. If Mr. Bogott voluntarily terminates his employment with
S.S. Resort Management, L.C., South Seas will repurchase, at Mr.
Bogott's request, 82,500 of Mr. Bogott's Units at a price equal to $10
per Unit.
South Seas owns a 99% limited partnership interest in the Management
Company and S.S. Resort Management, L.C. owns the 1% general partnership
interest in the Management Company. The beneficial ownership interests of S.S.
Resort Management, L.C., a Florida limited liability company, are held as
follows: 99% by Mr. Taylor, 0.5% by Mr. Bogott and 0.5% by Mr. Krichbaum.
-35-
<PAGE> 60
The addresses of the persons shown in the tables above are as follows: T&T
Resorts, L.C., the Mariner Group, Inc., and Messrs. Taylor, Ten Broek, Bogott,
Siler, Krichbaum, Myers, Dickinson, Suda and Garavuso, c/o South Seas, 12800
University Drive, Suite 350, Fort Myers, Florida 33907 and Mr. Anderson, P.O.
Box 08337, Fort Myers, Florida 33907.
Compensation Committee Interlocks and Insider Participation
Compensation decisions with respect to the executive officers of the
Management Company with respect to fiscal year 1996 were made by Messrs. Taylor,
Ten Broek and Bogott.
The following discussion of certain relationships and transactions includes
transactions involving, directly or indirectly, (i) the following executive
officers of the General Partner: Robert M. Taylor - Chairman and Chief Executive
Officer and Allen G. Ten Broek - Vice Chairman and President; (ii) the following
executive officers of the general partner of the Management Company: Mr. Taylor
- - Chairman and Chief Executive Officer, Michael B. Peceri - Vice Chairman,
Timothy R. Bogott - President, Richard E. Krichbaum Vice President of Finance
and Administration and G. Scott Siler - Vice President of Development; and (iii)
the following owners of more than 5% of the outstanding Units: Mr. Taylor, Mr.
Ten Broek, The Mariner Group, Inc. and Robert F. Anderson.
Transactions With The Mariner Group, Inc.
South Seas paid $2.9 million, $4.9 million and $3.5 million in 1994, 1995
and 1996, respectively, to The Mariner Group, Inc. in exchange for services
performed by The Mariner Group, Inc. as an administrator for insurance coverage.
South Seas expects this relationship to continue for the foreseeable future.
South Seas paid $229,000, $236,000 and $261,000 in 1994, 1995 and 1996,
respectively, to The Mariner Group, Inc. pursuant to a sublease of office space.
The term of the sublease for such office space expires on May 28, 2000. Under
the sublease, rent increases at a rate of 5% per year.
Effective January 1, 1994, South Seas issued 381,505 Units to The Mariner
Group, Inc. in exchange for certain property owned by certain wholly-owned
Subsidiaries of The Mariner Group, Inc., including the Sundial Beach and Tennis
Resort, The Dunes Golf & Tennis Club, management agreements for the Sanibel Inn
and a dining club and assets relating to two real estate brokerage services. For
purposes of this transaction, an aggregate value of $4,604,765.35 ($12.07 per
Unit) was ascribed to the Units received by The Mariner Group, Inc. See Note 1
to the Consolidated Financial Statements for a discussion of the accounting
treatment of this transaction.
Effective January 1, 1994, South Seas issued 210,253 Units to Mariner
Capital Management, Inc. in exchange for certain property owned by Mariner
Capital Management, Inc., including all of the stock of Mariner Capital
Investment Corp. and management rights for the Best Western-Sanibel, the Song of
the Sea Inn, the Best Western Pink Shell Beach Resort and the Seaside Inn. The
Mariner Group, Inc. owned a 60% interest and Mr. Bogott owned a 25% interest in
Mariner Capital Management, Inc. as of January 1, 1994. For purposes of this
transaction, an aggregate value of $2,537,753.71 ($12.07 per Unit)
-36-
<PAGE> 61
was ascribed to the Units received by Mariner Capital Management, Inc. See Note
1 to the Consolidated Financial Statements for a discussion of the accounting
treatment of this transaction.
The determination of the per Unit value referred to in the two immediately
preceding paragraphs and the number of Units transferred in each transaction was
based on values ascribed to the Properties owned by South Seas and the
properties transferred to South Seas as described above. The gross values of
these Properties were generally determined by capitalizing income, using
trailing 12-month adjusted operating income available to service debt and
various multiples selected by the parties ranging from 9 to 13, then deducting
outstanding indebtedness and making other adjustments as necessary. The
valuation process was coordinated by Mr. Taylor, Mr. Bogott and Mr. Krichbaum.
In January 1997, South Seas exercised an option to purchase the Seaside Inn
from its owner, Florida Income Fund, L.P., for $6.5 million. The exercise price
of the option was determined by negotiation between South Seas and Florida
Income Fund, L.P. The parties to these negotiations valued the Seaside Inn by
capitalizing income, using the Seaside Inn's prospective 12-month adjusted
operating income available to service debt and a multiple selected by the
parties, then deducting outstanding indebtedness and making other adjustments.
An appraisal of the Seaside Inn conducted subsequent to the execution of the
option agreement indicated that the fair market value of the Seaside Inn was
$5,700,000, excluding the value of the management contract. This appraisal made
certain valuation assumptions including a reserve for a lower number of rental
units. Management believes the purchase price for the Seaside Inn is
representative of the fair market value for the property at the time of
purchase. The Management Company currently manages this Property pursuant to the
terms of a management agreement between the Management Company and Florida
Income Fund, L.P. Under such management agreement, the Management Company
receives 6% of the gross revenues generated by this Property, plus reimbursement
of all costs incurred in connection with the operation of this Property. This
management agreement expires on December 31, 1999. Mariner Capital Management,
Ltd., (Mariner Capital Management, Ltd., has an arrangement with Mariner Capital
Management, Inc., whereby Mariner Capital Management, Ltd., earns 100% of the
net income of Mariner Capital Management, Inc.) and MCD Real Estate, Inc., an
Affiliate of McDonald & Company Securities, Inc., are the general partners of
Florida Income Fund, L.P. The Mariner Group, Inc. owns a 60% interest and Mr.
Bogott owns a 25% interest in Mariner Capital Management, Ltd. (Mariner Capital
Management, Ltd., has an arrangement with Mariner Capital Management, Inc.,
whereby Mariner Capital Management, Ltd., earns 100% of net income of Mariner
Capital Management, Inc.) Although South Seas and Florida Income Fund, L.P.
believe the exercise price for the option to be fair, given the relationships of
the parties involved, the exercise price of the option cannot be considered to
have been negotiated fully at arm's length.
The Management Company currently manages the Best Western Pink Shell Beach
Resort pursuant to the terms of a management agreement between the Management
Company and Florida Income Fund III, L.P. Under such Management Agreement, the
Management Company receives 6% of the gross revenues generated by this Property,
plus reimbursement
-37-
<PAGE> 62
of all costs incurred in connection with the operation of this Property. This
management agreement expires on December 31, 1999. Mariner Capital Management,
Inc. and MCD Real Estate, Inc. are also the general partners of Florida Income
Fund III, L.P.
The following individuals directly or indirectly owned the following
interests in The Mariner Group, Inc. as of the dates set forth below:
<TABLE>
<CAPTION>
Jan 1, 1994 Jan 1, 1995 Jan 1, 1996
<S> <C> <C> <C>
Robert M. Taylor(l) 17.43% 16.73% 16.53%
Robert F. Anderson(2) 14.51% 12.61% 15.18%
Allen G. Ten Broek 5.2 % 11.09% 11.54%
Timothy R. Bogott(3) 0.57% 0.82% 1.24%
Richard E. Krichbaum 0.13% 0.33% .32%
G. Scott Siler 0.05% 0.81% .79%
Michael B. Peceri .17% 1.01% 1.03%
</TABLE>
(1) Includes shares held by partnerships for the benefit of Mr. Taylor's
family. With respect to January 1, 1995 and 1996, includes shares
owned by Mr. Taylor's spouse.
(2) Includes shares held by Mr. Anderson as trustee with respect to trusts
established for the benefit of Mr. Anderson's family.
(3) Includes shares held in an IRA account.
Other Transactions
Mr. Taylor and Mr. Ten Broek (or the limited liability company,
San-Cap, L.C.) received in the aggregate $75,000, $78,000 and $81,000 for the
years 1994, 1995 and 1996, respectively, from South Seas Resort Limited
Partnership, a 99%-owned Subsidiary of South Seas, as fees for services
performed in their capacities as general partners of such limited partnership.
Mr. Taylor and Mr. Ten Broek each received 50% of such fees, which were
calculated by multiplying gross revenues of the partnership by 0.15% pursuant to
the terms of its partnership agreement.
Between September and November 1994, South Seas issued $2,950,000
aggregate principal amount of promissory notes earning interest at 14% per annum
to 23 accredited purchasers. These notes matured and were redeemed on December
29, 1995. The following individuals purchased notes in the following amounts in
September 1994:
<TABLE>
<CAPTION>
<S> <C>
Mr. Anderson (as trustee) $200,000
Mr. Bogott $100,000
Mr. Peceri $ 50,000
</TABLE>
Between January and May 1995, South Seas issued $5,000,000 aggregate
principal amount of mortgage notes bearing interest at 13% per annum. Mr.
Taylor, together with his spouse, purchased $60,000 aggregate principal amount
of these notes. The notes were repaid in full with proceeds of the public debt
offering in March, 1996.
Effective January 1, 1995, South Seas issued (i) 421,049 Units to Jolly
Roger Resort, Ltd., a Florida limited partnership, in exchange for the
Best Western-Sanibel and (ii) 252,835 Units to Song of the
-38-
<PAGE> 63
Sea Company, Ltd., a Florida limited partnership, in exchange for the Song of
the Sea Inn. For purposes of these transactions, an aggregate value of
$5,343,111.81 ($12.69 per Unit) was ascribed to the Units received by Jolly
Roger Resort, Ltd. and an aggregate value of $3,208,476.15 ($12.69 per Unit) was
ascribed to the Units received by Song of the Sea Company, Ltd. See Note 1 to
the Consolidated Financial Statements for a discussion of the accounting
treatment of these transactions. Mariner Capital Partnerships, Inc. was the
general partner of each of Jolly Roger Resort, Ltd. and Song of the Sea Company,
Ltd. and its combined ownership and carried interest equaled 14.5% and 11.4% of
Jolly Roger Resort, Ltd. and Song of the Sea, Ltd., respectively. The Mariner
Group, Inc. owned a 60% interest and Mr. Bogott owned a 25% interest in Mariner
Capital Partnerships, Inc. as of January 1, 1995. The following individuals
owned the following interests, directly and indirectly, in Song of the Sea
Company, Ltd. as of January 1, 1995:
<TABLE>
<CAPTION>
<S> <C>
Mr. Bogott..........................................4.4545%
Mr. Peceri..........................................4.4545%
Mr. Krichbaum (and family)..........................0.5728%
</TABLE>
The determination of the per Unit value referred to in the preceding
paragraph and the number of Units transferred in each transaction was based on
values ascribed to the properties owned by South Seas and the properties
transferred to South Seas as described above. The gross values of these
properties were generally determined by capitalizing income, using trailing
12-month adjusted operating income available to service debt and various
multiples selected by the parties ranging from 9 to 13, then deducting
outstanding indebtedness and making other adjustments as necessary. The
valuation process was coordinated by Mr. Taylor, Mr. Bogott and Mr. Krichbaum.
-39-
<PAGE> 64
SOUTH SEAS PROPERTIES COMPANY LIMITED PARTNERSHIP
SIGNATURES
DECEMBER 31, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ROBERT M. TAYLOR RICHARD E. KRICHBAUM
CHAIRMAN OF T&T RESORTS, L.C. VICE PRESIDENT OF FINANCE
GENERAL PARTNER OF S.S. RESORT MANAGEMENT L.C.
SOUTH SEAS PROPERTIES GENERAL PARTNER OF
COMPANY LIMITED PARTNERSHIP SOUTH SEAS RESORTS
(SIGNATURE) COMPANY, L.P.
MARCH 31, 1997 (SIGNATURE)
MARCH 31,1997
TIMOTHY R. BOGOTT VIRGINIA S. BROOKS
PRESIDENT CORPORATE CONTROLLER
S.S. RESORT MANAGEMENT, L.C. S.S. RESORT MANAGEMENT,
GENERAL PARTNER OF SOUTH SEAS L.C.
RESORTS COMPANY, L.P. GENERAL PARTNER OF SOUTH
(SIGNATURE) SEAS RESORTS COMPANY, L.P.
MARCH 31, 1997 (SIGNATURE)
MARCH 31, 1997
-40-
<PAGE> 1
EXHIBIT 10.1
FIRST LEASE AMENDMENT
This First Lease Amendment is entered into this 29th day of January, 1997,
by and between SAFETY HARBOR SPA & FITNESS CENTER, Inc., a Florida corporation
("Lessor") and SAFETY HARBOR MANAGEMENT COMPANY, LTD., a Florida limited
partnership ("Lessee") to amend the Lease between Lessor and Lessee dated June
14, 1995.
Lessor and Lessee hereby agree to modify that certain Lease dated June 14,
1995 between Lessor and Lessee as follows:
I. Article 2 is hereby deleted and the following substituted therefore:
Article 2
---------
Term
2.1 The term of this Lease shall begin June 1, 1995 and shall end May
31, 2000, unless terminated or extended by mutual consent of the parties.
2.2 There shall be no right to terminate the Lease except in the event
of Lessee default during the term of the Lease.
2.3 For the purposes of the Lease as amended hereby, all references to
the Lease term, the Basic Term or the duration of the Lease, including those
contained in this First Lease Amendment and in Article 9.3 and in Articles 14
and 15 of the Lease shall mean the term of the Lease as described in Paragraph
2.1 above and all references to lease extensions or renewal terms in the Lease
are hereby deleted.
II. Article 3, Paragraph 3.1 is hereby deleted and the following
substituted therefore:
Article 3
---------
Rent Payments
3.1 Rent Payments. The Rent Payments for the Leased Premises shall
be as described hereafter, plus applicable sales tax, and shall be paid monthly
by the Lessor to the Lessee in advance on the first day of each month during the
Lease:
<PAGE> 2
<TABLE>
<CAPTION>
Period Monthly Payment
<S> <C>
June 1, 1995 - June 30, 1996 $100,000.00
July 1, 1996 - May 31, 1999 31,667.00
June 1, 1999 - May 31, 2000 -0-
</TABLE>
III. The last two sentences of the first paragraph of Article 5,
Paragraph 5.1 are hereby deleted and the following substituted therefore:
Article 5
---------
5.1 Notwithstanding anything stated in this Paragraph, Lessee must
obtain Lessor's approval for Lessee's entering into any contract, lease or other
agreement that extends beyond May 31, 2000.
IV. Article 7.4 is hereby modified by deleting the first two sentences
thereof and substituting the following therefore:
7.4 Lessee agrees to make capital improvements which are not less than
Three Million Dollars ($3,000,000.00) during the term of the Lease, with a
minimum expenditure of Four Hundred Fifty Thousand Dollars ($450,000.00) during
the first year; a minimum total cumulative expenditure of Nine Hundred Thousand
Dollars ($900,000.00) by the end of the second year; a minimum total cumulative
expenditure of One Million Three Hundred Fifty Thousand Dollars ($1,350,000.00)
by the end of the third year; a minimum total cumulative expenditure of One
Million Eight Hundred Thousand Dollars ($1,800,000.00) by the end of the fourth
year; and a minimum total cumulative expenditure of Three Million Dollars
($3,000,000.00) by the end of the Lease term, namely by May 31, 2000.
Notwithstanding the foregoing, if the Option to Purchase described in Article 13
hereafter is exercised prior to May 31, 2000, Lessee shall only be obligated to
make the capital improvements called for up to the point of the exercise of the
Option to Purchase prior to closing on the Leased Premises.
V. Article 11 is hereby deleted.
VI. Article 12 is hereby deleted and the following substituted
therefore:
2
<PAGE> 3
Article 12
----------
Sale of Premises During Lease Term
12.1 Provided the Lessee shall not be in default hereunder, the Lessor
may not sell the Property during the Lease term.
VII. Article 13, Paragraph 13.1 is hereby deleted and the following
substituted therefore:
Article 13
----------
Option to Purchase
13. 1.a. Option Payments. The Lessor grants to the Lessee an
exclusive option to purchase the Property ("Option to Purchase") during the
Lease term in consideration for Lessee's payment to Lessor of the following
payments ("Option Payments") to be paid monthly by Lessee to Lessor in advance
on the first day of each month during the Lease:
<TABLE>
<CAPTION>
Period Monthly Option Payment
<S> <C>
July 1, 1996 - May 31, 1999 $ 68,333.00
June 1, 1999 - May 31, 2000 60,000.00
</TABLE>
In the event the Option to Purchase is exercised prior to May 31, 2000, any
Option Payment credit shall be based on the Option Payments actually paid
through the date of closing. Failure of the Lessee to make said Option
Payments shall constitute a default in the required Rent Payments.
13. 1.b. In the event Lessee exercises the Option to Purchase, closing
of the purchase shall occur on a date elected by the Lessee in writing, which
date shall be no earlier than May 31, 1999 and no later than May 31, 2000
unless the parties mutually agree to an earlier closing. The Lessee shall give
the Lessor at least one hundred twenty (120) days advance written notice of its
intention to exercise the Option to Purchase. The purchase price shall be
Eleven Million Four Hundred Thousand Dollars ($11,400,000.00) which shall be
payable in cash at closing, less the total amount of all Option Payments which
Lessee shall have made to Lessor.
13.1.c. Earnout Arrangement. Following Lessee's purchase of the
Leased Premises, if the Option to Purchase is exercised, Lessee agrees to pay to
Lessor the additional sum of Eight Million Dollars ($8,000,000.00) in one of the
two alternate methods described hereafter:
3
<PAGE> 4
i. Minimum Annual Payment. Commencing on May 31, 2002 and
annually on May 31 of each year thereafter, Lessee shall pay to Lessor a minimum
payment ("Minimum Payment") which in the year 2002 shall be One Hundred Thousand
Dollars ($100,000.00), in the year 2003 shall be One Hundred Fifty Thousand
Dollars ($150,000.00) and in all years thereafter shall be Two Hundred Thousand
Dollars ($200,000.00). Any Minimum Payment or Payments made in a given year(s)
shall count toward and be a credit against the amount of the next Earned Payment
due as said Earned Payment is calculated and described in Paragraph 13.l.c.ii
hereafter. For example, if a Minimum Payment of $200,000 has been made for two
consecutive years and the Earned Payment calculation in year three results in
an Earned Payment of $1,000,000, then a net Earned Payment of $600,000 would be
made for that year. Any unused Minimum Payment credit shall be carried over and
applied to the following Earned Payment(s) until used in full.
ii. Earned Payment. If the payments described in this
sub-paragraph are greater than the Minimum Payments described in Paragraph
13.1.c.i above, Lessor shall pay to Lessee commencing on May 31, 2002 and
annually on May 31 of each and every year thereafter an earned payment ("Earned
Payment") calculated as follows: For the purposes of determining the amount of
Earned Payment, if any, a base value ("Base Value") is hereby set at Thirteen
Million Dollars ($13,000,000.00). A calculated value ("Calculated Value") shall
be determined annually beginning for the year ending December 3l, 2001. Such
Calculated Value shall be determined by deducting from the net operating profit
of the Leased Premises ("Net Operating Profit") for the year ending December
31, 2001 a capital reserve equal to four percent (4%) of the total gross
revenue ("Total Gross Revenue") for that specific year, so long as the Lessee's
cumulative capital expenditures following the closing date are equal to or
greater than four percent (4%) of the cumulative Total Gross Revenue for the
same period. If such cumulative capital expenditures by Lessee are less than
four percent (4%) of the cumulative Total Gross Revenue since the closing date,
then the amount of capital reserve deducted will be limited to the actual
amount spent in that specific year. Said net sum shall then be multiplied by
nine (9) to determine the Calculated Value. The Earned Payment due Lessor in
any year shall be determined by deducting the Base Value from the Calculated
Value and multiplying the net sum by thirty-five percent (35%) and then
deducting the
4
<PAGE> 5
cumulative Minimum and Earned Payments made in previous years. For the purposes
of this formula, Total Gross Revenue and Net Operating Profit shall be as
defined in Paragraph 13.l.c.iii hereafter. If the Earned Payment exceeds the
Minimum Payment, Lessee shall pay the amount of Earned Payment to Lessor. The
same calculation of the Earned Payment due shall be made annually for the year
ending December 31, 2002 and each and every year thereafter using the same Base
Value and an annually determined Calculated Value based on the Total Gross
Revenue and the Net Operating Profit for the preceding year ending December
31st until the entire Eight Million Dollars ($8,000,000.00) has been paid to
Lessor.
iii.a Total Gross Revenue shall be defined as the gross
revenue generated from the existing hospitality operations of the Leased
Premises by Lessee determined in accordance with generally accepted accounting
principles.
iii.b Net Operating Profit shall be defined as the amount of
net income generated from the existing hospitality operations of the Leased
Premises by Lessee in accordance with generally accepted accounting principles.
The Net Operating Profit will not include any deduction for management fees over
and above the cost of on-site management and services provided, or any deduction
for depreciation or amortization expense, interest expense or any item of income
or expense classified as non-recurring by generally accepted accounting
principles. The attached schedule shows an example of the calculation of Net
Operating Profit in line with the above.
iv. For the purposes of determining the amount of the Earned
Payment, the Lessee shall provide the Lessor on or before May 31 of each year a
statement of income and a calculation of the Earned Payment for the prior year
certified by the general partner of the Lessee.
v. The sums due to Lessor pursuant to this Earnout
Arrangement shall be a general, unsecured obligation of the Lessee, with no
encumbrance on the Property. However, South Seas Properties Company Limited
Partnership, an Ohio limited partnership shall execute an unsecured guarantee of
this Earnout Arrangement at closing in the event the Option to Purchase is
exercised.
13.1.d. Sale of Leased Premises by Lessee. Unless otherwise agreed to
in writing by the Lessor, any unpaid portion of the earnout fee described in
Paragraph 13.1.c above shall be due upon the sale of the Leased Premises by the
Lessee following its exercise of the Option to Purchase.
5
<PAGE> 6
VIII. In all other respects the Lease Agreement dated June 14, 1995
is hereby ratified and confirmed.
IN WITNESS WHEREOF the parties have executed this Lease as of the date
first above written.
SAFETY HARBOR MANAGEMENT COMPANY,
LTD., a Florida Limited Partnership
By: S.S. Resort Management, L.C., its general partner
By: /s/ Robert M. Taylor
----------------------------------------------
Robert M. Taylor, Chairman and Manager
- ----------------------
Witness
- ----------------------
Witness
SAFETY HARBOR SPA & FITNESS CENTER, INC.
By: /s/ Roger Kumar
----------------------------------------------
Roger Kumar, President
- ----------------------
Witness
- ----------------------
Witness
6
<PAGE> 7
SOUTH SEAS PROPERTIES COMPANY LIMITED
PARTNERSHIP, an Ohio limited partnership
By: T&T Resorts, L.C., a Florida limited liability
Company, its general partner
By: /s/ Robert M. Taylor
------------------------------------------------
Robert M. Taylor
- -----------------------
Witness
- -----------------------
Witness
STATE OF FLORIDA )
)
COUNTY OF LEE )
The foregoing instrument was acknowledged before me this 28th day of
January, 1997, by ROBERT M. TAYLOR, Chairman and Manager of S.S. Resort
Management, L.C., who did not take an oath.
EDWINA L. VEILLETTE
MY COMMISSION # CC 307480
EXPIRES: AUGUST 12, 1997 /S/ Edwina L. Veillette
BONDED THRU NOTARY PUBLIC UNDERWRITERS ------------------------
Edwina L. Veillette, Notary Public
My Commission expires:
/X/ Personally Known OR / /Produce Identification
Type of Identification Produce
-----------------------------
7
<PAGE> 8
STATE OF FLORIDA )
)
COUNTY OF PINELLAS )
The foregoing instrument was acknowledged before me this 29 day of
January, 1997, by ROGER KUMAR, President of Safety Harbor Spa & Fitness Center,
Inc., who did not take an oath.
/S/ Gwendolyn D. Storm
-----------------------
Gwendolyn D. Storm, Notary Public
GWENDOLYN D. STORM
MY COMMISSION # CC 372097
EXPIRES: JUNE 8, 1998
My Commission expires: BONDED THRU NOTARY PUBLIC UNDERWRITERS
/ / Personally Known OR / / Produced Identification
Type of Identification Produced
--------------------------------
STATE OF FLORIDA )
)
COUNTY OF LEE )
The foregoing instrument was acknowledged before me this 28th day of
January, 1997, by ROBERT M. TAYLOR, Manager of T&T Resorts, L. C., a Florida
limited liability company, who did not take an oath.
EDWINA L. VEILLETTE
MY COMMISSION # CC 307480
EXPIRES: AUGUST 12, 1997 /S/ Edwina L. Veillette
BONDED THRU NOTARY PUBLIC UNDERWRITERS -----------------------
Edwina L. Veillette, Notary Public
My commission expires:
/X/ Personally Known OR / /Produced Identification
Type of Identification Produced
--------------------------------
8
<PAGE> 1
EXHIBIT 10.2
BUYER(S)/BORROWER(S) CLOSING STATEMENT
Prepared by
GUARDIAN TITLE
9311 COLLEGE PKWY. STE 2
FORT MYERS, FLORIDA 33919
PH:(941) 282-1600
<TABLE>
<S> <C> <C> <C>
SELLER(S): .................... Florida Income Fund, L.P.
PURCHASER(S): ................. South Seas Properties Company Limited Partnership
PROPERTY: ..................... Seaside Inn, Sanibel, Fl.
FILE NO.#: .................... F70524G SETTLEMENT DATE: 01/10/97 PRORATION DATE: 01/01/97
Disbursement Date: 01/06/97
CHARGES CREDITS
Sales Price: ............................... 6,485,000.00
Deposit: ................................... 100,000.00
Assessment: 01/01 - 09/30: ................. 496.64
Mortgage Policy Amount: .................... 150.00
Attorneys Fees: ............................ 1,570.00
Disbursements: ............................. 85.00
Flood Certification: ....................... 18.00
FF9 and Var Rate End: ...................... 2,180.50
UCC Filing & Search: ....................... 31.24
Record UCC-1: .............................. 24.00
Additional Int. to 1/6/97: ................. 5,372.61 **
Current Assets: ............................ 81,750.00
Renovation Advance: ........................ 335,000.00
Current Liabilities: ....................... 178,579.00
Record Deed: ............................... 15.00
Sec. of State Filing Fee: .................. 34.00
Record Assumption Inst.-01: ................ 33.00
Mortgage Doc Stamps Asmp-1: ................ 8,767.50
Assumed Mtg(s) ............................. 2,504,946.71
CASH DUE FROM PURCHASERS: .................. 3,467,001.78
============ ============
TOTALS: 6,685,527.49 6,585,527.49
</TABLE>
SOUTH SEAS PROPERTIES COMPANY LIMITED
PARTNERSHIP, an Ohio Limited Partnership
By: T&T RESORTS, L.C., a Florida Limited
Liability Company, as General Partner
By: /s/ Robert M. Taylor
-------------------------------
Robert M. Taylor, Manager
** Additional Interest computed as follows:
Barnett Bank of Lee County $4,070.58
Gallery Mortgage Joint Venture 1,300.00
NationsBank (Plymouth Voyager) 2.03
---------
$5,372.61
<PAGE> 2
SELLER(S) CLOSING STATEMENT
Prepared by
GUARDIAN TITLE
9311 COLLEGE PKWY. STE 2
FORT MYERS, FLORIDA 33919
PH:(941) 282-1600
<TABLE>
<S> <C> <C> <C>
SELLER(S): .................... Florida Income Fund, L.P.
PURCHASER(S): ................. South Seas Properties Company Limited Partnership
PROPERTY: ..................... Seaside Inn, Sanibel, Fl.
FILE NO.#: .................... F70524G SETTLEMENT DATE: 01/10/97 PRORATION DATE: 01/01/97
Disbursement Date: 01/06/97
CHARGERS CREDITS
Sales Price: ............................... 6,485,000.00
Deposit: ................................... 1,000,000.00
Assessment: 01/01 - 09/30: ................. 496.64
Settlement Fee: ............................ 200.00
Abstract Fee: .............................. 200.00
Title Examination: ......................... 200.00
Owner's Policy Amount:...................... 21,530.00
Legal Fee & Disb.: ......................... 5,303.77
Wire Transfer .............................. 40.00
Current Assets: ............................ 81,750.00
Payoff Ply. Voyager/Nationsbank: ........... 1,662.50
Renovation Advance: ........................ 335,000.00
Current Liabilities: ....................... 178,579.00
Lee County Garbage Payment: ................ 664.01
Doc Stamps on Deed: ........................ 45,395.00
Mortgage Payoff: ........................... 650,000.00
Release(s): ................................ 10.50
Assumed Mtg(s): ............................ 2,504,946.71
CASH DUE TO SELLERS: ....................... 2,723,515.15
============ ============
TOTALS: 6,567,246.64 6,567,246.64
FLORIDA, INCOME FUND, L.P. an Iowa Limited
Partnership, also known as FLORIDA INCOME FUND,
an Iowa Limited Partnership
By: MARINER CAPITAL MANAGEMENT, Inc., a
Florida Corporation, its Managing General Partner
By: /s/ Lawrence A. Raimondi
----------------------------------------
Lawrence A. Raimondi, President
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C> <C>
A. SETTLEMENT STATEMENT U.S. Department of Housing
and Urban Development
OMB No. 2502-0265
B. Type of Loan
1. FHA 2. FmHA 3. Conv. Unhs. 6. File Number 7. Loan Number 8. Mortgage Insurance Case No.#
-- -- --
4. VA 3. Conv. Ins F70524G 063292B3623-3
-- --
C. NOTE: This form is furnished to give you a statement of actual settlement costs. Amounts paid by the Settlement agent
are shown. Items marked (P.O.C.) were paid outside the closing; they are shown here for information purposes and
are not included in the totals.
D. Name and Address of Borrower. E. Name and Address of Seller F. Name and Address of Lender
South Seas Properties Company Florida Income Fund, L.P. Barnett Bank of Lee county,
Limited Partnership N.A.
2000 Main Street, Suite 200
12800 University Drive 12800 University Drive Ft. Myers, Fl. 33902
Ft. Myers, Fl. 33907 Ft. Myers, Fl. 33907
G. Property Location H. Settlement Agent
GUARDIAN TITLE
Seaside Inn
Sanibel, Fl. Place of Settlement I. Settlement
1802 BROADWAY DATE
FORT MYERS, FLORIDA 33901 01/01/97
DD: 01/06/97
J. SUMMARY OF BORROWER'S TRANSACTION:
100. Gross Amount Due From Borrower
101. Contract sales price 6,485,000.00
102. Personal property
103. Settlement charges to borrower (line 1400) 12,908.24
104. Additional Int. to 1/6/97 5,372.61
105. Current Assets 81,750.00
Adjustments for items by seller in advance
106. City/town taxes to
107. County taxes to
108. Assessments 01/01 to 09.30 496.64
109.
110.
111.
112.
120. GROSS AMOUNT DUE FROM BORROWER 6,585,527.49
200. Amount Paid By or in Behalf of Borrower
201. Deposit or earnest money 100,000.00
202. Principal amount of new loan(s)
203. Existing loan(s) taken subject to 2,504,946.71
204.
205.
206.
207. Renovation Advance 335,000.00
208. Current Liabilities 178,579.00
209.
Adjustments for items unpaid by seller
210. City/town taxes to
211. County taxes to
212. Assessments to
213.
214.
215.
216.
217.
218.
219.
220. TOTAL PAID BY/FOR BORROWER 3,118,525.71
300. Cash at Settlement From or To Borrower
301. Gross amount due from borrower (line 120) 6,585,527.49
302. Less amounts paid by/for borrower (line 220) 3,118,525.71
303. CASH FROM BORROWER 3,467,001.78
K. SUMMARY OF SELLER'S TRANSACTION:
400. Gross Amount Due to Seller
401. Contract sales price 6,458,000.00
402. Personal property
403.
404.
405. Current Assets 81,750.00
Adjustments for items paid by seller in advance
406. City/town taxes to
407. County taxes to
408. Assessments 01/01 to 09/30 496.64
409.
410.
411.
412.
420. GROSS AMOUNT DUE TO SELLER 6,567,246.64
500. Reductions in Amount Due to Seller
501. Excess Deposits (see instructions) 100,000.00
502. Settlement charges to seller (line 1400) 72,879.27
503. Existing loan(s) taken subject to 2,504,946.71
504. Payoff of first mortgage loan
505. Payoff of second mortgage loan 650,000.00
Gallery Mortgage Joint Venture
506. Payoff Ply. Voyager/Nationsbank 1,662.50
507. Renovation Advance 335,000.00
508. Current Liabilities 178,579.00
509. Lee County Garbage Payment 664.01
Adjustments for items unpaid by seller
510. City/town taxes to
511. County taxes to
512. Assessments to
513.
514.
515.
516.
517.
518.
519.
520. TOTAL REDUCTION AMOUNT DUE SELLER 3,843,731.49
600. Cash at Settlement to or From Seller
601. Gross amount due to seller (line 420) 6,567,246.64
602. Less reduction amount due seller (line 520) 3,843,731.49
603. CASH TO SELLER 2,723,515.15
Your are required by law to provide the Settlement Agent with your taxpayer
identifications number. If you do not provide GUARDIAN TITLE with your correct
taxpayer indentification number, you may be subject to civil or criminal
penalties imposed by law.
CERTIFICATION: Under penalties of perjury, I certify that the number shown on
this statement is correct taxpayer identification number.
Florida Income Fund, L.P.
- ------------------------------------------------------------------- -------------------------------------------------
South Seas Properties Company Limited Partnership Buyer/Borrower Lawrence A. Raimondi, General Partner Seller
- ------------------------------------------------------------------- -------------------------------------------------
Buyer/Borrower Seller
Tax ID Number Tax ID Number
SELLER INSTRUCTIONS: If this real estate was your principal residence, file Form 2119, Sale or Exchange of Principal Residence,
for any gain, with your income tax return; for other transactions, complete the applicable parts of Form 4794, Form 6252 and/or
Schedule D (Form 1040).
SUBSTITUTE 1099: The information contained in Blocks E, G, H, I and on line 401 (or, if Form 401 is asterisked, lines 403 and
404) is important tax information and is being furnished to the Internal Revenue Service. If you are required to file a return, a
negligence penalty or other sanction will be imposed on you ??????????????????????? reported and the IRS determines that it has
not been reported.
- -----------------------------------------------------------------------------------------------------------------------------------
RESPA, HB 4305.2 -- REV. HUD-1 (3/86)
</TABLE>
<PAGE> 4
U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
SETTLEMENT STATEMENT
Page 2
<TABLE>
<S> <C>
L. SETTLEMENT CHARGES: FILE NO.#: F70524G PAID FROM PAID FROM
700. TOTAL SALES/BROKER'S COMMISSION based on price $ @ BORROWER'S SELLER'S
Division of commission (line 700) as follows: FUNDS AT FUNDS AT
701. $ to SETTLEMENT SETTLEMENT
702. $ to
703. Commission paid at Settlement
704.
800. ITEMS PAYABLE IN CONNECTION WITH LOAN
801. Loan Origination Fee %
802. Loan Discount %
803. Appraisal Fee to
804. Credit Report to
805. Lender's Inspection Fee to
806. Mfg. Ins. Application Fee to
807. Assumption Fee to
808. Attorneys Fees Coll Davidson Carter et al 1,570.00
809. Disbursements Coll Davidson Carter et al 85.00
810. Flood Certification Barnett Bank of Lee County NA 18.00
811.
900. ITEMS REQUIRED BY LENDER TO BE PAID IN ADVANCE
901. Interest from to @$ /day
902. Mortgage Insurance Premiums for to
903. Hazard Insurance Premiums for yrs to
904.
905.
1000. RESERVES DEPOSITED WITH LENDER FOR
1001. Hazard Insurance mo.@$ /mo.
1002. Mortgage insurance mo.@$ /mo.
1003. City Property Taxes mo.@$ /mo.
1004. County Property Taxes mo.@$ /mo.
1005. Annual Assessments mo.@$ /mo.
1006. mo.@$ /mo.
1007. mo.@$ /mo.
1008. mo.@$ /mo.
1100. TITLE CHARGES
1101. Settlement or closing fee to Guardian Title 200.00
1102. Abstract or title search to Guardian Title 200.00
1103. Title examination to Guardian Title 200.00
1104. Title insurance binder to
1105. Document Preparation to
1106. Notary Fees to
1107. Attorney's fees to
(includes above items No: )
1108. Title Insurance to Guardian Title 150.00 21,530.00
(includes above items No: )
1109. Lenders's coverage $ 2,508,000.00 --- 150.0
1110. Owner's coverage $ 6,485,000,00 --- 21530.00
1111. FF9 and Var Rate End Guardian Title 2,180.50
1112. Legal Fee & Disb. Norman A. Harman, Esq. 5,303.77
1113.
1200. GOVERNMENT RECORDING AND TRANSFER CHARGES
1201. Recording Fee: Deed $15.00; Mortgage $33.00;
Releases $10.50 48.00 10.50
1202. City/county tax/stamps: Deed $ ; Mortgage $
1203. State Tas/stamps: Deed $ 45,395.00;
Mortgage $8,767.50 8,767.50 45,395.00
1204.
1205. Sec of State Filing Fee 34.00
1300. ADDITIONAL SETTLEMENT CHARGES
1301. Survey to
1302. Pest Inspection to
1301. UCC Filing & Search Guardian Title 31.24
1304. Wire Transfer Guardian Title 40.00
1305. Record Ucc-1 Clerk of Circuit Court 24.00
1400. TOTAL SETTLEMENT CHARGES (enter on lines 103 and
502, Sections J and K) 12,908.24 72,879.27
I have carefully reviewed the HUD-1 Settlement Statement and to the best of my
knowledge and belief, it is a true and accurate statement of all receipts
and disbursements made on my account of by me in this transaction. I further
certify that I have received a copy of the HUD-1 Settlement Statement.
Florida Income Fund, L.P.
- ------------------------------------------------------------------- -------------------------------------------------
South Seas Properties Company Limited Partnership Buyer/Borrower Lawrence A. Raimondi, General Partner Seller
- ------------------------------------------------------------------- -------------------------------------------------
Buyer/Borrower Seller
Tax ID Number Tax ID Number
The HUD-1 Settlement Statement which I have prepared is a true accurate account of this transaction. I have caused the funds
to be disbursed in accordance with this statement.
- ------------------------------------------------------------------- -------------------------------------------------
GUARDIAN TITLE Settlement Agent Date
WARNING: It is a crime to knowingly make false statements to the United States on this or any other similar form. Penalties
upon conviction can include a fine or imprisonment. For details see: Title 18 U.S. Code Section 1001 and Section 1010.
- ---------------------------------------------------------------------------------------------------------------------------
RESPA, HB 4305.2 -- REV. HUD-1 (3/86)
</TABLE>
<PAGE> 5
SOUTH SEA PROPERTIES COMPANY LIMITED
PARTNERSHIP, an Ohio Limited Partnership
By: T&T RESORTS, L.C., a Florida Limited
Liability Company, as General Partner
By: /s/ Robert M. Taylor
-------------------------
Rober M. Taylor, Manager
FLORIDA INCOME FUND, L.P., and Iowa Limited
Partnership, also known as FLORIDA INCOME FUND,
an Iowa Limited Partnership
By: MARINER CAPITAL MANAGEMENT, Inc., a
Florida Corporation, its Managing General Partner
By: /s/ Lawrence A. Raimondi
--------------------------
Lawrence A. Raimondi, President
<PAGE> 1
EXHIBIT 10.3
[CREDIT LYONNAIS LOGO]
U.S. BRANCHES
IRREVOCABLE TRANSFERABLE LETTER OF CREDIT
December 23, 1996
SunTrust Bank, Central Florida,
National Association, as Trustee
under Indenture Dated As of
March 28, 1996
225 E. Robinson Street
Suite 250
Orlando, FL 32801
Attn: Ms. Lisa George
Ladies and Gentlemen.
We hereby establish In your favor, as Trustee under Indenture dated as of
March 28, 1996 (the "Indenture"), our irrevocable transferable Letter of Credit
No. 9612171S671 (the "Letter of Credit") in the amount not to exceed
$3,262,500.00, for use as a replacement for a reserve fund established in
connection with 10% Subordinated Notes issued by South Seas Properties Company
Limited Partnership ("SSPC") due April 15, 2003 (the "Notes Maturity Date").
This Letter of Credit is effective immediately and, unless extended in
accordance with the terms hereof, expires on the earlier of: (i) the first
anniversary of the date hereof; (ii) upon the delivery to us of a notification,
executed by you that the Indenture has been terminated as provided in Section
10.4 of the Indenture; and (iii) September 24, 2001 (such earlier date is,
hereafter, the "Termination Date").
We hereby authorize you to draw, from time to time hereunder, prior to the
Termination Date and in accordance with the terms hereof, sums not exceeding,
in the aggregate, $3,262,500.00. Funds under this Letter of Credit may be drawn
against your draft stating on its face "Drawn under Credit Lyonnais New York
Branch Letter of Credit #9612171S671," when such draft is accompanied by
certifications signed by you in the forms attached hereto as Exhibit "A" and
Exhibit "B" and made a part hereof, appropriately completed. Each draft and
certification shall be dated the date of presentation, which shall be made at
our offices located at 1301 Avenue of the Americas, New York, New York 10019,
Attention: Letter of Credit Department. The amount set forth in your draft
shall not exceed the amount set forth in the accompanying certification. The
amount of this Letter of Credit shall be reduced automatically upon our
honoring any draft drawn hereunder by the amount of such draft.
If all of (A), (B), and (C) am true:
- - (A) we shall not have received your notification pursuant to clause (ii) in
paragraph 1;
- - (B) the date computed pursuant to clause (i) of paragraph 1 (as same may have
been previously extended) shall be earlier then the date in clause (iii)
of paragraph 1; and
- - (C) we shall not have advised you in writing at the address set forth above
at least thirty (30) days prior to the date computed pursuant to clause
(i) of paragraph 1 (as some may
<PAGE> 2
[CREDIT LYONNAIS LOGO]
have been previously extended) that the date computed pursuant to clause
(i) of paragraph 1 shall be extended to a date which is the earlier of (x)
one year from the date to which clause (i) of paragraph 1 shall have been
extended and (y) the date in clause (iii) of paragraph 1,
then you may draw on us in the last 30 days prior to the Termination Date by
presenting your draft stating "Drawn under Credit Lyonnais New York Branch
Letter of Credit No. 9612171S671" for up to the undrawn amount hereof when such
draft shall be accompanied by your statement that this amount is drawn because
advice of extension of the Termination Date in accordance with paragraph 3 of
the Letter of Credit has not been received and less than 30 days remain until
the Termination Date of the Letter of Credit.
This Letter of Credit is subject to the Uniform Customs and Practices for
Documentary Credits (1993 Revision), International Chamber of Commerce,
Publication No. 500 (the "Uniform Customs"). This Letter of Credit shall, as
to matters not governed by the Uniform Customs, be governed by the laws of the
State of New York, including, without limitation, the Uniform Commercial Code
in effect in such state.
This Letter of Credit is only transferable (i) by you; (ii) in whole; and
(iii) to a transferee which is a successor Trustee under the Indenture which
successor beneficiary is identified as such in a certification signed by you
substantially in form of Exhibit "C" hereto and deliver to us together with the
original Letter of Credit.
This Letter of Credit sets forth in full our undertaking and such
undertaking shall not in any way, be modified, amended, amplified or limited by
reference to any document, instrument or agreement referred to herein
(including without limitation, the Indenture or the Subordinated Notes), except
only the drafts and certificates referenced herein; and any such reference
shall not be deemed to incorporate herein by reference any document, instrument
or agreement except for such drafts and certificates. All documents pertaining
to the Letter of Credit shall bear the letter of Credit number as reference
herein.
Very truly yours,
CREDIT LYONNAIS NEW YORK BRANCH
By: /s/ Cathy Wong
---------------------------
Name: Cathy Wong
---------------------
Title: Assistant Treasurer
--------------------
<PAGE> 3
[CREDIT LYONNAIS LOGO]
EXHIBIT "A"
-----------
CERTIFICATION OF TRUSTEE
------------------------
Date:
---------------------
Credit Lyonnais New York Branch
1301 Avenue of the Americas
New York, New York 10019
ATTN: Letter of Credit Department
Re: Certification of SunTrust Bank, Central Florida, National Association, as
Trustee Under Indenture Dated as of March 28, 1996 ("Indenture"),
Regarding 10% Subordinated Notes issued by South Seas Properties Company
Limited Partnership ("SSPC") due April 15, 2003
Ladies and Gentlemen:
Concurrently herewith we have tendered to you our draft to draw sums under
the Letter of Credit No. 9612171S671 ("Letter of Credit") issued by you in our
favor. This Certification is required in order to draw funds under the Letter
of Credit. We certify that capitalized terms herein which are not otherwise
defined have the meanings set forth in the Indenture.
We hereby certify to you that as of the date hereof, there has been no
occurrence of the events or conditions listed in Section 10.4(g)(ii) or (iii) of
the Indenture. Further, we hereby certify to you and SSPC that, as of the (check
one):
Interest Payment Date
------
Redemption Date
------
Stated Maturity Date of the Notes
------
which occurred on_______________the amount by which the payment due on such
date with respect to the Notes or the Outstanding Notes, as applicable, exceeds
the amount on deposit with the Paying Agent on such date that is available for
such payment by $______________ (the "Deficit") and pursuant to (check one):
Section 10.4(a)(2) of the Indenture
------
Section 10.4(a)(3) of the Indenture
------
Section 10.4(a)(4) of the Indenture
------
we have the right to withdraw the amount of the Deficit from the Reserve Fund in
order to make payment of sums due to the Noteholders, as required by the
terms of the Indenture.
<PAGE> 4
[CREDIT LYONNAIS LOGO]
EXHIBIT "B"
-----------
AUTHORIZATION OF DRAW UNDER LETTER OF CREDIT NO. 9612171S671
------------------------------------------------------------
This certification is to be presented to the issuer of the Letter of Credit
simultaneously with a request for a draw thereunder
Credit Lyonnais New York Branch
1301 Avenue of the Americas
New York, New York 10019
Attn: Letter of Credit Department
Re: Certfication of SunTrust Bank, Central Florida, National Association,
as Trustee Under Indenture Dated as of March 28,1996 ("Indenture"),
Regarding 10% Subordinated Notes issued by South Seas Properties
Company Limited Partnership ("SSPC") due April 15, 2003
Ladies and Gentlemen:
We hereby certify to you that as of this date of any request for a draw under
the Letter of Credit, there exists no circumstance under Section 13.2 of the
Indenture that prohibits the payment on account of the principal of or interest
and other sums on, or other indebtedness evidenced by, the Notes.
You may rely upon this Certificate as evidence of our authority to make
such representations under the Indenture.
Very truly yours,
SunTrust Bank, Central Florida, National
Association, as Trustee under Indenture dated as
of March 28, 1996
By:
-----------------------------
Name:
------------------------
Title:
------------------------
Date:
---------------------------
<PAGE> 5
[CREDIT LYONNAIS LOGO]
You may rely upon this Certificate as evidence of our authority to draw
the sums described herein under the Letter of Credit.
Very truly yours,
SunTrust Bank, Central Florida, National
Association, as Trustee under Indenture dated as
of March 28, 1996
By:
-----------------------------
Name:
------------------------
Title:
------------------------
Date:
---------------------------
<PAGE> 6
[CREDIT LYONNAIS LOGO]
EXHIBIT "C"
-----------
CERTIFICATION OF LETTER OF CREDIT TRANSFER
------------------------------------------
Credit Lyonnais New York Branch
1301 Avenue of the Americas
New York, New York 10019
ATTN: Letter of Credit Department
SSPC
Re: Certification of SunTrust Bank, Central Florida, National Association, as
Trustee Under Indenture Dated as of March 28, 1996 ("Indenture"),
Regarding 10% Subordinated Notes issued by South Seas Properties Company
Limited Partnership ("SSPC") due April 15, 2003
Ladies and Gentlemen:
We hereby certify to you that ___________a_________("Successor Trustee"), has
been duly named as Indenture Trustee under the Indenture dated as of March 28,
1996 (the "Indenture"), and that Successor Trustee is now a successor Trustee
under the Indenture.
In consequences of such assignment and assumption, we hereby direct that you
authorize and obtain the amendment of that Letter of Credit No. 9612171S671
dated December 23, 1996 issued by Credit Lyonnais for our benefit and confirmed
by Den Danske Bank, to change the name of the beneficiary from "SunTrust Bank,
Central Florida, National Association" to "____________".
You may rely upon this Certificate as evidence for our authority to authorize
the amendment of the Letter of Credit.
Very truly yours,
SunTrust Bank, Central Florida, National
Association, as Trustee under Indenture dated as
of March 28, 1996
By:
-----------------------------
Name:
------------------------
Title:
------------------------
Date:
---------------------------
<PAGE> 7
[DEN DANSKE BANK LETTERHEAD]
Confirmation no. 5610-96NY to Irrevocable Transferrable Letter of Credit
- -----------------------------------------------------------------------
No 9612171S671
- --------------
SunTrust Bank, Central Florida
National Association, as Trustee
under Indenture Dated As of
March 28, 1996 ("Indenture")
225 E. Robinson Street
Suite 250
Orlando, Florida 32801
Attn: Ms. Lisa George
December 23, 1996
We, Den Danske Bank Aktienelskab ("Confirming Bank"), hereby confirm the
enclosed Irrevocable Transferrable letter of Credit No. 9612171S671 (the
"Letter of Credit") issued by Credit Lyonnais, New York Branch ("Issuing Bank")
on December 23, 1996 in favor of the aforesaid addressee ("Benificiary"), as
Trustee under Indenture dated as of March 28, 1996 (the "Indenture"). This
Confirmation No. 5610-96NY ("Confirmation") is effective immediately and allows
for drawings up to USD 3,262,500.00 (Three Million Two Hundred Sixty Two
Thousand Five Hundred and 00/100 United States Dollars). This Confirmation is
issued presentable and payable at the offices of the Confirming Bank's New York
Branch at 280 Park Avenue, New York, NY 10017, Attention: Letter of Credit
Department, or at any other office in New York, New York which may be
designated by the Confirming Bank by written notice delivered to you at the
above address. This Confirmation expires the earlier of: (i) the first
anniversary of the date hereof; (ii) upon delivery to us or the Issuing Bank of
a notification, executed by you that the Indenture has been terminated as
provided in Section 10.4 of the Indenture, and (iii) September 24, 2001 (such
earlier date is, hereafter, the "Termination Date").
We hereby undertake to promptly honor your sight draft(s) drawn as specified in
the Letter of Credit and presented at our office specified in paragraph one on
or before the Termination Date. Each Draft must also be marked "Drawn under Den
Danske Bank New York Branch Confirmation No. 5610-96NY", and be accompanied by
certifications signed by you in the forms (Exhibit "A" and Exhibit "B") attached
to the Letter of Credit and as require by the Issuing Bank. Each draft and
certification shall be dated the date of the presentation, which shall be made
at the office of the Confirming Bank. The amount set forth in your draft shall
not exceed the amount set forth in the accompanying certification (Exhibit "A").
The amount of this Confirmation shall be reduced automatically upon our honoring
any draft drawn hereunder, by the amount of such draft.
[BLANK SPACE LEFT INTENTIONALLY]
<PAGE> 8
DEN DANSKE BANK
CONFIRMATION NO. 5610-96NY OF IRREVOCABLE TRANSFERRABLE
- -------------------------------------------------------
LETTER OF CREDIT NO. 9612171S671
- --------------------------------
DECEMBER 23, 1996
- -----------------
PAGE 2
- ------
If all of (A), (B), and (C) are true:
(A) Neither we nor shall the Issuing bank have received your notification
pursuant to clause (ii) in paragraph one;
(B) the date computed pursuant to clause (i) of paragraph one (as same may been
extended) shall be earlier than the date in clause (iii) of paragraph one;
and
(C) we shall not have advised you in writing at the address set forth above at
least thirty (30) days prior to the date computed pursuant to clause (i) of
paragraph one (as same may have been previously extended) that the date
computed pursuant to clause (i) of paragraph one shall be extended to a
date which is the earlier of (x) one year from the date to which clause (i)
of paragraph one shall have been extended and (y) the date in clause (iii)
of paragraph one,
then you may draw on us in the last thirty (30) days prior to the Termination
Date by presenting your draft stating "Drawn under Den Danske Bank New York
Branch Confirmation No. 5610-96NY" for up to the undrawn amount hereof when such
draft shall be accompanied by your statement that this amount is drawn because
advice of extension of the Termination Date of the Confirmation in accordance
with paragraph three of this Confirmation has not been received and less than
thirty (30) days remain until the Termination Date of the Confirmation.
This Confirmation is only transferable (i) by you; (ii) in whole; and (iii) to a
transferee which is a successor Trustee under the Indenture which such successor
beneficiary is identified as such in a certification signed by you substantially
in the form of Exhibit "C" to the Letter of Credit and delivered to us together
with the original Confirmation.
This Confirmation and the Letter of Credit sets forth in full our undertaking
and such undertaking shall not in any way, be modified, amended, amplified or
limited by reference to any document referred to herein (including, without
limitation, the Indenture or the Subordinated Notes), except only the drafts and
certificates referenced herein; and any such reference shall not be deemed to
incorporate herein by reference any document, instrument or agreement except for
such drafts or certificates. All documents presented and any communication
pertaining to the Confirmation shall bear the Confirmation number as referenced
herein.
This Confirmation is subject to the Uniform Customs and Practices for
Documentary Credits (1993 Revision), International Chamber of Commerce,
Publication No. 500 (the "Uniform Customs") and in the event of any conflict,
the Laws of the State of New York will control.
Sincerely,
DEN DANSKE BANK
/s/ John A. O'Neill /s/ Sonia Kataria
- ------------------- --------------------
John A. O'Neill Sonia Kataria
Vice President Assistant Vice President
<PAGE> 9
[LOGO] CREDIT LYONNAIS
December 23, 1996
U.S. BRANCHES
Den Danske Bank
280 Park Avenue, 4th Floor
New York, New York 10017-1218
Attention: Ms. Sonia Kataria
This letter serves as confirmation from our mutual agreement whereby Den
Danske Bank agrees to add its confirmation to the $3,262,500.00 standby letter
of credit #9612171S671 (the "Letter of Credit") to be issued by Credit Lyonnais
New York Branch as Agent for itself, Finova Capital and Barnett Bank of Lee
County (the "Bank") and to replace an existing interest reserve of nine months
on 10% Subordinated Notes due April 15, 2003. The Letter of Credit will be for
the benefit of SunTrust Bank, Central Florida, National Association, as Trustee
in respect of the public subordinated convertible bonds (the "Trustee"), and
will have a term of one year, with annual renewal options. If the Bank fails to
notify the Trustee that is has exercised its renewal option within 30 days prior
to expiry, the Trustee will have the right to fully draw upon the Letter of
Credit. Your commitment hereunder is for confirmation of the maximum face amount
of the Letter of Credit.
In consideration for your commitment, Credit Lyonnais agrees to immediately
notify Den Danske Bank in the event the Indenture, as defined in the Letter of
Credit, is terminated. In addition, Credit Lyonnais agrees to pay Den Danske
Bank an initial commitment fee of $500.00 and an annual confirmation fee
equivalent to 12.5 basis points on the amount of your actual confirmation
outstanding (the "Confirmation Fee") from the date the confirmation is issued
until such time the confirmation expires or is canceled due to cancellation of
the Letter of Credit. In addition, subsequent to closing, if any amendment to
the agreement is made, the Bank agrees to pay you $250.00. The Confirmation Fee
shall be payable by the Bank quarterly in arrears upon receipt of your invoice
addressed to:
Credit Lyonnais New York Branch
1301 Avenue of the Americas
New York, NY 10019
Attn: Cathy Wong, Letter of Credit Department
The terms of this agreement may be modified only in writing, provided that
Credit Lyonnais New York Branch reserves the right to cancel your commitment
hereunder at any time in the event that the Bank elects (in its sole discretion)
not to issue the Letter of Credit.
The Letter of Credit would be issued by us and your commitment would be
subject to and governed by Uniform Customs and Practice for Documentary Credits
(1993 Revision), International Chamber of Commerce Publication No. 500 ("Uniform
Customs"). As to matters not governed by the Uniform Customs, the Letter of
Credit and commitment would be governed and construed in accordance with the
laws of the State of New York. Please confirm your commitment by signing below.
Very truly yours,
CREDIT LYONNAIS NEW YORK BRANCH, as AGENT
By: ___________________________________
Title: Vice President
Accepted and Agreed this 23rd day of December 1996,
DEN DANSKE BANK
By: /s/ Sonia Kataria
__________________________________
Title: AVP
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 6,459,000
<SECURITIES> 0
<RECEIVABLES> 7,010,000
<ALLOWANCES> (134,000)
<INVENTORY> 1,677,000
<CURRENT-ASSETS> 17,260,000
<PP&E> 119,602,000
<DEPRECIATION> (39,698,000)
<TOTAL-ASSETS> 111,042,000
<CURRENT-LIABILITIES> 17,926,000
<BONDS> 43,500,000
<COMMON> 0
0
0
<OTHER-SE> (17,704,000)
<TOTAL-LIABILITY-AND-EQUITY> 111,042,000
<SALES> 110,103,000
<TOTAL-REVENUES> 110,103,000
<CGS> 94,387,000
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 10,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,536,000
<INCOME-PRETAX> (2,337,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,337,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 2,046,000
<CHANGES> 0
<NET-INCOME> (4,383,000)
<EPS-PRIMARY> (1.00)
<EPS-DILUTED> 0
</TABLE>
<PAGE> 1
EXHIBIT 99.1
SOUTH SEAS PROPERTIES COMPANY LIMITED PARTNERSHIP
CALCULATION OF WEIGHTED AVERAGE UNITS OUTSTANDING
The weighted average number of partnership units used in the computation of
earnings per unit as follows:
<TABLE>
<CAPTION>
Year
Ended December 31
1995 1996
---- ----
<S> <C> <C>
Actual number of units
outstanding at the beginning of the 4,219,464 4,308,568
period
Weighted average number of units issued
during the period 51,977 61,833
--------- ---------
Weighted average number of units
outstanding during the period 4,271,441 4,370,401
</TABLE>
<PAGE> 1
SOUTH SEAS PROPERTIES COMPANY LIMITED PARTNERSHIP
EXHIBIT 99.2
COMPUTATION OF RATIO EARNINGS TO FIXED CHARGES
(DOLLARS IN THOUSANDS, EXCEPT RATIOS)
<TABLE>
<CAPTION>
Years Ended December 31
1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C>
Earnings:
Net income(loss) $ 1,663 $ 4,705 $ 1,634 $ (2,587) $ (4,383)
Fixed charges 9,829 9,419 11,199 16,030 17,414
Total $ 11,492 $ 14,124 $ 12,833 $ 13,443 $ 13,031
Fixed charges:
Interest $ 5,025 $ 4,284 $ 5,485 $ 9,488 $ 10,536
Amortization 268 317 562 683 799
Rental expense (interest portion) 4,536 4,818 5,152 5,859 6,099
Total $ 9,829 $ 9,419 $ 11,199 $ 16,030 $ 17,414
Ratio of earnings to fixed charges 1.169X 1.500x(a) 1.146X (b) (b)
</TABLE>
(a) Ratio is high due to non-recurring revenues, which if excluded would result
in a ratio of 1.278x.
(b) Earnings did not cover fixed charges by $2,587 and $4,383 in 1995 and 1996,
respectively.
