SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
--------------
SCHEDULE 13E-4
Issuer Tender Offer Statement
(Pursuant to Section 13(e)(1) of the Securities Exchange Act of 1934)
SEA PINES ASSOCIATES, INC.
(Name of the Issuer)
SEA PINES ASSOCIATES, INC.
SEA PINES ASSOCIATES TRUST I
(Name of Person(s) Filing Statement)
Series A Preferred Stock
($0.722 Dividend Rate/$7.60 Liquidation
Preference and Redemption Price)
(Title of Class of Securities)
811412204
(CUSIP Number of Class of Securities)
Michael E Lawrence Copy to:
(Name, Address and Telephone Number
of Person Authorized to Receive Notices
and Communications on Behalf of the
Person(s) Filing Statement)
December 21, 1999
(Date Tender Offer First Published, Sent or Given to Security Holders)
Calculation of Filing Fee
Transaction Valuation Amount of Filing Fee
$7,218,000(1) $1,443.60(2)
(1) This amount is based upon the exchange of each outstanding share of
Series A Cumulative Preferred Stock for either 2.5 shares of Sea
Pines Associates, Inc. common stock, without par value, or one 9.5%
Trust Preferred Security (liquidation amount of $7.60 per security)
of Sea Pines Associates Trust I. Currently there are 1,228,350 shares
of Series A Cumulative Preferred Stock outstanding.
(2) Such a fee comprises one-fiftieth of one percent of the aggregate
amount of $7,218,000, the book value of the outstanding shares of
Series A Cumulative Preferred Stock as of October 31, 1999.
[ ]Check box if any part of the fee is offset as provided by Rule
0-11(a)(2) and identify the filing with which the offsetting fee was
previously paid. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
Amount Previously Paid: Not Applicable.
Form or Registration No.: Not Applicable.
Filing Party: Not Applicable.
Date Filed: Not Applicable.
Item 1. Security and Issuer.
(a) The name of the issuer of the security to which this
statement relates is Sea Pines Associates, Inc., a South Carolina
corporation (the "Company"). The address of the principal executive
office of the Company is 32 Greenwood Drive, Hilton Head Island, South
Carolina 29928.
(b) This Issuer Tender Offer Statement on Schedule 13E-4 (this
"Statement") relates to a tender offer by the Company and Sea Pines
Associates Trust I, a Delaware statutory business trust (the "Trust")
to exchange each share of the Company's outstanding Series A Cumulative
Preferred Stock ($0.722 Dividend Rate/$7.60 Liquidation Preference and
Redemption Price)("Series A Preferred Stock"), for either 2.5 shares of
the Company's Common Stock, without par value ("Common Stock"), or one
9.5% Trust Preferred Security (Liquidation Amount of $7.60 per Trust
Preferred Security) of the Trust upon the terms and subject to the
conditions set forth in the Exchange Offer dated December 21, 1999 (the
"Exchange Offer") and in the related Letter of Transmittal (the "Letter
of Transmittal"). The Company will own all the common securities (the
"Trust Common Securities") of the Trust.
As of December 21, 1999, there were 1,228,350 issued and outstanding
shares of Series A Preferred Stock, 1,842,525 issued and outstanding
shares of Common Stock and no issued and outstanding Trust Preferred
Securities.
The Exchange Offer and the Letter of Transmittal together constitute
the "Offer" and are annexed to and filed with this Statement as
Exhibits (a)(1) and (a)(2), respectively.
As to participation in the Exchange Offer by officers, directors or
affiliates of the Company, the information set forth in the Exchange
Offer under the caption "Special Factors Related to the Exchange
Offer--Beneficial Ownership" is incorporated herein by reference.
(c) The information set forth under the caption "Market
Information" in the Exchange Offer is incorporated herein by reference.
(d) This Statement is being filed by the Company and its
affiliate, the Trust. The address of the Trust is c/o Sea Pines
Associates Trust I, 32 Greenwood Drive, Hilton Head Island, South
Carolina 29928, Attention: Michael E. Lawrence, Administrative Trustee.
The Company will own all of the Trust Common Securities
Item 2. Source and Amount of Funds or Other Consideration.
(a) The information set forth in the Exchange Offer under the
captions "Prospectus Summary--The Exchange Offer," "Prospectus
Summary--Comparison of Common Stock and the Trust Preferred Securities
with Series A Preferred Stock," "The Exchange Offer--Terms of the
Exchange Offer," "The Exchange Offer--Expiration Date; Extensions;
Amendments; Termination," "The Exchange Offer--Accrued and Unpaid
Dividends on Series A Preferred Stock," "The Exchange Offer--Procedures
for Tendering," "Description of Common Stock," "Sea Pines Associates
Trust I" "Description of the Trust Preferred Securities," "Description
of the Junior Subordinated Debentures," "Description of the Guarantee,"
"Relationship Among the Trust Preferred Securities, the Junior
Subordinated Debentures and the Guarantee" and is incorporated herein
by reference.
(b) Not applicable.
Item 3. Purpose of the Tender Offer and Plans or Proposals of the Issuer or
Affiliate.
The information set forth in the Exchange Offer under the captions "Prospectus
Summary--The Exchange Offer-Purpose of the Exchange Offer," "The Exchange
Offer--Purpose of the Exchange Offer" and "Special Factors Related to the
Exchange Offer" is incorporated herein by reference.
(a) Except for the exchanges of securities as contemplated by
the Exchange Offer and the possible subsequent redemption of untendered
shares of Series A Preferred Stock as described therein, neither the
Company nor the Trust has any plans or proposals which relate to or
would result in the acquisition by any person of additional securities
of the Company or the disposition of securities of the Company.
(b)-(d) Not applicable.
(e) The information set forth in the Exchange Offer under the
caption "Special Factors Related to the Exchange Offer" is incorporated
herein by reference.
(f)-(h) Not applicable.
(i) The information set forth in the Exchange Offer under the
caption "Special Factors Related to the Exchange Offer--Consequences
for Unexchanged Series A Preferred Stock" is incorporated herein by
reference.
(j) Not applicable.
Item 4. Interest in Securities of the Issuer.
Not applicable.
Item 5. Contracts, Arrangements, Understandings or Relationships With
Respect to the Issuer's Securities.
Not applicable.
Item 6. Persons Retained, Employed or to be Compensated.
The information set forth in the Exchange Offer under the caption "The
Exchange Offer--Fees and Expenses; Transfer Taxes" is incorporated herein by
reference.
Item 7. Financial Information.
The incorporation by reference herein of the financial information
described below does not constitute an admission that such information is
material to the decision by the holders of Series A Preferred Stock to tender or
hold the Series A Preferred Stock being sought in the Exchange Offer.
(a)-(b) The information set forth in the Exchange Offer under
the captions "Capitalization," "Selected Consolidated Financial
Information," "Selected Pro Forma Financial Information" and "Index to
Consolidated Financial Statements" is incorporated herein by reference.
Item 8. Additional Information.
(a) Not applicable.
(b) The Company and the Trust must comply with various
sections of the Securities Act of 1933, as amended, and the Securities
Exchange Act of 1934, as amended, and certain of the rules promulgated
thereunder. The Company must also comply with the various requirements
of state "blue sky" laws.
(c) Not applicable.
(d) Not applicable.
(e) The information set forth in the Exchange Offer and the
related Letter of Transmittal, copies of which are attached hereto as
Exhibits (a)(1) and (a)(2), respectively, is incorporated herein by
reference.
Item 9. Material to be Filed as Exhibits.
(a)(1) Exchange Offer Prospectus, dated December 21, 1999.
(2) Form of Letter of Transmittal.
(3) Chairman's Letter
(4) Form of Notice of Guaranteed Delivery.
(5) Form of Letter to Brokers, Dealers, Registered Holders,
Commercial Banks, Trust Companies and other Nominees.
(6) Form of Letter to Clients
(7) Consent of Ernst & Young LLP
(8) Consent of Smith Capital, Inc.
(9) Consent of McNair Law Firm, P.A.
(included in Exhibit (d))
(b) Not applicable.
(c) Not applicable.
(d) Legal Opinion of McNair Law Firm, P.A. dated
December 21, 1999.
(e) Not applicable.
(f) Not applicable.
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and correct.
December 21, 1999 SEA PINES ASSOCIATES, INC.
Buy: s/ Michael E. Lawrence
--------------------------
Name: Michael E. Lawrence
--------------------------
Title: Chief Executive Officer
--------------------------
SEA PINES ASSOCIATES TRUST I
Buy: s/ Michael E. Lawrence
--------------------------
Name: Michael E. Lawrence
--------------------------
Title: Administrative Trustee
--------------------------
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
- ------ -----------
9.(a)(1) Exchange Offer Prospectus dated December 21 1999.
9.(a)(2) Form of Letter of Transmittal.
9.(a)(3) Chairman's Letter
9.(a)(4) Form of Notice of Guaranteed Delivery.
9.(a)(5) Form of Letter to Brokers, Dealers, Registered Holders,
Commercial Banks, Trust Companies and other Nominees.
9.(a)(6) Form of Letter to Clients
9.(a)(7) Consent of Ernst & Young LLP
9.(a)(8) Consent of Smith Capital, Inc.
9.(a)(9) Consent of McNair Law Firm, P.A. (included in Exhibit 9.(d))
9.(d) Opinion of McNair Law Firm, P.A. dated December 21, 1999
EXHIBIT 9.(a)(1) - EXCHANGE OFFER PROSPECTUS DATED DECEMBER 21, 1999
Exchange Offer
[LOGO]
Sea Pines Associates, Inc.
Sea Pines Associates Trust I
Offer to Exchange Shares of Common Stock or
Trust Preferred Securities for
Shares of Series A Preferred Stock
THE EXCHANGE OFFER WILL EXPIRE AT 12:00
MIDNIGHT, EASTERN STANDARD TIME, ON JANUARY 31,
2000, UNLESS EXTENDED.
Sea Pines Associates, Inc., a South Carolina corporation (the
"Company"), and Sea Pines Associates Trust I, a Delaware statutory business
trust (the "Trust"), hereby offer, upon the terms and subject to the conditions
set forth in this Prospectus (the "Prospectus") and the accompanying Letter of
Transmittal (the "Letter of Transmittal" which, together with the Prospectus,
constitute the "Exchange Offer"), to exchange shares of Company voting common
stock, without par value (the "Common Stock"), or 9.5% Trust Preferred
Securities (liquidation amount of $7.60 per security)(the "Trust Preferred
Securities") of the Trust for up to all of the outstanding shares of Series A
Cumulative Preferred Stock (the "Series A Preferred Stock") of the Company.
The Exchange Offer will be effected on the basis of (A) 2.5 shares of
Common Stock or (B) one Trust Preferred Security for (C) each share of Series A
Preferred Stock exchanged. A holder of Series A Preferred Stock (a "Holder") may
exchange all of his or her Series A Preferred Stock for shares of Common Stock
or exchange all for Trust Preferred Securities or exchange some for shares of
Common Stock and some for Trust Preferred Securities. The Trust Preferred
Securities have a liquidation amount of $7.60 per security plus accrued
interest. The liquidation amount for a share of Series A Preferred Stock is
$7.60 plus unpaid and accumulated dividends. Dividends that have accrued but
have not been paid on the shares of Series A Preferred Stock exchanged in the
offering through the Expiration Date (as defined below), will be a debt of the
Company and will be paid to the persons exchanging such shares on the same dates
as they would have been paid to such persons had they continued to hold such
shares. Cash will be paid in lieu of fractional shares of Common Stock at the
rate of $3.04 per share. Each share of Common Stock issued will be issued with
one attached right to purchase one one-thousandth (1/1000) of a share of the
Company's Series B Junior Cumulative Preferred Stock as more fully described in
"Description of Common Stock--Rights to Purchase Series B Preferred Stock."
NEITHER THIS TRANSACTION NOR THESE SECURITIES HAVE BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR BY ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED IN
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
For a comparison of the terms of Series A Preferred Stock with those of
Common Stock and the Trust Preferred Securities, see "Prospectus
Summary--Comparison of Common Stock and the Trust Preferred Securities with
Series A Preferred Stock."
Subject to the conditions of the Exchange Offer, the Company and the
Trust will accept for exchange all shares of Series A Preferred Stock validly
(continued on next page)
December 21, 1999
<PAGE>
tendered and not withdrawn prior to 12:00 midnight, Eastern Standard Time, on
January 31, 2000, or if extended by the Company, in its sole discretion, the
latest date and time to which extended (the "Expiration Date"). The Exchange
Offer will expire on the Expiration Date. Tenders of shares of Series A
Preferred Stock may be withdrawn at any time prior to the Expiration Date and,
unless accepted for exchange, may be withdrawn at any time after 40 business
days after the date hereof.
SEE "SPECIAL FACTORS RELATED TO THE EXCHANGE OFFER" STARTING ON PAGE 20 AND
"RISK FACTORS" STARTING ON PAGE 16 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED IN CONNECTION WITH THE EXCHANGE OFFER.
None of the Board of Directors of the Company (the "Board"), the
Company, the trustees of the Trust or the Trust makes any recommendation to
Holders as to whether to tender or refrain from tendering in the Exchange Offer.
Holders are urged to consult their financial and tax advisors in making their
decisions on what action to take in light of their own particular circumstances.
In order to participate in the Exchange Offer, Holders must submit a
Letter of Transmittal and comply with the other procedures for tendering in
accordance with the instructions contained herein and in the Letter of
Transmittal. See "The Exchange Offer--Procedures for Tendering" and "--Letter of
Transmittal." For a description of the other terms of the Exchange Offer, see
"The Exchange Offer--Terms of the Exchange Offer," "--Expiration Date;
Extensions; Amendments; Termination" and "--Withdrawal of Tenders."
Subject to applicable law, the Company reserves the right to amend,
modify, extend or terminate the Exchange Offer at any time and in any respect.
For example, if less than 25% of the outstanding Series A Preferred Stock is
tendered for Trust Preferred Securities, the Company may withdraw the option to
receive Trust Preferred Securities. See "The Exchange Offer--Terms of the
Exchange Offer." Any amendment or modification of the Exchange Offer will apply
to all shares of Series A Preferred Stock tendered pursuant to the Exchange
Offer. The minimum period during which the Exchange Offer must remain open
following a material change in the terms of the Exchange Offer will depend upon
the facts and circumstances, including the relative materiality of the change.
See "The Exchange Offer--Expiration Date; Extensions; Amendments; Termination."
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THE EXCHANGE OFFER OTHER THAN THOSE CONTAINED
IN THIS PROSPECTUS, THE LETTER OF TRANSMITTAL AND THE CHAIRMAN'S LETTER INCLUDED
HEREWITH. IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS SHOULD NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE TRUST OR ITS TRUSTEES OR THE
COMPANY OR ITS OFFICERS AND DIRECTORS. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY EXCHANGE CONTEMPLATED HEREBY SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE TRUST OR THE
COMPANY SINCE THE RESPECTIVE DATES AS OF WHICH INFORMATION IS GIVEN HEREIN.
THE EXCHANGE OFFER IS NOT BEING MADE TO (NOR WILL TENDERS BE ACCEPTED FROM OR ON
BEHALF OF) HOLDERS IN ANY JURISDICTION IN WHICH THE MAKING OF THE EXCHANGE OFFER
OR THE ACCEPTANCE OF TENDERS THEREIN WOULD NOT BE IN COMPLIANCE WITH THE LAWS OF
SUCH JURISDICTION. HOWEVER, THE TRUST AND THE COMPANY MAY, AT THEIR DISCRETION,
TAKE SUCH ACTION AS THEY MAY DEEM NECESSARY FOR THE COMPANY AND THE TRUST TO
MAKE THE EXCHANGE OFFER IN ANY SUCH JURISDICTION AND EXTEND THE EXCHANGE OFFER
TO SUCH JURISDICTION.
The Exchange Offer is being made by the Company and the Trust in
reliance on the exemption from the registration requirements of the Securities
Act of 1933, as amended (the "Securities Act"), afforded by Section 3(a)(9)
thereof. The Company and the Trust, therefore, will not pay any commission or
other remuneration to any broker, dealer, salesman or other person for
soliciting tenders of shares of Series A Preferred Stock. Officers, directors
and regular employees of the Company, who will not receive additional
compensation therefor, may solicit tenders from Holders.
2
<PAGE>
The statements included in this Prospectus regarding future financial
performance and results and the other statements that are not historical facts
are forward-looking statements. The words "expect," "project," "estimate,"
"predict," "anticipate," "believe" and similar expressions are also intended to
identify forward-looking statements. Such statements are subject to numerous
risks, uncertainties and assumptions, including but not limited to the
uncertainties relating to industry and market conditions, competition, interest
rates and the availability of financing, and other risks and uncertainties
described herein and in the Company's other filings with the Securities and
Exchange Commission (the "Commission"). Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove incorrect,
actual outcomes may vary materially from those indicated.
TABLE OF CONTENTS
PAGE
Available Information 4
Documents Available for Inspection 5
Questions and Answers About the Exchange Offer 6
Prospectus Summary 8
Risk Factors 16
Special Factors Related to the Exchange Offer 21
The Company 31
Market Information 31
Dividends 32
Capitalization 33
Selected Consolidated Financial Information 34
Management's Discussion and Analysis of Financial
Condition and Results of Operation 36
The Exchange Offer 40
Selected Pro Forma Financial Information 49
Description of Common Stock 62
Description of Series A Preferred Stock 64
Sea Pines Associates Trust I 67
Description of the Trust Preferred Securities 68
Description of the Junior Subordinated Debentures 81
Description of the Guarantee 96
Relationship Among the Trust Preferred Securities,
the Junior Subordinated Debentures and the
Guarantee 98
Certain Federal Income Tax Considerations 100
Legal Matters 109
Experts 109
Index to Consolidated Financial Statements F-1
Annex A - Opinion of Smith Capital, Inc. A-1
3
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Commission a Schedule 13E-4 (as amended,
the "Schedule 13E-4") under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), with respect to the Exchange Offer. The Exchange Offer does not
contain all the information set forth in the Schedule 13E-4 and the exhibits
thereto to which reference is hereby made for further information about the
Company, the Trust and the Exchange Offer.
The Company is subject to the informational requirements of the
Exchange Act, and in accordance therewith files reports, proxy statements and
other information with the Commission. Information as of particular dates
concerning the Company's directors and officers, their compensation and any
material interest of such persons in transactions with the Company is set forth
in the reports, proxy statements and other information filed with the
Commission. Such reports, proxy statements and other information concerning the
Company can be inspected and copied at the public reference facilities
maintained by the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's Regional Offices located at 7
World Trade Center, Suite 1300, New York, New York 10048 and at Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Holders may
call the Commission at 1-800-732-0330 for further information on the public
reference rooms. The Company's filings should also be available to the public
from commercial document retrieval services and at the Internet web site
maintained by the Commission at http://www.sec.gov.
The Trust is not currently subject to the information reporting
requirements of the Exchange Act. The Trust may become subject to such
requirements following the Exchange Offer although it intends to seek exemption
therefrom.
Financial statements of the Company are included in this Prospectus.
However, separate financial statements of the Trust are not included herein. The
Company does not consider that financial statements of the Trust would be
material to Holders because (i) all of the voting securities of the Trust will
be owned by the Company, (ii) the Trust will have no independent operations but
will exist for the sole purpose of issuing securities representing undivided
beneficial interests in the assets of the Trust in exchange for shares of Series
A Preferred Stock and cash and holding the Company's debentures and (iii) the
Company's obligations under various documents supporting the Trust, taken
together, will constitute a full, irrevocable and unconditional guarantee of
payments due on the Trust Preferred Securities. See "Description of the Trust
Preferred Securities," "Description of the Junior Subordinated Debentures,"
"Description of the Guarantee" and "Relationship Among the Trust Preferred
Securities, the Junior Subordinated Debentures and the Guarantee."
4
<PAGE>
DOCUMENTS AVAILABLE FOR INSPECTION
This Prospectus describes a number of documents which are not included
herein. These documents, listed below, are available to any Holder upon written
or oral request to Michael E. Lawrence, Sea Pines Associates, Inc., 32 Greenwood
Drive, Hilton Head Island, South Carolina 29928 or (843) 785-3333.
1. Trust Agreement dated December 14, 1999 (the "Original Trust
Agreement") by and among the Company, as Depositor, First Union Trust
Company, National Association, a national banking association with its
principal place of business in the State of Delaware, as Delaware
trustee (the "Delaware Trustee"), and Michael E. Lawrence, as
administrative trustee (the "Administrative Trustee").
2. Form of Amended and Restated Trust Agreement (the "Amended and Restated
Trust Agreement," and together with the Original Trust Agreement, the
"Trust Agreement") among the Company, as Depositor, First Union Trust
Company, National Association, a national banking association with its
principal place of business in the State of Delaware, as the Property
Trustee (the "Property Trustee"), the Delaware Trustee, the
Administrative Trustee and the several holders of the Trust Securities.
3. Form of Junior Subordinated Indenture (the "Indenture") given by the
Company to First Union Trust Company, National Association, a national
banking association with its principal place of business in the State
of Delaware, as trustee (the "Debenture Trustee").
4. Form of Guarantee Agreement (the "Guarantee") by and between the
Company and First Union Trust Company, National Association, a national
banking association with its principal place of business in the State
of Delaware, as guarantee trustee (the "Guarantee Trustee").
5. Articles of Incorporation of the Company, as amended.
6. Bylaws of the Company, as amended.
In order to receive timely delivery of any of the foregoing, Holders
should request copies no later than five business days prior to the Expiration
Date.
5
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE EXCHANGE OFFER
1. What will the Exchange Offer accomplish?
The Board of Directors believes the Exchange Offer responds to three issues:
first, it will eliminate the tax inefficiency of the Series A Preferred Stock.
Second, it will increase the Common Stock portion of the Company's equity.
Third, we believe it will help our Common Stock trade more frequently and,
therefore, to better reflect its "fair market value."
2. How significant are those issues?
The Company currently pays $887,000 in annual dividends on the Series A
Preferred Stock. These dividends are not deductible by the Company. If all the
outstanding shares of Series A Preferred Stock were exchanged for Trust
Preferred Securities, Holders would receive the same amount in distributions
but, because the payments to the Trust are deductible for income tax purposes by
the Company, the change would produce income tax savings of about $332,000 per
year.
If half the outstanding Series A Preferred Stock were exchanged for Trust
Preferred Securities and half for shares of Common Stock, annual after tax
earnings attributable to Common Stock would increase by approximately $605,000.
If all the outstanding shares of Series A Preferred Stock were exchanged for
shares of Common Stock, annual after tax earnings attributable to Common Stock
would increase by approximately $887,000.
In addition to increasing the earnings attributable to Common Stock, we believe
the breakup of the "stock units" would remove one of the major impediments to a
more normal market, and we believe it would result in more trading activity and
liquidity and a more representative market value for Common Stock.
3. What are my choices?
You may exchange all, none or any number of your shares of Series A Preferred
Stock. Each share you elect to exchange may be exchanged for either
o 2.5 shares of Common Stock, or
o One Trust Preferred Security.
Although you do not have to exchange any of your shares of Series A Preferred
Stock, you should understand that the Company currently intends to exercise its
option and redeem all shares of Series A Preferred Stock not exchanged. Any such
redemption would be for cash only and would be a taxable transaction to the
Holder.
4. How do I notify Sea Pines of my decision?
If you do not want to participate in the Exchange Offer, you do not have to do
anything. If you want to participate, you will need to complete the enclosed
Letter of Transmittal and send it and your Series A Preferred Stock certificates
to the Exchange Agent by the Expiration Date, currently set at January 31, 2000.
If you can not locate your stock certificate, you should call EquiServe Trust
Company, N.A. at (800) 633-4236 as soon as possible.
5. What will the Company do if all the shares of Series A Preferred Stock are
not exchanged?
Currently the Company intends to exercise its option and redeem all shares of
Series A Preferred Stock not exchanged in the Exchange Offer. Any such
redemption would be for cash only and would be a taxable transaction to the
Holder.
6. When will the exchange actually take place?
6
<PAGE>
We expect to close the Exchange Offer on January 31, 2000; however, the Company
may extend the offer in its discretion. If the Exchange Offer is extended, we
will notify you.
7. Will I have a tax obligation as a result of participating in the Exchange
Offer?
There probably will be no tax obligation for a Holder exchanging all his or her
shares of Series A Preferred Stock for shares of Common Stock except for a small
amount if he or she is paid cash in lieu of a fractional share. Exchanges for
Trust Preferred Securities or for a combination of Common Stock and Trust
Preferred Securities may create some tax obligation. For more information, you
should read carefully the section in this document called "Certain Federal
Income Tax Considerations." You should consult your own tax accountant or tax
counsel about your specific situation.
8. How do Trust Preferred Securities work?
In a trust preferred arrangement, a parent company issues debentures in favor of
a wholly owned business trust. The parent pays tax deductible interest to the
business trust as called for under the terms of the debentures. The trust issues
the trust preferred securities with terms paralleling those of the parent
company's debentures. The trust uses the interest income it receives from the
parent to pay distributions to holders of its trust preferred securities. The
tax benefits result from the tax deductibility of the interest payments to the
parent company, and the tax provisions that apply to trusts.
9. If I choose to exchange my shares of Series A Preferred Stock for Trust
Preferred Securities, how will the interest income be different from the
preferred stock dividend I now receive?
The Company cannot deduct the dividend it pays you but it will be able to deduct
the interest it pays the Trust.
You will report interest income instead of dividend income. Therefore, corporate
holders will not be eligible for the dividends received deduction. In addition,
in some situations holders of Trust Preferred Securities may be subject to
original issue discount income. This is a complicated matter about which you
should contact your tax advisor.
10. What if only a few shareholders elect to receive Trust Preferred Securities?
The Company may modify, amend, extend or withdraw the Exchange Offer at any
time. For example, if fewer than 25% of the outstanding shares of Series A
Preferred Stock are tendered for Trust Preferred Securities, the Company may
withdraw the option to elect Trust Preferred Securities. If this happens, you
will be notified and have an opportunity to change your election.
11. Will I continue to receive dividends if I exchange my Series A Preferred
Stock for shares of Common Stock?
No. The Company has never paid dividends on its Common Stock and currently has
no intention to begin paying dividends. However, you will receive the unpaid
dividends on the shares of Series A Preferred Stock you exchange. These
dividends will be paid to you on the same dates as they would have been paid to
you had you continued to hold your shares.
12. Who will be eligible for "Associate" privileges after the restructuring?
All current shareholders will continue to be eligible for the windshield sticker
and other "Associate" privileges as long as they continue to hold at least 750
shares of Common Stock. This means their "Associate" status will not be affected
by the choice they make in disposing of their Series A Preferred Stock.
7
<PAGE>
PROSPECTUS SUMMARY
The following summary does not purport to be complete and is qualified
in its entirety by the detailed information contained elsewhere in this
Prospectus or in documents described herein. See "Documents Available for
Inspection."
Holders are urged to read the Exchange Offer in its entirety prior to
tendering any of their shares of Series A Preferred Stock.
The Company
The Company was incorporated under South Carolina law on May 4, 1987.
The Company was principally organized to acquire, own and operate certain resort
assets located in Sea Pines, a 5,300 acre master planned resort community on
Hilton Head Island, South Carolina. The address of the Company's principal
executive offices is 32 Greenwood Drive, Hilton Head Island, South Carolina
29928 and its phone number at that address is (843) 785-3333.
Wholly-owned subsidiaries of the Company include Sea Pines Company,
Inc., Sea Pines Real Estate Company, Inc. and Fifth Golf Course Club, Inc.
Sea Pines Company, Inc. is a full-service resort which owns and
operates three golf courses, tennis and various other recreational facilities,
home and villa rental management and food and beverage services. Sea Pines Real
Estate Company, Inc. provides real estate brokerage services for buyers and
sellers of real estate on Hilton Head Island and its neighboring communities.
Fifth Golf Course Club, Inc. owns certain acreage which could be used for
outdoor recreational activities.
The Trust
The Trust is a Delaware statutory business trust that was created under
the Delaware Business Trust Act on December 14, 1999. The Company will own all
the common securities of the Trust (the "Trust Common Securities" and, together
with the Trust Preferred Securities, the "Trust Securities"). The Trust was
formed in connection with the Exchange Offer and exists for the sole purposes
and functions of (a) issuing the Trust Preferred Securities in exchange for
shares of Series A Preferred Stock, (b) issuing Trust Common Securities for
cash, (c) exchanging such shares of Series A Preferred Stock and the cash paid
for the Trust Common Securities for the Company's 9.5% Junior Subordinated
Debentures due January 31, 2030 (the "Junior Subordinated Debentures") having an
aggregate principal amount equal to the aggregate liquidation amount of the
Trust Securities issued, (d) holding such Junior Subordinated Debentures and (e)
engaging in such other activities as are necessary and incidental thereto.
The Exchange Offer
Purpose of the Exchange Offer. The purpose of the Exchange Offer is to refinance
Series A Preferred Stock. This refinancing will benefit the Company, (i) to the
extent shares of Series A Preferred Stock are exchanged for the Trust Preferred
Securities, by permitting the Company to deduct interest payable on the Junior
Subordinated Debentures for United States federal income tax purposes, while
dividends payable on shares of Series A Preferred Stock are not deductible, and
(ii), to the extent shares of Series A Preferred Stock are exchanged for shares
of Common Stock, by lowering the Company's quarterly cash payment obligation.
The Company also believes that by increasing the number of outstanding shares of
Common Stock and breaking up units of Series A Preferred Stock and Common Stock,
the exchange will help increase the trading activity and liquidity of Common
Stock and establish a more representative market value for shares of Common
Stock; however, no assurances can be given in this regard. All shares of Series
A Preferred Stock reacquired by the Company in the Exchange Offer will be
authorized and unissued shares of Series A Preferred Stock and will be available
for issuance in the future; however, as of the date hereof, the Company has no
intention to reissue any of such shares. See "The Exchange Offer--Purpose of the
Exchange Offer."
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<PAGE>
The Exchange Offer; Securities Offered. The Company and the Trust are offering
to exchange shares of Common Stock and the Trust Preferred Securities,
representing preferred undivided beneficial interests in the assets of the
Trust, for up to all the outstanding shares of Series A Preferred Stock. As of
the date hereof, there were 1,228,350 shares of Series A Preferred Stock
outstanding. These shares were held of record by approximately 578 Holders. This
Exchange Offer is being made to all Holders including officers, directors and
affiliates of the Company.
The Exchange Offer will be effected on the basis of (A) 2.5 shares of
Common Stock or (B) one Trust Preferred Security for (C) each share of Series A
Preferred Stock. Dividends that have accrued but have not been paid on the
shares of Series A Preferred Stock exchanged in the offering through the
Expiration Date will be a debt of the Company and will be paid to the persons
exchanging such shares on the same dates as they would have been paid to such
persons had they continued to hold such shares. See "The Exchange Offer--Terms
of the Exchange Offer," "--Accrued and Unpaid Dividends on Series A Preferred
Stock" and "Description of Series A Preferred Stock--Dividends." A Holder may
exchange all of his or her Series A Preferred Stock for shares of Common Stock
or exchange all for the Trust Preferred Securities or exchange some for shares
of Common Stock and some for the Trust Preferred Securities. Cash will be paid
in lieu of fractional shares of Common Stock at the rate of $3.04 per share.
Each share of Common Stock issued will be issued with one attached right to
purchase one one-thousandth (1/1000) of a share of the Company's Series B Junior
Cumulative Preferred Stock as more fully described in "Description of Common
Stock--Rights to Purchase Series B Preferred Stock." See "The Exchange
Offer--Terms of the Exchange Offer."
Because of the potential adverse effects of the Company's Rights Plan
as described in "Description of Common Stock--Rights to Purchase Series B
Preferred Stock," and the South Carolina Control Share Acquisition Act, Section
35-2-101 et. seq., Code of Laws of South Carolina 1976, as amended (the "Control
Share Acquisition Act"), as described in "Description of Common Stock--Certain
Provisions of the Articles of Incorporation and Bylaws," the Company (i) is
amending the Rights Plan to provide that a person will not become an "Acquiror"
(as that term is defined in the Rights Plan) as a result of exchanging shares of
Series A Preferred Stock for shares of Common Stock in the Exchange Offer and
(ii) has determined that it will not exercise any rights it may have to redeem
any shares of Common Stock acquired in the Exchange Offer pursuant to the
Control Share Acquisition Act. However, such shares would be subject to other
applicable provisions of that act including the provisions dealing with
restrictions on voting rights. See "The Exchange Offer--General" and
"--Expiration Date; Extensions; Amendments; Termination."
Expiration Date; Withdrawals. Upon the terms and subject to the conditions of
the Exchange Offer, the Company and the Trust will accept for exchange all
shares of Series A Preferred Stock validly tendered and not withdrawn prior to
the Expiration Date, January 31, 2000 (or if extended by the Company, in its
sole discretion, the latest date and time to which extended). The Exchange Offer
will end on the Expiration Date. Shares of Series A Preferred Stock tendered
pursuant to the Exchange Offer may be withdrawn at any time prior to the
Expiration Date and, unless accepted for exchange by the Company or the Trust,
may be withdrawn at any time after 40 business days after the date hereof. See
"The Exchange Offer--Terms of the Exchange Offer," "--Expiration Date;
Extensions; Amendments; Termination" and "--Withdrawal of Tenders."
9
<PAGE>
Extensions, Amendments and Termination. Subject to applicable law and the terms
set forth in this Exchange Offer, the Company reserves the right to amend,
modify, extend or terminate the Exchange Offer at any time and in any respect.
For example, if less than 25% of the outstanding Series A Preferred Stock is
tendered for the Trust Preferred Securities, the Company may withdraw the option
to receive the Trust Preferred Securities. If there is a material change in the
Exchange Offer, Holders will be notified. See "The Exchange Offer--Expiration
Date; Extensions; Amendments; Termination."
Procedures for Tendering. Each Holder wishing to accept the Exchange Offer must
(i) properly complete and sign the Letter of Transmittal or a facsimile thereof
in accordance with the instructions contained herein and therein, and deliver it
and the certificates evidencing the shares of Series A Preferred Stock being
exchanged to EquiServe Trust Company, N.A. (the "Exchange Agent") at either of
its addresses set forth in "The Exchange Offer--Exchange Agent" prior to the
Expiration Date, or (ii) comply with the guaranteed delivery procedures
described herein.
Special Procedures for Beneficial Owners. Any beneficial Holder whose shares of
Series A Preferred Stock are registered in the name of a broker, dealer,
commercial bank, trust company or other nominee and who wishes to tender should
contact the registered Holder promptly and instruct such registered Holder to
tender on such beneficial Holder's behalf. If such beneficial Holder wishes to
tender on his or her own behalf, he or she must, prior to completing and
executing a Letter of Transmittal and delivering shares of Series A Preferred
Stock, either make appropriate arrangements to register the ownership of such
shares in his or her name or obtain a properly completed stock power from the
registered Holder. The transfer of registered ownership may take considerable
time and may not be able to be completed prior to the Expiration Date. See "The
Exchange Offer--Procedures for Tendering--Signature Guarantees."
Guaranteed Delivery Procedures. If a Holder desires to accept the Exchange Offer
and time will not permit a Letter of Transmittal or shares of Series A Preferred
Stock to reach the Exchange Agent before the Expiration Date a tender may be
effected in accordance with the guaranteed delivery procedures set forth in "The
Exchange Offer--Procedures for Tendering--Guaranteed Delivery."
Acceptance of Shares and Delivery of Common Stock and Trust Preferred
Securities. Upon the terms and subject to the conditions of the Exchange Offer,
including the reservation by the Company of the right to modify, amend, extend
or terminate the Exchange Offer, the Company will deliver the shares of Common
Stock and the Trust will deliver the Trust Preferred Securities to exchanging
Holders of Series A Preferred Stock as promptly as practicable after the
Expiration Date. If as of the Expiration Date the Company determines to modify
the Exchange Offer by withdrawing the option to exchange Trust Preferred
Securities for shares of Series A Preferred Stock, Holders will be notified and
have an opportunity to modify their elections. See "The Exchange Offer--Terms of
the Exchange Offer" and "--Expiration Date; Extensions; Amendments;
Termination."
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<PAGE>
Certain Federal Income Tax Considerations. The Company has received an opinion
that, for federal income tax purposes, the exchange will more likely than not be
treated as a recapitalization. In a recapitalization, the exchange of shares of
Series A Preferred Stock solely for shares of Common Stock will not be a taxable
exchange for United States federal income tax purposes except to the extent cash
is received in lieu of a fractional share. In contrast, the exchange of shares
of Series A Preferred Stock solely for the Trust Preferred Securities will be a
taxable event. Depending on each exchanging Holder's particular facts and
circumstances, the exchange may be treated as (i) a transaction in which gain or
loss will be recognized in an amount equal to the difference between the fair
market value ("FMV") of the the Trust Preferred Securities received in the
exchange and the exchanging Holder's tax basis in the shares of Series A
Preferred Stock surrendered or (ii) a distribution taxable as a dividend in an
amount equal to the FMV of the Trust Preferred Securities received by such
exchanging Holder. Similarly, if a Holder exchanges some of the Holder's shares
of Series A Preferred Stock for shares of Common Stock and some for Trust
Preferred Securities, the gain or loss realized by the Holder will be measured
by the difference, if any, between (a) the sum of (x) the FMV of the shares of
Common Stock and the Trust Preferred Securities received by the exchanging
Holder and (y) any cash received in lieu of a fractional share of Common Stock,
and (b) such Holder's tax basis in the Series A Preferred Stock surrendered.
Gain realized by a Holder would be recognized only to the extent of the FMV of
the Trust Preferred Securities received by the Holder plus the amount of cash
received in lieu of a fractional share of Common Stock, if any. Any gain
realized in excess of the amount of cash and the FMV of the Trust Preferred
Securities received by a Holder and any loss realized by a Holder would not be
recognized. See "Certain Federal Income Tax Considerations."
Whether the exchange of Series A Preferred Stock for Trust Preferred
Securities by the Holder has the effect of a dividend distribution as to any
Holder or is treated as a sale or exchange in which gain or loss is realized as
to such Holder will be determined by applying the principles of Section 302 of
the Internal Revenue Code of 1986, as amended (the "Code"). See "Certain Federal
Income Tax Considerations--Exchange of Series A Preferred Stock Solely for Trust
Preferred Securities."
Each holder of the Trust Preferred Securities will be required to
include in its gross income its pro rata share of the interest income paid or
accrued with respect to the Junior Subordinated Debentures. If the Company
exercises its option to defer payments of interest the original issue discount
("OID") rules described below would apply.
Under the terms of the Junior Subordinated Debentures, the Company may
defer the payment of interest for a period of up to 20 consecutive quarters (an
"Extension Period"). During an Extension Period, the Trust will not have the
funds available with which to pay distributions on the Trust Preferred
Securities. If an Extension Period occurs, all holders of the Trust Preferred
Securities will be required to include accrued and unpaid interest on the Junior
Subordinated Debentures through the date of disposition in income as ordinary
income (i.e., the OID)), although they did not receive a cash distribution from
the Trust related to such interest. The OID is then added to each Holder's
adjusted tax basis in his pro rata share of the underlying Junior Subordinated
Debentures. A holder who disposes of his or her Trust Preferred Securities
between record dates for payments of distributions at a selling price that is
less than the holder's adjusted tax basis will recognize a capital loss. Subject
to certain limited exceptions, capital losses cannot be applied to offset
ordinary income for United States federal income tax purposes. The extent to
which a holder of the Trust Preferred Securities would recognize a gain or loss
on the Trust Preferred Securities will depend on the market for the Trust
Preferred Securities at the time of disposition. See "Certain Federal Income Tax
Considerations--Interest Income and Original Issue Discount."
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<PAGE>
Untendered Shares. Holders who do not exchange their shares of Series A
Preferred Stock in the Exchange Offer or whose shares of Series A Preferred
Stock are not accepted for exchange will continue to hold such Series A
Preferred Stock and will be entitled to all the rights and preferences, and will
be subject to all of the limitations, applicable thereto. See "Special Factors
Related to the Exchange Offer--Consequences for Unexchanged Series A Preferred
Stock" and "The Exchange Offer--Trading of Common Stock, Trust Preferred
Securities and Series A Preferred Stock." The Company currently expects to
exercise its optional redemption rights on any shares of Series A Preferred
Stock that are not exchanged in the Exchange Offer. Any such redemption would be
for cash only and would be a taxable transaction to the Holder. The redemption
price for a share of Series A Preferred Stock is $7.60, plus accumulated and
unpaid dividends up to but excluding the date fixed for redemption. To the
extent that shares of Series A Preferred Stock are tendered and exchanged in the
Exchange Offer, a Holder's ability to sell untendered shares of Series A
Preferred Stock could be adversely affected. See "Risk Factors--Reduced Trading
Market for Series A Preferred Stock."
Exchange Agent. Questions and requests for assistance, requests for additional
copies of this Prospectus or of the Letter of Transmittal and requests for
Notices of Guaranteed Delivery should be directed to the Exchange Agent. The
address and telephone number of the Exchange Agent are set forth in "The
Exchange Offer--Exchange Agent."
Accounting Treatment of the Trust
The financial statements of the Trust will be reflected in the
Company's consolidated financial statements with the Trust Preferred Securities
shown as Company-obligated redeemable preferred securities of a subsidiary trust
holding solely the Junior Subordinated Debentures, and appropriate disclosure
about the Trust Preferred Securities, the Guarantee and the Junior Subordinated
Debentures will be included in the notes to the Company's consolidated financial
statements. For financial reporting purposes, the Company will record
distributions payable on the Trust Preferred Securities as a reduction in
earnings applicable to Common Stock in the Company's consolidated statement of
operations. See "Capitalization."
Comparison of Common Stock and the Trust Preferred Securities with Series A
Preferred Stock
The following is a brief summary comparison of Common Stock and the
Trust Preferred Securities with Series A Preferred Stock. For a more complete
description of Common Stock see "Description of Common Stock." For a more
complete description of the Trust Preferred Securities, see "Description of the
Trust Preferred Securities." For a more complete description of Series A
Preferred Stock, see "Description of Series A Preferred Stock." For a
description of the Junior Subordinated Debentures which will be deposited in the
Trust as trust assets and will represent the sole source for the payment of
distributions and other payments on the Trust Preferred Securities, see
"Description of the Junior Subordinated Debentures."
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[The following information has been reformatted.]
TRUST PREFERRED SECURITIES
--------------------------
Issuer
- ------
The Trust. Payment of distributions and on liquidation or redemption is
guaranteed by the Company on a subordinated basis, as described below.
Distribution on Liquidation
- ---------------------------
$7.60 per Trust Preferred Security, plus accumulated and unpaid distributions.
Distribution/Dividend Rate
- --------------------------
9.5% per annum cash distribution. Distributions accumulate from February 1,
2000. Except in the event (and to the extent) that interest payments on the
Junior Subordinated Debentures are deferred by the Company, as Depositor, under
the Indenture, distributions shall be payable on a quarterly basis nine months
in arrears on January 31, April 30, July 31 and October 31 of each year,
commencing January 31, 2001 (at which time distributions accruing for the period
between February 1, 2000 and April 30, 2000 shall be payable). Distributions
will be paid on the Trust Preferred Securities to the extent interest payments
are made by the Company with respect to the Junior Subordinated Debentures,
until such Trust Preferred Securities are redeemed. See "Redemption" below.
During any Extension Period on the Junior Subordinated Debentures, distribution
payments on the Trust Preferred Securities will not be made but will continue to
accumulate but at the increased rate of 11.51% per annum plus interest on such
unpaid distributions at an annual rate of 11.51%, compounded annually. If a
deferral of an interest payment occurs, the holders of the Trust Preferred
Securities would accrue income for United States federal income tax purposes.
Redemption
- ----------
Upon the redemption or repayment of the Junior Subordinated Debentures, whether
at maturity, upon earlier redemption or otherwise, the proceeds thereof must be
applied to redeem Trust Securities having an aggregate principal amount equal to
the Junior Subordinated Debentures being repaid. Junior Subordinated Debentures
mature on January 31, 2030 and are redeemable (i) on or after January 31, 2003,
in whole at any time or in part from time to time or (ii) upon the occurrence
and during the continuation of a Tax Event (as defined in "Description of the
Junior Subordinated Debentures-Redemption") at any time within 90 days following
the occurrence and during the continuation of a Tax Event, in whole (but not in
part). Redemption of the Junior Subordinated Debentures shall be made upon not
less than 30 days notice nor more than 60 days notice at a redemption price
equal to $7.60 per Junior Subordinated Debenture to be redeemed, plus accrued
and unpaid interest thereon to the Redemption Date, including interest
accumulated as a result of the Company's election to defer payments of interest
on the Junior Subordinated Debentures. The Company may not redeem any Junior
Subordinated Debenture unless all accumulated and unpaid distributions have been
paid on all Junior Subordinated Debentures for all quarterly interest payment
periods terminating on or prior to the date of redemption. See "Description of
the Trust Preferred Securities --Redemption."
Subordination
- -------------
Subordinated to claims of creditors of the Trust, if any. The Trust is not
permitted to incur any indebtedness for borrowed money. The Indenture provides
that the Company shall pay for all debts and obligations (other than with
respect to the Trust Securities) and all costs and expenses of the Trust,
including any income taxes, duties and other governmental charges, and all costs
and expenses with respect thereto, to which the Trust may become subject, except
for United States withholding taxes. The Junior Subordinated Debentures will
rank subordinate and junior to all Senior Debt of the Company, which includes
all obligations and liabilities other than accounts payable or any other
obligations of the Company to trade creditors and obligations expressly made
pari passu or subordinate by their terms, but senior to all capital stock,
including Series A Preferred Stock, now or hereafter issued by the Company. As
of October 31, 1999, the Company had Senior Debt of approximately $19,883,000.
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<PAGE>
Guarantee
- ---------
The Company will fully and unconditionally guarantee, on a subordinated basis,
the payment in full of (i) distributions on the Trust Preferred Securities to
the extent the Trust has funds available therefor, (ii) the amount payable upon
redemption of the Trust Preferred Securities to the extent the Trust has funds
available therefor and (iii) generally, the Liquidation Amount of the Trust
Preferred Securities to the extent the Trust has assets available for
distribution to holders of the Trust Preferred Se curities. The Company's
obligations under the Guarantee will be unsecured and will rank subordinate and
junior in right of payment to all Senior Debt of the Company in the same manner
as the Junior Subordinated Debentures, but senior to Common Stock and Series A
Preferred Stock.
Voting Rights/Enforcement
- -------------------------
Generally, holders of the Trust Preferred Securities will not have any voting
rights. However, if a Debenture Event of Default (as defined in "Description of
the Junior Subordinated Debentures-Debenture Events of Default") occurs and is
continuing, and the Debenture Trustee fails or the holders of not less than 25%
in aggregate principal amount of the outstanding Junior Subordinated Debentures
fail to declare the principal of all of the Junior Subordinated Debentures to be
immediately due and payable, the holders of 25% of the aggregate liquidation
amount (the "Liquidation Amount") of the Trust Preferred Securities may declare
the principal of and interest on the Junior Subordinated Debentures immediately
due and payable. Further, the holders of a majority of the Liquidation Amount of
the Trust Preferred Securities may remove the Property Trustee or the Delaware
Trustee, or both of them.
Trading
- -------
There is no established trading market for the Trust Preferred Securities and it
should not be anticipated that any will develop.
Dividends Received Deduction
- ----------------------------
Distributions on the Trust Preferred Securities will not be eligible for the
dividends received deduction for corporate holders.
SERIES A PREFERRED STOCK
------------------------
Issuer
- ------
The Company.
Distribution on Liquidation
- ---------------------------
$7.60 per share, plus accumulated and unpaid dividends.
Distribution/Dividend Rate
- --------------------------
72.2 cents per annum cash dividend payable out of funds legally available
therefor, when, as and if declared by the Board. Dividends are cumulative.
Accumulated and upaid dividends do not bear interest. As of December 21, 1999,
the Company has made dividend payments with respect to Series A Preferred Stock
through October 31, 1998. In the event dividends are in arrears in an amount
equal to four years' dividends, Holders will have certain voting rights. See
"Voting Rights/Enforcement" below. If a deferral of a dividend payment occurs,
Holders would not be required to include such amount in income for United States
federal income tax purposes until the dividend is actually declared and paid.
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Redemption
- ----------
Series A Preferred Stock is redeemable at the option of the Company on any
dividend date, in whole or in part, upon not less than 30 days notice at a
redemption price per share of $7.60, plus accumulated and unpaid dividends
thereon, up to but excluding the redemption date. Holders have no right to
require the Company to redeem Series A Preferred Stock. See "Description of
Series A Preferred Stock -- Optional Redemption."
Subordination
- -------------
Subordinated to claims of creditors, including holders of the Junior
Subordinated Debentures, but senior to holders of Common Stock.
Guarantee
- ---------
None
Voting Rights/Enforcement
- -------------------------
Series A Preferred Stock is non-voting except that if dividends shall be in
arrears in an amount equal to four years' dividends, Holders will be entitled as
a class to elect the smallest number of directors that will constitute a
majority of the authorized number of directors (such voting rights will continue
until such time as the dividend arrearage on Series A Preferred Stock has been
paid in full).
Trading
- -------
There is no established trading market for Series A Preferred Stock and it
should not be anticipated that any will develop.
Dividends Received Deduction
- ----------------------------
Dividends on Series A Preferred Stock are eligible for the dividends received
deduction for corporate Holders.
COMMON STOCK
------------
Issuer
- ------
The Company.
Distribution on Liquidation
- ---------------------------
Pro rata (along with holders of other classes of common stock to the extent
applicable) portion of assets available for distribution after distribution to
holders of preferred stock.
Distribution/Dividend Rate
- --------------------------
None. Subject to the rights of the holders of preferred stock, holders of Common
Stock are entitled to share pro rata (along with holders of other classes of
common stock to the extent applicable) such dividends declared by the Board out
of funds legally available therefore.
Redemption
- ----------
Not Applicable
Subordination
- -------------
Subordinated to claims of creditors, including holders of the Junior
Subordinated Debentures, and holders of preferred stock.
Guarantee
- ---------
None
Voting Rights/Enforcement
- -------------------------
Subject to the rights of holders of preferred stock to vote under certain
circumstances, voting rights, if any, granted to holders of special common stock
and legal requirements for class votes, holders of Common Stock possess the
exclusive right to notice of and to vote at shareholders' meetings.
Trading
- -------
There is no established trading market for the Common Stock and it should not be
anticipated that any will develop.
Dividends Received Deduction
- ----------------------------
Dividends on Common Stock are eligible for the dividends received deduction for
corporate holders.
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RISK FACTORS
Holders should carefully consider the following (in addition to the
other information set forth elsewhere in this Prospectus) in making a decision
as to whether to exchange their shares of Series A Preferred Stock:
Exchange Offer as Taxable Event
The exchange of shares of Series A Preferred Stock pursuant to the
Exchange Offer may be a taxable event. The federal income tax consequences to a
Holder will depend on his or her particular circumstances. See "Certain Federal
Income Tax Considerations." Holders are advised to consult their own tax
advisors regarding the United States federal, state, local and foreign tax
consequences of exchanging shares of Series A Preferred Stock.
Corporate Holders of Trust Preferred Securities not Entitled to Dividends
Received Deduction
While dividends with respect to Series A Preferred Stock and Common
Stock are eligible for the dividends received deduction for corporate Holders,
each corporate holder of the Trust Preferred Securities will be considered the
owner of an undivided interest in the Junior Subordinated Debentures and will be
required to include distributions on the Trust Preferred Securities in gross
income without a deduction for dividends received. See "Certain Federal Income
Tax Considerations."
Ranking of Subordinated Obligations under the Guarantee and Junior Subordinated
Debentures
The Company's obligations under the Guarantee will be unsecured and
will rank subordinate and junior in right of payment to all Senior Debt (as
defined herein), which includes all obligations and liabilities other than
accounts payable or any other obligations of the Company to trade creditors and
obligations expressly made pari passu (or equal) or subordinate by their terms
of the Company and will rank pari passu with the obligations of the Company
under (i) any similar guarantee agreements issued by the Company on behalf of
the holders of preferred or capital securities issued by any trust, (ii) the
Indenture and the Junior Subordinated Debt Securities (as defined herein) issued
thereunder and (iii) any other security, guarantee or other agreement or
obligation that is expressly stated to rank pari passu with the obligations of
the Company under the Guarantee or with any obligation that ranks pari passu
with the obligations of the Company under the Guarantee. No payment of principal
of (including upon redemption) or interest on the Junior Subordinated Debentures
may be made if any Senior Debt of the Company is not paid when due, whether at
maturity or at a date fixed for prepayment or by declaration of acceleration or
otherwise, and any applicable grace period with respect to such default has
ended without such default having been cured or waived or ceasing to exist. As
of October 31, 1999, the Company had approximately $19,883,000 of Senior Debt.
There are no terms in the Trust Preferred Securities, the Junior Subordinated
Debentures or the Guarantee that limit the Company's ability to incur additional
indebtedness, including indebtedness that ranks senior to the Junior
Subordinated Debentures and the Guarantee. See "Description of the Guarantee"
and "Description of the Junior Subordinated Debentures--Subordination."
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Rights Under the Guarantee
The Guarantee Trustee will hold the Guarantee for the benefit of the
holders of the Trust Preferred Securities. The Guarantee guarantees to the
holders of the Trust Preferred Securities the payment of (i) any accumulated and
unpaid distributions required to be paid on the Trust Preferred Securities, to
the extent the Trust has funds on hand available therefor, (ii) the redemption
price and all accumulated and unpaid distributions (the "Redemption Price") with
respect to Trust Preferred Securities called for redemption by the Trust, to the
extent the Trust has funds available therefor, and (iii) upon a voluntary or
involuntary dissolution, winding-up or liquidation of the Trust (other than in
connection with the distribution of the Junior Subordinated Debentures to the
holders of the Trust Preferred Securities), the lesser of (a) an amount equal to
the Liquidation Amount per Trust Security plus accumulated and unpaid
distributions on the Trust Preferred Securities to the date of the payment (the
"Liquidation Distribution") to the extent that the Trust shall have funds
available therefor, or (b) the amount of assets of the Trust remaining available
for distribution to holders of the Trust Preferred Securities on liquidation of
the Trust (collectively, the "Guarantee Payments"). See "Description of the
Guarantee--General."
The holders of a majority in Liquidation Amount of the Trust Preferred
Securities have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Guarantee Trustee or exercising any
trust or power conferred upon the Guarantee Trustee under the Guarantee. In
addition, any holder of the Trust Preferred Securities may institute a legal
proceeding directly against the Company to enforce such holder's right to
receive payment under the Guarantee without first instituting a legal proceeding
against the Trust, the Guarantee Trustee or any other person. See "Description
of the Guarantee--Events of Default; Control of Remedies."
If the Company were to default on its obligation to pay amounts payable
on the Junior Subordinated Debentures, the Trust would lack available funds for
the payment of distributions or amounts payable on redemption of the Trust
Preferred Securities or otherwise, and, in such event, holders of the Trust
Preferred Securities would not be able to rely upon the Guarantee for payment of
such amounts. See "Description of the Guarantee." However, a holder of the Trust
Preferred Securities could instead rely on its right of Direct Action (as
defined below) against the Company to enforce payments on the Junior
Subordinated Debentures. See "Description of the Junior Subordinated
Debentures--Debenture Events of Default." The Trust Agreement provides that each
holder of the Trust Preferred Securities, by acceptance thereof, agrees to the
provisions of the Trust Agreement and the Guarantee, including the subordination
provisions thereof, and the Indenture. See "Description of the Trust Preferred
Securities--Miscellaneous."
Enforcement of Certain Rights by Holders of the Trust Preferred Securities
The holders of a majority in aggregate principal amount of the Junior
Subordinated Debentures have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Debenture Trustee or
exercising any trust or power conferred upon the Debenture Trustee under the
Indenture. If a Debenture Event of Default has occurred and is continuing and
such event is attributable to the failure of the Company to pay interest or
principal on the Junior Subordinated Debentures on the date such interest or
17
<PAGE>
principal is otherwise payable (or in the case of redemption, on the Redemption
Date), then a registered holder of the Trust Preferred Securities may, to the
fullest extent permitted by law, directly institute a proceeding for enforcement
of payment to such holder of the principal of or interest on the Junior
Subordinated Debentures having a principal amount equal to the aggregate
Liquidation Amount of the Trust Preferred Securities of such holder (a "Direct
Action"). The Company will have the right under the Indenture to set off any
payment made by the Company to such holder of the Trust Preferred Securities in
connection with a Direct Action. The holders of the Trust Preferred Securities
will not be able to exercise directly any other remedy available to the holders
of the Junior Subordinated Debentures unless there shall have been an Event of
Default under the Trust Agreement. See "Description of the Trust Preferred
Securities-- Events of Default; Notice; Right to Direct Remedies," "Description
of the Junior Subordinated Debentures--Debenture Events of Default" and
"--Enforcement of Certain Rights by Holders of Trust Preferred Securities."
Option to Extend Interest Payment Period
So long as no Debenture Event of Default has occurred or is occurring,
the Company will have the right at any time, and from time to time, under the
Indenture to defer payments of interest on the Junior Subordinated Debentures
for an Extension Period not exceeding 20 consecutive quarters. As a consequence
of such a deferral, distributions on the Trust Preferred Securities would be
deferred by the Trust. Prior to the termination of any such Extension Period,
the Company may further extend the interest payment period; however, no
Extension Period may exceed 20 consecutive quarters or extend beyond the
maturity of the Junior Subordinated Debentures. Upon the termination of any
Extension Period and the payment of all amounts then due, the Company may
commence a new Extension Period, subject to the above requirements. See
"Description of the Trust Preferred Securities--Distributions" and "Description
of the Junior Subordinated Debentures--Option to Defer Interest Payments" and
"--Restrictions on Certain Payments."
If the Company exercises its right to defer payments of interest by
extending the interest payment period, each holder of the Trust Preferred
Securities will have income (OID) in respect of the deferred and compounded
interest allocable to the Trust Preferred Securities for United States federal
income tax purposes, which will be allocated but not distributed, to holders of
record of the Trust Preferred Securities. As a result, each such holder will
recognize income for United States federal income tax purposes in advance of the
receipt of cash and will not receive the cash from the Trust related to such
income if such holder disposes of his or her Trust Preferred Securities prior to
the record date for the date on which distributions of such amounts are made.
The Company has no current intention to exercise its right to defer payments of
interest on the Junior Subordinated Debentures; however, should the Company
determine to exercise such right in the future, the market price of the Trust
Preferred Securities is likely to be affected. For example, a holder that
disposes of Trust Preferred Securities during an Extension Period might not
receive the same return on his or her investment as a holder that continues to
hold Trust Preferred Securities. In addition, as a result of the existence of
the Company's right to defer interest payments, the market price of the Trust
Preferred Securities (which represent an undivided beneficial interest in the
Junior Subordinated Debentures) may be more volatile than other securities that
do not grant the issuer such rights. See "Certain Federal Income Tax
Considerations--Interest Income and Original Issue Discount."
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Special Event Distribution or Redemption
Upon the occurrence of certain events, the Trust could be dissolved
(with the consent of the Company), except in the limited circumstance described
below, with the result that the Junior Subordinated Debentures would be
distributed to the holders of the Trust Securities in connection with the
liquidation of the Trust. In certain circumstances, the Company would have the
right to redeem the Junior Subordinated Debentures, in whole or in part, in lieu
of a distribution of the Junior Subordinated Debentures by the Trust; in which
event the Trust would redeem the Trust Securities on a pro rata basis to the
same extent as the Junior Subordinated Debentures are redeemed by the Company.
See "Description of the Trust Preferred Securities--Dissolution and Liquidation;
Distribution upon Dissolution" and "Certain Federal Income Tax
Considerations--Receipt of Junior Subordinated Debentures or Cash Upon
Liquidation of the Trust."
There can be no assurance as to the market prices for the Trust
Preferred Securities or the Junior Subordinated Debentures that may be
distributed in exchange for the Trust Preferred Securities if a dissolution or
liquidation of the Trust were to occur. Accordingly, the Trust Preferred
Securities that a Holder may receive in the Exchange Offer or the Junior
Subordinated Debentures that a holder of the Trust Preferred Securities may
receive on dissolution and liquidation of the Trust may trade at a discount to
the liquidation value of Series A Preferred Stock on the Expiration Date.
Because holders of the Trust Preferred Securities may receive Junior
Subordinated Debentures upon the occurrence of certain events, Holders who
exchange shares of Series A Preferred Stock for the Trust Preferred Securities
are also making an investment decision with regard to the Junior Subordinated
Debentures and should carefully review all the information contained herein
regarding the Junior Subordinated Debentures. See "Description of the Trust
Preferred Securities--Dissolution and Liquidation; Distribution upon
Dissolution" and "Description of the Junior Subordinated
Debentures--Distribution of Junior Subordinated Debentures."
Limited Voting Rights
Holders of the Trust Preferred Securities will have very limited voting
rights and will not be entitled to vote to appoint, remove or replace any
trustees of the Trust, except that during a Debenture Event of Default, the
holders of a majority in Liquidation Amount of the Trust Preferred Securities
may remove the Property Trustee or the Delaware Trustee or both of them, and, if
the Debenture Trustee or holders of not less than 25% in principal amount of the
Debentures shall fail to declare the principal of such Debentures due and
payable, holders of at least 25% in Liquidation Amount of the Trust Preferred
Securities may declare the principal of and interest on the Junior Subordinated
Debentures due and payable. See "Description of the Trust Preferred
Securities--Resignation and Removal of Issuer Trustees; Appointment of
Successors" and "--Events of Default; Notice; Right to Direct Remedies."
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Trading Price
The Trust Preferred Securities may trade at a price that does not fully
reflect the value of accrued and unpaid interest with respect to the underlying
Junior Subordinated Debentures. Should the Company exercise its right to defer
payments of interest, a holder who disposes of his or her Trust Preferred
Securities between record dates for payments of distributions thereon will be
required to include accrued and unpaid interest on the Junior Subordinated
Debentures through the date of disposition in his or her income as ordinary
income (OID), and to add such amount to his or her adjusted tax basis in his or
her pro rata share of the underlying Junior Subordinated Debentures deemed
disposed of. To the extent the selling price is less than a holder's adjusted
tax basis, such holder will recognize a capital loss. Subject to certain limited
exceptions, capital losses cannot be applied to offset ordinary income for
United States federal income tax purposes. See "Certain Federal Income Tax
Considerations--Interest Income and Original Issue Discount" and "--Sale or
Redemptions of Trust Preferred Securities."
Lack of Established Trading Market for Common Stock, Series A Preferred Stock
and Trust Preferred Securities
There has not previously been any established trading market for Common
Stock, Series A Preferred Stock or the Trust Preferred Securities, and the
Company has no current plans to list Common Stock, the Trust Preferred
Securities or Series A Preferred Stock on a securities exchange. The Board
believes that by increasing the number of outstanding shares of Common Stock and
by breaking up units of Common Stock and Series A Preferred Stock, the trading
market for Common Stock will become more active and better reflect its real
value; however, there can be no assurance in this regard. See "Market
Information."
Reduced Trading Market for Series A Preferred Stock
There is no established trading market for Series A Preferred Stock. To
the extent shares of Series A Preferred Stock are exchanged in the Exchange
Offer, the liquidity and trading market for shares of Series A Preferred Stock
outstanding following the Exchange Offer, and the terms upon which such shares
could be sold, could be adversely affected. See "Special Factors Relating to the
Exchange Offer--Consequences for Unexchanged Series A Preferred Stock."
Proposed Tax Legislation
From time to time legislation has been proposed that, among other
things, would (1) treat as equity for United States federal income tax purposes
certain debt instruments with a maximum term of more than 20 years; and (2)
disallow interest deductions for certain debt instruments or defer interest
deductions on certain debt instruments issued with OID. If legislation were
enacted that adversely affected the tax treatment of the Junior Subordinated
Debentures, there could be a distribution of the Junior Subordinated Debentures
to holders of the Trust Preferred Securities or, in certain circumstances, the
redemption of the Junior Subordinated Debentures by the Company and the
distribution by the Trust of the resulting cash in redemption of the Trust
Preferred Securities. See "Certain Federal Income Tax Considerations--Proposed
Tax Legislation."
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SPECIAL FACTORS RELATED TO THE EXCHANGE OFFER
In addition to the other information set forth herein, Holders should
carefully consider the following information:
The Exchange Offer
In connection with its decision to offer Holders the opportunity to
exchange shares of Series A Preferred Stock for shares of Common Stock or the
Trust Preferred Securities, the Board considered a number of factors which the
directors believe may be important to Holders. Such factors included the
following:
1. The increase in the number of shares of Common Stock outstanding and
the separation of units of Common Stock and Series A Preferred Stock
may have a positive effect on liquidity and trading activity of Common
Stock and may establish a more representative market value for shares
of Common Stock.
2. The decrease in nondeductible dividends would result in increased
income attributable to shares of Common Stock.
3. The distribution rate on the Trust Preferred Securities would be the
same as the dividend rate on the Series A Preferred Stock.
4. The Trust Preferred Securities would not be redeemable prior to
January 31, 2003 (unless a Tax Event occurs prior to such date), while
Series A Preferred Stock is redeemable on any dividend payment date.
Position of the Board; Alternatives to the Exchange Offer
The Board approved the Exchange Offer. The directors believe that the
Exchange Offer is in the best interest of the Company and its stockholders
because refinancing Series A Preferred Stock with shares of Common Stock and the
Trust Preferred Securities will benefit the Company (i), to the extent Series A
Preferred Stock is exchanged for the Trust Preferred Securities, by permitting
the Company to deduct interest payable on the Junior Subordinated Debentures for
United States federal income tax purposes, while dividends payable on Series A
Preferred Stock are not deductible, and (ii), to the extent Series A Preferred
Stock is exchanged for shares of Common Stock, by lowering the Company's
quarterly cash payment obligation. The Company also believes that by increasing
the number of outstanding shares of Common Stock and breaking up units of Series
A Preferred Stock and Common Stock, the exchange will help increase the trading
activity and liquidity of Common Stock and establish a more representative
market value for shares of Common Stock; however, no assurances can be given in
this respect. The Company evaluates periodically other proposals to raise
capital either publicly or privately, including secured and unsecured debt,
stock and trust preferred securities. The Company may raise capital after the
termination of the Exchange Offer. To the extent that shares of Series A
Preferred Stock are not exchanged pursuant in this offering, a portion of the
proceeds of other financing arrangements made by the Company may be used to
redeem such shares. Among the various alternatives to raise capital, the Company
believes the Trust Preferred Securities are a sound alternative that may
complement any such other financing by the Company. The Board also believes that
the financial structure of the Company following the Exchange Offer will provide
the Company with greater flexibility.
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The decision to tender Series A Preferred Stock pursuant to the
Exchange Offer should be made by Holders based upon individual investment
objectives and other factors affecting such Holders individually, including any
United States federal, state, local or foreign tax consequences of tendering
Series A Preferred Stock. Consequently, the Board is not making any
recommendation to Holders with respect to the Exchange Offer and has not
authorized any person to make any such recommendations. Holders are urged to
evaluate carefully all information contained in this Prospectus and to consult
their own financial and tax advisors to make their own decisions concerning
whether to tender Series A Preferred Stock in the Exchange Offer. See "Certain
Federal Income Tax Considerations" and "--Fairness of the Exchange Offer."
Fairness of the Exchange Offer
Factors considered by the Board in connection with approving the
structure of the Exchange Offer were (i) the liquidation/redemption preference
of Series A Preferred Stock and the Trust Preferred Securities; (ii) the fact
that Series A Preferred Stock is redeemable on any dividend payment date and
that the Trust Preferred Securities are not redeemable until January 31, 2003,
except in the event of a Tax Event; (iii) the dividend rate of Series A
Preferred Stock and the distribution rate on the Trust Preferred Securities;
(iv) the relative preferences and other terms of Series A Preferred Stock and
the Trust Preferred Securities; (v) the fact that acceptance of the Exchange
Offer is not mandatory; (vi) the historical trading pattern of units of Common
Stock and Series A Preferred Stock; (vii) recent market prices for units of
Common Stock and Series A Preferred Stock; (viii) the assumed pro forma effect
of the Exchange Offer on the Company's consolidated capitalization; (ix) the
possibility that the increase in the number of shares of Common Stock
outstanding would help increase the trading activity and liquidity of the Common
Stock; (x) the possibility that breaking up units of Series A Preferred Stock
and Common Stock would establish a more representative market value for Common
Stock; (xi) the United States federal income tax consequences of the Exchange
Offer on the Company and on the Holders; and (xii) the opinion of Smith Capital,
Inc. described below in "--Opinion of Sea Pines' Financial Advisor." The Board
did not give any particular weighting to the factors. In light of the foregoing
factors, the Board concluded that the Exchange Offer is fair to holders of both
Common Stock and Series A Preferred Stock from a financial point of view.
Holders have no voting rights in respect of the Exchange Offer and no
approval of the Holders is required for the Company to consummate the Exchange
Offer. Nonetheless, if a Holder does not approve of the terms of the Exchange
Offer, such Holder can elect not to tender shares of Series A Preferred Stock
and such shares of Series A Preferred Stock will remain outstanding until
redeemed by the Company. See "--Consequences for Unexchanged Series A Preferred
Stock."
Opinion of Sea Pines' Financial Advisor
General. The Company has retained Smith Capital, Inc. ("Smith Capital") to act
as its financial advisor in connection with rendering a fairness opinion with
respect to the Exchange Offer. Smith Capital has rendered its opinion that, as
of the date of this Exchange Offer and based upon and subject to the various
considerations set forth herein, the offer to Holders to exchange each
outstanding share of Series A Preferred Stock for (i) 2.5 shares of Common Stock
or (ii) one Trust Preferred Security (the "Exchange Ratio") is fair, from a
financial point of view, to the holders of the Company's Common Stock and Series
A Preferred Stock.
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Summary. Smith Capital's conclusions, which are qualified in their entirety by
reference to the full text of the Opinion (as defined below) are summarized
below:
a. The Company's capital structure and cash flow would be improved
overall by removal of the Series A Preferred Stock or conversion of
the Series A Preferred Stock to the Trust Preferred Securities.
b. The implied trading price of a share of Common Stock based on unit
trades at approximately $5,650 is $2.47. This is considerably below
the Common Stock FMV per share of $3.90 assuming 100% conversion to
Common Stock.
1. The Exchange Offer may increase the amount of Common Stock
outstanding, and create a market where the Common Stock trades
separately. This may facilitate trading of the Common Stock in
round lots of 100 shares, and create a market for the Common
Stock at prices closer to FMV.
2. The Exchange Ratio is fair from a financial standpoint to the
holders of Common Stock and Series A Preferred Stock.
Background. Smith Capital is a North Carolina-based corporation primarily
engaged in: (i) performing valuations of, and valuations related to, closely
held and publicly traded companies and (ii) providing financial advice related
to mergers, acquisitions and divestitures of closely held and publicly traded
companies.
The full text of the opinion of Smith Capital, dated the date of this
Exchange Offer (the "Opinion"), which sets forth assumptions made, matters
considered and limits on the review undertaken by Smith Capital is attached
hereto as Appendix A. Holders are urged to read the Opinion in its entirety. The
summary of the Opinion set forth herein is qualified in its entirety by
reference to the full text of the Opinion.
In connection with the Opinion, Smith Capital reviewed among other
things; (i) audited financial statements of the Company for the years ended
October 31, 1996 through 1999; (ii) this Prospectus; (iiii) detailed Income
Reports on a consolidated and unconsolidated basis for the years ended October
31, 1997, 1998 and 1999, and estimated 2000; (iv) Company-prepared Strategic
Initiative 2000-2005; (v) Form 10-K for the 1998 fiscal year; (vi) certain
publicly available financial information concerning publicly traded companies
which Smith Capital deemed relevant to its analysis; and (vii) such financial
studies, analyses, inquiries and other matters as Smith Capital deemed relevant.
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Smith Capital also conducted discussions with members of senior
management of the Company concerning the Company's business and prospects. Smith
Capital relied without independent verification upon the accuracy and
completeness of all the financial and other information reviewed by it for
purposes of its opinion. In that regard Smith Capital assumed that the financial
forecasts provided to it were reasonably prepared on a basis reflecting the best
currently available judgment of the Company. Any estimates contained in Smith
Capital's analyses are not necessarily indicative of future results or values,
nor do they purport to be appraisals or reflect prices at which securities could
actually be bought or sold. Smith Capital is not an expert in the evaluation of
real estate and expresses no opinion on the value of the Company's real estate
assets. In addition, Smith Capital has not made or obtained an independent
appraisal of the assets and liabilities of the Company or any of its
subsidiaries. Smith Capital has relied on assurances from the Company as to its
own assessment of its readiness to handle any Year 2000 problems as they arise.
The Opinion is necessarily based upon market, economic and other conditions as
they exist and can be evaluated on the date hereof and the information made
available to Smith Capital through the date hereof.
Smith Capital's opinion is directed only to the fairness, from a
financial point of view, of the Exchange Ratio to the holders of both Common
Stock and Series A Preferred Stock and does not constitute a recommendation to
any stockholder of the Company as to whether such stockholder should accept or
reject any or part of the Exchange Offer.
Smith Capital evaluated the financial terms of the Exchange Offer using
standard valuation methods, including a comparison of the Company with
comparable publicly traded companies, book value, capitalized earnings and
discounted cash flow. The following is a brief summary of the analyses performed
by Smith Capital in connection with the Opinion.
Comparison of the Company with Comparable Publicly Traded Companies. Smith
Capital compared the performance of the Company to the performance of publicly
traded companies in similar lines of business. Smith Capital found a number of
companies involved in the leisure industry through hotel management and resort
operations, but found no publicly traded companies engaged in residential real
estate brokerage.
Smith Capital found several large hotel group chains, but only three
companies (the "Comparable Group") that operated resort and lodging-type
operations like Sea Pines, ResortQuest International (NYSE:RZT), Boca Resorts,
Inc. (NYSE: RST) and Vail Resorts, Inc. (NYSE:MTN).
Smith Capital compared the Company's earnings before interest,
depreciation and amortization as a percentage of revenues ("ebitda margin"),
operating income as a percentage of revenues ("operating margin") and net income
before preferred dividends as a percentage of revenues ("net income margin"),
with those of the Comparable Group and the industry. The Company's ebitda
margin, operating margin and net income margin for the year ended October 31,
1999, were 11.16%, 8.33% and 4.46%, respectively. The Comparable Group ebitda,
operating and net income margins for the most recent 12 month period available
ranged between 18.62% and 21.63%, 8.91% and 15.56% and 0.32% and 7.68%,
respectively. The industry ebitda, operating and net income margins were 22.52%,
15.92% and 8.01%, respectively. Smith Capital also compared the ebitda and
operating margins for the Company's recreation business to the corresponding
margins for the Comparable Group and the leisure industry for the most recent 12
month periods available. The Company's recreation business ebitda margin was
12.76% in the year ended October 31, 1999, the Comparable Group range, for the
most recent twelve month period, was 18.62% to 31.16% and the leisure industry
average was 22.52%. The Company's recreation business' operating margin was
8.67% for the year ended October 31, 1999 and the Comparable Group's recreation
operating margin ranged from 12.76% to 21.9% for the most recent twelve month
period. The leisure industry operating margin was 15.92%. The Comparable Group
current ratio at the most recent balance sheet date, ranged from 0.83 to 1.0
compared to 0.91 for the Company and 0.93 for the industry. The Comparable Group
long term debt to equity ratio at the most recent balance sheet date, ranged
from 0.46 to 1.14 compared to 1.23 for the Company and 2.54 for the industry.
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Smith Capital also compared certain lodging statistics of the Company
with ResortQuest's statistics, as ResortQuest's lodging business most closely
resembles that of the Company's. Average daily rates were $158.17 for
ResortQuest's beach lodging units for the nine month period ended September 31,
1999, compared to $181.14 for the Company in fiscal 1999. ResortQuest's revenue
per available unit night (total revenue divided by available units) was $79.05
compared to $69.05 for the Company in fiscal 1999. Occupancy at ResortQuest
beach resorts was 55% for the nine months ended September 30, 1999 compared to
38.12% for the Company for fiscal 1999.
The Common Stock and Series A Preferred Stock trade in units of 750
shares of Common Stock and 500 shares of Series A Preferred Stock. The units are
not traded on NASDAQ and have no liquid market. The price quote for the shares
on a particular date may not reflect arms' length transactions, so Smith Capital
valued the Common Stock by comparing it to the publicly traded values of the
Comparable Groups' common stock.
Smith Capital calculated the following ratios for the Comparable Group:
price earnings ratios (using the 12 months ended June or September 30, 1999,
whichever was available) and price to book value ratio. These represent the
multiple that the traded price per share bears to a particular company's
earnings or book value per share. In addition, Smith Capital calculated
"enterprise value" (market capitalization plus debt less cash) to revenues,
ebitda and cash flow. The price earnings multiple for the Comparable Group
ranged from 14.79 to 135.71 with an average of 68.69; the price to book value
ratio ranged from 0.79 to 1.45 with an average of 1.13; the enterprise value to
revenues ranged from 1.26 to 2.24 with an average of 1.95; the enterprise value
to ebitda ranged from 6.01 to 11.16 with an average of 9.35 and the enterprise
value to cash flow ranged from 10.14 to 29.75 with an average of 18.67.
Smith Capital applied the lowest price earnings multiple of 14.79 to the
Company's earnings allocable to holders of Common Stock. The average was not
used as it was considered abnormally high because both Boca Resorts and Vail
Resorts had relatively low net income. The resulting value of the Company's
Common Stock was $17,391,000, or $9.44 per share of Common Stock. Smith Capital
applied the same analysis as if the Holders elected to exchange all their Series
A Preferred Stock for Common Stock in the Exchange Offer. In this case Smith
Capital added the preferred dividend payment of $887,000 back to net income for
holders of Common Stock. The resulting value was $30,509,000, or $6.21 per
share, for holders of Common Stock. In such an event there would be 4,913,400
shares of Common Stock outstanding.
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<PAGE>
Smith Capital applied the Comparable Group average price to book ratio of
1.13 to the Company's total stockholders equity less the redemption value of the
Series A Preferred Stock. The resulting value was $7,386,000, or $4.01 per share
of Common Stock. If all Holders elected to exchange all their shares of Series A
Preferred Stock for shares of Common Stock in the Exchange Offer, the resulting
value would be $17,898,000, or $3.64 per share, of Common Stock.
Smith Capital applied the Comparable Group multiples of enterprise value
to ebitda and cash flow to the corresponding enterprise value to ebitda and cash
flow of the Company before the Exchange Offer and as if the Holders elected to
exchange all their shares of Series A Preferred Stock for shares of Common Stock
in the Exchange Offer. To determine the equity value to holders of Common Stock,
Smith Capital deducted the Company's outstanding debt and added back cash at
October 31, 1999. The resulting values were $13,778,000, $20,194,000,
$31,411,000 and $46,094,000 or $7.48, $10.96, $6.39 and $9.38 per share of
Common Stock, respectively.
Discounted Cash Flow. The next analysis performed by Smith Capital involved
discounting the Company's projected cash flows to present value. Smith Capital
reviewed the Company's projections through 2005, which include capital
expenditures for the development of the Inn at Harbour Town and the renovation
of the Harbour Town golf links. The projections showed the Company's operating
and net income margins increasing from 7.75% to 14.42% and 0.96% to 6.19%,
respectively. Smith Capital compared these to the leisure industry margins,
15.92% and 8.01%, respectively.
Smith Capital then estimated the amount of cash flows which could be
generated in perpetuity. Smith Capital adjusted cash flows in 2006 downwards to
allow for continuing capital expenditures. Smith Capital made assumptions about
constant cash flow growth rates for the Company based on years without
significant capital expenditures. Smith Capital capitalized the terminal cash
flow at 7.17% and then discounted that amount and the cash flows from 2000 to
2005 at 12.46%. The discount rate was estimated using the capital asset pricing
model and assumptions about equity investment risks for similar type companies.
The resulting value derived was the enterprise value. From this, Smith Capital
deducted the Company's required debt level to achieve its forecast and the
redemption value of the Series A Preferred Stock and added back cash.
The enterprise value was $55,094,000 and the net equity value was
$12,870,000, or $6.99 per share of Common Stock. Smith Capital also performed
the same analysis as if all of the Series A Preferred Stock had been exchanged
for Common Stock in the Exchange Offer. The Enterprise Value was $65,908,000 and
the net equity value was $33,019,000, or $6.72 per share of Common Stock.
Capitalized Earnings Method. In the next analysis, Smith Capital calculated the
Company's normalized earnings after taxes and preferred dividends for the fiscal
years 1996 to 1999. Normalized earnings were derived by adjusting net income for
extraordinary asset sales and losses. As the most recent earnings are the most
relevant Smith Capital weighted the earnings 40% to 1999, 30% to 1998, 20% to
1997 and 10% to 1996. The sum of these weighted numbers was $938,000.
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<PAGE>
The normalized earnings were capitalized by a rate of 11.6%. The
derived value of the Common Stock equity was $8,880,000, or $4.82 per share of
Common Stock. Using the same methodology, Smith Capital computed the capitalized
value as if all the Series A Preferred Stock had been exchanged for Common
Stock. The resulting value was $17,275,000, or $3.52 per share of Common Stock.
Book Value. The Company's book value on October 31, 1999, was $15,894,000. Smith
Capital was not aware of any recent appraisals of the Company's properties. The
Common Stock equity on October 31, 1999 was $6,558,540, or $3.56 per share.
Final Valuation. Smith Capital's final analysis involved determining which of
the above values were appropriate and weighting them by relative importance and
accuracy to determine a value for the Common Stock.
The market comparison method tends to deal with actual numbers and
existing conditions; the discounted cash flow method relies on the validity of
projections; and the capitalization method and discounted cash flow methods both
rely on setting discount rates. Small differences in discount rates can greatly
impact value. Smith Capital weighted the market comparison method 50% of the
overall value and the capitalization and discounted cash flow method combined at
50%. Within the market comparison method, the enterprise value multiples were
the most consistent and therefore were weighted 15% each. The price earnings
derived value relied upon one price/earnings ratio from the comparable group so
it was weighted slightly less at 20%. The capitalization method produced a lower
value than the discounted cash flow method, but as it was based on historic
results it was weighted slightly higher (30%) than the discounted cash flow
method (20%).
Smith Capital also considered the lack of marketability of Common Stock
and applied a 35% discount to the overall values. The final result was
$13,807,660, or $4.87 per share of Common Stock. Using the same analysis as if
all the Series A Preferred Stock were exchanged for shares of Common Stock in
the Exchange Offer, the final weighted value was $19,183,900, or $3.90 per share
of Common Stock.
In the final analysis Smith Capital assigned the value of Common Stock
after the Exchange Offer under the following scenarios:
1. Assuming 99%, 75%, 50%, 25%, 1% and none of the Holders exchanged for
shares of Common Stock at the Exchange Ratio.
2. Assuming the same scenarios as in 1, but that any Holders not
exchanging for shares of Common Stock exchanged each share of Series A
Preferred Stock for one Trust Preferred Security.
Results. Smith Capital made the following determinations:
Scenario I- All Holders exchange for shares of Common Stock or continue to
hold shares of Series A Preferred Stock.
1) The range of value of unconverted units was from $6,726 to $7,428 for
99% to 1%, respectively, of Holders converting to Common Stock. The
corresponding values of a unit converted to Common Stock would be
$7,802 to $9,673; or 16.01% to 30.24% higher than the respective values
of unconverted units;
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2) On a per share basis the range of values of Common Stock was $3.90 to
$4.84, if 99% to 1% of Holders converted to Common Stock, respectively;
3) Dilution to holders of Common Stock ranged from 19.93% to 0.73%; and
4) Book value per share of Common Stock is $3.56 if no Holders convert to
Common Stock and $3.88 if 100% convert.
Scenario I Fairness Conclusions
In considering whether the Exchange Ratio is fair from a financial
standpoint to holders of Common Stock and Series A Preferred Stock in the above
scenario, Smith Capital concluded as follows.
1) The negative impact on any holder of Common Stock unable to convert
such Holder's Series A Preferred Stock because he or she owned no
Series A Preferred Stock increased as the percentage of Holders
converting to Common Stock increased.
2) In determining whether a maximum of 19.93% dilution was fair from a
financial standpoint to such holders of Common Stock, Smith Capital
considered the following:
a. The Company's capital structure and cash flow would be
improved overall by removal of the Series A Preferred Stock.
b. The number of shares of Common Stock outstanding at 99%
conversion would be approximately 2.5 times more than the
number of shares outstanding preconversion.
c. The implied trading price of a share of Common Stock based on
unit trades at $5,650, is $2.47. This is below the Common
Stock fully diluted value per share at 99% conversion of
$3.90.
d. The Common stock is undervalued in the trading units owing to
lack of liquidity and lack of visibility.
e. By increasing the amount of Common Stock outstanding and
creating a trading market where a 100 share round lot of
Common Stock would have an FMV between $390 and $487, Smith
Capital considered a holder of Common Stock would be more
likely to be able to sell his or her Common Stock at a price
above $2.47 per share.
f. Unit holders who chose not to convert to Common Stock suffer
between 9.77% and 0.36% dilution at 99% and 1% conversion
percentages, respectively. As such, a unit holder owns a
Series A Preferred Stock dividend bearing security. Smith
Capital considered such 10% discount to be fair from a
financial standpoint to Holders.
28
<PAGE>
g. Smith Capital considered that as the Series A Preferred Stock
was redeemable by the Company at any time at $7.60, and that
the Company may redeem any unconverted Series A Preferred
Stock in 2000, the FMV of the Series A Preferred Stock is the
redemption value. Smith Capital considered that to the extent
the Series A Preferred Stock might have a lower FMV than the
redemption value, the Exchange Ratio to Common Stock would
only increase the relative value of the Exchange Offer to
Holders.
For all the above reasons it is the Opinion of Smith Capital that the Exchange
Ratio is fair from a financial standpoint to holders of Common Stock and Series
A Preferred Stock.
Scenario II- Holders convert to Common Stock or Trust Preferred Securities.
1) The range of value of unconverted units was from $6,731 to $8,395 for
99% to 1%, respectively, of Holders converting to Common Stock, and the
remaining Series A Preferred Stock being converted to the Trust
Preferred Securities. The corresponding values of a unit converted to
Common Stock would be higher at $7,815 to $12,254; or 16.11% to 45.96%
higher than the respective values of unconverted units.
2) On a per share basis the range of values of Common Stock was $3.91 to
$6.13, if 99% to 1% of Holders converted to Common Stock, respectively,
and the remaining Series A Preferred Stock was converted to the Trust
Preferred Securities.
3) Dilution to holders of Common Stock ranged from 19.81% to accretion of
25.75%.
Scenario II Fairness Conclusions
In considering whether the Exchange Ratio is fair from a financial
standpoint to holders of Common Stock and Series A Preferred Stock in the above
scenario, Smith Capital concluded as follows:
1) The negative impact on any holder of Common Stock unable to convert
such Holder's Series A Preferred Stock because he or she owned no
Series A Preferred Stock increased as the percentage of Holders
converting to Common Stock increased.
2) In determining whether a maximum of 19.81% dilution was fair from a
financial standpoint to such holders of Common Stock, Smith Capital
considered the following:
a. The Company's capital structure and cash flow would be
improved overall by removal of the Series A Preferred Stock
completely or conversion of Series A Preferred Stock to the
Trust Preferred Securities, which would enable the Company to
deduct an amount equal to the Trust Preferred Securities
distributions for tax purposes.
29
<PAGE>
b. Unit holders who choose not to convert to Common Stock suffer
between 9.71% dilution at 99% and 12.62% accretion at 1%
conversion percentages, respectively. As such a unit holder
owns a preferred dividend bearing security, Smith Capital
considers such 10% discount to be fair from a financial
standpoint to Holders.
c. To the extent a Holder converts his or her Series A Preferred
Stock to the Trust Preferred Securities, the Trust Preferred
Security is a non-callable instrument for three years, has an
equal dividend yield and the tax benefits to the Company
improve the dividend paying ability of the Company, which
gives the Company and the Trust Preferred Security improved
credit quality.
For all the above reasons it is the opinion of Smith Capital that the
Exchange Ratio is fair from a financial standpoint to holders of Common Stock
and Series A Preferred Stock.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analysis or of the summary set forth above, without considering
the analysis as a whole, could create an incomplete view of the processes
underlying the opinion. In arriving at its fairness determination, Smith Capital
considered the results of such analyses. No company or transaction used in the
above analysis as a comparison is identical to the Company or the contemplated
transaction. The analyses were prepared solely for the purposes of Smith Capital
providing its Opinion to the Board as to the fairness of the Exchange Ratio to
the holders of Common Stock and Series A Preferred Stock and do not purport to
be appraisals or necessarily reflect the prices at which securities actually may
be sold.
For the Opinion, the Company has paid Smith Capital $25,000 for its
services and has agreed to reimburse Smith Capital for its out of pocket
expenses and to indemnify Smith Capital against certain liabilities.
The non-employee directors of the Company have not retained an
unaffiliated representative to act solely on behalf of the unaffiliated Holders
to negotiate the terms of the Exchange Offer or the fairness thereof. In view of
the structure of the Exchange Offer, the non-employee directors of the Company
did not believe it to be necessary or appropriate to retain such representative.
Consequences for Unexchanged Series A Preferred Stock
The Company expects to redeem for cash the shares of Series A Preferred
Stock not tendered and accepted in the Exchange Offer at some time in the
future. Any such redemption would be a taxable transaction to the Holders of the
Series A Preferred Stock.
30
<PAGE>
Beneficial Ownership
The following table sets forth the number of shares and percentage of
outstanding Series A Preferred Stock beneficially owned by each of the executive
officers and directors of the Company.
<TABLE>
<CAPTION>
Number of shares % of
of Series A Series A
Preferred Stock Preferred Stock
Name/Office Beneficially Owned Beneficially Owned
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Norman P. Harberger, Director and Chairman 4,000 *
Michael E. Lawrence, Director and
Chief Executive Officer 3,000 *
Steven P. Birdwell, Chief Financial Officer 2,000 *
Paul B. Barringer, II, Director 79,000 6.43%
Angus Cotton, Director 2,500 *
Thomas G. Daniels, Director 11,500 *
Ralph L. Dupps, Jr., Director 8,000 *
P.R. Easterlin, Jr., Director 1,500 *
Charles W. Flynn, Director 8,000 *
James L. Gray, Director 2,500 *
John G. McGarty, Director 6,500 *
Thomas C. Morton, Director 5,000 *
Robert W. Siler, Jr., Director 3,500 *
Arthur P. Sundry, Director 3,000 *
Jospeh F. Vercellotti, Director 1,500 *
Frank E. Zimmerman, Jr., Director 6,500 *
- -------------
*less than one percent
</TABLE>
The executive officers and directors are being offered the same opportunity to
exchange shares of Series A Preferred Stock as the other Holders. Such persons
have not yet determined what action they will take in the Exchange Offer.
THE COMPANY
The Company was incorporated under South Carolina law on May 4, 1987.
The Company was principally organized to acquire, own and operate certain resort
assets located in Sea Pines, a 5,300 acre master planned resort community on
Hilton Head Island, South Carolina.
Wholly-owned subsidiaries of the Company include Sea Pines Company,
Inc., Sea Pines Real Estate Company, Inc. and Fifth Golf Course Club, Inc.
Sea Pines Company, Inc. is a full-service resort which owns and
operates three golf courses, tennis and various other recreational facilities,
home and villa rental management and food and beverage services. Sea Pines Real
Estate Company, Inc. provides real estate brokerage services for buyers and
sellers of real estate on Hilton Head Island and its neighboring communities.
Fifth Golf Course Club, Inc. owns certain acreage which could be used for
outdoor recreational activities.
MARKET INFORMATION
The Company's outstanding capital stock was originally issued in 1987
in units consisting of 750 shares of Common Stock and 500 shares of Series A
Preferred Stock. The Company believes that virtually all transactions involving
transfers of Common Stock and Series A Preferred Stock have been in units as
originally issued. There is no established trading market for the Common Stock
or the Series A Preferred Stock; however, since September 1993, transactions in
units of the Company's capital stock have traded on a bid and ask basis through
the over-the-counter market at The Robinson-Humphrey Company, LLC in Atlanta,
Georgia. Prior to September 1993, there was no public trading market for Common
Stock or Series A Preferred Stock. Quotes for the units of stock were available
only through Prudential Securities, Inc. and there was no available composite
index of trading and pricing of units.
31
<PAGE>
Set forth below are the high and low closing sales prices of which the
Company is aware for units of the Company's stock for each quarter of the last
two fiscal years:
Fiscal Year Ended
October 31, 1999 High Low
---------------- ---- ---
Fourth Quarter $5,650 $5,600
Third Quarter 5,650 5,500
Second Quarter 5,500 5,400
First Quarter 5,600 5,400
Fiscal Year Ended
October 31, 1998 High Low
---------------- ---- ---
Fourth Quarter $5,500 $5,400
Third Quarter 5,400 5,400
Second Quarter 5,400 5,400
First Quarter 5,400 5,400
DIVIDENDS
The Articles of Incorporation of the Company provide for dividends on
Series A Preferred Stock of 72.2(cent) per share per annum payable in arrears.
As of the date hereof, the Company has paid all accrued dividends on Series A
Preferred Stock through the fiscal year ended October 31, 1998.
During the fiscal years ended October 31, 1997 and 1998, the Company
paid dividends quarterly on the outstanding Series A Preferred Stock. At its
December 13, 1999 Board of Directors meeting, the Board declared a cash dividend
to Holders of 72.2(cent) per share. This dividend is payable in equal quarterly
installments of approximately 18.1(cent) per share on January 17, 2000, April
17, 2000, July 17, 2000 and October 17, 2000 to shareholders of record on
January 4, 2000, April 3, 2000, July 3, 2000 and October 2, 2000, and represents
the accrued dividend for the fiscal year ended October 31, 1999.
In addition, at the December 13, 1999 Board meeting, the Board approved
the payment to Holders exchanging their shares of Series A Preferred Stock in
the Exchange Offer of a payment of 72.2(cent) per share exchanged payable in
approximately equal quarterly installments on April 17, 2000, July 17, 2000,
October 17, 2000 and January 15, 2001.
Historically, the Company has not paid dividends on shares of Common
Stock and has no present intention of paying such dividends in the foreseeable
future.
32
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company at October 31, 1999, (i)on a historical basis and (ii) as adjusted to
give effect to the issuance of shares of Common Stock and the Trust Preferred
Securities in the Exchange Offer assuming that all of the outstanding shares of
Series A Preferred Stock are exchanged (A) for Trust Preferred Securities only,
(B) for Common Stock only or (C) 50% for shares of Common Stock and 50% for the
Trust Preferred Securities. To the extent that fewer shares of Series A
Preferred Stock are exchanged, or more or fewer of such shares are exchanged for
shares of Common Stock or the Trust Preferred Securities, the as adjusted
amounts shown would change. The as adjusted information should be read in
conjunction with the historical financial statements of the Company and the
related notes thereto appearing elsewhere herein. The as adjusted information is
not necessarily indicative of the financial position that would have resulted
had the proposed exchange of Series A Preferred Stock been consummated at the
date indicated, nor is it necessarily indicative of the results of operations of
future periods or future financial position.
<TABLE>
<CAPTION>
October 31, 1999
Historical As Adjusted
----------------------------------------------------------------
A B C
<S> <C> <C> <C> <C>
Current portion of long-term debt $ 400 $ 400 400 400
Long-term debt less current portion 19,483 19,483 19,483 19,483
---------- ---------- ---------- ---------
19,883 19,883 19,883 19,883
Company-obligated redeemable preferred
securities of a subsidiary trust
holding solely the Junior Subordinated
Debentures (1) --- 9,335 --- 4,667
Shareholders' Equity:
Preferred Stock, no par value 5,000,000
shares authorized of which (i) 2,000,000
shares of Series A Preferred Stock are
authorized and 1,228,350 (actual) and no
shares (as adjusted) are issued and
outstanding (liquidation preference
$9,335,460 (actual) and -0- (as adjusted)
and 3,000 (actual) and 20,000 (as
adjusted) shares of Series B Junior
Cumulative Preferred Stock, no par value,
are authorized and none are issued or
outstanding (2) 7,218 --- --- ---
Common Stock, 20,000,000 shares authorized,
of which 1,842,525 (actual) and 1,842,525
(as adjusted-A), 4,913,400 (as adjusted-B)
and 3,377,962 (as adjusted-C) shares are
issued and outstanding
2,166 2,166 11,501 6,834
Nonvoting Common Stock, no par value, of
which 1,000,000 shares are authorized and
none are issued and outstanding --- --- --- ---
Special Common Stock, no par value, of which
2,000,000 shares are authorized and none
are issued and outstanding --- --- --- ---
Retained earnings 6,510 3,506 3,206 3,356
----------- ----------- ----------- ----------
Total shareholders' equity 15,894 5,672 14,707 10,190
----------- ----------- ----------- ----------
Total capitalization $ 35,777 $ 34,890 $ 34,590 $ 34,740
=========== =========== =========== ==========
</TABLE>
33
<PAGE>
(1) As described in this Prospectus, the sole assets of the Trust will be the
Junior Subordinated Debentures in an aggregate principal amount equal to
the aggregate Liquidation Amount of the Trust Preferred Securities issued
in the Exchange Offer and the Trust Common Securities. The amount shown is
attributable only to the Trust Preferred Securities and assumes the
issuance thereof in an amount having an aggregate Liquidation Amount equal
to the aggregate redemption price for the related number of the outstanding
shares of Series A Preferred Stock.
(2) Pursuant to its Rights Plan (as defined in "Description of Common
Stock--Rights to Purchase Series B Preferred Stock"), the Company has
designated 3,000 shares of preferred stock as Series B Junior Cumulative
Preferred Stock and reserved such shares for issuance upon the possible
exercise, under the circumstances described in the Rights Plan, of
preferred stock purchase rights associated with shares of Common Stock.
This number will be increased to 20,000 in connection with the Exchange
Offer. See "Description of the Common Stock--Rights to Purchase Series B
Preferred Stock."
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following selected financial information is derived from the
consolidated financial statements of the Company which have been audited by
Ernst & Young, LLP, independent auditors. The information should be read in
conjunction with the consolidated financial statements, related notes and other
financial information included elsewhere herein.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
Year Ended October 31,
- -----------------------------------------------------------------------------------
1999 1998 1997
- -----------------------------------------------------------------------------------
(Dollars in Thousands,
Except Per Share Amount)
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues, other than healthcare $ 46,414 $ 38,506 $ 35,896
Cost and expenses, other than healthcare:
Cost of revenues 34,185 27,068 24,752
Sales and marketing expenses 1,957 1,290 1,376
General and adminstrative expenses 5,114 4,579 4,475
Depreciation and amortization 1,307 1,408 1,586
------ ------ ------
42,563 34,345 32,189
------ ------ ------
Income from operations, other than healthcare 3,851 4,161 3,707
Healthcare income (expense)
Revenue -- -- 345
Cost of revenue -- -- (989)
------ ------ ------
-- -- (644)
Income from operations 3,851 4,161 3,063
Other income (expense)
Equity in loss and write down of investment
in and advances to TidePointe Partners -- -- (2,658)
Gain on sale of healthcare business and assets -- 179 846
Gain on sale or disposal of asset, net 359 -- --
Interest income 164 154 325
Interest expense, net of amounts capitalized
Healthcare -- -- (381)
Other (1,099) (1,345) (1,476)
------ ------ ------
(576) (1,012) (3,344)
------ ------ ------
Income(loss) before income taxes 3,275 3,149 (281)
Provision for (benefit from) income taxes 1,212 1,099 (215)
-------- -------- --------
Net income (loss) 2,063 2,050 (66)
Preferred stock dividend requirements 887 887 887
-------- -------- --------
Net income (loss) attributable to Common Stock $ 1,176 $ 1,163 $ (953)
======== ======== ========
Net income (loss) per share of Common Stock $ 0.64 $ 0.63 $ (0.52)
======== ======== ========
</TABLE>
34
<PAGE>
Ratio of Earnings to Fixed Charges and Earnings to Combined Fixed
Charges and Preferred Stock Dividends
The following table sets forth the Company's consolidated ratios of
earnings to fixed charges and ratios of earnings to combined fixed charges and
preferred stock dividends, and the calculation of such ratios, for the periods
indicated and on a pro forma basis for 1999 assuming that all of the outstanding
shares of Series A Preferred Stock are exchanged (A) for Trust Preferred
Securities only, (B) for Common Stock only or (C) 50% for shares of Common Stock
and 50% for the Trust Preferred Securities.
<TABLE>
<CAPTION>
Pro Forma Historical
1999-A 1999-B 1999-C 1999 1998 1997
------ ------ ------ ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Earnings available to cover fixed charges:
Net earnings (loss) before preferred
dividends and income taxes $2,378 $3,275 $2,827 $3,275 $3,149 $ (281)
Fixed charges 2,115 1,228 1,671 1,228 1,345 1,863
Interest capitalized (129) (129) (129) (129) -- (6)
------- ------- ------- ------- ------- -------
Earnings available to cover fixed charges 4,364 4,374 4,369 4,374 4,494 1,576
------- ------- ------- ------- ------- -------
Fixed charges:
Interest expense 1,986 1,099 1,542 1,099 1,345 1,857
Interest capitalized 129 129 129 129 -- 6
------- ------- ------- ------- ------- -------
Total fixed charges $ 2,115 1,228 1,671 $ 1,228 $ 1,345 1,863
------- ------- ------- ------- ------- -------
Ratio of earnings to fixed charges 2.06 3.56 2.61 3.56 3.34 0.85
Preferred Dividends $ -- -- $ -- $ 887 $ 887 $ 887
Fixed charges combined with preferred
Dividends $ 2,115 1,228 1,671 $ 2,115 $ 2,232 $ 2,750
Ratio of earnings to fixed charges
with preferred dividends 2.06 3.56 2.61 2.07 2.01 0.57
</TABLE>
For purposes of computing the ratios of earnings to fixed charges and
earnings to combined fixed charges and preferred stock dividends, "earnings"
consists of income from continuing operations before income taxes and fixed
charges. "Fixed charges" consists of interest expense.
Book Value
The book value per share of Series A Preferred Stock as of October 31,
1999, was $5.88 and the book value per share of Common Stock as of October 31,
1999 was $3.56.
35
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
The Company's operations are conducted primarily through two wholly
owned subsidiaries. Sea Pines Company, Inc. operates all of the resort assets,
including three resort golf courses, a tennis center, a home and villa rental
management business, retail sales outlets, food service operations and other
resort recreational facilities. Sea Pines Real Estate Company, Inc. is an
independent real estate brokerage firm with 14 offices serving Hilton Head
Island and its neighboring communities.
1999 Compared to 1998
The Company reported consolidated revenues for fiscal year 1999 of
$46,414,000, a 20% increase over fiscal year 1998. Resort revenues totaled
$28,741,000 for fiscal 1999 reflecting an increase of $2,187,000 or 8.2% over
fiscal 1998. Real estate brokerage revenues totaled $17,473,000 for the year, an
increase of $5,521,000 or 46% as compared to fiscal 1998.
Guest occupied home and villa unit nights in the Company's lodging
division totaled 63,176 for 1999, a 7.0% increase over 1998. The average daily
rate of $181 in 1999 increased 10% over the 1998 average daily rate of $164.
This increase resulted primarily from the higher quality ocean oriented units
the Company has been able to attract to its rental program. Units available for
rental on the Company's rental program have increased from 441 in 1998 to 517 in
1999. Revenues and operating margins from golf operations continue to increase.
The Company increased its average rate per round by 5.9% by replacing discounted
rounds with higher rate rounds. The golf division produced operating margins of
over 54% in 1999.
The Company's real estate brokerage operations closed over $395 million
in transactions for the year, a 44% increase over 1998. Many of the factors that
contributed to a successful 1998 continued for 1999. These included favorable
mortgage interest rates, the strong local and national economy and the continued
strong market demand for second homes. The Company increased its market share of
sales and listings of real estate from 20% in 1998 to over 25% in 1999. The
Company attributes this substantial increase to its extensive marketing
campaigns, aggressive positioning in the market and its being able to attract
and retain professional real estate sales executives. The operating margin from
brokerage operations in fiscal 1999 was 11.16%.
Sales and marketing expenses were $1,957,000 in fiscal 1999,
representing a 52% increase from fiscal 1998. The increase is partially
attributable to pre-opening sales and marketing expenses associated with the Inn
and Conference Center currently under construction, as the Company starts to
place greater emphasis on the group meeting business. Additional increases
relate to costs associated with growing the lodging and food and beverage
businesses.
General and Administrative expenses increased by 11.7% or $535,000
totaling $5,114,000 for the year. The increase can primarily be attributed to
higher property taxes and the increased costs of medical claims paid by the
Company's self-funded medical plan.
36
<PAGE>
Depreciation and amortization expense decreased by 7% or $101,000
totaling $1,307,000 in fiscal 1999. The decrease is attributed to assets that
have become fully depreciated.
Interest income remained relatively constant at $164,000 and $154,000
in fiscal 1999 and fiscal 1998, respectively.
Interest expense on the Company's long and short term debt decreased by
$246,000 or 18% in fiscal 1999 as compared to fiscal 1998. The decrease results
from the favorable interest rates obtained as part of the October 1998
refinancing and swap agreements and from the capitalization of $129,000 of
interest in connection with the Harbour Town construction projects.
The Company reported a net gain on the sale or disposal of assets of
$359,000 in 1999. The three major components of this net gain are: (1) a gain on
the sale of the South Beach swimming pool property, (2) the write-off of the
remaining basis of property razed in connection with the Harbour Town
construction projects; and, (3) proceeds from a legal settlement relating to
real property.
1998 Compared to 1997
The Company reported consolidated revenues for fiscal year 1998 of
$38,506,000, a 7.3% increase over fiscal year 1997. Resort revenues totaled
$26,554,000 for fiscal 1998 reflecting an increase of $232,000 over fiscal 1997.
Real estate brokerage revenues totaled $11,952,000 for the year, an increase of
$2,378,000 or 24.8% as compared to fiscal 1997.
Guest occupied home and villa unit nights in the Company's lodging
division totaled 59,066 for fiscal 1998, a 1.4% increase over fiscal 1997. The
average daily rate of $164 in fiscal 1997 was maintained in fiscal 1998 after
significant price increases were implemented in fiscal 1997. Both revenues and
operating margins from golf operations continued to increase. The golf division
produced operating margins of over 53% in fiscal 1998. The average rate per
round increased by 6.8% in fiscal 1998. The increase in average rate results
from the combined effect of price increases and yield management resulting in
fewer discounted rounds. The Company continues to maintain its market share of
golf rounds despite increased competition.
The Company's real estate brokerage operations closed over $275 million
in transactions for the year, a 27% increase over fiscal 1997. Many factors
contributed to a successful fiscal 1998. These included favorable mortgage
interest rates, the strong local and national economy and the continued strong
market demand for second homes. The operating margin from brokerage operations
in fiscal 1998 was 12.46%, an 11% increase over the prior year. The trend of
increasing gross revenues has led to higher operating margins as many of the
costs associated with the real estate offices are fixed. The Company has
continued to maintain its island-wide market share of sales and listings of real
estate through creative marketing campaigns, aggressive positioning in the
market and by attracting and retaining professional real estate sales
executives.
Sales and marketing expenses were $1.3 million in fiscal 1998,
representing a 6.3% decrease from fiscal 1997. The decrease was attributable to
more cost-effective selective targeted marketing. The Company has planned future
increases in marketing expenses as it brings additional lodging and conference
facilities on line.
37
<PAGE>
General and Administrative expenses increased by 2.3% or $104,000
totaling $4,579,000 for the fiscal year. The increase can primarily be
attributable to higher property taxes and the increased costs associated with
maintaining the Company's older facilities. These increases were partially
offset by significant reductions in the Company's property and casualty
insurance premiums.
Due to the sale of all of the TidePointe assets in June 1998, which
included the healthcare facility, the Company recognized the remaining gain of
$179,375, which had been deferred at the time of the sale of the healthcare
facility in July 1997. The Company has also entered into a 26-year license and
use agreement with CC-Hilton Head, Inc. for the use of the Company's logo, trade
name, a non-compete agreement and other services and amenity use in connection
with the TidePointe community. Under this agreement, the Company will receive
fixed annual license fees, ranging from $125,000 to $325,000 and totaling
$4,125,000 over the 26-year term. Approximately $67,000 of license fee income
has been recognized by the Company in fiscal 1998.
Liquidity and Capital Resources
Cash and cash equivalents increased by $443,000 during fiscal 1999 and
totaled approximately $3,042,000 at October 31, 1999, of which $2,380,000 is
restricted. This increase results from higher levels of advance deposits related
to future lodging reservations and pending real estate brokerage transactions
and increased operating cash on hand at year-end. Working capital increased
during the current year by $101,000 resulting in a working capital deficit of
$565,000 at October 31, 1999, compared to a deficit of $666,000 at October 31,
1998.
The Company invested approximately $5,823,000 in resort capital
expenditures during fiscal 1999. Capital investments in fiscal 1999 included
construction in progress on the Harbour Town projects, extensive renovation work
at the Plantation Club along with normal expenditures for equipment replacement
and resort facility improvements. During the 12-year period from November 1,
1987 through October 31, 1999, the Company has invested over $39 million in
capital purchases, property acquisitions and property improvements thereby
significantly enhancing the resort assets originally acquired in 1987.
Under a Master Credit Agreement with its principal corporate lender,
the Company maintains a term loan, a revolving line of credit and a seasonal
line of credit. Available funds under these facilities total $36,000,000, of
which $19,883,000 was outstanding at October 31, 1999.
The term loan in the principal sum of $18,500,000 matures on October
31, 2008. As of October 31, 1999, $18,133,000 was outstanding under the term
loan.
The $15,000,000 revolving line of credit has been pre-approved by the
bank for use in the construction of the Company's inn and conference center. As
of October 31, 1999, $1,750,000 was outstanding under the revolving line of
credit.
38
<PAGE>
The seasonal line of credit in the principal amount of $2,500,000 is
used to meet cash requirements during the Company's off-season winter months. As
of October 31, 1999, there was no outstanding balance on the seasonal line of
credit.
The Company has an interest rate swap agreement which effectively fixed
the interest rate on an $18 million notional principal amount under the term
loan described above at 5.24% per annum plus a credit margin ranging from 1.25%
to 1.5%, based on the calculation of certain financial ratios, for a period
ending November 10, 2005. The lender has the option of calling the swap
agreement on November 10, 2003.
The Company expects that available cash, cash provided by operations,
and existing short term and long term lines of credit will be sufficient to meet
its cash requirements through at least October 31, 2000.
Business Outlook and Recent Developments
The Company has entered into construction contracts and has commenced
construction on The Inn at Harbour Town, The Heritage Conference Center and the
court reconstruction phase of the Sea Pines Racquet Club renovation.
Construction contracts signed to date total approximately $12,539,000. Total
construction costs are estimated at $17,230,000 for all three projects. As of
October 31, 1999, total combined construction costs incurred to date are
$3,707,000.
The Inn at Harbour Town will be a 47,000 square-foot facility featuring
60 rooms and will be adjacent to and provide views of the Harbour Town Golf
Links. Total construction costs are estimated at $10,600,000. As of October 31,
1999, $1,482,000 has been spent. Completion is scheduled for the fall of 2000.
The Heritage Conference Center will be a 16,000 square-foot facility
adjacent to the existing Harbour Town Clubhouse. Total construction costs are
estimated at $5,500,000. As of October 31, 1999, $1,952,000 has been spent.
Completion is scheduled for the spring of 2000.
Additionally, the Company is starting work on Phase I of the Sea Pines
Racquet Club renovation. Phase I includes a complete reconfiguration and
reconstruction of the tennis court facilities and surrounding area. Total
construction costs of Phase I have been estimated at $1,100,000. As of October
31, 1999, $273,000 has been spent. Completion of Phase I is scheduled for the
spring of 2000. Phase II of the project includes a permanent 3,800 square-foot
facility containing an expanded pro shop, club offices and meeting room. The
cost of Phase II is estimated at $900,000 although no firm start date has been
determined.
The Company also is in the planning stages of a major renovation of the
Harbour Town Golf Links. This renovation is tentatively scheduled to commence in
May 2000 with an estimated construction cost of $3,300,000. During the
construction and grow-in, the course will be closed for approximately eight
months.
Year 2000 Issue
The year 2000 issue is the result of computer programs having been
written using two digits rather than four to define the applicable year. Any of
the Company's computer programs that have date-sensitive software may recognize
a date using "00" as the year 1900 rather than the year 2000. This could result
in a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities.
39
<PAGE>
Based on a previously completed assessment, the Company determined that
it would be required to modify or replace portions of its existing software so
that its computer systems will properly utilize dates beyond December 31, 1999.
The Company has divided its year 2000 issues into what it considers to
be critical and non-critical issues. The Company believes that in its line of
business the critical issues revolve around the ability to process retail
transactions from the reservation stage through settlement and collection.
Additionally, of prime importance is the maintenance of accurate accounting and
corporate records.
The systems that the Company has identified as being critical include
but may not be limited to the following: AS400 Operating System, Lodging
Management System, Point-of-Sale System, General Ledger System, Credit Card
Processing, banking relationships and its telecommunications vendors.
The Company has also identified non-critical issues including, but not
limited to, stand alone personal computers, computerized irrigation systems,
other third party vendors and possible security systems issues.
The Company presently believes that with modifications to existing
software and conversions to new software, the year 2000 issue has been
mitigated. The Company believes it has completed all the necessary modifications
and is now in the final testing phase of these modifications. The Company
utilized both internal and external resources to program, or replace and test
its software for the year 2000 modifications. The Company has spent less than
$150,000 through October 31, 1999, all of which has been expensed.
However, if such modifications and conversions did not address and
remedy all of the Company's year 2000 issues, these issues could have a material
adverse impact on the operations of the Company.
THE EXCHANGE OFFER
General
Participation in the Exchange Offer is voluntary and Holders should
carefully consider whether to participate. None of the directors or executive
officers of the Company, the Company, the trustees of the Trust or the Trust
make any recommendation to Holders as to whether to tender or refrain from
tendering in the Exchange Offer. Holders are urged to consult their financial
and tax advisors in making their own decisions on what action to take in light
of their own particular circumstances.
Purpose of the Exchange Offer
The purpose of the Exchange Offer is to refinance Series A Preferred
Stock. This refinancing will benefit the Company (i), to the extent shares of
Series A Preferred Stock are exchanged for the Trust Preferred Securities, by
permitting the Company to deduct interest payable on the Junior Subordinated
Debentures for United States federal income tax purposes, while dividends
payable on shares of Series A Preferred Stock are not deductible, and (ii), to
the extent shares of Series A Preferred Stock are exchanged for shares of Common
Stock, by lowering the Company's quarterly cash payment obligation. The extent
of these benefits, however, cannot be predicted because they depend upon the
40
<PAGE>
number of shares of Series A Preferred Stock exchanged pursuant to the Exchange
Offer and how many of those shares are exchanged for Common Stock and how many
for the Trust Preferred Securities, the Company's United States federal income
tax position in any year and the period of time the Trust Preferred Securities
remain outstanding. The Company also believes that by increasing the number of
outstanding shares of Common Stock and breaking up "units" of Series A Preferred
Stock and Common Stock, the exchange will help increase the trading activity and
liquidity of the Common Stock and establish a more representative market value
for shares of Common Stock; however, no assurances can be given in this respect.
Neither the Trust's ability to defer distribution payments on the Trust
Preferred Securities nor the more limited voting rights on the part of holders
of the Trust Preferred Securities is a purpose of the Company in making the
Exchange Offer.
If any shares of Series A Preferred Stock remain outstanding after the
consummation of the Exchange Offer, the Company currently intends to redeem such
shares for cash. The redemption price for Series A Preferred Stock is $7.60 per
share, plus accumulated and unpaid dividends, if any, up to but excluding the
date fixed for redemption.
Terms of the Exchange Offer
Upon the terms and subject to the conditions of the Exchange Offer, the
Company and the Trust will exchange shares of Common Stock and the Trust
Preferred Securities for up to all of the outstanding shares of Series A
Preferred Stock. The Exchange Offer will be effected on the basis of (A) 2.5
shares of Common Stock or (B) one Trust Preferred Security for (C) each share of
Series A Preferred Stock validly tendered and accepted for exchange in the
Exchange Offer. Dividends that have accrued but have not been paid on the shares
of Series A Preferred Stock exchanged in the offering through the Expiration
Date will be a debt of the Company and will be paid to the persons exchanging
such shares on the same dates as they would have been paid to such persons had
they continued to hold such shares. Cash will be paid in lieu of fractional
shares of Common Stock at the rate of $3.04 per share. Each share of Common
Stock issued will be issued with one attached right to purchase one
one-thousandth (1/1000) of a share of the Company's Series B Junior Cumulative
Preferred Stock as more fully described in "Description of Common Stock--Rights
to Purchase Series B Preferred Stock." A Holder may exchange all of his or her
shares of Series A Preferred Stock for shares of Common Stock or exchange all
for the Trust Preferred Securities or exchange some for shares of Common Stock
and some for the Trust Preferred Securities.
Upon the terms and subject to the conditions of the Exchange Offer, the
Company and the Trust will accept for exchange all shares of Series A Preferred
Stock validly tendered and not withdrawn as promptly as practicable after the
Expiration Date unless the Exchange Offer has been withdrawn or terminated.
Shares of Series A Preferred Stock will not be accepted for exchange prior to
the Expiration Date. The Company and the Trust expressly reserve the right, in
their sole discretion, to delay acceptance for exchange of shares of Series A
Preferred Stock tendered under the Exchange Offer or the exchange of shares of
Common Stock and the Trust Preferred Securities for the shares of Series A
Preferred Stock accepted for exchange (subject to the applicable Rules under the
Exchange Act, which require that the Company and the Trust consummate the
Exchange Offer or return the shares of Series A Preferred Stock deposited by or
on behalf of the Holders thereof promptly after the termination or withdrawal of
the Exchange Offer), or to withdraw or terminate the Exchange Offer and not
accept any shares of Series A Preferred Stock at any time for any reason. For
example, if fewer than 25% of the outstanding shares of Series A Preferred Stock
are tendered for Trust Preferred Securities, the Company may withdraw the option
to receive Trust Preferred Securities. If the option is withdrawn, Holders will
be notified and given an opportunity to modify their election. In all cases,
except to the extent waived by the Company, delivery of shares of Common Stock
or the Trust Preferred Securities in exchange for the shares of Series A
Preferred Stock accepted for exchange pursuant to the Exchange Offer will be
made only after timely receipt by the Exchange Agent of such shares, a properly
completed and duly executed Letter of Transmittal and any other documents
required thereby.
41
<PAGE>
As of December 21, 1999, there were 1,228,350 shares of Series A
Preferred Stock outstanding. This Prospectus, together with the Letter of
Transmittal, is being sent to all registered Holders.
The Company and the Trust will be deemed to have accepted validly
tendered shares of Series A Preferred Stock (or defectively tendered shares of
Series A Preferred Stock with respect to which the Company or the Trust has
waived such defect) when, as and if the Company or the Trust has given oral or
written notice thereof to the Exchange Agent. The Exchange Agent will act as
agent for the tendering Holders for the purpose of receiving shares of Common
Stock from the Company and the Trust Preferred Securities from the Trust and
remitting such shares of Common Stock and the Trust Preferred Securities to
tendering Holders. Upon the terms and subject to the conditions of the Exchange
Offer, delivery of shares of Common Stock and the Trust Preferred Securities in
exchange for shares of Series A Preferred Stock will be made as promptly as
practicable after the Expiration Date.
If any tendered shares of Series A Preferred Stock are not accepted for
exchange because of an invalid tender, the occurrence of certain other events
set forth herein or otherwise, unless otherwise requested by the Holder under
"Special Delivery Instructions" in the Letter of Transmittal, such shares will
be returned, without expense, to the tendering Holder thereof, as promptly as
practicable after the Expiration Date or the withdrawal or termination of the
Exchange Offer.
Holders will not have any appraisal or dissenters' rights under South
Carolina law in connection with the Exchange Offer. The Company intends to
conduct the Exchange Offer in accordance with the applicable requirements of the
Exchange Act and the rules and regulations of the Commission thereunder.
Holders who tender shares of Series A Preferred Stock in the Exchange
Offer will not be required to pay brokerage commissions or fees or, subject to
the instructions in the Letter of Transmittal, transfer taxes with respect to
the exchange of shares of Series A Preferred Stock pursuant to the Exchange
Offer. See "--Fees and Expenses; Transfer Taxes."
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<PAGE>
Expiration Date; Extensions; Amendments; Termination
The Exchange Offer will expire on the Expiration Date. The Company
reserves the right to extend the Exchange Offer in its sole discretion at any
time and from time to time by giving oral or written notice to the Exchange
Agent and by timely written announcement communicated to the Holders at their
addresses of record. During any extension of the Exchange Offer, all shares of
Series A Preferred Stock previously tendered pursuant to the Exchange Offer and
not withdrawn will remain subject to the Exchange Offer.
The Company expressly reserves the right to (i) amend or modify the
terms of the Exchange Offer in any manner and (ii) withdraw or terminate the
Exchange Offer and not accept for exchange any shares of Series A Preferred
Stock, at any time for any reason. If the Company makes a material change in the
terms of the Exchange Offer, the Company will extend the Exchange Offer. The
minimum period for which the Exchange Offer will be extended following a
material change will depend upon the facts and circumstances, including the
relative materiality of the change. With respect to a change in the
consideration offered, the Exchange Offer will be extended for a minimum of ten
business days following notice to Holders of such change. Any withdrawal or
termination of the Exchange Offer will be followed as promptly as practicable by
notice to Holders. In the event the Company withdraws or terminates the Exchange
Offer, it will give immediate notice to the Exchange Agent, and all shares of
Series A Preferred Stock theretofore tendered pursuant to the Exchange Offer
will be returned promptly to the tendering Holders thereof. See "--Withdrawal of
Tenders" and "--Terms of the Exchange Offer."
Because of the potential adverse effects of the Company's Rights Plan
as described in "Description of Common Stock--Rights to Purchase Series B
Preferred Stock," and the Control Share Acquisition Act, as described in
"Description of Common Stock--Certain Provisions of the Articles of
Incorporation and Bylaws," the Company (i) is amending the Rights Plan to
provide that a person will not become an "Acquiror" solely as a result of
exchanging shares of Series A Preferred Stock for shares of Common Stock in the
Exchange Offer and (ii) has determined that it will not exercise any rights it
may have to redeem any shares of Common Stock acquired in the Exchange Offer
pursuant to the Control Share Acquisition Act. However, such shares would be
subject to other applicable provisions of that act including the provisions
dealing with restrictions on voting rights.
Accrued and Unpaid Dividends on Series A Preferred Stock
Dividends that have accrued but have not been paid on the shares of
Series A Preferred Stock exchanged in the offering through the Expiration Date
will be a debt of the Company and will be paid to the persons exchanging such
shares on the same dates as they would have been paid to such persons had they
continued to hold such shares. See "--Terms of the Exchange Offer" and
"Description of Series A Preferred Stock--Dividends."
Procedures for Tendering
The tender of shares of Series A Preferred Stock by a Holder pursuant
to the procedures set forth below will constitute an agreement between such
Holder and the Company and the Trust in accordance with the terms and subject to
the conditions set forth herein and in the Letter of Transmittal.
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<PAGE>
Each Holder wishing to accept the Exchange Offer must (i) properly
complete and sign the Letter of Transmittal or a facsimile thereof in accordance
with the instructions contained herein and therein and deliver it to the
Exchange Agent, at either of its addresses set forth in "--Exchange Agent,"
along with the certificates evidencing the shares of Series A Preferred Stock
being tendered prior to the Expiration Date, or (ii) comply with the guaranteed
delivery procedures described below.
Letters of Transmittal, Series A Preferred Stock Certificates and any
other Required Documents should be sent only to the Exchange Agent, not to the
Company or the Trust.
Signature Guarantees. If tendered shares of Series A Preferred Stock
are registered in the name of the signer of the Letter of Transmittal and the
shares of Common Stock or the Trust Preferred Securities to be issued in
exchange therefor are to be issued (and any untendered shares of Series A
Preferred Stock are to be reissued) in the name of the registered Holder, the
signature of such signer need not be guaranteed. If the tendered shares of
Series A Preferred Stock are registered in the name of someone other than the
signer of the Letter of Transmittal, such tendered shares must be endorsed or
accompanied by written instruments of transfer in form satisfactory to the
Company and duly executed by the registered Holder, and the signature on the
endorsement or instrument of transfer must be guaranteed by a financial
institution (including most banks, savings and loan associations and brokerage
houses) that is a participant in the Security Transfer Agents Medallion Program
or The New York Stock Exchange Medallion Signature Guarantee Program or the
Stock Exchange Medallion Program (any of the foregoing hereinafter referred to
as an "Eligible Institution"). If the shares of Common Stock or the Trust
Preferred Securities or shares of Series A Preferred Stock not exchanged are to
be delivered to an address other than that of the registered Holder appearing on
the register for Series A Preferred Stock, the signature in the Letter of
Transmittal must be guaranteed by an Eligible Institution. Any beneficial Holder
whose shares of Series A Preferred Stock are registered in the name of a broker,
dealer, commercial bank, trust company or other nominee and who wishes to tender
should contact the registered Holder promptly and instruct such registered
Holder to tender on his or her Holder's behalf. If such beneficial Holder wishes
to tender on his or her own behalf, he or she must, prior to completing and
executing a Letter of Transmittal and delivering shares of Series A Preferred
Stock, either make appropriate arrangements to register the ownership of such
shares in his or her name or obtain a properly completed stock power from the
registered Holder. The transfer of registered ownership may take considerable
time and may not be able to be completed prior to the Expiration Date.
THE METHOD OF DELIVERY OF SERIES A PREFERRED STOCK AND ALL OTHER
DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDER. IF SENT BY MAIL, IT IS
RECOMMENDED THAT REGISTERED MAIL, RETURN RECEIPT REQUESTED, BE USED, PRIOR
INSURANCE OBTAINED AND THE MAILING BE MADE SUFFICIENTLY IN ADVANCE OF THE
EXPIRATION DATE TO PERMIT DELIVERY TO THE EXCHANGE AGENT ON OR BEFORE THE
EXPIRATION DATE.
Guaranteed Delivery. If a Holder desires to accept the Exchange Offer
and time will not permit a Letter of Transmittal or shares of Series A Preferred
Stock to reach the Exchange Agent before the Expiration Date, a tender may be
effected if the Exchange Agent has received at its office, prior to the
Expiration Date, a letter, a telegram or facsimile transmission from an Eligible
44
<PAGE>
Institution setting forth the name and address of the tendering Holder, the
name(s) in which the shares of Series A Preferred Stock is registered and the
certificate number evidencing the shares of Series A Preferred Stock to be
tendered, and stating that the tender is being made thereby and guaranteeing
that within three trading days after the date of execution of such letter,
telegram or facsimile transmission by the Eligible Institution, shares of Series
A Preferred Stock, in proper form for transfer together with a properly
completed and duly executed Letter of Transmittal (and any other required
documents) will be delivered by such Eligible Institution. Unless the shares of
Series A Preferred Stock being tendered by the above-described method are
deposited with the Exchange Agent within the time period set forth above
(accompanied or preceded by a properly completed Letter of Transmittal and any
other required documents), the Company may, at its option, reject the tender.
Copies of a Notice of Guaranteed Delivery which may be used by Eligible
Institutions for the purposes described in this paragraph are available from the
Exchange Agent.
Lost or Missing Certificates. If a Holder desires to tender Series A
Preferred Stock pursuant to the Exchange Offer but the certificates evidencing
such Series A Preferred Stock have been mutilated, lost, stolen or destroyed,
such Holder should call EquiServe Trust Company, N.A. at (800) 633-4236 about
procedures for obtaining replacement certificates for such Series A Preferred
Stock or arranging for indemnification or any other matter that requires special
handling.
Miscellaneous. All questions as to the validity, form, eligibility
(including time of receipt) and acceptance for exchange of any tender of shares
of Series A Preferred Stock will be determined by the Company and the Trust,
whose determination will be final and binding. The Company and the Trust reserve
the absolute right to reject any or all tenders not in proper form or the
acceptance for exchange of which may, in the opinion of the Company's and
Trust's counsel, be unlawful. The Company and the Trust also reserve the
absolute right to waive any defect or irregularity in the tender of any shares
of Series A Preferred Stock, and the Company's and the Trust's interpretation of
the terms and conditions of the Exchange Offer (including the instructions in
the Letter of Transmittal) will be final and binding. None of the Company, the
Trust, the Exchange Agent or any other person will be under any duty to give
notification of any defects or irregularities in tenders or incur any liability
for failure to give any such notification.
Tenders of shares of Series A Preferred Stock involving any
irregularities will not be deemed to have been made until such irregularities
have been cured or waived. Shares of Series A Preferred Stock received by the
Exchange Agent that are not validly tendered and as to which the irregularities
have not been cured or waived will be returned by the Exchange Agent to the
tendering Holder, unless otherwise requested by the Holder in the Letter of
Transmittal, as promptly as practicable after the Expiration Date or the
withdrawal or termination of the Exchange Offer.
Letter of Transmittal
The Letter of Transmittal contains, among other things, the following
terms and conditions, which are part of the Exchange Offer:
The party tendering shares of Series A Preferred Stock for exchange
(the "Transferor") exchanges, assigns and transfers such shares to the Company
or the Trust, as the case may be, and irrevocably constitutes and appoints the
Exchange Agent as the Transferor's agent and attorney-in-fact to cause such
shares to be assigned, transferred and exchanged. The Transferor represents and
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<PAGE>
warrants that it has full power and authority to tender, exchange, assign and
transfer the shares of Series A Preferred Stock and to acquire the shares of
Common Stock and the Trust Preferred Securities issuable upon the exchange of
such tendered shares, and that, when the same are accepted for exchange, the
Company or the Trust, as the case may be, will acquire good and unencumbered
title to the tendered shares of Series A Preferred Stock, free and clear of all
liens, restrictions, charges and encumbrances and not subject to any adverse
claim. The Transferor also warrants that it will, upon request, execute and
deliver any additional documents deemed by the Company to be necessary or
desirable to complete the exchange, assignment and transfer of tendered shares
of Series A Preferred Stock. All authority conferred by the Transferor will
survive the death, bankruptcy or incapacity of the Transferor, and every
obligation of the Transferor shall be binding upon the heirs, legal
representatives, successors, assigns, executors and administrators of such
Transferor.
Withdrawal of Tenders
Tenders of shares of Series A Preferred Stock pursuant to the Exchange
Offer may be withdrawn at any time prior to the Expiration Date and, unless
accepted for exchange by the Company, may be withdrawn at any time after 40
business days after the date hereof.
To be effective, a written notice of withdrawal delivered by mail, hand
delivery or facsimile transmission must be timely received by the Exchange Agent
at the address set forth in the Letter of Transmittal. The method of
notification is at the risk and election of the Holder. Any such notice of
withdrawal must specify (i) the Holder named in the Letter of Transmittal as
having tendered shares of Series A Preferred Stock to be withdrawn, (ii) the
certificate numbers of such shares to be withdrawn, (iii) that such Holder is
withdrawing his election to have such shares exchanged and (iv) the name of the
registered Holder of such shares, and must be signed by the Holder in the same
manner as the original signature on the Letter of Transmittal (including any
required signature guarantees) or be accompanied by evidence satisfactory to the
Company that the person withdrawing the tender has succeeded to the beneficial
ownership of the shares of Series A Preferred Stock being withdrawn. The
Exchange Agent will return the properly withdrawn shares of Series A Preferred
Stock promptly following receipt of notice of withdrawal. All questions as to
the validity of notice of withdrawal, including time of receipt, will be
determined by the Company and the Trust, and such determination will be final
and binding on all parties. Withdrawals of tenders of shares of Series A
Preferred Stock may not be rescinded and any shares of Series A Preferred Stock
withdrawn will thereafter be deemed not validly tendered for purposes of the
Exchange Offer. Properly withdrawn shares of Series A Preferred Stock, however,
may be retendered by following the procedures therefor described elsewhere
herein at any time prior to the Expiration Date. See "--Procedures for
Tendering."
Exchange Agent
EquiServe Trust Company, N.A. has been appointed as the Exchange Agent
for the Exchange Offer. Deliveries to the Exchange Agent should be as follows:
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<PAGE>
EXCHANGE AGENT:
EquiServe Trust Company, N.A.
Facsimile Number:
(For Eligible Institutions Only)
(781) 575-4826
By Hand or Overnight Courier: By Mail:
(Registered or Certified
Mail Recommended)
By Hand:
- --------
Securities Transfer & Reporting Services, Inc. EquiServe Trust Company, N.A.
c/o EquiServe Limited Partnership Corporate Actions
100 Williams Street, Galleria P.O. Box 9573
New York, New York 10038 Boston, MA 02205-9573
By Overnight Courier:
- ---------------------
EquiServe Trust Company, N.A.
Corporate Actions
40 Campanelli Drive
Braintree, MA 02184
Confirm Receipt of Notice
of Guaranteed Delivery by Telephone:
(781) 575-4816
Fax Confirmation: (781) 575-4826
The Company will pay the Exchange Agent fees for its services and will
reimburse it for all of its reasonable and necessary out-of-pocket expenses in
connection therewith. The Company also has agreed to indemnify the Exchange
Agent for certain costs, expenses, losses or damages incurred or suffered by it
or to which it may become subject as a result of acting as Exchange Agent.
Requests for assistance or additional copies of this Prospectus and the Letter
of Transmittal should be directed to the Exchange Agent at its address and
telephone number as set forth above.
Trading of Common Stock, Trust Preferred Securities and Series A Preferred Stock
There has not been any established trading market for Common Stock,
Series A Preferred Stock or the Trust Preferred Securities. The Board believes
that the exchange will help increase the trading market and liquidity of the
Common Stock and establish a more representative market value for shares of
Common Stock by increasing the number of shares of Common Stock outstanding and
by breaking up units of Common Stock and Series A Preferred Stock; however,
there can be no assurance in that regard or that an active trading market for
Common Stock or the Trust Preferred Securities will develop or, if developed, be
sustained in the future. Accordingly, no assurance can be given as to the
liquidity of, or trading markets for, shares of Common Stock, the Trust
Preferred Securities or Series A Preferred Stock.
The shares of Series A Preferred Stock are freely tradeable unless held
by affiliates of the Company. Holders of Series A Preferred Stock who do not
tender their shares of Series A Preferred Stock in the Exchange Offer or whose
shares of Series A Preferred Stock are not accepted for exchange will continue
to hold such shares and will be entitled to all the rights and preferences, and
will be subject to all of the limitations applicable thereto. See "Special
Factors Related to the Exchange Offer--Consequences for Unexchanged Series A
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<PAGE>
Preferred Stock." The Series A Preferred Stock may be redeemed by the Company on
any dividend payment date and the Company currently expects to exercise its
optional redemption rights on any shares of Series A Preferred Stock that are
not exchanged in the Exchange Offer. To the extent that shares of Series A
Preferred Stock are tendered and accepted in the Exchange Offer, the liquidity
and trading market for Series A Preferred Stock outstanding following the
Exchange Offer, and the terms upon which such Series A Preferred Stock could be
sold, could be adversely affected.
Transactions and Arrangements Concerning the Series A Preferred Stock in
Connection with the Exchange Offer
Except as described herein, there are no contracts, arrangements,
understandings or relationships in connection with the Exchange Offer between
the Company or any of its directors or executive officers, the Trust or any of
its trustees, and any other person with respect to any securities of the Company
or the Trust, including Series A Preferred Stock, Common Stock, the Trust
Preferred Securities and the Junior Subordinated Debentures.
Fees and Expenses; Transfer Taxes
The expenses of soliciting tenders of shares of Series A Preferred
Stock will be borne by the Company. The principal solicitation is being made by
mail; however, additional solicitation may be made by facsimile transmission,
telephone or in person by directors, officers and regular employees of the
Company (who will not be separately compensated for such services). The Company
will pay brokerage houses and other custodians, nominees and fiduciaries the
reasonable out-of-pocket expenses incurred by them in forwarding copies of the
Exchange Offer material to beneficial Holders, and in handling and forwarding
tenders to the Exchange Agent.
The Company has not retained any dealer manager or similar
agent in connection with the Exchange Offer and will not make any payments to
brokers, dealers or others for soliciting tenders for the Exchange Offer.
The Company estimates that expenses of making the Exchange
Offer, including the fees and expenses of the Exchange Agent (approximately
$25,000), printing and mailing costs (approximately $10,000), filing fees
(approximately $2,000), fees and expenses of its financial advisor
(approximately ($30,000), legal fees (approximately $170,000) and accounting and
tax advisory fees (approximately $63,000), will total approximately $300,000.
Such expenses will be paid from the Company's general working capital.
Holders are responsible for paying any transfer taxes in connection
with the exchange. If satisfactory evidence of payment of such taxes or
exemption therefrom is not submitted with the Letter of Transmittal, the amount
of such transfer taxes will be billed directly to the tendering Holder.
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<PAGE>
SELECTED PRO FORMA FINANCIAL INFORMATION
SEA PINES ASSOCIATES, INC.
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
FOR THE YEAR ENDED OCTOBER 31, 1999
The Unaudited Pro Forma Condensed Consolidated Balance Sheet and
Statement of Operations set forth below as of and for the year ended October 31,
1999 have been derived from the Company's historical consolidated financial
statements for the year ended October 31, 1999 and give effect to the Exchange
Offer as if it had occurred on November 1, 1998 for purposes of the pro forma
Statement of Operations and as if it had occurred on October 31, 1999 for
purposes of the pro forma Balance Sheet. For purposes of these pro forma
financial statements, it has been assumed that either:
1. All of the shares of Series A Preferred Stock are exchanged
for the Trust Preferred Securities (see Example A); or
2. All of the shares of Series A Preferred Stock are exchanged
for Common Stock, at a 2.5 to 1 ratio (see Example B); or
3. 50% of the outstanding shares of Series A Preferred Stock are
exchanged for the Trust Preferred Securities and the remaining
50% of the outstanding shares of Series A Preferred Stock are
exchanged for Common Stock, at a 2.5 to 1 ratio (see Example
C).
The total number of shares of Series A Preferred Stock which may
actually be tendered and exchanged and the percentage which may actually be
exchanged for Common Stock or the Trust Preferred Securities may vary from the
amounts assumed in these pro forma presentations.
The Unaudited Pro Forma Condensed Consolidated Balance Sheets and
Consolidated Statements of Operations are provided for comparative purposes and
do not purport to be indicative of the results which actually would have been
obtained if the Exchange Offer had been effected on the dates indicated or of
the results which may be obtained in the future. The Unaudited Pro Forma
Condensed Consolidated Balance Sheets and Consolidated Statements of Operations
are qualified in their entirety by, and should be read in conjunction with, the
Consolidated Financial Statements of the Company and related notes thereto,
included elsewhere herein.
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<PAGE>
SEA PINES ASSOCIATES, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
FOR THE YEAR ENDED OCTOBER 31, 1999
EXAMPLE A - ASSUMING EXCHANGE FOR ALL TRUST PREFERRED SECURITIES
<TABLE>
<CAPTION>
Pro Forma
Historical Adjustments As Adjusted
---------- ----------- -----------
(Dollars and Shares in thousands,
Except per Share Amounts)
<S> <C> <C> <C>
ASSETS
Current assets $ 5,827 $ (300)A $4,640
(887)B
Notes receivable, less current portion 1,687 1,687
Deferred income taxes 83 83
Deferred loan fees, net 36 36
Other assets, net 78 300 A 378
Real estate assets 34,963 34,963
------- ----- -------
Total assets $42,674 $(887) $41,787
======= ===== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities $ 6,392 $ 6,392
Long-term debt, less current portion 19,483 19,483
Deferred revenue and other long-term liabilities 905 905
Company-obligated redeemable preferred securities of a
subsidiary trust holding solely the Junior Subordinated
Debentures 0 $9,335 C 9,335
------- ----- -------
Total liabilities and shareholders' equity 26,780 9,335 36,115
SHAREHOLDERS' EQUITY:
Series A cumulative preferred stock 7,218 (7,218)C --
Series B junior cumulative preferred stock -- --
Common stock 2,166 2,166
Retained earnings 6,510 (887)B 3,506
(2,117)C
------- ----- -------
Total shareholders' equity 15,894 (10,222) 5,672
------- ----- -------
Total liabilities and $42,674 $ (887) $41,787
======= ======== =======
BOOK VALUE PER SHARE
Common stock (D) $ 3.56 $ 3.08
Series A Preferred Stock (E) $ 5.88 --
</TABLE>
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<PAGE>
SEA PINES ASSOCIATES, INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(Dollars in Thousands)
EXAMPLE A - ASSUMING EXCHANGE FOR ALL TRUST PREFERRED SECURITIES
1. Estimated Offering Costs
A. The Company anticipates incurring certain costs in connection
with the transaction. These costs, estimated to total $300,
include legal fees, accounting and tax fees, investment
banking fees and other costs and are included in other assets
as deferred financing costs. The costs will be capitalized as
deferred finance costs and amortized over the life of the
Trust Preferred Securities, 30 years.
2. Issuance of New Securities
B. Reflects the payment of accrued but unpaid dividends on Series
A Preferred Stock, due to such dividends being declared and
paid one year in arrears.
C. Reflects the issuance of $9,335 of 9.5% Trust Preferred
Securities in exchange for the Series A Preferred Stock
(1,228,350 shares). The $2,117 reflects the deemed dividend
and equals the excess of the redemption value ($7.60 per
share) over the book value for the 1,228,350 shares of Series
A Preferred Stock.
3. Book Value Per Share
D. Calculated as total shareholders' equity less the liquidation
preference of Series A Preferred Stock divided by the number
of shares of Common Stock outstanding.
E. Calculated as total Series A Preferred Stock book value
divided by the number of shares of Series A Preferred Stock
outstanding.
51
<PAGE>
SEA PINES ASSOCIATES, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
FOR THE YEAR ENDED OCTOBER 31, 1999
EXAMPLE A - ASSUMING EXCHANGE FOR ALL TRUST PREFERRED SECURITIES
<TABLE>
<CAPTION>
Pro Forma
Historical Adjustments As Adjusted
---------- ----------- -----------
(Dollars and Shares in thousands,
Except per Share Amounts)
<S> <C> <C> <C>
Revenues $46,414 $46,414
Cost and expenses 42,563 $ 10 A 42,573
------ ---- ------
Income from operations 3,851 10 3,841
Other income (expense):
Gain on sale of assets 359 359
Interest income 164 164
Interest expense (1,099) (887)B (1,986)
------ ---- ------
(576) (887) (1,463)
------ ---- ------
Income before taxes 3,275 (897) 2,378
Provision for income taxes 1,212 (332)C 880
------ ---- ------
Net income 2,063 (565) 1,498
Preferred stock dividend requirements 887 (887)D --
------ ---- ------
Net income attributable to common stock $1,176 $322 $1,498
====== ==== ======
Weighted average shares outstanding 1,843 1,843
======
=====
=
Earnings per share
Basic $0.64 $ 0.81
===== ======
Diluted $0.64 $ 0.81
===== ======
</TABLE>
52
<PAGE>
SEA PINES ASSOCIATES, INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS
(Dollars in Thousands)
EXAMPLE A - ASSUMING EXCHANGE FOR ALL TRUST PREFERRED SECURITIES
1. Estimated Offering Costs
The Company anticipates incurring certain costs in connection with the
transaction. These costs, estimated to total $300, include legal fees,
accounting and tax fees, investment banking fees and other costs.
A. Reflects amortization expense for the offering costs
capitalized as deferred financing costs for the Trust
Preferred Securities. These costs are amortized over the life
of the Trust Preferred Securities, 30 years.
2. Issuance of Trust Preferred Securities
B. Increase in interest expense related to the new Junior
Subordinated Debentures issued to the Trust bearing interest
at 9.5% per annum.
C. Reduction in provision for income taxes from the reduction in
income before taxes, using a 37% effective tax rate.
D. Elimination of the preferred stock dividend requirements due
to the exchange of all of the Series A Preferred Stock.
3. Non-recurring items
The following item will result from the transaction, if consummated, and be
reflected in the Company's financial statements when consummated. It is excluded
form the pro forma statement of operations due to its non-recurring nature:
(i) deemed preferred stock dividend of $2,117. See adjustment D to
the Example A Pro Forma Condensed Consolidated Balance Sheet.
53
<PAGE>
SEA PINES ASSOCIATES, INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
OCTOBER 31, 1999
EXAMPLE B - ASSUMING EXCHANGE FOR ALL COMMON STOCK
<TABLE>
<CAPTION>
Pro Forma
Historical Adjustments As Adjusted
---------- ----------- -----------
(Dollars in Thousands
except for per share data)
<S> <C> <C> <C>
ASSETS
Current assets $5,827 $(300)A $4,640
(887)B
Notes receivable, less current portion 1,687 1,687
Deferred income taxes 83 83
Deferred loan fees, net 36 36
Other assets, net 78 78
Real estate assets 34,963 34,963
------- ------- -------
Total assets $42,674 $(1,187) $41,487
======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities $6,392 $6,392
Long-term debt, less current portion 19,483 19,483
Deferred revenue and other long-term liabilities 905 905
------ ------
Total liabilities 26,780 26,780
SHAREHOLDERS' EQUITY:
Series A cumulative preferred stock 7,218 $(7,218)C --
Series B junior cumulative preferred stock -- --
Common stock 2,166 9,335 C 11,501
Retained earnings 6,510 (300)A 3,206
(887)B
(2,117)C
------- ------- -------
Total shareholders' equity 15,894 (1,187) 14,707
------- ------- -------
Total liabilities and shareholders' equity $42,674 $(1,187) $41,487
======= ======= =======
BOOK VALUE PER SHARE
Common Stock (D) $ 3.56 $2.99
Series A Preferred Stock (E) $ 5.88 --
</TABLE>
54
<PAGE>
SEA PINES ASSOCIATES, INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(Dollars in Thousands)
EXAMPLE B - ASSUMING EXCHANGE FOR ALL COMMON STOCK
1. Estimated Offering Costs
A. The Company anticipates incurring certain costs in connection
with the transaction. These costs, estimated to total $300,
include legal fees, accounting and tax fees, investment
banking fees and other costs and will be expensed as costs of
the Common Stock exchange transaction.
2. Issuance of New Securities
B. Reflects the payment of accrued but unpaid dividends on Series
A Preferred Stock, due to such dividends being declared and
paid one year in arrears.
C. Reflects the issuance of 3,070,875 shares of Common Stock in
exchange for Series A Preferred Stock (1,228,350 shares),
using the 2.5 for 1 ratio. The $2,117 reflects the deemed
dividend and equals the excess of the redemption value ($7.60
per share) over the book value for the 1,228,350 shares of
Series A Preferred Stock.
3. Book Value Per Share
D. Calculated as total shareholders' equity less the liquidation
preference of Series A Preferred Stock divided by the number
of shares of Common Stock outstanding.
E. Calculated as total Series A Preferred Stock book value
divided by the number of shares of Series A Preferred Stock
outstanding.
55
<PAGE>
SEA PINES ASSOCIATES, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
FOR THE YEAR ENDED OCTOBER 31, 1999
EXAMPLE B - ASSUMING EXCHANGE FOR ALL COMMON STOCK
<TABLE>
<CAPTION>
Pro Forma
Historical Adjustments As Adjusted
---------- ----------- -----------
(Dollars and Shares in thousands,
Except per Share Amount)
<S> <C> <C> <C>
Revenues $46,414 $46,414
Cost and expenses 42,563 42,563
------ ------ ------
Income from operations 3,851 3,851
Other income (expense):
Gain on sale of assets 359 359
Interest income 164 164
Interest expense (1,099) (1,099)
------ ------ ------
(576) (576)
------ ------ ------
Income before taxes 3,275 3,275
Provision for income taxes 1,212 1,212
------ ------ ------
Net income 2,063 2,063
Preferred stock dividend requirements 887 $ (887)A --
------ ------ ------
Net income attributable to common stock $1,176 $ 887 $2,063
====== ====== ======
Weighted average shares outstanding 1,843 3,071 B 4,914
===== ===== =====
Earnings per share
Basic $0.64 $0.42
===== =====
Diluted $0.64 $0.42
===== =====
</TABLE>
56
<PAGE>
SEA PINES ASSOCIATES, INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS
(Dollars in Thousands)
EXAMPLE B - ASSUMING EXCHANGE FOR ALL COMMON STOCK
1. Issuance of Common Stock
A. Elimination of the preferred stock dividend requirements due
to the exchange of all of the Series A Preferred Stock for
Common Stock.
B. Reflects exchange of the outstanding Series A Preferred Stock
(1,228,350 shares), for 3,070,875 shares of Common Stock,
using the 2.5 for 1 ratio.
2. Non-recurring items
The following items will result from the transaction, if consummated, and be
reflected in the Company's financial statements when consummated. They are
excluded form the pro forma statement of operations due to their non-recurring
nature:
(i) deemed preferred stock dividend of $2,117.
(ii) offering costs of $300. See adjustment A to the Example B Pro
Forma Condensed Consolidated Balance Sheet.
57
<PAGE>
SEA PINES ASSOCIATES, INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
OCTOBER 31, 1999
EXAMPLE C - ASSUMING EXCHANGE 50% FOR TRUST PREFERRED SECURITIES
AND 50% FOR COMMON STOCK
<TABLE>
<CAPTION>
Pro Forma
Historical Adjustments As Adjusted
---------- ----------- -----------
(Dollars in Thousands
except for per share data)
<S> <C> <C> <C>
ASSETS
Current assets $5,827 $(300)A $4,640
(887)B
Notes receivable, less current portion 1,687 1,687
Deferred income taxes 83 83
Deferred loan fees, net 36 36
Other assets, net 78 150 A 228
Real estate assets 34,963 34,963
------- ------- -------
Total assets $42,674 $(1,037) $41,637
======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities $6,392 $6,392
Long-term debt, less current portion 19,483 19,483
Deferred revenue and other long-term liabilities 905 905
Company-obligated redeemable preferred securities of a
subsidiary trust holding solely the Junior Subordinated
Debentures --- $4,667 C 4,667
------ ------ ------
Total liabilities 26,780 4,667 31,447
SHAREHOLDERS' EQUITY:
Series A cumulative preferred stock 7,218 (3,609)C --
(3,609)D
Series B junior cumulative preferred stock -- --
Common stock 2,166 4,668 D 6,834
Retained earnings 6,510 (150)A 3,356
(887)B
(2,117)E
------ ------ ------
Total shareholders' equity 15,894 (5,704) 10,190
------ ------ ------
Total liabilities and shareholders' equity $42,674 $(1,037) $41,637
======= ======= =======
BOOK VALUE PER SHARE
Common Stock (F) $ 3.56 $3.02
Series A Preferred Stock (G) $ 5.88 --
</TABLE>
58
<PAGE>
SEA PINES ASSOCIATES, INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(Dollars in Thousands)
EXAMPLE C - ASSUMING EXCHANGE 50% FOR TRUST PREFERRED SECURITIES
AND 50% FOR COMMON STOCK
1. Estimated Offering Costs
The Company anticipates incurring certain costs in connection with the
transaction. These costs, estimated to total $300, include legal fees,
accounting and tax fees, investment banking fees and other costs.
A. Fifty percent of these costs are included in other assets as
deferred financing costs and will be amortized over the life
of the Trust Preferred Securities, 30 years. The remaining 50%
of these costs are expensed as offering costs of the Common
Stock exchange transaction.
2. Issuance of New Securities
B. Reflects the payment of accrued but unpaid dividends on
Preferred Stock, due to such dividends being declared and paid
one year in arrears.
C. Reflects the issuance of $4,668 of 9.5% Trust Preferred
Securities in exchange for 50% of Series A Preferred Stock
(614,175 shares), using the 2.5 for 1 ratio. See E.
D. Reflects the issuance of Common Stock in exchange for 50% of
the Series A Preferred Stock (614,175 shares). See E.
E. Reflects the deemed dividend from the exchange of the Series A
Preferred Stock for the Trust Preferred Securities and Common
Stock. The amount represents the excess of the redemption
value ($7.60 per share) over the book value for the 1,228,350
shares of Series A Preferred Stock.
3. Book Value Per Share
F. Calculated as total shareholders' equity less the liquidation
preference of Series A Preferred Stock divided by the number
of shares of Common Stock outstanding.
G. Calculated as total Series A Preferred Stock book value
divided by the number of shares of Series A Preferred Stock
outstanding.
59
<PAGE>
SEA PINES ASSOCIATES, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
FOR THE YEAR ENDED OCTOBER 31, 1999
EXAMPLE C - ASSUMING EXCHANGE 50% FOR TRUST PREFERRED SECURITIES
AND 50% FOR COMMON STOCK
<TABLE>
<CAPTION>
Pro Forma
Historical Adjustments As Adjusted
---------- ----------- -----------
(Dollars and Shares in thousands,
Except per Share Amounts)
<S> <C> <C> <C>
Revenues $46,414 $46,414
Cost and expenses 42,563 $5 A 42,568
------- --------- -------
Income from operations 3,851 5 3,846
Other income (expense):
Gain on sale of assets 359 359
Interest income 164 164
Interest expense (1,099) (443)B (1,542)
------- --------- -------
(576) (443) (1,019)
------- --------- -------
Income before taxes 3,275 (448) 2,827
Provision for income taxes 1,212 (166)C 1,046
------- --------- -------
Net income 2,063 (282) 1,781
Preferred stock dividend requirements 887 (887)D 0
------- --------- -------
Net income attributable to common stock $1,176 $605 $1,781
======= ========= =======
Weighted average shares outstanding 1,843 1,535 E 3,378
======= ========= =======
Earnings per share
Basic $0.64 $0.53
======= =======
Diluted $0.64 $0.53
======= =======
</TABLE>
60
<PAGE>
SEA PINES ASSOCIATES, INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS
(Dollars in Thousands)
EXAMPLE C - ASSUMING EXCHANGE 50% FOR TRUST PREFERRED SECURITIES
AND 50% FOR COMMON STOCK
1. Estimated Offering Costs
The Company anticipates incurring certain costs in connection with the
transaction. These costs, estimated to total $300, include legal fees,
accounting and tax fees, investment banking fees and other costs.
A. Reflects amortization expense for 50% of the offering costs
capitalized as deferred financing costs for the Trust
Preferred Securities. These costs are amortized over the life
of the Trust Preferred Securities, 30 years.
2. Issuance of Trust Preferred Securities
B. Increase in interest expense related to the new Junior
Subordinated Debentures issued to the Trust bearing interest
at 9.5% per annum.
C. Reduction in provision for income taxes from the reduction in
income before taxes, using a 37% effective tax rate.
D. Elimination of the preferred stock dividend requirements due
to the exchange of all of the Series A Preferred Stock.
E. Reflects exchange of 50% of the outstanding Series A Preferred
Stock (614,175 shares), for 1,535,438 shares of Common Stock,
using the 2.5 for 1 ratio.
3. Non-recurring items
The following items will result from the transaction, if consummated, and be
reflected in the Company's financial statements when consummated. They are
excluded form the pro forma statement of operations due to their non-recurring
nature:
(i) deemed preferred stock dividend of $2,117. See adjustment E to
the Example C Pro Forma Condensed Consolidated Balance Sheet.
(ii) offering costs of $150 related to Common Stock. See adjustment
A above.
61
<PAGE>
DESCRIPTION OF COMMON STOCK
Under the Company's Articles of Incorporation, as amended (the
"Articles of Incorporation"), the Company is authorized to issue a maximum of
23,000,000 shares of common stock, without par value, of which 20,000,000 shares
may be Common Stock, 1,000,000 shares may be nonvoting common stock and
2,000,000 shares may be special common stock. No shares of nonvoting or special
common stock have ever been issued. As of December 21, 1999, 1,842,525 shares of
Common Stock were outstanding.
The following summary of the rights of holders of Common Stock does not
purport to be complete and is subject in all respects to the applicable
provisions of the South Carolina Corporate Code, the Articles of Incorporation
and the Company's bylaws (the "Bylaws").
Certain Rights of Holders of Common Stock
Dividend Rights. Subject to the rights of the holders of any class of the
Company's preferred stock, holders of Common Stock are entitled to receive on a
pro rata basis with the holders of nonvoting common stock and special common
stock to the extent specified by the Board such dividends as are declared on the
common stock by the Board out of funds legally available therefor.
Voting Rights. Subject to the rights of the holders of any class of the
Company's preferred stock and special common stock, and as required by law, all
voting rights are vested in the holders of shares of Common Stock, each share
being entitled to one vote on all matters presented for a vote. The holders of a
majority of the shares of Common Stock entitled to vote constitute a quorum at
any meeting of stockholders. Except as required by law or with respect to
certain matters described below, the affirmative vote of a majority of shares of
Common Stock entitled to vote thereon is required for approval of matters
requiring shareholder approval. Holders of shares of Common Stock do not have
cumulative voting rights, which means that holders of more than 50% of the
shares of Common Stock voting for the election of directors can elect 100% of
the directors standing for election, if they choose to do so, and the holders of
the remaining shares voting for the election of directors will not be able to
elect any person or persons to the Board. The Board is divided into three
classes, and directors normally serve three-year staggered terms. One of the
classes is presented for election at each annual meeting, so that the entire
Board is never presented for election in any one year.
Liquidation Rights. Subject to the rights of the holders of any class of the
Company's preferred stock, in the event of liquidation of the Company, holders
of the Common Stock will share on a pro rata basis with the holders of nonvoting
common stock and special common stock to the extent specified by the Board all
remaining assets of the Company.
Preemptive Rights. No shareholder of the Company is entitled to any preemptive
rights to subscribe for any securities that may be issued by the Company.
Transfer Agent. EquiServe Trust Company. N.A. is the transfer agent and
registrar for shares of Common Stock. For information concerning stock
transfers, Holders should contact the office of Secretary, Shareholder Services,
Sea Pines Associates, Inc., Post Office Box 5965, Hilton Head Island, South
Carolina 29938 (843) 842-1824.
62
<PAGE>
Rights to Purchase Series B Preferred Stock
In August 1993, the Board adopted a stockholder rights plan, as amended
and restated as of July 20, 1999 (the "Rights Plan"), and declared a dividend of
one right (a "Right" and collectively, the "Rights") for, and to be attached to,
each outstanding share of Common Stock. The resolutions creating the Rights Plan
provide that as long as the Rights are attached to shares of Common Stock, as
provided in the "Rights Agreement" referred to below, one additional Right will
be issued and delivered with each share of Common Stock that becomes outstanding
after September 2, 1993. Each Right entitles the holder thereof to purchase one
one-thousandth (1/1000th) of a share of preferred stock designated as Series B
Junior Cumulative Preferred Stock ("Series B Preferred Stock"). The Rights will
expire on August 23, 2003, unless redeemed earlier, and will not be exercisable
or transferable separately from the shares of Common Stock until a person or
group of affiliated or associated persons (an "Acquiror")has acquired beneficial
ownership of 20% or more of the outstanding Common Stock or an Acquiror has been
designated as an "Adverse Person." In the event that the Rights become
exercisable, a Right will entitle the holder to receive shares of Common Stock
having a value equal to twice the exercise price of the Right. If the Company is
acquired in a merger or other business combination or in the event of the sale
of 50% or more of the Company's assets or earning power, a Right will entitle
the holder to receive shares of the surviving company's common stock having a
market value equal to twice the exercise price of the Right. The Rights Plan is
expected to have the effect of rendering certain changes of control of the
Company more difficult.
Pursuant to the Rights Plan, 3,000 shares of Series B Preferred Stock
have been designated and reserved for issuance upon exercise of the Rights. An
additional 17,000 shares of Series B Preferred Stock will be reserved for
issuance in connection with the Exchange Offer.
A description of the Rights and the Series B Preferred Stock is set
forth in the First Amended and Restated Rights Agreement, dated August 23, 1993
and amended and restated as of July 20, 1999, between the Company and EquiServe
Trust Company, N.A., as successor Rights Agent, and the Articles of
Incorporation (the "Rights Agreement").
In connection with the Exchange Offer, the Rights Agreement is being
amended to provide that no one will become an Acquiror solely as a result of
acquiring shares of Common Stock in the Exchange Offer.
Certain Provisions of the Articles of Incorporation and Bylaws
The Articles of Incorporation and Bylaws contain certain provisions
that may have the effect of rendering a change of control of the Company more
difficult. The Board is divided into three classes, and normally directors serve
three-year staggered terms. The vote of 80% of the outstanding Common Stock
entitled to vote is required to remove a director without cause or for the
stockholders to amend any bylaw relating to director removal. Such an 80% vote
is also required for approval of a sale, merger or similar transaction or
liquidation of the Company. The Articles of Incorporation also require such an
80% vote to amend the foregoing provision.
63
<PAGE>
Under the Articles of Incorporation, the Board is authorized to grant
holders of Company debt voting rights in the event of any default in the
obligations represented thereby. Such voting rights may include (except to the
extent limited by South Carolina law) the right to elect and remove all
directors, the exclusive right to approve any merger, acquisition, dissolution,
consolidation, liquidation or sale, lease, exchange, transfer or other
disposition of all or substantially all of the assets of the Company, the
exclusive right to amend the Articles of Incorporation and Bylaws and such other
voting rights as may be permitted under South Carolina law.
The Bylaws require advance notice of, and specified information with
respect to, nominations by stockholders of persons for election as directors and
other business to be brought before a meeting by a stockholder.
The Bylaws authorize the Company to redeem "control shares" acquired in
a "control share acquisition" to the fullest extent permitted by South Carolina
law upon appropriate resolution of the Board. Generally, control shares are
shares of the Company having one-fifth or more of all voting power of the
Company in an election of directors. A "control share acquisition" with certain
exceptions means an acquisition of "control shares." Generally, control shares
acquired in a control share acquisition have the same voting rights as they had
prior to the acquisition only if the shareholders adopt a resolution approving
such voting rights. Control shares may be redeemed by the Company for fair value
if (i) no acquiring person statement has been filed within 60 days following the
control share acquisition or (ii) such a statement is filed within such time
period and the shareholders do not accord such shares full voting rights. In
connection with the Exchange Offer, the Company has determined not to exercise
any such redemption rights with respect to shares of Common Stock acquired in
the Exchange Offer.
As set forth below under "Description of Series A Preferred Stock," the
Board has the authority, without further stockholder action, to provide for the
issuance of preferred stock of the Company and to fix the terms thereof. The
Board also has the authority to provide for the issuance of special common stock
and to fix the terms thereof. Provisions which could render a change of control
of the Company more difficult, such as extraordinary voting, dividend,
redemption or conversion rights, could be included in the terms of any such
preferred or special common stock.
DESCRIPTION OF SERIES A PREFERRED STOCK
General
Under the Articles of Incorporation, the Board is authorized without
further stockholder action to provide for the issuance of up to 5,000,000 shares
of preferred stock, without par value, in one or more series, with such voting
powers or without voting powers, and with such designations, preferences and
relative, participating, optional or other special rights, and qualifications,
limitations or restrictions, as shall be set forth in the Articles of
Incorporation or in resolutions providing for the issue therefor adopted by the
Board. As of October 31, 1999, the Company has issued, pursuant to the Articles
of Incorporation, 1,228,350 shares of preferred stock, all of which are shares
of Series A Preferred Stock.
The transfer agent and registrar for the Series A Preferred Stock is
EquiServe Trust Company, N.A.
64
<PAGE>
Dividends
Holders are entitled to receive, when, as and if declared by the Board,
out of funds legally available for payment, cash dividends at an annual rate of
72.2(cent) per share. Dividends on the Series A Preferred Stock first issued
accrue daily, whether or not earned or declared, from the date which is 18
months after the date of issuance of such shares, and dividends on all shares of
Series A Preferred Stock thereafter issued accrue daily, whether or not earned
or declared, from the date following the last day of the period for which
dividends have already been paid on outstanding Series A Preferred Stock. Such
dividends are payable before any dividends shall be declared or paid upon or set
apart for the Company's common stock, and are cumulative, so that if in any year
or years dividends upon the outstanding Series A Preferred Stock at the rate of
72.2(cent) per share shall not have been paid or declared and set apart
therefor, the amount of the deficiency shall be fully paid or declared and set
apart for payment, but without interest, before any distribution, whether by way
of dividend or otherwise, shall be declared or paid upon, or set apart for, the
Company's common stock.
Liquidation Rights
In the event of a voluntary or involuntary liquidation, dissolution or
winding up of the Company, Holders shall be entitled to receive out of the
assets of the Company, whether such assets are capital or surplus of any nature,
an amount equal to $7.60 per share and, in addition to such amount, a further
amount equal to the dividends unpaid and accumulated thereon, through and
including the date of such distribution, whether or not earned or declared, and
no more, before any payment shall be made or any assets distributed to the
holders of common stock.
If upon such liquidation, dissolution or winding up, whether voluntary
or involuntary, the assets thus distributed among the Holders are insufficient
to permit the payment to such Holders of the full preferential amounts, then the
entire assets of the Company to be distributed shall be distributed ratably
among the Holders and any other shares having an equal liquidation priority with
Series A Preferred Stock. A consolidation or merger of the Company with or into
any other corporation shall not be deemed to be a liquidation, dissolution or
winding up.
Optional Redemption
The Company, at the option of the Board, may from time to time redeem
all or any part of the outstanding Series A Preferred Stock on any dividend date
by paying in cash therefor $7.60 per share and, in addition to such amount, an
amount in cash equal to all dividends on Series A Preferred Stock unpaid and
accumulated as provided above, whether earned or declared or not, through and
including the date fixed for redemption, such sum being hereinafter sometimes
referred to as the redemption price. In the case of redemption of less than all
of the outstanding shares of Series A Preferred Stock, the Company shall
designate by lot, in such a manner as the Board may determine, the shares to be
redeemed, or shall effect such redemption pro rata. Less than all of the shares
of Series A Preferred Stock at any time outstanding may not be redeemed until
all dividends accrued and in arrears upon all outstanding shares of Series A
Preferred Stock shall have been paid for all past dividend periods, and until
full dividends for the then current dividend period on all outstanding shares of
Series A Preferred Stock, other than the shares to be redeemed, shall have been
paid or declared and the full amount thereof set apart for payment.
65
<PAGE>
At least 30 days' prior written notice by mail, postage prepaid, shall
be given to the Holders to be redeemed, such notice to be addressed to each such
Holder's address as shown on the records of the Company. On or after the date
fixed for redemption and stated in such notice, each Holder of shares called for
redemption shall surrender his certificate evidencing such shares to the Company
at the place designated in such notice and shall thereupon be entitled to
receive payment of the redemption price. In case less than all the shares
represented by any such surrendered certificate are redeemed, a new certificate
shall be issued representing the unredeemed shares. If notice of redemption has
been duly given, and on the date fixed for redemption the necessary funds are
available, then notwithstanding that the certificates evidencing any shares of
Series A Preferred Stock called for redemption have not been surrendered, as of
the date fixed for redemption the dividends with respect to the shares called
for redemption shall cease to accrue and all rights with respect to the shares
called for redemption shall terminate, except the right of Holders to receive
the redemption price without interest upon surrender of their certificates.
Voting Rights
Holders have no voting rights except as set forth below or as otherwise
from time to time required by law.
If at any time dividends on the Series A Preferred Stock shall be in
arrears in an amount equal to four years' dividends, the holders of Series A
Preferred Stock as a class will be entitled to elect the smallest number of
directors which will constitute a majority of the authorized number of
directors, and the holders of Common Stock will be entitled to elect the
remaining members of the Board. At such time as all dividends accrued on the
outstanding Series A Preferred Stock have been paid or declared and set apart
for payment, the rights of Holders to vote shall cease, subject to renewal from
time to time upon the same terms and conditions.
At any time after the voting power to elect a majority of the Board has
become vested in the Holders, the Secretary may, and upon the written request of
Holders of at least 10% of the outstanding Series A Preferred Stock addressed to
the Secretary at the principal office of the Company shall, call a special
meeting of Holders and the holders of Common Stock for the election of
directors. If such meeting shall not be so called within 10 days after personal
service of the request, or within 15 days after mailing of the same by
registered mail, then the Holders of at least 10% of the Series A Preferred
Stock then outstanding may designate in writing one of their number to call such
meeting, and the person so designated may call such meeting, and for that
purpose shall have access to the stock books of the Company. At any meeting so
called or at any annual meeting held while the Holders have the voting power to
elect a majority of the Board, the Holders of a majority of the then outstanding
shares of Series A Preferred Stock present in person or by proxy shall be
sufficient to constitute a quorum for the election of directors as herein
provided. The terms of office of all persons who are directors of the Company at
the time of such meeting shall terminate as of the date of such meeting.
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The staggered board of directors authorized by the Articles of
Incorporation shall be suspended during the time Holders have the right to elect
a majority of the directors pursuant to this provision. The persons so elected
as directors by Holders, together with such persons, if any, as may be elected
as directors by the holders of Common Stock, shall constitute the duly elected
directors of the Company. All directors so elected shall serve until the next
annual meeting or until their successors are elected and have qualified. If
holders of Common Stock fail to elect the number of directors which they are
entitled to elect at such meeting, additional directors may be appointed by the
directors elected by Holders.
Whenever Holders shall be divested of such voting power as provided in
the Articles of Incorporation, the term of office of all persons who are
directors of the Company at such time shall terminate upon the election of their
successors by holders of Common Stock.
SEA PINES ASSOCIATES TRUST I
The Trust was created under the Delaware Trust Act pursuant to (i) the
Original Trust Agreement and (ii) the filing of a Certificate of Trust with the
Secretary of State of Delaware on December 14, 1999. Such Original Trust
Agreement will be amended and restated in its entirety as of the Expiration
Date. The Company will initially acquire all of the Trust Common Securities, and
the Trust will issue the Trust Preferred Securities to the Holders in the
Exchange Offer.
Immediately after consummation of the Exchange Offer, former Holders
will own all of the issued and outstanding Trust Preferred Securities and the
Company will own all of the issued and outstanding Trust Common Securities. The
Trust Common Securities will have an aggregate Liquidation Amount equal to 3% of
the total capital of the Trust. The Trust exists for the sole purposes and
functions of (a) issuing the Trust Preferred Securities in exchange for shares
of Series A Preferred Stock, (b) issuing Trust Common Securities for cash, (c)
exchanging such shares of Series A Preferred Stock and the cash paid for the
Trust Common Securities for the Company's Junior Subordinated Debentures having
an aggregate principal amount equal to the aggregate Liquidation Amount of the
Trust Securities issued, (d) holding such Junior Subordinated Debentures and (e)
engaging in such other activities as are necessary and incidental thereto. The
Company will pay all fees and expenses related to the Trust and the issuance of
the Trust Securities.
Pursuant to the Original Trust Agreement, the Trust currently has two
trustees, the Delaware Trustee and an Administrative Trustee. When the Original
Trust Agreement is amended and restated, a Property Trustee will, and one or
more additional Administrative Trustees may, be named. The Property Trustee must
be a person that is a national or state chartered bank and that has a combined
capital and surplus of at least $50 million. First Union Trust Company, National
Association, a national banking association ("First Union"), will be the
Property Trustee until it resigns or is removed. Each Administrative Trustee
must be a natural person who is at least 21 years of age or a legal entity that
shall act through one or more persons authorized to bind that entity. Michael E.
Lawrence, the Company's Chief Executive Officer, is the current Administrative
Trustee and will continue to serve as such until he resigns or is removed. The
Delaware Trustee must either be a natural person who is at least 21 years of age
and a resident of Delaware or an entity that maintains its principal place of
business in the state of Delaware. First Union is the current Delaware Trustee
and will continue to serve as such until it resigns or is removed. Together the
Property Trustee, the Delaware Trustee and the Administrative Trustee are
referred to herein as the "Issuer Trustees." The Company, as the holder of the
Trust Common Securities, will have the right to appoint or remove any Issuer
Trustee.
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The Property Trustee will hold legal title to the Junior Subordinated
Debentures for the benefit of the holders of the Trust Securities and will have
the power to exercise all rights, powers and privileges as the holder of the
Junior Subordinated Debentures under the Indenture. In addition, the Property
Trustee will maintain exclusive control of a segregated non-interest bearing
trust account (the "Payment Account") into which it will deposit all payments of
funds received in respect of the Junior Subordinated Debentures for the benefit
of the holders of the Trust Securities. The Property Trustee will make payments
of Distributions and payments on liquidation, redemption and otherwise to the
holders of the Trust Securities out of funds from the Payment Account. Trust and
trustee expenses will not be paid from funds in the Payment Account, but will be
paid by the Company pursuant to the Trust Agreement.
First Union also will act as Debenture Trustee and as Guarantee
Trustee. See "Description of the Junior Subordinated Debentures" and
"Description of the Guarantee." The Company may in the future enter into other
relationships with First Union or its affiliates.
The business address of the Trust is c/o Sea Pines Associates Trust I,
32 Greenwood Drive, Hilton Head Island, South Carolina 29928, Attention: Michael
E. Lawrence, Administrative Trustee, and its telephone number at that address is
(843) 785-3333.
DESCRIPTION OF THE TRUST PREFERRED SECURITIES
The Trust Preferred Securities represent preferred undivided beneficial
interests in the assets of the Trust and the holders thereof will be entitled to
a preference in certain circumstances with respect to distributions made
pursuant to the Trust Agreement ("Distributions") and amounts payable on
redemption or liquidation over the Trust Common Securities, as well as other
benefits as described in the Trust Agreement.
This description of certain provisions of the Trust Preferred
Securities and the Trust Agreement, which summarizes the material terms thereof,
does not purport to be complete and is subject to, and is qualified in its
entirety by reference to, all the provisions of the Trust Agreement, including
the definitions therein of certain terms, to which reference is hereby made.
Wherever particular defined terms of the Trust Agreement are referred to herein,
such defined terms are incorporated herein by reference.
Distributions
Distributions on the Trust Preferred Securities will be payable at the
annual rate of 9.5% (the "Distribution Rate") of the stated liquidation amount
of $7.60 (the "Liquidation Amount"), except in an Extension Period during which
time Distributions will accrue at an annual rate of 11.51% (plus interest on
such unpaid Distributions as set forth herein). Distributions will accumulate
from the date of original issuance which shall be the day immediately following
the Expiration Date and, unless (and to the extent) the Company, as Depositor,
exercises its right to defer the payment of interest on the Junior Subordinated
Debentures as described below, such Distributions will be payable on a quarterly
basis nine months in arrears on January 31, April 30, July 31 and October 31 of
each year (each, a "Distribution Date"), commencing on January 31, 2001 (at
which time Distributions accruing for the period between February 1, 2000 and
April 30, 2000 shall be payable). Distributions on the Trust Preferred
Securities with respect to a Distribution Date will be payable to the holders of
record of the Trust Preferred Securities as they appear on the close of business
on the fifteenth day next preceding the relevant Distribution Date. The amount
of Distributions payable for any period will be computed on the basis of a
360-day year of twelve 30-day months and the actual number of days elapsed in a
partial month period.
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In the event that any date on which Distributions are payable on the
Trust Preferred Securities is not a Business Day (as defined herein), then
payment of the Distributions payable on such date will be made on the next
succeeding day that is a Business Day (and without any additional Distributions
or other payment in respect of any such delay), except that, if such Business
Day is in the next succeeding calendar year, such payment shall be made on the
immediately preceding Business Day, in each case with the same force and effect
as if made on the date such payment was originally payable. As used herein,
"Business Day" means a day other than (i) a Saturday or Sunday, (ii) a day on
which banking institutions in The City of New York are authorized or required by
law or executive order to remain closed or (iii) a day on which the corporate
trust office of the Property Trustee or the Debenture Trustee is closed for
business. Distributions in respect of the Trust Preferred Securities will be
made pro rata with the Trust Common Securities except as described under
"--Subordination of Trust Common Securities."
The sole source of revenue of the Trust available for distribution to
holders of the Trust Preferred Securities will be payments made under the Junior
Subordinated Debentures. If the Company does not make interest payments on the
Junior Subordinated Debentures, the Property Trustee will not have funds
available to pay Distributions on the Trust Preferred Securities. The payment of
Distributions (if and to the extent the Trust has funds legally available for
the payment of such Distributions) is guaranteed by the Company on a limited
basis as set forth under "Description of the Guarantee."
So long as no Debenture Event of Default (as defined in "Description of
the Junior Subordinated Debentures--Debenture Events of Default," below) has
occurred and is continuing, the Company has the right under the Indenture to
defer the payment of interest on the Junior Subordinated Debentures at any time
or from time to time for an Extension Period of time not to exceed 20
consecutive quarterly periods, provided that no Extension Period may extend
beyond January 31, 2030, which is the stated maturity date of the Junior
Subordinated Debentures, or such date as may be shortened (not earlier than
January 31, 2003) or extended (not later than the 49th anniversary of January
31, 2001) pursuant to the Indenture (the "Stated Maturity"). At the end of such
Extension Period, the Company must pay all interest then accrued and unpaid on
the Junior Subordinated Debentures (together with interest on such unpaid
interest at the annual rate of 11.51%, compounded annually, from the relevant
Interest Payment Date (as defined in "Description of the Junior Subordinated
Debentures," below), to the extent permitted by applicable law ("Additional
Interest")). Thereafter, the Company may elect to begin a new Extension Period.
There is no limitation on the number of times that the Company may elect to
begin an Extension Period. See "Description of the Junior Subordinated
Debentures--Option to Defer Interest Payments" and "Certain Federal Income Tax
Considerations--Interest Income and Original Issue Discount."
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As a consequence of any such deferral of interest payments by the
Company, Distributions on the Trust Preferred Securities would also be deferred
by the Trust and be subject to accumulation at an annual rate of 11.51%,
compounded annually during any such Extension Period, and the Company will not
be permitted, subject to certain exceptions, to declare or pay any cash
distributions with respect to the Company's capital stock or debt securities
that rank on a parity with or junior to the Junior Subordinated Debentures. See
"Description of the Junior Subordinated Debentures--Restrictions on Certain
Payments." Within five Business Days after the receipt of notice of the
Company's exercise of its right to defer the payment of interest on the Junior
Subordinated Debentures pursuant to the Indenture, the Administrative Trustee
shall transmit, in the manner and to the extent provided in the Trust Agreement,
notice of such exercise to the holders of the Trust Preferred Securities, unless
such exercise shall have been revoked.
The Company has no current intention of exercising its right to defer
payments of interest by extending the interest payment period on the Junior
Subordinated Debentures.
Redemption
While the Trust Preferred Securities are outstanding, upon the
repayment or redemption, in whole or in part, of the Junior Subordinated
Debentures, whether at Stated Maturity or upon earlier redemption as provided in
the Indenture, the proceeds from such repayment or redemption shall be applied
by the Property Trustee to redeem a Like Amount (as defined below) of the Trust
Securities, at a redemption price equal to the aggregate Liquidation Amount of
such Trust Preferred Securities plus accumulated and unpaid Distributions
thereon (the "Redemption Price") to the date of redemption (the "Redemption
Date"). If less than all of the Junior Subordinated Debentures are to be repaid
or redeemed on a Redemption Date, then the proceeds from such repayment or
redemption shall be allocated to the redemption pro rata of the Trust Preferred
Securities and the Trust Common Securities based upon the relative Liquidation
Amounts of such Trust Securities except as described under "--Subordination of
Trust Common Securities." Redemptions of the Trust Preferred Securities shall be
made at the Redemption Price on each Redemption Date, but only to the extent
that the Trust has funds on hand available for the payment of the Redemption
Price.
The Company has the right to redeem the Junior Subordinated Debentures
(i) on or after January 31, 2003, in whole at any time or in part from time to
time or (ii) upon the occurrence and during the continuation of a Tax Event, at
any time within 90 days following the occurrence and during the continuation of
a Tax Event, in whole (but not in part). A redemption of the Junior Subordinated
Debentures would cause a mandatory redemption of the Trust Securities. See
"Description of the Junior Subordinated Debentures--Redemption."
If a Tax Event has occurred and is continuing and the Company does not
elect to either (i) redeem the Junior Subordinated Debentures and thereby cause
a mandatory redemption of the Trust Preferred Securities or (ii) to dissolve the
Trust and cause the Junior Subordinated Debentures to be distributed to holders
of the Trust Securities in exchange therefor upon liquidation of the Trust as
described in "--Dissolution and Liquidation; Distribution Upon Dissolution,"
below, such Trust Securities will remain outstanding and Additional Sums (as
defined below) may be payable on the Junior Subordinated Debentures.
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"Additional Sums" means such additional sums as may be necessary in
order that the amount of Distributions (including any hereinafter defined
Additional Amounts) then due and payable by the Trust on the outstanding Trust
Securities shall not be reduced as a result of any additional taxes, duties and
other governmental charges to which the Trust has become subject as a result of
a Tax Event.
"Like Amount" means (i) with respect to a redemption of Trust
Securities, Trust Securities having a Liquidation Amount equal to the principal
amount of Junior Subordinated Debentures to be contemporaneously redeemed, the
proceeds of which will be used to pay the Redemption Price of such Trust
Securities, (ii) with respect to a distribution of Junior Subordinated
Debentures to holders of Trust Securities in connection with a dissolution or
liquidation of the Trust, Junior Subordinated Debentures having a principal
amount equal to the Liquidation Amount of the Trust Securities in respect of
which such distribution is made and (iii) with respect to any distribution of
Additional Amounts to holders of Trust Securities, Junior Subordinated
Debentures having a principal amount equal to the Liquidation Amount of the
Trust Securities in respect of which such distribution is made.
"Additional Amounts" means, with respect to Trust Securities of a given
Liquidation Amount and/or a given period, the amount of Additional Interest paid
by the Company on a Like Amount of Junior Subordinated Debentures for such
period.
Notice of redemption of the Trust Preferred Securities shall be mailed
not less than 30 nor more than 60 days prior to the Redemption Date. If the
Property Trustee gives a notice of redemption in respect of the Trust Preferred
Securities, then, by 12:00 noon, New York City time, on the Redemption Date, to
the extent funds are available, the Property Trustee will irrevocably deposit
with the paying agent for the Trust Preferred Securities funds sufficient to pay
the Redemption Price and will give such paying agent irrevocable instructions
and authority to pay the Redemption Price to the holders thereof upon surrender
of their certificates evidencing such Trust Preferred Securities.
Notwithstanding the foregoing, Distributions payable on or prior to the
Redemption Date for any Trust Preferred Securities called for redemption shall
be payable to the holders of such Trust Preferred Securities on the relevant
record dates for the related Distribution Dates. If notice of redemption shall
have been given and funds deposited as required, then upon the date of such
deposit, all rights of the holders of the Trust Preferred Securities so called
for redemption will cease, except the right of the holders of such Trust
Preferred Securities to receive the Redemption Price, but without interest on
such Redemption Price, and such Trust Preferred Securities will cease to be
outstanding.
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In the event that any Redemption Date with respect to such Trust
Preferred Securities is not a Business Day, then payment of the Redemption Price
payable on such Redemption Date will be made on the next succeeding day which is
a Business Day (without any interest or other payment in respect of any such
delay), except that, if such Business Day falls in the next calendar year, such
payment will be made on the immediately preceding Business Day, in each case,
with the same force and effect as if made on such date. In the event that
payment of the Redemption Price in respect of the Trust Preferred Securities
called for redemption is improperly withheld or refused and not paid either by
the Trust or by the Company pursuant to the Guarantee as described under
"Description of the Guarantee," Distributions on such Trust Preferred Securities
will continue to accumulate at the then applicable interest rate (as described
above under the caption "Distributions") from the Redemption Date originally
established by the Trust for such Trust Preferred Securities to the date such
Redemption Price is actually paid, in which case the actual payment date will be
the Redemption Date for purposes of calculating the Redemption Price.
If less than all of the outstanding Trust Securities subject to
redemption are to be redeemed on a Redemption Date, then the aggregate
Liquidation Amount of Trust Securities to be redeemed shall be allocated pro
rata to the Trust Common Securities and the Trust Preferred Securities based
upon the Liquidation Amount of such classes. The particular Trust Preferred
Securities to be redeemed shall be selected on a pro rata basis not more than 60
days prior to the Redemption Date by the Property Trustee from the outstanding
Trust Preferred Securities not previously called for redemption. The Property
Trustee shall promptly notify the securities registrar in writing of the Trust
Preferred Securities selected for redemption and, in the case of any Trust
Preferred Securities selected for partial redemption, the Liquidation Amount
thereof to be redeemed.
For all purposes of the Trust Agreement, unless the context otherwise
requires, the provisions relating to the redemption of the Trust Preferred
Securities shall relate, in the case of any Trust Preferred Securities redeemed
or to be redeemed only in part, to the portion of the aggregate Liquidation
Amount of the Trust Preferred Securities which has been or is to be redeemed.
Registrar and Transfer Agent
The Property Trustee will initially act as registrar and transfer agent
for the Trust Preferred Securities. Registration of transfers of the Trust
Preferred Securities will be effected, subject to such reasonable regulations as
the Property Trustee may prescribe, without charge by or on behalf of the Trust,
but upon payment of any tax or other governmental charges that may be imposed in
connection with any transfer or exchange. The registrar and transfer agent shall
not be required (i) to issue, register the transfer of or exchange any Trust
Preferred Security during a period beginning at the opening of business 15 days
before the day of selection for redemption of such Trust Preferred Securities
and ending at the close of business on the day of mailing of the notice of
redemption or (ii) to register the transfer of or exchange any Trust Preferred
Security so selected for redemption in whole or in part, except, in the case of
any such Trust Preferred Security to be redeemed in part, any portion thereof
not to be redeemed.
Subordination of Trust Common Securities
Payment of Distributions (including any Additional Amounts) on, the
Redemption Price of, and the Liquidation Distribution in respect of the Trust
Securities, as applicable, shall be made, subject to allocation provisions
relating to the proceeds of partial redemptions of Junior Subordinated
Debentures described under the first paragraph under "Redemption" above, pro
rata based on the Liquidation Amount of such Trust Securities. However, if an
Event of Default (as defined below) resulting from a Debenture Event of Default
attributable to the failure of the Company to pay interest on or principal of
the Junior Subordinated Debentures on the date on which such payment is due and
payable, shall have occurred and be continuing on any Distribution Date,
Redemption Date or Liquidation Date, no payment of any Distribution (including
any Additional Amounts) on, Redemption Price of, or Liquidation Distribution in
respect of, any Trust Common Security, and no other payment on account of the
redemption, liquidation or other acquisition of the Trust Common Securities,
shall be made unless: (1) payment in full in cash of (a) all accumulated and
unpaid Distributions (including any Additional Amounts) on all of the
outstanding Trust Preferred Securities for all Distribution periods terminating
on or prior thereto, or (b) in the case of payment of the Redemption Price, the
full amount of such Redemption Price on all of the outstanding Trust Preferred
Securities then called for redemption, or (c) in the case of payment of the
Liquidation Distribution, the full amount of such Liquidation Distribution on
all outstanding Trust Preferred Securities, shall have been made or provided
for, and (2) all funds available to the Property Trustee shall first be applied
to the payment in full in cash of all Distributions (including any Additional
Amounts) on, or Redemption Price of, the Trust Preferred Securities then due and
payable.
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In the case of any Event of Default resulting from a Debenture Event of
Default, the Company as holder of the Trust Common Securities will have no right
to act with respect to any such Event of Default under the Trust Agreement until
the effect of all such Events of Default with respect to the Trust Preferred
Securities have been cured, waived or otherwise eliminated. Until all such
Events of Default with respect to the Trust Preferred Securities have been so
cured, waived or otherwise eliminated, the Property Trustee shall act solely on
behalf of the holders of the Trust Preferred Securities and not on behalf of the
Company as holder of the Trust Common Securities, and only the holders of the
Trust Preferred Securities will have the right to direct the Property Trustee to
act on their behalf.
Dissolution and Liquidation; Distribution Upon Dissolution
Pursuant to the Trust Agreement, the Trust shall dissolve on the first
to occur of the following events: (i) certain events of bankruptcy, dissolution
or liquidation of the Company; (ii) the written direction to the Property
Trustee from the Company, as holder of all of the Trust Common Securities, at
any time, to dissolve the Trust and to distribute the Junior Subordinated
Debentures to the holders of the Trust Preferred Securities in exchange for the
Trust Preferred Securities; (iii) the redemption of all of the outstanding Trust
Preferred Securities in connection with a redemption of all of the Junior
Subordinated Debentures; (iv) the entry of an order for the dissolution of the
Trust by a court of competent jurisdiction; and (v) the expiration of the term
of the Trust (collectively, the "Early Dissolution Events").
Except as set forth in the following paragraph, if an Early Dissolution
Event described in clauses (i), (ii), (iv) or (v) of the previous paragraph
occurs, the Trust shall be liquidated by the Issuer Trustees as expeditiously as
the Issuer Trustees determine to be possible by distributing, after satisfaction
of liabilities to creditors of the Trust as provided by applicable law, to the
holders of such Trust Securities in exchange therefor a Like Amount of the
Junior Subordinated Debentures. Notice of liquidation shall be given by the
Property Trustee not less than 30 nor more than 60 days prior to the liquidation
to each holder of the Trust Securities at such holder's address as it appears in
its register.
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Notwithstanding the preceding paragraph, if the distribution of the
Junior Subordinated Debentures is determined by the Property Trustee not to be
practical or if an Early Dissolution Event specified in clause (iii) of the
first paragraph of this section occurs, the Trust Property (as defined below)
shall be liquidated and the Issuer Trust shall be wound up by the Property
Trustee in such a manner as the Property Trustee determines. In such event
(other than an Early Dissolution Event as described in clause (iii) of the first
paragraph of this section), the holders of the Trust Securities will be entitled
to receive out of the assets of the Trust available for distribution to holders,
after satisfaction of liabilities to creditors of the Trust as provided by
applicable law, an amount equal to the Liquidation Distribution in respect
thereof. If such Liquidation Distribution can be paid only in part because the
Trust has insufficient assets available to pay in full the aggregate Liquidation
Distribution, then the amounts payable directly by the Trust on the Trust
Securities shall be paid on a pro rata basis (based upon Liquidation Amounts)
except as provided under "--Subordination of Trust Common Securities."
Except where an Early Dissolution Event described in clause (iii) of
the first paragraph of this section occurs, in order to effect the distribution
of the Junior Subordinated Debentures to the holders of the Trust Securities,
the Property Trustee, either itself acting as exchange agent or through the
appointment of a separate exchange agent, shall establish a record date for such
distribution (which shall be not more than 30 days prior to the liquidation
date) and, establish such procedures as it shall deem appropriate to effect the
distribution of Junior Subordinated Debentures in exchange for the Trust
Securities. After the liquidation date, (i) the Trust Securities will no longer
be deemed to be outstanding under the Trust Agreement, (ii) certificates
representing a Like Amount of Junior Subordinated Debentures will be issued to
holders of the Trust Securities upon surrender of such Trust Securities to the
exchange agent for exchange, (iii) any Trust Securities not so surrendered for
exchange will be deemed to represent a Like Amount of the Junior Subordinated
Debentures bearing accrued and unpaid interest in an amount equal to the
accumulated and unpaid Distributions on such Trust Securities until such
certificates are so surrendered (and until such certificates are so surrendered,
no payments of interest or principal will be made to holders of the Trust
Securities with respect to such Junior Subordinated Debentures) and (iv) all
rights of holders of the Trust Securities will cease, except the right of such
holders to receive the Junior Subordinated Debentures upon surrender of the
Trust Securities. See "Description of the Junior Subordinated
Debentures--Distribution of Junior Subordinated Debentures."
Under current United States federal income tax law, a distribution of
the Junior Subordinated Debentures in exchange for the Trust Preferred
Securities should not be a taxable event to holders of the Trust Preferred
Securities. Should there be a change in law, a change in legal interpretation, a
Tax Event or other circumstances, however, the distribution of the Junior
Subordinated Debentures could be a taxable event to holders of the Trust
Preferred Securities. See "Certain Federal Income Tax Considerations--Receipt of
Junior Subordinated Debentures or Cash Upon Liquidation of the Trust." If the
Company elects neither to redeem the Junior Subordinated Debentures prior to
their Stated Maturity nor to dissolve the Trust and distribute the Junior
Subordinated Debentures to holders of the Trust Preferred Securities in exchange
therefor, the Trust Preferred Securities will remain outstanding until the
Stated Maturity of the Junior Subordinated Debentures.
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There can be no assurance as to the market prices for the Trust
Preferred Securities or the Junior Subordinated Debentures that may be
distributed in exchange for the Trust Preferred Securities if a dissolution and
liquidation of the Trust were to occur.
Events of Default; Notice; Right to Direct Remedies
Any one of the following events constitutes an "Event of Default" under
the Trust Agreement (whatever the reason for such Event of Default and whether
it shall be voluntary or involuntary or be effected by operation of law or
pursuant to any judgment, decree or order of any court or any order, rule or
regulation of any administrative or governmental body):
(i) the occurrence of a Debenture Event of Default; or
(ii) default by the Trust in the payment of any Distribution when it
becomes due and payable and continuation of such default for a period of 30
days; or
(iii) default by the Trust in the payment of any Redemption Price of
any Trust Security when it becomes due and payable; or
(iv) default in the performance, or breach, in any material respect, of
any covenant or warranty of the Issuer Trustees in the Trust Agreement (other
than those specified in clauses (ii) or (iii) above), and continuation of such
default or breach for a period of 60 days after there has been given, by
registered or certified mail, to the Issuer Trustees and the Company, as
Depositor, by the holders of at least 25% in aggregate Liquidation Amount of the
outstanding Trust Preferred Securities, a written notice specifying such default
or breach and requiring it to be remedied and stating that such notice is a
"Notice of Default" under the Trust Agreement; or
(v) the occurrence of certain events of bankruptcy or insolvency with
respect to the Property Trustee and the failure by the Company to appoint a
successor Property Trustee within 90 days thereof.
Within five Business Days after the occurrence of any Event of Default
actually known to the Property Trustee, the Property Trustee shall transmit in
the manner specified in the Trust Agreement notice of such Event of Default to
the holders of the Trust Preferred Securities, the Administrative Trustee and
the Company, as Depositor, unless such Event of Default shall have been cured or
waived. The Property Trustee shall not be deemed to have knowledge of any Event
of Default unless the Property Trustee shall have received written notice or a
responsible officer of the Property Trustee charged with the administration of
the Trust Agreement shall have obtained actual knowledge of such Event of
Default.
For so long as any Trust Preferred Securities remain outstanding, if,
upon a Debenture Event of Default, the Debenture Trustee or the holders of not
less than 25% in principal amount of the outstanding Junior Subordinated
Debentures fail to declare the principal of all of the Junior Subordinated
Debentures to be immediately due and payable, the holders of at least 25% in
Liquidation Amount of the Trust Preferred Securities then outstanding shall have
the right to make such declaration by a notice in writing to the Property
Trustee, the Company and the Debenture Trustee.
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At any time after a declaration of acceleration with respect to the
Junior Subordinated Debentures has been made and before a judgment or decree for
payment of the money due has been obtained by the Debenture Trustee as provided
in the Indenture, if the Property Trustee fails to annul any such declaration
and waive such default, the holders of a majority of the aggregate Liquidation
Amount of the Trust Preferred Securities, by written notice to the Property
Trustee, the Company, as Depositor, and the Debenture Trustee, may rescind and
annul such declaration and its consequences if (i) the Company, as Depositor,
has paid or deposited with the Debenture Trustee a sum sufficient to pay (a) all
overdue installments of interest on all of the Junior Subordinated Debentures,
(b) any accrued Additional Interest on all of the Junior Subordinated
Debentures, (c) the principal of any Junior Subordinated Debentures that have
become due otherwise than by such declaration of acceleration and interest and
Additional Interest thereon at the rate borne by the Junior Subordinated
Debentures and (d) all sums paid or advanced by the Debenture Trustee under the
Indenture and the reasonable compensation, expenses, disbursements and advances
of the Debenture Trustee and the Property Trustee, their agents and counsel; and
(ii) all Events of Default with respect to the Junior Subordinated Debentures,
other than the non-payment of the principal of the Junior Subordinated
Debentures that has become due solely by such acceleration, have been cured or
waived as provided in the Indenture.
The holders of a majority of the aggregate Liquidation Amount of the
Trust Preferred Securities may, on behalf of the holders of all the Trust
Preferred Securities, waive any past default under the Indenture as to the
Junior Subordinated Debentures, except a default in the payment of principal or
interest (unless such default has been cured and a sum sufficient to pay all
matured installments of interest and principal due otherwise than by
acceleration has been deposited with the Debenture Trustee) or a default in
respect of a covenant or provision that under the Indenture cannot be modified
or amended without the consent of the holder of each outstanding Junior
Subordinated Debenture. No such rescission shall affect any subsequent default
or impair any right consequent upon such default.
For so long as any Trust Preferred Securities remain outstanding, to
the fullest extent permitted by law and subject to the terms of the Trust
Agreement and the Indenture, upon a Debenture Event of Default attributable to
the failure of the Company to pay interest on or principal of the Junior
Subordinated Debentures on the date on which such payment is due and payable,
any holder of the Trust Preferred Securities shall have the right to institute a
Direct Action against the Company. Except as set forth in this paragraph and the
previous three paragraphs, and except as otherwise provided in the Indenture,
the holders of the Trust Preferred Securities shall have no right to exercise
directly any right or remedy available to the holders of, or in respect of, the
Junior Subordinated Debentures.
Subject to the limitations described in the previous four paragraphs,
the holders of a majority of the aggregate Liquidation Amount of the Trust
Preferred Securities may, on behalf of the holders of all the Trust Preferred
Securities, waive any past default or Event of Default and its consequences.
Upon such waiver, any such default or Event of Default shall cease to exist and
any default or Event of Default arising therefrom shall be deemed to have been
cured for every purpose of the Trust Agreement, but no such waiver shall extend
to any subsequent or other default or Event of Default or impair any right
consequent upon such default.
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So long as any Junior Subordinated Debentures are held by the Property
Trustee, the Property Trustee shall not (i) direct the time, method and place of
conducting any proceeding for any remedy available to the Debenture Trustee, or
execute any trust or power conferred on the Property Trustee with respect to
such Junior Subordinated Debentures, (ii) waive any past default that is
waivable under the Indenture, (iii) exercise any right to rescind or annul a
declaration that the principal of all the Junior Subordinated Debentures shall
be due and payable or (iv) consent to any amendment, modification or termination
of the Indenture or such Junior Subordinated Debentures, where such consent
shall be required, without, in each case, obtaining the prior approval of the
holders of a majority of the aggregate Liquidation Amount of all outstanding
Trust Preferred Securities; provided, however, that where a consent under the
Indenture would require the consent of each holder of Junior Subordinated
Debentures affected thereby, no such consent shall be given by the Property
Trustee without the prior consent of each holder of the Trust Preferred
Securities. The Property Trustee shall not revoke any action previously
authorized or approved by a vote of the holders of the Trust Preferred
Securities except by subsequent vote of the holders of the Trust Preferred
Securities. The Property Trustee shall notify each holder of the Trust Preferred
Securities of any notice of default with respect to the Junior Subordinated
Debentures. In addition to obtaining the foregoing approvals of the holders of
the Trust Preferred Securities, prior to taking any of the foregoing actions,
the Property Trustee shall, at the expense of the Company, as Depositor, obtain
an opinion of counsel experienced in such matters to the effect that such action
shall not cause the Trust to be taxable as a corporation for United States
federal income tax purposes or classified as other than a grantor trust for
United States federal income tax purposes.
Mergers, Consolidations, Amalgamations or Replacements of the Trust
The Trust may not merge with or into, consolidate, amalgamate or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to any corporation or other body, except as
described below or as described in "--Dissolution and Liquidation; Distribution
Upon Dissolution." The Trust may, at the request of the holders of the Trust
Common Securities, with the consent of the Administrative Trustee, merge with or
into, consolidate, amalgamate or be replaced by or convey, transfer or lease its
properties and assets substantially as an entirety to a trust organized as such
under the laws of any state; provided, that (i) such successor entity either (a)
expressly assumes all of the obligations of the Trust with respect to the Trust
Preferred Securities or (b) substitutes for the Trust Preferred Securities other
securities having substantially the same terms as the Trust Preferred Securities
(the "Successor Securities") so long as the Successor Securities have the same
priority as the Trust Preferred Securities with respect to distributions and
payments upon liquidation, redemption and otherwise, (ii) a trustee of such
successor entity possessing the same powers and duties as the Property Trustee
is appointed by the Company, as Depositor, to hold the Junior Subordinated
Debentures, (iii) such merger, consolidation, amalgamation, replacement,
conveyance, transfer or lease does not cause the Trust Preferred Securities
(including any Successor Securities) to be downgraded by any nationally
recognized statistical rating organization which assigns ratings to the Trust
Preferred Securities, (iv) such merger, consolidation, amalgamation,
replacement, conveyance, transfer or lease does not adversely affect the rights,
preferences and privileges of the holders of the Trust Preferred Securities
(including any Successor Securities) in any material respect, (v) such successor
entity has a purpose substantially identical to that of the Trust, (vi) prior to
such merger, consolidation, amalgamation, replacement, conveyance, transfer or
lease, the Company, as Depositor, has received an opinion of counsel to the
effect that (a) such merger, consolidation, amalgamation, replacement,
conveyance, transfer or lease does not adversely affect the rights, preferences
and privileges of the holders of the Trust Preferred Securities (including any
Successor Securities) in any material respect and (b) following such merger,
consolidation, amalgamation, replacement, conveyance, transfer or lease, neither
the Trust nor such successor entity will be required to register as an
investment company under the Investment Company Act of 1940, as amended (the
"Investment Company Act"), and (vii) the Company, as Depositor, or any permitted
transferee owns all of the trust common securities of such successor entity and
guarantees the obligations of such successor entity under the Successor
Securities at least to the extent provided by the Guarantee.
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Notwithstanding the foregoing, the Trust shall not, except with the
consent of holders of all of the Trust Preferred Securities, consolidate,
amalgamate, merge with or into, or be replaced by, or convey, transfer or lease
its properties and assets substantially as an entirety to any other entity or
permit any other entity to consolidate, amalgamate, merge with or into, or
replace it if such consolidation, amalgamation, merger, replacement, conveyance,
transfer or lease would cause the Trust or the successor entity to be classified
as a business entity taxable as a corporation or classified as other than a
grantor trust for United States federal income tax purposes.
Resignation and Removal of Issuer Trustees; Appointment of Successors
No resignation or removal of any Issuer Trustee (the "Relevant
Trustee") and no appointment of a successor Issuer Trustee pursuant to the Trust
Agreement shall become effective until the acceptance of appointment by the
successor Issuer Trustee in accordance with the applicable requirements of the
Trust Agreement.
Subject to the immediately preceding paragraph, the Relevant Trustee
may resign at any time by giving written notice thereof to the holders of the
Trust Securities. If an instrument of acceptance by the successor Trustee shall
not have been delivered to the Relevant Trustee within 30 days after the giving
of such notice of resignation, the Relevant Trustee may petition, at the expense
of the Trust, any court of competent jurisdiction for the appointment of a
successor Relevant Trustee.
Unless a Debenture Event of Default shall have occurred and be
continuing, any Issuer Trustee may be removed at any time by act of the holders
of the Trust Common Securities. If a Debenture Event of Default shall have
occurred and be continuing, the Property Trustee or the Delaware Trustee, or
both of them, may be removed at such time by act of the holders of a majority of
the aggregate Liquidation Amount of the Trust Preferred Securities. An
Administrative Trustee may be removed by the holders of the Trust Common
Securities at any time. In no event will the holders of the Trust Preferred
Securities have a right to vote to appoint, remove or replace an Administrative
Trustee.
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Co-trustees and Separate Property Trustee
Unless an Event of Default shall have occurred and be continuing, at
any time or from time to time, for the purpose of meeting the legal requirements
of any jurisdiction in which any part of the Trust Property (as defined below)
may at the time be located, the Company, as Depositor, and the Administrative
Trustee shall have power to appoint one or more persons approved by the Property
Trustee to act either as a co-trustee, jointly with the Property Trustee, of all
or any part of the Trust Property, or to the extent required by law, as separate
trustee of any such property, in either case with such powers as may be provided
in the instrument of appointment, and to vest in such person or persons (as
defined below) in such capacity any property, title, right or power deemed
necessary or desirable, subject to the provisions of the Trust Agreement. In
case a Debenture Event of Default has occurred and is continuing, the Property
Trustee alone shall have the power to make such appointment.
"Trust Property" means (i) the Junior Subordinated Debentures, (ii) any
cash on deposit in, or owing to, the "Payment Account" created under the Trust
Agreement and (iii) all proceeds and rights in respect of the foregoing and any
other property or assets held by the Property Trustee pursuant to the trusts of
the Trust Agreement.
Merger or Consolidation of Issuer Trustees
Any person into which the Property Trustee, the Delaware Trustee or any
Administrative Trustee that is not a natural person may be merged or converted
or with which it may be consolidated, or any person resulting from any merger,
conversion or consolidation to which such Relevant Trustee shall be a party, or
any person succeeding to all or substantially all the corporate trust business
of such Relevant Trustee, shall be the successor of such Relevant Trustee under
the Trust Agreement, provided such person shall be otherwise qualified and
eligible.
A "person," as used herein, means any individual, corporation, estate,
partnership, joint venture, association, joint stock company, company, limited
liability company, trust, unincorporated association, government or any agency
or political subdivision thereof or any other entity of whatever nature.
Responsibilities of the Property Trustee
The Property Trustee, before the occurrence of an Event of Default and
after the curing of all Events of Default that may have occurred, undertakes to
perform only such duties as are specifically set forth in the Trust Agreement
and, after an Event of Default has occurred which has not been cured or waived,
must exercise the same degree of care and skill as a prudent person would
exercise or use in the conduct of his or her own affairs. Subject to this
provision, the Property Trustee is under no obligation to exercise any of the
powers vested in it by the Trust Agreement at the request or direction of any
holder of the Trust Preferred Securities unless it is offered reasonable
security or indemnity against the costs, expenses and liabilities that might be
incurred thereby; provided that, such right to indemnity shall in no event
relieve the Property Trustee upon the occurrence of an Event of Default of its
obligation to exercise the rights and powers vested in it by the Trust
Agreement. If no Event of Default has occurred and is continuing and the
Property Trustee (a) is required to decide between alternative causes of action,
(b) is required to construe ambiguous provisions in the Trust Agreement or (c)
is unsure of the application of any provision of the Trust Agreement, and the
matter is not one on which holders of the Trust Preferred Securities are
entitled under the Trust Agreement to vote, then the Property Trustee shall take
such action as is directed by the Company and if not so directed, shall take
such action as it deems advisable and in the best interests of the holders of
the Trust Securities and will have no liability except for its own bad faith,
gross negligence or willful misconduct.
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Amendment of Trust Agreement
The Trust Agreement may be amended from time to time by the
Administrative Trustee and the holders of all of the Trust Common Securities,
without the consent of any holder of the Trust Preferred Securities, (i) to cure
any ambiguity, correct or supplement any provisions in the Trust Agreement that
may be inconsistent with any other provision, or to make any other provisions
with respect to matters or questions arising under the Trust Agreement, which
shall not be inconsistent with the other provisions of the Trust Agreement, (ii)
to modify, eliminate or add to any provisions of the Trust Agreement to such
extent as shall be necessary to ensure that the Trust will be classified for
United States federal income tax purposes as a grantor trust or as other than a
business entity taxable as a corporation at all times that any Trust Securities
are outstanding or to ensure that the Trust will not be required to register as
an "investment company" under the Investment Company Act or (iii) to permit the
qualification of the Trust Agreement under any federal statute now or hereafter
in effect or any state "Blue Sky" law if the Company, as Depositor, so directs;
provided, however, that in the case of either clause (i) or (ii), such action
shall not adversely affect in any material respect the interests of any holder
of the Trust Preferred Securities, and any such amendments of such Trust
Agreement shall become effective when notice thereof is given to the holders of
the Trust Securities.
The Trust Agreement may be amended by the Issuer Trustees and the
Company with (i) the consent of the holders of a majority of the aggregate
Liquidation Amount of the outstanding Trust Securities and (ii) receipt by the
Issuer Trustees of an opinion of counsel to the effect that such amendment or
the exercise of any power granted to the Issuer Trustees in accordance with such
amendment will not cause the Trust to be taxable as a corporation or classified
as other than a grantor trust for United States federal income tax purposes or
affect the Trust's exemption from status as an "investment company" under the
Investment Company Act; provided that without the consent of each affected
holder of Trust Securities, the Trust Agreement may not be amended to (i) change
the amount or timing of any Distribution on the Trust Securities or otherwise
adversely affect the amount of any Distribution required to be made in respect
of the Trust Securities as of a specified date or (ii) restrict the right of a
holder of Trust Securities to institute suit for the enforcement of any such
payment on or after such date.
Any required approval of holders of the Trust Preferred Securities may
be given at a meeting of holders of the Trust Preferred Securities convened for
such purpose or pursuant to written consent. The Property Trustee will cause a
notice of any meeting at which holders of the Trust Preferred Securities are
entitled to vote to be given to each holder of record of the Trust Preferred
Securities in the manner set forth in the Trust Agreement.
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No vote or consent of the holders of the Trust Preferred Securities
will be required for the Trust to redeem and cancel the Trust Preferred
Securities in accordance with the Trust Agreement.
Governing Law
The Trust Agreement will be governed by and construed in accordance
with the laws of the State of Delaware.
Miscellaneous
The Property Trustee and the Administrative Trustee are authorized and
directed to conduct the affairs of, and to operate, the Trust in such a way that
the Trust will not be deemed to be an "investment company" required to be
registered under the Investment Company Act and will not be taxable as a
corporation or as other than a grantor trust for United States federal income
tax purposes and so that the Junior Subordinated Debentures will be treated as
indebtedness of the Company for United States federal income tax purposes. In
this connection, the Administrative Trustee, the Property Trustee and the
holders of a majority of the aggregate Liquidation Amount of the Trust Common
Securities are authorized to take any action, not inconsistent with applicable
law, the certificate of trust of the Trust or the Trust Agreement, that the
Administrative Trustee, the Property Trustee or such holders of the Trust Common
Securities determine in their discretion to be necessary or desirable for such
purposes, as long as such action does not materially adversely affect the
interests of the holders of the Trust Preferred Securities.
First Union will initially serve as paying agent under the Trust
Agreement with respect to the Trust Preferred Securities. Any paying agent with
respect to the Trust Preferred Securities shall be permitted to resign as paying
agent upon 30 days written notice to the Administrative Trustee and the Property
Trustee. In the event that First Union shall no longer be the paying agent, the
Administrative Trustee shall appoint a successor (which shall be a bank or trust
company) to act as paying agent.
Holders of the Trust Preferred Securities have no preemptive or
similar rights.
The Trust Agreement provides that each holder of the Trust Preferred
Securities, by acceptance thereof, agrees to the provisions of the Trust
Agreement and the Guarantee, including the subordination provisions thereof, and
the Indenture.
DESCRIPTION OF THE JUNIOR SUBORDINATED DEBENTURES
The Junior Subordinated Debentures are to be issued under the
Indenture. This summary of certain terms and provisions of the Junior
Subordinated Debentures and the Indenture, which summarizes the material
provisions thereof, does not purport to be complete and is subject to, and is
qualified in its entirety by reference to, the Indenture. Whenever particular
defined terms of the Indenture are referred to herein, such defined terms are
incorporated herein by reference.
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General
The Indenture permits the issuance from time to time of debt securities
thereunder in addition to the Junior Subordinated Debentures ("Additional Junior
Subordinated Debt Securities" which, together with the Junior Subordinated
Debentures, will be referred to herein as the "Junior Subordinated Debt
Securities"), and the Junior Subordinated Debentures will rank on a parity with
such Additional Junior Subordinated Debt Securities, all of which will be
unsecured and subordinate and junior in right of payment to the extent and in
the manner set forth in the Indenture to all Senior Debt (as defined below) of
the Company. The Indenture does not limit the incurrence or issuance of other
secured or unsecured debt of the Company, including Senior Debt, but excluding
the Junior Subordinated Debt Securities, whether under the Indenture, or any
other indenture that the Company may enter into in the future or otherwise. See
"--Subordination." The Company expects from time to time to incur additional
indebtedness constituting Senior Debt.
Concurrently with the issuance of the Trust Preferred Securities in
exchange for shares of Series A Preferred Stock, the Trust will exchange the
shares of Series A Preferred Stock together with the consideration paid by the
Company for the Trust Common Securities, for the Junior Subordinated Debentures.
The Junior Subordinated Debentures will be issued in an aggregate principal
amount equal to the aggregate Liquidation Amount of the Trust Preferred
Securities plus the aggregate Liquidation Amount of the Trust Common Securities.
The Junior Subordinated Debentures will mature on January 31, 2030 and will bear
interest from the date of issuance, which shall be the day immediately following
the Expiration Date, at the annual rate of 9.5% of the principal amount thereof
(except in an Extension Period during which time the Junior Subordinated
Debentures will bear interest at an annual rate of 11.51% plus additional
interest as set forth in "--Option to Defer Interest Payments" below). Interest
shall be payable on a quarterly basis nine months in arrears on January 31,
April 30, July 31 and October 31 of each year (each, an "Interest Payment
Date"), commencing January 31, 2001 (at which time interest accruing for the
period between February 1, 2000 and April 30, 2000 shall be payable), to the
person in whose name each Junior Subordinated Debenture is registered, subject
to certain exceptions, at the close of business on the date that is 15 days
preceding such Interest Payment Date. It is anticipated that, until the
liquidation, if any, of the Trust, the Junior Subordinated Debentures will be
held in the name of the Property Trustee in trust for the benefit of the Trust
and the holders of the Trust Securities. The amount of interest payable for any
period will be computed on the basis of a 360-day year of twelve 30-day months.
In the event that any date on which interest is payable on the Junior
Subordinated Debentures is not a Business Day, then payment of the interest
payable on such date will be made on the next succeeding day that is a Business
Day (without any interest or other payment in respect of any such delay), except
that, if such Business Day is in the next succeeding calendar year, such payment
shall be made on the immediately preceding Business Day, in each case with the
same force and effect as if made on the date such payment was originally
payable. Accrued interest that is not paid on the applicable Interest Payment
Date will bear Additional Interest. See "Description of the Trust Preferred
Securities--Distributions." The term "interest" as used herein shall include
quarterly interest payments, interest on quarterly interest payments not paid on
the applicable Interest Payment Date and Additional Sums, as applicable.
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Redemption
The Company has the right to redeem the Junior Subordinated Debentures
(i) on or after January 31, 2003, in whole at any time or in part from time to
time or (ii) upon the occurrence and during the continuation of a Tax Event, at
any time within 90 days following the occurrence and during the continuation of
a Tax Event, in whole (but not in part). A redemption of the Junior Subordinated
Debentures would cause a mandatory redemption of the Trust Securities.
Junior Subordinated Debentures in denominations larger than $7.60 may
be redeemed in part but only in integral multiples of $7.60. The Redemption
Price for any Junior Subordinated Debentures so redeemed shall equal any accrued
and unpaid interest (including Additional Interest) thereon to the Redemption
Date, plus 100% of the principal amount thereof.
Notice of any redemption will be mailed at least 45 days but not more
than 75 days before the Redemption Date to each holder of the Junior
Subordinated Debentures to be redeemed at its registered address. Unless the
Company defaults in payment of the Redemption Price, on and after the Redemption
Date interest shall cease to accrue on such Junior Subordinated Debentures or
portions thereof called for redemption.
"Tax Event" means the receipt by a business trust of an opinion of
counsel experienced in such matters to the effect that, as a result of any
amendment to, or change (including any announced proposed change) in, the laws
(or any regulations thereunder) of the United States or any political
subdivision or taxing authority thereof or therein, or as a result of any
official administrative pronouncement or judicial decision interpreting or
applying such laws or regulations, which amendment or change is effective or
which pronouncement or decision is announced on or after the date of issuance of
the trust preferred securities of such business trust, there is more than an
insubstantial risk that (i) such business trust is, or will be within 90 days of
the delivery of such opinion of counsel, subject to United States federal income
tax with respect to income received or accrued on the corresponding series of
Junior Subordinated Debt Securities issued by the Company to such business
trust, (ii) interest payable by the Company on such corresponding series of
Junior Subordinated Debt Securities is not, or within 90 days of the delivery of
such opinion of counsel will not be, deductible by the Company, in whole or in
part, for United States federal income tax purposes or (iii) such business trust
is, or will be within 90 days of the delivery of such opinion of counsel,
subject to more than a de minimis amount of other taxes, duties or other
governmental charges.
Denominations, Registration and Transfer
The Junior Subordinated Debentures will be issuable only in registered
form without coupons in denominations of $7.60 and any integral multiple
thereof. Junior Subordinated Debentures will be exchangeable for other Junior
Subordinated Debentures of any authorized denominations, of like tenor and
aggregate principal amount, upon surrender of the Junior Subordinated
Debentures, to be exchanged at the offices or agencies of the Company designated
for that purpose.
Junior Subordinated Debentures may be presented for exchange as
provided above and may be presented for registration of transfer (with the form
of transfer endorsed thereon, or a satisfactory written instrument of transfer,
duly executed) at the offices or agencies of the Company designated for such
purpose without service charge and upon payment of any taxes and other
governmental charges as described in the Indenture. The Company will appoint the
Debenture Trustee as securities registrar under the Indenture.
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Neither the Company nor the Debenture Trustee shall be required to (i)
issue, register the transfer of or exchange Junior Subordinated Debentures
during the period beginning at the opening of business 15 days before the day of
selection for redemption of the Junior Subordinated Debentures and ending at the
close of business on the day of mailing of the relevant notice of redemption or
(ii) register the transfer of or exchange any Junior Subordinated Debentures so
selected for redemption, in whole or in part, except, in the case of any Junior
Subordinated Debentures being redeemed in part, any portion thereof not to be
redeemed.
Option to Defer Interest Payments
So long as no Debenture Event of Default has occurred and is
continuing, the Company has the right under the Indenture at any time or from
time to time during the term of the Junior Subordinated Debentures to defer
payment of interest on the Junior Subordinated Debentures for an Extension
Period not exceeding 20 consecutive quarterly periods; provided that no
Extension Period may extend beyond the Stated Maturity of the Junior
Subordinated Debentures. During an Extension Period, interest will continue to
accrue and holders of the Junior Subordinated Debentures (or holders of the
Trust Preferred Securities while the Trust Preferred Securities are outstanding)
will be required to accrue interest income for United States federal income tax
purposes. See "--Restrictions on Certain Payments" and "Certain Federal Income
Tax Considerations--Interest Income and Original Issue Discount."
During any such Extension Period, the Company will not be permitted,
subject to certain exceptions, to declare or pay any cash distributions with
respect to the Company's capital stock or debt securities that rank on a parity
with or junior to the Junior Subordinated Debentures as described under
"--Restrictions on Certain Payments." Prior to the termination of any such
Extension Period, the Company may further defer the payment of interest on the
Junior Subordinated Debentures, provided that no Extension Period may exceed 20
consecutive quarterly periods or extend beyond the Stated Maturity of the Junior
Subordinated Debentures or end on a date other than an Interest Payment Date. At
the end of such Extension Period, the Company must pay to the holders of the
Junior Subordinated Debentures Additional Interest and the Trust must pay to the
holders of the Trust Preferred Securities accumulated Distributions. See
"Description of the Trust Preferred Securities--Distributions." Upon the
termination of any such Extension Period and the payment of all interest then
accrued and unpaid and any Additional Interest then due on the Interest Payment
Date, the Junior Subordinated Debentures will thereafter bear interest at the
initial rate of 9.5% per annum (unless the Company elects to begin a new
Extension Period). The Company may elect to begin a new Extension Period subject
to the above conditions. No interest or Additional Interest shall be due and
payable during an Extension Period, except at the end thereof.
The Company must give the holders of the Junior Subordinated Debentures
and the Debenture Trustee notice of its election to begin such Extension Period
at least one Business Day prior to the next succeeding Interest Payment Date, or
with respect to the Junior Subordinated Debentures issued to the Trust so long
as such Junior Subordinated Debentures are held by the Trust, at least one
Business Day prior to the earlier of (i) the next succeeding date on which
Distributions on the Trust Preferred Securities would be payable but for such
deferral and (ii) the date on which the Trust is required to give notice to any
securities exchange or other applicable self-regulatory organization or to
holders of the Trust Preferred Securities of the applicable record date or the
date such Distribution is payable. The Debenture Trustee shall give notice of
the Company's election to begin a new Extension Period to the holders of the
Junior Subordinated Debentures. There is no limitation on the number of times
that the Company may elect to begin an Extension Period.
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Additional Sums
If the Trust is required to pay any additional taxes, duties or other
governmental charges as a result of a Tax Event, the Company will pay as
Additional Sums on the Junior Subordinated Debentures such amounts as shall be
required so that the Distributions payable by the Trust shall not be reduced as
a result of any such additional taxes, duties or other governmental charges.
Restrictions on Certain Payments
The Company will covenant as to the Junior Subordinated Debentures that
it will not (i) declare or pay any dividends or distributions on, or redeem,
purchase, acquire or make a liquidation payment with respect to, any of the
Company's capital stock or (ii) make any payment of principal of or interest or
premium, if any, on or repay, repurchase or redeem any debt securities of the
Company (including other Junior Subordinated Debt Securities) that rank pari
passu in all respects with or junior in interest to the Junior Subordinated
Debentures (other than (a) repurchases, redemptions or other acquisitions of
shares of capital stock of the Company in connection with any employment
contract, benefit plan or other similar arrangement with or for the benefit of
one or more employees, officers, directors or consultants, in connection with a
dividend reinvestment or stockholder stock purchase plan or in connection with
the issuance of capital stock of the Company (or securities convertible into or
exercisable for such capital stock) as consideration in an acquisition
transaction entered into prior to the applicable Extension Period, (b) as a
result of an exchange or conversion of any class or series of the Company's
capital stock (or any capital stock of a subsidiary of the Company) for any
class or series of the Company's capital stock, or of any class or series of the
Company's indebtedness for any class or series of the Company's capital stock,
(c) the purchase of fractional interests in shares of the Company's capital
stock pursuant to the conversion or exchange provisions of such capital stock or
the security being converted or exchanged, (d) any declaration of a dividend in
connection with any rights plan (as defined below) or the issuance of rights,
stock or other property under any rights plan, or the redemption or repurchase
of rights pursuant thereto or (e) any dividend in the form of stock, warrants,
options or other rights where the dividend stock or the stock issuable upon
exercise of such warrants, options or other rights is the same stock as that on
which the dividend is being paid or ranks pari passu with or junior to such
stock), if at such time (1) there shall have occurred any event of which the
Company has actual knowledge that with the giving of notice or the lapse of
time, or both, would constitute an Event of Default with respect to the Junior
Subordinated Debentures and in respect of which the Company shall not have taken
reasonable steps to cure, (2) such Junior Subordinated Debentures are held by
the Trust and the Company shall be in default with respect to its payment of any
obligations under the Guarantee or (3) the Company shall have given notice of
its election to begin an Extension Period as provided in the Indenture with
respect to the Junior Subordinated Debentures and shall not have rescinded such
notice, or such Extension Period, or any extension thereof, shall be continuing.
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A "rights plan" means a plan of the Company, including the Rights Plan,
providing for the issuance to all holders of Common Stock of rights entitling
the holders thereof to subscribe for or purchase shares of any class or series
of capital stock of the Company which rights (i) are deemed to be transferred
with such shares of Common Stock and (ii) are also issued in respect of future
issuances of such Common Stock, in each case until the occurrences of a
specified event or events.
Subordination
The Junior Subordinated Debt Securities will be subordinate in right of
payment, to the extent set forth in the Indenture, to all Senior Debt of the
Company. As of October 31, 1999, the Company had approximately $19,883,000 of
Senior Debt. If the Company defaults in the payment of any principal, premium,
if any, or interest, if any, or any other amount payable on any Senior Debt when
the same becomes due and payable, whether at maturity or at a date fixed for
redemption or by declaration of acceleration or otherwise, then, unless and
until such default has been cured or waived or has ceased to exist or all Senior
Debt of the Company has been paid, no direct or indirect payment (in cash,
property, securities, by set-off or otherwise) may be made or agreed to be made
on the Junior Subordinated Debt Securities or in respect of any redemption,
repayment, retirement, purchase or other acquisition of any of the Junior
Subordinated Debt Securities.
"Senior Debt" means (i) Senior Indebtedness (but excluding trade
accounts payable and accrued liabilities arising in the ordinary course of
business) and (ii) the Allocable Amounts of Senior Subordinated Indebtedness.
"Senior Indebtedness" means any obligation of the Company to its
creditors, whether now outstanding or subsequently incurred, other than any
obligation as to which, in the instrument creating or evidencing the obligation
or pursuant to which the obligation is outstanding, it is provided that such
obligation is not Senior Indebtedness. Senior Indebtedness does not include
Senior Subordinated Indebtedness or the Junior Subordinated Debt Securities.
"Senior Subordinated Indebtedness" means any obligation of the Company
to its creditors, whether now outstanding or subsequently incurred, where the
instrument creating or evidencing the obligation or pursuant to which the
obligation is outstanding, provides that it is subordinate and junior in right
of payment to Senior Indebtedness.
"Allocable Amounts," when used with respect to any Senior Subordinated
Indebtedness means the amounts necessary to pay all principal of (and premium,
if any) and interest, if any, on such Senior Subordinated Indebtedness in full
less, if applicable, any portion of such amounts which would have been paid to,
and retained by, the holders of such Senior Subordinated Indebtedness (whether
such payments are received by the holders of such Senior Subordinated
Indebtedness (1) from the Company or any other obligor thereon or (2) from any
holders of, or trustee in respect of, other indebtedness that is subordinate and
junior pursuant to provisions of such indebtedness that direct amounts received
on account of such indebtedness to be paid over to the holders of such Senior
Subordinated Indebtedness) but for the fact that such Senior Subordinated
Indebtedness is subordinate or junior in right of payment to trade accounts
payable or accrued liabilities arising in the ordinary course of business.
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In the event of (i) any insolvency, bankruptcy, receivership,
liquidation, reorganization, readjustment, composition or other similar
proceeding relating to the Company, its creditors or its property, (ii) any
proceeding for the liquidation, dissolution or other winding up of the Company,
voluntary or involuntary, whether or not involving insolvency or bankruptcy
proceedings, (iii) any assignment by the Company for the benefit of creditors or
(iv) any other marshalling of the assets of the Company, all Senior Debt
(including any interest thereon accruing after the commencement of any such
proceedings) of the Company shall first be paid in full before any payment or
distribution, whether in cash, securities or other property, shall be made on
account of the Junior Subordinated Debt Securities. In such event, any payment
or distribution on account of the Junior Subordinated Debt Securities, whether
in cash, securities or other property, that would otherwise (but for the
subordination provisions) be payable or deliverable in respect of the Junior
Subordinated Debt Securities of any series will be paid or delivered directly to
the holders of Senior Debt of the Company in accordance with the priorities then
existing among such holders until all Senior Debt of the Company (including any
interest thereon accruing after the commencement of any such proceedings) has
been paid in full; provided, however, that any payment or distribution of "other
property" shall not include securities of the Company or any other corporation
provided for by a plan of reorganization or readjustment if the payment of such
securities is subordinate, at least to the extent provided in these
subordination provisions with respect to the indebtedness evidenced by the
Junior Subordinated Debt Securities, (1) to all Senior Debt of the Company at
the time outstanding and (2) to any securities issued in respect thereof under
any such plan of reorganization or readjustment.
In the event of any such proceeding, after payment in full of all sums
owing with respect to Senior Debt of the Company, the holders of Junior
Subordinated Debt Securities, together with the holders of any obligations of
the Company ranking on a parity with the Junior Subordinated Debt Securities
(which for this purpose only shall include the Allocable Amounts of Senior
Subordinated Indebtedness), will be entitled to be paid from the remaining
assets of the Company the amounts at the time due and owing on the Junior
Subordinated Debt Securities and such other obligations before any payment or
other distribution, whether in cash, property or otherwise, will be made on
account of any capital stock or obligations of the Company ranking junior to the
Junior Subordinated Debt Securities and such other obligations. If any payment
or distribution by the Company on account of any character or any security,
whether in cash, securities or "other property" (subject to the proviso
contained in last sentence of the previous paragraph), shall be received by the
Debenture Trustee or any holder of any Junior Subordinated Debt Security in
contravention of any of the terms of the Indenture and before all the Senior
Debt of the Company has been paid in full, such payment or distribution or
security will be received in trust for the benefit of, and must be paid over or
delivered and transferred to, the holders of the Senior Debt of the Company at
the time outstanding in accordance with the priorities then existing among such
holders for application to the payment of all Senior Debt of the Company
remaining unpaid to the extent necessary to pay all such Senior Debt of the
Company in full. By reason of such subordination, in the event of the insolvency
of the Company, holders of Senior Debt of the Company may receive more, ratably,
and holders of the Junior Subordinated Debt Securities may receive less,
ratably, than the other creditors of the Company. Such subordination will not
prevent the occurrence of any Debenture Event of Default.
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Distribution of Junior Subordinated Debentures
As described under "Description of the Trust Preferred
Securities--Dissolution and Liquidation; Distribution Upon Dissolution," under
certain circumstances involving the termination of the Trust, Junior
Subordinated Debentures may be distributed to the holders of the Trust Preferred
Securities in exchange therefor in a Like Amount upon liquidation of the Trust
after satisfaction of liabilities to creditors of the Trust as provided by
applicable law. There can be no assurance as to the market price of any Junior
Subordinated Debentures that may be distributed to the holders of the Trust
Preferred Securities.
Debenture Events of Default
The Indenture provides that any one or more of the following described
events with respect to a series of Junior Subordinated Debt Securities,
including the Junior Subordinated Debentures, that has occurred and is
continuing constitutes a "Debenture Event of Default" with respect to such
series of Junior Subordinated Debt Securities:
(i) default in the payment of any interest upon any Junior
Subordinated Debt Security of that series, including any Additional
Interest in respect thereof, when it becomes due and payable, and
continuance of such default for a period of 30 days (subject to the
deferral of any due date in the case of an Extension Period); or
(ii) default in the payment of the principal of any Junior
Subordinated Debt Security of that series at its maturity; or
(iii) failure on the part of the Company duly to observe or
perform any other of the covenants or agreements on the part of the
Company in the Junior Subordinated Debt Securities of that series or in
the Indenture for a period of 90 days after the date on which written
notice of such failure, requiring the Company to remedy the same, shall
have been given to the Company by the Trustee by registered or
certified mail or to the Company and the Debenture Trustee by the
holders of at least 25% in aggregate principal amount of the
outstanding Junior Subordinated Debt Securities of that series; or
(iv) the entry of a decree or order by a court having
jurisdiction in the premises adjudging the Company a bankrupt or
insolvent, or approving as properly filed a petition seeking
reorganization of the Company under Title 11 of the United States Code
or any successor statute, as amended (the "Bankruptcy Code"), or any
other similar applicable federal or state law, which decree or order
shall have continued undischarged and unstayed for a period of 60 days;
or the entry of a decree or order of a court having jurisdiction in the
premises for the appointment of a receiver or liquidator or trustee or
assignee in bankruptcy or insolvency of the Company or of its property,
or for the winding-up or liquidation of its affairs, which decree or
order shall have continued undischarged and unstayed for a period of 60
days; or
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(v) the commencement by the Company of voluntary proceedings
to be adjudicated a bankrupt, or consent by the Company to the filing
of a bankruptcy proceeding against it, or the filing by the Company of
a petition or answer or consent seeking reorganization under the
Bankruptcy Code or any other similar federal or state law, or consent
by the Company to the filing of any such petition, or the consent by
the Company to the appointment of a receiver or liquidator or trustee
or assignee in bankruptcy or insolvency of it or of its property, or
the making by the Company of an assignment for the benefit of
creditors, or the admission by the Company in writing of its inability
to pay its debts generally as they become due; or
(vi) any other event of default provided with respect to
Junior Subordinated Debt Securities of that series.
If a Debenture Event of Default (other than a Debenture Event of
Default specified in clauses (iv) or (v) of the immediately preceding paragraph)
with respect to Junior Subordinated Debt Securities of any series at the time
outstanding occurs and is continuing, then and in every such case the Debenture
Trustee or the holders of not less than 25% in aggregate principal amount of the
outstanding Junior Subordinated Debt Securities of that series may declare the
principal amount (or, such portion of the principal amount as may be specified
in the terms of that series) of all the Junior Subordinated Debt Securities of
that series to be due and payable immediately, by a notice in writing to the
Company (and to the Debenture Trustee if given by holders), provided that, in
the case of the Junior Subordinated Debt Securities of a series issued to a
business trust, if, upon a Debenture Event of Default, the Debenture Trustee or
the holders of not less than 25% in principal amount of the outstanding Junior
Subordinated Debt Securities of such series fail to declare the principal of all
the outstanding Junior Subordinated Debt Securities of such series to be
immediately due and payable, the holders of at least 25% in aggregate
Liquidation Amount of the related series of trust preferred securities then
outstanding shall have the right to make such declaration by a notice in writing
to the Company and the Debenture Trustee; and upon any such declaration such
principal amount (or specified portion thereof) of and the accrued interest
(including any Additional Interest) on all the Junior Subordinated Debt
Securities of such series shall become immediately due and payable. If a
Debenture Event of Default specified in clauses (iv) or (v) of the immediately
preceding paragraph with respect to Junior Subordinated Debt Securities of any
series at the time outstanding occurs, the principal amount of all the Junior
Subordinated Debt Securities of such series (or such portion of the principal
amount of such Junior Subordinated Debt Securities as may be specified by the
terms of that series) shall automatically, and without any declaration or other
action on the part of the Debenture Trustee or any holder, become immediately
due and payable.
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At any time after such a declaration of acceleration with respect to
Junior Subordinated Debt Securities of any series has been made and before a
judgment or decree for payment of the money due has been obtained by the
Debenture Trustee as in the Indenture provided, the holders of a majority in
aggregate principal amount of the outstanding Junior Subordinated Debt
Securities of that series, by written notice to the Company and the Debenture
Trustee, may rescind and annul such declaration and its consequences if (i) the
Company has paid or deposited with the Debenture Trustee a sum sufficient to pay
(a) all overdue installments of interest on all Junior Subordinated Debt
Securities of such series, (b) any accrued Additional Interest on all Junior
Subordinated Debt Securities of such series, (c) the principal of any Junior
Subordinated Debt Securities of such series that have become due otherwise than
by such declaration of acceleration and interest and Additional Interest thereon
at the rate borne by such series of Junior Subordinated Debt Securities and (d)
all sums paid or advanced by the Debenture Trustee under the Indenture and the
reasonable compensation, expenses, disbursements and advances of the Debenture
Trustee, its agents and counsel and (ii) all Debenture Events of Default with
respect to the Junior Subordinated Debt Securities of that series, other than
the non-payment of the principal of the Junior Subordinated Debt Securities of
that series that has become due solely by such acceleration, have been cured or
waived as provided in the Indenture.
In the case of Junior Subordinated Debt Securities of a series
initially issued to a business trust, if the holders of such Junior Subordinated
Debt Securities fail to annul such declaration and waive such default, the
holders of a majority in aggregate liquidation amount of the related series of
trust preferred securities then outstanding shall also have the right to rescind
and annul such declaration and its consequences by written notice to the Company
and the Debenture Trustee, subject to the satisfaction of the conditions set
forth in clauses (i) and (ii) of the immediately preceding paragraph. No such
rescission shall affect any subsequent default or impair any right consequent
thereon.
Within 90 days after actual knowledge by a responsible officer of the
Debenture Trustee of the occurrence of any default under the Indenture with
respect to the Junior Subordinated Debt Securities of any series, the Debenture
Trustee shall transmit by mail to all holders of Junior Subordinated Debt
Securities of such series, as their names and addresses appear in the register,
notice of such default, unless such default shall have been cured or waived;
provided, however, that, except in the case of a default in the payment of the
principal of or interest (including any Additional Interest) on any Junior
Subordinated Debt Security of such series, the Debenture Trustee shall be
protected in withholding such notice if and so long as the board of directors,
the executive committee or a trust committee of directors and/or responsible
officers of the Debenture Trustee in good faith determines that the withholding
of such notice is in the interests of the holders of Junior Subordinated Debt
Securities of such series; and provided, further, that, in the case of any
covenant default, no such notice to holders of Junior Subordinated Debt
Securities of such series shall be given until at least 30 days after the
occurrence thereof. For the purpose of this paragraph, the term "default" means
any event that is, or after notice or lapse of time or both would become, a
Debenture Event of Default with respect to Junior Subordinated Debt Securities
of such series.
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Enforcement of Certain Rights by Holders of Trust Preferred Securities
The holders of a majority in aggregate principal amount of the Junior
Subordinated Debentures have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Debenture Trustee or
exercising any trust or power conferred upon the Debenture Trustee under the
Indenture. If a Debenture Event of Default has occurred and is continuing and
such event is attributable to the failure of the Company to pay interest or
principal on the Junior Subordinated Debentures on the date such interest or
principal (or, in the case of redemption, the Redemption Date) is due and
payable, a holder of the Trust Preferred Securities may institute a Direct
Action against the Company under the Indenture. The Company may not amend the
Indenture to remove the foregoing right to bring a Direct Action without the
prior written consent of the holders of all of the Trust Preferred Securities
outstanding. If the right to bring a Direct Action is removed, the Trust may
become subject to the reporting obligations under the Exchange Act. The Company
shall have the right under the Indenture to set off any payment made to such
holder of Trust Preferred Securities by the Company in connection with a Direct
Action.
The holders of the Trust Preferred Securities will not be able to
exercise directly any remedies other than those set forth in the preceding
paragraph available to the holders of the Junior Subordinated Debentures unless
there shall have been an Event of Default under the Trust Agreement. See
"Description of the Trust Preferred Securities--Events of Default; Notice; Right
to Direct Remedies."
Consolidation, Merger, Sale of Assets and Other Transactions
The Indenture provides that the Company shall not consolidate with or
merge into any other person or convey, transfer or lease its properties and
assets substantially as an entirety to any person, and no person shall
consolidate with or merge into the Company or convey, transfer or lease its
properties and assets substantially as an entirety to the Company unless: (i) if
the Company consolidates with or merges into another person or conveys,
transfers or leases its properties and assets substantially as an entirety to
any person, the successor person is organized under the laws of the United
States or any state or territory thereof or the District of Columbia and such
successor person expressly assumes the Company's obligations on the Junior
Subordinated Debt Securities issued under the Indenture, (ii) immediately after
giving effect thereto, no Debenture Event of Default, and no event which, after
notice or lapse of time or both, would become a Debenture Event of Default,
shall have occurred and be continuing and (iii) certain other conditions as
prescribed by the Indenture are met.
The general provisions of the Indenture do not afford holders of the
Junior Subordinated Debentures protection in the event of a highly leveraged or
other transaction involving the Company that may adversely affect holders of the
Junior Subordinated Debentures.
Resignation and Removal of Debenture Trustee; Appointment of a Successor
The Debenture Trustee may resign at any time with respect to the Junior
Subordinated Debentures by giving written notice thereof to the Company. If an
instrument of acceptance by a successor Debenture Trustee shall not have been
delivered to the Debenture Trustee within 30 days after the giving of such
notice of resignation, the resigning Debenture Trustee may petition any court of
competent jurisdiction for the appointment of a successor Debenture Trustee with
respect to the Junior Subordinated Debentures.
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The Debenture Trustee may be removed at any time with respect to the
Junior Subordinated Debentures by the holders of a majority in aggregate
principal amount of the Junior Subordinated Debentures delivered to the
Debenture Trustee and to the Company. In addition, if at any time (i) the
Debenture Trustee shall cease to meet the eligibility requirements under the
Indenture and shall fail to resign after written request therefor by the Company
or by any holder or (ii) the Debenture Trustee shall become incapable of acting
or shall be adjudged a bankrupt or insolvent or a receiver of the Debenture
Trustee or of its property shall be appointed or any public officer shall take
charge or control of the Debenture Trustee or of its property or affairs for the
purpose of rehabilitation, conversation or liquidation, then, in any such case,
(A) the Company may remove the Debenture Trustee with respect to the Junior
Subordinated Debt Securities of all series issued under the Indenture or (B)
subject to the provisions of the Indenture requiring the holder to undertake to
pay certain related costs, any holder who has been a bona fide holder of a
Junior Subordinated Debenture for at least six months may, on behalf of such
holder and all others similarly situated, petition any court of competent
jurisdiction for the removal of the Debenture Trustee with respect to the Junior
Subordinated Debt Securities of all series issued under the Indenture and the
appointment of a successor Debenture Trustee.
If the Debenture Trustee shall resign, be removed or become incapable
of acting, of if a vacancy shall occur in the office of the Debenture Trustee
for any cause with respect to the Junior Subordinated Debt Securities of one or
more series, the Company shall promptly appoint a successor Debenture Trustee
with respect to the Junior Subordinated Debt Securities of that or those series.
If, within one year after such resignation, removal or incapability, or the
occurrence of such vacancy, a successor Debenture Trustee with respect to the
Junior Subordinated Debt Securities of any series shall be appointed by act of
the holders of a majority in aggregate principal amount of the outstanding
Junior Subordinated Debt Securities of such series delivered to the Company and
the retiring Debenture Trustee, the successor Debenture Trustee so appointed
shall, forthwith upon its acceptance of such appointment, become the successor
Debenture Trustee with respect to the Junior Subordinated Debt Securities of
such series and supersede the successor Debenture Trustee appointed by the
Company. If no successor Debenture Trustee with respect to the Junior
Subordinated Debt Securities of any series shall have been so appointed by the
Company or the holders and accepted appointment in the manner as in the
Indenture provided, any holder who has been a bona fide holder of a Junior
Subordinated Debt Security of such series for at least six months may, subject
to the provisions of the Indenture requiring the holder to undertake to pay
certain related costs, on behalf of such holder and all others similarly
situated, petition any court of competent jurisdiction for the appointment of a
successor Debenture Trustee with respect to the Junior Subordinated Debt
Securities of such series.
Merger or Consolidation of Debenture Trustee
Any corporation into which the Debenture Trustee may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which the Debenture Trustee
shall be a party, or any corporation succeeding to all or substantially all of
the corporate trust business of the Debenture Trustee, shall be the successor of
the Debenture Trustee under the Indenture, provided such corporation shall be
otherwise qualified and eligible under the Indenture, without the execution or
filing of any paper or any further act on the part of any of the parties to the
Indenture.
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Modification of Indenture
From time to time the Company and the Debenture Trustee may, without
the consent of the holders of the Junior Subordinated Debt Securities, amend,
modify or supplement the Indenture for specified purposes, including, (i) to
evidence the succession of another person to the Company and the assumption by
the successor of the covenants of the Company contained in the Indenture and the
Junior Subordinated Debt Securities; (ii) to convey, transfer, assign, mortgage
or pledge any property to or with the Debenture Trustee or surrender any right
or power of the Company contained in the Indenture; (iii) to provide for the
issuance of and establish the form or terms of any Junior Subordinated Debt
Securities; (iv) to add to the covenants of the Company for the benefit of the
holders of all or any series of Junior Subordinated Debt Securities (and if such
covenants are to be for the benefit of less than all series of Junior
Subordinated Debt Securities, stating that such covenants are expressly being
included solely for the benefit of the series specified) or to surrender any
right or power conferred upon the Company; (v) to add any additional Debenture
Events of Default for the benefit of the holders of all or any series of Junior
Subordinated Debt Securities (and if such additional Debenture Events of Default
are to be for the benefit of less than all series of Junior Subordinated Debt
Securities, stating that such additional Debenture Events of Default are
expressly being included solely for the benefit of the series specified); (vi)
to change or eliminate all of the provisions of the Indenture (provided that any
such change or elimination shall (a) become effective only when there is no
Junior Subordinated Debt Security outstanding of any series created prior to the
execution of such supplemental indenture that is entitled to the benefit of such
position or (b) not apply to any outstanding Junior Subordinated Debt
Securities; (vii) to cure any ambiguity, to correct or supplement any provision
of the Indenture that may be defective or inconsistent with any other provision
therein, or to make provisions with respect to questions arising under the
Indenture provided that such action does not adversely affect the interest of
the holders of any series of Junior Subordinated Debt Securities in any material
respect or, in the case of any Junior Subordinated Debt Securities held by a
trust, the holders of the trust preferred securities issued by such trust;
(viii) to evidence and provide for the acceptance of appointment by a successor
Debenture Trustee or to provide for the administration of the trusts created
under the Indenture by more than one trustee; (ix) to comply with the
requirements of the Commission in order to permit the qualification of the
Indenture under any federal law as now or hereafter in effect or any state "Blue
Sky" law if the Company so directs; or (x) to increase the maximum principal
amount permitted to be outstanding under the Indenture; provided, however, that
the Debenture Trustee shall receive an opinion of counsel that no qualification
of an indenture shall be required under the Trust Indenture Act by reason of
such increase with respect to any Junior Subordinated Debt Securities
outstanding under the Indenture or that any such qualification shall have been
effected.
The Indenture contains additional provisions permitting the Company and
the Debenture Trustee, with the consent of the holders of not less than a
majority in aggregate principal amount of each outstanding series of Junior
Subordinated Debt Securities affected, to modify the Indenture for the purpose
of adding any provisions to or changing in any manner or eliminating any of the
provisions of the Indenture or of modifying in any manner the rights of the
holders of the Junior Subordinated Debt Securities of such series; provided,
that no such modification may, without the consent of the holder of each
outstanding Junior Subordinated Debt Security of each series so affected:
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(i) change the stated maturity of the principal of, or any
installment of interest (including any Additional Interest) on, any
Junior Subordinated Debt Security, or reduce the principal amount
thereof or the rate of interest thereon payable upon the redemption
thereof, or change the place of payment where, or the coin or currency
in which, any Junior Subordinated Debt Security or interest thereon is
payable, or impair the right to institute suit for the enforcement of
any such payment on or after the stated maturity thereof (or, in the
case of redemption, on or after the redemption date);
(ii) reduce the percentage in aggregate principal amount of
the outstanding Junior Subordinated Debt Securities of any series, the
consent of whose holders is required for any such supplemental
indenture, or the consent of whose holders is required for any waiver
(of compliance with certain provisions of the Indenture or certain
defaults thereunder and their consequences) provided for in the
Indenture; or
(iii) modify any of the provisions of the Indenture described
in this paragraph or certain other provisions of the Indenture relating
to waivers subject to the approval of a requisite principal amount of
Junior Subordinated Debt Securities, except to increase any such
percentage or to provide that certain other provisions of the Indenture
cannot be modified or waived without the consent of the holder of each
Junior Subordinated Debt Security affected thereby;
provided, further, that, in the case of any Junior Subordinated Debt Securities
of a series held by a trust, so long as any trust preferred securities issued in
connection therewith remain outstanding, (a) no such amendment shall be made
that adversely affects the holders of such trust preferred securities in any
material respect, and no termination of the Indenture shall occur, and no waiver
of any Debenture Event of Default or compliance with any covenant under the
Indenture shall be effective, without the prior consent of the holders of at
least a majority of the aggregate liquidation amount of such trust preferred
securities then outstanding unless and until the principal of the Junior
Subordinated Debt Securities of such series and all accrued and unpaid interest
(including any Additional Interest) thereon have been paid in full and (b) no
amendment shall be made to the provisions of the Indenture that would impair the
rights of the holders of trust preferred securities issued by a trust without
the prior consent of the holders of each of such trust preferred securities then
outstanding unless and until the principal of the Junior Subordinated Debt
Securities of such series and all accrued and (subject to the provisions of the
Indenture permitting the deferral of interest) unpaid interest (including any
Additional Interest) thereon have been paid in full.
A supplemental indenture that changes or eliminates any covenant or
other provision of the Indenture that has expressly been included solely for the
benefit of one or more particular series of Junior Subordinated Debt Securities
or any trust preferred securities issued in connection therewith by a trust that
holds the Junior Subordinated Debt Securities of any series, or that modifies
the rights of the holders of Junior Subordinated Debt Securities of such series
or holders of such trust preferred securities with respect to such covenant or
other provision, shall be deemed not to affect the rights under the Indenture of
the holders of Junior Subordinated Debt Securities of any other series or
holders of trust preferred securities issued in connection therewith.
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Satisfaction and Discharge
The Indenture provides that when, among other things, all Junior
Subordinated Debt Securities not previously delivered to the Debenture Trustee
for cancellation (i) have become due and payable, (ii) will become due and
payable at their stated maturity within one year of the date of the deposit
referred to herein or (iii) are to be called for redemption within one year
under arrangements satisfactory to the Debenture Trustee for the giving of
notice of redemption thereof, and the Company deposits or causes to be deposited
with the Debenture Trustee funds, in trust, for the purpose and in an amount in
the currency or currencies in which the Junior Subordinated Debt Securities are
payable sufficient to pay and discharge the entire indebtedness on the Junior
Subordinated Debt Securities not previously delivered to the Debenture Trustee
for cancellation, for the principal and interest (including any Additional
Interest) to the date of the deposit or to the stated maturity or redemption
date, as the case may be, then the Indenture will cease to be of further effect
(except as to the Company's obligations to pay all other sums due pursuant to
the Indenture and to provide the officers' certificates and opinions of counsel
described therein) and the Company will be deemed to have satisfied and
discharged the Indenture.
Responsibilities of the Debenture Trustee
The Debenture Trustee is under no obligation to exercise any of the
powers vested in it by the Indenture at the request of any holder of Junior
Subordinated Debentures, unless offered reasonable security or indemnity by such
holder against the costs, expenses and liabilities which might be incurred
thereby. The Debenture Trustee is not required to expend or risk its own funds
or otherwise incur personal financial liability in the performance of its duties
if the Debenture Trustee reasonably believes that repayment or adequate
indemnity is not reasonably assured to it.
Continued Ownership of Trust Common Securities
The Company will covenant, as to the Junior Subordinated Debentures,
(i) to maintain, directly or indirectly, 100% ownership of the Trust Common
Securities provided that certain successors are permitted pursuant to the
Indenture to succeed to the Company's ownership of the Trust Common Securities,
(ii) not to voluntarily terminate, wind-up or liquidate the Trust, except (a) in
connection with a distribution of Junior Subordinated Debentures to the holders
of the Trust Preferred Securities in exchange therefor upon liquidation of the
Trust or (b) in connection with certain mergers, consolidations or amalgamations
permitted by the Trust Agreement and (iii) to use its reasonable efforts,
consistent with the terms and provisions of the Trust Agreement, to cause the
Trust to continue not to be taxable as a corporation for United States federal
income tax purposes.
Governing Law
The Indenture and the Junior Subordinated Debt Securities will be
governed by and construed in accordance with the laws of the State of South
Carolina.
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Miscellaneous
The Company is required to file annually with the Debenture Trustee a
certificate as to whether or not the Company is in compliance with all of the
covenants and conditions applicable to it under the Indenture.
DESCRIPTION OF THE GUARANTEE
The Guarantee will be executed and delivered between the Company and
the Guarantee Trustee for the benefit of the holders from time to time of the
Trust Preferred Securities, concurrently with the issuance of the Trust
Preferred Securities. This summary of certain provisions of the Guarantee, which
summarizes the material terms thereof, does not purport to be complete and is
subject to, and qualified in its entirety by reference to, all of the provisions
of the Guarantee.
General
Pursuant to the Guarantee, the Company will irrevocably agree to pay in
full on a subordinated basis, the Guarantee Payments to the holders of the Trust
Preferred Securities (without duplication of amounts theretofore paid by or on
behalf of the Trust), as and when due, regardless of any defense, right of
set-off or counterclaim that the Trust may have or assert other than the defense
of payment. The following payments or distributions, without duplication, with
respect to the Trust Preferred Securities, to the extent not paid by or on
behalf of the Trust (the "Guarantee Payments"), will be subject to the
Guarantee: (i) any accumulated and unpaid Distributions required to be paid on
the Trust Preferred Securities, to the extent that the Trust has funds on hand
available therefor at such time, (ii) the Redemption Price with respect to any
Trust Preferred Securities called for redemption, to the extent that the Trust
has funds on hand available therefor at such time or (iii) upon a voluntary or
involuntary dissolution, winding-up or liquidation of the Trust(other than in
connection with the distribution of the Junior Subordinated Debentures to the
holders of the Trust Preferred Securities), the lesser of (a) the Liquidation
Distribution to the extent that the Trust shall have funds on hand available
therefor at such time or (b) the amount of assets of the Trust remaining
available for distribution to holders of Trust Preferred Securities on
liquidation of the Trust.
The Company's obligation to make a Guarantee Payment may be satisfied
by direct payment of the required amounts by the Company to the holders of the
applicable Trust Preferred Securities or by causing the Trust to pay such
amounts to such holders.
The Company has, through the Guarantee, the Trust Agreement, the Junior
Subordinated Debentures and the Indenture, taken together, fully, irrevocably
and unconditionally guaranteed all of the Trust's obligations under the Trust
Preferred Securities. No single document standing alone or operating in
conjunction with fewer than all of the other documents constitutes such
guarantee. It is only the combined operation of these documents that has the
effect of providing a full, irrevocable and unconditional guarantee of the
Trust's obligations under the Trust Preferred Securities. See "Relationship
Among the Trust Preferred Securities, the Junior Subordinated Debentures and the
Guarantee."
Status of the Guarantee
The Guarantee will constitute an unsecured obligation of the Company
and will rank subordinate and junior in right of payment to all Senior Debt of
the Company in the same manner as the Junior Subordinated Debentures.
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The Guarantee will constitute a guarantee of payment and not of
collection (i.e., the guaranteed party may institute a legal proceeding directly
against the Company to enforce its rights under the Guarantee without first
instituting a legal proceeding against any other person or entity). The
Guarantee will be held for the benefit of the holders of the Trust Preferred
Securities. The Guarantee will not be discharged except by payment of the
Guarantee Payments in full to the extent not paid by the Trust or upon
distribution to the holders of the Trust Preferred Securities of the Junior
Subordinated Debentures. The Guarantee places no limitation on the amount of
additional Senior Debt that may be incurred by the Company. The Company expects
from time to time to incur additional indebtedness constituting Senior Debt.
Amendments and Assignment
Except with respect to any changes which do not adversely affect the
rights of holders of the related Trust Preferred Securities in any material
respect (in which case no vote will be required), the Guarantee may not be
amended without the prior approval (given in the manner set forth in the Trust
Agreement) of the holders of a majority of the aggregate Liquidation Amount of
the outstanding Trust Preferred Securities. All guarantees and agreements
contained in the Guarantee shall bind the successors, assigns, receivers,
trustees and representatives of the Company and shall inure to the benefit of
the holders of the Trust Preferred Securities then outstanding.
Events of Default; Control of Remedies
An event of default under the Guarantee will occur upon the failure of
the Company to perform any of its payment obligations thereunder or to perform
any non-payment obligations if such non-payment default remains unremedied for
30 days.
The holders of a majority in Liquidation Amount of the Trust Preferred
Securities have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Guarantee Trustee in respect to the
Guarantee or exercising any trust power conferred upon the Guarantee Trustee
under the Guarantee. Any holder of the Trust Preferred Securities may institute
a legal proceeding directly against the Company to enforce its rights under the
Guarantee without first instituting a legal proceeding against the Trust, the
Guarantee Trustee or any other person.
Termination of the Guarantee
The Guarantee will terminate and be of no further force and effect upon
(i) full payment of the Redemption Price of the outstanding Trust Preferred
Securities, (ii) full payment of the amounts payable upon liquidation of the
Trust or (iii) distribution of the Junior Subordinated Debentures to the holders
of the Trust Preferred Securities in exchange for such Trust Preferred
Securities. The Guarantee will continue to be effective or will be reinstated,
as the case may be, if at any time any holder of the Trust Preferred Securities
must restore payment of any sums paid under the Trust Preferred Securities or
the Guarantee.
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Responsibilities of the Guarantee Trustee
The Guarantee Trustee, other than during the occurrence and continuance
of a default by the Company in performance of the Guarantee, undertakes to
perform only such duties as are specifically set forth in the Guarantee and,
after default with respect to the Guarantee, must exercise the same degree of
care and skill as a prudent person would exercise or use in the conduct of his
or her own affairs. Subject to this provision, the Guarantee Trustee is under no
obligation to exercise any of the powers vested in it by the Guarantee at the
request of any holder of any Trust Preferred Securities unless it is offered
reasonable indemnity against the costs, expenses and liabilities that might be
incurred thereby; provided, however, that such right to indemnity shall in no
event relieve the Guarantee Trustee, upon the occurrence of an event of default
under the Guarantee, of its obligation to exercise the rights and powers vested
in it by the Guarantee Agreement.
Governing Law
The Guarantee will be governed by and construed in accordance with the
laws of the State of South Carolina.
Miscellaneous
The Company, as guarantor, is required to file annually with the
Guarantee Trustee a certificate as to whether or not the Company is in
compliance with all the conditions and covenants applicable to it under the
Guarantee.
RELATIONSHIP AMONG THE TRUST PREFERRED SECURITIES, THE JUNIOR SUBORDINATED
DEBENTURES AND THE GUARANTEE
Full and Unconditional Guarantee
Pursuant to the Guarantee, payments of Distributions and other amounts
due on the Trust Preferred Securities (to the extent the Trust has funds
available for the payment of such Distributions) are irrevocably guaranteed by
the Company as and to the extent set forth under "Description of the Guarantee,"
above. Taken together, the Company's obligations under the Junior Subordinated
Debentures, the Indenture, the Trust Agreement and the Guarantee provide, in the
aggregate, a full, irrevocable and unconditional guarantee of payments of
Distributions and other amounts due on the Trust Preferred Securities. No single
document standing alone or operating in conjunction with fewer than all of the
other documents constitutes such guarantee. It is only the combined operation of
these documents that has the effect of providing a full, irrevocable and
unconditional guarantee of the Trust's obligations under the Trust Preferred
Securities. If and to the extent that the Company does not make payments due on
the Junior Subordinated Debentures, the Trust will not pay Distributions or
other amounts due on the Trust Preferred Securities. The Guarantee does not
cover payment of Distributions when the Trust does not have sufficient funds to
pay such Distributions. In such event, the remedy of a holder of Trust Preferred
Securities is to institute a Direct Action against the Company. The obligations
of the Company under the Guarantee and the Junior Subordinated Debentures are
subordinate and junior in right of payment to all Senior Debt of the Company.
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Sufficiency of Payments
As long as payments of interest and other payments are made when due on
the Junior Subordinated Debentures, such payments will be sufficient to cover
Distributions and other payments due on the Trust Preferred Securities,
primarily because (i) the aggregate principal amount of the Junior Subordinated
Debentures will be equal to the sum of the aggregate stated Liquidation Amount
of the Trust Securities; (ii) the interest rate and interest and other payment
dates on the Junior Subordinated Debentures will match the Distribution rate and
Distribution and other payment dates for the Trust Securities; (iii) the Company
shall pay for all and any costs, expenses and liabilities of the Trust except
the Trust's obligations to holders of the Trust Preferred Securities under the
Trust Preferred Securities; and (iv) the Trust Agreement provides that the Trust
will not engage in any activity that is not consistent with the limited purposes
of the Trust.
Notwithstanding anything to the contrary in the Indenture, the Company
has the right to set off any payment it is otherwise required to make thereunder
with and to the extent the Company has theretofore made, or is concurrently on
the date of such payment making, a payment under the Guarantee.
Enforcement Rights of Holders of Trust Preferred Securities
A holder of any Trust Preferred Security may institute a legal
proceeding directly against the Company to enforce its rights under the
Guarantee without first instituting a legal proceeding against the Guarantee
Trustee, the Trust or any other person or entity.
A default or event of default under any Senior Debt of the Company
would not constitute an Event of Default or Debenture Event of Default. However,
in the event of payment defaults under, or acceleration of, Senior Debt of the
Company, the subordination provisions of the Indenture provide that no payments
may be made in respect of the Junior Subordinated Debentures until such Senior
Debt has been paid in full or any payment default thereunder has been cured or
waived. Failure to make required payments on the Junior Subordinated Debentures
(absent a deferral of interest on the Junior Subordinated Debentures as
permitted under the Indenture) would constitute a Debenture Event of Default.
Limited Purpose of Trust
The Trust exists for the sole purposes and functions of (a) issuing the
Trust Preferred Securities in exchange for shares of Series A Preferred Stock,
(b) issuing Trust Common Securities for cash, (c) exchanging such shares of
Series A Preferred Stock and the cash paid for the Trust Common Securities for
the Company's Junior Subordinated Debentures having an aggregate principal
amount equal to the aggregate liquidation amount of the Trust Securities issued,
(d) holding such Junior Subordinated Debentures and (e) engaging in such other
activities as are necessary and incidental thereto. A principal difference
between the rights of a holder of a Trust Preferred Security and a holder of a
Junior Subordinated Debenture is that a holder of a Junior Subordinated
Debenture is entitled to receive from the Company the principal amount of and
interest accrued on the Junior Subordinated Debentures held, while a holder of
Trust Preferred Securities is entitled to receive Distributions from the Trust
(or from the Company under the Guarantee) if and to the extent the Trust has
funds available for the payment of such Distributions.
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Rights Upon Dissolution
Upon any voluntary or involuntary dissolution, winding-up or
liquidation of the Trust involving the liquidation of the Junior Subordinated
Debentures, after satisfaction of liabilities to creditors of the Trust as
provided by applicable law, the holders of the Trust Preferred Securities will
be entitled to receive, out of the assets held by the Trust, the Liquidation
Distribution in cash. See "Description of the Trust Preferred
Securities--Dissolution and Liquidation; Distribution Upon Dissolution." Upon
any voluntary or involuntary liquidation or bankruptcy of the Company, the
Property Trustee, as holder of the Junior Subordinated Debentures would be an
unsecured creditor of the Company subordinated in right of payment to all Senior
Debt as set forth in the Indenture, but entitled to receive payment in full of
principal and interest, before any stockholders of the Company receive payments
or distributions. Since the Company is the guarantor under the Guarantee, the
positions of a holder of such Trust Preferred Securities and a holder of such
Junior Subordinated Debentures relative to other creditors and to stockholders
of the Company in the event of liquidation or bankruptcy of the Company are
expected to be substantially the same.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
General
In the opinion of McNair Law Firm, P.A., special tax counsel to the
Company and the Trust, the following are the material United States federal
income tax consequences to the Holders of the acquisition by exchange, ownership
and disposition of shares of Common Stock and the Trust Preferred Securities.
Unless otherwise stated, this summary deals only with shares of Common Stock and
the Trust Preferred Securities held as capital assets by persons who exchange
shares of Series A Preferred Stock. It does not deal with special classes of
holders such as banks, thrifts, real estate investment trusts, regulated
investment companies, insurance companies, dealers in securities or currencies,
tax-exempt investors, foreign governments or with persons that hold shares of
Common Stock, the Trust Preferred Securities or Series A Preferred Stock as a
position in a "straddle," as part of a "synthetic security" or "hedge," as part
of a "conversion transaction" or other integrated investment, or as other than a
capital asset. This summary also does not address the tax consequences to
persons that have a functional currency other than the U.S. Dollar or the tax
consequences to stockholders, partners or beneficiaries of a holder of shares of
Common Stock or the Trust Preferred Securities. Further, it does not include any
description of any alternative minimum tax consequences or the tax laws of any
state, local or foreign government that may be applicable to persons holding
shares of Common Stock or the Trust Preferred Securities or to a Holder's
decision to exchange shares of Series A Preferred Stock for shares of Common
Stock or the Trust Preferred Securities. This summary is based on the Code,
Treasury regulations thereunder and administrative and judicial interpretations
thereof, in effect as of the date hereof, all of which are subject to change,
possibly on a retroactive basis.
Because the extent to which the Holders will participate in the
Exchange Offer cannot be predicted, this discussion is qualified as to certain
matters, as set forth below. Holders should also note that counsel's opinions
are not binding on the Internal Revenue Service (the "Service") or the courts
and that the Company and the Trust have not sought, and do not intend to seek, a
ruling from the Service as to the United States federal income tax consequences
of the Exchange Offer.
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ALL HOLDERS ARE ADVISED TO CONSULT THEIR OWN TAX ADVISORS REGARDING THE
UNITED STATES FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF AN EXCHANGE
OF SHARES OF SERIES A PREFERRED STOCK FOR SHARES OF COMMON STOCK OR THE TRUST
PREFERRED SECURITIES AND THE OWNERSHIP, CONVERSION AND DISPOSITION OF SHARES OF
COMMON STOCK AND THE TRUST PREFERRED SECURITIES RECEIVED IN THE EXCHANGE OFFER
IN LIGHT OF THEIR OWN PARTICULAR CIRCUMSTANCES.
Federal Income Tax Treatment of the Exchange
The exchange should more likely than not be viewed for federal income
tax purposes as a "recapitalization" of the Company within the meaning of
Section 368(a)(1)(E) of the Code and should be regarded as an isolated
transaction that is not part of a plan to increase periodically the
proportionate interest of any stockholder in the assets or earnings and profits
of the Company. However, the federal income tax treatment and the gain
recognized, if any, by a Holder will vary depending upon whether a Holder
exchanges Series A Preferred Stock (1) solely for Common Stock; (2) solely for
the Trust Preferred Securities; or (3) for a combination of Common Stock and the
Trust Preferred Securities. The federal income tax consequences of each of these
alternatives is discussed below.
Gain, loss and tax basis, determined as described below, must be
calculated separately for each block of Series A Preferred Stock (i.e., Series A
Preferred Stock acquired at the same time in a single transaction) held by a
Holder.
In addition, corporate Holders should also refer to the discussion
below entitled "Corporate Stockholders" for special rules concerning the
taxation of dividends received by corporations.
If the exchange is not treated as a "recapitalization" for United
States federal income tax purposes, then the distribution of the Trust Preferred
Securities and, to the extent that the distribution of shares of Common Stock is
disproportionate among the Holders (or could be disproportionate as a result of
the Exchange Offer), the distribution of such shares of Common Stock, would be
governed by Section 301 of the Code. Pursuant to Section 301, a Holder (i) will
not recognize any loss on the exchange, (ii) will recognize dividend income
(rather than capital gain) in an amount equal to the FMV of the Common Stock,
the FMV of the Trust Preferred Securities and any cash in lieu of a fractional
share of Common Stock received in the exchange (without regard to the Holder's
basis in the shares of Series A Preferred Stock surrendered in the exchange), to
the extent of the Holder's proportionate share of the Company's current or
accumulated earnings and profits.
The following discussion assumes that the exchange will be
treated as a recapitalization for federal income tax purposes.
Exchange of Series A Preferred Stock Solely for Common Stock
The exchange of Series A Preferred Stock solely for shares of Common
Stock will not be a taxable exchange for United States federal income tax
purposes. The exchanging Holder's tax basis in the shares of Common Stock
received in the exchange will equal such Holder's basis in the Series A
Preferred Stock surrendered and the holding period for such Common Stock will be
the same as for the surrendered Series A Preferred Stock.
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A Holder that receives Common Stock in the Exchange Offer may receive
cash in lieu of a fractional share of the Common Stock. Such Holder will be
treated as having received such fractional share and then as having exchanged
such fractional share for cash in a redemption subject to Section 302 of the
Code, discussed below.
Exchange of Series A Preferred Stock Solely for Trust Preferred Securities
The exchange of shares of Series A Preferred Stock solely for the Trust
Preferred Securities will be a taxable event. If, with respect to a particular
Holder, the exchange satisfies one of the tests of Section 302 of the Code
described below, it will be treated as a transaction in which capital gain or
loss is recognized, rather than as a dividend. The tests under Section 302 of
the Code are applied on a stockholder-by-stockholder basis. Therefore, whether
an exchange will be treated as a transaction in which capital gain or loss is
recognized or as a dividend with respect to a particular Holder will depend on
that Holder's particular facts and circumstances. If the exchange of shares of
Series A Preferred Stock for Trust Preferred Securities is treated as a
transaction in which capital gain or loss is recognized with respect to a
particular Holder, the capital gain or loss will be based on the difference
between (a) the FMV of the Trust Preferred Securities received in the exchange
and (b) the Holder's adjusted tax basis in the shares of Series A Preferred
Stock surrendered therefor. Any capital gain or loss will be long-term capital
gain or loss if the shares of Series A Preferred Stock surrendered in the
exchange were held by the Holder for more than one year.
Pursuant to Section 302 of the Code, an exchange will be treated as a
transaction in which gain or loss is recognized if, after giving effect to the
constructive ownership rules of Section 318 of the Code, the exchange (i)
represents a "complete termination" of the exchanging Holder's stock interest in
the Company, (ii) is "substantially disproportionate" with respect to the
exchanging Holder or (iii) is "not essentially equivalent to a dividend" with
respect to the exchanging Holder, all within the meaning of Section 302(b) of
the Code.
The Exchange Offer will result in a complete termination of the
Holder's interest if, after the exchange, the Holder's stock interest in the
Company is completely terminated. In order for a Holder's interest to be
completely terminated, a Holder would be required to dispose of all such
Holder's Series A Preferred Stock and the Holder's Common Stock, including stock
deemed to be owned by such Holder pursuant to the applicable constructive
ownership rules of Section 318 of the Code. Unless a Holder owns no Common Stock
or such Holder were to dispose of such Holder's Common Stock prior to exchanging
such Holder's Series A Preferred Stock for the Trust Preferred Securities, it is
unlikely that the exchange will satisfy the "complete termination" test of
Section 302 of the Code.
Alternatively, the exchange may be substantially disproportionate with
respect to such Holder, and qualify for sale or exchange (rather then dividend)
treatment. Among other requirements, in order for the exchange to be
substantially disproportionate, a Holder's percentage ownership in the amount of
outstanding Common Stock immediately after the exchange must be less than 80% of
such Holder's percentage ownership of the amount of Common Stock outstanding
immediately prior to the exchange. Because the determination of a Holder's
percentage ownership is dependent upon the actions of other shareholders in the
Company, it is not possible to predict with any certainty whether any Holder's
interest before the Exchange Offer will be considered to be "substantially
disproportionate" (within the meaning of Section 302 of the Code) to such
Holder's interest in the Company after the Exchange Offer.
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An exchange will be "not essentially equivalent to a dividend" as to a
particular Holder if it results in a "meaningful reduction" in such Holder's
interest in the Company (after application of the constructive ownership rules
of Section 318 of the Code). In general, there are no fixed rules for
determining whether a "meaningful reduction" has occurred. However, based upon
published rulings of the Service, the exchange will be treated as a transaction
in which gain or loss is recognized if the Holder's stock ownership is minimal,
the Holder exercises no control over the affairs of the Company and the Holder's
percentage equity interest in the Company is reduced in the recapitalization to
any extent.
EACH HOLDER SHOULD CONSULT HIS OR HER OWN TAX ADVISOR AS TO HIS OR HER
ABILITY IN LIGHT OF HIS OR HER OWN PARTICULAR CIRCUMSTANCES TO SATISFY ANY OF
THE FOREGOING TESTS, POSSIBLY BY DISPOSING OF A PORTION OF HIS OR HER STOCK
INTEREST IN THE COMPANY CONTEMPORANEOUSLY, AND AS PART OF AN INTEGRATED PLAN,
WITH THE EXCHANGE OF SHARES OF SERIES A PREFERRED STOCK FOR SHARES OF COMMON
STOCK OR THE TRUST PREFERRED SECURITIES.
If the exchange of Series A Preferred Stock has the effect of a
dividend distribution as to a Holder, the gain recognized by such Holder will be
taxed as ordinary dividend income to the extent of the Holder's ratable share of
the Company's current or accumulated earnings and profits.
The exchanging Holder's tax basis in any Trust Preferred Securities
received in the exchange will equal the FMV of the Trust Preferred Securities at
the time of the exchange and the holding period for the Trust Preferred
Securities will begin on the day after the day on which the Trust Preferred
Securities are acquired by the exchanging Holder.
Exchange of Series A Preferred Stock for Common Stock and Trust Preferred
Securities
The exchange of shares of Series A Preferred Stock for a combination of
Common Stock and Trust Preferred Securities will be a taxable event. The gain or
loss realized on such exchange will be based on the difference, if any, between
(i) the sum of (x) the FMV of the Common Stock, and (y) the FMV of the Trust
Preferred Securities; and (ii) such Holder's tax basis in the Series A Preferred
Stock exchanged immediately before the exchange. Gain realized by a Holder would
be recognized only to the extent of the FMV of the Trust Preferred Securities
received by the Holder. Any gain realized in excess of the FMV of the Trust
Preferred Securities received by an exchanging Holder and any loss realized by a
Holder would not be recognized.
If, with respect to a particular Holder, the exchange satisfies one of
the tests of Section 302 of the Code described above, the gain recognized will
be treated as a transaction in which capital gain or loss is recognized, rather
than as a dividend. Any capital gain or loss will be long-term capital gain or
loss if the shares of Series A Preferred Stock surrendered in the exchange were
held by the Holder for more than one year.
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If the gain recognized is treated as a dividend with respect to a
particular exchanging Holder under Section 302 of the Code, such Holder will
recognize dividend income (rather than capital gain) in an amount equal to the
amount of the gain recognized to the extent of such Holder's proportionate share
of the Company's current or accumulated earnings and profits.
A Holder receiving Common Stock in the Exchange Offer may receive cash
in lieu of a fractional share. Such Holder will be treated as having received
such fractional share and then as having exchanged such fractional share for
cash in a redemption subject to Section 302 of the Code (discussed above).
A Holder will have a tax basis in any shares of Common Stock received
in the exchange equal to the Holder's tax basis in the shares of Series A
Preferred Stock immediately prior to the exchange, increased by the amount of
any income recognized by the Holder and decreased by the FMV of the Trust
Preferred Securities received. The holding period of the shares of Common Stock
received in the Exchange Offer will include the holding period of the shares of
Series A Preferred Stock exchanged.
The exchanging Holder's tax basis in any Trust Preferred Securities
received in the exchange will equal the FMV of the Trust Preferred Securities at
the time of the exchange and the holding period for the Trust Preferred
Securities will begin on the day after the day on which the Trust Preferred
Securities are acquired by the exchanging Holder.
Corporate Stockholders
If the exchange of Series A Preferred Stock is treated to any extent as
a dividend distribution as to a corporate stockholder, the amount of the
distribution that is taxable as a dividend should generally be eligible for the
70% dividends received deduction, subject to the limitations in Sections 246,
246A and 1059 of the Code, discussed below. Where the dividends received
deduction is available, a portion of the amount deducted may have to be included
by a corporation (because it is reflected in adjusted current earnings) in
computing its alternative minimum taxable income for the purposes of
ascertaining its possible liability for alternative minimum tax.
The amount, if any, of the distribution that is taxable as a dividend
to a corporate Holder may be an "extraordinary dividend" as defined in Section
1059 of the Code. Pursuant to that provision, if a corporate stockholder
receives an extraordinary dividend with respect to any stock that has been held
for two years or less on the "dividend announcement date," the nontaxed portion
of the dividend (generally the portion eligible for the dividends received
deduction) would reduce its tax basis with respect to such stock at the time of
any disposition thereof, thereby increasing the taxable gain recognized on such
disposition. If the nontaxed portion exceeds the corporate Holder's tax basis in
such stock, the corporate Holder must treat any such excess as additional gain
upon any disposition of such stock. Special Tax Counsel is aware of no direct
authority concerning the proper application of Section 1059 of the Code to an
extraordinary dividend arising from a "recapitalization" within the meaning of
Section 368(a)(1)(E) of the Code. If the exchange is treated as a disposition of
stock with respect to which an extraordinary dividend has been paid, the
nontaxed portion of the dividend will reduce the corporate Holder's basis in the
shares of Series A Preferred Stock as of the date of the exchange, and any
excess of the nontaxed portion of the dividend over the corporate Holder's basis
in the shares of Series A Preferred Stock could be recognized as of that date.
If the exchange is not considered to be such a disposition, then the nontaxed
portion of the dividend will reduce the Holder's basis in the shares of Common
Stock received in the exchange, and any gain attributable to such basis
reduction (and any excess of the nontaxed portion of the extraordinary dividend
over the corporate Holder's basis in such stock) would be recognized only upon a
disposition of the shares of Common Stock. Corporate stockholders are strongly
urged to consult their tax advisors concerning the application of Section 1059
of the Code to any dividend income recognized as a result of the exchange.
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Under Section 246A of the Code, to the extent that a corporation incurs
indebtedness directly attributable to an investment in portfolio stock in
another company (which would include Series A Preferred Stock), the dividends
received deduction will be reduced by a percentage equal, in general, to the
average amount of such indebtedness that is outstanding during a base period of
not more than one year before the exchange divided by the total adjusted tax
basis in the investment. Under no circumstances, however, will the reduction in
the dividends received deduction exceed the amount of the interest deduction
allocable to the dividend. In addition, under Section 246(c) of the Code, the
dividends received deduction will be unavailable with respect to dividends on
shares of Series A Preferred Stock held by the recipient for 45 days or less.
Federal Income Tax Treatment of Accrued But Unpaid Dividends
The Company intends to pay Holders that exchange shares of Series A
Preferred Stock the accrued and unpaid dividends with respect to the shares
exchanged. Each Holder receiving such payments will recognize dividend income in
an amount equal to the cash received as such payments are made with respect to
the shares of Series A Preferred Stock tendered in the Exchange Offer. With
respect to a corporate stockholder the amount of these cash payments should be
eligible for the 70% dividends received deduction, subject to the limitations in
sections 246, 246A and 1050 of the Code, discussed above. Where the dividends
received deduction is available, a portion of the amount deducted may have to be
included by a corporation (because it is reflected in adjusted current earnings)
in computing its alternative minimum taxable income for the purposes of
ascertaining its possible liability for alternative minimum tax.
Classification of the Junior Subordinated Debentures
It is Special Tax Counsel's opinion that, although the matter is not
free from doubt, the Junior Subordinated Debentures will be classified for
United States federal income tax purposes as indebtedness of the Company under
current law. By accepting a Trust Preferred Security, each holder covenants to
treat the Junior Subordinated Debentures as indebtedness and the Trust Preferred
Securities as evidence of an indirect beneficial ownership in the Junior
Subordinated Debentures. No assurance can be given, however, that the
classification of the Junior Subordinated Debentures as indebtedness will not be
challenged by the Service. The remainder of this discussion assumes that the
Junior Subordinated Debentures will be classified for United States federal
income tax purposes as indebtedness of the Company.
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Classification of the Trust
It is Special Tax Counsel's opinion that the Trust will be classified
for United States federal income tax purposes as a grantor trust and not as a
business entity taxable as a corporation. Accordingly, for United States federal
income tax purposes, each holder of the Trust Preferred Securities will be
considered the owner of an undivided interest in the Junior Subordinated
Debentures, and pursuant to the agreement to treat the Junior Subordinated
Debentures as indebtedness, each holder will be required to include in his, her
or its gross income interest received or accrued with respect to his, her or its
allocable share of the Junior Subordinated Debentures.
Interest Income and Original Issue Discount
Each holder of the Trust Preferred Securities will be required to
include in his, her or its gross income such person's pro rata share of the
interest income paid or accrued with respect to the Junior Subordinated
Debentures. If the Company exercises its option to defer payments of interest
the OID rules described below would apply. Corporate holders of the Trust
Preferred Securities will not be entitled to a dividends received deduction with
respect to any income recognized with respect to the Trust Preferred Securities.
Under current law, the Company's option to defer payments of interest
by extending interest payment periods for up to 20 consecutive quarters could
cause the Junior Subordinated Debentures to be issued with OID. OID must be
included in income by all holders as it accrues economically on a daily basis,
without regard to when it is paid in cash or whether a particular holder
generally uses the cash method of accounting. However, United States federal
income tax regulations provide that "remote" contingencies are ignored in
determining whether a debt instrument is issued with OID.
The Company believes that the likelihood of its exercising its option
to defer payments of interest is "remote." Thus, in the opinion of Special Tax
Counsel, the Junior Subordinated Debentures will not include OID under the
regulations, and holders of the Trust Preferred Securities should recognize
interest income under their own methods of accounting (e.g., cash or accrual)
instead of under the daily economic accrual rules for OID instruments.
Under the regulations, however, if the Company exercises its right to
defer payments of interest, the Junior Subordinated Debentures will become OID
instruments, and all holders of the Trust Preferred Securities will be required
to accrue interest on a daily basis during the interest deferral period even
though the Company will not pay the interest in cash until the end of the
interest deferral period, and even if some holders generally use the cash method
of accounting. A holder who disposes of the Trust Preferred Securities during an
interest deferral period may suffer a loss because the market value of the Trust
Preferred Securities will likely fall if the Company exercises its option to
defer payments of interest on the Junior Subordinated Debentures. Furthermore,
the market value of the Trust Preferred Securities may not reflect the
accumulated distributions that will be paid at the end of the interest deferral
period, and a holder who sells the Trust Preferred Securities during the
interest deferral period will not receive from the Company any cash related to
the interest income the holder accrued and included in taxable income under the
OID rules (because that cash will be paid to the holder of record at the end of
the interest deferral period).
106
<PAGE>
If the Junior Subordinated Debentures become OID instruments (i.e., if
the Company ever exercises its right to defer payments of interest), the Junior
Subordinated Debentures will be taxed as OID instruments for as long as they
remain outstanding. Thus, even after the end of the interest deferral period,
all holders will be required to continue accruing interest on the Junior
Subordinated Debentures on a daily basis, regardless of their method of
accounting. Under the OID rules, a holder would accrue an amount of interest
income each year that approximates the stated interest payments called for under
the terms of the Junior Subordinated Debentures, and actual cash payments of
interest on the Junior Subordinated Debentures would not be reported separately
as taxable income.
The regulations have not yet been addressed in any rulings or other
interpretations by the Service, and it is possible that the Service could take a
position contrary to Special Tax Counsel's interpretation.
Receipt of Junior Subordinated Debentures or Cash Upon Liquidation of the Trust
Under certain circumstances, as described under the caption
"Description of the Trust Preferred Securities--Dissolution and Liquidation;
Distributions Upon Dissolution," the Junior Subordinated Debentures may be
distributed to holders in exchange for the Trust Preferred Securities and in
liquidation of the Trust. This distribution cannot occur without an opinion of
an independent tax counsel to the effect that the distribution will not result
in recognition of gain or loss to each holder. If the exchange is a non-taxable
event, each holder would receive an aggregate tax basis in the Junior
Subordinated Debentures equal to the holder's aggregate tax basis in the Trust
Preferred Securities. A holder's holding period in the Junior Subordinated
Debentures received in liquidation of the Trust would include the period during
which the Trust Preferred Securities were held by the holder. However, the
tax-free treatment of the distribution may be adversely affected as a result of
a change in law. For example, if a Tax Event results in the Trust being treated
as a business entity taxable as a corporation, then a holder would recognize
gain or loss upon receipt of the Junior Subordinated Debentures as if it had
sold the exchanged Trust Preferred Securities for cash. See "--Sale or
Redemption of Trust Preferred Securities."
Under certain circumstances described herein (see "Description of the
Trust Preferred Securities"), the Junior Subordinated Debentures may be redeemed
for cash and the proceeds of the redemption distributed to holders in redemption
of the Trust Preferred Securities. Under current law, such a redemption would,
for United States federal income tax purposes, constitute a taxable disposition
of the redeemed Trust Preferred Securities and a holder would recognize gain or
loss as if it had sold the redeemed Trust Preferred Securities for cash. See
"--Sale or Redemption of Trust Preferred Securities."
107
<PAGE>
Sale or Redemption of Trust Preferred Securities
A holder that sells or redeems Trust Preferred Securities will
recognize gain or loss equal to the difference between such holder's adjusted
tax basis in the Trust Preferred Securities sold and the amount realized on such
sale or redemption. Assuming that the Company does not defer payment of interest
on the Junior Subordinated Debentures, a holder's adjusted tax basis in the
Trust Preferred Securities will be the FMV of those securities on the date of
the exchange of shares of Series A Preferred Stock for the Trust Preferred
Securities. Subject to the discussion below regarding accrued and unpaid
interest, such gain or loss generally will be a capital gain or loss and
generally will be a long-term capital gain or loss if the Trust Preferred
Securities have been held for more than one year.
The Trust Preferred Securities may trade at a price that does not fully
reflect the value of the accrued and unpaid interest with respect to the
underlying Junior Subordinated Debentures. Should the Company exercise its right
to defer payments of interest, a holder who disposes of such holder's Trust
Preferred Securities between record dates for payments of distributions thereon
will be required to include accrued and unpaid interest on the Junior
Subordinated Debentures through the date of disposition in income as ordinary
income, and to add such amount to its adjusted tax basis in its allocable share
of the underlying Junior Subordinated Debentures deemed disposed. To the extent
the selling price is less than the holder's adjusted tax basis, a holder will
recognize a capital loss. Subject to certain limited exceptions, capital losses
cannot be applied to off-set ordinary income for United States federal income
tax purposes.
Sale of Common Stock
A Holder that sells Common Stock received in the Exchange Offer will
recognize gain or loss equal to the difference between its adjusted tax basis in
the Common Stock sold and the amount realized on such sale. Generally such gain
or loss will be capital gain or loss. Whether the capital gain or loss is long
term will be determined by the holding period for such Common Stock. A Holder's
adjusted tax basis in such Common Stock and the holding period for such Common
Stock will be determined, in part by reference to the Holder's basis and holding
period in the Series A Preferred Stock exchanged for such Common Stock. See
"--Exchange of Series A Preferred Stock Solely for Common Stock" and "Exchange
of Series A Preferred Stock for Common Stock and Trust Preferred Securities,"
above, for a specific description of the determination of basis and holding
periods for Common Stock received in the Exchange Offer.
Information Reporting to Holders
The Trust will be obligated to report annually to holders of the Trust
Preferred Securities the interest received or accrued related to the Junior
Subordinated Debentures for the year. The Trust currently intends to report such
information on Form 1099 on or before January 31 following each calendar year.
Under current law, holders of the Trust Preferred Securities who hold as
nominees for beneficial holders will not have any obligation to report
information regarding the beneficial holders to the Trust. The Trust, moreover,
will not have any obligation to report to beneficial holders who are not also
registered holders. Thus, beneficial holders of the Trust Preferred Securities
who hold their Trust Preferred Securities through nominees will receive Forms
1099 reflecting the income on their Trust Preferred Securities from such nominee
holders rather than from the Trust.
108
<PAGE>
Backup Withholding
Payments made on, and proceeds from the sale of, the Trust Preferred
Securities or the Junior Subordinated Debentures distributed to holders of the
Trust Preferred Securities may be subject to a "backup" withholding tax of 31%
unless the holder complies with certain identification requirements. Any
withheld amounts will be allowed as a refund or credit against the holder's
United States federal income tax provided the required information is provided
to the Service.
Proposed Tax Legislation
From time to time legislation has been proposed that, among other
things, would (1) treat as equity for United States federal income tax purposes
certain debt instruments with a maximum term of more than 20 years; and (2)
disallow interest deductions for certain debt instruments or defer interest
deductions on certain debt instruments issued with OID. If legislation were
enacted that adversely affected the tax treatment of the Junior Subordinated
Debentures, there could be a distribution of the Junior Subordinated Debentures
to Holders of the Trust Preferred Securities or, in certain circumstances, the
redemption of the Junior Subordinated Debentures by the Company and the
distribution by the Trust of the resulting cash. See "Description of the Trust
Preferred Securities--Redemption."
LEGAL MATTERS
Certain matters relating to the validity of the Trust Preferred
Securities offered hereby will be passed upon for the Company and the Trust by
Richards, Layton & Finger, Wilmington, Delaware, and certain matters relating to
the validity of the Junior Subordinated Debentures, the Guarantee and the Common
Stock will be passed upon for the Company by McNair Law Firm, P.A., Columbia,
South Carolina. Certain tax matters will be passed upon for the Company by
McNair Law Firm, P.A., Columbia, South Carolina, Special Tax Counsel.
EXPERTS
The consolidated financial statements of Sea Pines Associates, Inc. and
its subsidiaries at October 31, 1999 and 1998, and for each of the three fiscal
years in the period ended October 31, 1999, contained herein have been audited
by Ernst & Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein, and are included in reliance upon such report given
on the authority of such firm as experts in accounting and auditing.
109
<PAGE>
<TABLE>
<CAPTION>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
<S> <C>
Report of Independent Auditors................................................................... F-2
Consolidated Balance Sheets as of October 31, 1998 and 1999...................................... F-3
Consolidated Statements of Operations for the years ended October 31, 1997,
1998 and 1999................................................................................. F-5
Consolidated Statements of Shareholders' Equity for the years ended
October 31, 1997, 1998 and 1999............................................................... F-6
Consolidated Statements of Cash Flows for the years ended
October 31, 1997, 1998 and 1999............................................................... F-7
Notes to Consolidated Financial Statements....................................................... F-9
</TABLE>
F-1
<PAGE>
Report of Independent Auditors
Board of Directors and Shareholders of Sea Pines Associates, Inc.
We have audited the accompanying consolidated balance sheets of Sea Pines
Associates, Inc. (the "Company") as of October 31, 1999 and 1998, and the
related consolidated statements of operations, shareholders' equity, and cash
flows for each of the three years in the period ended October 31, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these 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 financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the 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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Sea Pines
Associates, Inc. at October 31, 1999 and 1998, and the results of its
operations and its cash flows for each of the three years in the period ended
October 31, 1999 in conformity with generally accepted accounting principles.
s/Ernst & Young LLP
Atlanta, Georgia
November 19, 1999
F-2
<PAGE>
Sea Pines Associates, Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
October 31
1999 1998
---- ----
(In Thousands of Dollars)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents
Unrestricted $ 662 $ 591
Restricted 2,380 2,008
------- -------
3,042 2,599
Accounts receivable, less allowance for
doubtful accounts of $41 and $50 at
October 31, 1999 and 1998, respectively 1,189 1,027
Current portion of notes receivable 373 441
Income tax refund receivable 346 --
Inventories 737 653
Prepaid expenses 140 132
------- -------
Total current assets 5,827 4,852
Notes receivable, less current portion 1,687 1,767
Deferred income taxes 83 316
Deferred loan fees, net 36 70
Other assets, net 78 82
------- -------
1,884 2,235
Real estate assets
Construction in progress 6,575 1,135
Operating properties, net 23,765 22,680
Properties held for future development 4,623 7,023
------- -------
34,963 30,838
------- -------
Total assets $42,674 $37,925
======= =======
</TABLE>
See accompanying notes.
F-3
<PAGE>
Sea Pines Associates, Inc.
Consolidated Balance Sheets
October 31
1999 1998
---- ----
(In Thousands of Dollars)
Liabilities and shareholders' equity
Current liabilities:
Accounts payable and accrued expenses $ 3,300 $ 2,469
Advance deposits 2,155 1,946
Income taxes payable -- 113
Current portion of deferred revenue and other
liabilities 537 623
Current portion of long-term debt 400 367
------- -------
Total current liabilities 6,392 5,518
Long-term debt, less current portion 19,483 16,792
Deferred revenue and other long-term liabilities 905 897
------- -------
Total liabilities 26,780 23,207
Commitments and contingencies
Shareholders' equity:
Series A cumulative preferred stock, no par value,
2,000,000 shares authorized; 1,228,350 shares
issued and outstanding (liquidation preference
$9,335,460) 7,218 7,218
Series B junior cumulative preferred stock, no par
value, 3,000 shares authorized, none issued
or outstanding --- ---
Common stock, 23,000,000 shares authorized, no par
value, 1,842,525 shares issued and outstanding 2,166 2,166
Retained earnings 6,510 5,334
------- -------
Total shareholders' equity 15,894 14,718
------- -------
Total liabilities and shareholders' equity $42,674 $37,925
======= =======
See accompanying notes.
F-4
<PAGE>
Sea Pines Associates, Inc.
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Year ended October 31
1999 1998 1997
---- ---- ----
(In Thousands of Dollars,
Except Per Share Amounts)
<S> <C> <C> <C>
Revenues, other than healthcare $ 46,414 $ 38,506 $ 35,896
Cost and expenses, other than healthcare:
Cost of revenues 34,185 27,068 24,752
Sales and marketing expenses 1,957 1,290 1,376
General and administrative expenses 5,114 4,579 4,475
Depreciation and amortization 1,307 1,408 1,586
------ ------ ------
42,563 34,345 32,189
------ ------ ------
Income from operations, other than healthcare 3,851 4,161 3,707
Healthcare income (expense)
Revenue -- -- 345
Cost of revenues -- -- (989)
------ ------ ------
-- -- (644)
------ ------ ------
Income from operations 3,851 4,161 3,063
Other income (expense):
Gain on sale or disposal of asset, net 359 -- --
Interest income 164 154 325
Interest expense, net of amounts capitalized:
Healthcare -- -- (381)
Resort (1,099) (1,345) (1,476)
Equity in loss and write down of investment
in and advances to TidePointe Partners -- -- (2,658)
Gain on sale of healthcare business and assets -- 179 846
------ ------ ------
(576) (1,012) (3,344)
------ ------ ------
Income (loss) before income taxes 3,275 3,149 (281)
Provision for (benefit from) income taxes 1,212 1,099 (215)
------ ------ ------
Net income (loss) 2,063 2,050 (66)
Preferred stock dividend requirements 887 887 887
------ ------ ------
Net income (loss) attributable to common stock $ 1,176 $ 1,163 $ (953)
======== ======== ========
Per share of common stock
Net income (loss) $ 0.64 $ 0.63 $ (0.52)
======== ======== ========
</TABLE>
See accompanying notes.
F-5
<PAGE>
Sea Pines Associates, Inc.
Consolidated Statements of Shareholders' Equity
<TABLE>
<CAPTION>
Series A
Preferred Stock Common Stock Retained
Shares Amount Shares Amount Earnings Total
------ ------ ------ ------ -------- -----
(In Thousands of Dollars)
<S> <C> <C> <C> <C> <C> <C>
Balance at October 31, 1996 1,228 $7,218 1,843 $2,166 $5,124 $14,508
Net loss -- -- -- -- (66) (66)
Declaration of preferred stock
dividend of $0.722 per share (887) (887)
----- ------ ----- ------ ------ -------
Balance at October 31, 1997 1,228 7,218 1,843 2,166 4,171 13,555
Net income -- -- -- -- 2,050 2,050
Declaration of preferred stock
dividend of $0.722 per share (887) (887)
----- ------ ----- ------ ------ -------
Balance at October 31, 1998 1,228 7,218 1,843 2,166 5,334 14,718
Net income -- -- -- -- 2,063 2,063
Declaration of preferred stock
dividend of $0.722 per share (887) (887)
----- ------ ----- ------ ------ -------
Balance at October 31, 1999 1,228 $7,218 1,843 $2,166 $6,510 $15,894
===== ====== ===== ====== ====== =======
</TABLE>
See accompanying notes.
F-6
<PAGE>
Sea Pines Associates, Inc.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended October 31
1999 1998 1997
---- ---- ----
(In Thousands of Dollars)
<S> <C> <C> <C>
Operating activities
Net income (loss) $2,063 $2,050 $ (66)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 1,307 1,408 1,586
Allowance for doubtful accounts (9) (23) 46
Deferred income taxes 233 489 (1,217)
Gain on sale and disposal of asset (359) -- (170)
Equity in loss and write down of investment in and
advances to TidePointe Partners -- -- 2,658
Changes in assets and liabilities:
Restricted cash (372) (43) (769)
Accounts and notes receivable (5) 49 (317)
Inventories (84) (36) 16
Prepaid expenses (8) 108 53
Deferred loan fees 34 (70) (41)
Accounts payable and accrued expenses 831 659 (227)
Deferred revenue 8 119 564
Advance deposits 209 66 657
Income taxes payable (113) (53) 24
Income tax refund receivable (346) -- --
Current portion of deferred revenue (86) 184 68
------ ------ ------
Net cash provided by operating activities 3,303 4,907 2,965
Investing activities
Proceeds from sale of assets 754 -- 529
Capital expenditures and property acquisitions (5,823) (1,617) (1,378)
Increase in note receivable and accrued interest from
TidePointe Partners -- -- (155)
------ ------ ------
Net cash used in investing activities (5,069) (1,617) (1,004)
</TABLE>
F-7
<PAGE>
Sea Pines Associates, Inc.
Consolidated Statements of Cash Flows (continued)
<TABLE>
<CAPTION>
Year ended October 31
1999 1998 1997
---- ---- ----
(In Thousands of Dollars)
<S> <C> <C> <C>
Financing activities
Reductions to line of credit with bank -- (467) (308)
Additions to long-term debt 3,091 -- --
Principal repayments of debt (367) (1,560) (783)
Dividends paid (887) (887) (887)
----- ------ ------
Net cash provided by (used in) financing activities 1,837 (2,914) (1,978)
----- ------ ------
Net increase (decrease) in unrestricted cash and cash
equivalents 71 376 (17)
Unrestricted cash and cash equivalents at beginning of year 591 215 232
----- ------ ------
Unrestricted cash and cash equivalents at end of year $ 662 $ 591 $ 215
===== ====== ======
</TABLE>
See accompanying notes.
F-8
<PAGE>
Sea Pines Associates, Inc.
Notes to Consolidated Financial Statements
October 31, 1999, 1998 and 1997
1. Description of Business and Summary of Significant Accounting Policies
Sea Pines Associates, Inc. ("SPA" or the "Company") was incorporated in South
Carolina on May 4, 1987. The Company was principally organized to acquire, own
and operate certain resort assets in Sea Pines Plantation on Hilton Head Island,
South Carolina.
The wholly-owned subsidiaries of the Company are Sea Pines Company, Inc.
("SPCI"), Sea Pines Real Estate Company ("SPREC"), Sea Pines/TidePointe, Inc.,
Sea Pines Senior Living Center, Inc. ("SPSLC") and Fifth Golf Course Club, Inc.
SPCI is a full-service resort, which provides guests with the use of three golf
courses, tennis facility, various other recreational facilities, home and villa
rental management, and food-and-beverage services. SPREC provides real estate
brokerage services for buyers and sellers of real estate in the Hilton Head
Island, South Carolina area (see Note 13 for business segment information). Sea
Pines/TidePointe, Inc. was formed to invest in a general partnership, TidePointe
Partners, which was formed to develop a continuing care retirement community
(see Note 8). Sea Pines/TidePointe, Inc. is now dormant. SPSLC was established
to construct a healthcare facility within the TidePointe community (see Note 8).
SPSLC is also now dormant. Fifth Golf Course Club, Inc. owns certain acreage
which could be used for outdoor recreational activities.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All intercompany accounts and transactions have
been eliminated.
The Company accounted for its general partner interest in the TidePointe
Partners Partnership (see Note 8) using the equity method of accounting.
Statements of Cash Flows
For purposes of the statements of cash flows, the Company considers all
short-term investments with maturities of 90 days or less at the time of
purchase to be cash equivalents.
Revenue Recognition
Revenues and expenses from resort operations are recognized as goods are sold
and services are provided. Real estate brokerage revenues are recognized upon
closing of the sale. Advance deposits are required for certain resort
reservations, but in general the Company's accounts receivable are unsecured.
Sales of new Country Club memberships and commissions on sales of reissued
memberships are recognized as income pursuant to the terms of an agreement with
the Club, which rotates sales of new and reissued memberships between the
Company and the Club according to a pre-set schedule. At the members' request,
such sales and resales are financed by the Company over periods of one to seven
years under interest-bearing notes. Payments to the Club on resales are made as
the Company collects from the members.
F-9
<PAGE>
1. Description of Business and Summary of Significant Accounting Policies
(continued)
Revenues from long-term service contracts are recognized during the periods in
which the services are provided.
Cost of Revenues
Cost of revenues includes payments to home and villa owners, real estate sales
commissions, cost of inventories sold, credit-card commissions and costs
incurred to operate and maintain operating properties.
Concentration of Credit Risk
The Company maintains substantially all of its cash with one financial
institution. Account balances greater than $100,000 are not federally insured
and are subject to an accounting loss if the financial institution fails.
Management believes such risk is minimal based on the current financial
condition of the financial institution.
Cash Held in Escrow
Cash includes cash held in escrow pending real estate closings, advance deposits
for home and villa rentals, and rental receipts to be paid to home and villa
owners.
Inventories
Inventories are valued at the lower of cost (first-in, first-out method) or
market.
Real Estate Assets
Real estate assets are recorded at cost less any impairment losses. The costs of
new development, additions and improvements which substantially extend the
useful lives of assets are capitalized. Capitalized costs include costs of
construction, property taxes, interest and miscellaneous expenses incurred
during the construction period. Capitalized construction period interest
totalled approximately $129,000, $0 and $6,000 in 1999, 1998 and 1997,
respectively. Repairs and maintenance costs are expensed as incurred.
The Company provides depreciation for financial reporting purposes when the
asset is placed in operation using straight-line and certain accelerated methods
over the estimated useful lives of the assets, which range from five to 39
years.
Other Assets
Intangible assets are amortized using the straight line method over ten years.
Deferred loan fees are amortized over the lives of the corresponding debt.
Impairment of Long-Lived Assets
An impairment loss is recognized whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. The
Company considers historical performances and future estimated results in its
evaluation of potential impairment and then compares the carrying amount of the
asset to the estimated future cash flows expected to result from the use of the
asset. If the carrying amount of the asset exceeds the estimated expected future
cash flows, the Company measures the amount of the impairment by comparing the
amount of the asset to its fair value.
Financial Instruments
The Company accounts for its interest rate swap by recording differences in
interest on the notational amount up to the amount of debt outstanding as
interest expense. Differences in fair value related to the
F-10
<PAGE>
1. Description of Business and Summary of Significant Accounting Policies
(continued)
excess of the notional amount over the debt outstanding are recorded in the
balance sheet and as current period expense. Such excess fair value fluctuations
were not material at October 31, 1999 and October 31, 1998.
Income Taxes
The Company accounts for income taxes using the liability method, which requires
recognition of deferred tax liabilities and assets based on temporary
differences between the financial statement and tax bases of assets and
liabilities using current statutory tax rates. A valuation allowance is
established against net deferred tax assets if, based upon the available
evidence, it is more likely than not that some or all of the deferred tax assets
will not be realized.
Income (Loss) Per Share
Income (loss) per share of common stock is calculated by dividing net income or
loss after preferred stock dividend requirements by the weighted average number
of outstanding shares of common stock. Furthermore, basic and diluted earnings
per share are identical for all periods presented. Potentially dilutive
securities consist of additional shares of common stock issuable when the stock
rights become exercisable. These contingently issuable shares have not been
included in basic or diluted earnings per share as the stock rights are not yet
exercisable. (See Note 7.)
New Accounting Standards
The Financial Accounting Standards Board issued Statement No. 133, Accounting
for Derivative Instruments and Hedging Activities, which the Company will be
required to adopt, effective November 1, 2000. Statement 133 requires the
recognition of all derivatives on the balance sheet at fair value. Derivatives
that are not hedges must be adjusted to fair value through income. If the
derivatives are hedges, depending on the nature of the hedge, changes in the
fair value of derivatives will either be offset against the change in fair value
of the hedged assets, liabilities or firm commitments through earnings or
recognized in other comprehensive income until the hedged item is recognized in
earnings. The effective portion of a derivative's change in fair value will be
immediately recognized in earnings.
Currently, the Company has entered into an interest rate swap agreement as
described in Note 5, which would be subject to the new Statement.
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 amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Reclassifications
Certain amounts in the prior years financial statements have been reclassified
to conform to the current year presentation.
F-11
<PAGE>
2. Statements of Cash Flows
Supplemental disclosure of cash flows information follows (in thousands of
dollars):
<TABLE>
<CAPTION>
Year ended October 31
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Cash paid during the year for:
Interest, net of amounts capitalized $1,022 $1,352 $1,452
Income taxes 1,438 662 965
3. Inventories
Inventories consist of the following (in thousands of dollars):
October 31
1999 1998
---- ----
<S> <C> <C>
Merchandise $628 $580
Supplies, parts and accessories 37 35
Food and beverages 44 10
Other 28 28
---- ----
$737 $653
==== ====
4. Real Estate Assets
Construction in progress of $6,575,000 and $1,135,000 at October 31, 1999 and
1998, consists primarily of costs related to the Inn and Conference Center in
1999, and renovations on existing properties in 1998.
Operating properties consist of the following (in thousands of dollars):
October 31
1999 1998
---- ----
<S> <C> <C>
Land and improvements $19,047 $20,140
Buildings 8,466 7,103
Machinery and equipment 7,308 6,399
Property held under capital leases -- 251
------- -------
34,821 33,893
Less accumulated depreciation (11,056) (11,213)
------- -------
$23,765 $22,680
======= =======
</TABLE>
Properties held for future development of $4,623,000 and $7,023,000 at October
31, 1999 and 1998, respectively, consist primarily of land and certain future
development rights. The decrease relates to amounts transferred to construction
in progress
F-12
<PAGE>
5. Long-Term Debt and Line of Credit Agreements
Long-term debt consists of the following (in thousands of dollars):
<TABLE>
<CAPTION>
October 31
1999 1998
---- ----
<S> <C> <C>
Term note payable to bank, bearing interest at various London Interbank $18,133 $17,159
Offered Rates (LIBOR) (5.41% at October 31, 1999), plus 1.25% to
1.5% collateralized by substantially all assets of the Company.
Principal is payable monthly from May through October each year in
amounts ranging from $66,602 in 2000 to $220,979 in 2008. Interest
is payable monthly. The note matures November 1, 2008.
$15 million revolving line of credit to bank pre-approved for use in 1,750 --
construction of the Company's inn and conference center, bearing
interest at various London Interbank Offered Rats (LIBOR) (5.41% at
October 31, 1999), plus 1.25% to 1.5% collateralized by substantially
all assets of the Company. Interest is payable monthly. The line
matures October 31, 2003.
------- -------
19,883 17,159
Less current portion of long-term debt (400) (367)
------- -------
Total long-term debt $19,483 $16,792
======= =======
</TABLE>
Scheduled maturities of long-term debt as of October 31, 1999 are as follows (in
thousands of dollars):
Year ending October 31
2000 $ 400
2001 733
2002 796
2003 868
2004 946
Thereafter 16,140
-------
Total $19,883
=======
The loan agreements contain provisions and covenants which impose certain
restrictions on the use of the Company's assets. The more significant of these
restrictions include limitations as to new indebtedness, the sale or disposal of
certain assets, capital contributions and investments, and new lines of
business.
The Company has an interest rate swap agreement, which effectively fixes the
interest rate on an $18 million notional principal amount under the term note
described above at 5.24% plus a credit margin ranging from 1.25% to 1.5% for a
period ending November 10, 2005. The lender has the option of calling the swap
agreement on November 10, 2003.
In addition, the Company maintains a $2,500,000 seasonal line of credit (the
"Seasonal Line") with the same bank. Interest is payable monthly at LIBOR plus
1.5% and the Seasonal Line expires October 31, 2003. Borrowings under the
Seasonal Line are also collateralized by substantially all of the assets of the
Company. There was no outstanding balance as of October 31, 1999.
F-13
<PAGE>
6. Income Taxes
The provision (benefit) for income taxes consists of the following (in thousands
of dollars):
Year ended October 31
1999 1998 1997
---- ---- ----
Current taxes:
Federal $ 839 $ 506 $ 856
State 140 104 146
------- ------- -------
979 610 1,002
Deferred income taxes (benefit):
Federal 202 423 (1,053)
State 31 66 (164)
------- ------- -------
233 489 (1,217)
------- ------- -------
$ 1,212 $ 1,099 $ (215)
======= ======= =======
The reconciliation between actual income tax expense (benefit) and the amount
calculated by applying the federal statutory rates to income (loss) before
income taxes follows (in thousands of dollars):
<TABLE>
<CAPTION>
Year ended October 31
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Tax at statutory federal income tax rates $ 1,113 $ 1,071 $ (95)
State income taxes, net of
federal income tax benefit 108 116 --
Decrease in valuation allowance (168) (80) (121)
Charitable contribution expiration 140 -- --
Other 19 (8) 1
------- ------- -------
$ 1,212 $ 1,099 $ (215)
======= ======= =======
</TABLE>
F-14
<PAGE>
6. Income Taxes (continued)
The tax effects of the types of temporary differences and carryovers, which give
rise to deferred income tax assets (liabilities) at October 31, 1999, 1998 and
1997, are as follows (in thousands of dollars):
October 31
1999 1998 1997
---- ---- ----
Deferred revenue:
Country club membership sales $ 38 $ 43 $ 48
Health care transfer -- -- 67
Charitable contribution carryover -- 235 295
License and fee income 200 200 --
Reserve for investment in and advances to
TidePointe Partners -- -- 805
Accrued liabilities 167 141 110
Other assets 15 19 26
------- ------- -------
Gross deferred income tax assets 420 638 1,351
Less: Valuation allowance (23) (191) (271)
------- ------- -------
Deferred income tax assets 397 447 1,080
------- ------- -------
Depreciation (231) (78) (91)
Equity loss from TidePointe Partners -- -- (97)
Other liabilities (83) (53) (87)
------- ------- -------
Gross deferred income tax liabilities (314) (131) (275)
------- ------- -------
Net deferred income tax assets $ 83 $ 316 $ 805
======= ======= =======
These net amounts are included in the consolidated balance sheets as noncurrent
assets.
7. Shareholders' Equity
The Company's capital stock generally trades in units, each consisting of 500
preferred shares and 750 voting common shares. The preferred and common shares
were issued on December 22, 1987.
Preferred Stock
Of the 5,000,000 authorized shares of preferred stock, 2,000,000 shares are
designated as Series A cumulative preferred stock and 3,000 shares are
designated as Series B cumulative preferred stock. The Board of Directors has
the authority to approve the issuance amount, rights and powers of an additional
2,997,000 shares of non-Series A preferred stock except that such rights and
powers shall not be superior to those of the Series A cumulative preferred
shares.
The Series A cumulative preferred shares provide for a cumulative dividend of
$0.722 per share per annum, payable in arrears as declared by the Board of
Directors. These shares have a liquidation value of $7.60 per share plus
accumulated but unpaid dividends. If four or more years of dividends are in
arrears, the Series A cumulative preferred shareholders shall be entitled to
elect a majority of the Board of Directors of the Company. All or any part of
such shares may be redeemed at the option of the Company at liquidation value.
As of October 31, 1999, all preferred stock dividends through October 31, 1998
have been declared and paid.
F-15
<PAGE>
7. Shareholders' Equity (continued)
The Series B Junior cumulative preferred shares are subject to the prior and
superior rights of the holders of the Series A and all other classes of
preferred shares. These Series B shares provide for a cumulative dividend of the
greater of $0.25 per share or an amount as adjusted for the Antidilution Number
(initially 1,000). Each share of the Series B also entitles the holder to the
number of votes equal to the Antidilution Number. Generally, the Series B and
common shareholders shall vote together as one class on all matters submitted to
a vote. The Series B shares have a liquidation value of $100 per share, plus
dividends thereon. The Series B shares are not redeemable. No shares of the
Series B junior cumulative preferred stock have been issued (see Stock Purchase
Rights Plan).
Common Stock
Of the 23,000,000 authorized shares of common stock, 2,000,000 shares are
designated as special common stock and 1,000,000 are designated as nonvoting
common stock. All other shares are voting. The 1,842,525 shares of common stock
outstanding are all voting common stock.
Each share of common stock (regardless of class) shall participate on an equal
and pro rata basis in all dividends and other distributions, including
liquidation, subject to the rights of the preferred shareholders.
Holders of shares of voting common stock shall be entitled to one vote per
share. Holders of special common shares (if issued) shall have such voting
rights as specified by the Board of Directors, except that such rights shall not
be superior to the voting common stock.
In September 1999, the Board of Directors of the Company approved in concept a
plan to offer the holders of the Company's preferred stock the right to exchange
some or all of their Preferred Stock shares for either shares of common stock or
a new financial instrument, Trust Preferred Securities. The exchange offer is
expected to be made in December 1999, with holders required to elect by January
31, 2000.
Stock Purchase Rights Plan
On August 23, 1993 the Company's Board of Directors approved a Stock Purchase
Rights Plan ("Plan") and declared a dividend distribution of one right ("Right")
for each share of the Company's outstanding common stock. Each Right entitles a
shareholder to purchase one one-thousandth of a share of Series B junior
cumulative preferred stock at a price of $50 per Right, subject to adjustment.
The Rights become exercisable after any person or group of affiliated or
associated persons (an "Acquirer") acquires 20% percent or more of the Company's
outstanding common stock or commences a tender offer that would result in the
Acquirer owning 20% or more of the Company's outstanding common stock or an
Acquirer has been designated an Adverse Person, as such term is defined in the
Plan. In the event the Rights become exercisable, a Right will entitle the
holder to receive shares of the Company's common stock having a value equal to
twice the exercise price of the Right. In the event that the Company is acquired
in a merger or other business combination or sale of 50% or more of its assets
or earning power, a Right will entitle the holder to receive shares of the
surviving company's common stock having a market value equal to twice the
exercise price of the Right. The Board of Directors has the flexibility to lower
the 20% threshold to not less than 10% under certain circumstances.
In general, the Rights may be redeemed by the Company at $.01 per Right at
anytime before certain events occur. One Right is attached to and trades with
each share of common stock. The Rights will not trade separately unless they
become exercisable. All Rights expire on August 23, 2003.
8. TidePointe Partners
In 1994, a subsidiary of the Company entered into a general partnership,
TidePointe Partners (the Partnership), with Providers Enterprises, Inc., for the
purpose of constructing, developing and operating a continuing care retirement
community on Hilton Head Island, South Carolina, to be known as TidePointe.
F-16
<PAGE>
8. TidePointe Partners (continued)
The Company contributed $850,000 of certain predevelopment costs for a 17.5%
interest in the Partnership, and the other partner made an initial cash
contribution of $6,000,000 for an 82.5% interest in the Partnership.
The Partnership developed phase one of the TidePointe community. The community
also included an assisted living and skilled nursing healthcare facility, which
a subsidiary of the Company developed and operated until July 31, 1997, when the
Partnership purchased the facility. Due to the Company's partial ownership of
the Partnership, $179,375 of the gain on this sale was not recognized in 1997
but was recorded as deferred gain at the time of the 1997 sale. As of October
31, 1997, the Company had loaned the Partnership $1,505,000, which accrued
interest at prime plus two percent (totaling $344,000 at October 31, 1997).
In December 1997, the Company learned that its partner had financial
difficulties. Based on this information, the significant uncertainties created
by the majority partner's financial problems and the significant losses incurred
in the 1997 results of operations of the TidePointe project, the Company
recorded a writedown representing all of its remaining investment in and
advances to TidePointe Partners, which when combined with its equity share of
the fiscal 1997 TidePointe Partners' operating loss, totaled $2,658,000.
During 1998, the Partnership explored its options and on June 30, 1998,
TidePointe Partners closed on the sale of all of the TidePointe project assets
to CC-Hilton Head, Inc., (an affiliate of Classic Residences by Hyatt) for a
sales price of $23,200,000. At closing, the Company received no cash funds or
other consideration and released its mortgage on the TidePointe property, which
secured its investments and loans to the project. The Company has no ownership
interest in CC-Hilton Head, Inc. and no longer has any ownership interest in the
TidePointe community. TidePointe Partners, the Partnership, has wound-up its
affairs and has been liquidated.
Due to the sale of all of the Partnership's assets, which included the
healthcare facility, the Company recognized the remaining gain of $179,375 in
June 1998. The Company has also entered into a 26-year license and use agreement
with CC-Hilton Head, Inc. for the use of the Company's logo, trade name, a
non-compete agreement and other services and amenity use in connection with the
TidePointe community.
Year ending October 31
2000 $ 524,199
2001 493,066
2002 316,112
2003 283,394
2004 115,642
Thereafter 750,350
----------
$2,482,763
==========
Under this agreement, the Company will receive fixed annual license fees,
ranging from $125,000 to $325,000 and totaling $4,125,000 over the 26-year term.
Approximately $200,000 and $67,000 of license fee income has been recognized by
the Company in fiscal year 1999 and 1998, respectively.
9. Commitments
Rent expense aggregated $694,591, $554,077 and $585,000 f
or the years ended
October 31, 1999, 1998 and 1997, respectively. Operating leases relate primarily
to office space and equipment. Minimum annual rental commitments remaining at
October 31, 1999, under noncancelable operating leases with original terms of at
least one year are as follows (in thousands of dollars):
F-17
<PAGE>
9. Commitments (continued)
In 1993, the Company made a commitment to donate approximately 404 acres of the
wildlife preserve to a not-for-profit organization on Hilton Head Island, South
Carolina. As of October 31, 1999 approximately 90 of the 404 acres have been
donated and title transferred. The remaining 314 acres have been leased to the
same not-for-profit organization for a nominal amount.
In 1999, the Company entered into a $12,539,000 construction contract for the
construction of the Inn and Conference Center and the renovation of the
Company's tennis facility. As of October 31, 1999, $1,220,406 has been paid
under this contract. Total construction costs of these facilities are estimated
at $17,230,000.
10. Contingencies
The Company has reached a written settlement agreement with the plaintiffs that
filed a lawsuit against the Company relating to the construction of a new
conference center in the Harbour Town area. The settlement agreement requires
the plaintiffs to dismiss their appeal and agree to be bound by the trial
court's order of March 4, 1998 if the Company proceeds with the construction of
a 60-room inn adjacent to the conference center site and meets certain
construction time lines. The Company also paid $15,000 to the plaintiffs for
legal fees incurred in the appeal. Construction of both the conference center
and the inn began in the third quarter of 1999 and both facilities are expected
to be completed and operational before the end of fiscal year 2000.
The Company also signed a written settlement agreement with the plaintiffs in a
lawsuit filed by thirteen condominium rental companies and two individuals
relating to an alleged tying arrangement regarding access to the Company's pools
and parking facilities. The plaintiffs have dismissed all claims against the
Company and conveyed by quit-claim deeds any interest they have in all of the
properties involved in the lawsuit. The Company is required to allow access to
the Company's swimming pools under certain conditions to guests of the
plaintiffs.
The Company is a defendant in a lawsuit relating to a contractual relationship
related to its investment in TidePointe Partners. The plaintiff alleges breach
of contract and seeks unspecified damages. The Company has answered the suit and
filed a counterclaim for unspecified damages. The Company intends to defend its
position vigorously and pursue its counterclaim against the plaintiff. However,
neither the Company nor its legal counsel can form an opinion as to the outcome
of this matter at this time.
The Company is a defendant in a lawsuit relating to title of real and personal
property. The Plaintiff alleges ownership of certain parcels of real property
and various personal property. The parties have been involved in extensive
settlement discussions and are proceeding with the work required to document a
possible settlement of all issues. The potential settlement, as currently being
discussed, will have no material effect on the Company's assets or operations.
If no settlement is reached, the case will proceed to trial in early 2000.
Neither the Company nor its legal counsel can form an opinion as to the possible
outcome of a trial at this time.
The Company is subject to other claims and suits in the ordinary course of
business. In management's opinion, such currently pending claims and suits
against the Company will not, in the aggregate, have a material adverse effect
on the Company.
11. Employee Savings Plan
Effective January 1, 1989, the Company adopted a 401(k) defined contribution
plan for all eligible employees with a minimum of six months of service and who
meet certain age requirements, as defined. The Company matches 50% of the first
6% of the participants' compensation. The Company's contributions to the plan
were $126,000, $119,000 and $106,000 for the years ended October 31, 1999, 1998
and 1997, respectively.
F-18
<PAGE>
12. Financial Instruments
The carrying amounts of cash and cash equivalents, trade receivables, notes
receivable, other current assets, accounts payable, line of credit with bank,
long-term debt and accruals meeting the definition of financial instruments
approximate their fair values, as of October 31, 1999 and 1998. As of October
31, 1999 and 1998, the estimated fair value of the interest rate swap agreement
was $681,000 and negative $411,000, respectively. Fair value of the interest
rate swap was determined through a combination of management estimates and
information obtained from third parties using market data such as bid/ask
spreads, available on the last day of the business year.
13. Business Segment Information
The Company had two reportable business segments for the year ended October 31,
1999, and prior to that the Company had three operating segments. The Company's
reportable segments are organized by the type of operations and for the year
ended October 31, 1999, included: (1) resort activities, including home and
villa management operations, golf course operations, food and beverage
operations, and various other recreational activities; and (2) real estate
brokerage for buyers and sellers of real estate in the Hilton Head, South
Carolina, area. Additionally, prior to the year ended October 31, 1999, the
Company had a third reportable segment, which included all activities related to
the Company's investment in TidePointe Partners and the related healthcare
operations. During 1998, the Company sold its investment in TidePointe Partners
and therefore this is not a reportable segment for the year ended October 31,
1999.
The Company evaluates performance and allocates resources based on earnings
before interest, depreciation and other non-cash items. The accounting policies
of the reportable segment are the same as those described in the summary of
significant accounting policies (Note 1). All intercompany transactions between
segments have been eliminated upon consolidation.
Segment information as of and for the years ended October 31, 1999, 1998 and
1997 are as follows: (Dollars in Thousands)
F-19
<PAGE>
13. Business Segment Information (continued)
Year ended October 31
1999 1998 1997
---- ---- ----
Revenues:
Resort $ 28,941 $ 26,554 $ 26,322
Real estate brokerage 17,473 11,952 9,574
TidePointe Partners and healthcare
operations -- -- 345
-------- -------- --------
$ 46,414 $ 38,506 $ 36,241
======== ======== ========
Interest expense:
Resort $ 1,099 $ 1,345 $ 1,476
TidePointe Partners and healthcare
operations -- -- 381
-------- -------- --------
$ 1,099 $ 1,345 $ 1,857
======== ======== ========
Depreciation and amortization expense:
Resort $ 1,263 $ 1,378 $ 1,411
Real estate brokerage 44 30 175
-------- -------- --------
$ 1,307 $ 1,408 $ 1,586
======== ======== ========
Segment income before income taxes:
Resort $ 1,368 $ 1,511 $ 1,660
Real estate brokerage 1,907 1,459 896
TidePointe Partners and healthcare
operations -- 179 (2,837)
-------- -------- --------
$ 3,275 $ 3,149 $ (281)
======== ======== ========
Identifiable assets:
Resort $ 40,218 $ 35,769 $ 35,933
Real estate brokerage 2,456 2,156 1,881
-------- -------- --------
$ 42,674 $ 37,925 $ 37,814
======== ======== ========
F-20
<PAGE>
Smith Capital, Inc.
200 Hargett Court
Charlotte, North Carolina 28211
Tel: 704 362 1563 Fax: 704 364 3451
The Board of Directors
Sea Pines Associates, Inc.,
32 Greenwood Drive
Hilton Head Island, South Carolina 29938
December 21, 1999
Gentlemen:
Sea Pines Associates, Inc., a South Carolina corporation (the "Company") and
Seas Pines Associates Trust 1, a Delaware statutory business trust (the
"Trust"), are offering, upon the terms and subject to the conditions set forth
in a Prospectus (the "Prospectus") dated December 21,1999 and the accompanying
Letter of Transmittal to exchange ( the "Exchange Offer") shares of Company
voting common stock, without par value (the "Common Stock"), or 9.5% Trust
Preferred Securities (the "Trust Preferred Securities") of the Trust for up to
all of the outstanding shares of Series A Cumulative Preferred Stock (the
"Series A Preferred Stock") of the Company. The Company will own all of the
common securities of the Trust (the "Trust Common Securities") and, together
with the Trust Preferred Securities, ( the "Trust Securities"). The Trust
Securities will represent undivided beneficial interests in the assets of the
Trust.
The Exchange Offer will be effected on the basis of (A) two and one half shares
of Common Stock or (B) one Trust Preferred Security( the "Exchange Ratio") for
(C) each share of Series A Preferred Stock validly tendered and accepted for
exchange in the Exchange Offer. A holder of Series A Preferred Stock ("Holder")
may exchange all of his or her Series A Preferred Stock for shares of Common
Stock or exchange all for Trust Preferred Securities or exchange some for Common
Stock and some for Trust Preferred Securities. The Trust Preferred Securities
have a liquidation amount of $7.60 per security. The current redemption price
for a share of Series A Preferred Stock is $7.60. Dividends that have accrued
but have not been paid on the shares of Series A Preferred Stock exchanged in
the offering through the expiration date of the Exchange Offer, will be a debt
of the Company and will be paid to the persons exchanging such shares on the
same dates as they would have been paid to such persons had they not exchanged
such shares.
A-1
<PAGE>
You have requested our opinion as to the fairness, from a financial point of
view of the Exchange Ratio, to the holders of the Company's Common Stock and
Series A Preferred Stock.
Smith Capital, Inc., is a North Carolina based corporation primarily engaged in:
(1) performing valuations of and valuations related to closely held and publicly
traded companies; and (2) providing financial advice related to mergers,
acquisitions and divestitures of closely held and publicly traded companies.
In arriving at our opinion set forth below, we have conducted discussions with
members of senior management of the Company concerning the Company's business
and prospects, have reviewed certain publicly available business and financial
information and have considered certain other information prepared or provided
to us in connection with the Exchange Offer, including, among other things, the
following:
1) Audited financial statements for the Company for the years ended October
31, 1996 through 1999;
2) The Exchange Offering Prospectus dated December 21, 1999;
3) Detailed Income Reports on a consolidated and unconsolidated basis for the
years ended October 31, 1997, 1998, and 1999 and estimated 2000;
4) Company prepared Strategic Initiative 2000-2005;
5) Form 10K for the fiscal year 1998;
6) Certain publicly available financial information concerning publicly
traded companies which Smith Capital deemed relevant to its analysis;
7) Such financial studies, analyses, inquiries and other matters as we deemed
relevant.
Smith Capital, Inc., relied without independent verification upon the accuracy
and completeness of all the financial and other information reviewed by it for
purposes of its opinion. In that regard Smith Capital, Inc., assumed that the
financial forecasts provided to it were reasonably prepared on a basis
reflecting the best currently available judgment of the Company. Any estimates
contained in Smith Capital, Inc.'s analyses are not necessarily indicative of
future results or values, nor do they purport to be appraisals or reflect prices
at which securities could actually be bought or sold. Smith Capital, Inc., is
not an expert in the evaluation of real estate and expresses no opinion on the
value of the Company's real estate assets. In addition, Smith Capital, Inc., has
not made or obtained an independent appraisal of the assets and liabilities of
the Company or any of its subsidiaries. Smith Capital, Inc., has relied on
assurances from the Company as to its own assessment of its readiness to handle
any Year 2000 problems as they arise. Smith Capital, Inc.'s opinion is
necessarily based upon market, economic, and other conditions as they exist and
can be evaluated on the date hereof and the information made available to us
through the date hereof.
Smith Capital, Inc.'s opinion is directed only to the fairness, from a financial
point of view, of the Exchange Ratio to the holders of Common Stock and Series A
Preferred Stock and does not constitute a recommendation to any holder as to
whether such holder should accept or reject any or part of the Exchange Offer.
A-2
<PAGE>
Based upon and subject to the foregoing, it is our opinion that as of the date
hereof the Exchange Ratio is fair, from a financial point of view, to the
stockholders of the Company.
Very truly yours,
Smith Capital, Inc.
A-3
EXHIBIT 9.(a)(2) - FORM OF LETTER OF TRANSMITTAL
LETTER OF TRANSMITTAL
TO TENDER
SERIES A CUMULATIVE PREFERRED STOCK
OF
SEA PINES ASSOCIATES, INC.
IN EXCHANGE FOR
SHARES OF VOTING COMMON STOCK OF
SEA PINES ASSOCIATES, INC.
WITHOUT PAR VALUE
OR
9.5% TRUST PREFERRED SECURITIES
(LIQUIDATION AMOUNT OF $7.60 PER SECURITY) OF
SEA PINES ASSOCIATES TRUST I
THE EXCHANGE OFFER WILL EXPIRE AT 12:00 MIDNIGHT,
EASTERN STANDARD TIME, ON JANUARY 31, 2000 (THE "EXPIRATION DATE")
UNLESS EXTENDED
EXCHANGE AGENT:
EquiServe Limited Partnership
Facsimile Number:
(For Eligible Institutions Only)
(781) 575-4826
By Hand or Overnight Courier: By Mail:
(Registered or Certified
Mail Recommended)
By Hand:
- --------
Securities Transfer & Reporting Services, Inc. EquiServe Limited Partnership
c/o EquiServe Limited Partnership Corporate Actions
100 Williams Street, Galleria P.O. Box 9573
New York, New York 10038 Boston, MA 02205-9573
By Overnight Courier:
- ---------------------
EquiServe Limited Partnership
Corporate Actions
40 Campanelli Drive
Braintree, MA 02184
Confirm Receipt of Notice
of Guaranteed Delivery by Telephone:
(781) 575-4816
Fax Confirmation: (781) 575-4826
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE TRANSMISSION TO A
NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
The undersigned acknowledges receipt of the Prospectus, dated December
21, 1999 (the "Prospectus"), of Sea Pines Associates, Inc., a South Carolina
corporation (the "Company"), and Sea Pines Associates Trust I, a Delaware
statutory business trust (the "Trust") which, together with this Letter of
Transmittal (the "Letter of Transmittal"), describes the Company's and the
Trust's offer (the "Exchange Offer") to exchange shares of voting common stock
without par value (the "Common Stock") of the Company or 9.5% Trust Preferred
Securities (liquidation amount of $7.60 per security) (the "Trust Preferred
Securities") of the Trust for up to all of the outstanding shares of Series A
Cumulative Preferred Stock (the "Series A Preferred Stock") of the Company. The
Company will own all of the common securities of the Trust (the "Trust Common
Securities" and, together with the Trust Preferred Securities, the "Trust
Securities"). The Trust Securities will represent undivided beneficial interests
in the assets of the Trust.
<PAGE>
The Exchange Offer will be effected on the basis of (A) 2.5 shares of
Common Stock or (B) one Trust Preferred Security for (C) each share of Series A
Preferred Stock validly tendered and accepted for exchange in the Exchange
Offer. A holder of Series A Preferred Stock (a "Holder") may exchange all of his
or her shares of Series A Preferred Stock for shares of Common Stock or exchange
all of such shares for Trust Preferred Securities or exchange some for shares of
Common Stock and some for Trust Preferred Securities. The Trust Preferred
Securities have a liquidation amount of $7.60 per security. The current
liquidation price for a share of Series A Preferred Stock is $7.60. Dividends
that have accrued but have not been paid on the shares of Series A Preferred
Stock exchanged in the offering through the Expiration Date (as defined below),
will be a debt of the Company and will be paid to the persons exchanging such
shares on the same dates as they would have been paid to such persons had they
continued to hold such shares. Cash will be paid in lieu of fractional shares of
Common Stock at the rate of $3.04 per share. Each share of Common Stock issued
will be issued with one attached right to purchase one one-thousandth (1/1,000)
of a share of the Company's Series B Junior Cumulative Preferred Stock.
The undersigned has completed the appropriate boxes below and signed
this Letter of Transmittal to indicate the action the undersigned desires to
take with respect to the Exchange Offer.
PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL AND
THE PROSPECTUS CAREFULLY BEFORE COMPLETING ANY BOX BELOW
THE INSTRUCTIONS INCLUDED WITH THIS LETTER OF TRANSMITTAL MUST BE
FOLLOWED. QUESTIONS AND REQUESTS FOR ASSISTANCE OR FOR ANY ADDITIONAL COPIES OF
THE PROSPECTUS AND THIS LETTER OF TRANSMITTAL MAY BE DIRECTED TO THE EXCHANGE
AGENT.
List below the shares of Series A Preferred Stock to which this Letter
of Transmittal relates. If the space provided below is inadequate, the
Certificate Numbers and Numbers of Shares should be listed on a separate signed
schedule affixed hereto.
- --------------------------------------------------------------------------------
DESCRIPTION OF SERIES A PREFERRED STOCK TENDERED HEREWITH
- --------------------------------------------------------------------------------
Name(s) and Address(es) NUMBER OF SHARES NUMBER OF
of Registered Holder(s) CERTIFICATE REPRESENTED BY SHARES
(PLEASE FILL IN) NUMBERS CERTIFICATE(S) TENDERED
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
* Unless otherwise indicated, the Holder will be deemed to have tendered
the full number of shares of Series A Preferred Stock represented by
the tendered certificates. See instruction 2.
<PAGE>
- --------------------------------------------------------------------------------
NUMBER OF TENDERED SHARES TO BE EXCHANGED FOR**
- --------------------------------------------------------------------------------
**Shares of Common Stock **Trust Preferred Securities
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
** Must be a whole number of shares
[_] CHECK THE BOX ON THE LEFT IF YOUR SERIES A PREFERRED STOCK
CERTIFICATE(S) ARE LOST OR DESTROYED, INDICATE ON THE LINE BELOW THE
NUMBER OF SHARES OF SERIES A PREFERRED STOCK REPRESENTED BY THE LOST OR
DESTROYED CERTIFICATE(S) AND CONTACT THE EXCHANGE AGENT AT (800)
633-4236 TO OBTAIN INFORMATION ON HOW TO REPLACE THE MISSING
CERTIFICATES PRIOR TO SUBMITTING YOUR LETTER OF TRANSMITTAL.
_______________
(Number of shares evidenced by lost or destroyed certificates.)
Holders whose shares of Series A Preferred Stock are not immediately
available or who cannot deliver their shares of Series A Preferred Stock and all
other documents required hereby to the Exchange Agent prior to the Expiration
Date may tender their shares of Series A Preferred Stock according to the
guaranteed delivery procedure set forth in the Prospectus under the caption "The
Exchange Offer--Procedures for Tendering--Guaranteed Delivery."
[_] CHECK HERE IF TENDERED SHARES OF SERIES A PREFERRED STOCK ARE BEING
DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY AND COMPLETE THE
FOLLOWING:
Name(s) of Registered Holder(s) ________________________________________
Name of Eligible Institution that
Guaranteed Delivery ________________________________________
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders the above-described shares of Series A Preferred
Stock for exchange into shares of Common Stock or Trust Preferred Securities as
indicated above. Subject to, and effective upon, the acceptance for exchange of
the shares of Series A Preferred Stock tendered herewith, the undersigned hereby
exchanges, assigns and transfers to, or upon the order of, the Company, in the
case of shares being exchanged for shares of Common Stock, or the Trust, in the
case of shares being exchanged for Trust Preferred Securities, all right, title
and interest in and to such shares. The undersigned hereby irrevocably
constitutes and appoints the Exchange Agent as the true and lawful agent and
attorney-in-fact of the undersigned (with full knowledge that said Exchange
Agent acts as the agent of the undersigned in connection with the Exchange
Offer) to cause the shares of Series A Preferred Stock to be assigned,
transferred and exchanged. The undersigned represents and warrants that it has
full power and authority to tender, exchange, assign and transfer the shares of
Series A Preferred Stock and to acquire the shares of Common Stock or Trust
Preferred Securities issuable upon the exchange of such tendered shares, and
that, when the same are accepted for exchange, the Company or the Trust, as the
case may be, will acquire good and unencumbered title to the tendered shares of
Series A Preferred Stock, free and clear of all liens, restrictions, charges and
encumbrances and not subject to any adverse claim. The undersigned also warrants
that it will, upon request, execute and deliver any additional documents deemed
by the Exchange Agent or the Company to be necessary or desirable to complete
the exchange, assignment and transfer of tendered shares of Series A Preferred
Stock. All authority herein conferred or agreed to be conferred shall survive
the death, bankruptcy or incapacity of the undersigned and every obligation of
the undersigned hereunder shall be binding upon the heirs, personal
representatives, successors and assigns of the undersigned.
3
<PAGE>
The Company expressly reserves the right, in its sole discretion, to
extend, amend or modify the terms and conditions of the Exchange Offer in any
manner, or to withdraw or terminate the Exchange Offer at any time for any
reason. For example, if less than 25% of the outstanding Series A Preferred
Stock is tendered for Trust Preferred Securities, the Company may withdraw the
option for Holders to receive Trust Preferred Securities. The undersigned
recognizes that as a result of the foregoing, the Company may not be required to
exchange any of the shares of Series A Preferred Stock tendered hereby and, in
such event, the shares of Series A Preferred Stock not exchanged will be
returned to the undersigned at the address shown below the signature of the
undersigned. Tendered shares of Series A Preferred Stock may be withdrawn at any
time prior to the Expiration Date and, unless accepted for exchange by the
Company, may be withdrawn at any time after 40 business days after the date of
the Prospectus.
Certificates for all shares of Common Stock and all Trust Preferred
Securities delivered in exchange for tendered shares of Series A Preferred Stock
delivered herewith and certificates for any shares of Series A Preferred Stock
delivered herewith but not being exchanged, registered in the name of the
undersigned, shall be delivered to the undersigned at the address shown below
the signature of the undersigned.
TENDERING HOLDER(S) SIGN HERE
(Complete accompanying substitute Form W-9)
________________________________________________________________________________
________________________________________________________________________________
(Signature(s) of Holder(s))
Dated: ___________________
(Must be signed by registered Holder(s) exactly as name(s) appear(s) on
certificate(s) for shares of Series A Preferred Stock or by any person(s)
authorized to become registered Holder(s) by endorsements and documents
transmitted herewith. If signature is by a trustee, executor, administrator,
guardian, attorney-in-fact, officer of a corporation, or other person acting in
a fiduciary or representative capacity, please set forth the full title of such
person.)
See instruction 3.
Name(s): ______________________________________________________________________
________________________________________________________________________________
(Please Print)
4
<PAGE>
Capacity (full title): _______________________________________________________
Address: _______________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Including Zip Code)
Area Code and Telephone No. ___________________________________________________
Taxpayer Identification No. ___________________________________________________
GUARANTEE OF SIGNATURE(S)
(If Required--See Instruction 3)
Authorized Signature: _________________________________________________________
Name: ________________________________________________________________________
Title: _______________________________________________________________________
Address: _____________________________________________________________________
Name of Firm: _________________________________________________________________
Area Code and Telephone Number: ______________________________________________
Dated: _______________________________________________________________________
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. Delivery of this Letter of Transmittal and Certificates.
Certificates for shares of Series A Preferred Stock as well as a properly
completed and duly executed copy of this Letter of Transmittal or facsimile
thereof, and any other documents required by this Letter of Transmittal must be
received by the Exchange Agent at either of its addresses set forth herein prior
to the Expiration Date.
THE METHOD OF DELIVERY OF THIS LETTER OF TRANSMITTAL, THE SHARES OF
SERIES A PREFERRED STOCK AND ANY OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND
RISK OF THE HOLDER AND, EXCEPT AS OTHERWISE PROVIDED BELOW, THE DELIVERY WILL BE
DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE EXCHANGE AGENT. IF SUCH DELIVERY
IS BY MAIL, IT IS SUGGESTED THAT REGISTERED MAIL WITH RETURN RECEIPT REQUESTED,
PROPERLY INSURED, BE USED.
Holders whose shares of Series A Preferred Stock are not immediately
available or who cannot deliver their shares of Series A Preferred Stock and all
other required documents to the Exchange Agent prior to the Expiration Date may
tender their shares of Series A Preferred Stock pursuant to the guaranteed
delivery procedure set forth in the Prospectus under "The Exchange
Offer--Procedures for Tendering--Guaranteed Delivery." Pursuant to such
procedure: (i) such tender must be made by or through an Eligible Institution
(as defined in the Prospectus); (ii) on or prior to the Expiration Date, the
Exchange Agent must have received from such Eligible Institution a letter,
telex, telegram or facsimile transmission setting forth the name and address of
the tendering Holder, the names in which such shares are registered and, if
possible, the certificate numbers of the shares of Series A Preferred Stock to
be tendered; and (iii) all tendered shares of Series A Preferred Stock as well
as this Letter of Transmittal and all other documents required by this Letter of
Transmittal must be received by the Exchange Agent within three New York Stock
Exchange, Inc. trading days after the date of execution of such letter, telex,
telegram or facsimile transmission, all as provided in the Prospectus under the
caption "The Exchange Offer--Procedures for Tendering--Guaranteed Delivery."
5
<PAGE>
No alternative, conditional, irregular or contingent tenders will be
accepted. All tendering Holders, by execution of this Letter of Transmittal (or
facsimile thereof), shall waive any right to receive notice of the acceptance of
the shares of Series A Preferred Stock for exchange.
2. Partial Tenders; Election Choices; Withdrawals. If less than the
entire number of shares of Series A Preferred Stock evidenced by a submitted
certificate is tendered, the tendering Holder must fill in the number of shares
tendered in the box entitled "Number of Shares Tendered." A newly issued
certificate for shares of Series A Preferred Stock submitted but not tendered
will be sent to such Holder as soon as practicable after the Expiration Date.
All shares of Series A Preferred Stock evidenced by certificates delivered to
the Exchange Agent will be deemed to have been tendered unless otherwise
indicated. Tendering Holders must indicate in the Table on page 3 the number of
shares of Series A Preferred Stock being exchanged for shares of Common Stock
and the number of shares being exchanged for Trust Preferred Securities.
Tenders of shares of Series A Preferred Stock pursuant to the Exchange
Offer may be withdrawn at any time prior to the Expiration Date and, unless
accepted for exchange by the Company, may be withdrawn at any time after 40
business days after the date of the Prospectus. To be effective, a written,
telegraphic, telex or facsimile transmission notice of withdrawal must be timely
received by the Exchange Agent. Any such notice of withdrawal must specify the
person named in the Letter of Transmittal as having tendered shares of Series A
Preferred Stock to be withdrawn, the certificate numbers of the shares of Series
A Preferred Stock to be withdrawn, the number of shares of Series A Preferred
Stock delivered for exchange, a statement that such a Holder is withdrawing his
or her election to have such shares exchanged, and the name of the registered
Holder of such shares and must be signed by the Holder in the same manner as the
original signature on the Letter of Transmittal (including any required
signature guarantees) or be accompanied by evidence satisfactory to the Company
that the person withdrawing the tender has succeeded to the beneficial ownership
of the shares of Series A Preferred Stock being withdrawn. The Exchange Agent
will return properly withdrawn shares of Series A Preferred Stock promptly
following receipt of notice of withdrawal. All questions as to the validity of
notice of withdrawal, including time of receipt, will be determined by the
Company, and such determination will be final and binding on all parties.
Withdrawals of tenders of shares of Series A Preferred Stock may not be
rescinded and any shares of Series A Preferred Stock withdrawn will thereafter
be deemed not validly tendered for purposes of the Exchange Offer. Properly
withdrawn shares of Series A Preferred Stock, however, may be retendered by
following the procedures therefor at any time prior to the Expiration Date.
6
<PAGE>
3. Signature on this Letter of Transmittal; Written Instruments and
Endorsements; Guarantee of Signatures. If this Letter of Transmittal is signed
by the registered Holder(s) of the shares of Series A Preferred Stock tendered
hereby, the signature must correspond with the name(s) as written on the face of
the certificates without alteration, enlargement or any change whatsoever.
If any of the shares of Series A Preferred Stock tendered hereby are
owned of record by two or more joint owners, all such owners must sign this
Letter of Transmittal.
If any of the shares of Series A Preferred Stock tendered hereby are
registered in different names on different certificates, it will be necessary to
complete, sign, and submit as many separate copies of this Letter of Transmittal
as there are different registrations of shares of Series A Preferred Stock.
When this Letter of Transmittal is signed by the registered Holder(s)
of shares of Series A Preferred Stock listed and tendered hereby, no
endorsements of certificates or separate written instruments of transfer or
exchange are required.
If this Letter of Transmittal is signed by a person other than the
registered Holder(s) of the shares of Series A Preferred Stock listed, such
shares must be endorsed or accompanied by separate written instruments of
transfer or exchange in form satisfactory to the Company and duly executed by
the registered Holder(s), in either case signed exactly as the name or names of
the registered Holder(s) appear(s) on the shares of Series A Preferred Stock.
If this Letter of Transmittal, any certificates or separate written
instruments of transfer or exchange are signed by trustees, executors,
administrators, guardians, attorneys-in-fact, officers of corporations or others
acting in a fiduciary or representative capacity, such person should so indicate
when signing, and, unless waived by the Company, proper evidence satisfactory to
the Company of their authority so to act must be submitted.
Endorsements on certificates or signatures on separate written
instruments of transfer or exchange required by this Instruction 3 must be
guaranteed by an eligible grantor institution (bank, stockbroker, savings and
loan association or credit union with a membership in an approved Signature
Medallion Program), pursuant to Rule 17Ad-15 promulgated under the Securities
Exchange Act of 1934, as amended.
Signatures on this Letter of Transmittal need not be guaranteed by an
Eligible Institution, provided the shares of Series A Preferred Stock are
tendered (i) by a registered Holder of such shares, or (ii) for the account of
an Eligible Institution.
4. Transfer Taxes. The Company shall pay all transfer taxes, if any,
applicable to the transfer and exchange of shares of Series A Preferred Stock to
it or the Trust or to its or the Trust's order pursuant to the Exchange Offer.
If, however, certificates representing shares of Common Stock or Trust Preferred
Securities or shares of Series A Preferred Stock not tendered or accepted for
exchange, are to be delivered to, or are to be registered or issued in the name
of, any person other than the registered Holder of the shares tendered hereby,
or if a transfer tax is imposed for any reason other than the exchange of shares
of Series A Preferred Stock to the Company or the Trust or to its or the Trust's
order pursuant to the Exchange Offer, the amount of any such transfer taxes
(whether imposed on the registered Holder or any other person) will be payable
by the tendering Holder. If satisfactory evidence of payment of such taxes or
exemption therefrom is not submitted herewith, the amount of such transfer taxes
will be billed directly to such tendering Holder.
7
<PAGE>
5. Extensions, Amendments and Termination. The Company expressly
reserves the right to extend, waive, amend or modify the terms or conditions of
the Exchange Offer or withdraw or terminate the Exchange Offer at any time and
for any reason.
6. Mutilated, Lost, Stolen or Destroyed Certificates. Any Holder whose
certificates for shares of Series A Preferred Stock have been mutilated, lost,
stolen or destroyed should contact the Exchange Agent at the address indicated
below for further instructions.
7. Requests for Assistance or Additional Copies. Questions relating to
the procedure for tendering, as well as requests for additional copies of the
Prospectus and this Letter of Transmittal, may be directed to the Exchange Agent
at the addresses and telephone number set forth above. In addition, all
questions relating to the Exchange Offer as well as requests for assistance or
additional copies of the Prospectus and this Letter of Transmittal, may be made
directed to Michael E. Lawrence at Sea Pines Associates, Inc., 32 Greenwood
Drive, Hilton Head Island, South Carolina 29928, telephone (843) 785-3333.
8. Irregularities. All questions as to the validity, form, eligibility
(including time of receipt), and acceptance of Letters of Transmittal or shares
of Series A Preferred Stock will be resolved by the Company, whose determination
will be final and binding. The Company reserves the absolute right to reject any
or all Letters of Transmittal or tenders that are not in proper form or the
acceptance of which would, in the opinion of the Company's counsel, be unlawful.
The Company also reserves the right to waive any irregularities or conditions of
tender as to the particular shares of Series A Preferred Stock covered by any
Letter of Transmittal or tendered pursuant to such letter. None of the Company,
the Trust, the Exchange Agent, or any other person will be under any duty to
give notification of any defects or irregularities in tenders or incur any
liability for failure to give any such notification. The Company's
interpretation of the terms and conditions of the Exchange Offer shall be final
and binding.
9. Substitute Form W-9. Except as described below under "Important Tax
Information," federal income tax laws require each tendering holder to provide
the Company with a correct taxpayer identification number ("TIN") on the
Substitute Form W-9 which is provided below, and to indicate whether or not the
Holder is subject to backup withholding by crossing out Part 2 of the Substitute
Form W-9 if the Holder is currently subject to backup withholding. Failure to
provide the information on such form or to cross out Part 2 of such form if
applicable may subject the tendering Holder to 31% United States federal income
tax withholding on payments made to the Holder. The box in Part 3 of such form
may be checked if the tendering Holder has not been issued a TIN and has applied
for a TIN or intends to apply for a TIN in the near future. If the box in Part 3
is checked and the Holder does not provide the Company with his or her TIN
within 60 days, the Company and the Trust will withhold 31% on all such payments
thereafter until a TIN is provided to it.
10. Definitions. Capitalized terms used in this Letter of Transmittal
and not otherwise defined have the meanings given such terms in the Prospectus.
8
<PAGE>
IMPORTANT: THIS LETTER OF TRANSMITTAL OR A FACSIMILE THEREOF (TOGETHER WITH
CERTIFICATES FOR SHARES OF SERIES A PREFERRED STOCK AND ALL OTHER REQUIRED
DOCUMENTS) OR CONFIRMATION OF BOOK-ENTRY TRANSFER OR A NOTICE OF GUARANTEED
DELIVERY MUST BE RECEIVED BY THE EXCHANGE AGENT PRIOR TO THE EXPIRATION DATE.
IMPORTANT TAX INFORMATION
Under United States federal income tax law, a Holder whose tendered
shares of Series A Preferred Stock are accepted for exchange is required to
provide the Company with such Holder's correct taxpayer identification number
("TIN") on a Substitute Form W-9. If a Holder is an individual, the TIN is the
Holder's social security number. If the Company is not provided with the correct
TIN, the Holder may be subject to a penalty imposed by the Internal Revenue
Service (the "Service"). In addition, payments that are made to such Holder with
respect to shares of Common Stock or Trust Preferred Securities acquired
pursuant to the Exchange Offer may be subject to backup withholding.
If backup withholding applies, the Company and the Trust are required
to withhold 31% of all payments with respect to shares of Common Stock or the
Trust Preferred Securities. Backup withholding is not an additional tax. Rather,
the tax liability of persons subject to backup withholding will be reduced by
the amount of tax withheld. If withholding results in an overpayment of taxes, a
refund may be obtained.
To prevent backup withholding on payments that are made to a Holder
with respect to shares of Common Stock or Trust Preferred Securities, the Holder
is required to notify the Company and the Trust of his or her correct TIN by
completing the Substitute Form W-9 below, certifying that the TIN provided on
such form is correct (or that such Holder is awaiting a TIN) and whether or not
(i) the Holder has been notified by the Service that the Holder is subject to
backup withholding as a result of a failure to report all interest or dividends
or (ii) the Service has notified the Holder that the Holder is no longer subject
to backup withholding.
Certain Holders (including, among others, all corporations and certain
foreign individuals) are not subject to these backup withholding requirements. A
corporation must, however, complete the Substitute Form W-9, including providing
its TIN (unless it is a foreign corporation that does not have a TIN) and
indicating that it is exempt from backup withholding, in order to establish its
exemption from backup withholding. A foreign corporation or individual, or other
foreign person, must submit a statement, signed under penalties of perjury,
attesting to such person's status as a non-United States person. Such statements
can be obtained from the Exchange Agent.
See the enclosed Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9 for additional instructions.
9
<PAGE>
________________________________________________________________________________
PAYER'S NAME: SEA PINES ASSOCIATES, INC./SEA PINES ASSOCIATES TRUST I
________________________________________________________________________________
________________________________________________________________________________
SUBSTITUTE Form W-9
Part I - PLEASE PROVIDE YOUR TIN IN THE BOX AT RIGHT AND CERTIFY BY
SIGNING AND DATING BELOW
- ---------------------------
Social security Number
OR
- ---------------------------
Employer Identification number
________________________________________________________________________________
Department of The Treasury Internal Revenue Service
Part II - I am not subject to backup withholding because (i) I am exempt from
backup withholding, (ii) I have not been notified by the Internal Revenue
Service (the "Service") that I am subject to backup withholding as a result of a
failure to report all interest or dividends, or (iii) the Service has notified
me that I am no longer subject to backup withholding. (You must cross out this
Part 2 if you are currently subject to backup withholding because of
underreporting of interest or dividends on your tax return.)
________________________________________________________________________________
Payer's Request for Taxpayer Identification Number (TIN)
CERTIFICATION - UNDER PENALTIES OF PERJURY, I CERTIFY THAT THE INFORMATION
PROVIDED ON THIS FORM IS TRUE, CORRECT AND COMPLETE.
________________________________________________________________________________
Part III
Signature: __________________ Date: ____________ Awaiting
TIN
Name (Please Print): ____________________________
________________________________________________________________________________
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP
WITHHOLDING OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE EXCHANGE OFFER
OR AS DISTRIBUTIONS ON ANY COMMON STOCK OR TRUST PREFERRED SECURITIES
YOU RECEIVE IN THE EXCHANGE OFFER. PLEASE REVIEW THE ENCLOSED
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON
SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS
________________________________________________________________________________
CERTIFICATE OF TAXPAYER AWAITING TIN
I certify under penalties of perjury that a taxpayer identification number
has not been issued to me, and either (a) I have mailed or delivered an
application to receive a taxpayer identification number to an appropriate
Internal Revenue Service Center or Social Security Administration Office or (b)
I intend to mail or deliver an application in the near future. I understand that
if I do not provide a taxpayer identification number within 60 days, 31% of all
reportable payments made to me thereafter will be withheld until I provide a
number
_____________________________________________ Date: _________________________
- ---------------------------------------------
Name (Please Print)
EXHIBIT 9.(a)(3) - CHAIRMAN'S LETTER
[Sea Pines Associates Stationery]
December 21, 1999
Dear Shareholder:
The Board of Directors of Sea Pines Associates, Inc. (the "Company")
has approved a plan to modify the Company's capital structure. The objectives of
the plan are to eliminate the tax inefficiency of the present preferred stock,
to increase the portion of the Company's capital based on common stock, and to
help the market price of the common stock reflect its fair market value. This
letter describes in general terms how the Board proposes to make this change.
Full details are contained in the enclosed Exchange Offer Prospectus and the
related Letter of Transmittal. I urge you to read these documents carefully.
Shareholders have several options for disposing of their preferred
shares:
One option is to exchange the existing preferred shares,
one-for-one, for a new 9.5% trust preferred security to be issued
by Sea Pines Associates Trust I, a Delaware Business Trust wholly
owned by the Company (the "Trust"). This trust preferred security
will have the same 9.5% distribution rate as the present preferred
shares. The advantage to the Company is that the funding of trust
preferred distributions will be tax deductible to the Company.
Since there are administrative costs associated with establishing
and maintaining the Trust, this option may be eliminated if an
insufficient number of shareholders elect this option.
A second option allows shareholders to exchange their preferred
stock for shares of the Company's common stock. They will receive
2.5 common shares for each preferred share exchanged, giving them
an increased stake in the common shares. Exchanges for common
stock will further reduce the Company's cash requirements for
preferred dividends and increase the earnings attributable to
common shares.
Shareholders accepting either of these exchange options will
receive payments equal to any preferred dividends that have been
accrued (i.e., earned) by the time the stock exchange takes place.
Payments will occur at the time those dividends would normally
have been paid if no exchange had taken place. The new trust
preferred distributions will be paid on a quarterly basis in
arrears beginning on January 31, 2001. This means payments to
shareholders exchanging for trust preferred securities will be
uninterrupted and will parallel the present dividend payment
arrangement.
A shareholder may choose to reject both of these exchange
options. In such cases, the Company expects to exercise its right
to redeem their preferred shares for the redemption price of $7.60
per preferred share as specified in the original preferred stock
offering. This amounts to $3,800 for the 500 preferred shares in
each stock "unit". It is expected that any such cash redemptions
will take place approximately six months after the stock exchange.
In these cash redemption cases, dividends that have been accrued
but not yet paid will be paid in full when the cash redemption
takes place.
<PAGE>
The Company plans to hold several meetings with shareholders in January
to discuss the restructuring plan and respond to questions. We will let you know
as soon as our meeting schedule is finalized. If you have any questions or
comments prior to the meetings, please call the executive office.
Cordially,
s/Norman Harberger
Norman Harberger
Chairman
EXHIBIT 9.(a)(4) - FORM OF NOTICE OF GUARANTEED DELIVERY
NOTICE OF GUARANTEED DELIVERY
FOR
TENDER OF SERIES A CUMULATIVE PREFERRED STOCK
OF
SEA PINES ASSOCIATES, INC.
IN EXCHANGE FOR
SHARES OF VOTING COMMON STOCK OF
SEA PINES ASSOCIATES, INC.,
WITHOUT PAR VALUE
OR
9.5% TRUST PREFERRED SECURITIES
(LIQUIDATION AMOUNT OF $7.60 PER SECURITY) OF
SEA PINES ASSOCIATES TRUST I
Registered holders of shares of Series A Cumulative Preferred Stock
(the "Series A Preferred Stock") of Sea Pines Associates, Inc., a South Carolina
corporation (the "Company"), who wish to tender any such shares in exchange for
shares of Company voting common stock, without par value (the "Common Stock"),
or 9.5% Trust Preferred Securities (liquidation amount of $7.60 per security)
(the "Trust Preferred Securities") of Sea Pines Associates Trust I, a Delaware
statutory business trust (the "Trust"), representing preferred undivided
beneficial interests in the assets of the Trust, on the terms and subject to the
conditions set forth in the Prospectus (as hereinafter defined) of the Company
and the Trust, and the accompanying Letter of Transmittal, and whose shares of
Series A Preferred Stock are not immediately available or who cannot deliver
their shares of Series A Preferred Stock and Letter of Transmittal (and any
other documents required by the Letter of Transmittal) to EquiServe Trust
Company, N.A. (the "Exchange Agent") prior to the Expiration Date (as defined in
the Prospectus), may use this Notice of Guaranteed Delivery or one substantially
equivalent hereto. This Notice of Guaranteed Delivery may be delivered by hand
or sent by facsimile transmission (receipt confirmed by telephone and an
original delivered by guaranteed overnight delivery) or mailed to the Exchange
Agent. See "The Exchange Offer--Procedures for Tendering" in the Prospectus.
The Exchange Agent for the Exchange Offer:
EquiServe Trust Company, N.A.
Facsimile Number:
(For Eligible Institutions Only)
(781) 575-4826
By Hand or Overnight Courier: By Mail:
(Registered or Certified
Mail Recommended)
By Hand:
- --------
Securities Transfer & Reporting Services, Inc. EquiServe Trust Company, N.A.
c/o EquiServe Trust Company, N.A. Corporate Actions
100 Williams Street, Galleria P.O. Box 9573
New York, New York 10038 Boston, MA 02205-9573
By Overnight Courier:
- ---------------------
EquiServe Trust Company, N.A.
Corporate Actions
40 Campanelli Drive
Braintree, MA 02184
Confirm Receipt of Notice
of Guaranteed Delivery by Telephone:
(781) 575-4816
Fax Confirmation: (781) 575-4826
<PAGE>
Delivery of this Notice of Guaranteed Delivery to an address other than
as set forth above or transmission of instructions via a facsimile transmission
to a number other than as set forth above will not constitute a valid delivery.
This Notice of Guaranteed Delivery is not to be used to guarantee
signatures. If a signature on a Letter of Transmittal is required to be
guaranteed by an eligible grantor institution (bank, stockbroker, savings and
loan association or credit union with a membership in an approved Signature
Medallion Program), such signature guarantee must appear in the applicable space
provided in the Letter of Transmittal for the guarantee of signatures.
Ladies and Gentlemen:
The undersigned hereby tenders the number of shares of Series A
Preferred Stock indicated below, upon the terms and subject to the conditions
contained in the Prospectus, dated December 21, 1999 (the "Prospectus"), and the
related Letter of Transmittal, receipt of which is hereby acknowledged.
DESCRIPTION OF SECURITIES TENDERED
Name and address of Certificate Number(s) Number of Shares of
registered holder as it of Series A Preferred Series A Preferred
appears on the Certificate(s) Stock Tendered Stock Tendered
of Series A Preferred
Stock (Please Print)
- --------------------------------------------------------------------------------
- ------------------------------ ----------------------- --------------------
- ------------------------------ ----------------------- --------------------
- ------------------------------ ----------------------- --------------------
- ------------------------------ ----------------------- --------------------
NUMBER OF TENDERED SHARES TO BE EXCHANGED FOR
Shares of Common Stock* Trust Preferred Securities*
----------------------- ---------------------------
----------------------- ---------------------------
THE FOLLOWING GUARANTEE MUST BE COMPLETED
*Must be a whole number of shares.
2
<PAGE>
GUARANTEE OF DELIVERY
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a firm that is a member of a registered national
securities exchange or a member of the National Association of Securities
Dealers, Inc. or a commercial bank or trust company having an office, branch,
agency, or correspondent in the United States, hereby guarantees to deliver to
the Exchange Agent at one of its addresses set forth above, the certificates
representing the shares of the Series A Preferred Stock, together with a
properly completed and duly executed Letter of Transmittal (or facsimile
thereof), with any required signature guarantees, and any other documents
required by the Letter of Transmittal within three New York Stock Exchange, Inc.
trading days after the date of execution of this Notice of Guaranteed Delivery.
Name of Firm:__________________________ ___________________________________
(Authorized Signature)
Address:_______________________________ Title: ____________________________
_______________________________________ Name:______________________________
(Zip Code) (Please type or print)
Area Code and
Telephone Number:______________________ Date:______________________________
NOTE: DO NOT SEND CERTIFICATES OF SERIES A PREFERRED STOCK WITH THIS NOTICE
OF GUARANTEED DELIVERY. CERTIFICATES OF SERIES A PREFERRED STOCK SHOULD
BE SENT WITH YOUR LETTER OF TRANSMITTAL.
3
EXHIBIT 9.(a)(5)- FORM OF LETTER TO BROKERS, DEALERS, REGISTERED HOLDERS,
COMMERCIAL BANKS, TRUST COMPANIES AND OTHER NOMINEES
EXCHANGE OF
SERIES A CUMULATIVE PREFERRED STOCK
OF
SEA PINES ASSOCIATES, INC.
FOR
SHARES OF VOTING COMMON STOCK OF
SEA PINES ASSOCIATES, INC.
WITHOUT PAR VALUE
OR
9.5% TRUST PREFERRED SECURITIES
(LIQUIDATION AMOUNT OF $7.60 PER SECURITY) OF
SEA PINES ASSOCIATES TRUST I
To: Brokers, Dealers, Registered Holders, Commercial Banks, Trust Companies
and other Nominees:
We are enclosing herewith the material listed below relating to the
hereinafter described exchange offer (the "Exchange Offer") by Sea Pines
Associates, Inc., a South Carolina corporation (the "Company"), and Sea Pines
Associates Trust I, a Delaware statutory business trust (the "Trust"), to
exchange shares of Company voting common stock, without par value (the "Common
Stock"), or 9.5% Trust Preferred Securities (liquidation amount of $7.60 per
security) (the "Trust Preferred Securities") of the Trust for up to all of the
outstanding shares of Series A Cumulative Preferred Stock (the "Series A
Preferred Stock") of the Company.
The Exchange Offer will be effected on the basis of (A) 2.5 shares of
Common Stock or (B) one Trust Preferred Security for (C) each share of Series A
Preferred Stock validly tendered and accepted for exchange in the Exchange
Offer. A holder of Series A Preferred Stock (a "Holder") may exchange all of his
or her shares of Series A Preferred Stock for shares of Common Stock or exchange
all of such shares for Trust Preferred Securities or exchange some for shares of
Common Stock and some for Trust Preferred Securities. The Trust Preferred
Securities have a liquidation amount of $7.60 per security. The current
liquidation price for a share of Series A Preferred Stock is $7.60. Dividends
that have accrued but have not been paid on the shares of Series A Preferred
Stock exchanged in the offering through the Expiration Date (as defined below),
will be a debt of the Company and will be paid to the persons exchanging such
shares on the same dates as they would have been paid to such persons had they
continued to hold such shares. Cash will be paid in lieu of fractional shares of
Common Stock at the rate of $3.04 per share. Each share of Common Stock issued
will be issued with one attached right to purchase one one-thousandth (1/1,000)
of a share of the Company's Series B Junior Cumulative Preferred Stock.
Enclosed herewith are copies of the following documents:
1. Letter from the Chairman of the Company;
2. Prospectus, dated December 21, 1999;
3. Letter of Transmittal (together with accompanying Substitute
Form W-9 Guidelines);
<PAGE>
4. Notice of Guaranteed Delivery; and
5. Letter which may be sent to your clients for whose account you
hold shares of the Series A Preferred Stock in your name or in
the name of your nominee, with space provided for obtaining
such client's instruction with regard to the Exchange Offer.
We urge you to contact your clients promptly. Please note that the
Exchange Offer will expire at 12:00 midnight, Eastern Standard Time, on January
31, 2000, unless extended (the "Expiration Date").
Neither the Company nor the Trust will pay any fee or commission to any
broker or dealer or to any other persons in connection with the solicitation of
tenders of shares of Series A Preferred Stock pursuant to the Exchange Offer.
The Company will pay or cause to be paid any transfer taxes payable on the
transfer of shares of Series A Preferred Stock to it or the Trust, except as
otherwise provided in Instruction 4 of the enclosed Letter of Transmittal.
Very truly yours,
SEA PINES ASSOCIATES, INC.
SEA PINES ASSOCIATES TRUST I
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU AS
THE AGENT OF SEA PINES ASSOCIATES, INC., SEA PINES ASSOCIATES TRUST I OR
EQUISERVE TRUST COMPANY, N.A. OR AUTHORIZE YOU TO USE ANY DOCUMENT OR MAKE ANY
STATEMENT ON THEIR BEHALF IN CONNECTION WITH THE EXCHANGE OFFER OTHER THAN THE
DOCUMENTS ENCLOSED HEREWITH AND THE STATEMENTS CONTAINED THEREIN.
EXHIBIT 9.(a)(6) - FORM OF LETTER TO CLIENTS
EXCHANGE OF
SERIES A CUMULATIVE PREFERRED STOCK
OF
SEA PINES ASSOCIATES, INC.
FOR
SHARES OF VOTING COMMON STOCK OF
SEA PINES ASSOCIATES, INC.
WITHOUT PAR VALUE
OR
9.5% TRUST PREFERRED SECURITIES
(LIQUIDATION AMOUNT OF $7.60 PER SECURITY) OF
SEA PINES ASSOCIATES TRUST I
To Our Clients:
We are enclosing herewith a Prospectus, dated December 21, 1999 (the
"Prospectus"), of Sea Pines Associates, Inc., a South Carolina corporation (the
"Company"), and Sea Pines Associates Trust I, a Delaware statutory business
trust (the "Trust"), a related Letter of Transmittal (which, together with the
Prospectus, constitutes the "Exchange Offer") and a letter from the Company's
Chairman relating to the offer by the Company and the Trust to exchange shares
of voting common stock without par value (the "Common Stock") of the Company or
9.5% Trust Preferred Securities (liquidation amount of $7.60 per security) (the
"Trust Preferred Securities") of the Trust for up to all of the outstanding
shares of Series A Cumulative Preferred Stock (the "Series A Preferred Stock")
of the Company.
The Exchange Offer will be effected on the basis of (A) 2.5 shares of
Common Stock or (B) one Trust Preferred Security for (C) each share of Series A
Preferred Stock validly tendered and accepted for exchange in the Exchange
Offer. A holder of Series A Preferred Stock (a "Holder") may exchange all of his
or her shares of Series A Preferred Stock for shares of Common Stock or exchange
all of such shares for Trust Preferred Securities or exchange some for shares of
Common Stock and some for Trust Preferred Securities. The Trust Preferred
Securities have a liquidation amount of $7.60 per security. The current
liquidation price for a share of Series A Preferred Stock is $7.60. Dividends
that have accrued but have not been paid on the shares of Series A Preferred
Stock exchanged in the offering through the Expiration Date (as defined below),
will be a debt of the Company and will be paid to the persons exchanging such
shares on the same dates as they would have been paid to such persons had they
continued to hold such shares. Cash will be paid in lieu of fractional shares of
Common Stock at the rate of $3.04 per share. Each share of Common Stock issued
will be issued with one attached right to purchase one one-thousandth (1/1,000)
of a share of the Company's Series B Junior Cumulative Preferred Stock.
Please note that the Exchange Offer will expire at 12:00 midnight,
Eastern Standard time, on January 31, 2000, unless extended (the "Expiration
Date").
We are the holder of record of shares of Series A Preferred Stock held
by us for your account. A tender of such shares can be made only by us as the
record holder and pursuant to your instructions. THE LETTER OF TRANSMITTAL IS
FURNISHED TO YOU FOR YOUR INFORMATION ONLY AND CANNOT BE USED BY YOU TO TENDER
THE SHARES OF SERIES A PREFERRED STOCK HELD BY US FOR YOUR ACCOUNT.
<PAGE>
We request instructions as to whether you wish to tender any or all of
the shares of Series A Preferred Stock held by us for your account pursuant to
the terms and conditions of the Exchange Offer and if you do, the number of
whole shares of Series A Preferred Stock that you want to exchange for shares of
Common Stock and the number of such shares you want to exchange for Trust
Preferred Securities. Please so instruct us by completing, executing, detaching
and returning to us the instruction form attached to this letter. An envelope to
return your instructions to us is enclosed. If you authorize tender of your
shares of Series A Preferred Stock, please forward to us your instructions in
ample time to permit us to submit a tender on your behalf prior to the
Expiration Date.
Very truly yours,
<PAGE>
INSTRUCTIONS WITH RESPECT TO THE
EXCHANGE OF
SERIES A CUMULATIVE PREFERRED STOCK
OF
SEA PINES ASSOCIATES, INC.
FOR
SHARES OF VOTING COMMON STOCK OF
SEA PINES ASSOCIATES, INC.
WITHOUT PAR VALUE
OR
9.5% TRUST PREFERRED SECURITIES
(LIQUIDATION AMOUNT OF $7.60 PER SECURITY) OF
SEA PINES ASSOCIATES TRUST I
The undersigned acknowledges receipt of your letter enclosing the
Prospectus, dated December 21, 1999, of the Company and the Trust, a related
Letter of Transmittal and the Chairman's letter relating to the Exchange Offer.
This will instruct you to tender the number of shares of Series A Preferred
Stock indicated below held by you for the account of the undersigned, pursuant
to the terms and subject to the conditions of the Exchange Offer, and confirm
that you may make the representations contained in the Letter of Transmittal on
behalf of the undersigned.
________________
(Number of shares being tendered.)
- --------------------------------------------------------------------------------
NUMBER OF TENDERED SHARES TO BE EXCHANGED FOR*
- --------------------------------------------------------------------------------
*Shares of Common Stock *Trust Preferred Securities
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
* Must be a whole number of shares
_________________________________
Signature(s)
_________________________________
Please print name
_________________________________
Date
EXHIBIT 9.(a)(7) - CONSENT OF ERNST & YOUNG LLP
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Selected
Consolidated Financial Information" and "Experts" and to the inclusion of our
report dated November 19, 1999, in the Sea Pines Associates, Inc.'s Offer to
Exchange Shares of Common Stock or Trust Preferred Securities for Shares of
Series A Preferred Stock Prospectus dated December 21, 1999.
/s/ Ernst & Young LLP
Atlanta, Georgia
December 21, 1999
EXHIBIT 9.(a)(8) - CONSENT OF SMITH CAPITAL, INC.
Smith Capital, Inc.,
200 Hargett Court
Charlotte, North Carolina 28211
Tel 704 362 1563 Fax 704 364 3451
The Board of Directors
Sea Pines Associates, Inc.,
We have delivered a fairness opinion to you as of December 21, 1999, in
connection with the Exchange Offer. We hereby consent to the inclusion of the
opinion and related report and references to it in the Exchange Offer Prospectus
and Schedule 13E-4 dated December 21, 1999 and other related documents.
Very truly yours,
s/Smith Capital, Inc.
Smith Capital, Inc.
EXHIBIT 9.(d) - Opinion of McNair Law
Firm, P.A., dated December 21, 1999
[McNair Law Firm, P.A. Stationary]
December 21, 1999
Sea Pines Associates, Inc.
32 Greenwood Drive
Hilton Head, South Carolina 25202
Sea Pines Associates Trust I
c/o Sea Pines Company
32 Greenwood Drive
Hilton Head, South Carolina 29928
Ladies and Gentlemen:
As special tax counsel to Sea Pines Associates, Inc. (the "Company")
and Sea Pines Associates Trust I (the "Trust") in connection with the proposed
offer to exchange shares of common stock of the Company (the "Common Stock") or
9.5% Trust Preferred Securities of the Trust (liquidation amount of $7.60 per
security) (the "Trust Preferred Securities") (the Common Stock and Trust
Preferred Securities are the "Securities") for shares of Series A Cumulative
Preferred Stock of the Company, and assuming the operative documents for the
Securities described in the Exchange Offer Prospectus dated as of December 21,
1999 (the "Prospectus"), will be performed in accordance with the terms
described therein, we hereby confirm to you our opinion as set forth under the
heading "Certain Federal Income Tax Considerations" in the Prospectus, subject
to the limitations set forth therein.
We hereby consent to the filing with the Securities and Exchange
Commission of this opinion as an exhibit to the Schedule 13E-4 and the reference
to us under the headings "Certain Federal Income Tax Considerations" in the
Prospectus.
Very truly yours,
McNAIR LAW FIRM, P.A.
By: s/Joseph D. Walker
Joseph D. Walker
