Executive Summary *



DRAFT

Hermitage Inn Real Estate Holding Co. LLC

Hermitage Club, LLC

Chapter 11 Plan of Reorganization

June 1, 2019 

  • *THIS DOCUMENT IS INTENDED FOR INFORMATIONAL PURPOSES ONLY. IT IS NOT INTENDED TO LEGALLY BIND OR OBLIGATE ANY MEMBER OR CREDITOR OF THE HERMITAGE CLUB, LLC OR HERMITAGE INN REAL ESTATE HOLDING COMPANY, LLC

Table of Contents:

I. Introduction
II. Executive Summary: Draft Plan
III. The Plan: Details
IV. Proposed Class Treatment
V. The Process: What to expect
VI. Plan for Key Creditor Meeting
VII. Closing Summary

Appendix:

I. Exit Plan-Publicly Traded Company Structure
II. Governance /Board of Directors
III. Club President
IV. Real Estate Development Partner bio
V. Hermitage Club Advisors & Professionals

I. Introduction:

The Hermitage Club is a one-of-a-kind private ski and golf club located in southern Vermont. For a variety of reasons, the Hermitage Club is in need of financial restructuring to permit the club to continue to provide its members with the unique and extraordinary membership experiences they desire. Because of the number of members and creditors whose rights and interests must be considered and balanced, the Hermitage Club has decided that the best way to move forward is by filing bankruptcy petitions for reorganization under Chapter 11 of the Federal Bankruptcy Code. The various interests of membership, creditors, government and ownership have significant investment and mutual interest to see the club successfully emerge from Chapter 11 reorganization and all constituents recognize the need to work together to solidify the resurrection of The Hermitage Club.

II. Executive Summary: Draft Plan

The Hermitage Club Draft Plan of Reorganization follows closely to the absolute priority rule whereby the majority of the creditor classes receive 100% of their claim.

The cornerstone of the plan is that the company exits bankruptcy through a merger with a public company shell whereby all shareholders have liquidity through publicly traded shares.  Creditor claims are paid out through a combination of restructured payments with interest in a 5- year term, issuance of public company shares and cash. The shares will be restricted stock units to be approved for sale by the board after a one-year period.

A key feature that underpins the plan is that there is no impairment or change to the membership rights. All that is requested of a member and the membership class is to pay annual dues upon court approval of the plan. The members represent the largest group of creditors within a class with 525 members classified as unsecured claims.

III. The Plan:  Details

-The Club maintains its intent to treat all classes of creditors fairly with many classes receiving 100% value of their investment or claim which follows the absolute priority rule. Not all classes will receive 100%

– The Club has secured a financing commitment which will enable the Club to proceed quickly with a Chapter 11 bankruptcy reorganization. The proposed financing will provide the Club with the ability to maintain and preserve its assets and pay insurance, payroll, property tax, maintenance, legal and professional expenses during the Chapter 11 proceedings while it moves to finalize a plan with its members and creditors. The existing lender as well as the   DIP lender, is not permitting any use of funds to reopen the club facilities until acceptance of a plan. The reorganization plan is reliant on swift acceptance from a majority of its creditors at which point the club will request an expedited review and vote on the final Plan of Reorganization which will the allow for dues collection and reopening of the club with court approval.  The Club is focused on a 60-90 window to expedite a reopening.

-The Founder has secured a new publicly traded “shell “company that will be utilized as the platform company to facilitate exit from bankruptcy. Utilizing publicly traded shares in exchange for old company debt obligations in combination with structured cash payments is a key component to the exit strategy and new memberships can be sold and issued once an investor purchases an amount of stock equal to the initiation value from company holdings on future membership options. The plan requires   $10M of new capital which is currently being raised in a private placement within the new company.

-The Club has recruited a highly experienced President to lead the club operations. In addition, the Club has also recruited a highly respected and seasoned real estate development partner to manage the critical construction and development component. Both the President and Developer agreements will be confirmed by the new board. The DIP lender has also required that a Chief Restructuring Officer is named during the reorganization until the court grants confirmation of the plan.

-The Exit Plan proposes the creation of a Hermitage Club Foundation which central purpose would be to further meet the philanthropic needs of the Deerfield Valley community.  An annual contribution would be made from free cash flow after the planned retirement of the senior debt in year five.

-The Plan calls for a change in governance upon confirmation of the plan. The company will be governed by a Board of Directors that is voted by each class of converted creditors or debt holders and will also maintain outside independent directors. Governance will be transferred to Members, Creditors and new investors without any new capital requirement made on behalf of the Members and Creditors.

IV. Proposed Class Treatment: 

The following summary outlines the Draft Plan of Reorganization with the proposed treatment that each class of creditor will receive upon exit from bankruptcy with a court approved plan. 

Paid upon Court Confirmation of Plan of Reorganization:

Secured Liens/Trade Vendors:

-100%: 80% in restructured debt 6% int.5yr term/20% equity

Secured Mortgage: Lift Finance Co.

-100% outstanding principal and current interest. Restructured debt 6% int/10yr term

Secured Mortgage on select real estate: Nordic Hills/36 Stags Leap Lot

-100% principal. Restructured debt 6% int/10yr term

Secured Equipment Finance: sports tent, snowmaking, kitchen equipment etc.

-80% in restructured debt 6% int.5yr term/20% equity

Litigation/Judgements: Litigation/Real Estate re: Finished -occupied real estate:

-Deliver title to unit with individual owner paying nominal balance owed on contract/non-cash payment   transaction for debtor

100%: deliver real estate: 8 townhomes

Unsecured Trade Creditors:

-100%: 40% restructured debt 4% int 2 yr. accrued/3-year term/60% equity at close

Option for 100% equity at close

Unsecured Member Investments: 100K Convertible Equity Locker:

-100% of original principal exchanged for Common Equity

-locker rental fees waived for life while member holds investment.

-Unused credits can be used 25%/year after 5-year freeze or until membership reaches threshold of 750.

Unsecured Member Investments: Legacy Membership:

– 100%. Club will honor all legacy memberships in exchange of payment of dues.

-In addition: 100% of the $10,000 one-time dues adjustment paid in 2017/18 season will be issued Common Equity shares.

Unsecured Member Investments: Legacy Memberships Resigned:

– 100% of resignation fee minus past due: This group has already resigned per club rules in place at the time and may use their refund against the annual dues to use club until their balance is used off.

Unsecured Member Investments: Secondary Memberships:

–  100% Principal: exchanged evenly into real estate over 3-year period or exchanged for Common Equity shares   

V. The Process: What to expect

-The Club also known as the Debtor has filed the petition and now begins the process to reorganize the company with its various creditors. Procedurally, there are two cases filed with proposed joint administration.  One for Hermitage Inn Real Estate Holding Co. (HIREHCO) and one for Hermitage Club (HC) as some creditors are specific to each entity.  While this is happening, the Debtor has also secured what is known as Debtor in Possession (DIP) financing, in this case a $1.750M DIP loan which will be used to fund professional fees during the reorganization, pay taxes, insurance, utilities and payroll. The DIP loan is essentially funding the bankruptcy case of the holding company HIREHCO and it is not intended nor is it sufficient to fund operations for The Hermitage Club as these activities can only be supported by membership dues. The Club is presenting a Plan which seeks member and creditor acceptance in a compressed 60-day window, which allows for opening club amenities for a late summer season and more importantly- assures and prepares for the winter season with full maintenance and employee recruiting.

-The Debtor in Possession has the exclusive right to propose a Plan of Reorganization for the first 120 days or longer if extended. Some cases conclude in several months; however, some take 6 months to two years to emerge. There are further risks identified in the link at the end of this section.

– Within days of the court filing the U.S. Trustee who is appointed to the case will begin to organize a creditors committee made up of a maximum of 7 creditors of the top 20 unsecured creditors. The Trustee will solicit, interview and choose this committee who will be charged to represent the interests of all unsecured creditors. The committee will hire legal and financial advisors to assist them in their work and the fees for these services are required to be paid for by the debtor with funding from the DIP loan. One requirement of the debtor is to prepare a “feasibility” test that shows that the plan is not likely to be followed by a liquidation or further reorganization of the reorganized debtor.  After review of the comprehensive Draft Plan of Reorganization, the committee will likely present its findings and comments to the general creditors in a meeting, conference call or by letter.

-The code provides that the Club cannot solicit acceptances of our plan until we have provided the creditor with a “disclosure statement” sufficient to enable him/her to cast a rational vote. This must first be approved by the court after parties are permitted to comment on the disclosure statement. Once the disclosure statement is approved, the court will hold a hearing to consider confirmation of the plan. At this time parties may object or seek modification to the plan at which point a final Plan of Reorganization may be put to vote by the various creditor classes.

-Creditor classes are organized where claims are “substantially similar”. For example, club membership holders are unsecured claims in one group while creditors that filed claims and have liens are in a secured creditor class. The $100K equity club is an unsecured creditor class while the Barnstormer Lift Finance Co is a secured lender. All impaired classes get to vote on the plan while unimpaired classes are not required. A basic simplification is this: If the plan alters the rights you would otherwise have, you are impaired.

-Confirmation of a plan is accomplished by getting each class of creditor to accept the plan. This can be done three ways. One: Leave the class “unimpaired”. If the class is unimpaired, it is deemed to accept the plan. The Memberships Class as proposed is unimpaired.  Two: Get the vote. If the claims or interests in a class are impaired, then the debtor needs to solicit votes of the class members and can confirm with respect to a voting class if one gets the votes of: a) a 51% majority in number and: b) two-thirds majority in dollar amount. Three: The third way is to impose the plan on the dissenting class using the fair and equitable rule or more commonly (if less elegantly) known as the “cram down”.

The company has set a timetable of 60 days to gain initial support and then request 30 day expedited distribution of the Plan of Reorganization and seek majority creditor approval with a plan to exit bankruptcy 90 to 120 days post filing. To expedite this reorganization, the Club plans to file the Plan of Reorganization within 30 working days after DIP loan is approved instead of taking  4 months as allowed and plans to call a meeting of Key Creditors within 10 days of filing to present the plan,  gauge support from  the majority of the classes, then request an expedited 30 day review of the final Plan of Reorganization and Disclosure Statement. This process would allow for an expedited plan approval and would be the quickest path to a full reopening of the club on a sustainable basis.

For additional background information the following is a link to Chapter 11 “101” Confirming a Plan by the American Bankruptcy Institute Journal https://www.abi.org/abi-journal/confirming-a-plan

The Club believes based on the overall fairness of the plan, the fact that the largest creditor class by number is unimpaired, that no additional investment is required of a member, and the belief that the plan provides reasonable assurance of a  speedy reopening, the Club believes  that the majority of Key Creditors will support this Draft Plan of Reorganization as will the Creditors Committee once formed by the U.S. Trustee. 

VII. Closing Summary:

Why this plan has basis for success where earlier plan to restructure with members did not:

This plan is fair & equitable to all- whether a member or a secured or unsecured local vendor

-There was not a complete audit before. Now there is 2016/2017 complete with 2018 in process.

-The previous valuation was considered lofty to some at $140M. Current valuation of $55M- $65M is supported by two appraisals and book accounting values.

-Previous plan was converting into closely held private company with no liquidity or exit plan.  Current plan allows liquidity through publicly traded company in open market.

-Previous plan was controlled by majority owner. New plan calls for mutual control by Board of Directors made up of aligned shareholders and independent directors electing a Chairman and a seasoned President confirmed by and reporting to the Board. The Club transitions to members governance in the exit plan.

-New plan includes highly experienced and credible real estate development partner.

– Conservative 10-year business forecast with ample cash reserves-adjusted for downturn cycle

-Lastly, all constituents want to have the club reopen. Members have missed a full year and   employees, businesses and local and state governments that benefit from the club economics have felt the void of the revenues first hand.

Sincerely,
Hermitage Inn Real Estate Holding Co., LLC
The Hermitage Club, LLC
Debtor in Possession

Appendix:

I. Exit Plan incorporates a Publicly Traded Company Structure

-The club recognizes that the majority of ski resorts with development components require significant amounts of capital to develop and maintain infrastructure. The industry is primarily made up of companies whose shares are publicly traded in order to the raise the necessary amounts of capital required and to provide for liquidity for investors in the public markets. For these reasons and more, the company believes it would be beneficial to convert to a publically traded company to gain access to new capital from the public markets and provide long term liquidity for all current or potential shareholders.

– An average IPO takes as long as a year to complete, and the financial burden is heavy. There also is no guarantee that the IPO will be a success. The amount of interest from investors, the volatility of the market, and other factors out of the company’s control can all contribute to a poor showing on opening day.

-A reverse merger is a business transaction that merges a privately held company with a publicly traded corporation. It is a strategic maneuver that takes the company public without the expensive and time-consuming process of the traditional Initial Public Offering (IPO). Reverse mergers, while rarer than the traditional IPO, are not unusual. Many well-known corporations have used them, including Waste Management, Burger King, and Turner Broadcasting. The main appeal of a reverse merger is that it bypasses the entire IPO process. Instead of a long, financially-strapping undertaking that may not succeed, the private company merges with an already public entity. Through this merger, the private company inherits public status.

-The Founder has secured a publicly traded “shell” company to merge with on a court approved exit plan which will allow for the company’s shares to be immediately tradable on the public stock exchange. The Club has entered into an agreement to purchase majority control of this public company and is currently raising funds through a private placement in the next 60 days which will enable the public company to serve as the resurrection company for the debtor in possession to merge into with court approval.

-The conversion of the Club into a publicly traded company is an important component of the restructuring process as it allows a platform to convert member’s, creditor’s and founder’s debt into publically traded shares which can provide for long term liquidity. This also aligns with our guiding principles which is to treat our members and creditors as fairly and equitably as possible.  More importantly, it provides a vehicle to raise capital from a wider audience than members just living in the northeast market. It also provides an opportunity to change the way the club sells memberships to new members. When investors purchase shares in the aggregate that amount to the initiation cost of the club which is presently $65,000, the club can issue the shareholder a right to use membership in consideration of payment of the annual dues. This now presents a wider market of potential members who can access funds from their personal investment accounts or 401k and invest into the Club while enjoying a membership opportunity for the family or individual.

II. Governance and Board of Directors:

The reorganization plan proposes new governance upon court approval of the exit plan with a Board of Directors having representation from each major class of creditors converting or holding convertible debt into common shares of the company as follows:

– (1) Legacy Membership voted by majority of the membership
– (1) $100K Equity Locker Club voted by majority of its investors
– (1) Barnstormer Lift Finance Co. voted by majority of its investors
– (1) Convertible Debt Investor (new capital) voted by majority of its investors
– (1) Founder held by or named by founder family
– (1) Independent Outside Director voted majority by BOD
– (1) Independent Outside Director voted majority by BOD
– (1) Secured or Unsecured Vendor Creditor voted by majority

The rational for   Independent Outside Directors enables the club to recruit and retain individuals with specific expertise in ski, resort, golf, club, hospitality and real estate development fields with a non-biased view point.

Further governance details:

-The Chair- Nominated from the Board of Directors-voted by the majority of the BOD for a 1-year term.
-The Founder will abstain from eligibility for nomination to Chair for 5 years.
-President- Hired and Directed by Board
-Real Estate Development and Management Partner- Hired and Directed by Board
-Real Estate Brokerage/Membership Sales- Hermitage Club Realty-Directed by Board
-Committee Members and Committee Chairs – Named by board.

III. President: Recruited, hired and directed by Board

IV. Real Estate Development Partner: Nomination- Subject to Court Approval

Real Estate Development Partner: The Matos Group. 

 Dan Matos formed The Matos Group in 1984 as a real estate investment firm that has evolved over the years into a knowledge driven commercial real estate company specializing in providing a full range of real estate services, principally to support institutional and governmental clients. TMG has co-invested, developed or provided real estate services to clients across the country and around the globe. Because they are client focused, they do not restrict activities to narrow areas of concentration, but rather they maintain a core set of skills and principles that they deploy for their clients in a wide variety of commercial real estate settings. Moreover, because they only represent governments, large institutions and their own investors, over the last 25 years they have developed an enviable list of clients, as well as vendors, who embrace the “Matos Way” of approaching a real estate problem.

The Matos Group is a highly experienced 35+ year real estate firm that has worked on development assets such as UConn Stadium, UConn Business School, The Front Street project in Hartford in partnership with Richard Cohen, the Rentschler Field project in partnership with United Technologies Corporation including the development of Cabela’s and was recently involved with  the permitting and development of The Delamar Hotel in West Hartford, CT.

They have worked on literally hundreds of projects, valued at hundreds of millions of dollars in a variety of capacities, as at-risk developers or as fee developers or in some cases, simply as service providers. They have on an at-risk basis developed distribution centers, city centers or warehouse facilities for FedEx, Ford Motor Company and Home Depot among others. They have developed, redeveloped or financed condominiums in New England for banks and insurance companies as well as for their investors.  They have developed with institutional partners office buildings in Dallas, Minneapolis and Hartford. They have assembled land parcels for corporate headquarters, retail centers and public uses. They have worked out troubled loans for bank and insurance clients. And, they have led public and private stakeholders in developing large, complex mixed-use projects, often involving brownfield or other impaired assets.

V. Hermitage Club- Advisors & Professionals

Legal:

Douglas Skalka, Esq.
Nancy Bohan Kinsella, Esq.
Neubert, Pepe & Monteith P.C.
195 Church Street, 13th Flr.
New Haven, CT 06510

Robert Fisher, Esq.
Fisher & Fisher
118 Route 100
West Dover, VT 05356

Debtor in Possession (DIP) Lender:
Restructured Opportunity Investors, Inc
Keith Mahler, Principal
11 Scoville Street
Waterbury, CT 06723

Real Estate Development Services Partner:
The Matos Group
367 Silver Lane
East Hartford, CT 06118

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