WILMINGTON — After nearly a year on the job, Harper Sibley resigned as president and general manager of the Hermitage Club, calling a reorganization plan "completely unworkable."
"While there are a number of defaults in my employment agreement, including past due compensation of over $100,000, they are not the reason I have decided to resign, nor is it to look for 'new opportunities,' as they tend to come my way organically," he wrote in a resignation letter submitted to Hermitage founder Jim Barnes on Monday. "The only reason for my departure is that I cannot support the Plan of Reorganization that you have recently proposed, as detailed on the Hermitage Club website."
Hermitage Inn Real Estate Holding Company LLC and Hermitage Club LLC filed voluntary Chapter 11 bankruptcy petitions in Connecticut last month. An involuntary Chapter 7 bankruptcy petition had been filed against HIREHC in Vermont a week earlier by three creditors — two former employees and a bank that loaned money to the Hermitage for snowmaking equipment. A judge in Vermont is now deciding which state should host the proceedings.
Barnes said Sibley's resignation and comments came after being notified that his agreement would not be funded by the lender providing debtor-in-possession financing under the reorganization. The plan still needs to be approved in court and by creditors.
"The lender also requires his choice of CEO/CRO during the reorganization period," Barnes said, using abbreviations for chief executive officer and chief restructuring officer. "I personally like Harper and I appreciate the time that he spent on the sidelines waiting for the reorganization to begin. I'm sorry that he is upset with the situation."
Sibley said based on his 40 years working in resort and private club development, he believes the Chapter 11 plan "makes absolutely no sense" and should have never been proposed.
"As you are aware, I had no input into its design and cannot lend my name to a plan that will surely fail if adopted," he wrote.
Sibley outlined his issues with the plan, which proposes merging with a publicly traded company.
"The club would emerge with far too much debt, a level that will never be supported by future operations or real estate sales," he wrote. "The forward projections of operating income, membership and real estate sales are entirely unrealistic, given the recent history of the club and the historical development stage in which the club finds itself. The public company will create no value for its future stakeholders, as there will be no market for its shares and significant negative equity. In addition, the promotion of this public stock vehicle may run into serious problems with the SEC [Securities Exchange Commission] and state regulators over time."
Sibley warned Barnes, "You are playing with fire here and I don't even think you are aware of that."
Sibley told the Reformer he is not an attorney "but any offer of publicly traded securities is subject to Blue Sky laws that regulate a stock offer such as the one being proposed. I worry that, in haste, the appropriate state registrations may not be made and that the prospectus may include unrealistic forward-looking statements. It is also not clear to me that the sponsors are appropriately licensed to offer this type of security."
Intended to protect investors against fraud, Blue Sky laws regulate the sale of securities. Every state has their own.
"[M]ost state laws typically require companies making offerings of securities to register their offerings before they can be sold in a particular state, unless a specific state exemption is available," according to the SEC website. "The laws also license brokerage firms, their brokers, and investment adviser representatives."
Sibley said his employee agreement had been predicated on Barnes taking "a step back" from operations.
"This has changed, since now you will be actively involved in both operations and sales," Sibley wrote. "In addition to the significant PR challenges associated with your continued presence in the valley, the idea of having three managers (Barnes, Sibley, [real estate group] Matos) independently reporting to the board makes no sense and will create huge operational challenges over time. It will generate management chaos all around."
Under the reorganization plan, governance of the club would change by establishing an eight-member board of directors. Different classes of creditors would be represented as would Barnes' family. Two "outside" directors would have specific areas of expertise, such as resort ownership or food and beverage.
In a previous interview, Barnes described the partnership with Sibley and the Matos Group as "a really critically component" of the plan.
Sibley told Barnes he has no secret agenda.
"I have not 'switched sides' and have no plan to purchase the club in the future," Sibley wrote. "I draw my conclusions based on my extensive club development experience, and so cannot participate in a plan that I don't believe will succeed, but instead will only extend the significant damage already inflicted on the membership and homeowners of the Hermitage Club. That is why I am resigning."
He added, "Jim, as I have said many times, I like you personally and admire your grit in trying to restructure the Hermitage Club. But your inexperience in this industry continues to be obvious and will only lead to more pain and disappointment for the club's many stakeholders, including current club members, employees, local vendors and the wider community."
Sibley told the Reformer he is now looking at buying or providing management services to several resort and club developments.
Reach staff writer Chris Mays at email@example.com, at @CMaysBR on Twitter and 802-254-2311, ext. 273.