UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarter ended September 30, 1994
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
----------- -----------
Commission File Number: 1-8096
FAIRFIELD COMMUNITIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 71-0390438
(State of Incorporation) (I.R.S. Employer Identification No.)
2800 Cantrell Road, Little Rock, Arkansas 72202
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (501) 664-6000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
------- -------
APPLICABLE ONLY TO ISSUER INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a
plan confirmed by a court. Yes X No
------ ------
The number of shares of the registrant's Common Stock, $.01 par value,
outstanding as of October 31, 1994 totaled 10,123,743, of which 160,001 shares
were held by wholly owned subsidiaries of the registrant.
1
PART I - FINANCIAL INFORMATION
ITEM I - FINANCIAL STATEMENTS
FAIRFIELD COMMUNITIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
September 30, December 31,
1994 1993
---- ----
(Unaudited) (Note)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 2,192 $ 4,475
Loans receivable, net 146,276 165,575
Real estate inventories 34,850 34,607
Restricted cash and escrow accounts 13,552 11,846
Property and equipment, net 5,750 7,527
Net assets held for sale 14,114 -
Net assets of discontinued operations 4,021 8,471
Other assets 18,148 22,082
-------- --------
$238,903 $254,583
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Financing arrangements $128,542 $127,351
Deferred revenue 19,458 20,599
Accounts payable 6,791 7,158
Accrued interest 5,730 6,890
Income taxes payable 2,488 2,589
Other liabilities 14,687 19,555
Net liabilities held for sale - 23,293
-------- --------
177,696 207,435
-------- --------
Stockholders' equity:
Common stock 120 120
Paid-in capital 41,197 38,609
Retained earnings 19,890 8,419
-------- --------
61,207 47,148
-------- --------
$238,903 $254,583
======== ========
</TABLE>
Note: The consolidated balance sheet at December 31, 1993 has been derived from
the audited consolidated financial statements at that date.
See notes to consolidated financial statements.
2
FAIRFIELD COMMUNITIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Dollars in thousands, except per share amounts)
(Unaudited)
<TABLE>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES
Vacation ownership, net $19,026 $11,098 $41,559 $24,744
Homes and lots, net 3,777 3,885 10,029 8,837
Property management 3,111 3,248 8,807 8,886
Interest 5,136 6,204 15,365 18,758
Savings and loan operations - 3,952 - 13,791
Other 2,450 2,464 8,165 7,906
Gain on sale of First Federal 5,200 - 5,200 -
------- ------- ------- -------
38,700 30,851 89,125 82,922
------- ------- ------- -------
EXPENSES
Vacation ownership 5,886 3,245 12,868 7,212
Homes and lots 1,583 1,762 4,347 3,801
Provision for loan losses 1,423 1,159 3,399 2,530
Selling 10,510 6,712 23,825 15,719
Property management 2,637 3,175 7,482 8,537
General and administrative 2,791 2,313 7,865 7,351
Interest, net 2,654 3,227 8,193 11,378
Savings and loan operations - 4,604 - 14,518
Other 2,418 1,064 6,988 3,093
------- ------- ------- -------
29,902 27,261 74,967 74,139
------- ------- ------- -------
Earnings before provision for
income taxes 8,798 3,590 14,158 8,783
Provision for income taxes 1,079 1,211 2,687 2,996
------- ------- ------- -------
Net earnings $ 7,719 $ 2,379 $11,471 $ 5,787
======= ======= ======= =======
EARNINGS PER SHARE
Primary $.70 $.21 $1.04 $.52
==== ==== ===== ====
Fully diluted $.66 $.20 $.98 $.49
==== ==== ==== ====
WEIGHTED AVERAGE SHARES OUTSTANDING
Primary 11,099,345 11,134,117 11,080,867 11,134,117
========== ========== ========== ==========
Fully diluted 11,687,580 11,722,352 11,703,406 11,722,352
========== ========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
3
FAIRFIELD COMMUNITIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 1994 and 1993
(In thousands)
(Unaudited)
<TABLE>
1994 1993
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net earnings $ 11,471 $ 5,787
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 1,040 987
Amortization of fresh start premiums - (3,583)
Provision for loan losses 3,399 2,876
Earnings from unconsolidated affiliates (883) (2,001)
Gain on Sale of First Federal (5,200) -
Changes in operating assets and liabilities, net:
Restricted cash and escrow accounts (1,706) (4,440)
Other 3,015 (3,548)
-------- -------
Net cash provided by (used in) operating
activities 11,136 (3,922)
-------- -------
INVESTING ACTIVITIES
Net purchases of property and equipment (168) (961)
Principal collections on loans 55,571 96,261
Loans originated or acquired (42,518) (81,052)
Net cash received from unconsolidated affiliates 883 2,522
Net investment activities of discontinued operations 3,444 270
Net cash used on Sale of First Federal (17,666) -
Net investment activities of net assets and
liabilities held for sale (14,156) -
Net investing activities related to savings and
loan operations - 11,699
------- --------
Net cash provided by (used in) investing activities (14,610) 28,739
-------- --------
FINANCING ACTIVITIES
Proceeds from financing arrangements 143,092 104,512
Repayments of financing arrangements (141,901) (139,686)
Net financing activities related to savings
and loan operations - (13,138)
-------- --------
Net cash provided by (used in) financing activities 1,191 (48,312)
-------- --------
Net decrease in cash and cash equivalents (2,283) (23,495)
Cash and cash equivalents, beginning of period 4,475 60,921
--------- ---------
Cash and cash equivalents, end of period $ 2,192 $ 37,426
========= =========
</TABLE>
See notes to consolidated financial statements.
4
FAIRFIELD COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1994
(Unaudited)
The accompanying unaudited financial statements of Fairfield Communities,
Inc. ("Fairfield") and its wholly owned subsidiaries (collectively, the
"Company") have been prepared in accordance with generally accepted accounting
principles for interim financial statements and with the instructions to Form 10
- -Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, the statements
for the unaudited interim periods include all adjustments (consisting of normal
recurring accruals)considered necessary for a fair presentation of the financial
position and the results of operations of the Company for such periods. Results
of operations for the periods ended September 30, 1994 are not necessarily
indicative of the results of operations that may be expected for a full year or
any future interim period. Certain previously reported amounts have been
reclassified to conform to the presentation used for the current period.
For further information, refer to the consolidated financial statements and
footnotes there-to included in the Annual Report on Form 10-K, as amended and
restated, of the Company for the year ended December 31, 1993. The accompanying
consolidated financial statements and related notes thereto include the
accounts of the Company with all significant intercompany transactions
eliminated.
NOTE 1 - FIRST FEDERAL
- ----------------------
On September 23, 1994, Fairfield completed the sale of 100% of the capital
stock (the "Sale") of First Federal Savings and Loan Association of Charlotte
("First Federal") to Security Capital Bancorp ("SCBC") for approximately $41
million (the "Sales Price"). Immediately prior to closing, the Company purchased
for cash (a) at book value, approximately $16 million of certain real estate,
classified loans,joint venture interests and other assets owned by First Federal
(the "Excluded Association Assets") and (b) lot and timeshare contracts
receivable and related assets, which First Federal previously acquired from the
Company (the "Contracts Receivable"), having a net book value of approximately
$41.6 million. The Excluded Association Assets and the Contracts Receivable are
collectively referred to as the "Excluded Assets".
Approximately $1.4 million of the Sales Price was retained by SCBC to
securitize Fairfield's obligation to indemnify SCBC against three existing
lawsuits/claims which have been asserted against First Federal (the "Litigation
Indemnity"). In addition, approximately $3 million in net book value of
Excluded Association Assets were pledged to SCBC to provide additional security
with respect to both the Litigation Indemnity and the general indemnities under
the Stock Purchase Agreement.
After the setoff of the Sales Price against the purchase of the Excluded
Assets, and certain other adjustments, the Company, using availability under its
revolving credit agreements with The First National Bank of Boston ("FNBB"),paid
approximately $17.7 million to SCBC in connection with the closing of the Sale.
Under the Company's revolving credit agreements, in general, within applicable
loan limits, $0.75 of additional borrowing availability is created for each
$1.00 in outstanding principal balance of qualifying Contracts Receivable
pledged to FNBB. The Company plans to dispose of the Excluded Association
Assets in one or more transactions and otherwise to monetize the remaining
Excluded Association Assets.
5 <PAGE>
The Company recognized a gain on the Sale of approximately $5.2 million,
net of selling expenses, including professional fees and other direct expenses.
The Excluded Association Assets, which totaled $14.1 million as of September 30,
1994, are classified as "Net assets held for sale" in the Consolidated Balance
Sheet and consisted primarily of loans receivable totaling $5.5 million and real
estate totaling $8.1 million.
NOTE 2 - VACATION OWNERSHIP REVENUES
- ------ --------------------------
Vacation ownership revenues are summarized as follows (In thousands):
<TABLE>
Three Months Ended Nine Months Ended
September 30, September 30,
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Vacation ownership revenues $19,327 $12,847 $40,813 $26,272
Less: Deferred revenue on
current year sales, net (301) (1,749) (1,355) (2,696)
Add: Deferred revenue on
prior year sales - - 2,101 1,168
------- ------- ------- -------
$19,026 $11,098 $41,559 $24,744
======= ======= ======= =======
</TABLE>
NOTE 3 - LOANS RECEIVABLE
- ------ ----------------
Loans receivable consisted of the following (In thousands):
<TABLE>
September 30, December 31,
1994 1993
---- ----
<S> <C> <C>
Contracts $144,851 $159,874
Mortgages 12,622 17,366
-------- --------
157,473 177,240
Less: Allowance for loan losses (10,821) (10,992)
Unamortized valuation discount (376) (673)
-------- --------
$146,276 $165,575
======== ========
</TABLE>
NOTE 4 - REAL ESTATE INVENTORIES
- ------ -----------------------
Real estate inventories are summarized as follows (In thousands):
<TABLE>
September 30, December 31,
1994 1993
---- ----
<S> <C> <C>
Land:
Under development $ 8,863 $ 9,490
Undeveloped 15,789 14,771
-------- --------
24,652 24,261
-------- --------
Residential housing:
Vacation ownership 7,982 8,759
Homes 2,216 1,587
------- --------
10,198 10,346
------- -------
$34,850 $34,607
======= =======
</TABLE>
6
NOTE 5 - FINANCING ARRANGEMENTS
- ------ ----------------------
Financing arrangements are summarized as follows (In thousands):
<TABLE>
September 30, December 31,
1994 1993
---- ----
<S> <C> <C>
Revolving credit agreements $ 23,799 $ 12,223
Notes payable 89,973 100,358
Senior Subordinated Notes 14,770 14,770
-------- --------
$128,542 $127,351
======== ========
</TABLE>
Notes payable include $73.6 million and $81.6 million at September 30, 1994
and December 31, 1993, respectively, of 7.6% Notes (the "FFC Notes") secured by
a pool of contracts receivable totaling $80.9 million and $91.8 million,
respectively.
NOTE 6 - SUPPLEMENTAL INFORMATION
- ------ ------------------------
Other revenues for the nine months ended September 30, 1994 and 1993
include cash distributions totaling $.9 million and $2 million, respectively,
related to the Company's 35% partnership interest in Harbour Ridge, Ltd., a
limited partnership engaged in the development of a tract of land in St. Lucie,
Florida. Also included in other revenues for the nine months ended September 30,
1993 is (i) $.5 million related to the recovery on a previously written off note
receivable and (ii) $.5 million related to the recovery of certain professional
fees. There were no similar revenues for the nine months ended September 30,
1994.
Other revenues and expenses for the nine months ended September 30, 1994
also include $3.9 million and $3.7 million, respectively, relating to bulk asset
sales and related cost of sales. During the nine months ended September 30,
1993, bulk asset sales and related cost of sales totaled $1.5 million and $1
million, respectively.
For the nine months ended September 30, 1994 and 1993, benefits realized
from the utilization of pre-confirmation net operating loss carryforwards and
recognition of pre-confirmation deductible temporary differences of $2.6 million
and $2.7 million, respectively, were recorded as reductions of the Company's
valuation allowance for deferred tax assets and as additions to paid-in capital.
The effective tax rate for the three and nine months ended September 30, 1994
varies from the statutory rate due to (i)additional tax basis in First Federal's
stock and underlying assets (tax goodwill) for which no deferred tax asset was
previously recorded under the provisions of SFAS 109 and (ii) adjustments to
reduce tax accruals to reflect current estimates of liabilities as well as
adjustments to reduce other expense accruals which were considered nondeductible
in prior periods.
Reorganization expenses paid totaled $1 million and $4.8 million for the
nine months ended September 30, 1994 and 1993, respectively. Interest paid
totaled $17.2 million and $23.6 million for the nine months ended September 30,
1994 and 1993, respectively. Of these amounts, $9 million and $11.7 million,
respectively, were related to First Federal.
7
NOTE 7 - FAIRFIELD ACCEPTANCE CORPORATION ("FAC")
- ------ ----------------------------------------
Condensed consolidated financial information for FAC is summarized as
follows (In thousands):
Condensed Consolidated Balance Sheets
<TABLE>
September 30, December 31,
1994 1993
---- ----
<S> <C> <C>
ASSETS
Cash $ 200 $ 711
Loans receivable, net 123,287 94,668
Restricted cash and escrow accounts 11,566 10,602
Due from parent - 7,392
Other assets 2,686 3,113
-------- --------
$137,739 $116,486
======== ========
LIABILITIES AND EQUITY
Notes payable $ 73,560 $ 81,559
Revolving credit agreement 23,799 4,283
Due to parent 6,457 -
Accrued interest and other liabilities 586 745
Equity 33,337 29,899
-------- --------
$137,739 $116,486
======== ========
</TABLE>
Condensed Consolidated Statements of Earnings
<TABLE>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $3,361 $3,756 $9,667 $11,275
Expenses 2,005 1,696 5,990 6,131
------ ------ ------- ------
Earnings before provision
for income taxes 1,356 2,060 3,677 5,144
Provision for income taxes 519 788 1,408 1,969
------ ------ ------- ------
Net earnings $ 837 $1,272 $2,269 $3,175
====== ====== ====== ======
</TABLE>
NOTE 8 - DISCONTINUED OPERATIONS
- ------ -----------------------
A summary of net assets of discontinued operations is as follows (In
thousands):
<TABLE>
September 30, December 31,
1994 1993
---- ----
<S> <C> <C>
Property and equipment $5,535 $ 21,429
Real estate inventories - 15,652
------ --------
5,535 37,081
Revolving credit agreement - (19,933)
Notes payable (845) (2,458)
Accrual for losses (669) (6,219)
------ --------
$4,021 $ 8,471
====== ========
</TABLE>
8
In March 1994, Fairfield sold the stock of its wholly owned
subsidiaries, Fairfield Green Valley, Inc. and Fairfield Sunrise Village,
Inc. (collectively, the "Arizona Subsidiaries") at approximate book value.
The consideration received by Fairfield included (i) release of a lien on
and transfer to Fairfield of 2,235,294 shares of Fairfield's Common Stock
owned by the Arizona Subsidiaries and pledged to their primary lender, an
affiliate of Bank of America Arizona (the "Bank"), (ii) release of a
mortgage in favor of the Bank on a tract of unimproved property owned by
Fairfield, and (iii) release from any further liability to the Bank.
Subsequent to the closing, Fairfield recorded the shares of its Common
Stock previously owned by the Arizona Subsidiaries as treasury stock.
NOTE 9 - CONTINGENCIES
------ -------------
In June 1992, the Pagosa Lakes Property Owners Association ("PLPOA")
filed an adversary proceeding in the Bankruptcy Court for the Eastern
District of Arkansas, Western Division (the "Bankruptcy Court") asserting
equitable ownership or lien interests in certain recreational amenities,
including golf courses. In March 1994, the Bankruptcy Court issued its
decision upholding Fairfield's ownership of the Pagosa recreational
amenities, subject to a restrictive covenant allowing Pagosa property
owners and their guests to use the recreational amenities. The PLPOA has
filed an appeal of the Bankruptcy Court's decision with the United States
District Court, Eastern District of Arkansas, Western Division ("District
Court"). The issues on appeal have been briefed and the parties are
awaiting a decision.
In August 1992, the PLPOA filed an appeal of the Bankruptcy Court's
final order confirming Fairfield's plan of reorganization. This appeal is
pending before the District Court. The basis for the appeal is the PLPOA's
position that Fairfield should have been required to resolicit the plan of
reorganization due to its amendment in accordance with the Bankruptcy
Court's conditional confirmation order to eliminate any recovery for
Fairfield's previous stockholders. The Bankruptcy Court rejected this
argument, finding that the property owner group lacked standing to raise
this issue, and in management's opinion, the appeal is without merit and
moot, since the plan of reorganization has been substantially implemented.
The issues on appeal have been briefed, but no decision has been rendered.
The PLPOA and Archuleta County have filed claims, which are largely
duplicative, in the Bankruptcy Court for approximately $10.4 million and
$9.7 million, respectively, for promised improvements to be constructed at
the Pagosa, Colorado resort site and other matters. Any claim allowed by
the Bankruptcy Court would be limited in recovery under the Plan of
Reorganization to Fairfield Common Stock. Trial was held in May, 1994, and
the parties are in the process of briefing the issues associated with these
claims. No decision has been rendered.
On or about July 21, 1993 and September 9, 1993, two lawsuits (the
"Recreation Fee Litigation") were filed by 29 individuals and a company
against Fairfield in the District Court of Archuleta County, Colorado. The
Recreation Fee Litigation, which seeks certification as class actions,
alleges that Fairfield and its predecessors in interest wrongfully imposed
an annual recreation fee on owners of lots, condominiums, townhouses, VOIs
and single family residences in Fairfield's Pagosa, Colorado development.
The amount of the recreation fee, which was adopted in August, 1983, is
$180 per lot, condominium, townhouse and single family residence subject to
the fee and $360 per unit for VOIs. The Recreation Fee Litigation in
general seeks (a) a declaratory judgment that the recreation fee is
invalid; (b) the refund, with interest, of the recreation fees which were
allegedly improperly collected by Fairfield; (c) damages arising from
Fairfield's allegedly improper attempts to collect the recreation fee (i)
in an amount of not less than $1,000 per lot in one case and (ii) in an
unstated amount in the other case; (d) punitive damages; and (e) recovery
of costs and expenses, including attorneys' fees. The court has not yet
9
ruled on whether or not the Recreation Fee Litigation will be allowed to
proceed as class actions. Because of the preliminary nature of the
litigation and uncertainty concerning the time period covered by the suits'
allegations, Fairfield is unable to determine with any certainty the dollar
amount sought by plaintiffs, but believes it to be material.
On November 3, 1993, Fairfield filed an adversary proceeding in the
Bankruptcy Court, alleging that the Recreation Fee Litigation violates the
discharge granted to Fairfield in its Chapter 11 bankruptcy reorganization
and the injunction issued by the Bankruptcy Court against prosecution of
any claims discharged in the bankruptcy proceedings. The Colorado State
Court stayed further proceedings in the Recreation Fee Litigation pending
decision by the Bankruptcy Court. By orders and opinions dated September
29, 1994, the Bankruptcy Court decided certain motions filed by the
plaintiffs in the Recreation Fee Litigation, in response to Fairfield's
adversary proceeding. The Bankruptcy Court retained jurisdiction over one
of the lawsuits (the Storm lawsuit), and determined that any purchaser of a
lot from Fairfield and its predecessors prior to August 14, 1992 would be
limited to a pre-confirmation cause of action. The Bankruptcy Court
determined that it did not have jurisdiction over the second lawsuit (the
Daleske lawsuit), involving eight individuals and one company, due to prior
proceedings in the case in Colorado federal district court, which ruled
that the plaintiffs in this lawsuit had post-confirmation causes of action,
although all nine plaintiffs are believed to have purchased their lots
prior to August 14, 1992. Fairfield has appealed the Bankruptcy Court's
decision in the Daleske lawsuit to the District Court. The Daleske
plaintiffs have filed a motion with the State Court in Colorado to lift the
stay in that case, which has not yet been ruled on by the Colorado Court.
Fairfield intends to defend vigorously the Recreation Fee Litigation,
including any attempt to certify a class in either case. Fairfield has
previously implemented recreation fee charges at certain other of its
resort sites which are not subject to the pending action.
On December 10, 1993, Charlotte T. Curry, who, with her husband,
purchased a lot from Fairfield under an installment sale contract
subsequently sold to First Federal, filed suit against First Federal,
currently pending in Superior Court in Mecklenburg County, North Carolina,
alleging breach of contract, breach of fiduciary duty and unfair trade
practices. On April 8, 1994, the complaint was amended, (a) adding
Fairfield as a party, (b) adding an additional count against both Fairfield
and First Federal alleging violation of the North Carolina's Racketeer
Influenced and Corrupt Organizations ("RICO") Statute and (c) adding a
count against Fairfield alleging fraud. The litigation, which seeks class
action certification, contests the method by which Fairfield calculated
refunds for lot purchasers whose installment sale contracts were canceled
due to failure to complete payment of the deferred sales price for the lot.
Most installment lot sale contracts require Fairfield to refund to a
defaulting purchaser the amount paid in principal, after deducting the
greater of (a) 15% of the purchase price of the lot or (b) Fairfield's
actual damages. The plaintiff disputes Fairfield's method of calculating
damages, which has historically included certain sales, marketing and other
expenses. In the case of Ms. Curry's lot, the amount of refund claimed as
having been improperly retained is approximately $3,600. The Curry lawsuit
seeks damages, punitive damages, treble damages under North Carolina law
for unfair trade practices and RICO, prejudgment interest and attorney's
fees and costs. By order dated July 6, 1994, the court dismissed Ms.
Curry's claims for (a) breach of contract, due to the statute of
limitations, (b) breach of fiduciary duty, due to the lack of a fiduciary
duty and the statute of limitations, (c) fraud, due to the statute of
limitations, and (d) RICO, due to failure to state a claim. The court, by
order dated August 16, 1994, dismissed Ms. Curry's only remaining claim
against Fairfield, for unfair trade practices. The court has not yet
addressed whether Ms. Curry is an appropriate class representative and has
not certified the case as a class action.
10
Under the Stock Purchase Agreement for the Sale of First Federal (see
Note 1), Fairfield agreed to indemnify SCBC against any liability in the
Curry litigation. While Fairfield is no longer a defendant in the
litigation, it intends to coordinate the defense of First Federal (now, by
merger, Security Bank and Trust Company) with the counsel who have been
representing First Federal, to defend the Curry litigation vigorously.
Fairfield also has cancelled defaulted lot installment sales contracts
owned by it and its subsidiaries (other than First Federal), using the same
method of calculating refunds as is at issue in the Curry litigation.
11
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
------ ---------------------------------------------------------------
RESULTS OF OPERATIONS
--------------------
RESULTS OF CONTINUING OPERATIONS
--------------------------------
NINE MONTHS ENDED SEPTEMBER 30, 1994 COMPARED TO NINE MONTHS ENDED
------------------------------------------------------------------
SEPTEMBER 30, 1993
------------------
Vacation Ownership
------------------
Gross vacation ownership interval ("VOI") revenues totaled $40.8
million and $26.3 million for the nine months ended September 30, 1994 and
1993, respectively. This improvement is reflective of (i) increased sales
volumes at several of the Company's sites and (ii) additional sales at the
Company's newest destination site at Branson, Missouri, which began sales
efforts in June 1993.
Net VOI revenues increased to $41.6 million for the nine months ended
September 30, 1994 from $24.7 million for the nine months ended September
30, 1993. The increase in net VOI revenues is attributable to the same
factors as noted above, plus the recognition of an additional $2.3 million
in 1994 of previously deferred revenue related to the percentage of
completion method of accounting. Under this method, the portion of
revenues attributable to costs incurred as compared to total estimated
construction costs and selling expenses, is recognized in the period of
sale. The remaining revenue is deferred and recognized as the remaining
costs are incurred.
VOI cost of sales, as a percentage of revenues, was 31% for the nine
months ended September 30, 1994 as compared to 29.1% for the nine months
ended September 30, 1993. The fluctuation in the percentage is primarily
attributable to the mix of the products sold and the varying acquisition
and development costs at the Company's sites.
Selling expenses, including commissions, for both VOI and lot sales,
as a percentage of related revenues, were 47.9% and 48.9%, for the nine
months ended September 30, 1994 and 1993, respectively. The decrease in
selling expenses, as a percentage of related revenues, is primarily
attributable to efficiencies in sales overhead at certain sites resulting
from increases in sales volumes.
Homes and Lots
--------------
In 1994 and 1993, sales of homes and lots were concentrated primarily
at the Company's development located at Fairfield Glade, Tennessee. Home
and lot revenues at Fairfield Glade totaled $8.1 million and $7.1 million
for the nine months ended September 30, 1994 and 1993, respectively. The
Company anticipates that future sales of homes and lots will continue to be
concentrated at Fairfield Glade.
Property Management
-------------------
Net property management income totaled $1.3 million for the nine
months ended September 30, 1994 as compared to $.3 million for the nine
months ended September 30, 1993. This improvement primarily reflects
management's emphasis on more effective cost controls.
Interest
--------
Interest income totaled $15.4 million for the nine months ended
September 30, 1994 as compared to $18.8 million for the nine months ended
September 30, 1993. The decrease in 1994 is primarily attributable to a
lower average balance of outstanding contracts receivable (1994 - $148.3
million; 1993 - $182.1 million), resulting primarily from principal
collections exceeding originations.
12
Interest expense, net of capitalized interest, totaled $8.2 million
and $11.4 million for the nine months ended September 30, 1994 and 1993,
respectively. The decrease in 1994 is primarily attributable to (i)
reductions in the average outstanding balance of interest-bearing debt and
(ii) a decrease in the weighted average interest rates between the
respective periods.
Other
-----
Other revenues for the nine months ended September 30, 1994 and 1993
include cash distributions totaling $.9 million and $2 million,
respectively, related to the Company's 35% partnership interest in Harbour
Ridge, Ltd., a limited partnership engaged in the development of a tract of
land in St. Lucie, Florida. Also included in other revenues for the nine
months ended September 30, 1993 is (i) $.5 million related to the recovery
on a previously written off note receivable and (ii) $.5 million related to
the recovery of certain professional fees. There were no similar revenues
for the nine months ended September 30, 1994.
Other revenues and expenses for the nine months ended September 30,
1994 also include $3.9 million and $3.7 million, respectively, relating to
bulk asset sales and related cost of sales. During the nine months ended
September 30, 1993, bulk asset sales and related cost of sales totaled $1.5
million and $1 million, respectively.
THREE MONTHS ENDED SEPTEMBER 30, 1994 COMPARED TO THREE MONTHS ENDED
--------------------------------------------------------------------
SEPTEMBER 30, 1993
------------------
Revenue and expense trends for the three months ended September 30,
1994 were generally consistent with those of the related nine month period
as described above with (i) an increase in gross and net VOI sales, (ii) a <PAGE>
slight decrease in selling expenses as a percentage of related revenues,
and (iii) decreases in interest income and interest expense.
Other revenues for the three months ended September 30, 1994 and
1993 include cash distributions totaling $.2 million and $.5 million,
respectively, related to the Company's 35% partnership interest in Harbour
Ridge, Ltd. Other revenues and expenses for the three months ended
September 30, 1994 also include $.7 million and $.7 million, respectively,
relating to bulk asset sales and related cost of sales. During the three
months ended September 30, 1993, bulk asset sales and related cost of sales
totaled $.4 million and $.2 million, respectively.
PROVISION FOR INCOME TAXES
For the nine months ended September 30, 1994 and 1993, benefits
realized from the utilization of pre-confirmation net operating loss
carryforwards and recognition of pre-confirmation deductible temporary
differences of $2.6 million and $2.7 million, respectively, were recorded
as reductions of the Company's valuation allowance for deferred tax assets
and as additions to paid-in capital. The effective tax rate for the three
and nine months ended September 30, 1994 varies with the statutory rate due
to (i) additional tax basis in First Federal's stock and underlying assets
(tax goodwill) for which no deferred tax asset was previously recorded
under the provisions of SFAS 109 and (ii) adjustments to reduce tax
accruals to reflect current estimates of liabilities as well as adjustments
to reduce other expense accruals which were considered nondeductible in
prior periods.
13
FINANCIAL CONDITION
Total consolidated assets of the Company decreased $15.7 million from
December 31, 1993 to September 30, 1994. The decrease in assets is
primarily attributable to a decrease in loans receivable resulting
primarily from principal collections exceeding origination of receivables.
Total consolidated liabilities of the Company decreased $29.7 million from
December 31, 1993 to September 30, 1994 and is primarily attributable to
the Sale of First Federal which reduced total liabilities by $23.3 million.
Other variations in the Company's assets and liabilities generally
reflect the revenue and expense activities the Company experienced during
the nine months ended September 30, 1994.
LIQUIDITY AND CAPITAL RESOURCES
During the nine months ended September 30, 1994, cash and cash
equivalents of the Company decreased $2.3 million resulting from cash
provided by operating activities of $11.1 million, cash used in investing
activities of $14.6 million and cash provided from financing activities of
$1.2 million.
Cash from operating activities is net of $1.7 million used to
increase restricted cash and escrow accounts resulting primarily from the
escrow requirements associated with the FFC Notes. Cash used in investing <PAGE>
activities includes $17.7 million paid in connection with the Sale of First
Federal (see additional discussion below). Net cash generated from
principal collections on loans receivable exceeding loan originations was
offset by $12.9 million of principal collections related to Contracts
Receivable previously held by First Federal, the cash of which is included
in "Net liabilities held for sale" in the Consolidated Balance Sheet as of
December 31, 1993. Subsequent to the Sale of First Federal and Fairfield's
purchase of the First Federal Contracts Receivable, principal collections
therefrom will be that of the Company.
The Company has sources of funds from two revolving credit
agreements. Fairfield and certain of its subsidiaries are borrowers under
the Amended and Restated Revolving Credit Agreement (the "FCI Agreement")
with FNBB. The FCI Agreement provides for revolving loans of up to $25
million (including up to $7 million for letters of credit), bearing
interest at FNBB's base rate plus 1.5%. The FCI Agreement also provides
for an annual facility fee of 1% of the total commitment. The revolving
loans mature on September 28, 1996, if not extended in accordance with the
terms of the agreement. The FCI Agreement is collateralized by
substantially all of the borrowers' loans receivable and real estate
inventories with FAC being a guarantor pursuant to the FCI Agreement. At
September 30, 1994, Fairfield had no outstanding borrowings under the FCI
Agreement, borrowing availability of $18.3 million, and outstanding letters
of credit totaling $.3 million.
FAC is the borrower under the Third Amended and Restated Revolving
Credit Agreement (the "FAC Agreement") with FNBB. The FAC Agreement
provides for revolving loans of up to $35 million (including up to $1
million for letters of credit), bearing interest at FNBB's base rate plus
.75%. The FAC Agreement also provides for an annual facility fee of 1% of
the total commitment amount. The revolving loans mature on September 28,
1996, if not extended in accordance with the terms of the agreement. The
FAC Agreement is collateralized by certain loans receivable with Fairfield
being a guarantor pursuant to the FAC Agreement. At September 30, 1994,
FAC had outstanding borrowings under the FAC Agreement totaling $23.8
million and additional borrowing availability of $10.9 million.
An additional source of funds is the Company's ability to securitize
contracts receivable pursuant to a receivable purchase agreement (the
"Agreement") related to the FFC Notes. The Agreement provides for the
principal amounts collected from the contracts receivable pool to be
14
reinvested into additional contracts receivable limited monthly to (i) the
availability of eligible contracts as defined in the Agreement and (ii) the
amounts accumulated in the reinvestment account. During the nine months
ended September 30, 1994, the Company securitized $12.5 million of
contracts receivable and an additional $5.9 million was securitized in
October 1994. The excess of funds held in the reinvestment account over $6
million, determined on a monthly basis, is to be used to reduce the FFC
Notes. During the nine months ended September 30, 1994, the outstanding
balance of the FFC Notes was reduced by $8 million. The reinvestment
period expires March 31, 1995.
Sale of First Federal
---------------------
On September 23, 1994, Fairfield completed the sale of 100% of the
capital stock (the "Sale") of First Federal to SCBC for approximately $41
million (the "Sales Price"). Immediately prior to closing, the Company
purchased for cash (a) at book value, approximately $16 million of certain
real estate, classified loans, joint venture interests and other assets
owned by First Federal (the "Excluded Association Assets") and (b) lot and
timeshare contract receivables and related assets, which First Federal
previously acquired from the Company (the "Contracts Receivable"), having a
net book value of approximately $41.6 million. The Excluded Association
Assets and the Contracts Receivable are collectively referred to as the
"Excluded Assets".
Approximately $1.4 million of the Sales Price was retained by SCBC
to securitize Fairfield's obligation to indemnify SCBC against three
existing lawsuits/claims which have been asserted against First Federal
(the "Litigation Indemnity"). In addition, approximately $3 million in net
book value of Excluded Association Assets were pledged to SCBC to provide
additional security with respect to both the Litigation Indemnity and the
general indemnities under the Stock Purchase Agreement.
After the setoff of the Sales Price against the purchase of the
Excluded Assets, and certain other adjustments, the Company, using
availability under its revolving credit agreements with FNBB, paid
approximately $17.7 million to SCBC in connection with the closing of the
Sale. Under the Company's revolving credit agreements, in general, within
applicable loan limits, $0.75 of additional borrowing availability is
created for each $1.00 in outstanding principal balance of qualifying
Contracts Receivable pledged to FNBB. The Company plans to dispose of the
Excluded Association Assets in one or more transactions and otherwise to
monetize the remaining Excluded Association Assets.
The Company expects to finance its future operating cash needs and
capital requirements for new developments from (i) principal collections
from its loans receivable, (ii) borrowings under the revolving credit
facilities and, in the short-term, the securitization of additional
eligible contracts receivable during the reinvestment period provided by
the Agreement, (iii) operating cash flows, (iv) proceeds from asset sales
and (v) other financings that it may obtain in the future.
15
Part II - Other Information
------- -----------------
Item 1 - Legal Proceedings
------ -----------------
Incorporated by reference. See Note 9 of "Notes to
Consolidated Financial Statements".
Item 2 - Changes in Securities
------ ---------------------
None
Item 3 - Defaults Upon Senior Securities
------ -------------------------------
None
Item 4 - Submission of Matters to a Vote of Security Holders
------ ---------------------------------------------------
The 1994 Annual Meeting of Stockholders of the Registrant was
held on September 20, 1994. The following items of business
were presented to the stockholders:
Election of Directors
---------------------
The seven directors were elected as proposed in the
Proxy Statement dated August 4, 1994 under the
caption titled "Election of Directors".
Total Vote For Total Vote Withheld
Each Director From Each Director
-------------- ------------------
Russell A. Belinsky 6,726,014 1,175,098
Ernest Bennett III 6,726,019 1,175,093
Daryl J. Butcher 6,725,798 1,175,314
Philip L. Herrington 6,726,036 1,175,076
John W. McConnell 6,717,279 1,183,833
William C. Scott 6,726,036 1,175,076
J. Steven Wilson 6,725,654 1,175,458
Sale of First Federal Savings and Loan Association
--------------------------------------------------
of Charlotte ("First Federal")
------------------------------
The sale of First Federal to Security Capital
Bancorp as described in the Proxy Statement dated
August 4, 1994 under the caption titled "Sale of
First Federal" was approved (For - 6,890,007;
against - 34,897; abstain - 41,177; broker non-
votes - 935,031).
Rights Agreement Amendment
--------------------------
The Amendment to the Registrant's Share Purchase
Rights Agreement as described in the Proxy
Statement dated August 4, 1994 under the caption
titled "Amendment to the Company's Share Purchase
Rights Agreement" was approved (For - 4,703,526;
against - 2,201,442; abstain - 61,113; broker non-
votes - 935,031).
16
Other
-----
Proposals 4, 5 and 6 as described in the Proxy
Statement dated August 4, 1994 were withdrawn by
the Registrant's Board of Directors prior to the
shareholders' meeting.
Item 5 - Other Information
------ -----------------
None
Item 6 - Exhibits and Reports on Form 8-K
------ --------------------------------
(a) Exhibits
--------
Reference is made to the Exhibit Index.
(b) Reports on Form 8-K
-------------------
On April 14, 1994, a Current Report on Form 8-K was filed in
which the Registrant announced it had entered into a Stock
Purchase Agreement for the possible sale of First Federal.
On October 6, 1994, a Current Report on Form 8-K was filed in
which the Registrant announced the closing of the sale of First
Federal.
On October 28, 1994, a Current Report on Form 8-K/A was filed
in which the Registrant amended its Current Report on Form 8-K
filed October 6, 1994 and incorporated the consolidated pro
forma financial information related to the Sale of First
Federal.
17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
FAIRFIELD COMMUNITIES, INC.
Date: November 4, 1994 /s/Robert W. Howeth
---------------------- -----------------------------------------
Robert W. Howeth, Senior Vice President,
Chief Financial Officer and Treasurer
Date: November 4, 1994 /s/William G. Sell
------------------------- ----------------------------------------
William G. Sell, Vice President/
Controller (Chief Accounting
Officer)
18
FAIRFIELD COMMUNITIES, INC.
EXHIBIT INDEX
-------------
Exhibit
Number
------
4.1 Supplemented and Restated Indenture between the Registrant,
Fairfield River Ridge, Inc., Fairfield St. Croix, Inc. and IBJ
Schroder Bank & Trust Company, as Trustee, and Houlihan Lokey
Howard & Zukin, as Ombudsman, related to the Senior
Subordinated Secured Notes, dated September 1, 1992 (previously
filed with the Registrant's Current Report on Form 8-K dated
September 1, 1992 and incorporated herein by reference)
4.2 First Supplemental Indenture to the Supplemented and Restated
Indenture referenced in 4.1 above, dated September 1, 1992
(previously filed with the Registrant's Current Report on Form
8-K dated September 1, 1992 and incorporated herein by
reference)
4.3 Second Supplemental Indenture to the Supplemented and Restated
Indenture referenced in 4.1 above, effective September 1, 1992
(previously filed with the Registrant's Annual Report on Form
10-K dated December 31, 1992 and incorporated herein by
reference)
4.4 Third Supplemental Indenture to the Supplemented and Restated
Indenture referenced in 4.1 above, effective March 18, 1993
(previously filed with the Registrant's Quarterly Report on
Form 10-Q dated March 31, 1993 and incorporated herein by
reference)
4.5 Certificate of Designation, Preferences, and Rights of Series A
Junior Participating Preferred Stock, dated September 1, 1992
(previously filed with the Registrant's Current Report on Form
8-K dated September 1, 1992 and incorporated herein by
reference)
10.1 Promissory Note and Security Agreement each dated June 30, 1994
between the Registrant and VM Investors Partnership (attached)
10.2 First Amendment to Amended and Restated Revolving Credit
Agreement among the Registrant, Fairfield Myrtle Beach, Inc.,
Suntree Development Company and The First National Bank of
Boston, individually and as agent dated as of May 13, 1994
(attached)
11 Computation of earnings per share (attached)
27 Financial Data Schedule (attached)
28 Ombudsman Report for the period ending September 30, 1994
related to the Registrant's Senior Subordinated Notes.
Fairfield Communities, Inc. (the "Company") has issued its 10%
Senior Subordinated Secured Notes (the "FCI Notes") pursuant to
the Supplemented and Restated Indenture, dated as of September
1, 1992, as amended (the "Restated Indenture"), among the
Company, as issuer, Fairfield St. Croix, Inc. and Fairfield
River Ridge, Inc., as guarantors, IBJ Schroder Bank & Trust
Company, as trustee (the "Trustee"), and Houlihan Lokey Howard
& Zukin, as ombudsman (the "Ombudsman").
19
The Ombudsman, which
was designated by the committee representing the holders of the
notes for which the FCI Notes were exchanged in the Company's
bankruptcy proceedings, as part of its duties under the
Restated Indenture, is to report periodically concerning the
collateral securing the FCI Notes and other matters (the
"Ombudsman's Reports"). The Ombudsman's Reports are not
prepared at the direction of, or in concert with, the Company
and are delivered by the Ombudsman to the Trustee for
distribution to each holder of record of the FCI Notes.
However, because the Ombudsman's Reports are being distributed
to the record holders of the FCI Notes and the contents of the
Ombudsman's Reports may be of interest to other persons,
including potential purchasers of the FCI Notes, the Company is
filing herewith, as Exhibit 28, a copy of the Ombudsman's
Report dated October 31, 1994, for the period ending September
30, 1994. The Company is not obligated to file such reports
and may discontinue filing such reports in the future without
notice to any person. (attached)
20
SECURITY AGREEMENT
Secured Party: Debtor:
VM Investors Partnership Fairfield Communities, Inc.
11832 Rock Landing Drive 2800 Cantrell Road
Suite 304 Little Rock, Arkansas 72202
Newport News, Virginia 23606
A. AGREEMENT
1. Security Interest. Upon the terms hereof, for value
received, Fairfield Communities, Inc., a Delaware corporation
("Debtor"), hereby irrevocably and unconditionally grants to VM
Investors Partnership, a Virginia general partnership ("Secured
Party") a second priority security interest and lien in all
interval or unit ownership contract agreements and installment
notes described on Exhibit A attached hereto and incorporated
herein for all purposes arising from the sales of vacation
ownership units (commonly known as timeshare units) at the resort
community known as Fairfield Williamsburg located near
Williamsburg, Virginia, which agreements and notes were owned by
the Fairfield Williamsburg Joint Venture, a Virginia general
partnership (the "Williamsburg Joint Venture"), prior to the date
hereof and have been sold by the Williamsburg Joint Venture to
Debtor pursuant to the Document of Sale and Assignment of
Beneficial Interest of even date hereof executed by the
Williamsburg Joint Venture in favor of Debtor (collectively,
"Collateral"), to secure the payment and performance of the
Obligation (as defined below). Unless otherwise defined in this
agreement, terms used herein shall have the meanings set forth in
the Promissory Note of even date herewith, in the original
principal amount of $6,396,108.71, executed by Debtor and payable
to the order of Secured Party (as amended, modified, supplemented,
renewed or extended from time to time, "Note").
B. OBLIGATION
1. Description of Obligation. The following obligations
(collectively, "Obligation") are secured by this agreement:
All debt, obligations, liabilities and agreements of
Debtor to Secured Party, now or hereafter existing, arising
pursuant to or in connection with (i) this agreement; (ii) the
Note; and (iii) all amendments, modifications, renewals,
extensions, substitutions or rearrangements of any of the
foregoing.
C. WARRANTIES
1. Financing Statements. No financing statement covering the
Collateral is or will be on file in any public office, except
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financing statements relating to (a) the liens of FNBB as agent for
the FCI Lender Group, (b) the liens of FNBB as agent for the FAC
Lender Group, which liens are subordinate to the liens granted
hereunder pursuant to the Intercreditor Agreement hereinafter
defined (the liens described in clauses (a) and (b) above
collectively, "Permitted Liens"), and (c) the liens granted
hereunder.
2. Ownership. Debtor owns the Collateral free from any
setoff, claim, restriction or Lien, except Permitted Liens.
3. Power and Authority. Debtor has full power, authority and
legal right to execute, deliver and perform this agreement.
4. Issuance of Stock. Convertible Preferred Stock and
Converted Subordinated Debt (as such terms are defined in the Fifth
Amended and Restated Joint Plans of Reorganization for All Debtors
filed with the United States Bankruptcy Court for the Eastern
District of Arkansas, Western Division, on January 15, 1992), are
not being issued by Debtor pursuant to the Consolidating Entities
Plan.
D. COVENANTS
1. Obligation and This Agreement. Debtor will promptly
perform, observe and be bound by all of its conditions, covenants
and agreements herein and in the Note.
2. Ownership of Collateral. Debtor will defend the
Collateral against all claims and demands of all persons at any
time claiming any interest therein adverse to Secured Party, except
the holders of Permitted Liens. Debtor will keep the Collateral in
good condition, free from all Liens, except Permitted Liens.
3. Secured Party's Costs. Debtor will pay all costs
necessary to obtain and perfect this agreement and the security
interest granted hereby.
4. Information. Debtor will furnish Secured Party such
information as Secured Party may reasonably request to identify the
Collateral, at the time and in the form reasonably requested by
Secured Party.
5. Additional Documents. Debtor will execute and deliver
such further instruments and agreements as Secured Party deems
reasonably necessary to obtain and perfect the security interest
hereunder, and to enable Secured Party to comply with the Federal
Assignment of Claims Act, or any other federal or state law, in
order to obtain or perfect Secured Party's interest in Collateral,
to effect its rights hereunder or to obtain proceeds of Collateral.
6. Right of Secured Party to Notify Debtors. At any time
during the continuance of an Event of Default, Secured Party may
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notify persons obligated on any Collateral to make payments
directly to Secured Party and Secured Party may take control of all
proceeds of any Collateral. Until Secured Party elects to exercise
such rights, Debtor, as agent of Secured Party, will collect and
enforce all payments owed on Collateral.
7. Records of Collateral. Debtor at all times will maintain
accurate books and records covering the Collateral. The amounts
shown as owed to Debtor on Debtor's books will be the undisputed
amounts owing and unpaid. Debtor will disclose to Secured Party
all agreements modifying any material part of the Collateral.
8. Disposition of Collateral. Except as permitted under the
loan documents evidencing the FCI-FNBB Loans or as otherwise
consented to by FNBB, no Collateral may be sold, leased or
otherwise disposed of by Debtor in any manner without the prior
written consent of Secured Party; provided, however, that Debtor
may sell the Collateral, in whole or in part, to Fairfield
Acceptance Corporation and its successors and assigns ("FAC").
9. Location of Records. Debtor will give Secured Party
written notice of each office of Debtor in which records of Debtor
pertaining to the Collateral are kept. If no such notice is given,
all records of Debtor pertaining to the Collateral are and will be
kept at Debtor's address shown above.
10. Notice of Changes. Debtor will notify Secured Party of a
change in Debtor's residence or location, of a change in any
material matter warranted or represented by Debtor in this
agreement or furnished to Secured Party, and of any Event of
Default.
11. Change of Name. Debtor will not change its name without
giving Secured Party prior written notice thereof.
12. Power of Attorney. Debtor appoints Secured Party Debtor's
attorney-in-fact with full power in Debtor's name and behalf to do
every act which Debtor is obligated to do or may be required to do
hereunder and which Debtor has failed to do; however, nothing in
this Section will be construed to obligate Secured Party to take
any action hereunder.
13. Other Parties and Other Collateral. No renewal or
extension of or any other indulgence with respect to the Obligation
or any part thereof, no release of any security, no release of any
person (including any maker, endorser, guarantor or surety) liable
on the Obligation, no delay in enforcement of payment, and no delay
or omission or lack of diligence or care in exercising any right or
power with respect to the Obligation or any security therefor or
guaranty thereof or under this agreement will in any manner impair
or affect the rights of Secured Party hereunder, under the Note, at
law or in equity. Secured Party need not file suit or assert a
claim for personal judgment against any person for any part of the
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Obligation or seek to realize upon any other security for the
Obligation, before foreclosing upon the Collateral for the purpose
of paying the Obligation. Debtor waives any right to the benefit
of or to require or control application of any other security or
proceeds thereof, and agrees that Secured Party shall have no duty
or obligation to Debtor to apply to the Obligation any such other
security or proceeds thereof.
14. Payment and Distribution of Securities. Debtor will make
no payments or dividends with respect to its common stock issued by
Debtor pursuant to the Consolidating Entities Plan (collectively,
the "Securities") after written notice by Secured Party of the
continuance of an Event of Default described in Section 8(a) of the
Note or written notice by Secured Party that the amount outstanding
under the Note exceeds the value of the Collateral; provided,
however, that if Debtor pledges additional collateral to Secured
Party (including additional subordinated liens) such that the value
of all collateral pledged by Debtor to Secured Party equals or
exceeds the amount outstanding under the Note, which pledge shall
be in accordance with the loan documents evidencing the FCI-FNBB
Loans, Debtor may make payments and distributions with respect to
the Securities.
15. Value of Collateral. The value of the Collateral will be
determined jointly by Debtor and Secured Party. If the value of
the Collateral cannot be agreed upon by Debtor and Secured Party,
the Collateral will be valued by an independent accountant or other
independent appraiser appointed by Debtor and not reasonably
objected to by Secured Party within 10 days after receipt by
Secured Party of written notice from Debtor of such appointment;
provided, however, that if Secured Party shall so object and Debtor
and Secured Party cannot agree upon the appointment of an
independent accountant or other independent appraiser within 15
days after the receipt by Debtor of Secured Party's written notice
of objection, the American Arbitration Association shall appoint
such independent accountant or other independent appraiser, which
appointment shall be final and binding upon Secured Party and
Debtor.
16. Sale of Collateral to Fairfield Acceptance Corporation.
Debtor has the right to sell the Collateral, in whole or in part,
to FAC without the consent of Secured Party. Upon the sale, the
lien of Secured Party in the Collateral sold to FAC will be
released automatically, and Secured Party hereby appoints Debtor
Secured Party's attorney-in-fact with full power in Secured Party's
name and behalf to execute and deliver such instruments and
agreements (including without limitation, Uniform Commercial Code
termination statements and instruments of satisfaction, discharge,
and/or reconveyance) as Debtor deems necessary to evidence and
effect such release.
17. Delivery of Collateral and Acceptance by Custodian.
Debtor hereby confirms that the Collateral has been delivered to
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and is in the possession of First Commercial Trust Company, N.A.,
as custodian of the Collateral ("Custodian"). Custodian, as the
duly appointed agent of Secured Party for these purposes, hereby
acknowledges receipt of the Collateral. Custodian declares that it
holds and will hold the Collateral as the bailee and agent for
Secured Party, subject to the rights of FNBB, as agent for the FCI
Lender Group in and to the Collateral. Custodian agrees that it
will release the Collateral upon any sale thereof to FAC without
requiring any consent of, notice by, or other action by Secured
Party. It is agreed and understood that should Secured Party's
interest in the Collateral become a first priority security
interest, the custodian relationship referenced herein shall be
re-negotiated and re-documented in accordance with terms and
conditions acceptable to both Secured Party and Custodian.
18. Resignation of Custodian. Upon 30 days' prior written
notice to both Secured Party and Debtor, Custodian may resign from
its duties hereunder and terminate its obligations and liabilities
hereunder; provided, however, that Custodian agrees that so long as
it is acting as the bailee and agent for FNBB, as agent for the FCI
Lender Group, Custodian shall not resign from its duties hereunder.
E. RIGHTS AND POWERS OF SECURED PARTY
1. Remedies of Secured Party Upon Default. When an Event of
Default occurs and continues, Secured Party without notice or
demand, and subject to any limitations or restrictions imposed by
any applicable law, will have the following remedies: Secured
Party may declare the Obligation in whole or part immediately due
and may enforce payment of the same and exercise any rights and
remedies of Secured Party under the Uniform Commercial Code as
enacted in the State of Arkansas ("UCC"), this agreement, the Note,
or otherwise. Unless the Collateral is perishable or threatens to
decline speedily in value or is of a type customarily sold on a
recognized market, Secured Party will give Debtor reasonable notice
of the time and place of any public sale thereof or of the time
after which any private sale or other intended disposition thereof
is to be made. Secured Party will be entitled to immediate
possession of all books and records evidencing any general
intangibles covered by this agreement and shall have the authority
to enter upon any premises upon which any of the same, or any
Collateral, may be situated and remove the same therefrom without
liability. Debtor will be entitled to any surplus and shall be
liable to Secured Party for any deficiency. The proceeds of any
disposition after an Event of Default available to satisfy the
Obligation will be applied to the Obligation in such order and in
such manner consistent with applicable law as Secured Party in its
discretion will decide.
F. GENERAL
1. Subordination. The security interest and lien granted to
Secured Party hereunder in the Collateral is inferior and
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subordinate to the first and prior security interests and liens of
the FCI Lender Group in the Collateral, pursuant to the
Intercreditor Agreement of even date herewith, among Debtor,
Secured Party, FNBB as agent for the FCI Lender Group and FNBB as
agent for the FAC Lender Group, as such agreement may be amended,
modified, renewed or supplemented from time to time (the
"Intercreditor Agreement"), and are subject to all provisions and
requirements of such Intercreditor Agreement. As between Debtor,
FNBB, and FNBB as agent for the FCI Lender Group, in the event of
any conflict between the provisions of this agreement and the
provisions of any documents, instruments or agreements executed or
delivered in connection with the FCI-FNBB Loans (the "FNBB Loan
Documents"), the terms of the FNBB Loan Documents will control.
2. Cumulative Rights. All rights and remedies of Secured
Party hereunder are cumulative of each other and of every other
right or remedy which Secured Party may otherwise have at law or in
equity or under any other contract or other writing for the
enforcement of the security interest herein or the collection of
the Obligation, and the exercise of one or more rights or remedies
will not prejudice or impair the concurrent or subsequent exercise
of other rights or remedies.
3. Waiver. Should any part of the Obligation be payable in
installments, the acceptance by Secured Party at any time and from
time to time of partial payment of the aggregate amount of all
installments then matured will not be deemed as a waiver of any
Event of Default then existing. No waiver by Secured Party of any
Event of Default will be deemed to be a waiver of any other
subsequent Event of Default, nor will any such waiver by Secured
Party be deemed to be a continuing waiver. No delay or omission by
Secured Party in exercising any right or power hereunder, or under
the Note, will impair any such right or power or be construed as a
waiver thereof or any acquiescence therein, nor will any single or
partial exercise of any such right or power preclude other or
further exercise thereof, or the exercise of any other right or
power of Secured Party hereunder or under such other writings.
4. Interest; Limitation of Law. No provision herein or in
the Note will require the payment or permit the collection of
interest in excess of the maximum permitted by applicable law. If,
in any contingency whatsoever, Secured Party will receive anything
of value from Debtor deemed interest under applicable law which
would exceed the maximum amount of interest permissible under
applicable law, the provisions of the Note will govern.
5. Parties Bound. This agreement shall be binding on Debtor
and Debtor's successors, assigns and other legal representatives,
and will inure to the benefit of Secured Party and its legal
representatives, successors and assigns.
6. Notice. All notices hereunder will be given at the
following addresses: if to Debtor, 2800 Cantrell Road, Little
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Rock, Arkansas 72202, Attention: President; if to Secured Party,
c/o Victor Management Company, 11832 Rock Landing Drive, Suite 304,
Newport News, Virginia 23606, Attention: President, with copies to
Newport News Savings Bank, 301 Hiden Boulevard, Newport News,
Virginia 23606, Attention: Mr. Robert Springer, and VMS Realty
Partners, 8700 West Bryn Mawr Avenue, Chicago, Illinois 60631,
Attention: Joel Stone; and if to Custodian, P.O. Box 1471, Capitol
at Broadway, Little Rock, Arkansas 72203, Attention: Corporate
Trust Administrator. Either party may change its address for
notice hereunder to any other location within the continental
United States by giving 30 days prior notice thereof to the other
party in accordance with this paragraph. All notices given
hereunder will be in writing and will be considered properly given
if (a) mailed by first-class United States mail, postage prepaid,
registered or certified with return receipt requested,
(b) delivered by a nationally recognized overnight delivery service
with written confirmation of delivery, (c) delivered in person to
the intended addressee, or (d) sent by facsimile transmission with
confirmation of delivery. Any notice mailed as above provided will
be effective upon its deposit in the custody of the U.S. Postal
Service; all other notices will be effective upon receipt. Notice
will be deemed reasonable if so mailed, delivered or sent at least
five days before the related action (or if applicable law specifies
a longer period, such longer period) to the notice address of
Debtor set forth above.
7. Modifications. No provision hereof may be modified or
limited except by a written agreement expressly referring hereto
and to the provisions so modified or limited and signed by Secured
Party, nor by course of conduct, usage of trade or mercantile law.
8. Governing Law. This agreement shall be governed by and
construed and enforced in accordance with the laws of the
Commonwealth of Virginia and the United States of America, without
giving effect to the principles of conflict of laws of Virginia or
the United States of America.
9. Severability. If any provision of this agreement or any
related documents is held to be illegal, invalid or unenforceable
under present or future laws or regulations, that provision will be
fully severable. The affected instrument, document or agreement
will be construed and enforced as if any severed provision had
never been a part thereof, and the remaining provisions will remain
in full force and effect and will not be affected by the severed
provision or by its severance therefrom. In lieu of the severed
provision, there will be added automatically as a part of the
affected instrument, document or agreement a provision that is
legal, valid and enforceable, and as similar in terms to the
severed provision as may be possible.
10. Financing Statement. A carbon, photographic or other
reproduction of this agreement or any financing statement covering
the Collateral will be sufficient as a financing statement.
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11. UCC Definitions. Unless the context indicates otherwise
or the terms are otherwise defined in the Note, definitions in the
UCC apply to words and phrases in this agreement.
12. Release of Collateral. Upon payment in full of the
Obligation and termination of the Note, Secured Party will promptly
execute and deliver to Debtor documents and instruments sufficient
to release and discharge of record all liens securing the
Obligation.
13. Control. Notwithstanding anything herein to the contrary,
this agreement and the transactions contemplated hereby do not and
will not constitute, create, or have the effect of constituting or
creating, directly or indirectly, actual or practical ownership of
Debtor by Secured Party, or control, affirmative or negative,
direct or indirect, by Secured Party, over the management or any
aspect of the day-to-day operation of Debtor, which control remains
in Debtor, its shareholders and board of directors.
14. Counterparts. This Agreement may be executed in any
number of counterparts, all of which taken together shall
constitute one and the same instrument. In making proof of this
Agreement, it will not be necessary to produce or account for more
than one such counterpart.
DLMAIN Doc: 64770.2
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IN WITNESS WHEREOF, the parties hereto have executed this
Security Agreement as of this 30th day of June, 1994.
FAIRFIELD COMMUNITIES, INC.
By
-------------------------------
Title:
VM INVESTORS PARTNERSHIP
By VMS Realty, Inc., a general
------------------------------
partner
By
------------------------------
Title:
By Dominion Motor Inns, Inc., a
------------------------------
general partner
By
------------------------------
Title:
By Vaz, Inc., a general partner
-----------------------------
By
------------------------------
Title:
FIRST COMMERCIAL TRUST COMPANY, N.A.,
as Custodian
By
------------------------------
Title:
DLMAIN Doc: 64770.2
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Exhibit A
to
Security Agreement
CONTRACTS RECEIVABLE
DLMAIN Doc: 64770.2
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PROMISSORY NOTE
Little Rock, Arkansas $6,396,108.71 June 30, 1994
FOR VALUE RECEIVED, FAIRFIELD COMMUNITIES, INC., a Delaware
corporation ("FCI"), promises to pay to the order of VM INVESTORS
PARTNERSHIP, a Virginia general partnership ("Payee"), at 11832
Rock Landing Drive, Suite 304, Newport News, Virginia 23606 (or
such other place as Payee may from time to time designate in
writing to FCI), the principal sum of $6,396,108.71, together
with all unpaid interest thereon, on the first business day of
the 36th month following the VM Commencement Date (the "Maturity
Date"), or sooner as hereafter provided.
1. Definitions. When used herein, the following terms
will have the following definitions:
(a) "Consolidating Entities Plan" means the plan of
reorganization as set forth in Article II of the Seventh
Amended and Restated Joint Plans of Reorganization for All
Debtors, as it may be altered, amended or modified from time
to time.
(b) "FAC Lender Group" means the lenders from time to
time party to the Third Amended and Restated Credit
Agreement dated as of September 28, 1993, among Fairfield
Acceptance Corporation, the lenders signatory thereto and
FNBB, as agent for the lenders, as amended and supplemented
from time to time.
(c) "FCI-FNBB Loans" mean the amount owed to the FCI
Lender Group under the Amended and Restated Revolving Credit
Agreement, dated as of September 28, 1993, by and among the
lenders signatory thereto, FNBB as agent for the FCI Lender
Group, FCI, Suntree Development Company and Fairfield Myrtle
Beach, Inc., as amended and supplemented from time to time.
(d) "FCI Lender Group" means the lenders from time to
time party to the Amended and Restated Revolving Credit
Agreement, dated as of September 28, 1993, by and among the
lenders signatory thereto, FNBB as agent for the lenders,
FCI, Suntree Development Company and Fairfield Myrtle Beach,
Inc., as amended and supplemented from time to time.
(e) "FNBB" means The First National Bank of Boston, a
national banking association, and its successors and
assigns.
(f) "VM Commencement Date" means the earlier of
March 1, 1997 or the date when the FCI-FNBB Loans are paid
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in full in accordance with their terms and the loan
commitment of the FCI Lender Group under the FCI-FNBB Loans
have been terminated.
2. Interest. The unpaid principal balance of this Note
from time to time outstanding will bear interest from September
1, 1992, at a per annum rate equal to 10%, but in no event higher
than the maximum lawful rate that may be contracted for, charged,
taken, reserved or received by Payee in accordance with
applicable law. Interest hereon will be computed on the basis of
a year of 365 or 366 days, as applicable, for the actual number
of days elapsed.
3. Manner of Payment and Application of Funds. The
principal and accrued interest on this Note will be due and
payable in 36 monthly installments of $299,229.16, payable on the
first business day of each calendar month, commencing on the
first day of the first month following the VM Commencement Date.
All sums payable hereunder will be payable by FCI to Payee in
funds constituting lawful money of the United States of America.
4. Maturity Date. All unpaid principal and accrued
interest thereon will be due and payable on the earlier of the
Maturity Date or acceleration.
5. Prepayment of Principal. FCI will be entitled to
prepay at any time(s) the outstanding principal balance hereof,
in whole or in part, plus accrued interest thereon without
premium or penalty.
6. Security Agreement. This Note is secured by a Security
Agreement ("Security Agreement") of even date herewith executed
by and between FCI, Payee and First Commercial Trust Company,
N.A., as Custodian, to which reference is made for a statement of
the rights and obligations of FCI and Payee in relation thereto.
7. Intercreditor Agreement. Payment and performance under
this Note are subordinated to payment and performance of
obligations of FCI to the FCI Lender Group pursuant to the
Intercreditor Agreement of even date herewith, among FCI, Payee,
FNBB as agent for the FCI Lender Group, and FNBB as agent for the
FAC Lender Group, as such agreement may be amended, modified,
renewed or supplemented from time to time ("Intercreditor
Agreement"), and are subject to all provisions and requirements
of that Intercreditor Agreement.
8. Events of Default. The occurrence of any of the
following will be an "Event of Default" hereunder:
(a) FCI fails to pay any principal, interest or other
amounts payable under this Note within 5 business days from
the date the payment is due;
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(b) FCI commences or becomes the subject of any
proceedings under any bankruptcy, reorganization,
compromise, arrangement, insolvency, readjustment of debts,
conservatorship, moratorium, dissolution, liquidation, or
similar debtor relief laws of any jurisdiction, whether now
or hereafter in effect, and the proceedings are not
dismissed, discharged, stayed or restrained within 90 days
of the commencement thereof, shall make an assignment for
the benefit of its creditors, or shall fail to pay its debts
generally as they become due;
(c) FCI liquidates or dissolves itself (or suffers any
liquidation or dissolution) or otherwise winds up or
terminates its existence; or
(d) A default or breach occurs in the performance or
observance of any term, agreement, covenant or provision of
the Security Agreement or Intercreditor Agreement and the
default or breach is not cured within a period of 30 days
after notice from Payee thereof.
9. Acceleration and Other Remedies.
(a) If an Event of Default described in Section 8(b)
above occurs, the aggregate unpaid principal balance of and
any accrued interest on this Note will thereupon become due
and payable concurrently therewith, without any action by
Payee or any subsequent holder of this Note, and without
diligence, presentment, demand, protest, notice of protest
or intent to accelerate, or notice of any other kind, all of
which are hereby expressly waived (except to the extent
waiver of the foregoing is not permitted by applicable law).
If any other Event of Default occurs, Payee or any
subsequent holder hereof may, upon written notice to Payee
of such Event of Default (i) declare the unpaid principal
balance of and any accrued interest on this Note immediately
due and payable, whereupon it will be due and payable
without diligence, presentment, demand, or protest, all of
which are hereby expressly waived (except to the extent
waiver of the foregoing is not permitted by applicable law),
and (ii) exercise all other rights and remedies available by
agreement, at law or in equity.
(b) Failure to exercise any of the foregoing options
will not constitute a waiver of the right to exercise the
same or any other option at any subsequent time in respect
to any other event. The acceptance by Payee of any payment
hereunder that is less than payment in full of all amounts
due and payable at the time of such payment will not
constitute a waiver of the right to exercise any of the
foregoing options at that time or at any subsequent time or
nullify any prior exercise of any such option without the
express written consent of Payee.
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10. Waivers. FCI and any endorsers, sureties or guarantors
hereof severally waive presentment and demand for payment, notice
of intent to accelerate maturity, notice of acceleration of
maturity, protest and notice of protest and non-payment, other
notice of any kind, bringing of suit and diligence in taking any
action to collect any sums owing hereunder or in proceeding
against any of the rights and properties securing payment hereof.
FCI and any endorsers, sureties or guarantors hereof also
severally waive any notice of or defense on account of any
extensions, renewals, partial payments or changes in any manner
of or in this Note or in any of its terms, provisions and
covenants, or any delay, indulgence or other act of any trustee
or any holder hereof, whether before or after maturity.
11. Legal Interest Limitations. It is the intent of FCI
and Payee to conform strictly to all applicable state and federal
usury laws. All agreements between FCI and Payee, whether now
existing or hereafter arising and whether written or oral, are
hereby expressly limited so that in no contingency or event
whatsoever, whether by reason of acceleration of the maturity
hereof or otherwise, shall the amount contracted for, charged or
received by Payee for the use, forbearance, or detention of the
money to be loaned hereunder or otherwise, or for the payment or
performance of any covenant or obligation contained herein or in
any other document evidencing, securing, or pertaining to the
indebtedness evidenced hereby which may be legally deemed to be
for the use, forbearance or detention of money, exceed the
maximum amount which Payee is legally entitled to contract for,
charge or collect under applicable state or federal law. If from
any circumstance whatsoever fulfillment of any provision hereon
or of such other documents, at the time performance of such
provision is due, involves transcending the limit of validity
prescribed by law, then the obligation to be fulfilled will be
automatically reduced to the limit of such validity, and if from
any such circumstance Payee ever receives as interest or
otherwise an amount in excess of the maximum that can be legally
collected, then such amount which would be excessive interest
will be applied to the reduction of the principal indebtedness
hereof and any other amounts due under any other instrument
evidencing, securing or pertaining to the indebtedness evidenced
hereby, but not to the payment of interest; and if such amount
which would be excessive interest exceeds the unpaid balance of
principal hereof and all other non-interest indebtedness
described above, then such additional amount will be refunded to
FCI. All sums paid or agreed to be paid by FCI for the use,
forbearance or detention of the indebtedness of FCI to Payee
will, to the extent permitted by applicable law, be amortized,
prorated, allocated, and spread throughout the full term of such
indebtedness until payment in full so that the amount of interest
on account of such indebtedness is uniform throughout the term
thereof and does not exceed the maximum permitted by applicable
law. The terms and provisions of this paragraph will control and
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supersede every other provision of all agreements between FCI and
the Payee.
12. Attorneys' Fees and Costs of Collection. If this Note
is placed in the hands of an attorney for collection after an
Event of Default, FCI and all endorsers, sureties and guarantors
of this Note jointly and severally agree to pay reasonable
attorneys' fees and collection costs to the holder hereof in
addition to the principal, interest and other amounts payable
hereunder.
13. Severability. If any provision of this Note or any
related documents is held to be illegal, invalid or unenforceable
under present or future laws or regulations, that provision will
be fully severable. The affected instrument, document or
agreement will be construed and enforced as if any severed
provision had never been a part thereof, and the remaining
provisions will remain in full force and effect and will not be
affected by the severed provision or by its severance therefrom.
In lieu of the severed provision, there will be added
automatically as a part of the affected instrument, document or
agreement a provision that is legal, valid and enforceable, and
as similar in terms to the severed provision as may be possible.
14. Notices. All notices hereunder will be given at the
following addresses: if to FCI, 2800 Cantrell Road, Little Rock,
Arkansas 72202, Attention: President; and if to Payee, c/o
Victor Management Company, 11832 Rock Landing Drive, Suite 304,
Newport News, Virginia 23606, Attention: President, with copies
to Newport News Savings Bank, 301 Hiden Boulevard, Newport News,
Virginia 23606, Attention: Mr. Robert Springer, and VMS Realty
Partners, 8700 West Bryn Mawr Avenue, Chicago, Illinois 60631,
Attention: Joel Stone. Any party may change its address for
notice hereunder to any other location within the continental
United States by giving 30 days prior notice thereof to the other
party in accordance with this paragraph. All notices given
hereunder will be in writing and will be considered properly
given if (a) mailed by first-class United States mail, postage
prepaid, registered or certified with return receipt requested,
(b) delivered by a nationally recognized overnight delivery
service with written confirmation of delivery, (c) delivered in
person to the intended addressee, or (d) sent by facsimile
transmission with confirmation of delivery. Any notice mailed as
above provided will be effective upon its deposit in the custody
of the U.S. Postal Service; all other notices will be effective
upon receipt.
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15. APPLICABLE LAW. THIS NOTE WILL BE GOVERNED BY AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE
COMMONWEALTH OF VIRGINIA AND THE UNITED STATES OF AMERICA,
WITHOUT GIVING EFFECT TO THE PRINCIPLES OF CONFLICT OF LAWS OF
VIRGINIA OR THE UNITED STATES OF AMERICA.
FAIRFIELD COMMUNITIES, INC.
By
-------------------------
Title:
DLMAIN Doc: 64768.2
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FIRST AMENDMENT TO AMENDED AND
RESTATED REVOLVING CREDIT AGREEMENT
among
FAIRFIELD COMMUNITIES, INC.
FAIRFIELD MYRTLE BEACH, INC.
SUNTREE DEVELOPMENT COMPANY
and
THE FIRST NATIONAL BANK OF BOSTON,
INDIVIDUALLY AND AS AGENT
THIS AMENDMENT (this "Amendment") dated as of May 13, 1994, is
made by and among FAIRFIELD COMMUNITIES, INC., a Delaware corporation
(the "Company or "Fairfield"), FAIRFIELD MYRTLE BEACH, INC., a Delaware
corporation ("Myrtle Beach"), SUNTREE DEVELOPMENT COMPANY, a Florida
corporation ("Suntree"), THE FIRST NATIONAL BANK OF BOSTON, a national
banking association ("FNBB") and THE FIRST NATIONAL BANK OF BOSTON, as
agent for itself and the Lenders (the "Agent"), all parties to a certain
Amended and Restated Revolving Credit Agreement dated as of
September 28, 1993 (the "Credit Agreement"). This Amendment is joined
in by Fairfield Acceptance Corporation, a Delaware corporation ("FAC"),
by reason of the Unconditional Guaranty of Payment and Performance,
dated as of September 28, 1993, from FAC in favor of the Agent (the "FAC
Guaranty"). All capitalized terms used herein and not otherwise defined
shall have the same respective meanings herein as in the Credit
Agreement.
WHEREAS, the Company has proposed to purchase certain real
properties located in Branson, Missouri and Orlando, Florida and more
particularly described in Schedule 1-C attached hereto (collectively,
the "Additional Properties"); and
WHEREAS, the Borrowers have requested that fifty percent (50%) of
the purchase price of the Additional Properties be added as a component
to the Borrowing Base; and
WHEREAS, the Agent and FNBB are willing to grant the request of
the Borrowers subject to the terms and conditions set forth in this
Amendment;
NOW, THEREFORE, in consideration of the premises, the Borrowers,
FAC, FNBB and the Agent hereby agree as follows: <PAGE>
1. Amendments to Credit Agreement. The Borrowers, FNBB and the
Agent hereby agree to amend the Credit Agreement as follows:
1.1 The definition of "Borrowing Base" appearing in 1 of the
Credit Agreement is hereby amended by deleting said definition in its
entirety and substituting therefor the following new definition:
"Borrowing Base. At any time of determination, an amount determined by
the Agent by reference to the most recent Borrowing Base Report
delivered to the Lenders and the Agent pursuant to 8.4(f), which
is equal to the following: the sum of (i) 65% of Eligible
Receivables, plus (ii) 30% of Completed Inventory (borrowing
availability under this subclause (ii) not to exceed the Maximum
Inventory Amount), plus (iii) until the date upon which the
Company sells or otherwise disposes of First Federal, the Maximum
Real Estate Amount, plus (iv) until the earlier of the date upon
which the Company sells or otherwise disposes of First Federal or
June 30, 1996, 50% of the aggregate purchase price of the
Additional Properties (borrowing availability under this subclause
(iv) not to exceed $3,000,000), provided that upon the sale of the
first VOI in each building to be located at an Additional
Property, the borrowing availabililty under this subclause (iv)
shall be reduced by an amount equal to (a) 50% of the purchase
price for such Additional Property divided by the number of units
to be developed on such Additional Property as set forth in
Schedule 1-C attached hereto, times (b) the number of units in
such building."
1.2 Section 1 of the Credit Agreement is hereby further amended
by inserting the following definition after the definition of "Accounts
Receivable":
"Additional Properties. The real properties located in Orlando, Florida
and Branson, Missouri, and more particularly described on Schedule
1-C attached hereto."
1.3 Schedule 1-A to the Credit Agreement shall be amended to
include an Additional Property as an "Approved Project" upon the
Company's receipt of a written acknowledgment from the Agent that such
Additional Property constitutes an "Approved Project," which
acknowledgment shall indicate the applicable default percentage for such
Additional Property.
1.4 Schedule 1-B to the Credit Agreement is hereby amended to
include the description of the Additional Properties attached hereto as
Schedule 1-C, so that the definition of the term "Properties" includes
the Additional Properties.
1.5 Schedule 1-C attached hereto is hereby added to the Credit
Agreement as Schedule 1-C thereto.
BOS-BUS:56996.1 <PAGE>
2. FAC Consent. FAC hereby consents to the amendments to the
Credit Agreement set forth in this Amendment and confirms its
obligations to the Agent and the Lenders under the FAC Guaranty and the
FAC Guaranty shall extend to and include the obligations of the
Borrowers under the Credit Agreement as amended by this Amendment. FAC
agrees that all of its obligations to the Agent and the Lenders
evidenced by or otherwise arising under the FAC Guaranty are in full
force and effect and are hereby ratified and confirmed in all respects.
3. Conditions to Effectiveness. The amendments to the Credit
Agreement set forth in 1 of this Amendment shall not become effective
with respect to an Additional Property until such time as all of the
following conditions shall have been satisfied with respect to such
Additional Property. Without limiting the generality of the foregoing,
it is expressly understood and agreed that 50% of the purchase price of
an Additional Property shall not be eligible for inclusion in the
Borrowing Base pursuant to subclause (iv) of the amended definition of
Borrowing Base set forth in 1.1 of this Amendment until such time as
all of the following conditions have been satisfied with respect to such
Additional Property:
(a) Mortgage. A mortgage or deed of trust on such
Additional Property ("Mortgage") shall have been duly
executed and delivered by the Company to the Agent,
and such Mortgage shall be in form and substance
satisfactory to the Agent, and shall create in favor
of the Agent for the ratable benefit of the Lenders, a
legal, valid and enforceable first priority lien and
security interest in and to such Additional Property.
(b) Title Insurance. The Agent shall have received from
the Company a lender's policy of title insurance
issued by a title insurance company acceptable to the
Agent covering such Additional Property, together
with proof of payment of all fees and premiums for
such policy, in an amount satisfactory to the Agent,
insuring the first priority interest of the Agent as
mortgagee under the Mortgage for such Additional
Property and otherwise subject only to Permitted
Liens.
(c) Survey; Surveyor's Certificate. The Agent shall have
received from the Company an instrument survey of such
Additional Property dated as of a recent date which
shall (a) show the location of all buildings,
structures, easements, and utility lines on such
Additional Property, (b) be sufficient to remove the
survey exception from the title insurance policy for
such Additional Property, and (c) be otherwise
satisfactory to the Agent in form and substance. The
Agent shall have received a certificate executed by
the surveyor who prepared the survey containing such
BOS-BUS:56996.1 <PAGE>
information relating to such Additional Property as
the Agent or the title insurance companies may
require.
(d) Certificates of Insurance. The Agent shall have
received from the Company (i) current certificates as
to the insurance maintained by the Company on such
Additional Property from the insurer identifying
insurers, types of insurance, insurance limits and
policy terms; (ii) certified copies of all policies
evidencing such insurance (or certificates therefore
signed by the insurer or an agent authorized to bind
the insurer); and (iii) such further information and
certificates from the Company, its insurer and
insurance brokers as the Agent may request.
(e) Hazardous Substance Assessment Report. The Agent
shall have received from the Company a hazardous waste
site assessment report concerning the absence of
Hazardous Substances and asbestos on such Additional
Property, dated as of a recent date and prepared by
environmental engineers accept able to the Agent, such
report to be in form and substance satisfactory to the Agent.
(f) Appraisal. The Agent shall have received an appraisal
of such Additional Property in form and substance
satisfactory to the Agent.
(g) Opinions of Counsel. The Agent shall have received
favorable legal opinions addressed to the Agent, in
form and substance satisfactory to the Agent, from
legal counsel to the Borrowers and FAC as to the
enforceability of this Amendment, and from legal
counsel to the Company in the state in which such
Additional Property is located, as to the
enforceability of the Mortgage of such Additional
Property.
(h) Taxes. The Agent shall have received from the Company
evidence of payment of real estate taxes and municipal
charges on such Additional Property which are due and
payable.
(i) Approvals. The Agent shall have received evidence
satisfactory to the Agent that the Company has
obtained all licenses, permits, consents and approvals
required from any officer, agency or instrumentality
of any government for the development of such
Additional Property as a recreational and resort time-
share community containing the number of units
specified for such Additional Property on Schedule 1-C
attached hereto.
BOS-BUS:56996.1 <PAGE>
4. Representations and Warranties. Each of the Borrowers and FAC
hereby represents and warrants to FNBB and the Agent as follows:
(a) Representations and Warranties in Credit
Agreement. The representations and warranties of the
Borrowers and FAC contained in the Loan Documents were
true and correct in all material respects when made
and, except as disclosed to the Agent in writing,
continue to be true and correct in all material
respects on the date hereof.
(b) Authority, No Conflicts, Etc. The execution, delivery
and performance by each of the Borrowers and FAC of
this Amendment, the Loan Documents and the Mortgages
to which such entity is a party and the consummation
of the transactions contemplated hereby, (i) are
within the corporate power of each of such parties and
have been duly authorized by all necessary corporate
action on the part of each of such parties, (ii) do
not require any approval or consent of, or filing
with, any governmental authority or other third party
and (iii) do not conflict with, constitute a breach or
default under or result in the imposition of any lien
or encumbrance pursuant to any agreement, instrument
or other document to which any of such entity is a
party or by which any of them or any of their
properties are bound or affected.
(c) Enforceability of Obligations. This Amendment and the
Credit Agreement as amended hereby constitute, and the
Mortgages when executed and delivered by the Company
will constitute, the legal, valid and binding
obligations of each of the Borrowers and FAC who is a
party thereto, enforceable against such party in
accordance with their respective terms, provided that
(i) enforcement may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or
similar laws of general application affecting the
rights and remedies of creditors, and (ii) enforcement
may be subject to general principles of equity, and
the availability of the remedies of specific
performance and injunctive relief may be subject to
the discretion of the court before which any
proceedings for such remedies may be brought.
5. Other Amendments. Except as expressly provided in this
Amendment, all of the terms and conditions of the Credit Agreement and
the other Loan Documents remain in full force and effect. Each of the
Borrowers and FAC confirm and agree that the Obligations of the
Borrowers to the Lenders and the Agent under the Credit Agreement, as
amended hereby, and all of the other obligations of any of such parties
under the other Loan Documents, are secured by and entitled to the
BOS-BUS:56996.1 <PAGE>
benefits of the Security Documents.
6. Execution in Counterparts. This Amendment may be executed in
any number of counterparts and by each party on a separate counterpart,
each of which when so executed and delivered shall be an original, but
all of which together shall constitute one instrument. In proving this
Amendment, it shall not be necessary to produce or account for more than
one such counterpart signed by the party against whom enforcement is
sought.
7. Headings. The captions in this Amendment are for convenience
of reference only and shall not define or limit the provisions hereof.
IN WITNESS WHEREOF, the parties have executed this Amendment as an
instrument under seal to be governed by the laws of the Commonwealth of
Massachusetts, as of the date first above written.
FAIRFIELD COMMUNITIES, INC.
By: ______________________________
Name:____________________________
Title:_____________________________
FAIRFIELD MYRTLE BEACH, INC.
By:______________________________
Name:____________________________
Title: ____________________________
SUNTREE DEVELOPMENT COMPANY
By:______________________________
Name:____________________________
Title:_____________________________
BOS-BUS:56996.1 <PAGE>
FAIRFIELD ACCEPTANCE
CORPORATION
By:______________________________
Name:___________________________
Title:____________________________
THE FIRST NATIONAL BANK
OF BOSTON, Individually and as Agent
By:______________________________
Name:___________________________
Title:____________________________
Schedule 1-C
Branson II; Branson, Missouri
-----------------------------
Certain undeveloped land (approximately 10.83 acres) located in Taney
County, Missouri, and shown on a survey, dated April 12, 1994, prepared
by Rozell Survey Co. (W.O. #10781), to be developed by Fairfield into
240 VOI units.
Orlando II; Orlando, Florida
- ----------------------------
Certain undeveloped land (up to approximately 15 acres) comprising part
of the Kings Heath V Subdivision in Osceola County, Florida, proposed to
be purchased and developed by Fairfield into 244 VOI units.
BOS-BUS:57328.1<PAGE>
EXHIBIT 11
FAIRFIELD COMMUNITIES, INC. AND SUBSIDIARIES
Computation of Earnings Per Share
<TABLE>
Primary
----------------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average shares:
Shares outstanding 12,359,037 11,861,559 12,233,974 11,861,559
Shares issued to wholly owned
subsidiaries (160,001) (2,395,295) (160,001) (2,395,295)
Treasury stock (2,235,294) - (2,235,294) -
Estimated increase in shares
outstanding due to allowed claims
exceeding $85 million (1) 710,662 1,667,853 860,492 1,667,853
Net effect of dilutive warrants
based on the treasury
stock method 424,941 - 381,696 -
Contingent issuance -
Holders of FCI Notes (2) - - - -
---------- ---------- ---------- ----------
Total weighted average shares
outstanding 11,099,345 11,134,117 11,080,867 11,134,117
========== ========== ========== ==========
Net earnings $7,719,000 $2,379,000 $11,471,000 $5,787,000
========== ========== =========== ==========
Earnings per share $0.70 $0.21 $1.04 $0.52
===== ===== ===== =====
Fully Diluted
----------------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1994 1993 1994 1993
---- ---- ---- ----
Weighted average shares:
Shares outstanding 12,359,037 11,861,559 12,233,974 11,861,559
Shares issued to wholly owned
subsidiaries (160,001) (2,395,295) (160,001) (2,395,295)
Treasury stock (2,235,294) - (2,235,294) -
Estimated increase in shares
outstanding due to allowed
claims exceeding $85
million (1) 710,662 1,667,853 860,492 1,667,853
Net effect of dilutive warrants
based on the treasury stock
method 424,941 - 416,000 -
Contingent issuance -
Holders of FCI Notes (2) 588,235 588,235 588,235 588,235
---------- ---------- ---------- ----------
Total weighted average shares
outstanding 11,687,580 11,722,352 11,703,406 11,722,352
========== ========== ========== ==========
Net earnings $7,719,000 $2,379,000 $11,471,000 $5,787,000
========== ========== =========== ==========
Earnings per share $0.66 $0.20 $0.98 $0.49
===== ===== ===== =====
</TABLE>
(1) In accordance with the terms of the Seventh Amended and Restated
Joint Plans of Reorganization (the "Plans"), the number of shares to
be issued to unsecured claim holders will increase if the amount of
the allowed unsecured claims exceeds $85 million. The number of
shares issued will be increased to a number equal to 10,000,000
multiplied by the quotient of the total amount of the allowed
unsecured claims divided by $85 million. For purposes of the
earnings per share computation, the estimated amount of allowed
claims, exclusive of the contingent issuance for the holders of the
FCI Notes, totaled $111.1 million as of September 30, 1994.
(2) In accordance with the terms of the Plans, Fairfield has reserved,
but not issued, 588,235 shares of Common Stock for the benefit of the
holders of the FCI Notes in the event the proceeds from the sale of
the collateral securing the FCI Notes, or the value of any such
collateral not sold, is not sufficient to repay the FCI Notes. <PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Registrant's September 30, 1994 10-Q and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> SEP-30-1994
<CASH> 2,192
<SECURITIES> 0
<RECEIVABLES> 157,473
<ALLOWANCES> 10,821
<INVENTORY> 34,850
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 238,903
<CURRENT-LIABILITIES> 0
<BONDS> 128,542
<COMMON> 120
0
0
<OTHER-SE> 61,087
<TOTAL-LIABILITY-AND-EQUITY> 238,903
<SALES> 51,588
<TOTAL-REVENUES> 83,925
<CGS> 17,215
<TOTAL-COSTS> 31,685
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 3,399
<INTEREST-EXPENSE> 8,193
<INCOME-PRETAX> 14,158
<INCOME-TAX> 2,687
<INCOME-CONTINUING> 11,471
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,471
<EPS-PRIMARY> 1.04
<EPS-DILUTED> 0.98
</TABLE>
Fairfield Communities, Inc.
10% Senior Subordinated Secured Notes
Ombudsman Report
For the Period Ending
September 30, 1994
Prepared by
Houlihan Lokey Howard & Zukin
-----------------------
Date Prepared:
October 31, 1994 <PAGE>
Introduction
In connection with Houlihan Lokey Howard & Zukin's role ("Houlihan Lokey")as the
official ombudsman ("Ombudsman") to the Fairfield Communities, Inc. ("Fairfield"
or the "Company") Senior Subordinated Secured Noteholders ("Noteholders"), the
following is the quarterly report regarding the Noteholders' collateral for the
quarter ending September 30, 1994.
The Noteholders' collateral (the "Collateral") consists of all of Fairfield's
interest in its (i) Fairfield Pointe Alexis development (excluding certain lots
pledged as Collateral to the First National Bank of Boston) located in Tarpon
Springs, Florida ("Pointe Alexis"); (ii) Harbour Ridge joint venture in Stuart,
Florida ("Harbour Ridge"); and (iii) Sugar Island joint venture in St. Croix,
U.S. Virgin Islands ("Sugar Island"). Noteholders previously had Collateral
interests in the Bald Mountain Golf Course at the Fairfield Mountain Development
("Bald Mountain Golf Course") until it was sold on February 9, 1993 and the
Harbour Golf Course at the Fairfield Harbour development in New Bern, North
Carolina ("Harbour Golf Course") until it was sold on October 8, 1993.
In addition,Fairfield has reserved, but not issued, 588,235 shares of its common
stock (approximately five percent of the outstanding Fairfield common stock on a
fully-diluted basis) on behalf of the Noteholders to be issued in the event that
the Collateral sale proceeds are insufficient to repay the Senior Subordinated
Secured Notes ("Notes"). As of October 27, 1994, the trading price of
Fairfield's common stock was 5 3/4.
Pursuant to Fairfield's plan of reorganization,efforts are underway to liquidate
all of the Fairfield controlled Collateral (Pointe Alexis) and to continue
receipt of cash flow distributions from Collateral consisting of Fairfield
general and limited partnership interests (Sugar Island and Harbour Ridge).
Fairfield also must maintain the Collateral it controls until the liquidation
process is complete.
Collateral proceeds during the quarter ended September 30, 1994 totaled
approximately $374,200 (excluding approximately $64,900 funded to the
Noteholders' Operating Account which is used to pay administrative expenses at
Pointe Alexis). The balances in the Noteholders' Interest Payment Account and
Development Account, were $554,533 and $332,879, respectively, as of September
30, 1994. The cash in the Noteholders' Development Account will be used to fund
remaining payments for land development at Pointe Alexis.
Since the effective date of Fairfield's Chapter 11 plan of reorganization,
Noteholders have received distributions totaling $11,274,360, of which
$3,265,082 was interest and $8,009,279 was principal. The remaining principal
balance outstanding as of September 30, 1994 was $14,805,665 which amount is
secured by all of the Collateral outlined in this report (including the cash
balances mentioned above).
This report will serve to more fully describe the Collateral as well as to
update the Noteholders with the respect to both the condition and expected
cash flow of all of the remaining Collateral.
Pointe Alexis
Fairfield Pointe Alexis is divided into two separate developments, Pointe Alexis
South and Pointe Alexis North (Harbour Watch), both located in Tarpon Springs,
Florida.
Pointe Alexis South is a Fairfield community master planned for 271 units. As of
September 30, 1994, 164 lots had been sold, 49 were vacant lots with roads and
improvements installed, and 57 were raw land with no improvements. The aggregate
release price (the amount which must be paid to Noteholders upon sale of each
unit) for all the remaining lots and developed units is $1,245,375 although some
of the interior lots may never yield any appreciable value. Originally developed
as a retirement community, Pointe Alexis has both single-and multi-family
product. As a result of Fairfield's Chapter 11 filing and limited sales at
Pointe Alexis, however, the Company limited construction activity to projects in
progress and began marketing tracts of land in bulk to other developers. This
strategy will continue going forward. Lot prices range from $12,000 to $20,000
but may be discounted if large tracts of land are sold in bulk.
The community surrounding the development consists mostly of lower income
housing and access from the Tampa airport is poor; however, some of the lots
(especially the waterfront lots) do have appeal. In addition, Pointe Alexis is
one of the few remaining sites in Florida where gulf-front properties can be
purchased at relatively inexpensive prices, and the Tarpon Springs area does
have a strong retirement community. A market does exist for Pointe Alexis lots,
albeit at significantly discounted prices from historical levels. At the
current sales and release prices, the remaining land inventory will likely
liquidate over approximately three years as undeveloped lots are sold in small
to medium sized tracts to developers.
As an alternative, the entire project could be sold in a single bulk sale,
although this would likely require an aggregate sales price well below the
aforementioned release price. Unfortunately, discussions regarding such a
transaction that were mentioned in earlier Ombudsman reports did not materialize
into a workable deal. Fairfield continues its efforts to locate investors
interested in the entire project.
During the quarter ended September 30, 1994, at Pointe Alexis South, Fairfield
recorded 1 lot sale and 4 lot closings compared to 0 lot sales and 1 lot closing
during the quarter ended September 30, 1993. Total revenues at Pointe Alexis
South during the second quarter ended September 30, 1994 totaled $108,750
compared to $20,000 during the second quarter ended September 30, 1993.
Harbour Watch shares the same location and access problems as Pointe Alexis
South, but has superior marketing characteristics and Collateral value.
Harbour Watch is a gated community with card-controlled access.
From inception, it has been operated as a lot sale development with
no home building operations conducted by Fairfield (in contrast to Pointe Alexis
South). Lot prices generally range from $50,000 for interior lots to $170,000 or
more for waterfront lots with docks. The master plan calls for sales of 180
lots. As of September 30, 1994, 110 lots had been sold and 70 were developed
with roads and available for sale. Of the 70 remaining lots, the First National
Bank of Boston has a first lien on 14 lots. The aggregate release price on the
lots pledged as Collateral to the Noteholders is $2,354,300. <PAGE>
During the quarter ended September 30, 1994, at Harbour Watch Fairfield recorded
0 lot sales and 1 lot closing, compared to 0 lot sales and 1 lot closing during
the quarter ended September 30, 1993. Total revenues at Harbour Watch during the
quarter ended September 30, 1994 were $160,000 compared to $136,000 revenue
during the quarter ended September 30, 1993.
Many of the homes which have been built are quite large and expensive,
particularly some of the waterfront homes. There is an ongoing sales effort in
place with a sales trailer at the entrance to the community. During the quarter
ending September 30, 1994, construction of several new homes continued,
maintaining the community's positive ambiance of ongoing activity. The recent
development completed on additional water-front lots should help increase sales
over the next several months. The time estimate to sell the remaining land
inventory is approximately 2.0 to 3.0 years.
Pointe Alexis South and Harbour Watch collectively had monthly cash operating
expenses of approximately $119,245.86 during the quarter ended September 30,
1994, which, together with closing costs and commissions, may be funded out of
excess sale proceeds (the sale price that is in excess of the release price).
As the Ombudsman, Houlihan Lokey will continue to monitor the spread between the
sales prices and release prices and its relationship with operating expenses and
closing costs. At its discretion, Houlihan Lokey can instruct Fairfield to
increase (up to the levels in the March 31, 1989 Indenture) or decrease release
prices as appropriate. Given the current sales activity, Houlihan Lokey does not
foresee changing prices in the immediate future. <PAGE>
Harbour Ridge
Harbour Ridge is a for-sale luxury recreational community located on a beautiful
stretch of land fronting on the St. Lucie River approximately one hour from the
West Palm Beach Airport in Stuart, Florida. The Collateral interest entitles
Noteholders to 35.5 percent of the net partnership cash flow. The community is a
high-end luxury community with a strong seasonal element, as opposed to year-
round residence,with prices ranging from approximately $175,000 to approximately
$1 million. Primary emphasis is on a golf and clubhouse lifestyle, with a
secondary emphasis on boating. There are also boat slips for sale ranging in
price from $15,000 to $40,000.
The managing general partner of Harbour Ridge is Harbour Ridge, Inc., the
principals of which have years of experience and success in the business which
are clearly expressed in the competent and professional look and feel of the
project. The homes are attractively designed and appear well built. The
clubhouse also is attractively designed and is surrounded by two golf courses,
one designed by Joe Lee and the other by Pete Dye.
During our recent trip to the Community we met with the managing general partner
and toured the undeveloped lot sites. The project is proceeding as planned and,
at current sales activity, could be concluded by mid-1996.
During the quarter ending September 30, 1994, 3 units were sold, leaving
approximately 32 more units to be sold. A total of 664 units have been sold
since the inception of the project.Although many of the choicest sites have been
previously sold, there remains an excellent cross section and mix of single-
family/multi-family, waterfront/non-waterfront properties with varying prices.
The Noteholders received a distribution of $176,450 from Harbor Ridge during the
quarter ending September 30, 1994. Current projections indicate that an
additional $1.5 to $2.0 million of cash flow should be generated for the
Noteholders. <PAGE>
Sugar Island
The Sugar Island Partnership (the "Partnership") was formed during 1984 to
purchase approximately 4,091 acres of land located on the island of St. Croix,
Territory of the Virgin Islands of the United States. The managing general
partner is Delray Land, Inc. ("Delray"). The Partnership paid $10 million for
the property. At the time of the purchase, the property was undeveloped except
for the 166-acre Fountain Valley Golf Course (renamed Carambola Golf Club)
designed by Robert Trent Jones. Fairfield's interest in the Partnership entitles
it to 30 percent of the total net cash flow distributed.
To date, the Partnership has sold 883 acres of the property in two separate
transactions. During 1986, the Partnership sold 855 acres of the inland property
to Danested Associates ("Danested") for an aggregate purchase price of $10.7
million. Danested has developed condominiums and vacant lots designated for
single-family homes on the property. Also during 1986, the Partnership sold 28.5
acres of waterfront land to the Davis Beach Company for approximately $2.5
million for use in the development of the 157-unit Carambola Beach Resort (not
included in the Collateral). Danested had entered into an option to purchase
approximately 1,069 additional acres of land for $12.0 million, but the option
expired unexercised on March 31, 1991. The land that was under option to
Danested is located in the central part of the island. It is mostly flat and
easily developed but for the most part has no direct ocean views. Danested also
had an option to purchase the Carambola Golf Club (the "Golf Club") for $7.5
million which expired unexercised on March 31, 1993.
The remaining parcel of 2,139 acres is arguably some of the most beautiful land
on St. Croix. The terrain is mountainous and covered with dense foliage. Most
of the property has ocean views. The coastal portions are set in a series of
coves ideal for development but currently there are no significant natural
beaches and very limited road access. Development of the property will be
difficult and expensive, limiting the number of potential buyers. The
Partnership has indicated that it is considering selling small sections of land
or even individual lots, if possible. The cost of holding the property is
relatively low. The Partnership leases the land to local farmers which results
in a 95 percent property tax exemption.
The Carambola Beach Resort (the "Resort") is a five-star development and was
completely rebuilt following hurricane Hugo in 1990. As a result of decreasing
tourism and occupancy rates, however, the senior Resort lenders decided to
foreclose on the hotel property and shut down hotel operations during June 1991.
The Resort remained closed until an investment group, operating through a
Radisson Hotel International franchise agreement, purchased the property on June
8, 1993. The resort is now entering its second peak tourist season and has
improved its occupancy rate from approximately 40% to approximately 55%.
Although the buyer of the Resort has indicated that it has no interest in
purchasing the Golf Club at this time,increased play since the Resort opened has
increased cash flow at the Golf Club to approximately $200,000 on an annualized
basis, some of which may be used to make a distribution to the Sugar Island
partners. According to Delray, the Golf Club will likely reinvest excess cash
for near term in new golf carts and course maintenance and therefore no
distributions are expected during 1994. During April, 1994, the Golf Club hosted
the Virgin Islands L.P.G.A. <PAGE>
Classic which was telecast on the Prime Sports Network. The tournament was well
attended and helped publicize St. Croix tourism nationally. A severe drought has
plagued St. Croix over the past six months and the golf course has deteriorated
as a result. Many of the water hazards are dry (the water having been used to
irrigate the greens) and the fairways are dry with many areas totally burned-out
Fortunately, the soil in St. Croix is very rich and the golf course should
replenish itself quickly when the drought breaks.
From a Collateral value perspective, Sugar Island should generate cash flow for
the Noteholders, although the magnitude and the time frame over which the cash
flow will be realized are difficult to determine. The Golf Club could be sold
(or leased on a long-term basis) within the next one or two years, but the
undeveloped land acreage could take several years to sell. <PAGE>
Bald Mountain Golf Course
The Bald Mountain Golf Course is one of two golf course located at the Fairfield
Mountains development in Rutherford County, North Carolina. The 18-hole, par 72,
6,689 yard Bald Mountain Golf Course was designed by William B.Lewis and sits on
approximately 115 acres,with Bermuda grass tees and fairways, bent grass greens,
28 sand traps and 10 water hazards. The Bald Mountain Golf Course is located
behind a gated entrance and attracts almost exclusively Fairfield residents and
timeshare owners.
On February 9, 1993, Fairfield completed the sale of the Bald Mountain Golf
Course to the Fairfield Mountains Development Property Owners Association (the
"Mountain POA") for net cash proceeds of $1,787,519.74.
In addition to the sale proceeds, the Mountains POA withdrew various claims
alleging its rights to golf course ownership. <PAGE>
Harbour Golf Course
The Harbour Golf Course is one of two golf courses located at the Fairfield
Harbour development in New Bern, North Carolina. The 18-hole, par 72, 6,600-yard
Harbour Golf Course was designed by Dominic Palumbo and is located on
approximately 188 acres with narrow sloping fairways, a site-wide canal system,
77 sand traps and 3 lakes. The course does not allow access to the general
public .
On October 8, 1993, Fairfield completed the sale of the Harbour Golf Course to
the Fairfield Harbour Property Owners' Association for net cash proceeds of
$1,947,948.26. Subsequently, an additional $22,800 was received in connection
with the release of certain contingent closing costs. <PAGE>
