SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
September 23, 1994
Date of Report (Date of earliest event reported)
Fairfield Communities, Inc.
(Exact name of Registrant as specified in its charter)
Delaware 1-8096 71-0390438
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification Number)
2800 Cantrell Road
Little Rock, Arkansas 72202
(501) 664-6000
(Address including zip code and telephone number including
area code of Registrant's principal executive offices)
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INFORMATION INCLUDED IN THE REPORT
Item 2 Acquisition or Disposition of Assets
On September 23, 1994, Fairfield Communities, Inc. (the "Company")
completed the sale of 100% of the capital stock (the "Sale") of First
Federal Savings and Loan Association of Charlotte ("First Federal") to
Security Bank and Trust Company ("Security"), a wholly-owned subsidiary of
Security Capital Bancorp ("SCBC"). SCBC and Security have no material
relationship to the Company or, to the best of the Company's knowledge, any
of the Company's affiliates, any director or officer of the Company or any
associate of any such director or officer of the Company. The Sale was
approved by the Company's stockholders at the Company's annual meeting of
stockholders held on September 20, 1994 (the "Stockholders' Meeting"). The
following discussion, insofar as it relates to matters contained in the
Stock Purchase Agreement, dated as of April 5, 1994, between the Company
and SCBC (the "Agreement") is a summary only, is necessarily selective and
therefore incomplete and is qualified in its entirety by reference to the
full text of the Agreement, which was included as Appendix I to the proxy
statement, dated August 4, 1994, for the Stockholders' Meeting (such full
text of the Agreement is hereby incorporated herein by reference). On
September 26, 1994, the Company issued a press release announcing the
closing of the Sale. A copy of the press release is attached hereto as
Exhibit 2.2 and is hereby incorporated herein by reference.
Summary of the Agreement
General Terms. Any words in this summary the initial letters of which
are capitalized and that are not defined herein shall have the meanings
given them in the Agreement.
The Agreement provides for the sale of all of the outstanding stock of
First Federal to SCBC (or a subsidiary of SCBC, which SCBC designated as
Security) for a purchase price of $40.35 million, increased (subject to the
limitation hereafter described) to reflect the consolidated pretax net
earnings (the "Pretax Earnings") of First Federal and its subsidiaries for
the period from October 1, 1993 through the closing of the Sale (the
"Purchase Price"). For purposes of determining the Purchase Price, the
Pretax Earnings of First Federal and its subsidiaries were capped at $1.825
million plus, in general, the pretax earnings or losses of First Federal
and its subsidiaries from August 1, 1994 through the closing, provided that
the foregoing amounts were reduced under certain circumstances for reserves
taken or losses (in excess of gains) on Excluded Assets (as defined below)
after September 30, 1993. The Purchase Price was estimated for purposes of
closing to be approximately $41 million, and is subject to post-closing
adjustment, based upon determination of actual Interim Period Earnings and
other amounts effecting the calculation of the Purchase Price.
Immediately prior to closing, the Company purchased for cash (a) at
book value, net of reserves, 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 and a weighted average yield, on
approximately $41.4 million ($39.8 million, net of certain reserves and
allowances) of interest earning Contracts Receivable, of 11.7%. The
Excluded Association Assets and the Contracts Receivable are collectively
referred to as the "Excluded Assets".
Approximately $1.39 million of the Purchase Price was retained by
Security to secure the Company's obligation to indemnify Security against
three existing lawsuits/claims which have been asserted against First
Federal (the "Litigation Indemnity"). In addition, approximately $2.95
million in net book value of the Excluded Association Assets were pledged
to Security to provide additional security with respect to both the
Litigation Indemnity and the general indemnities under the Agreement. The
Company has certain rights to substitute collateral in connection with such
pledge, including the right to substitute $0.60 to $0.70 of cash for every
$1.00 of net book value of Excluded Association Assets so pledged.
Reserves taken by the Company after the closing on Excluded Association
Assets securing the Litigation Indemnity may increase the total Excluded
Association Assets required as collateral.
After the setoff of the Purchase Price against the purchase price for
the Excluded Assets, and certain other adjustments, the Company paid
approximately $17.7 million, on a net basis, 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 the Company's primary lender. The Company
plans to dispose of certain of the Excluded Association Assets in one or
more transactions and otherwise to monetize the remaining Excluded
Association Assets. The Company is also considering an asset backed, fixed
rate, private placement debt offering to institutional investors,
securitized primarily by the Contracts Receivable, in order to reduce
floating rate bank debt and generate additional short term liquidity.
Indemnification. The Company and Security have agreed to indemnify
each other for a period of 913 days following the September 23, 1994
closing date for certain breaches of their respective representations,
warranties, covenants or undertakings provided for in the Agreement. In
addition, the Company has agreed to indemnify Security and First Federal
for the Litigation Indemnity, until such time as the three underlying
litigation matters are finally resolved, and has agreed to indemnify
Security and First Federal for excess severance benefit claims that may be
asserted by certain of First Federal's employees, in the event of
involuntary termination. The Company's indemnification obligation is
secured by the grant to Security of security interests in certain Excluded
Association Assets, as noted above.
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Item 7 Financial Statements and Exhibits
(b) Pro forma financial information
It is not practicable to provide the pro forma consolidated
financial information required by this Item relative to the
sale of First Federal by the Company due to the time
required to (i) establish the basis of certain assets
retained by the Company, (ii) quantify the Purchase Price,
which is subject to post-closing adjustments, including the
determination of actual Post Target Date Interim Period
Earnings, and (iii) compute the associated gain on the sale
of First Federal. The Company anticipates filing the
required pro forma consolidated financial information under
cover of Form 8-K/A by October 31, 1994.
(c) Exhibits
2.1 Stock Purchase Agreement dated as of April 5, 1994,
between Fairfield Communities, Inc. and Security
Capital Bancorp. (previously filed as Appendix I to
the Company's Proxy Statement on Schedule 14A, dated
August 4, 1994, for the Annual Stockholders' Meeting of
the Company held September 20, 1994, and incorporated
herein by reference)
2.2 Press Release issued September 26, 1994 (attached)
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FAIRFIELD COMMUNITIES, INC.
By: /s/Marcel J. Dumeny
Marcel J. Dumeny
Senior Vice President
Date: October 5, 1994
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FAIRFIELD COMMUNITIES, INC.
EXHIBIT INDEX
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Exhibit Number Description
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2.2 Press Release issued September 26, 1994
NEWS RELEASE
For: Fairfield Communities, Inc.
Approved By: Robert W. Howeth
Chief Financial Officer
FOR IMMEDIATE RELEASE (501) 660-7119
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Contact: Michele Katz/Jeff Majtyka
Press: Lisa Bradlow
Morgen-Walke Associates
(212) 850-5600
FAIRFIELD COMMUNITIES, INC. COMPLETES SALE OF
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF CHARLOTTE
LITTLE ROCK, ARKANSAS, September 26, 1994 -- Fairfield Communities, Inc.
(Nasdaq: FFCI) announced today that it has completed the sale of its First
Federal Savings and Loan Association of Charlotte subsidiary to Security
Capital Bancorp (Nasdaq: SCBC) for approximately $41 million.
The sale, a definitive agreement for which was executed in April 1994,
was approved by Fairfield shareholders at the company's annual meeting held
September 20, 1994, and is expected to result in a one-time gain of
approximately $5 million in the third quarter ending September 30, 1994.
The divestiture of First Federal represents one of the final steps in
Fairfield's efforts to focus its business on its core vacation ownership
operations.
John W. McConnell, Fairfield's President, commented, "The sale of First
Federal allows us to more effectively deploy our capital in our higher-return
vacation ownership business. Our efforts to concentrate on our core
operations have been very successful, as evidenced by the 71% increase in
vacation ownership revenues reported for the 1994 second quarter. Fairfield's
existing properties are performing very well, and we are excited about the
prospects of our second development in Branson, Missouri and our new project
in Orlando, Florida."
Pursuant to the terms of the definitive agreement, Fairfield has
repurchased from First Federal lot and timeshare contracts receivable and
related assets which First Federal previously acquired from Fairfield. At
August 31, 1994, the contracts receivable had a net book value of
approximately $39.8 million and a weighted average yield of 11.7%. Fairfield
has also purchased certain real estate, classified loans, joint venture
interests and other assets with a net book value at August 31, 1994, of
approximately $16 million. Fairfield intends to either dispose of, or
monetize, these assets. The company funded the purchase of selected assets
and contracts receivable in part from the sale proceeds and in part from
borrowings under a revolving credit agreement with The First National Bank
of Boston.
First Federal, with total assets of approximately $298.2 million as of
August 31, 1994, operates seven banking offices in Charlotte, North Carolina
and three offices in the communities of Biscoe, Rockingham and Troy.
Fairfield Communities, Inc., incorporated in 1969, is one of the nation's
largest vacation ownership companies. Fairfield and its subsidiaries operate
14 resort and home developments in ten states, providing a combination of
vacation products, recreational facilities, homesites, primary and secondary
residences to over 121,500 Fairfield property owners.
