SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1994
OR
[ ] 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
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
Common Stock, $.01 par value
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
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
APPLICABLE ONLY TO REGISTRANTS 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 outstanding as of January
31, 1995 totaled 10,674,404 and the aggregate market value of the registrant's
Common Stock held by non-affiliates totaled approximately $55 million at
January 31, 1995.
Documents Incorporated by Reference: Parts I, II and III of this Form 10-K
incorporate certain information by reference from the registrant's Annual Report
to Stockholders for the year ended December 31, 1994 and the 1994 Proxy
Statement issued in connection with its Annual Meeting of Stockholders to
be held May 11, 1995.
-1-
INDEX TO
ANNUAL REPORT ON FORM 10-K
Page
PART I
Items 1. and 2. Business and Properties.......................... 3
Item 3. Legal Proceedings...................................... 3
Item 4. Submission of Matters to a Vote of Security Holders ... 4
PART II
Item 5. Market for Registrant's Common Stock and
Related Stockholder Matters........................... 4
Item 6. Selected Financial Data................................ 4
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations................... 5
Item 8. Financial Statements and Supplementary Data............ 5
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure............... 5
PART III
Item 10. Directors and Executive Officers of the Registrant..... 5
Item 11. Executive Compensation................................. 5
Item 12. Security Ownership of Certain Beneficial
Owners and Management................................ 5
Item 13. Certain Relationships and Related Transactions......... 5
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K.................................. 6
-2-<PAGE>
PART I
------
Items 1. and 2. BUSINESS AND PROPERTIES
- -------------- -----------------------
General
-------
Fairfield Communities, Inc. was incorporated in Delaware in 1969,
and its principal executive offices are located at 2800 Cantrell Road,
Little Rock, Arkansas. Unless the context requires otherwise, the
"Company" as used herein, refers to Fairfield Communities, Inc.
("Fairfield") and its subsidiaries.
Fairfield and certain of its subsidiaries successfully
reorganized under Chapter 11 of the United States Bankruptcy Code
pursuant to plans of reorganization confirmed in August 1992. Since
July 1, 1992, the Company's financial statements have been prepared as
if it were a new reporting entity and a black line separates this
financial information from that of the Company prior to reorganization
since it has not been prepared on a comparable basis. The events that
led the Company to file for bankruptcy resulted from a combination of
real estate market conditions, lack of credit availability and a
business strategy under which the Company attempted to diversify its
business to include activities in the development and construction of
primary residences and retirement communities, and entered into joint
ventures unrelated to its core business.
On September 23, 1994, Fairfield completed the sale of 100% of
the capital stock of First Federal Savings and Loan Association of
Charlotte ("First Federal") to Security Capital Bancorp for $41
million. The Company recognized a net gain on the sale of $5.2
million, which is net of operating losses incurred by First Federal
during the period ended September 23, 1994. The gain from the sale of
First Federal was not subject to federal income tax due to a permanent
tax basis difference in First Federal's stock and underlying goodwill.
At December 31, 1994, the Company had approximately 1000 full-
time employees.
Additional information required by Items 1. and 2. is
incorporated herein by reference to Corporate Profile, Building for
----------------- ------------
the Future and A Focus on Service included in the Registrant's Annual
- --- ------ ------------------
Report to Stockholders for the year ended December 31, 1994.
Development/Regulation
----------------------
In certain of its developments, the Company engages in master
planning of land, home and commercial construction and management of
resort and conference facilities. Many state and local authorities
have imposed restrictions and additional regulations on developers of
vacation ownership intervals ("VOIs") and lots. Although these
restrictions have generally increased the cost of selling VOIs and
lots, the Company has not experienced material difficulties in
complying with such regulations or operating within such restrictions.
The Company provides certain purchasers with a "property report"
designed to comply with the disclosure requirements of federal and
state laws which contains, among other things, detailed information
about the particular community, the development and the purchaser's
rights and obligations as a VOI or lot owner.
Item 3. LEGAL PROCEEDINGS
- ------ -----------------
The information required by Item 3 is incorporated
herein by reference to Note 14 - Contingencies of "Notes to
-------- -------------
Consolidated Financial Statements" included in the
Registrant's Annual Report to Stockholders for the year
ended December 31, 1994.
-3-
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------ ---------------------------------------------------
No matters were submitted to a vote of stockholders
during the fourth quarter of 1994.
Executive Officers of the Registrant
- ------------------------------------
The following is a listing of the executive officers of the
Company, none of whom has a family relationship with directors or
other executive officers:
John W. McConnell, age 53, President and Chief
Executive Officer since 1991; President and Chief Operating
Officer from 1990 to 1991; Senior Vice-President and Chief
Financial Officer from 1986 to 1990.
Marcel J. Dumeny, age 44, Senior Vice President and
General Counsel since 1989; Senior Vice President/Law and
Development from 1987 to 1989.
Clay G. Gring, Sr., age 63, Senior Vice
President/Leisure Products Group since 1991. Self-employed
from 1984 to 1991 specializing in the development and
management of real estate properties, including resort
communities and hospitality related properties.
Robert W. Howeth, age 47, Senior Vice-President, Chief
Financial Officer and Treasurer since 1993; Senior Vice
President and Treasurer from 1992 to 1993; Senior Vice
President/Planning and Administration from 1990 to October
1992; Vice President and Treasurer from 1988 to 1990.
Joe T. Gunter, age 53, Senior Vice President since
1989; Senior Vice President and Special Counsel from 1984 to
1989.
Morris E. Meacham, age 56, Vice President of Special
Projects since January 1, 1994; Executive Vice President
from 1990 to 1994; Senior Vice President and Chief Operating
Officer of Leisure Products Group from 1986 to 1990.
William G. Sell, age 41, Vice President and Controller
(Chief Accounting Officer) since 1988.
PART II
-------
Item 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
- ------ ------------------------------------------------
STOCKHOLDER MATTERS
-------------------
Information required by Item 5 is incorporated herein
by reference to Common Stock Prices included in the
-------------------
Registrant's Annual Report to Stockholders for the year
ended December 31, 1994.
Item 6. SELECTED FINANCIAL DATA
- ------ -----------------------
Information required by Item 6 is incorporated herein
by reference to the table titled Selected Financial Data
-----------------------
included in the Registrant's Annual Report to Stockholders
for the year ended December 31, 1994.
-4-
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
- ------ -----------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------
Information required by Item 7 is incorporated herein
by reference to Management's Discussion and Analysis of
---------------------------------------
Financial Condition and Results of Operations included in
---------------------------------------------
the Registrant's Annual Report to Stockholders for the year
ended December 31, 1994.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ------ -------------------------------------------
Financial statements and supplementary data required by
Item 8 are set forth below in Item 14(a), Index to Financial
------------------
Statements.
----------
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
- ------ -----------------------------------------------------------
AND FINANCIAL DISCLOSURE
------------------------
None
PART III
--------
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- ------- --------------------------------------------------
(a) Identification of Directors
---------------------------
This item is incorporated herein by reference to
Registrant's Proxy Statement for its annual meeting of
stockholders to be held May 11, 1995.
(b) Identification of Executive Officers
------------------------------------
In accordance with Regulation S-K Item 401(b),
Instruction 3, the information required by Item 10(b)
concerning the Company's executive officers is furnished in
a separate item captioned Executive Officers of the
-------------------------
Registrant in Part I above.
----------
(c) Compliance with Section 16(a) of the Exchange Act
-------------------------------------------------
This item is incorporated by reference to Registrant's
Proxy Statement for its annual meeting of stockholders to be
held May 11, 1995.
Item 11. EXECUTIVE COMPENSATION
- ------- ----------------------
This item is incorporated by reference to Registrant's
Proxy Statement for its annual meeting of stockholders to be
held May 11, 1995.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
- ------- ---------------------------------------------------
MANAGEMENT
----------
This item is incorporated by reference to Registrant's
Proxy Statement for its annual meeting of stockholders to be
held May 11, 1995.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- ------- ----------------------------------------------
This item is incorporated by reference to Registrant's
Proxy Statement for its annual meeting of stockholders to be
held May 11, 1995.
-5-
PART IV
-------
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
- ------- ---------------------------------------------------------------
(a)(1) Index to Financial Statements:
-----------------------------
The following consolidated financial statements and Report
of Ernst & Young LLP, Independent Auditors, included in the
Registrant's Annual Report to Stockholders for the year ended
December 31, 1994 are incorporated herein by reference:
Consolidated Balance Sheets - December 31, 1994 and 1993
Consolidated Statements of Earnings - Years Ended December
31, 1994 and 1993, Six Months Ended December 31, 1992 and
the Six Months Ended June 30, 1992
Consolidated Statements of Stockholders' Equity (Deficit) -
Years Ended December 31, 1994 and 1993, Six Months Ended
December 31, 1992 and Six Months Ended June 30, 1992
Consolidated Statements of Cash Flows - Years Ended December
31, 1994 and 1993, Six Months Ended December 31, 1992 and
Six Months Ended June 30, 1992
Notes to Consolidated Financial Statements - December 31,
1994
(2) The following financial statement schedule should be
read in conjunction with the consolidated financial
statements included in the Registrant's Annual Report to
Stockholders for the year ended December 31, 1994:
Schedule II - Valuation and Qualifying Accounts
Financial statement schedules not included herein have been
omitted because they are not applicable or the required
information is shown in the consolidated financial statements or
notes thereto.
(3) Exhibits required by this item are listed on the
Exhibit Index attached to this report and hereby
incorporated by reference.
(b) Reports on Form 8-K Filed in the Fourth Quarter
-----------------------------------------------
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.
(c) Exhibits
--------
The Exhibit Index attached to this report is hereby
incorporated by reference.
(d) Financial Statements Schedules
------------------------------
Following is the schedule as referenced in the Index to
--------
Financial Statements included in Item 14(a) above.
--------------------
-6-
SCHEDULE II
Fairfield Communities, Inc. and Subsidiaries
Valuation and Qualifying Accounts
(In thousands)
<TABLE>
Additions
-----------------------
Balance at Charged Charged to
Beginning to Costs Other
Description of Period and Expenses Accounts
- ---------------------------- --------- ------------ --------
<S> <C> <C> <C>
Year Ended December 31, 1994
Deducted from asset accounts:
Allowance for loan losses $10,992 $4,430 $ -
======= ====== ========
Valuation allowance for
deferred tax assets $33,649 $ - $ -
======= ====== ========
Year Ended December 31, 1993
Deducted from asset accounts:
Allowance for loan losses $14,613 $3,586 $ -
======= ====== ========
Valuation allowance for
deferred tax assets $42,974 $ - $ -
======= ====== ========
Six Months Ended December 31, 1992
Deducted from asset accounts:
Allowance for loan losses $16,660 $1,631 $ -
======= ====== ========
Valuation allowance for
deferred tax assets $43,248 $ - $ -
======= ====== ========
- ----------------------------------------------------------------------
Six Months Ended June 30, 1992
Deducted from asset accounts:
Allowance for loan losses $20,323 $1,170 $ -
======= ====== ========
Valuation allowance for
deferred tax assets $ - $ - $43,248(e)
======= ====== =========
Balance at
end of
Description Deductions Period
- ---------------------------- --------- -------
<S> <C> <C>
Year Ended December 31, 1994
Deducted from asset accounts:
Allowance for loan losses $(4,100)(a) $11,322
======= =======
Valuation allowance for
deferred tax assets $(7,518)(b) $26,131
======= =======
Year Ended December 31, 1993
Deducted from asset accounts:
Allowance for loan losses $(7,207)(c) $10,992
======= =======
Valuation allowance for
deferred tax assets $(9,325)(d) $33,649
======= =======
Six Months Ended December 31, 1992
Deducted from asset accounts:
Allowance for loan losses $(3,678)(a) $14,613
======= =======
Valuation allowance for
deferred tax assets $ (274)(b) $42,974
======= =======
- ----------------------------------------------------------------------
Six Months Ended June 30, 1992
Deducted from asset accounts:
Allowance for loan losses $(4,833)(a) $16,660
======= =======
Valuation allowance for
deferred tax assets $ - $43,248
======= =======
</TABLE>
(a) Uncollectible loans receivable written-off, net of recoveries.
(b) Utilization of pre-confirmation income tax attributes credited as
direct additions to paid-in capital.
(c) Includes $2,248 transfer to net liabilities held for sale and $5,544
uncollectible loans receivable written-off, net of recoveries.
(d) Includes $3,016 utilization of pre-confirmation income tax attributes
credited as direct additions to paid-in capital. Other deductions
represent the refinement of prior year estimates of certain deferred
tax assets, including net operating loss carryforwards and tax credits
subject to the limitations of Internal Revenue Code Section 382.
(e) As of June 30, 1992, the Company adopted Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes", and
deferred tax assets and the related allowance were recorded as of that
date.
-7-
SIGNATURE PAGE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned duly authorized.
FAIRFIELD COMMUNITIES, INC.
Date: February 28, 1995 By /s/ J.W. McConnell
-----------------------------
J.W. McConnell, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant in the capacities on the dates indicated:
Date: February 28, 1995 By /s/ Russell A. Belinsky*
-----------------------------------
Russell A. Belinsky, Director
Date: February 28, 1995 By /s/ Ernest D. Bennett, III*
---------------------------------
Ernest D. Bennett, III, Director
Date: February 28, 1995 By /s/ Daryl J. Butcher*
-----------------------------------
Daryl J. Butcher, Director
Date: February 28, 1995 By /s/ Philip L. Herrington*
---------------------------------
Philip L. Herrington, Director
Date: February 28, 1995 By /s/ William C. Scott*
-----------------------------------
William C. Scott, Director
Date: February 28, 1995 By /s/ J. Steven Wilson*
-----------------------------------
J. Steven Wilson, Director
Date: February 28, 1995 By /s/ J. W. McConnell
-----------------------------------
J. W. McConnell, Director, President
and Chief Executive Officer
Date: February 28, 1995 By /s/ Robert W. Howeth
----------------------------------
Robert W. Howeth, Senior Vice President,
Chief Financial Officer and Treasurer
Date: February 28, 1995 By /s/ William G. Sell
------------------------------------
William G. Sell, Vice President/Controller
(Chief Accounting Officer)
Date: February 28, 1995 *By /s/ J. W. McConnell
-----------------------------------
J. W. McConnell, Attorney-in-Fact
-8-
FAIRFIELD COMMUNITIES, INC.
EXHIBIT INDEX
Exhibit
Number
- -------
3(a) Second Amended and Restated Certificate of Incorporation
of the Registrant, effective September 1, 1992
(previously filed with the Registrant's Current Report on
Form 8-K dated September 1, 1992 and incorporated herein
by reference)
3(b) Second Amended and Restated Bylaws of the Registrant,
dated November 18, 1994 (attached)
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,
dated September 1, 1992, related to the Senior
Subordinated Secured Notes (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, dated
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, dated 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 Amended and Restated Revolving Credit and Term Loan
Agreement, dated as of September 28, 1993, by and between
the Registrant, Fairfield Myrtle Beach, Inc., Suntree
Development Company, Fairfield Acceptance Corporation
("FAC") and The First National Bank of Boston ("FNBB")
(previously filed with the Registrant's Current Report on
Form 8-K dated October 1, 1993 and incorporated herein by
reference)
10.2 First Amendment to Amended and Restated Revolving Credit
Agreement, referenced in 10.1 above, dated as of May 13,
1994 (previously filed with the Registrant's Quarterly
Report on Form 10-Q for the quarter ended
September 30, 1994 and incorporated herein by
reference)
-9-
Exhibit
Number
- -------
10.3 Second Amendment to Amended and Restated Revolving Credit
Agreement, referenced in 10.1 above, dated as of December
9, 1994 (attached)
10.4 Third Amendment to Amended and Restated Revolving Credit
Agreement, referenced in 10.1 above, dated as of December
19, 1994 (attached)
10.5 Stock Purchase Agreement dated as of April 5, 1994,
between the Registrant and Security Capital Bancorp
(previously filed with the Registrant's Current Report on
Form 8-K dated April 14, 1994 and incorporated herein by
reference)
10.6 Limited Partnership Agreement, dated March 3, 1981,
between Harbour Ridge, Inc., Fairfield River Ridge, Inc.
and Harbour Ridge Investments, Inc. forming the limited
partnership of Harbour Ridge, Ltd. (previously filed with
the Registrant's Registration Statement on Form S-7 No.
2-75301 effective February 11, 1982 and incorporated
herein by reference)
10.7 Sugar Island Associates, Ltd. Amended Limited Partnership
Agreement, dated October 17, 1984 (previously filed with
the Registrant's current Report on Form 8-K dated October
25, 1984 and incorporated herein by reference)
10.8 Rights Agreement, dated as of September 1, 1992, between
Registrant and Society National Bank, as Rights Agent
(previously filed with the Registrant's Current Report on
Form 8-K dated September 1, 1992 and incorporated herein
by reference)
10.9 Amendment to Rights Agreement, referenced in 10.8 above,
dated September 20, 1994 (previously filed with the
Registrant's Form 8-A/A dated November 1, 1994 and
incorporated herein by reference)
10.10 Fourth Amended and Restated Title Clearing Agreement
(Lawyer's) between the Registrant, FAC, Lawyer's Title
Insurance Corporation, FNBB individually and in various
capacities as agent and trustee, First Bank National
Association, First Commercial Trust Company, N.A., First
American Trust Company, N.A. and First Federal, dated
September 1, 1992 (previously filed with the Registrant's
Annual Report on Form 10-K dated December 31, 1992 and
incorporated herein by reference)
10.11 Promissory Note and Security Agreement each dated June
30, 1994 between the Registrant and VM Investors
Partnership (previously filed with the Registrant's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1994 and incorporated herein by
reference)
10.12 Second Amended and Restated Title Clearing Agreement
(Colorado) between the Registrant, FAC, Colorado Land
Title Company, FNBB, First Bank National Association,
First Commercial Trust Company, N.A. and First Federal,
dated September 1, 1992 (previously filed with the
Registrant's Annual Report on Form 10-K dated December
31, 1992 and incorporated herein by reference)
-10-
Exhibit
Number
- -------
10.13 Westwinds Third Amended and Restated Title Clearing
Agreement (Lawyers) between the Registrant, FAC,
Fairfield Myrtle Beach, Inc., Lawyers Title Insurance
Corporation, FNBB, and Resort Funding, Inc. dated
November 15, 1992 (previously filed with the Registrant's
Annual Report on Form 10-K dated December 31, 1992 and
incorporated herein by reference)
10.14 Third Amended and Restated Revolving Credit Agreement
between FAC and FNBB, dated as of September 28, 1993
(previously filed with Registrant's Current Report on
Form 8-K dated October 1, 1993 and incorporated herein by
reference)
10.15 First Amendment to Third Amended and Restated Revolving
Credit Agreement, referenced in 10.14 above, dated as of
December 9, 1994 (attached)
10.16 Second Amendment to Third Amended and Restated Revolving
Credit Agreement, referenced in 10.14 above, dated as of
December 19, 1994 (attached)
10.17 Pledge and Servicing Agreement between Fairfield Funding
Corporation ("FFC"), FAC, First Commercial Trust Company,
N.A. and Texas Commerce Trust Company, N.A., dated
September 28, 1993 (previously filed with Registrant's
Current Report on Form 8-K filed October 1, 1993 and
incorporated herein by reference)
10.18 Receivable Purchase Agreement, dated as of September 28,
1993, between the Registrant, FAC, and FFC (previously
filed with the Registrant's Current Report on Form 8-K
filed October 1, 1993 and incorporated herein by
reference)
10.19 Third Amended and Restated Operating Agreement, dated as
of December 9, 1994, between the Registrant and FAC
(attached)
10.20 Appointment and Acceptance Agreement, dated as of March
3, 1994, between the Registrant and FNBB appointing FNBB
as successor Rights Agent (previously filed with the
Registrant's Annual Report on Form 10-K/A for
the year ended December 31, 1993 and
incorporated herein by reference)
COMPENSATORY PLANS OR ARRANGEMENTS
10.21 Form of Warrant Agreement between the Registrant and
directors of the Registrant (previously filed with the
Registrant's Quarterly Report on Form 10-Q dated
September 30, 1993 and incorporated herein by reference)
10.22 Registrant's Savings/Profit Sharing Plan, as amended,
effective January 1, 1995 (attached)
10.23 Employment Agreement, dated as of September 20, 1991, by
and between the Registrant and Mr. John W. McConnell
(previously filed with Registrant's Annual Report on Form
10-K for the year ended December 31, 1991 and
incorporated herein by reference)
-11-
Exhibit
Number
- -------
10.24 Employment Agreement, dated as of September 20, 1991, by
and between the Registrant and Mr. Morris E. Meacham
(previously filed with Registrant's Annual Report on Form
10-K for the year ended December 31, 1991 and
incorporated herein by reference)
10.25 Employment Contract, effective January 1, 1994, by and
between the Registrant and Mr. Morris E. Meacham
(previously filed with Registrant's Annual Report on Form
10-K/A for the year ended December 31, 1993 and
incorporated herein by reference)
10.26 Employment Agreement, dated as of September 20, 1991, by
and between the Registrant and Mr. Marcel J. Dumeny
(previously filed with Registrant's Annual Report on Form
10-K for the year ended December 31, 1991 and
incorporated herein by reference)
10.27 Form of Amendment No. One to Employment Agreements
between Registrant and certain officers (previously filed
with Registrant's Current Report on Form 8-K dated
September 1, 1992 and incorporated herein by reference)
10.28 Form of Warrant Agreement between Registrant and certain
officers and executives of the Registrant (previously
filed with Registrant's Quarterly Report on Form 10-Q
dated September 30, 1993 and incorporated herein by
reference)
10.29 Registrant's First Amended and Restated 1992 Warrant Plan
(previously filed with Registrant's Quarterly Report on
Form 10-Q dated September 30, 1993 and incorporated
herein by reference)
10.30 Form of Indemnification Agreement between the Registrant
and certain officers and directors of the Registrant
(previously filed with the Registrant's Current Report on
Form 8-K dated September 1, 1992 and incorporated herein
by reference)
10.31 Form of Severance Agreement between the Registrant and
certain officers of the Registrant (previously filed with
Registrant's Annual Report on Form 10-K/A for the year
ended December 31, 1993 and incorporated herein by
reference)
10.32 Registrant's Excess Benefit Plan, adopted February 1,
1994 (previously filed with the Registrants Annual Report
on Form 10-K/A for the year ended December 31, 1993 and
incorporated herein by reference)
10.33 Registrant's Key Employee Retirement Plan (previously
filed with Registrant's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1994 and incorporated herein
by reference)
11 Computation of earnings per share (attached)
-12-
Exhibit
Number
- -------
13 Portions of Registrant's Annual Report to Stockholders for
the year ended December 31, 1994 which are incorporated
herein by reference: Corporate Profile; Building for the
Future; A Focus on Service; Common Stock Prices; Selected
Financial Data; Management's Discussion and Analysis of
Financial Condition and Results of Operations; Report of
Ernst & Young LLP, Independent Auditors; Consolidated Balance
Sheets; Consolidated Statements of Earnings; Consolidated
Statements of Cash Flows and Notes to Consolidated Financial
Statements (attached)
21 Subsidiaries of the Registrant (attached)
23 Consent of Ernst & Young LLP, Independent Auditors (attached)
24 Powers of Attorney (attached)
27 Financial Data Schedule (attached)
99 Ombudsman Report for the period ending December 31, 1994
related to the Registrant's Senior Subordinated Secured
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"). 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 reorganization 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 99, a copy of the
Ombudsman's Report dated February 10, 1995, for the
period ending December 31, 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)
-13-
SECOND AMENDED AND RESTATED
BYLAWS
OF
FAIRFIELD COMMUNITIES, INC.
ARTICLE I
Offices
-------
The registered office of the Corporation in the State of Delaware is
located in the City of Wilmington, State of Delaware, and the name of the
registered agent of the Corporation at such office is Corporation Trust
Company. The Corporation may also have offices at such other places,
within or without the State of Delaware, as the Board of Directors (the
"Board") may from time to time determine.
ARTICLE II
Meetings of Stockholders
------------------------
Section 1. Annual Meeting. The Annual Meeting of the Stockholders
of the Corporation for the election of directors and for the transaction
of such other business as may properly come before the meeting shall be
held at such place within or without the State of Delaware as may be
specified in the notice of meeting or the waiver thereof, on such date as
shall be designated by appropriate action of the Board of Directors.
Section 2. Special Meetings. Special meetings of stockholders of
the Corporation may be called by (i) the Chief Executive Officer of the
Company (the "CEO") or the Chairman of the Board if different from the
CEO (the "Chairman") or (ii) the Secretary of the Company, and shall be
called by the CEO, the Chairman or the Secretary of the Company within 10
calendar days of receipt of the written request of the holders of record
of at least 10% of the Company's issued and outstanding capital stock
entitled to vote generally in an election of directors. Business
transacted at all special meetings shall be confined to the purposes
stated in the notice of the meeting.
Section 3. Notice of Meetings. Written notice of every meeting of
the stockholders shall be served by or under the direction of the
Secretary or an Assistant Secretary, either personally or by mail upon
each stockholder of record entitled to vote at such meeting, not less
than 10 nor more than 60 days before the meeting. In the event of the
death, absence, incapacity or refusal of the specified officer, notice of
a meeting may be given by a person designated by either the Secretary,
the person or persons requesting the meeting or the Board. If mailed,
the notice of a meeting shall be directed to a stockholder at his address
as it appears on the records of the Corporation. The notice of every
meeting of the stockholders shall state the place, date and hour of the
meeting, and the purpose or purposes for which the meeting is called.
Section 4. Quorum. At all meetings of stockholders, a majority of
the issued and outstanding stock entitled to vote present in person or by
proxy shall constitute a quorum. If such quorum is not present, the
stockholders present thereat may adjourn the meeting from time to time
without notice, other than the announcement at the meeting of the date,
time and place of the adjourned meeting, until a quorum is present, and
thereupon any business may be transacted at the adjourned meeting which
might have been transacted at the meeting as originally called. If the
adjournment is for more than 30 days, or if after the adjournment a new
record date is fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given to each stockholder of record entitled to vote at
the meeting.
Section 5. Voting. Except as may be otherwise provided in the
Certificate of Incorporation or by resolution adopted by the Board of
Directors pursuant to Section 151(g) of the Delaware General Corporation
Law, at every meeting of the stockholders of the Corporation each
stockholder of the Corporation entitled to vote thereat shall be entitled
to one vote for each share of stock entitled to vote standing in his name
on the books of the Corporation on the record date for the meeting as
determined in accordance with Delaware General Corporation Law.
Section 6. Presiding Officer and Secretary. At all meetings of the
stockholders, the Chairman, or if such office shall be vacant or such
officer absent, such person as shall be designated by the Board shall
preside. The Secretary of the Corporation, or in his absence, an
Assistant Secretary, or if none be present, the appointee of the
Presiding Officer of the meeting, shall act as secretary of the meeting.
Section 7. Proxies. Any stockholder entitled to vote at any
meeting of stockholders may vote either in person or by proxy, but no
proxy shall be voted after 3 years from its date, unless such proxy
provides for a longer period. Every proxy must be executed in writing by
the stockholder himself, or by his duly authorized attorney, and dated,
but need not be sealed, witnessed or acknowledged. Proxies shall be
delivered to the secretary of the meeting before the meeting begins or to
the Judges at the meeting.
A duly executed proxy shall be irrevocable if it states that it is
irrevocable and if, and only as long as, it is coupled with an interest
sufficient in law to support an irrevocable power. A proxy may be made
irrevocable regardless of whether the interest with which it is coupled
is an interest in the stock itself or an interest in the Corporation
generally.
Section 8. Judges. At each meeting of the stockholders at which
the vote for directors, or the vote upon any question before the meeting,
is taken by ballot, the polls shall be opened and closed by, and the
proxies and ballots shall be received and taken in charge by, and all
questions touching on the qualification of voters and the validity of
proxies and the acceptance and rejection of the same shall be decided by,
one Judge. Such Judge may be appointed by the Board before the meeting,
but if no such appointment shall have been made, he shall be appointed by
the Chairman of the Board or, if different, the Presiding Officer of the
meeting. If for any reason such Judge previously appointed shall fail to
attend or refuse or be unable to serve, a Judge in his place shall be
appointed by the Chairman of the Board or, if different, the Presiding
Officer of the meeting.
Section 9. List of Stockholders. At least 10 days prior to every
meeting of stockholders, a complete list of the stockholders entitled to
vote at such meeting, arranged in alphabetical order and showing the
address of each stockholder and the number of shares registered in the
name of each, shall be prepared by the Secretary or an Assistant
Secretary. Such list shall be open to examination at a place within the
city where the meeting is to be held, which place shall be specified in
the notice of meeting, or, if not so specified, at the place where the
meeting is held and shall be open, during normal business hours for a
period of 10 days prior to the meeting, to the examination of any
stockholder for any purpose germane to the meeting. The list shall also
be produced and kept at the time and place of the meeting during the
whole time thereof, and may be inspected by any stockholder who is
present.
Section 10. Action by Written Consent. Any action which is
required to be or may be taken at any annual or special meeting of
stockholders of the Corporation may be taken without a meeting, without
prior notice to stockholders and without a vote, if a consent or consents
in writing, setting forth the action so taken, shall have been signed by
the holders of outstanding stock having not less than the minimum number
of votes that would be necessary to authorize or to take such action at a
meeting at which all shares entitled to vote thereon were present and
voted.
ARTICLE III
Board of Directors
------------------
Section 1. Number, Election and Terms. The business and affairs of
the Corporation shall be managed by a Board of Directors consisting of
not more than 7 persons. The exact number of directors within the
maximum limitation specified in the preceding sentence shall be fixed
from time to time by the Board of Directors pursuant to a resolution
adopted by a majority of the entire Board of Directors or by a vote of
the holders of record of at least a majority of the issued and
outstanding shares of common stock of the Company entitled to vote
generally in an election of Directors. Except as otherwise provided in
Section 3 of this Article III, directors shall hold office until the next
annual election and until their respective successors shall be duly
elected and qualified. Directors need not be residents of Delaware or
stockholders of the Corporation.
Section 2. Newly Created Directorships and Vacancies. Subject to
the rights of the holders of any series of Preferred Stock then
outstanding, newly created directorships resulting from any increase in
the authorized number of directors or any vacancies in the Board of
Directors resulting from death, resignation, retirement,
disqualification, or other cause, other than vacancies resulting from
removal of a director with or without cause by a vote of the
stockholders, shall be filled by a majority vote of the directors then in
office, though less than a quorum, or by the stockholders, and directors
so chosen shall hold office until the next annual election and until
their successors shall be duly elected and qualified.
Section 3. Removal. Subject to the rights, if any, of the holders
of any series of Preferred Stock of the Corporation then outstanding, any
director, or the entire Board of Directors, may be removed from office
with or without cause by the holders of a majority of the voting power of
all of the shares of the Corporation entitled to vote for the election of
directors.
Section 4. Resignations. Any director may resign from his office
at any time by delivering his resignation in writing to the Corporation,
and the acceptance of such resignation, unless required by the terms
thereof, shall not be necessary to make such resignation effective.
Section 5. Meetings. The Board may hold its meetings in such place
or places within or without the State of Delaware as the Board from time
to time by resolution may determine or as shall be specified in the
respective notices or waivers of notice thereof, and the directors may
adopt such rules and regulations for the conduct of their meetings and
the management of the Corporation not inconsistent with these Bylaws as
they may deem proper. An annual meeting of the Board for the election of
officers shall be held within 3 days following the day on which the
Annual Meeting of the Stockholders for the election of directors shall
have been held. The Board from time to time by resolutions may fix a
time and place (or varying times and places) for the annual and other
regular meetings of the Board; provided that unless a time and place is
so fixed for any annual meeting of the Board, the same shall be held
immediately following the Annual Meeting of the Stockholders at the same
place at which such meeting shall have been held. No notice of the
annual or other regular meetings of the Board need be given. Other
meetings of the Board shall be held whenever called by the Chairman of
the Board or by the President or by one-third of the directors then in
office; and the Secretary or an Assistant Secretary shall give notice of
each such meeting to each director not later than the second day before
the meeting, personally or by mailing, telegraphing, cabling or
telephoning such notice to him at his address as it appears on the books
of the Corporation or by leaving such notice at his residence or usual
place of business. No notice of a meeting need be given if all the
directors are present in person. Any business may be transacted at any
meeting of the Board, whether or not specified in a notice of the
meeting.
Section 6. Meetings by Conference Telephone. Members of the Board,
or any committee designated by the Board, may participate in a meeting of
the Board or such committee by means of conference telephone or similar
communications equipment by which all persons participating in the
meeting can hear each other. Participation in a meeting pursuant to this
paragraph shall constitute presence in person at such meeting. The
Chairman or the Secretary of the meeting shall make sure that all persons
participating in the meeting (i) can hear each other and (ii) understand
that their participation will constitute a meeting of the Board or such
committee.
Section 7. Unanimous Consent of Directors in Lieu of Meeting. Any
action required or permitted to be taken at any meeting of the Board may
be taken without a meeting, if a written consent thereto is signed by all
members of the Board, and such written consent is filed with the minutes
of proceedings of the Board.
Section 8. Quorum. Unless otherwise specifically provided in the
Corporation's Certificate of Incorporation, a majority of the whole Board
shall constitute a quorum for the transaction of business. If there be
less than a quorum at any meeting of the Board, a majority of those
present (or if only one be present, then that one) may adjourn the
meeting from time to time, and no further notice thereof need be given
other than announcement at the meeting which shall be so adjourned of the
time, and the place to which the meeting is adjourned. The act of a
majority of the directors present at any meeting at which there is a
quorum shall be the act of the Board, except as may be otherwise
specifically provided by law or by the Certificate of Incorporation or by
these Bylaws.
Section 9. Compensation of Directors. The Board may establish such
compensation for directors as the Board may determine, whether payable in
cash or through the grant, award or issuance of stock options, stock
warrants or restricted or other stock or stock equivalent awards, or
otherwise, and may provide for reimbursement of expenses incurred in
attending meetings of the Board or committees thereof, or for
compensation or reimbursement of expenses in connection with other
services by directors to the Corporation.
Section 10. Committees. The Board may, by resolution passed by a
majority of the whole Board, from time to time designate one or more
committees, each committee to consist of one or more of the directors of
the Corporation. To the extent provided in any such resolution, any such
committee shall have and may exercise all the powers and authority of the
Board in the management of the business and affairs of the Corporation,
including the power to authorize the seal of the Corporation to be
affixed to all papers which may require it, and the power and authority
to declare dividends and to authorize the issuance of stock; provided,
however, that no such committee shall have any power or authority to
amend the Certificate of Incorporation, to adopt any agreement of merger
or consolidation, to recommend to the stockholders the sale, lease or
exchange of all or substantially all of the assets and properties of the
Corporation, to recommend to the stockholders a dissolution of the
Corporation or revocation of a dissolution or to amend these Bylaws. Any
action required or permitted to be taken at any meeting of a committee
may be taken without a meeting, if a written consent thereto is signed by
all members of such committee, and such written consent is filed with the
minutes of proceedings of the committee.
ARTICLE IV
Officers
--------
Section 1. Number and Term of Office. The officers of the
Corporation shall be a Chairman of the Board, one or more Vice-Chairmen
(if a Vice-Chairman shall be elected by the Board of Directors), and a
President, one or more Vice-Presidents with such designations, if any, as
may be determined by the Board of Directors, a Secretary and a Treasurer
and one or more Assistant Secretaries and Assistant Treasurers as may be
determined by the Board of Directors, and such other officers as may from
time to time be appointed by the Board of Directors. Any two or more
offices may be held by the same person. The officers shall be elected by
the Board of Directors.
The officers of the Corporation shall be elected or appointed
annually by the Board of Directors at the first meeting of the Board of
Directors held after each Annual Meeting of Stockholders. Vacancies or
new offices may be filled at any time. Each officer shall hold office
until his successor shall have been duly elected or appointed or until
his death or until he shall resign or shall have been removed by the
Board of Directors.
Section 2. Removal. Any officer may be removed by the Board of
Directors whenever in its judgment the best interest of the Corporation
would be served thereby.
Section 3. Chief Executive Officer. The Board of Directors shall
designate one of the officers as Chief Executive Officer. He shall have,
subject to the supervision and direction of the Board of Directors,
general supervision of the business, property, and affairs of the
Corporation and the powers vested in him by the Board of Directors, by
law or by these Bylaws or which usually attach or pertain to such office.
Section 4. Chairman of the Board. The Chairman of the Board shall
have the powers and duties vested in him by the Board of Directors, by
law or by these Bylaws and shall perform such duties as may be assigned
to him by the Chief Executive Officer. He shall preside at meetings of
the Board of Directors.
Section 5. Vice-Chairman. The Vice-Chairman shall have the powers
and duties vested in him by the Board of Directors, by law or by these
Bylaws and shall perform such duties as may be assigned to him by the
Chief Executive Officer.
Section 6. President. The President shall have such powers as are
vested in him by the Board of Directors, by law or by these Bylaws and
shall perform such duties as may be assigned to him by the Chief
Executive Officer.
Section 7. Vice-Presidents. The Vice-Presidents shall perform such
duties as may be assigned to them from time to time by the Chief
Executive Officer, or the Board of Directors, or these Bylaws.
Section 8. The Treasurer. If required by the Board of Directors,
the Treasurer shall give a bond for the faithful discharge of his duties
in such sum and with such sureties as the Board of Directors shall
determine. He shall: (a) have charge and custody of and be responsible
for all funds and securities of the Corporation; receive and give
receipts for moneys due and payable to the Corporation from any source
whatsoever, and deposit all such moneys in the name of the Corporation in
such banks, trust companies or other depositaries as shall be employed by
the Corporation; and (b) in general perform all the duties incident to
the office of Treasurer and such other duties as from time to time may be
assigned to him by the Chief Executive Officer, the Board of Directors,
or these Bylaws.
Section 9. The Secretary. The Secretary shall have the custody of
the Corporate seal and the Secretary or any Assistant Secretary shall
affix the same to all instruments or papers requiring the seal of the
Corporation. The Secretary, or in his absence, any Assistant Secretary,
shall see that proper notices are sent of the meetings of the
stockholders, the Board of Directors, and shall see that all proper
notices are given, as required by these Bylaws. The Secretary or any
Assistant Secretary shall keep the minutes of all meetings of
stockholders and directors and all committees which may request their
services.
Section 10. Assistant Treasurers and Assistant Secretaries. The
Assistant Treasurers shall respectively, if required by the Board of
Directors, give bonds for the faithful discharge of their duties in such
sums and with such sureties as the Board of Directors shall determine.
The Assistant Secretaries as thereunto authorized by the Board of
Directors may sign with the Chairman of the Board, the Vice-Chairman, the
President, or a Vice-President certificates for shares of the
Corporation, the issue of which shall have been authorized by a
resolution of the Board of Directors. The Assistant Treasurers and
Assistant Secretaries, in general, shall perform such duties as shall be
assigned to them by the Treasurer or the Secretary, respectively, or by
the Chief Executive Officer, the Board of Directors, or these Bylaws.
Section 11. Salaries. The compensation of the Chairman of the
Board shall be fixed from time to time by the Board of Directors on
recommendation of the Executive Compensation Committee. The compensation
of officers other than the Chief Executive Officer shall be fixed from
time to time by the Chief Executive Officer subject to the ratification
and approval of the Executive Compensation Committee of the Board of
Directors and no officer shall be prevented from receiving such salary by
reason of the fact that he is also a director of the Corporation.
Section 12. Proxies in Respect of Securities of Other Corporations.
Unless otherwise provided by resolution adopted by the Board, the Chief
Executive Officer may from time to time appoint an attorney or attorneys
or an agent or agents to exercise in the name and on behalf of the
Corporation the powers and rights which the Corporation may have as the
holder of stock or other securities in any other corporation to vote or
to consent in respect of such stock or other securities, and the Chief
Executive Officer, President or any Vice-President may instruct the
person or persons so appointed as to the manner of exercising such powers
and rights, and the Chief Executive Officer, President or any Vice-
President may execute or cause to be executed in the name and on behalf
of the Corporation and under its corporate seal, or otherwise, all such
written proxies, powers of attorney or other written instruments as he
may deem necessary in order that the Corporation may exercise such powers
and rights.
ARTICLE V
Capital Stock
-------------
Section 1. Certificate for Shares. Certificates for shares of
stock of the Corporation certifying the number and class of shares owned
shall be issued to each stockholder in such form, not inconsistent with
the Certificate of Incorporation and these Bylaws, as shall be approved
by the Board. The certificates for the shares of each class shall be
numbered and registered in the order in which they are issued and shall
be signed by the Chairman of the Board, the President or a Vice-President
and by the Secretary or an Assistant Secretary or the Treasurer or an
Assistant Treasurer. If a certificate is countersigned (1) by a transfer
agent other than the Corporation or its employee, or (2) by a registrar
other than the Corporation or its employee, the signatures of the
officers of the Corporation may be facsimiles. In case any officer,
transfer agent or registrar who has signed or whose facsimile signature
has been placed upon a certificate shall have ceased to be such officer,
transfer agent or registrar before such certificate is issued, it may be
issued by the Corporation with the same effect as if he were such
officer, transfer agent or registrar at the date of issue. All
certificates exchanged or returned to the Corporation shall be cancelled.
Section 2. Transfer of Shares of Stock. Transfers of shares shall
be made only upon the books of the Corporation by the holder, in person
or by his attorney lawfully constituted in writing, and on the surrender
of the certificate or certificates for such shares properly assigned.
The Board shall have the power to make all such rules and regulations,
not inconsistent with the Certificate of Incorporation and these Bylaws,
as it may deem expedient concerning the issue, transfer and registration
of certificates for shares of stock of the Corporation.
Section 3. Lost, Stolen or Destroyed Certificates. The Board, in
its discretion, may require the owner of any certificate of stock alleged
to have been lost, stolen or destroyed, or his legal representatives, to
give the Corporation a Bond in such sum as the Board may direct, to
indemnify the Corporation against any claim that may be made against it
on account of the alleged loss, theft or destruction of any certificate,
as a condition to the issuance of a new certificate of stock in the place
of any certificate theretofore issued alleged to have been lost, stolen
or destroyed. Proper and legal evidence of such loss, theft or
destruction shall be procured, if required, by the Board. The Board in
its discretion may refuse to issue such new certificate, save upon the
order of a court having jurisdiction in such matters.
ARTICLE VI
Interested Directors and Officers
---------------------------------
No contract or transaction between the Corporation and one or more
of its directors or officers, or between the Corporation and any other
corporation, partnership, association, or other organization in which one
or more of its directors or officers are directors or officers, or have a
financial interest, shall be void or voidable solely for this reason, or
solely because the director or officer is present at or participates in
the meeting of the Board or committee thereof which authorizes the
contract or transaction, or solely because his or their votes are counted
for such purpose, if
(a) The material facts as to his relationship or interest and
as to the contract or transaction are disclosed or are known to the
Board or the committee, and the Board or committee in good faith
authorizes the contract or transaction by the affirmative votes of a
majority of the disinterested directors, even though the
disinterested directors be less than a quorum; or
(b) The material facts as to his relationship or interest and
as to the contract or transaction are disclosed or are known to the
stockholders entitled to vote thereon, and the contract or
transaction is specifically approved in good faith by vote of the
stockholders; or
(c) The contract or transaction is fair as to the Corporation
as of the time it is authorized, approved or ratified by the Board,
a committee thereof or the stockholders.
Except where prohibited by the Certificate of Incorporation, common
or interested directors may be counted in determining the presence of a
quorum at a meeting of the Board or of a committee which authorizes the
contract or transaction.
ARTICLE VII
Indemnification
---------------
Every person who was or is a party or is threatened to be made a
party to or is involved in any action, suit, or proceeding, whether
civil, criminal, administrative, or investigative, by reason of the fact
that he or a person of whom he is the legal representative is or was a
director, officer or employee of the Corporation or is or was serving at
the request of the Corporation or for its benefit, as a director, officer
or employee of another corporation, or as its representative in a
partnership, joint venture, trust, or other enterprise, shall be
indemnified and held harmless to the fullest extent legally permissible
under and pursuant to any procedure specified in the General Corporation
Law of the State of Delaware, as amended from time to time, against all
expenses, liabilities, and losses (including attorneys' fees, judgments,
fines, and amounts paid or to be paid in settlement) reasonably incurred
or suffered by him in connection therewith. Such rights of
indemnification shall not be exclusive of any other right which such
directors, officers, employees or representatives may have or hereafter
acquire and, without limiting the generality of such statement, they
shall be entitled to their respective rights of indemnification under any
Bylaw, agreement, vote of stockholders, provision of law, or otherwise,
as well as their rights under this Article VII.
The foregoing provisions of this Article VII shall be deemed to
constitute a contract right between the corporation and each of the
persons entitled to indemnification under this Article VII, for as long
as such provisions remain in effect, and shall be enforceable in any
manner desired by such persons. Any amendment to the foregoing
provisions of this Article VII which limits or otherwise adversely
affects the scope of indemnification or rights of any such person
hereunder shall, as to such person, apply only to claims arising, or
causes of action based on actions or events occurring, after such
amendment and delivery of notice of such amendment to the persons so
affected. Until notice of such amendment is given to any person whose
rights hereunder are adversely affected, such amendment shall have no
effect on such rights of such person hereunder. Any person entitled to
indemnification under the foregoing provisions of this Article VII shall
as to any act or omission occurring prior to the date of receipt of such
notice, be entitled to indemnification to the same extent as had such
provisions continued as bylaws of the corporation without such amendment.
The Board of Directors may cause the Corporation to purchase and
maintain insurance on behalf of any person who is or was a director or
officer of the Corporation, or is or was serving at the request of the
Corporation as a director or officer of another corporation, or as its
representative in a partnership, joint venture, trust, or other
enterprise against any liability asserted against such person and
incurred in any such capacity or arising out of such status, whether or
not the Corporation would have the power to indemnify such person.
Expenses incurred by a director or officer of the Corporation in
defending a civil or criminal action, suit or proceeding by reason of the
fact that he is or was a director or officer of the Corporation (or was
serving at the Corporation's request as a director or officer of another
corporation, or as its representative in a partnership, joint venture,
trust or other enterprise) shall be paid by the Corporation in advance of
the final disposition of such action, suit or proceeding upon receipt of
an undertaking by or on behalf of such person to repay such amount if it
shall ultimately be determined that he is not entitled to be indemnified
by the Corporation as authorized by relevant sections of the General
Corporation Law of Delaware.
ARTICLE VIII
Seal
----
The seal of the Corporation shall be circular in form and shall
contain the name of the Corporation, the year of its incorporation and
the words "Corporate Seal" and "Delaware" inscribed thereon. The seal
may be affixed to any instrument by causing it, or a facsimile thereof,
to be impressed or otherwise reproduced thereon.
ARTICLE IX
Waiver
------
Whenever any notice whatever is required to be given by statute, or
under the provisions of the Certificate of Incorporation or these Bylaws,
a waiver thereof in writing, signed by the person or persons entitled to
said notice, whether before or after the time stated therein, shall be
deemed equivalent thereto.
ARTICLE X
Checks, Notes, Drafts, etc.
---------------------------
Checks, notes, drafts, acceptances, bills of exchange and other
orders or obligations for the payment of money shall be signed by such
officer or officers or person or persons as the Board shall from time to
time determine.
ARTICLE XI
Amendments
----------
The stockholders of the Corporation may exercise their power to
alter, amend, repeal or adopt Bylaws of the Corporation by the
affirmative vote of a majority of the outstanding shares of capital stock
of the Corporation entitled to vote for the election of directors;
provided that notice of such proposed alteration, amendment, repeal or
adoption is included in the notice of the meeting called for the taking
of such action. Subject to the laws of the State of Delaware, the
Certificate of Incorporation and these Bylaws, the Board of Directors may
by majority vote of those present at any meeting at which a quorum is
present amend these Bylaws, or enact such other Bylaws as in their
judgment may be advisable for the regulation of the conduct of the
affairs of the Corporation; provided that any Bylaw adopted by the Board
of Directors may be amended or repealed by the stockholders in the manner
set forth above.
Executed as of the 18th day of November, 1994.
/s/ Marcel J. Dumeny
Marcel J. Dumeny
Secretary
SECOND 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 December 9, 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, as amended by First Amendment dated as of May 13,
1994, and as further amended by Consent, Waiver and Agreement dated as
of September 23, 1994 (as so amended, 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 "Fairfield Guaranty"). All capitalized terms used herein
and not otherwise defined shall have the same respective meanings herein
as in the Credit Agreement.
WHEREAS, FNBB has agreed to establish a sublimit for borrowing against
the FAC Eligible Receivables in the amount of $10 million, to increase
the advance rate under the Borrowing Base for FAC Eligible Receivables,
and to decrease the interest rate under the Credit Agreement with
respect to Revolving Credit Loans equal to the FAC Borrowing Base during
the Override Period;
NOW, THEREFORE, in consideration of the premises, the Borrowers,
FAC, FNBB and the Agent hereby agree as follows:
1. AMENDMENTS TO CREDIT AGREEMENT. The Borrowers, FNBB and the
------------------------------
Agent hereby agree to amend the Credit Agreement as follows:
<PAGE>
1.1 The definitions of "Borrowing Base" and "Operating
Agreement" appearing in Section 1.1 of the Credit Agreement are hereby
amended by deleting said definitions in their entirety and substituting
therefor the following new definitions:
"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 (but excluding
Eligible Receivables that are included in the FAC Borrowing
Base under subclause (iii) below), plus (ii) 30% of
Completed Inventory (borrowing availability under this
subclause (ii) not to exceed the Maximum Inventory Amount),
plus (iii) during the Override Period, the FAC Borrowing
Base (borrowing availability under this subclause (iii) not
to exceed $10,000,000)."
"Operating Agreement. The Third Amended and Restated Operating
--------------------
Agreement dated as of December 9, 1994 between FAC and
Borrower."
1.2 The definition of "Borrowing Base Report" appearing in
Section 1.1 of the Credit Agreement is hereby amended by deleting the
definition in its entirety and substituting therefor the following new
definition:
"Borrowing Base Report. A Borrowing Base Report signed by
-----------------------
an Authorized Officer of the Company and in substantially
the form of Exhibit A hereto, provided, however, that during
--------- --------
the Override Period, the Borrowing Base Report will be
substantially in the form of Exhibit A-1 hereto."
-----------
1.3 Section 1.1 of the Credit Agreement is hereby further
amended by inserting the following definitions in alphabetical order
therein:
"FAC 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 75% of FAC Eligible Receivables, provided, however, that in no
--------
event shall such amount exceed $10,000,000."
<PAGE>
"FAC Eligible Receivables. Eligible Receivables other than:
------------------------
(a) Eligible Receivables as to which the obligor is, at the
relevant time of determination, sixty (60) or more days delinquent in
the payment of any installment or other periodic payment of principal,
interest or amounts due thereunder; and
(b) Eligible Receivables as to which the obligor has not paid at
least 15% of the total principal amount due thereunder (including in
such total any cash down payments and principal payments made on any
other Receivable which has been "traded in" in connection with the
origination of the subject Receivable)."
"Override Period. The period commencing on December 9, 1994 and
----------------
ending on the earlier of (i) April 3, 1995 or (ii) the Override
Termination Date (as defined in the FAC Credit Agreement)."
1.4 Section 2.5 of the Credit Agreement is hereby amended by
inserting the following language at the end of the first sentence
thereof:
"provided however that during the Override Period, the
--------
portion of the outstanding amount of the Revolving Credit
Loans equal to the FAC Borrowing Base in effect from time to
time during the Override Period, as determined by the Agent
by reference to the most recent Borrowing Base Report, shall
bear interest at the per annum rate of three quarters of one
percent (.75%) above the Base Rate."
1.5 The Credit Agreement is hereby amended by adding Exhibit A-1
-----------
attached hereto.
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 Fairfield Guaranty
and the Fairfield 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 Fairfield Guaranty
are in full force and effect and are hereby ratified and confirmed in
all respects.
3. CONDITIONS TO EFFECTIVENESS. The effectiveness of this
---------------------------
Amendment is subject to satisfaction of all of the following conditions:
(a) Opinion of Counsel. FNBB and the Agent shall have
-------------------
received a favorable legal opinion addressed to FNBB
and the Agent, in form and substance satisfactory to
FNBB and the Agent, from
<PAGE>
legal counsel to the Borrowers and FAC to the
enforceability of this Amendment.
(b) Corporate Action. All corporate action necessary for
----------------
the valid execution, delivery and performance by each
of the Borrowers and FAC of this Amendment shall have
been duly and effectively taken and otherwise be duly
authorized, and satisfactory evidence thereof shall
have been provided to the Agent and FNBB.
(c) Borrowing Base Report. The Agent shall have received
---------------------
a Borrowing Base Report dated as of a date within
three (3) Business Days prior to the date hereof.
(d) FAC Amendment. FNBB and the Agent shall have received
-------------
evidence satisfactory to it of the occurrence of all
conditions precedent to the effectiveness of that
certain First Amendment to Third Amended and Restated
Revolving Credit Agreement among FAC, FNBB and the
Agent dated of even date herewith.
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 continue to be true and correct in all material
respects on the date hereof, with the same effect as
if made at and as of the date hereof (except to the
extent of changes resulting from transactions
contemplated or permitted by the Credit Agreement and
the other Loan Documents and changes occurring in the
ordinary course of business that singly or in the
aggregate are not materially adverse, and to the
extent that such representations and warranties relate
expressly to an earlier date).
(b) Authority, No Conflicts, Etc. The execution,
-----------------------------------
delivery and performance by each of the Borrowers and
FAC of this Amendment 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
<PAGE>
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, the
-------------------------------
Credit Agreement as amended hereby, and the Fairfield
Guaranty constitute, the legal, valid and binding
obligations of each of the Borrowers and FAC,
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
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: /s/ Robert W. Howeth
-----------------------------
Name: Robert W. Howeth
---------------------------
Title: Sr. Vice President
----------------------------
<PAGE>
FAIRFIELD MYRTLE BEACH, INC.
By: /s/ Robert W. Howeth
-------------------------------
Name: Robert W. Howeth
-----------------------------
Title: Vice President
-----------------------------
SUNTREE DEVELOPMENT COMPANY
By: /s/ Robert W. Howeth
------------------------------
Name: Robert W. Howeth
-----------------------------
Title: President
-----------------------------
FAIRFIELD ACCEPTANCE
CORPORATION
By: /s/ Robert W. Howeth
-----------------------------
Name: Robert W. Howeth
-----------------------------
Title: President
-----------------------------
THE FIRST NATIONAL BANK
OF BOSTON, Individually and as Agent
By: /s/ Linda J. Carter
-----------------------------
Name: Linda J. Carter
----------------------------
Title: Vice President
----------------------------
(FCI)
THIRD AMENDMENT TO AMENDED AND
RESTATED REVOLVING CREDIT AGREEMENT
among
FAIRFIELD COMMUNITIES, INC.
FAIRFIELD MYRTLE BEACH, INC.
and
THE FIRST NATIONAL BANK OF BOSTON,
INDIVIDUALLY AND AS AGENT
THIS AMENDMENT (this "Amendment") dated as of December 19, 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"), 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, as amended by First
Amendment dated as of May 13, 1994, as further amended by Consent, Waiver and
Agreement dated as of September 23, 1994, and as further amended by Second
Amendment to Amended and Restated Revolving Credit Agreement dated as of
December 9, 1994 (as so amended, 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 "Fairfield Guaranty").
All capitalized terms used herein and not otherwise defined shall have the same
respective meanings herein as in the Credit Agreement.
WHEREAS, FNBB, the Borrower and the Agent have agreed to extend
the maturity date of the Revolving Credit Loans, to change the interest rate,
to amend certain financial covenants and to otherwise restructure the Credit
Agreement;
NOW, THEREFORE, in consideration of the premises, the Borrowers,
FAC, FNBB and the Agent hereby agree as follows:
1. AMENDMENTS TO CREDIT AGREEMENT. The Borrowers, FNBB and
------------------------------
the Agent hereby agree to amend the Credit Agreement as follows:
<PAGE>
1.1 The definitions of "Approved Projects", "Borrowers",
"Completed Inventory", "Maturity Date", "Maximum Inventory Amount," and "Price
List" appearing in Section 1.1 of the Credit Agreement are hereby amended by
deleting said definitions in their entirety and substituting therefor the
following new definitions:
"Approved Projects. (i) All portions of those Properties
-------------------
identified on Schedule 1-A hereto which are subject to a Lien in
------------
favor of FNBB as agent for the benefit of the Lenders, and (ii)
the VOIs relating to Timeshares Contracts participating in the
Fair Share Plus Program (provided that any VOIs participating in
the Fair Share Plus Program shall, for purposes of this
definition only, be deemed to be a separate Approved Project)."
"Borrowers. Fairfield Communities, Inc. and Fairfield Myrtle
---------
Beach, Inc."
"Completed Inventory. The projected sales price determined in
--------------------
accordance with the Price List of any unsold VOIs at any Approved
Project (a) as to which the underlying unit is complete and ready
for occupancy, (b) subject to a Lien in favor of the Agent, for
the ratable benefit of the Lenders, (c) which has not been
included as Completed Inventory for more than two (2) consecutive
years, and (d) as to which the land underlying such unit has been
appropriately registered for sale to the public by all necessary
actions on behalf of all relevant state or regulatory
authorities."
"Maturity Date. January 1, 1998, or if extended in accordance
-------------
with 3.4 hereof, such extended date."
"Maximum Inventory Amount. $6,000,000, provided that the Maximum
------------------------ -------------
Inventory Amount shall not, in any event, exceed the amounts shown
below from and after the respective dates shown opposite such
amounts:
Date Amount
---- ------
January 1, 1997 $3,000,000
January 1, 1998 $ 0."
"Price List. The schedule of sales prices for any VOIs which are
----------
Completed Inventory hereunder in the form attached hereto as
Schedule 1-C as certified by an appropriate officer of the Company
------------
as being true and accurate in all material respects and as having
been prepared in good faith based on the reasonable sales
projections of the Company and any subsequent certified
replacement price lists developed by the Company in the normal
course of business."
<PAGE>
1.2. The definitions of "Applicable Default Percentage" and
"Project Contract Default Rate" appearing in Section 1.1 of the
Credit Agreement are hereby amended by deleting said definitions in
their entirety.
1.3. The definition of "Eligible Receivables" appearing in
Section 1.1 of the Credit Agreement is hereby amended by deleting the
last paragraph thereof after subclause (i) in its entirety.
1.4. Section 2.2 of the Credit Agreement is hereby amended by
deleting the same in its entirety and substituting the following
therefor:
"The Borrowers hereby jointly and severally agree to pay to the
Agent for the benefit of the Lenders in accordance with their
Commitment Percentages, a facility fee at the rate per annum of
five-eighths of one percent (5/8%) of the Total Commitment (the
"Facility Fee"). The Borrowers shall pay the Facility Fee
annually in advance on January 2, 1995 and on each anniversary of
such date thereafter."
1.5. Section 2.5 of the Credit Agreement is hereby amended by deleting
the first sentence thereof in its entirety and substituting the following
therefor:
"Except as otherwise set forth in 5.5 hereof, each Revolving
Credit Loan shall bear interest for the period commencing with the
Drawdown Date thereof until repaid in full at the rate per annum
equal to the sum of the Base Rate plus seven-eighths of one
percent (7/8%), provided however that during the Override Period,
--------
the portion of the outstanding amount of the Revolving Credit
Loans equal to the FAC Borrowing Base in effect from time to time
during the Override Period, as determined by the Agent by
reference to the most recent Borrowing Base Report, shall bear
interest at the per annum rate equal to the sum of the Base Rate
plus one quarter of one percent (1/4%)."
1.6. Section 3.4 of the Credit Agreement is hereby amended by deleting
the same in its entirety and substituting the following therefor:
"3.4 Extension of Maturity Date. Provided that no Event of Default has
--------------------------
occurred and is continuing, the Borrowers may request an extension of
the Maturity Date for an additional year by delivering a notice (an
"Extension Request") to the Agent in accordance with the requirements
for notices specified in 20 hereof between December 1st and December
31st of any year during the term hereof (a "Request Date"), provided
--------
that the Borrowers may not request an extension of the Maturity Date if
the Request Date is less than two (2) years from the Maturity Date, as
the same may have been extended. The Agent may, in its
<PAGE>
sole and absolute discretion, either grant or deny such Extension Request.
In order to grant such Extension Request, the Agent must deliver written
notice of such approval (the "Approval Notice") to the Borrowers by
March 31st of the next succeeding year after the Request Date, such
Approval Notices to be delivered in accordance with the requirements for
notices specified in 20 hereof. In the event that the Agent does not
deliver the Approval Notice within such time period, the Extension
Request shall be deemed to have been denied."
1.7. Section 4.6 of the Credit Agreement is hereby amended by deleting
the first sentence thereof in its entirety and substituting the following
therefor:
"The Borrowers shall pay a fee (in each case, a "Letter of Credit Fee")
to the Agent in respect of each Letter of Credit equal to one percent
(1%) per annum of the Maximum Drawing Amount of such Letter of Credit,
payable annually in advance on the date of issuance of the applicable
Letter of Credit and on each anniversary thereof until such Letter of
Credit expires or is cancelled, plus the Agent's customary issuance fee,
----
payable in accordance with the Agent's customary practice."
1.8. Section 5.5 of the Credit Agreement is hereby amended by deleting
the first sentence thereof in its entirety and substituting therefor the
following sentence:
"During the continuance of a Default or an Event of Default, the
principal of the Loans, whether or not overdue, shall, until such
Default or Event of Default has been cured or remedied or such Default
or Event of Default has been waived by the Majority Lenders pursuant to
15.9 hereof, bear interest at a rate per annum equal to the sum of the
Base Rate plus four percent (4%) (the "Default Rate").
1.9. Section 6 of the Credit Agreement is hereby amended by deleting
the first sentence thereof in its entirety and substituting the following
therefor:
"The Obligations of the Borrowers to the Lenders hereunder and under the
other Loan Documents shall be secured by a blanket Lien on all
Receivables, Base Contracts, VOIs, any other purchase contracts,
installment notes, installment land purchase contracts, installment
timeshare or interval ownership purchase contracts, contracts for deeds,
mortgages, deeds of trust, deeds to secure debt, security agreements,
guaranties, mortgagee title insurance policies, mortgagee's endorsements
to property insurance policies, and all other instruments, documents,
agreements and contracts related to any of the foregoing, and all
modifications, amendments, extensions and renewals thereof, and all
personal property assets, furniture, fixtures, equipment, inventory, raw
materials, work in progress, books and records, and other interests,
relating to any of the Properties
<PAGE>
or the Base Contracts, whether now owned or hereafter acquired, pursuant
to the terms of the Security Agreement."
1.10. Section 8.4(d) of the Credit Agreement is hereby amended by
inserting the following parenthetical after the word "Documents" appearing
in the sixth line thereof:
"(including, without limitation, the covenants set forth in 9.2
hereof)".
1.11. Section 8.4(h) of the Credit Agreement is hereby deleted in its
entirety and the following is hereby substituted therefor:
"(h) not later than December 31 of each fiscal year of the Company, a
draft annual consolidated budget for the Company and its Subsidiaries as
well as draft annual budgets for each resort, prepared on a monthly
basis, for the next following fiscal year, and not later than February
15 of each fiscal year of the Company, a final annual consolidated
budget for the Company and its Subsidiaries as well as final annual
budgets for each resort, prepared on a monthly basis, for such fiscal
year;"
1.12. Section 8.4(k) of the Credit Agreement is hereby deleted in its
entirety and the following is hereby substituted therefor:
"(k) within three (3) Business Days after June 30th and December 31st of
each year, a report setting forth any Repurchased Collateral repurchased
or reacquired by any Borrower during the prior six (6) month period;
1.13. Section 8.21 of the Credit Agreement is hereby amended by
deleting the same in its entirety and substituting the following therefor:
"8.21. Repurchased Collateral. The Borrowers shall take all steps
-----------------------
necessary to grant a Lien to the Agent on all or any Repurchased
Collateral within ten (10) days after request therefor by the Agent
(which requests may be made by the Agent within thirty (30) days after
the receipt of bi-annual reports with respect to Repurchased Collateral
delivered to the Agent pursuant to 8.4(k) hereof) provided, however,
that the Borrowers shall immediately take all steps to grant a Lien to
the Agent on Repurchased Collateral once the principal components of
Repurchased Collateral on which the Agent does not have a Lien exceed
$500,000."
1.14. The Credit Agreement is hereby further amended by inserting the
following section after Section 8.21 thereof:
<PAGE>
"8.22. Audit of Borrowing Base Report. Each Borrower shall permit the
------------------------------
Lenders, through the Agent or any of the Lenders' other designated
representatives or agents, to conduct an audit of the Borrowing Base and
the components thereof, and to examine the calculations set forth in the
Borrowing Base Report, all at such reasonable times and intervals as the
Agent or any Lender may reasonably request, provided that the costs and
expenses incurred in connection with any such audits shall be borne by
the Borrowers only up to the first $5,000 of such costs and expenses
incurred in the aggregate on an annual basis."
1.15. Section 9.1(i) of the Credit Agreement is hereby deleted in its
entirety and the following is substituted therefor:
"(i) Indebtedness (exclusive of any Indebtedness permitted
pursuant to (k) below) incurred after December 31, 1994 in
connection with the acquisition of any real or tangible personal
property by any Borrower or its Subsidiary or the construction of
improvements on any real property owned by any Borrower or its
Subsidiary, provided that (A) such Indebtedness is non-recourse to
------------
such Borrower or Subsidiary and (B) such Indebtedness does not
exceed in the aggregate the lesser of (1) ten percent (10%) of
Consolidated Tangible Net Worth or (2) $7,500,000;"
1.16. Section 9.1(k) of the Credit Agreement is hereby deleted in its
entirety and the following is substituted therefor:
"(k) Indebtedness under Capitalized Leases in an amount not
to exceed $2,000,000;"
1.17. Section 9.2(x) of the Credit Agreement is hereby amended by
deleting the same in its entirety and substituting the following therefor:
"(x) security interests in or mortgages on real or personal
property to secure Indebtedness of the type and amount permitted
by 9.1(i), incurred in connection with the acquisition of real or
personal property or construction of improvements on real
property, which security interests or mortgages cover only such
real or personal property so acquired or to be improved, provided
that such real property does not constitute Collateral."
1.18. Section 9.3 of the Credit Agreement is hereby amended by
inserting the following clause after clause (f) thereof:
"(g) repurchase or repurchases by the Company of issued and
outstanding Stock, provided that (i) such repurchases do not
------------
exceed $1,000,000 in the aggregate, (ii) such repurchases occur
prior to December 31, 1995, and
<PAGE>
(iii) after giving effect to each such repurchase, no Default or
Event of Default would occur under any of 10.1 through 10.5 hereof."
1.19. Section 9.4 of the Credit Agreement is hereby amended by
deleting the second sentence thereof in its entirety and substituting the
following therefor:
"Without obtaining the prior written approval of the Majority
Lenders, the Borrowers will not make any Distributions, except
that any Subsidiary of any Borrower may make Distributions to such
Borrower without obtaining such approval."
1.20. Section 9.5(b) of the Credit Agreement is hereby amended by
deleting clauses (i), (ii) and (iii) thereof in their entirety and
substituting the following therefor:
"(i) The Borrowers may sell or substitute assets so long as (a)
such sales are for cash to unrelated third parties in an arms
length transaction, (b) such assets are not, and are not intended
to be, Collateral, and (c) the proceeds of each such sale are
applied in the manner set forth in 9.5(c) below."
"(ii) The Borrowers may sell or substitute Receivables and
beneficial interests in VOIs and lots underlying such Receivables
to FAC and FFC provided that (a) the terms of each such sale are
-------------
no less favorable than those contained in the Operating Agreement
and (b) the proceeds of each such sale are applied in the manner
set forth in 9.5(c) below."
(iii) The Borrowers or their Subsidiaries may sell Receivables
and beneficial interests in VOIs and lots underlying such
Receivables to unrelated third parties provided that (a) each such
-------------
sale is for cash, (b) the purchase price of the Receivables sold
shall not be less than 80% of the principal components of such
Receivables plus all accrued and unpaid interest on such
Receivables, and (c) the proceeds of each such sale are applied in
the manner set forth in 9.5(c) below."
1.21. Section 10.2 of the Credit Agreement is hereby deleted in its
entirety and the following is hereby substituted therefor:
"10.2. Consolidated Operating Cash Flow to Consolidated Total
---------------------------------------------------------
Interest Expense. The Borrowers will not permit as at the last
----------------
Business Day of any fiscal quarter, the ratio of Consolidated
Operating Cash Flow to Consolidated Total Interest Expense for the
period of four (4) consecutive fiscal quarters then ended to be
less than 2.0:1."
<PAGE>
1.22. Section 10.4 of the Credit Agreement is hereby deleted in its
entirety and the following is hereby substituted therefor:
"10.4. Liabilities to Consolidated Tangible Net Worth Ratio.
--------------------------------------------------------
The Borrowers will not permit the ratio of Consolidated Total
Liabilities to Consolidated Tangible Net Worth at any time to
exceed 3.0:1."
1.23. The Credit Agreement is hereby further amended by inserting the
following Section after Section 10.4:
"10.5. Consolidated Tangible Net Worth. The Borrowers will not permit
-------------------------------
Consolidated Tangible Net Worth to be less than the sum of $61,207,000
plus, on a cumulative basis, 50% of positive Consolidated Net Income for
----
each fiscal quarter beginning with the fiscal quarter ended December 31,
1994."
1.24. Schedule 1-A to the Credit Agreement is hereby amended by
deleting said schedule in its entirety and substituting therefor Schedule
--------
1-A attached hereto.
---
2. SCHEDULE 1-B. The Borrowers agree to deliver to the Agent and
------------
FNBB a revised Schedule 1-B to the Credit Agreement on or prior to February
------------
1, 1995. Upon approval of the proposed Schedule 1-B by FNBB and the Agent,
------------
which approval may be given in the sole discretion of the Agent and FNBB,
the parties hereto shall amend the Credit Agreement to substitute such
Schedule 1-B for Schedule 1-B currently attached to the Credit Agreement.
3. RELEASE OF SUNTREE. FNBB and the Agent hereby consent to the
------------------
removal of Suntree Development Company ("Suntree") as a "Borrower" under
the Credit Agreement, and hereby release Suntree from any and all
obligations under the Credit Agreement and any of the Loan Documents.
4. RELEASE OF COLLATERAL. Promptly following the execution of this
---------------------
Amendment, FNBB, the Agent and the Borrowers will amend the Security
Agreement to reflect the deletion of personal property assets from the
description of the collateral contained therein to the extent inconsistent
with the provisions of 6 of the Credit Agreement as amended hereby, and
shall, upon the written request of the Company, execute and deliver to the
Company such UCC-3 financing statements as may be necessary in order to
release such collateral from the Lien in favor of FNBB, as agent under the
Intercreditor Agreement. In addition, upon the request of the Company, the
Agent will execute and deliver to the Company such discharges or partial
releases of Mortgages as may be necessary in order to release any real
property which is not described on Schedule 1-B from the Lien created by
the Mortgages, provided that the Agent shall not be required to execute any
--------
such discharges or partial releases until such
<PAGE>
time as the Borrowers have delivered a proposed Schedule 1-B to the Agent,
and the Agent and FNBB have approved such Schedule 1-B.
------------
5. FAC CONSENT. FAC hereby consents to the amendments to the Credit
-----------
Agreement set forth in this Amendment and the release of Suntree and
confirms its obligations to the Agent and the Lenders under the Fairfield
Guaranty and the Fairfield 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 Fairfield Guaranty are
in full force and effect and are hereby ratified and confirmed in all
respects.
6. CONSENT TO STOCK DISTRIBUTION. Notwithstanding anything contained
-----------------------------
in the Credit Agreement to the contrary, FNBB and the Agent hereby consent
to the Company's acceptance of dividends or distributions from FAC and
Imperial Life Insurance Company consisting of Stock in the amounts of
117,647 shares and 42,354 shares, respectively, which Stock shall be held
by the Company as "treasury stock", provided that after giving effect to
--------
such acceptance, no Default or Event of Default would occur under the
Credit Agreement or under the FAC Loan Agreement.
7. ADDITIONAL APPROVED PROJECT. The Property located in Nashville,
---------------------------
Tennessee consisting of approximately 12.9 acres shall be deemed to be an
"Approved Project" upon satisfaction of each of the following conditions
with respect to such Property:
(a) Mortgage. A mortgage or deed of trust on such 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 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 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 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
Property dated as of a recent date which shall (a) show the
location of all buildings, structures, easements, and
utility lines on such Property, (b) be
<PAGE>
sufficient to remove the survey exception from the title
insurance policy for such 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 information relating
to such 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 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 Property, dated as of a recent date and
prepared by environmental engineers acceptable to the Agent,
such report to be in form and substance satisfactory to the
Agent.
(f) Appraisal. If required by the Financial Institutions Reform,
---------
Recovery and Enforcement Act of 1989 or other applicable law
or the regulations promulgated pursuant to any thereof, or
if required by Agent's internal underwriting guidelines,
the Agent shall have received an appraisal of such 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 Company in the state in which such Property is located,
as to the enforceability of the Mortgage of such Property.
(h) Taxes. The Agent shall have received from the Company
-----
evidence of payment of real estate taxes and municipal
charges on such 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, approvals and registrations
required from any officer,
<PAGE>
agency or instrumentality of any government for the development
of such Property as a recreational and resort time-share
community containing the number of units specified for such
Property on Schedule 1-B attached hereto.
------------
8. CONDITIONS TO EFFECTIVENESS. The effectiveness of this Amendment
---------------------------
is subject to satisfaction of all of the following conditions:
(a) Opinion of Counsel. FNBB and the Agent shall have
-------------------
received a favorable legal opinion addressed to FNBB and the
Agent, in form and substance satisfactory to FNBB and the
Agent, from legal counsel to the Borrowers and FAC as to the
enforceability of this Amendment.
(b) Corporate Action. All corporate action necessary for the
----------------
valid execution, delivery and performance by each of the
Borrowers and FAC of this Amendment shall have been duly and
effectively taken and otherwise be duly authorized, and
satisfactory evidence thereof shall have been provided to
the Agent and FNBB.
(c) Expenses. The Company shall have paid in full all of the
--------
expenses and costs incurred by the Agent and FNBB in
connection with the preparation and negotiation of this
Amendment, including, without limitation, legal expenses.
9. 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 continue to be true and
correct in all material respects on the date hereof, with
the same effect as if made at and as of that time (except to
the extent of changes resulting from transactions
contemplated or permitted by the Credit Agreement and the
other Loan Documents and changes occurring in the ordinary
course of business that singly or in the aggregate are not
materially adverse, and to the extent that such
representations and warranties relate expressly to an
earlier date).
(b) Authority, No Conflicts, Etc. The execution, delivery and
-----------------------------
performance by each of the Borrowers and FAC of this
Amendment and the consummation of the transactions
contemplated hereby, (i) are within the corporate power of
each of
<PAGE>
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, the Credit
-----------------------------
Agreement as amended hereby, and the Fairfield Guaranty
constitute, the legal, valid and binding obligations of each
of the Borrowers and FAC, 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.
10. 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 benefits of the Security Documents.
11. 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.
12. 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.
<PAGE>
FAIRFIELD COMMUNITIES, INC.
By: /s/ Robert W. Howeth
------------------------------
Name: Robert W. Howeth
------------------------------
Title: Senior Vice President
------------------------------
<PAGE>
FAIRFIELD MYRTLE BEACH, INC.
By: /s/ Robert W. Howeth
--------------------------------
Name: Robert W. Howeth
--------------------------------
Title: Vice President
--------------------------------
FAIRFIELD ACCEPTANCE
CORPORATION
By: /s/ Robert W. Howeth
------------------------------
Name: Robert W. Howeth
-----------------------------
Title: President
-----------------------------
THE FIRST NATIONAL BANK
OF BOSTON, Individually and as Agent
By: /s/ Linda J. Carter
-----------------------------
Name: Linda J. Carter
-----------------------------
Title: Vice President
---------------------------
FIRST AMENDMENT TO THIRD AMENDED AND
RESTATED REVOLVING CREDIT AGREEMENT
between
FAIRFIELD ACCEPTANCE CORPORATION
and
THE FIRST NATIONAL BANK OF BOSTON,
INDIVIDUALLY AND AS AGENT
THIS AMENDMENT (this "Amendment") dated as of December 9, 1994, is made
by and among FAIRFIELD ACCEPTANCE CORPORATION, a Delaware corporation (the
"Borrower" or "FAC"), 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"), parties to a certain Third Amended
and Restated Revolving Credit Agreement dated as of September 28, 1993, as
amended by Consent, Waiver and Agreement, dated as of September 23, 1994
(as so amended, the "Credit Agreement"). This Amendment is joined in by
Fairfield Communities, Inc., a Delaware corporation ("Fairfield"),
Fairfield Myrtle Beach, Inc. ("Myrtle") and Suntree Development Company
("Suntree") (Fairfield, Myrtle and Suntree are hereinafter collectively
referred to as the "Guarantors") by reason of the Unconditional Guaranty of
Payment and Performance, dated as of September 28, 1993, from the
Guarantors 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, FAC has proposed to enter into an insurance agreement with FNBB
and Capital Markets Assurance Corporation ("CapMAC") pursuant to which
CapMAC will issue a surety bond (the "CapMAC Bond") in favor of FNBB
guaranteeing the payment of certain Eligible Receivables;
WHEREAS, in consideration of the issuance of the CapMAC Bond, FNBB has
agreed to make certain accommodations to FAC during the Override Period;
NOW, THEREFORE, in consideration of the premises, FAC, FNBB, the
Guarantors and the Agent hereby agree as follows:
<PAGE>
1. AMENDMENTS TO CREDIT AGREEMENT. FAC, FNBB and the Agent hereby
------------------------------
agree to amend the Credit Agreement as follows:
1.1 The definitions of "Borrowing Base" and "Operating Agreement"
appearing in Section 1.1 of the Credit Agreement are hereby amended by
deleting said definitions in their entirety and substituting therefor the <PAGE>
following new definitions:
"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) 75% of Eligible
Receivables, plus (ii) 75% of the Purchase Money Mortgages;
----
provided, however, that during the Override Period, the Borrowing
-----------------
Base will be the CapMAC Borrowing Base."
"Operating Agreement. The Third Amended and Restated Operating
--------------------
Agreement dated as of December 9, 1994 between Borrower and
Fairfield."
1.2 The definition of "Borrowing Base Report" appearing in Section 1.1
of the Credit Agreement is hereby amended by deleting the definition in its
entirety and substituting therefor the following new definition:
"Borrowing Base Report. A Borrowing Base Report signed by an Authorized
---------------------
Officer of the Borrower and in substantially the form of Exhibit A
---------
hereto, provided, however, that during the Override Period, the
------------------
Borrowing Base Report will be substantially in the form of Exhibit A-1
-----------
hereto."
1.3 The definition of "Contract Settlement Date" appearing in Section
1.1 of the Credit Agreement is hereby amended by deleting said definition
in its entirety and substituting therefor the following:
"Contract Settlement Date. The 15th and the last day of each calendar
------------------------
month, provided, however, that during the Override Period the Contract
-------- -------
Settlement Date shall occur on the 20th day of the month, or if such 20th
day is not a Business Day, the next succeeding Business Day."
1.4 Section 1.1 of the Credit Agreement is hereby further amended by
inserting the following definitions in alphabetical order therein:
"CapMAC. Capital Markets Assurance Corporation, a New York stock
------
insurance company."
<PAGE>
"CapMAC Bond. Surety Bond No. SB 6755, dated December 9, 1994, issued
-----------
by CapMAC in favor of FNBB, and guaranteeing the payment of the CapMAC
Eligible Receivables."
"CapMAC 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 82% of CapMAC Eligible Receivables."
"CapMAC Eligible Receivables. Eligible Receivables which constitute
----------------------------
Pool Contracts."
"CapMAC Insurance Agreement. The Insurance Agreement, dated as of
---------------------------
December 9, 1994, among CapMAC, FNBB and the Borrower."
"Defaulted Contracts. Shall have the meaning set forth in the CapMAC
-------------------
Bond."
"Interest Rate Cap. Shall have the meaning set forth in the CapMAC
------------------
Insurance Agreement."
"LIBOR Business Day. Any day on which commercial banks are open for
-------------------
international business (including dealings in Dollar deposits) in the
London interbank market."
"LIBOR Rate. For any day, a fluctuating interest rate per annum equal
-----------
to the rate determined by the Agent at which Dollar deposits for 30-day
borrowings are offered based on information presented on Telerate Page
3750 as of 11:00 a.m. London time on such day (or, if such day is not a
LIBOR Business Day, on the next preceding LIBOR Business Day)."
"Override Period. The period commencing on December 9, 1994 and ending
---------------
on the Override Termination Date."
"Override Termination Date. The date upon which: (i) the CapMAC Bond
--------------------------
shall have been terminated and CapMAC shall have recovered all of the
payments, if any, which CapMAC has made under the CapMAC Bond, provided,
--------
however, that such date shall not be earlier than April 3, 1995 unless
-------
the CapMAC Bond shall have been terminated by reason of the closing of
the securitization of the CapMAC Eligible Receivables; or (ii) CapMAC
shall have failed to make a payment under the CapMAC Bond upon
presentation of a Notice for Payment (as defined in the CapMAC Bond) in
accordance with the term and provisions of the CapMAC Bond."
<PAGE>
"Pool Contracts. Shall have the meaning set forth in the CapMAC
---------------
Insurance Agreement."
1.5 Section 2.1 of the Credit Agreement is hereby amended by
inserting the following language at the end of the first sentence
thereof:
"; and further, provided, that during the Override Period
------- --------
(x) any portion of the Total Commitment which exceeds
$23,971,011 shall be suspended, (y) each of the Lenders
shall be relieved of all further obligations to make
Revolving Credit Loans to the Borrower, and (z) no amount of
the Revolving Credit Loans repaid may be reborrowed by the
Borrower."
1.6 Section 2.2 of the Credit Agreement is hereby amended by
inserting the following language after the first sentence thereof:
"; provided, however, that during the Override Period, the
-------- -------
Facility Fee shall be computed at the rate of one percent
(1%) per annum of $23,971,011."
1.7 Section 2.5 of the Credit Agreement is hereby amended by
inserting the following language at the end of the first sentence
thereof:
"; provided, however, that during the Override Period, the
-------- -------
outstanding principal amount of the Revolving Credit Loans
shall bear interest at a rate per annum equal to the LIBOR
Rate plus one quarter of one percent (.25%)."
1.8 Section 4.1 of the Credit Agreement is hereby amended by
inserting the following subparagraph after subparagraph (f) therein:
"(g) Notwithstanding anything contained herein to the
contrary, during the Override Period, the Borrower shall
have no right to request the issuance, extension or renewal
of any Letters of Credit, and the Agent shall have no
obligation to issue, extend or renew any Letters of Credit."
1.9 Section 5.5 of the Credit Agreement is hereby amended by
inserting the following language at the end of the first sentence prior
to the definition of "Default Rate":
"and (ii) during the Override Period, at a rate per annum
equal to the Base Rate plus four percent (4%)".
1.10 Section 8.18 of the Credit Agreement is hereby amended by
inserting the following paragraph (d) at the end of said Section:
<PAGE>
"(d) During the Override Period, the Borrower shall cause
all payments received by it under the Interest Rate Cap to
be paid directly into a Depository Account. Notwithstanding
the provisions of 8.18(a), during the Override Period, so
long as no Default or Event of Default has occurred and is
continuing, collected funds in the Depository Account
(including any payments under the Interest Rate Cap) shall
be transferred to the Agent and applied against the
Revolving Credit Loans: (i) on the first Business Day of
each month, if and to the extent required to pay interest
then due and payable on the Revolving Credit Loans, and (ii)
twice each month within three (3) Business Days following
the Agent's receipt of the most recent Borrowing Base Report
(each such date being an "Override Settlement Date"), if and
to the extent that (x) the excess of the aggregate
outstanding principal components of the CapMAC Eligible
Receivables over the outstanding principal balance of the
Revolving Credit Loans is less than $1,000,000, (y) the
outstanding principal balance of the Revolving Credit Loans
exceeds the CapMAC Borrowing Base, or (z) there are any
unreimbursed draws under the CapMAC Bond of which CapMAC has
notified the Agent in writing prior to the Override
Settlement Date. So long as no Default or Event of Default
has occurred and is continuing, on each Override Settlement
Date, any collected funds remaining in a Depository Account
after giving effect to any application against the Revolving
Credit Loans described in the preceding sentence shall be
made available to the Borrower for withdrawal on such
Override Settlement Date. Funds withdrawn by the Borrower
from any Depository Account shall be (i) used by the
Borrower to fund its operations and otherwise pay expenses,
or (ii) paid to Fairfield for application pursuant to 8.18
of the Fairfield Loan Agreement.
1.11 Section 8.21(a)(2) of the Credit Agreement is hereby amended
and restated as follows:
"(2) the purchase price (94% of the outstanding principal
balance) to be paid by Fairfield for Eligible Receivables in
Repurchase Default,"
1.12 Section 8.21 of the Credit Agreement is hereby further
amended by adding a new section (f) as follows:
"(f) Notwithstanding anything contained in the Credit
Agreement, the Operating Agreement, or the Custodial
Agreement to the contrary, during the Override Period, the
Borrower shall not purchase Eligible Receivables from
Fairfield, provided that Borrower may purchase on each
Contract Settlement Date, Eligible Receivables in such
aggregate principal amount as may be necessary to satisfy
Borrower's obligations under the Receivables Securitization
(the "FFC Receivables"), at a purchase price equal to 94% of
the outstanding principal balance of such FFC Receivables.
Agent and Lenders agree that during the Override Period,
<PAGE>
and with respect to the transfer of the FFC Receivables, the
audit verification procedures set forth in the Custodial
Agreement and 8.21(c) hereof shall be suspended."
1.3. The Credit Agreement is hereby amended by adding Exhibit A-1
-----------
attached hereto.
2. GUARANTORS CONSENT. The Guarantors hereby consent to the
------------------
amendments to the Credit Agreement set forth in this Amendment and
confirm their obligations to the Agent and the Lenders under the FAC
Guaranty and the FAC Guaranty shall extend to and include the
obligations of the Borrower under the Credit Agreement as amended by
this Amendment. Each of the Guarantors 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. FAC CONSENT. FAC agrees that notwithstanding anything
------------
contained in the Credit Agreement prohibiting the sale of participations
in the Revolving Credit Loans without first obtaining FAC's prior
written consent, FNBB may grant participation interests in the Revolving
Credit Loans to CapMAC in accordance with Section 3.01 of the CapMAC
Insurance Agreement upon payments by CapMAC under the CapMAC Bond, and
FNBB may furnish such documentation and information to CapMAC as may be
required by the CapMAC Insurance Agreement.
4. CONDITIONS TO EFFECTIVENESS. The effectiveness of this
---------------------------
Amendment is subject to satisfaction of all of the following conditions:
(a) Opinion of Counsel. The Agent and FNBB shall have
-------------------
received a favorable legal opinion addressed to the
Agent and FNBB, in form and substance satisfactory to
the Agent and FNBB, from legal counsel to FAC and the
Guarantors as to the enforceability of this Amendment
and the CapMAC Insurance Agreement.
(b) Corporate Action. All corporate action necessary for
-----------------
the valid execution, delivery and performance by FAC
and the Guarantors of this Amendment and the CapMAC
Insurance Agreement shall have been duly and
effectively taken and otherwise be duly authorized,
and satisfactory evidence thereof shall have been
provided to the Agent and FNBB.
(c) Borrowing Base Report. The Agent shall have received
---------------------
a Borrowing Base Report dated as of a date within
three (3) Business Days prior to the date hereof.
<PAGE>
(d) Closing of CapMAC Transaction. FNBB shall have
--------------------------------
received evidence satisfactory to it that the insuring
arrangement between FAC and CapMAC has closed and the
CapMAC Insurance Agreement has been executed, and FNBB
shall have received executed copies of the CapMAC
Insurance Agreement and each of the documents related
to such transaction, each such documents in form and
substance reasonably satisfactory to FNBB.
(e) CapMAC Bond. FNBB shall have received the original
-----------
executed CapMAC Bond in favor of FNBB guaranteeing the
payment of the CapMAC Eligible Receivables, such
CapMAC Bond to be in form and substance satisfactory
to FNBB.
(f) Fee. FNBB shall have received a one-time set-up fee
---
from FAC in the amount of $50,000.
(g) Opinion of CapMAC Counsel. FNBB shall have received a
-------------------------
favorable legal opinion addressed to the Agent and
FNBB, in form and substance satisfactory to the Agent
and FNBB, from legal counsel to CapMAC, as to the
enforceability of the CapMAC Bond and the CapMAC
Insurance Agreement.
5. REPRESENTATIONS AND WARRANTIES. FAC hereby represents and
------------------------------
warrants to FNBB and the Agent as follows:
(a) Representations and Warranties in Credit
------------------------------------------------------
Agreement. The representations and warranties of FAC
---------
contained in the Loan Documents were true and correct
in all material respects when made and continue to be
true and correct in all material respects on the date
hereof, with the same effect as if made at and as of
the date hereof (except to the extent of changes
resulting from transactions contemplated or permitted
by the Credit Agreement and the other Loan Documents
and changes occurring in the ordinary course of
business that singly or in the aggregate are not
materially adverse, and to the extent that such
representations and warranties relate expressly to an
earlier date).
(b) Authority, No Conflicts, Etc. The execution, delivery
----------------------------
and performance by FAC of this Amendment and the
consummation of the transactions contemplated hereby,
(i) are within the corporate power of FAC and have
been duly authorized by all necessary corporate action
on the part of FAC, (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
<PAGE>
breach or default under or result in the imposition of any
lien or encumbrance pursuant to any agreement, instrument
or other document to which FAC is a party or by which any
of its properties are bound or affected.
(c) Enforceability of Obligations. This Amendment and the
-----------------------------
Credit Agreement as amended hereby constitute, the
legal, valid and binding obligations of FAC,
enforceable against FAC 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.
6. 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. FAC confirms
and agrees that the Obligations of FAC to the Lenders and the Agent
under the Credit Agreement, as amended hereby, and all of the other
obligations of FAC under the other Loan Documents, are secured by and
entitled to the benefits of the Security Documents.
7. 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.
8. HEADINGS. The captions in this Amendment are for convenience
--------
of reference only and shall not define or limit the provisions hereof.
<PAGE>
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 ACCEPTANCE
CORPORATION
By: /s/ Robert W. Howeth
-----------------------------
Name: Robert W. Howeth
----------------------------
Title: President
---------------------------
FAIRFIELD COMMUNITIES, INC.
By: /s/ Robert W. Howeth
-----------------------------
Name: Robert W. Howeth
--------------------------
Title: Senior Vice President
-------------------------
FAIRFIELD MYRTLE BEACH, INC.
By: /s/ Robert W. Howeth
----------------------------
Name: Robert W. Howeth
--------------------------
Title: Vice President
-------------------------
SUNTREE DEVELOPMENT COMPANY
By: /s/ Robert W. Howeth
---------------------------
Name: Robert W. Howeth
-------------------------
Title: President
-------------------------
<PAGE>
THE FIRST NATIONAL BANK
OF BOSTON, Individually and as Agent
By:/s/ Linda J. Carter
---------------------------
Name: Linda J. Carter
-------------------------
Title: Vice President
------------------------
(FAC)
SECOND AMENDMENT TO THIRD AMENDED AND
RESTATED REVOLVING CREDIT AGREEMENT
between
FAIRFIELD ACCEPTANCE CORPORATION
and
THE FIRST NATIONAL BANK OF BOSTON,
INDIVIDUALLY AND AS AGENT
THIS AMENDMENT (this "Amendment") dated as of December 19, 1994,
is made by and among FAIRFIELD ACCEPTANCE CORPORATION, a Delaware
corporation (the "Borrower" or "FAC"), 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"),
parties to a certain Third Amended and Restated Revolving Credit
Agreement dated as of September 28, 1993, as amended by Consent, Waiver
and Agreement, dated as of September 23, 1994, and as further amended by
First Amendment to Third Amended and Restated Revolving Credit Agreement
dated as of December 9, 1994 (as so amended, the "Credit Agreement").
This Amendment is joined in by Fairfield Communities, Inc., a Delaware
corporation ("Fairfield") and Fairfield Myrtle Beach, Inc. ("Myrtle").
(Fairfield and Myrtle are hereinafter collectively referred to as the
"Guarantors") by reason of the Unconditional Guaranty of Payment and
Performance, dated as of September 28, 1993, from the Guarantors 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, FNBB, FAC and the Agent have agreed to extend the
maturity date of the Revolving Credit Loans, to change the interest
rate, to amend certain financial covenants and to otherwise restructure
the Credit Agreement;
NOW, THEREFORE, in consideration of the premises, FAC, FNBB, the
Guarantors and the Agent hereby agree as follows:
1. AMENDMENTS TO CREDIT AGREEMENT. FAC, FNBB and the Agent
------------------------------
hereby agree to amend the Credit Agreement as follows:
<PAGE>
1.1. The definitions of "Approved Projects" and "Maturity Date"
appearing in Section 1.1 of the Credit Agreement are hereby amended by
deleting said definitions in their entirety and substituting therefor
the following new definitions:
"Approved Projects. (i) All portions of those Properties
------------------
identified on Schedule 1-A hereto which are subject to a Lien in
-------------
favor of FNBB as agent for the benefit of the Lenders, and (ii)
the VOIs relating to Timeshares Contracts participating in the
Fair Share Plus Program (provided that any VOIs participating in
the Fair Share Plus Program shall, for purposes of this definition
only, be deemed to be a separate Approved Project)."
"Maturity Date. January 1, 1998, or if extended in
--------------
accordance with 3.4 hereof, such extended date."
1.2. The definitions of "Applicable Default Percentage" and
"Project Contract Default Rate" appearing in Section 1.1 of the Credit
Agreement are hereby amended by deleting said definitions in their
entirety.
1.3. Section 2.2 of the Credit Agreement is hereby amended by
deleting the same in its entirety and substituting the following
therefor:
"The Borrower hereby agrees to pay to the Agent for the
benefit of the Lenders in accordance with their Commitment
Percentages, a Facility Fee at the rate per annum of one
half of one percent (1/2%) of the Total Commitment;
provided, however, that during the Override Period, the
-------- -------
Facility Fee shall be computed at the rate per annum of one
half of one percent (1/2%) of $23,971,011. The Borrower
shall pay the Facility Fee annually in advance on January 2,
1995 and on each anniversary of such date thereafter."
1.4. Section 2.5 of the Credit Agreement is hereby amended by
deleting the first sentence thereof in its entirety and substituting the
following therefor:
"Except as otherwise set forth in 5.5 hereof, each
Revolving Credit Loan shall bear interest for the period
commencing with the Drawdown Date thereof until repaid in
full at the rate per annum equal to the sum of the Base Rate
plus one quarter of one percent (1/4%); provided, however,
-------- -------
that during the Override Period, the outstanding principal
amount of the Revolving Credit Loans shall bear interest at
the rate per annum equal to the sum of the LIBOR Rate plus
one quarter of one percent (1/4%)."
1.5. Section 3.4 of the Credit Agreement is hereby amended by
deleting the same in its entirety and substituting the following
therefor:
<PAGE>
"3.4 Extension of Maturity Date. Provided that no Event of
----------------------------
Default has occurred and is continuing, the Borrower may request
an extension of the Maturity Date for an additional year by
delivering a notice (an "Extension Request") to the Agent in <PAGE>
accordance with the requirements for notices specified in 20
hereof between December 1st and December 31st of any year during
the term hereof (a "Request Date"), provided that the Borrower may
--------
not request an extension of the Maturity Date if the Request Date
is less than two (2) years from the Maturity Date, as the same may
have been extended. The Agent may, in its sole and absolute
discretion, either grant or deny such Extension Request. In order
to grant such Extension Request, the Agent must deliver written
notice of such approval (the "Approval Notice") to the Borrower by
March 31st of the next succeeding year after the Request Date,
such Approval Notices to be delivered in accordance with the
requirements for notices specified in 20 hereof. In the event
that the Agent does not deliver the Approval Notice within such
time period, the Extension Request shall be deemed to have been
denied."
1.6. Section 4.6 of the Credit Agreement is hereby amended by
deleting the first sentence thereof in its entirety and substituting the
following therefor:
"The Borrower shall pay a fee (in each case, a "Letter of Credit
Fee") to the Agent in respect of each Letter of Credit equal to
one percent (1%) per annum of the Maximum Drawing Amount of such
Letter of Credit, payable annually in advance on the date of
issuance of the applicable Letter of Credit and on each
anniversary thereof until such Letter of Credit expires or is
cancelled, plus the Agent's customary issuance fee, payable in
----
accordance with the Agent's customary practice."
1.7. Section 5.5 of the Credit Agreement is hereby amended by
deleting the first sentence of said Section and substituting therefor
the following new sentence:
"During the continuance of a Default or an Event of Default,
the principal of the Loans, whether or not overdue, shall,
until such Default or Event of Default has been cured or
remedied or such Default or Event of Default has been waived
by the Majority Lenders pursuant to 15.9 hereof, bear
interest at a rate per annum equal to the sum of the Base
Rate plus four percent (4%) (the "Default Rate")."
1.8. Section 6 of the Credit Agreement is hereby amended by
deleting the first sentence thereof in its entirety and substituting the
following therefor:
"The Obligations of the Borrower to the Lenders hereunder and
under the other Loan Documents shall be secured by a blanket Lien
on all Receivables, Base Contracts, VOIs, any other purchase
contracts, installment notes, installment land
<PAGE>
purchase contracts,
installment timeshare or interval ownership purchase contracts,
contracts for deeds, mortgages, deeds of trust, deeds to secure
debt, security agreements, guaranties, mortgagee title insurance
policies, mortgagee's endorsements to property insurance policies,
and all other instruments, documents, agreements and contracts
related to any of the foregoing, and all modifications,
amendments, extensions and renewals thereof, and all personal
property assets, furniture, fixtures, equipment, inventory, raw
materials, work in progress, books and records, and other
interests, relating to any of the Properties or the Base
Contracts, whether now owned or hereafter acquired, pursuant to
the terms of the Security Agreement."
1.9. Section 8.4(d) of the Credit Agreement is hereby amended by
inserting the following parenthetical after the word "Documents"
appearing in the sixth line thereof:
"(including, without limitation, the covenants set forth in 9.2
hereof)".
1.10. Section 8.4(i) of the Credit Agreement is hereby deleted
in its entirety and the following is hereby substituted therefor:
"(i) within three (3) Business Days after June 30th and December
31st of each year, a report setting forth any Repurchased
Collateral repurchased or reacquired by the Borrower during the
prior six (6) month period;"
1.11. Section 8.22 of the Credit Agreement is hereby amended by
deleting the same in its entirety and substituting the following
therefor:
"8.22. Repurchased Collateral. The Borrower shall take all
-----------------------
steps necessary to grant a Lien to the Agent on all or any
Repurchased Collateral within ten (10) days after request therefor
by the Agent (which requests may be made by the Agent within
thirty (30) days after receipt of the bi-annual reports with
respect to Repurchased Collateral delivered to the Agent pursuant
to 8.4(i) hereof) provided, however, that the Borrower shall
-------- -------
immediately take all steps to grant a Lien to the Agent on
Repurchased Collateral once the principal components of
Repurchased Collateral on which the Agent does not have a Lien
exceed $500,000."
1.12. The Credit Agreement is hereby further amended by
inserting the following section after Section 8.22 thereof:
"8.23. Audit of Borrowing Base Report. The Borrower shall
---------------------------------
permit the Lenders, through the Agent or any of the Lenders' other
designated representatives or agents, to conduct an audit of the
Borrowing Base and the components thereof, and to examine the
calculations set forth in the Borrowing Base Report, all at such
<PAGE>
reasonable times and intervals as the Agent or any Lender may
reasonably request, provided that the costs and expenses incurred
--------
in connection with any such audits shall be borne by the Borrower
only up to the first $5,000 of such costs and expenses incurred in
the aggregate on an annual basis."
1.13. Section 10.1 of the Credit Agreement is hereby deleted in
its entirety and the following is hereby substituted therefor:
"10.1 Operating Cash Flow to Total Interest Expense. The
---------------------------------------------
Borrower will not permit, as at the last day of any fiscal
quarter, the ratio of Operating Cash Flow to Total Interest
Expense for the period of four (4) consecutive fiscal
quarters then ended to be less than 1.75 to 1."
1.14. Section 10.2 of the Credit Agreement is hereby deleted in
its entirety and the following is hereby substituted therefor:
"10.2 Tangible Net Worth. The Borrower will not permit
-------------------
Tangible Net Worth at any time to be less than the sum of
(i) $33,337,000, plus (ii), on a cumulative basis, 100% of
positive Net Income for each fiscal quarter beginning with
the fiscal quarter ended December 31, 1994."
1.15. The Credit Agreement is hereby further amended by adding
the following Section after Section 10.2 thereof:
"10.3. Liabilities to Tangible Net Worth Ratio. The
--------------------------------------------
Borrower will not permit the ratio of Total Liabilities to
Tangible Net Worth at any time to exceed 3 to 1."
1.16. Schedule 1-A to the Credit Agreement is hereby amended by
deleting said schedule in its entirety and substituting therefor
Schedule 1-A attached hereto.
------------
2. SCHEDULE 1-B. The Borrower agrees to deliver to the Agent
------------
and FNBB a revised Schedule 1-B to the Credit Agreement on or prior to
------------
February 1, 1995. Upon approval of the proposed Schedule 1-B by FNBB
-------------
and the Agent, which approval may be given in the sole discretion of the
Agent and FNBB, the parties hereto shall amend the Credit Agreement to
substitute such Schedule 1-B for Schedule 1-B currently attached to the
Credit Agreement.
3. GUARANTORS CONSENT; RELEASE OF SUNTREE. The Guarantors
--------------------------------------
hereby consent to the amendments to the Credit Agreement set forth in
this Amendment and confirm their obligations to the Agent and the
Lenders under the FAC Guaranty and the FAC Guaranty shall extend to and
include the obligations of the Borrower under the Credit Agreement as
amended by this Amendment. FNBB, the Agent and the Guarantors
<PAGE>
hereby consent to the removal of Suntree Development Company ("Suntree")
as a "Guarantor" under the FAC Guaranty, and FNBB and the Agent hereby
release Suntree from any and all obligations under the FAC Guaranty.
Each of the Guarantors 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.
4. RELEASE OF COLLATERAL Promptly following the execution of
---------------------
this Amendment, FNBB, the Agent and the Borrower will amend the Security
Agreement to reflect the deletion of personal property assets from the
description of the collateral contained therein to the extent
inconsistent with the provisions of 6 of the Credit Agreement amended
hereby, and shall, upon the written request of the Company, execute and
deliver to the Company such UCC-3 financing statements as may be
necessary in order to release such collateral from the Lien in favor of
FNBB, as agent under the Intercreditor Agreement. In addition, upon the
request of the Company, the Agent will execute and deliver to the
Company such discharges or partial releases of Mortgages as may be
necessary in order to release any real property which is not described
on Schedule 1-B from the Lien created by the Mortgages, provided that
--------
the Agent shall not be required to execute any such releases or partial
discharges until such time as Borrower has delivered a proposed Schedule
--------
1-B to the Agent and FNBB and the Agent have approved such Schedule 1-B.
--- ------------
5. CONSENT TO DISTRIBUTIONS. Notwithstanding anything
-------------------------
contained in 9.4 or 9.10 of the Credit Agreement to the contrary, FNBB
and the Agent hereby consent to the one-time Distribution in the form of
a dividend by the Borrower to Fairfield of 117,647 shares of common
stock of Fairfield, provided that after giving effect to such
--------
Distribution, no Default or Event of Default would occur under the
Credit Agreement or the Fairfield Loan Agreement.
6. ADDITIONAL APPROVED PROJECT. The Property located in
---------------------------
Nashville, Tennessee consisting of approximately 12.9 acres shall be
deemed to be an "Approved Project" upon satisfaction of each of the
following conditions with respect to the Property:
(a) Mortgage. A mortgage or deed of trust on such
--------
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 Property.
<PAGE>
(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 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 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
Property dated as of a recent date which shall (a)
show the location of all buildings, structures,
easements, and utility lines on such Property, (b) be
sufficient to remove the survey exception from the
title insurance policy for such 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 information relating to such
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
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 Property,
dated as of a recent date and prepared by
environmental engineers acceptable to the Agent, such
report to be in form and substance satisfactory to the
Agent.
(f) Appraisal. If required by the Financial Institutions
---------
Reform, Recovery and Enforcement Act of 1989 or other
applicable law or the regulations promulgated pursuant
to any thereof, or if required by FNBB's internal
underwriting guidelines, FNBB shall have received an
appraisal of such Property in form and substance
satisfactory to FNBB.
<PAGE>
(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 Company in the state in which
such Property is located, as to the enforceability of
the Mortgage of such Property.
(h) Taxes. The Agent shall have received from the Company
-----
evidence of payment of real estate taxes and municipal
charges on such 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, approvals
and registrations required from any officer, agency or
instrumentality of any government for the development
of such Property as a recreational and resort time-
share community containing the number of units
specified for such Property on Schedule 1-B.
------------
7. CONDITIONS TO EFFECTIVENESS. The effectiveness of this
---------------------------
Amendment is subject to satisfaction of all of the following conditions:
(a) Opinion of Counsel. The Agent and FNBB shall have
-------------------
received a favorable legal opinion addressed to the
Agent and FNBB, in form and substance satisfactory to
the Agent and FNBB, from legal counsel to FAC and the
Guarantors as to the enforceability of this Amendment
and the CapMAC Insurance Agreement.
(b) Corporate Action. All corporate action necessary for
----------------
the valid execution, delivery and performance by FAC
and the Guarantors of this Amendment and the CapMAC
Insurance Agreement shall have been duly and
effectively taken and otherwise be duly authorized,
and satisfactory evidence thereof shall have been
provided to the Agent and FNBB.
(c) Expenses. The Borrower shall have paid in full all of
--------
the expenses and costs incurred by the Agent and FNBB
in connection with the preparation and negotiation of
this Amendment, including, without limitation, legal
expenses.
8. REPRESENTATIONS AND WARRANTIES. FAC hereby represents and
------------------------------
warrants to FNBB and the Agent as follows:
<PAGE>
(a) Representations and Warranties in Credit
------------------------------------------------------
Agreement. The representations and warranties of FAC
---------
contained in the Loan Documents were true and correct
in all material respects when made and continue to be
true and correct in all material respects on the date
hereof, with the same effect as if made at and as of
that time (except to the extent of changes resulting
from transactions contemplated or permitted by the
Credit Agreement and the other Loan Documents and
changes occurring in the ordinary course of business
that singly or in the aggregate are not materially
adverse, and to the extent that such representations
and warranties relate expressly to an earlier date).
(b) Authority, No Conflicts, Etc. The execution, delivery
----------------------------
and performance by FAC of this Amendment and the
consummation of the transactions contemplated hereby,
(i) are within the corporate power of FAC and have
been duly authorized by all necessary corporate action
on the part of FAC, (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 FAC is a party or by which any of
its properties are bound or affected.
(c) Enforceability of Obligations. This Amendment and the
-----------------------------
Credit Agreement as amended hereby constitute, the
legal, valid and binding obligations of FAC,
enforceable against FAC 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.
9. 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. FAC confirms
and agrees that the Obligations of FAC to the Lenders and the Agent
under the Credit Agreement, as amended hereby, and all of the other
obligations of FAC under the other Loan Documents, are secured by and
entitled to the benefits of the Security Documents.
<PAGE>
10. 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.
11. HEADINGS. The captions in this Amendment are for convenience
--------
of reference only and shall not define or limit the provisions hereof.
<PAGE>
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 ACCEPTANCE
CORPORATION
By: /s/ Robert W. Howeth
------------------------------
Name: Robert W. Howeth
----------------------------
Title: President
---------------------------
FAIRFIELD COMMUNITIES, INC.
By: /s/ Robert W. Howeth
-----------------------------
Name: Robert W. Howeth
---------------------------
Title: Senior Vice President
---------------------------
FAIRFIELD MYRTLE BEACH, INC.
By: /s/ Robert W. Howeth
-----------------------------
Name: Robert W. Howeth
---------------------------
Title: Vice President
--------------------------
THE FIRST NATIONAL BANK
OF BOSTON, Individually and as Agent
By: /s/ Linda J. Carter
-----------------------------
Name: Linda J. Carter
---------------------------
Title: Vice President
--------------------------
THIRD AMENDED AND RESTATED OPERATING AGREEMENT
----------------------------------------------
THIS THIRD AMENDED AND RESTATED OPERATING AGREEMENT
("Agreement") is made and entered into as of December 9, 1994, by
and between FAIRFIELD COMMUNITIES, INC. ("FCI"), a Delaware
corporation, and FAIRFIELD ACCEPTANCE CORPORATION ("FAC"), a
Delaware corporation and wholly owned subsidiary of FCI.
W I T N E S S E T H :
WHEREAS, FCI is now and will become in the future the owner of
numerous receivables arising out of its sales of houses,
condominiums, townhouses, subdivided lots and timeshare intervals
in the normal course of its business;
WHEREAS, FCI desires to sell and FAC desires to purchase from
time to time a portion of such receivables;
WHEREAS, FAC or its subsidiary from time to time sells or
pledges receivables pursuant to certain Third-Party Pools (as
defined in Section 1 below);
WHEREAS, FAC desires to appoint FCI as its agent to bill,
collect, administer and service all such receivables purchased or
otherwise administered and serviced by FAC pursuant to the Third-
Party Pools; and
WHEREAS, Fairfield and FAC desire to enter into this Agreement
in amendment and restatement of, and in substitution for, that
certain Second Amended and Restated Operating Agreement dated as of
September 28, 1993, executed by and between FCI and FAC;
NOW, THEREFORE, in consideration of the mutual promises herein
contained, the parties hereto agree as follows:
1. Definitions. For the purposes of this Agreement, the
following definitions are used:
(a) "Assigned Base Contract" means any Base Contract
which, as of any date, FCI sells to FAC, including any Base
Contract, subsequently pledged or sold by FAC, or its
subsidiaries, pursuant to the Third-Party Pools.
(b) "Base Contract" has the meaning set forth in the
Credit Agreement.
(c) "Base Contract Completion" means full performance by
FCI of all of its duties and obligations to the Obligor under
a Base Contract, including, but not limited to, completion of
improvements or amenities relating to the subject Properties
and delivery of certain services.
<PAGE>
(d) "Business Day" means any day on which banking
institutions in Boston, Massachusetts are open for the
transaction of banking business.
(e) "Contract Settlement Date" has the meaning as set
forth in the Credit Agreement.
(f) "Credit Agreement" means that certain Third Amended
and Restated Credit Agreement, dated as of September 28, 1993,
executed by and among FAC, The First National Bank of Boston,
individually and as agent, as the same may be amended or
otherwise modified from time to time.
(g) "Effective Date" shall mean the effective date of
this Agreement, as stated above.
(h) "Eligible Receivable" has the meaning set forth in
the Credit Agreement.
(i) "FCI" means Fairfield Communities, Inc. and includes
any Subsidiary which hereafter sells Base Contracts to FAC
pursuant to this Agreement; whereupon, and by reason of which
sale, such Subsidiary shall therefore be deemed to have become
a party hereto and shall become subject to all of the
obligations and have all of the rights of FCI hereunder with
respect to such Subsidiary's Assigned Base Contracts.
(j) "Obligor" means the person or persons obligated to
make payments under a Base Contract.
(k) "Properties" means houses, condominiums, townhouses,
subdivided lots and fixed or undivided interest timeshare
intervals sold under Base Contracts.
(l) "Repurchase Default" has the meaning set forth in
the Credit Agreement.
(m) "Security Interests" means any security interests,
liens or other encumbrances on the Assigned Base Contracts in
favor of any third party.
(n) "Subsidiary" means a corporation more than fifty
percent (50%) of the voting capital stock of which is owned
directly or indirectly by FCI, but does not include FAC.
(o) "Third-Party Pools" shall mean the various Pooling
and Servicing Agreements or Pledge and Servicing Agreements
entered into by FAC from time to time in connection with the
sale or financing of Base Contracts.
<PAGE>
(p) "Title Documents" means any deeds, mortgages, deeds
of trust, vendors' liens or other document evidencing liens or
encumbrances on the Properties securing the respective
interests of FCI, FAC, the Obligors or any third parties.
2. Sale and Ownership of Base Contracts.
(a) Subject to the terms of Sections 2(c), 2(d) and 2(e)
hereof and Section 8.21 of the Credit Agreement, FCI and FAC
hereby agree that FCI may sell to FAC and FAC may purchase, as
hereinafter provided and as provided in the Credit Agreement,
all of FCI's right, title and interest in and to such Base
Contracts as shall be described in the particular Document of
Sale and Assignment of Beneficial Interest ("Document of
Sale") executed in connection with each such sale, each of
which Documents of Sale shall be substantially in the form of
Exhibit "A" hereto. Each sale and purchase of Base Contracts
shall be deemed to include the transfer by FCI to FAC of all
of FCI's beneficial interests in, and of all Title Documents
relating to the Properties that are the subject of such Base
Contracts.
(b) Sales of Base Contracts from FCI to FAC under this
Agreement shall be accomplished by (i) FAC's compliance with
the requirements of 8.21 of the Credit Agreement, (ii) in
connection with each sale, the delivery to and acceptance by
FAC of a Document of Sale executed by FCI, and (iii) in
connection with each sale, the satisfaction of all other
requirements of this Agreement.
(c) Each group of Base Contracts which are sold by FCI
to FAC from time to time shall be of a quality with respect to
credit worthiness of the Obligors and collection experience at
least equivalent to the quality of the aggregate portfolio of
the Base Contracts held by FCI at the time of such sale. All
such purchases by FAC shall be subject to all conditions and
stipulations, and shall otherwise be in compliance with all
terms and provisions, of the Credit Agreement.
(d) FCI shall be obligated to repurchase Assigned Base
Contracts from FAC pursuant to Section 4 of this Agreement.
(e) FCI shall not be obligated to sell, nor shall FAC be
obligated to purchase, any Base Contracts under this
Agreement.
(f) Subject to the terms of Section 8.21(d) of the
Credit Agreement, FCI and FAC hereby agree that FAC may sell
to FCI, and FCI may purchase all of FAC's right, title and
interest in and to such Base Contracts as shall be described
in the particular Document of Sale executed in connection with
<PAGE>
each such sale, each of which Documents of Sale shall be
substantially in the form of Exhibit "B" hereto. Each sale
and purchase of Base Contracts shall be deemed to include the
transfer by FAC to FCI of all of FAC's beneficial interests
in, and of all Title Documents relating to the Properties that
are the subject of such Base Contracts.
3. Purchase of Base Contracts by FAC.
(a) From and after the Effective Date, FAC may only
purchase from FCI those Base Contracts that would constitute
Eligible Receivables.
(b) The purchase price for any Base Contract purchased
by FAC from FCI will be equal to ninety-four percent (94%) of
the outstanding principal balance remaining of such Base
Contract at the time of purchase by FAC plus all accrued and
unpaid interest thereon.
4. Obligation to Repurchase
In the event an Assigned Base Contract is in Repurchase
Default, FCI shall be obligated to either repurchase such Assigned
Base Contract or substitute an Eligible Receivable in replacement
of such defaulted Base Contract as follows:
(a) As to any Assigned Base Contract in Repurchase
Default, then FCI shall on the first Contract Settlement Date
following the occurrence of such Repurchase Default (i)
repurchase such Assigned Base Contract from FAC by payment of
a purchase price in the amount of ninety-four percent (94%) of
the principal balance remaining unpaid under such Assigned
Base Contract (the repurchase price determined in such manner
being hereinafter referred to as the "Default Repurchase
Price") or (ii) transfer, assign and deliver to FAC an
Eligible Receivable, in substitution for and in replacement of
the Assigned Base Contract that is in Repurchase Default on
the basis of 85% of the outstanding principal balance of the
Assigned Base Contract in Repurchase Default to 100% of the
Eligible Receivable;
(b) FCI shall be obligated to repurchase Base Contracts
in Repurchase Default pursuant to this Section 4 of this
Agreement regardless of whether a Default or Event of Default
may have occurred and be continuing under the Credit
Agreement.
5. Documents.
(a) Whenever Base Contracts are sold under this
Agreement, the party selling such Base Contracts shall make
<PAGE>
available to the other party, at its request and for its
inspection and copying, the following:
(i) Documents, if any, evidencing such Base
Contracts and any Title Documents or releases of Security
Interests relating thereto and any evidence of filing or
recording hereof.
(ii) A listing showing the original amount of the
Base Contracts and the amount remaining unpaid thereon if
less than the face amount.
(iii) Such other financial information then
possessed by the seller of the Base Contracts regarding
the Obligors financial condition as the purchaser of such
Base Contracts may from time to time request.
(b) Nothing contained in this Agreement shall require,
any party hereunder to give, unless otherwise required by
applicable law, notice to any Obligor that a Base Contract has
been sold pursuant to the terms hereof.
6. Settlement. At the close of each Contract Settlement
Date, the balance due between the parties shall thereupon be
settled by payment in cash or in such other manner as may be agreed
upon between the parties. Each transfer at the time of the
settlement on a Contract Settlement Date shall for the purposes
hereof be deemed to have been made as of the end of such Contract
Settlement Date.
7. Representations, Warranties and Covenants. In connection
with the sale of Base Contracts pursuant to Section 2(a) hereof,
FCI hereby represents and warrants to FAC as follows:
(a) The figures set forth in each Document of Sale and
settlement statement delivered to FAC will be true and
correct as of the time made;
(b) At the time of sale of any Base Contracts, such Base
Contracts and Title Documents relating thereto will be valid
and legally enforceable in accordance with their respective
terms;
(c) At the time of sale of any Base Contracts,
beneficial ownership in the Base Contracts will not have been
conveyed or assigned by FCI to a third party;
(d) Each Document of Sale executed and delivered to FAC
hereunder will vest in FAC all right, title and interest in
and to the Base Contracts and related Title Documents covered
<PAGE>
by such Document of Sale and the proceeds of collection
thereof;
(e) At the time of sale of Base Contracts, such Base
Contracts will be free and clear of all liens, encumbrances,
setoffs, counterclaims of other rights or defenses except as
specifically provided for under the terms of the Base
Contracts, or as permitted by the Credit Agreement and Title
Documents relating to the Properties, the sale of which gave
rise to the Base Contracts;
(f) At the time of sale of any Base Contracts, such Base
Contracts will comply with any and all applicable laws and
regulations;
(g) FCI shall at all times remain solely responsible for
Base Contract Completion and shall fully perform its duties
and obligations to the Obligors under the Base Contracts in
accordance with the terms thereof.
8. Services. FAC hereby appoints FCI to perform the
following services for FAC, and FAC will reimburse FCI for the
reasonable fees and expenses FCI incurs in performing such services
as follows:
(a) To bill and collect all Assigned Base Contracts when
due and with the same diligence and procedures employed by FCI
with respect to its Base Contracts utilizing separate lock
boxes for FCI and FAC as soon as practicable. To the extent
payments on the Assigned Base Contracts are initially applied
to reduce FCI's indebtedness, on each Contract Settlement
Date, FCI shall (after making appropriate adjustments for
payments on FCI contracts applied to FAC indebtedness under
the Credit Agreement) make a settlement and remit all such
payments to FAC, together with interest calculated on a daily
basis at a rate equivalent to the interest cost to FAC under
the Credit Agreement.
(b) To perform such other acts and provide services,
including, without limitation, executive, financial, legal,
tax, accounting and other services as FAC may from time to
time reasonably request and FCI may agree to perform or
provide.
(c) Nothing contained in this Agreement shall in any way
restrict FCI at any time from exchanging, renewing, extending
or in any way altering the Assigned Base Contracts being
serviced by FCI, provided that any such exchange, renewal,
<PAGE>
extension or alteration shall be consistent with FCI's and
FAC's then existing standard credit policies. Appropriate
adjustment shall be made for any such change, renewal,
extension or alteration on the Contract Settlement Date
immediately following the date such action took place.
(d) FAC shall reimburse FCI for FCI's reasonable fees
and expenses for all services provided by FCI to FAC, provided
the amount of such reimbursement shall not exceed three
quarters of one percent (.75%) per annum of the aggregate
outstanding principal balance of all Assigned Base Contracts,
and shall be payable monthly in arrears.
9. Indemnification. FCI agrees to indemnify FAC against,
and hold FAC harmless from, any and all liabilities, losses,
damages, costs and expenses arising out of claims asserted against
FAC by any third party relating to (i) any wrongful or negligent
act or omission to act of FCI, in performing any of the services
which FCI shall perform for or furnish to FAC pursuant to the
provisions of this Agreement, (ii) any breaches by FCI of the
representations and warranties in Section 7, and (iii) any failures
by FCI to timely and fully perform all of its covenants to the
Obligors under the Base Contracts, including, but not limited to,
those duties and obligations of FCI relating to Base Contract
Completion; provided however, FAC shall promptly notify FCI in
writing of each such claim made or suit therein instituted against
FAC and the details thereof, and shall not pay or compromise any
such claim or suit without the written approval of FCI, and FCI
shall be permitted to assume and direct the defense of any such
suit by counsel of its own choosing and at its own expense.
10. Records. FAC and FCI mutually agree to:
(a) Safely maintain such documents as may be required
for the collection of Assigned Base Contracts.
(b) Keep such accounts and other records as will enable
FAC and FCI to determine at any time the status of all
Assigned Base Contracts, including whether such Assigned Base
Contracts are in Repurchase Default.
(c) Permit the other party on reasonable notice at any
time during normal business hours to inspect, audit, check and
make abstracts from accounts, records, correspondence and
other papers pertaining to Assigned Base Contracts.
(d) Deliver to the other party, upon its request and at
its expense, any of said accounts, records, correspondence and
other papers as the other party may deem reasonably essential
to enable it to enforce its rights, if then being challenged,
with respect to Assigned Base Contracts. The books and
records of FCI and FAC will be made to reflect the sale of
Base Contracts.
<PAGE>
11. Waivers. FCI and FAC hereby waive any failure or delay
on the part of the other party in asserting or enforcing any of its
rights or in making any claims or demands hereunder.
12. Termination; Amendment. This Agreement may not be
terminated, amended or modified except upon the written consent
thereto of FCI and FAC, which will not be unreasonably withheld;
provided that FCI agrees not to terminate, amend or modify this
Agreement to the extent that such action would be inconsistent with
the terms of the Credit Agreement or any agreement entered into by
FAC in connection with the issuance of securities by FAC. All of
FCI's and FAC's obligations hereunder with respect to the servicing
of Assigned Base Contracts shall otherwise continue in effect after
the date of termination until FAC shall have received payment of
the balance remaining to be paid on all Assigned Base Contracts
owned by FAC on the date of termination or until FCI shall have
otherwise repurchased such Assigned Base Contracts pursuant to the
terms hereof, and thereupon this Agreement shall terminate for all
purposes, other than the rights of indemnification provided for
herein, which shall survive the termination of this Agreement.
13. Notices. Any notice, instruction, request, consent,
demand or other communication required or contemplated by this
Agreement to be in writing, shall be given or made or communicated
by United States first class mail, addressed as follows:
If to FCI: Fairfield Communities, Inc.
2800 Cantrell Road
Little Rock, AR 72202
Attention: President
If to FAC: Fairfield Acceptance Corporation
2800 Cantrell Road
Little Rock, AR 72202
Attention: President
14. Successors. The covenants, representations, warranties
and agreements herein set forth shall be mutually binding upon, and
inure to the mutual benefit of, FCI and its successors and FAC and
its successors.
15. Governing Law. This Agreement shall be governed by the
laws of the State of Arkansas.
16. ENTIRE AGREEMENT. THIS AGREEMENT REPRESENTS THE FINAL,
ENTIRE AGREEMENT AMONG THE PARTIES HERETO AND SUPERSEDES ANY AND
ALL PRIOR COMMITMENTS, AGREEMENTS, REPRESENTATIONS AND
UNDERSTANDINGS, WHETHER WRITTEN OF ORAL, RELATING TO THE SUBJECT
MATTER HEREOF INCLUDING, WITHOUT LIMITATION, THAT CERTAIN SECOND
AMENDED AND RESTATED OPERATING AGREEMENT DATED AS OF SEPTEMBER 28,
1993 BY AND BETWEEN FCI AND FAC, AND MAY NOT BE CONTRADICTED BY
<PAGE>
EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF
THE PARTIES HERETO. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG
THE PARTIES HERETO.
17. Conflict With Credit Agreement. If the terms of this
Operating Agreement conflict in any manner with the terms and
provisions of the Credit Agreement, the terms and provisions of the
Credit Agreement shall control.
IN WITNESS WHEREOF, the parties hereto have set their hands
and have affixed their corporate seals as of the day and year first
above written.
FAIRFIELD COMMUNITIES, INC.
By: /s/ Robert W. Howeth
------------------------------
Title: Senior Vice President
--------------------------
FAIRFIELD ACCEPTANCE CORPORATION
By: /s/ Robert W. Howeth
------------------------------
Title: President
----------------------------
<PAGE>
EXHIBIT "A"
TO
THIRD AMENDED AND RESTATED
OPERATING AGREEMENT
Form of Document of Sale and
Assignment of Beneficial Interest From FCI to FAC
<PAGE>
[FCI to FAC]
FORM OF DOCUMENT OF SALE
AND
ASSIGNMENT OF BENEFICIAL INTEREST
This instrument is delivered to you pursuant to the Third
Amended and Restated Operating Agreement dated as of December __,
1994, by and between FAIRFIELD COMMUNITIES, INC. ("FCI") and
FAIRFIELD ACCEPTANCE CORPORATION ("FAC") (the "Operating
Agreement"). Capitalized terms not otherwise defined herein shall
have the meanings ascribed to them in the Operating Agreement.
1. The undersigned hereby sells, transfers and assigns to
FAC, pursuant to Section 2 of the Operating Agreement, Eligible
Base Contracts in an aggregate amount of $___________ for a
purchase price of $____________. Such Eligible Base Contracts are
described on Schedule 1 hereto.
2. After giving effect to all adjustments, you own as of the
close of business at __________________ Assigned Base Contracts in
the aggregate amount of $____________
3. The transference of those Eligible Base Contracts
described on Schedule 1, attached hereto, shall transfer and assign
the beneficial interest of the transferor in the underlying
Properties giving rise to such Eligible Base Contracts herein
assigned, including the interest of the transferor in any Title
Documents, and any interest in and to the FairShare Plus Program or
any contract file relating to the Base Contracts, subject to the
outstanding interest of the contract purchaser and further subject
to those outstanding encumbrances described in the Fourth Amended
and Restated Title Clearing Agreement (Lawyer's), dated as of
September 1, 1992; the Second Amended and Restated Supplementary
Trust Agreement (Arizona), dated as of September 1, 1992; the
Second Amended and Restated Title Clearing Agreement (Colorado),
dated as of September 1, 1992; or the Westwinds Third Amended and
Restated Title Clearing Agreement, dated as of November 15, 1992,
as the case may be, as may be amended or restated from time to
time.
4. This Document of Sale and Assignment of Beneficial
Interest incorporates by reference the terms and conditions of the
Operating Agreement as if set forth in full herein.
5. This instrument shall become effective as of the date
hereof upon your acceptance.
<PAGE>
FAIRFIELD COMMUNITIES, INC.
By:________________________________
Name:______________________________
Title: ____________________________
ACCEPTED AND AGREED TO
as of ________________
FAIRFIELD ACCEPTANCE CORPORATION
By:_____________________________
Name:___________________________
Title:__________________________
<PAGE>
EXHIBIT "B"
TO
THIRD AMENDED AND RESTATED
OPERATING AGREEMENT
Form of Document of Sale and
Assignment of Beneficial Interest from FAC to FCI
<PAGE>
[FAC to FCI]
FORM OF DOCUMENT OF SALE
AND
ASSIGNMENT OF BENEFICIAL INTEREST
This instrument is delivered to you in accordance with that
certain Third Amended and Restated Operating Agreement dated as
of December __, 1994, by and between FAIRFIELD COMMUNITIES, INC.
("FCI") and FAIRFIELD ACCEPTANCE CORPORATION ("FAC") (the
"Operating Agreement"). Capitalized terms not otherwise defined
herein shall have the meanings ascribed to them in the Operating
Agreement.
1. The undersigned hereby sells, transfers and assigns to
FCI pursuant to Section 8.21(a) of the Credit Agreement and
Section 4 of the Operating Agreement, the Base Contracts
described on Schedule 1 hereto.
2. Additionally, the undersigned hereby sells, transfers
and assigns to FCI, pursuant to Section 8.21(d) of the Credit
Agreement and Section 2(f) of the Operating Agreement, the Base
Contracts described on Schedule B hereto.
3. The transference of those Base Contracts described on
Schedule A and/or B, attached hereto, shall transfer and assign
the beneficial interest of the transferor in the underlying
Properties giving rise to such Eligible Base Contracts, including
the interest of the transferor in any Title Documents herein
assigned, and any interest in and to the FairShare Plus Program
or any contract file relating to the Base Contracts, subject to
the outstanding interest, if any, of the contract purchaser and
further subject to those outstanding encumbrances described in
the Fourth Amended and Restated Title Clearing Agreement
(Lawyer's), dated as of September 1, 1992; the Second Amended and
Restated Supplementary Trust Agreement (Arizona), dated as of
September 1, 1992; the Second Amended and Restated Title Clearing
Agreement (Colorado), dated as of September 1, 1992; or the
Westwinds Third Amended and Restated Title Clearing Agreement,
dated as of November 15, 1992, as the case may be, as may be
amended or restated from time to time.
4. This instrument shall become effective as of the date
hereof upon delivery.
5. Dated as of _________________, 199_.
<PAGE>
FAIRFIELD ACCEPTANCE CORPORATION
By:_____________________________
Title:__________________________
<PAGE>
FAIRFIELD COMMUNITIES, INC.
SAVINGS/PROFIT SHARING PLAN
(Restated Effective July 1, 1994)
(As amended Effective January 1, 1995)
<PAGE>
FAIRFIELD COMMUNITIES, INC.
SAVINGS/PROFIT SHARING PLAN
The Profit Sharing Plan for Employees of Fairfield Communities, Inc.,
originally effective March 1, 1976, is hereby restated by Fairfield
Communities, Inc. (the "Employer"), effective July 1, 1994, and renamed the
Fairfield Communities, Inc. Savings/Profit Sharing Plan (the "Plan"). The
Plan has been amended to add a 401(k) feature in order to provide a means
for eligible employees to defer a portion of their compensation and to
encourage savings to provide additional financial security for the future.
The Plan, as restated herein, also reflects all amendments made by
Employer as required by TRA 1986, OBRA 1987, TAMRA 1988, OBRA 1989, RRA
1990, the Unemployment Compensation Act of 1992 and OBRA 1993, as well as
numerous Treasury regulation revisions since the previous restatement.
<PAGE>
SECTION 1
DEFINITIONS
-----------
1.1 DEFINITIONS
(A) The following words and phrases shall have the meanings assigned
below unless a different meaning is plainly required by the context:
(1) "Accounting Date" shall mean the last day of each calendar
month of each Plan Year subsequent to the Effective Date of the Plan and
such other date or dates as may be established by the Committee during the
Plan Year.
(2) "Amount Forfeited" shall mean the nonvested interest, if
any, in a Participant's Matching or Profit Sharing Contribution Account
which he is not entitled to receive by reason of the provisions of Sections
4.1(D) and 4.3
(3) "Beneficiary" shall mean the person or persons on whose
behalf benefits may be payable under the Plan after a Participant's death
in accordance with the provisions hereof.
(4) "Break in Service" shall mean the failure to complete more
than 500 Hours of Service during a Plan Year.
(5) "Committee" shall mean the administrative committee
appointed from time to time to administer the Plan pursuant to the
provisions of Section 12.1 hereof.
(6) "Company" shall mean Fairfield Communities, Inc., and its
successor or successors.
(7) "Compensation" shall mean the amounts payable to an Employee
by the Employer for services rendered as reported on the Employee's Federal
income tax withholding statement (Form W-2) or its subsequent equivalent.
Any amounts that would have been includable in the Employee's
Compensation as described above if they had not received special tax
treatment because they were deferred by the Employee through a salary
reduction agreement shall be added to the amount described above and
included in the Employee's "Compensation" for purposes of the Plan.
The annual Compensation of each Employee taken into account under
the Plan shall not exceed $200,000 or such other amount as may be specified
by the Secretary of the Treasury pursuant to his duties under Section
401(a)(17) of the Code. In addition to other applicable limitations set
forth in the Plan, and notwithstanding any other provision of the Plan to
the contrary, for plan years beginning on or after January 1, 1994, the
annual compensation of each Employee taken into account under the Plan
shall not exceed the OBRA '93 annual compensation limit. The OBRA '93
annual compensation limit is $150,000, as adjusted by the Commissioner for
increases in the cost of living in accordance with Section 401(a)(17)(B) of
the Code. The cost-of-living adjustment in effect for a calendar year
applies to any period, not exceeding 12 months, over which Compensation is
determined (determination period) beginning in such calendar year. If a
determination period consists of fewer than 12 months, the OBRA '93 annual
compensation limit will be multiplied by a fraction, the numerator of which
is the number of months in the determination period, and the denominator of
which is 12.
For plan years beginning on or after January 1, 1994, any
reference in this Plan to the limitations under Section 401(a)(17) of the
Code shall mean the OBRA '93 annual compensation limit set forth in this
provision.
If Compensation for any prior determination period is taken into
account in determining an Employee's benefits accruing in the current plan
year, the Compensation for that prior determination period is subject to
the OBRA '93 annual compensation limit in effect for that prior
determination period. For this purpose, for determination periods
beginning before the first day of the first plan year beginning on or after
January 1, 1994, the OBRA '93 annual compensation limit is $150,000.
For purposes of applying the above limit to a Highly Compensated
Employee who is a 5% Owner (as defined in Section 416(i)(1) of the Code) or
one of the ten most highly paid Highly Compensated Employees, the Highly
Compensated Employee's family shall be treated as a single employee with
one Compensation and the limit shall be allocated among the family members
in proportion to each member's Compensation (except for the purpose of
determining Compensation below the Plan's Integration Level). For purposes
of this paragraph, a Highly Compensated Employee's family shall include his
or her spouse and his or her lineal descendants who have not reached the
age of 19 before the end of the year.
(8) "Controlled Group Member" shall mean:
(a) The Employer;
(b) Any corporation or association that is a member of a
controlled group of corporations (within the meaning of Section 1563(a) of
the Code, determined without regard to Section 1563(a)(4) and Section
1563(e)(3)(C) of said Code, except that, for the purposes of applying the
limitations on benefits and contributions that are required under Section
415 of the Code and are described in Section 7.2 hereof, such meaning shall
be determined by substituting the phrase "more than 50%" for the phrase "at
least 80%" each place that it appears in Section 1563(a)(1) of said Code)
with respect to which the Employer is a member;
(c) Any trade or business (whether or not incorporated)
that is under common control with the Employer as determined in accordance
with Section 414(c) of the Code and regulations issued thereunder; and
(d) Any service organization that is a member of an
affiliated service group (within the meaning of Section 414(m) of the Code)
with respect to which the Employer is a member.
(9) "Designated Nonparticipating Employer" shall mean:
(a) Any Controlled Group Member that is not an Employer as
defined herein; and
(b) Any other corporation, association, proprietorship,
partnership, or other business organization that (i) is not an Employer and
(ii) the Company, by formal action on its part in the manner described in
Section 11.7 hereof designates on the basis of a uniform policy applied
without discrimination as a "Designated Nonparticipating Employer" for the
purposes of the Plan.
(10) "Effective Date of the Plan", as restated, shall mean July
1, 1994, or such later date as of which the Plan first became effective
with respect to the particular Employer concerned. The original effective
date of the Plan was March 1, 1976. Except as provided below, all
amendments to the Plan as reflected herein were effective July 1, 1994.
However, Sections 1.1(A)(7) and (18), 4.3, 4.8. 7.3(B), 8.1(C), 8.3(A) and
8.3(D) were effective for Plan Years beginning after December 31, 1988; and
Sections 2.4(D), 11.3(C), (D) and (E) and 11.4 were effective November 30,
1993.
(11) "Employee" shall mean any person on the payroll of the
Employer whose wages from the Employer are subject to withholding for the
purposes of Federal income taxes and for the purposes of the Federal
Insurance Contributions Act. Employee will not include (a) any such person
who is included in a unit of persons employed by the Employer who are
covered by an agreement which the Secretary of Labor finds to be collective
bargaining agreement between employee representatives and the Employer, if
retirement benefits were the subject of good faith bargaining between such
employee representatives and the Employer and such persons are not required
by that agreement to be covered in the Plan or (b) leased employees within
the meaning of Sections 414(n) and (o) of the Code.
(12) "Employer" shall mean, collectively or distributively as the
context may indicate, the Company and any other corporations, associations,
joint ventures, proprietorships or partnerships that have adopted and are
participating in the Plan in accordance with the provisions of Section 2.4
hereof; provided, however, if the Plan is adopted on behalf of the
Employees of one or more, but less than all, divisions or facilities of an
employer, the term "Employer" shall apply only to the divisions or
facilities on behalf of whose Employees the Plan has been adopted.
(13) "Employment Commencement Date" means the first date on which
an Employee completes an "Hour of Service"; provided that in the case of a
"Break in Service," an Employee's employment commencement date shall be the
first day thereafter on which he completes an "Hour of Service".
(14) "Entry Date" shall mean January 1 and July 1.
(15) "Family Member" shall mean an individual described in
Section 414(q)(6)(B) of the Code.
(16) "Highly Compensated Employee" shall mean any Employee who,
during the Determination Year or the Look-Back Year --
(A) was at any time a "5-percent owner" (as defined in
Section 416(q)(3) of the Code,
(B) received compensation in excess of $75,000.
(C) received compensation in excess of $50,000 and was in
the Top-Paid Group of employees for such year, or
(D) was at any time an officer and received compensation
greater than 50 percent of the amount in effect under Section 415(b)(1)(A)
of the Code for such year.
The Secretary shall adjust the $75,000 and $50,000 amounts under
this Section at the same time and in the same manner as under 415(d) of the
Code. For purposes of this Section (16), the term "compensation" shall
have the meaning given such term by Section 414(q)(7) of the Code. An
Employee not described in (B), (C) or (D) above for the Look-Back Year
(without regard to this paragraph) shall not be treated as described in
(B), (C) or (D) for the Determination Year unless such Employee is a member
of the group consisting of the 100 employees paid the greatest compensation
during the Determination Year.
Determination Year means the Plan Year for which the
determination of Highly Compensation Employee is being made. Look-Back
Year means the twelve (12) month period immediately preceding the
Determination Year.
An Employee is in the Top-Paid Group of employees for any year if
such Employee is in the group consisting of the top 20 percent of the
employees when ranked on the basis of compensation paid during such year.
For purposes of (D), no more than 50 employees (or, if lesser, the greater
of 3 employees or 10 percent of the employees) shall be treated as
officers. If for any year no officer of the Employer is described in (D),
the highest paid officer of the Employer for such year shall be treated as
described in (D).
Special Rules for Certain Family Members:
(y) General Rule. If an Employee is a Family Member of a
5-percent owner (as described in subsection (A)) or of a Highly Compensated
Employee in the group consisting of the 10 most highly compensated
Employees who are Participants in this Plan for the Plan Year, then:
(1) such Employee will not be considered to be a
separate Employee for purposes of computing the Deferral Percentage Tests
or the Contribution Percentage Tests under the Plan;
(2) any compensation paid to such Employee and any
contributions made to such Employee's Accounts, shall for purposes of the
Deferral Percentage Tests and the Contribution Percentage Tests, be treated
as if made to or on behalf of such Employee's Family Member who is a 5-
percent owner or is one of the 10 most highly compensated Employees;
(z) Family Members. For purposes of this subsection, the
term "Family Member" shall mean with respect to an Employee, (1) the
Employee's spouse; (2) the Employee's lineal ascendants and descendants;
and (3) the spouses of such lineal ascendants and descendants.
"Non-Highly Compensated Employee" shall mean an Employee who is
neither a Highly Compensated Employee nor a Family Member (as defined
above) of a Highly Compensated Employee.
(17) "Hour of Service" means:
(a) Each hour for which an Employee is paid, or entitled to
payment, for the performance of duties for the Employer. These hours shall
be credited to the Employee for the computation period in which the duties
are performed; and
(b) Each hour for which an Employee is paid, or entitled to
payment, by the Employer on account of a period of time during which no
duties are performed (irrespective of whether the employment relationship
has terminated) due to vacation, holiday, illness, incapacity (including
disability), layoff, jury duty, military duty or leave of absence. Hours
under this subparagraph (b) shall be calculated and credited pursuant to
Section 2530.200(b)-2 of the Department of Labor Regulations which are
incorporated herein by this reference; and
(c) Each hour for which back pay, irrespective of
mitigation of damages, is either awarded or agreed to by the Employer. The
same hours of service shall not be credited both under subparagraph (a) or
(b), as the case may be, and under this subparagraph (c). These hours
shall be credited to the Employee for the computation period or periods to
which the award or agreement pertains rather than the computation period in
which the award, agreement or payment is made; and
(d) Hours of service credited to Employees whose
compensation is not determined on the basis of certain amounts for each
hour worked during a given period and whose hours are not required to be
counted and recorded by a separate federal statute such as the Fair Labor
Standards Act shall be at the rate of 190 hours of service for each month
that the Employee is entitled to be credited with at least one "hour of
service" under the provisions of this section.
In addition, an Employee will be credited with Hours of
Service for any period not previously credited above during which he is on
an Employer approved leave of absence as described in Section 2.2 hereof
provided he returns to the employment of the Employer immediately after the
expiration of such leave or within 120 days, or such longer period as may
be prescribed by applicable law, after first becoming eligible for
discharge from military service and having returned from such leave remains
in the employment of the Employer for at least 30 days. Such credit shall
be based on a 40-hour week or, if different, on the Employee's normally
schedule hours per week.
Solely for the purpose of determining whether or not the
Employee has incurred a Break in service, if the Employee is absent from
the service of the Employer due to (a) the pregnancy of the Employee, (b)
the birth of a child of the Employee, (c) the placement of a child with the
Employee in connection with the adoption of such child by such Employee or
(d) caring for such chid described in (b) or (c) above for a period
beginning immediately following such birth or placement, the Employee shall
be credited during such absence with no less than the number of Hours of
Service required to avoid incurring a Break in Service either (i) during
the Plan Year in which the absence began if the Employee would otherwise
have incurred a Break in Service in such Plan Year or (ii) in the Plan Year
next following the Plan Year in which the absence began in all other cases.
(18) "Integration Level" shall mean $48,000 or, for Plan Years
beginning after January 1, 1989, the contribution and benefit base under
Section 230 of the Social Security Act (the taxable wage base) in effect at
the beginning of each Plan Year.
(19) "Integration Rate" shall mean 5.7%.
(20) "Initial Distribution Date" shall mean the date which is
established pursuant to Section 8.1 hereof for distribution of the value in
his individual accounts.
(21) "Internal Revenue Code" or "Code" shall mean the Internal
Revenue Code of 1986, as now or hereafter amended from time to time.
(22) "Limitation Year" shall mean the year used for application
of the limitations of Section 415 of the Code, and, unless the Employer
elects a different Limitation Year by formal action on its part in the
manner described in Section 11.7 hereof, shall be the Plan Year.
(23) "Matching Contributions" shall mean the amounts contributed
by the Employer to the Plan on behalf of the Participants, as more fully
described in Section 4.1 hereof.
(24) "Matching Contribution Account" shall mean the balance
credited to the individual account of the Participant to reflect his
interest in the Trust Fund that is attributable to the Matching
Contributions on his behalf to the Plan. If applicable, the Matching
Contribution Account shall be divided into such subaccounts as are required
to reflect the Participant's interest in the various Investment Funds, as
described in Section 5.
(25) "Participant" shall mean any person who has met the
requirements of Section 2.1 hereof and whose individual accounts have not
been subsequently distributed in full.
(26) "Participant Contributions" shall mean the amounts, if any,
contributed to the Plan by the Participant, as more fully described in
Section 3.2 hereof.
(27) "Participant Contribution Account" shall mean the balance
credited to the individual account of the Participant to reflect his
interest in the Trust Fund that is attributable to his own after-tax
contribution to the Plan as described in Section 3.2 hereof. If
applicable, the Participant Contribution Account shall be divided into such
subaccounts as are required to reflect the Participant's interest in the
various Investment Funds, as described in Section 5.
(28) "Plan" shall mean the Fairfield Communities, Inc.
Savings/Profit Sharing Plan, originally adopted effective March 1, 1976,
restated effective July 1, 1994 as set forth in this instrument and as it
may hereafter be amended from time to time.
(29) "Plan Year" shall mean the fiscal year on which the records
of the Plan are kept as reported from time to time by the plan
administrator to the Internal Revenue Service. The Plan Year, unless
subsequently changed in accordance with the rules or regulations issued by
the Internal Revenue Service or the Department of Labor, shall be the
calendar year.
(30) "Profit Sharing Contributions" shall mean the amounts
contributed by the Employer to the Plan on behalf of the Participants, as
more fully described in Section 4.1 hereof.
(31) "Profit Sharing Contribution Account" shall mean the balance
credited to the individual account of the Participant to reflect his
interest in the Trust Fund that is attributable to the Profit Sharing
Contributions on his behalf to the Plan. If applicable, the Profit Sharing
Contribution Account shall be divided into such subaccounts as are required
to reflect the Participant's interest in the various Investment Funds, as
described in Section 5 hereof.
(32) "Rollover Contributions" shall mean the amounts of Rollover
Contributions, if any, made by an Employee to the Plan, as more fully
described in Section 3.3 hereof.
(33) "Rollover Contribution Account" shall mean the balance
credited to the account of the Participant to reflect his interest in the
Trust Fund that is attributable to his Rollover Contributions, if any, to
the Plan as described in Section 3.3 hereof. The Rollover Contribution
Account shall be divided into such subaccounts as are required to reflect
the Participant's interest in the various Investment Funds, as described in
Section 5 hereof.
(34) "Salary Deferral Contributions" shall mean the contributions
made by the Employer on behalf of the Participant pursuant to Section 3.1
hereof.
(35) "Salary Deferral Contribution Account" shall mean the
balance credited to the individual account of the Participant to reflect
his interest in the Trust Fund that is attributable to his Salary Deferral
Contributions to the Plan. If applicable, the Salary Deferral Contribution
Account shall be divided into such subaccounts as are required to reflect
the Participant's interest in the various Investment Funds, as described in
Section 5 hereof.
(36) "Salary Reduction Agreement" means an agreement between a
Participant and the Employer under which the Employer reduces the
Participant's Compensation and the Employer contributes the amount of the
reduction to the Plan on behalf of the Participant as a Salary Deferral
Contribution.
(37) "Supplement" shall mean any Supplement that is attached to
and made a part of the Plan and which describes provisions or modifications
to the Plan which apply only to those employees of an Employer or Employers
specified in such supplement.
(38) "Suspended Matching and/or Profit Sharing Contribution
Account" shall mean the balance, if any, credited to the Participant in his
Matching and/or Profit Sharing Contribution Accounts as of his Initial
Distribution Date to which he is not entitled by reason of the provisions
of Section 4.3 hereof and which is maintained in a separate account pending
a Break in Service.
(39) "Total and Permanent Disability" shall mean disability
which, in the opinion of the Committee, on a uniform and nondiscriminatory
basis, causes a Participant to be totally and presumably permanently
disabled, due to physical or mental illness or injury, so as to be
completely unable to perform his usual duties for the Employer.
(40) "Trust" and "Trust Fund" shall mean the trust fund
established pursuant to the terms of the Trust Agreement.
(41) "Trust Agreement" shall mean the Fairfield Communities, Inc.
Savings/Profit Sharing Trust, originally adopted effective as of March 1,
1976, as set forth in the original agreement and as it may thereafter be
amended from time to time.
(42) "Trustee" shall mean the corporate trustee or trustees or
the individual trustee or trustees, as the case may be, appointed from time
to time pursuant to the provisions of the Trust Agreement to administer the
Trust Fund maintained for the purposes of the Plan.
(43) "Unallocated Limitation Account" shall mean that portion of
the Matching and/or Profit Sharing Contribution, if any, which is being
held unallocated due to the provisions of Section 7.2 hereof.
(44) "Valuation Date", effective for the Plan Year quarter
beginning July 1, 1994, shall mean the last day of the months of March,
June, September and December, and/or such other date or dates as may be
established by the Committee during the Plan Year.
(45) "Year of Service" means each twelve consecutive month period
during which an Employee has at least one thousand (1,000) Hours of
Service. For determining an Employee's eligibility under the Plan, his
"eligibility computation period" shall begin on the "employment
commencement date" for such Employee; thereafter, the eligibility
computation period shall be the "Plan Year", beginning with the Plan Year
which includes the first anniversary of a Participant's employment
commencement date. For determining a Participant's vested and
nonforfeitable interest in his Matching and Profit Sharing Contribution
Accounts, the "vesting computation period" shall be the Plan Year.
(B) The terms "herein," "hereof," "hereunder" and similar terms refer
to this document, including the Trust Agreement of which this document is a
part, unless otherwise qualified by the context.
(C) The pronouns "he," "him" and "his" used in the Plan shall also
refer to similar pronouns of the feminine gender unless otherwise qualified
by the context.
<PAGE>
SECTION 2
PARTICIPATION
-------------
2.1 ELIGIBILITY FOR INITIAL PARTICIPATION
Each person who was a Participant in the Plan on June 30, 1994, shall
continue to be a Participant in the Plan. Each former Participant employed
by Employer on June 30, 1994 who was rehired after January 1, 1994, but
before July 1, 1994, shall become a Participant in the Plan on July 1,
1994. Each other Employee shall become a Participant in the Plan on the
first Entry Date following the date the Employee becomes an "Eligible
Employee," as defined hereafter. For purposes of this Plan, an "Eligible
Employee" shall mean an Employee who has both (i) completed a Year of
Service, and (ii) attained age twenty-one (21).
2.2 LEAVE OF ABSENCE AND TERMINATION OF SERVICE
Any absence from the active service of the Employer by reason of an
approved absence granted by the Employer because of accident, illness,
layoff with the right of recall or military service, or for any other
reason on the basis of a uniform policy applied by the Employer without
discrimination, will be considered a leave of absence for the purposes of
the Plan and will not terminate an Employee's service provided he returns
to the active service of the Employer at or prior to the expiration of his
leave or, if not specified therein, within the period of time which accords
with the Employer's policy with respect to permitted absences.
Absence from the active service of the Employer because of compulsory
engagement in military service will be considered a leave of absence
granted by the Employer and will not terminate the service of an Employee
if he returns to the active service of the Employer within the period of
time during which he has reemployment rights under any applicable Federal
law or within 120 days from and after discharge or separation from such
compulsory engagement if no Federal law is applicable. No provision of
this section or in the Plan shall require reemployment of any employee
whose active service with the Employer was terminated by reason of military
service.
If the Employee does not return to the active service of the Employer
at or prior to the expiration of his leave of absence as above defined, his
service will be considered terminated as of the date on which his leave
expired or such earlier date of his resignation,quit, discharge or death;
provided, however, that if any such Employee, who is on a leave of absence
for any reason other than military service and who was a Participant in the
Plan on the date on which his leave began, is prevented from his timely
return to the active service of the Employer because of his Total and
Permanent Disability or his death, he shall be treated for the purposes of
Section 4.3 hereof as though he returned to active service immediately
preceding the date of his Total and Permanent Disability or his death.
In the event that an Employee's service with the Employer is
interrupted because of any absence from the active service of the Employer
which is not deemed a leave of absence as defined above, his service will
be considered terminated as of the date of his retirement, quit, discharge,
resignation or death or with respect to any other absence, the date on
which he last performed an Hour of Service.
In the event that an Employee's service with the Employer is not
interrupted because of his retirement, quit, discharge, resignation or
death or because of a leave of absence as defined above but such Employee
is credited with less than 501 Hours of Service during any Plan Year prior
to his attainment of the age of 65 years, exclusive of the Plan Year during
which his Employment Commencement Date occurred and exclusive of the Plan
Year during which he retires, quits, is discharged, resigns or dies, the
service of such Employee shall be deemed for the purposes of the Plan to
have been terminated as of the day immediately preceding the first day of
such Plan Year during which he was credited with less than 501 Hours of
Service. In the event that such an Employee is credited with 1,000 or more
Hours of Service during any subsequent Plan Year, he shall be deemed for
the purposes of the Plan to have reentered the service of the Employer on
the first day of such subsequent Plan Year during which he was credited
with 1,000 or more Hours of Service, and his Employment Commencement Date
shall be such first day of such subsequent Plan Year.
Transfers of an Employee's service among the Employers and Designated
Nonparticipating Employers shall not be deemed interruptions of his service
and shall not constitute a termination of service for the purposes of the
Plan.
2.3 PARTICIPATION FOLLOWING REEMPLOYMENT
(A) Each Participant whose service is terminated on or after
attaining full vesting (Vested Percentage of 100%), and who is subsequently
reemployed by the Employer and performs an Hour of Service will become a
Participant in the Plan as of such date of reemployment and will be treated
under the Plan as though his service had not previously terminated but,
instead, as though he had been on an approved leave of absence granted by
the Employer during the period between the date of his previous termination
of service and the date of his reemployment; provided, however, that (a) he
shall not be credited with Hours of Service for the purposes of vesting or
for the purposes of determining the allocations of Matching or Profit
Sharing Contributions and Amounts forfeited for such assumed leave of
absence and (b) if the date of his reemployment is subsequent to his
Initial Distribution Date and if there are any undistributed amounts
credited to his Distribution account as of the date of his reemployment,
unless the Participant has attained the age of 65 years as of the date of
his reemployment and so elects in writing filed with the Committee within
30 days following the date of his reemployment to receive such previously
undistributed amounts on and after the date of his reemployment in the same
manner as though he had not been reemployed, no further distributions
(except as provided in Section 8.5) shall be made from such account on and
after his date of reemployment and prior to his next following Initial
Distribution Date subsequently established pursuant to the provisions of
Section 8.1 hereof.
(B) Each Employee not included in Section (A) above whose
service is terminated and who is subsequently reemployed by the Employer
prior to a Break in Service and who performs an Hour of Service will be
treated under the Plan upon his reemployment as though his service had not
previously terminated but, instead, as though he had been on an approved
leave of absence granted by the Employer during the period between the date
of his previous termination of service and his date of reemployment;
provided, however, he shall not be credited with Hours of Service for
vesting or for the purposes of determining allocations of Matching or
Profit Sharing Contributions and Amounts Forfeited for such assumed leave
of absence. The amount credited to his Suspended Matching and Profit
Sharing Contribution Account, if any, as of his date of reemployment shall
not be included in the Amount Forfeited but shall be restored to a new
Matching and/or Profit Sharing Contribution Account on his behalf as of
such date of reemployment.
(C) Each Employee not included in Section (A) or (B) above whose
service is terminated and who is subsequently reemployed by the Employer
and performs and Hour of Service shall be treated under the Plan upon such
reemployment as though he then first entered the employment of the
Employer, except that the following special provisions shall apply:
(1) If either (a) such Employee had a vested percentage
which exceeded 0% as of the previous date of termination of his service or
(b) the number of consecutive Breaks in Service between such employee's
previous date of termination of service and the date of his reemployment is
less than either (i) five or (ii) the number of years of service which he
had accrued as of his previous date of termination of service, he shall be
entitled upon his date of reemployment to a reinstatement of the vesting
service which he had accrued as of his previous date of termination of
service, but he shall not accrue vesting service for the period between the
date of his previous termination of service and the date of his
reemployment.
(2) If the number of consecutive Breaks in Service between
the previous date of termination of service and the date of reemployment of
any such Employee included in (1) above is less than five, the Amount
Forfeited, if any, by the Participant under Section 8.2 hereof as of his
previous date of termination shall be restored as provided in Section (D)
below.
(D) If any such Participant described in Section (B) or (C)(2)
above for whom a Suspended Matching and/or Profit Sharing Contribution
Account or previously Amount Forfeited, whichever is applicable, was
restored to a new Matching and/or Profit Sharing Contribution Account as of
his date of reemployment, received a distribution attributable to his
Matching and/or Profit Sharing Contribution Account as of the previous date
of termination of his service, the Committee shall keep a record of the
amount of such distribution as of the previous date of termination of his
service for the purposes of Section 4.3 hereof. Such amount is herein
referred to as the "total debits against the Participant's Matching and/or
Profit Sharing Contribution Accounts for prior distributions".
(E) If there are any undistributed amounts credited to the
Distribution Account of any such former Participant included in Section (B)
or (C)(2) above as of the date of his reemployment, no further
distributions (except as provided in Section 8.5) shall be made from such
account on and after the date of his reemployment and prior to his next
following Initial Distribution Date subsequently established pursuant to
the provisions of Section 8.1 hereof. Any such previously undistributed
Distribution Account shall be maintained on behalf of the Participant on
and after his date of reemployment and subject to adjustment on each
following Valuation Date as specified in Section 7.1 and the Participant
shall always have a fully vested (100%) interest in such account.
(F) Any such Participant to whom the provisions of this Section
2.3 apply who was not entitled, for any reason, to an allocation under the
provisions of Section 7.3 hereof on the allocation dates, if applicable,
which occurred between the date of termination of his service and the date
of his reemployment, shall not be entitled to a retroactive allocation
under such section solely because of the provisions of this Section 2.3.
(G) The rights of any terminated Employee of a Designated
Nonparticipating Employer who is reemployed by an Employer shall be
determined in accordance with the provisions of the Plan in the same manner
as though he had been an Employee of the Employer on the date of
termination of his service; and the rights of any terminated Employee of an
Employer who is reemployed by a Designated Nonparticipating Employer shall
be determined in accordance with the provisions of the Plan in the same
manner as though such Employee had been reemployed by the Employer and had
immediately thereafter been transferred to such Designated Nonparticipating
Employer.
2.4 RIGHTS OF OTHER EMPLOYERS TO PARTICIPATE IN THE PLAN
(A) Any other corporation, association, joint venture,
proprietorship, or partnership may, in the future, adopt the Plan by
written action on its part in the manner described in Section 11.7 hereof
provided that the board of directors of the Company approves such
participation.
(B) The administrative powers and control of the board of
directors of the Company, as provided in the Plan, shall not be deemed
diminished under the Plan by reason of participation of any other Employers
in the Plan, and such administrative powers and control specifically
granted herein to the board of directors of the Company with respect to the
appointment of the Committee, amendment of the Plan and other matters shall
apply only with respect to the board of directors of the Company.
(C) The Plan is a single plan with respect to all Employers
unless the board of directors of the Company specifically provides that the
Plan shall be a separate plan with respect to any Employer or group of
Employers.
(D) Any Employer may withdraw at any time, with the consent of
the Board of Directors of the Company, without affecting the other
Employers in the Plan. The Employer wishing to withdraw must submit
written evidence of its determination to withdraw from the Plan and a
written request for consent to the withdrawal to the Committee and to the
Board of Directors of the Company. If the Board of Directors of the
Company consents to the withdrawal, the Employer wishing to withdraw must
furnish the Trustee with evidence of its determination to withdraw and the
Board of Directors' consent to the withdrawal. The Company, by formal
action on its part in the manner described in Section 11.7 hereof, may in
its absolute discretion terminate any Employer's participation at any time.
2.5 PARTICIPATION AND BENEFITS FOR PARTICIPANTS TRANSFERRED TO OR FROM
STATUS AS AN EMPLOYEE
It is contemplated that a Participant in the Plan may be transferred
to a Designated Nonparticipating Employer so that he will no longer qualify
as an Employee as defined herein, and, conversely, that a person in the
employment of a Designated Nonparticipating Employer may be transferred to
the status of an Employee as defined herein. The service of such a person
described above shall not be considered to be interrupted or terminated by
reason of any such transfer and a termination of service with the
Designated Nonparticipating Employer while not qualified as an Employee
shall be treated in the same manner as a termination of service with an
Employer while qualified as an Employee. In determining eligibility for
participation and vesting in the Plan of such an Employee with respect to
whom the provisions of this Section 2.5 are applicable, any period of
employment, which otherwise would be included in accordance with the
provisions of Sections 1.1(A)(17), 1.1(A)(45) and 2.1 hereof, which he
accrued with the Designated Nonparticipating Employers while not qualified
as an Employee as defined herein shall be included; provided, however, that
any such person transferred to the status of an Employee shall not be
eligible to become a Participant in the Plan prior to the date on which he
becomes an Employee as defined herein. The accounts of any such
Participant who has been transferred from the status of an Employee shall
be maintained on his behalf during the period that he is in the employment
of the Designated Nonparticipating Employer while not qualified as an
Employee in the same manner as though the Participant were on a leave of
absence granted by the Employer during such period, but he shall be
entitled to share in subsequent allocations of the Employer's Matching
and/or Profit Sharing Contributions, and Amounts Forfeited, only if he
received Compensation from the Employer during the Plan Year for which such
allocations are being made and provided he otherwise would have been
entitled to share in such allocations if he had not been transferred to a
Designated Nonparticipating Employer. In determining the amount to be
allocated during any Plan Year that the Employee received Compensation from
the Employer and a Designated Nonparticipating Employer, his total
Compensation from both the Employer and the Designated Nonparticipating
Employer during the Plan Year shall be used and then prorated based on the
ratio that the number of Hours of Service while an Employee of the Employer
bears to the total number of Hours of Service with the Employer and the
Designated Nonparticipating Employer during such Plan Year.
<PAGE>
SECTION 3
SALARY DEFERRAL CONTRIBUTIONS
PARTICIPANT CONTRIBUTIONS
AND ROLLOVER CONTRIBUTIONS
-----------------------------
3.1 SALARY DEFERRAL CONTRIBUTIONS
(A) Amount of Salary Deferral Contributions: Subject to Section
3.1(E) below and to such rules of uniform application as the Committee may
adopt, each Eligible Employee may elect to have the Employer make Salary
Deferral Contributions through payroll deduction on his behalf pursuant to
a Salary Reduction Agreement of any amount that is an integral percentage
of not less than 1% nor more than 15% of his Compensation for the
applicable payroll period; provided, however, any such Participant's Salary
Deferral Contributions shall not exceed (i) an amount which would cause his
annual addition to exceed the maximum amount of annual addition which may
be made for the Limitation Year under Section 7.2 hereof, or (ii) $9,240
(as adjusted from time to time by the Secretary of the Treasury at the same
time and in the same manner as under Section 415(d) of the Code) for any
calendar year.
(B) Initial Authorization for Salary Deferral Contributions:
All Salary Reduction Agreements shall be in writing and Salary Deferral
Contributions made pursuant to such agreement shall be authorized in
writing by the Participant and shall be filed with the Committee. Any such
Salary Reduction Agreement shall continue in effect for as long as the
Participant remains an Employee or until he elects to suspend or change his
rate of Salary Deferral Contributions to the Plan as provided in Section
3.1(C) below.
(C) Right of Participant to Suspend or Change His Rate of Salary
Deferral Contributions: Except as set forth below, a Participant may
change his rate of his Salary Deferral Contributions effective as of any
Valuation Date. A Participant may suspend his Salary Deferral
Contributions effective as soon as administratively practicable as of the
end of any payroll period subsequent to filing proper authorization.
Except as provided in Section 3.1(E) below with respect to certain required
suspensions, a Participant who suspends his Salary Deferral Contributions
may not resume such contributions until the next Valuation Date. Any such
change of rate or resumption of Salary Deferral Contributions must be made
by the Participant in writing filed with the Committee at least 15 days
prior to the effective date of the change or resumption.
A Participant whose Salary Deferral Contributions are suspended
during a period of leave of absence or who is reemployed following a
termination of service may elect, upon his return to active employment with
the Employer, to have the Employer resume Salary Deferral Contributions on
his behalf to the Plan. Any such election shall be in writing filed with
the Committee and shall specify the percentage of Salary Deferral
Contributions to be deducted from his Compensation.
(D) Crediting and Depositing Salary Deferral Contributions: The
Salary Deferral Contributions to the Plan shall be paid by the Employer to
the Trustee as promptly as practicable after they are deducted from the
Participant's Compensation and shall be credited to the Participant's
Salary Deferral Contribution Account no later than the Accounting Date next
following the date the contributions were deducted in accordance with
Section 7.3 hereof. The Participant's Salary Deferral Contribution Account
shall at all times be 100% vested and, except as provided in Section 8.5
hereof with respect to certain permissible in-service withdrawals, Section
14 with respect to Plan Loans and Section 11.4 with respect to termination
or partial termination of the Plan, distribution of such account shall be
made in accordance with the provisions of Section 8 hereof.
(E) Salary Deferral Contributions Subject to Nondiscrimination
Requirements of Section 401(k) of the Code: For any given Plan Year the
"average deferral percentage" (as defined herein) for all Eligible
Employees who are Highly Compensated Employees for such Plan Year may not
exceed the greater of:
(a) One and one-quarter (1.25) times the "average deferral
percentage" for all Eligible Employees who are Non-highly Compensated
Employees for such Plan Year; or
(b) Two (2.0) times the "average deferral percentage" for
all Eligible Employees who are Non-highly Compensated Employees for such
Plan Year, but not more than the sum of (i) 2% and (ii) the "average
deferral percentage" for all Eligible Employees who are Non-highly
Compensated Employees.
An individual "deferral percentage" is calculated for each Eligible
Employee each Plan Year by dividing his Salary Deferral Contributions, if
any, to the Plan during the Plan Year by his Compensation for that portion
of the Plan Year during which he was a Participant in the Plan. The
"average deferral percentage" for the Highly Compensated Employees and the
"average deferral percentage" for the Non-highly Compensated Employees are
then determined by adding up the individual deferral percentages for the
applicable group and dividing by the number of Eligible Employees in such
group. For purposes of this Section 3.1(E), Eligible Employee includes any
Employee eligible to elect to have Salary Deferral Contributions withheld
from his compensation pursuant to Section 3.1(A) above, whether or not such
election is exercised.
If the Committee determines that a Participant's Salary Deferral
Contributions under Section 3.1(A) hereof for any Plan Year would cause the
Plan to fail to meet the nondiscrimination requirements of this subsection
(E) or Section 401(k) of the Code and the regulations thereunder, then the
Committee shall take any or all of the following preventive measures as, in
its sole discretion, it deems necessary to avoid such discrimination:
(1) From time to time during such Plan Year, reduce (or suspend,
if necessary) the rate of Salary Deferral Contributions for the remainder
of the Plan Year of those Participants who are Highly Compensated Employees
(such reduction first to apply to the highest rate on a uniform basis to
all such Participants who are contributing the highest rate, and so on, in
descending order from the highest rate); or
(2) Distribute any Excess Deferrals (defined herein) plus any
income allocable thereto, no later than the last day of the Plan Year
immediately following the Plan Year in which such Excess Deferrals were
made, to those Highly Compensated Employees to whose accounts Salary
Deferral Contributions were allocated for such Plan Year in which the
excess occurred, on the basis of their respective portions of the Excess
Deferrals attributable to each of such Employees. Such distribution must
be designated by the Employer as a distribution of Excess Deferrals and
allocable income. "Excess Deferrals" shall mean, with respect to any Plan
Year, the aggregate amount of Salary Deferral Contributions actually paid
over to the Trust on behalf of Highly Compensated Employees for such Plan
Year, over the maximum amount of such contributions permitted under this
subsection (E), determined by reducing deferrals made on behalf of Highly
Compensated Employees in order of the actual deferral percentages beginning
with the highest of such percentages. ANY MATCHING CONTRIBUTIONS
DETERMINED UNDER SECTION 4.1(B) BELOW MADE OR ALLOCATED ON ACCOUNT OF AN
EXCESS DEFERRAL SHALL BE FORFEITED AND REALLOCATED AS PROVIDED IN SECTION
8.2(B); SUCH FORFEITURE SHALL BE EFFECTED PRIOR TO THE APPLICATION OF
SECTION 4.1(D) BELOW. Excess Deferrals shall be treated as Annual
Additions under Section 7.2 of the Plan; or
(3) Take such other action as may be permissible under
regulations published under Section 401(k) of the Code to avoid such
discrimination.
The Committee shall establish such rules and give such directions to
the Trustee as shall be appropriate to carry out the above provisions of
this section. In any event, the following special rules shall be
applicable in administering the provisions of this subsection (E):
(a) The deferral percentage for any Participant who is a Highly
Compensated Employee for the Plan Year and who is eligible to have Salary
Deferral Contributions allocated to his account under two or more
arrangements described in Section 401(k) of the Code that are maintained by
the Employer, shall be determined as if such Contributions were made under
a single arrangement.
(b) If two or more plans which include arrangements described in
Code Section 401(k) are aggregated for purposes of Sections 401(a)(4) or
410(b), such arrangements shall be treated as one such arrangement.
(c) For purposes of determining the deferral percentage of a
Participant who is a 5% Owner (as defined in Code Section 416(i)(1)) or one
of the ten most highly paid Highly Compensated Employees, the Salary
Deferral Contributions and Compensation of such Participant shall include
the Salary Deferral Contributions and Compensation of Family Members (as
defined in Code Section 414(q)(6)(B)), and such Family Members shall be
disregarded as separate Employees in determining the deferral percentage
for such Participants. In the case of a Highly Compensated Employee whose
deferral percentage is determined under this family aggregation rule, the
determination and correction of Excess Deferrals shall be according to
Regulation Section 1.401(k)-1(f)(5)(ii).
(d) The income allocable to Excess Deferrals is equal to the sum
of the allocable gain or loss (i) for the Plan Year and (ii) for the period
between the end of the Plan Year and the date of distribution (the "gap
period") and shall include unrealized appreciation in assets held in the
Trust Fund. The income allocable to Excess Deferrals for the Plan Year
shall be determined by multiplying the income allocable to the
Participant's Salary Deferral Contributions for the Plan Year by a
fraction, the numerator of which is the Excess Deferrals on behalf of the
Participant for the preceding Plan Year and the denominator of which is the
Participant's total account balance attributable to Salary Deferral
Contributions on the last day of the preceding Plan Year, reduced by the
gain allocable to such total amount for the Plan Year and increased by the
loss allocable to such total amount for the Plan Year. The income
allocable to Excess Deferrals for the gap period shall be determined in
accordance with the Safe Harbor Method referred to in the Treasury
regulations under Section 401(k) of the Code.
3.2 PARTICIPANT'S CONTRIBUTIONS
Participants are not required to make contributions to the Plan.
However, subject to the limitations of Sections 4.1(D) and 7.2 hereof, and
to such rules of uniform application as the Committee may adopt, each
Participant may elect to make optional contributions to the Plan of an
amount not to exceed 10% of his Compensation as received by him while a
Participant. The Committee shall have the power to establish uniform and
nondiscriminatory rules and from time to time to modify or change such
rules governing the manner and method by which the Participant's
contributions shall be made. A Participant's Contributions made under the
Plan shall at all times be 100% vested.
To the extent Participant's Contributions are permitted, they may be
made by payroll deduction, which the Participant shall authorize the
Employer to make on written authorization forms approved and designated by,
and filed with, the Committee. Any such authorization to make the
contributions by payroll deduction shall be effective on the first
Valuation Date which is 15 or more days following the Committee's receipt
of the payroll deduction authorization.
The right of a Participant to elect to contribute to the Plan is
entirely optional and the Participant may accordingly change his rate of
contributions to the Plan as of any Valuation Date, subject to the maximum
rates specified above, or he may suspend such contributions effective as
soon as administratively practicable as of the end of any payroll period
subsequent to filing proper authorization. Any change of rate of
contributions must be made by the Participant in writing filed with the
Committee at least 15 days prior to the effective date of the change;
provided, however, not more than one such change shall be made within one
Plan Year and having once suspended contributions, a Participant may not
resume contributions until after the expiration of one full year from the
date such contributions were suspended.
3.3 ROLLOVER CONTRIBUTIONS
(A) Type of Rollovers Permitted Under Plan: The Committee shall
direct the Trustee to accept a Rollover Contribution from or on behalf of
an Employee eligible to receive an "eligible rollover distribution" (within
the meaning of Sections 402(c)(4), 403(a)(4) and 408(d)(3) of the Code).
The Rollover Contribution shall be accepted whether received from the
Employee or transferred directly from another "eligible retirement plan" as
defined in Section 402(c)(8) of the Code. The rollover of all or any part
of an eligible rollover distribution shall be in accordance with the
provisions of Section 402(c) of the Code, and other applicable laws and
regulations, including Regulation Section 1-411(d)-4, Q&A-3(b)(1), and the
Committee may require whatever evidence or information from the Employee as
it may deem necessary to comply with said laws and regulations. However,
the Committee shall not accept any part of an eligible rollover
distribution which consists of assets which are other than (i) cash or
equivalents or (ii) assets which are identical to those which Participants
may direct the Trustee to purchase under the terms of the Plan, if
applicable. An Employee need not be a Participant in order to make a
Rollover Contribution and in the event that a Rollover Contribution is
accepted on behalf of an Employee prior to the date that he becomes a
Participant in the Plan, he shall be treated as a Participant as of the
date of acceptance by the Committee of such Rollover Contribution, but his
benefits under the Plan prior to the date he actually becomes a Participant
in accordance with Section 2.1 hereof shall be limited to the balance
credited to his Rollover Contribution Account. Any such Rollover
Contribution Account maintained on behalf of a Participant prior to the
date he actually becomes a Participant shall be included with the other
Rollover Contribution Accounts for the purposes of Section 7.1 hereof.
(B) Application to Committee: The Employee shall make
application for the rollover in writing to the Committee on forms approved
and designated by the Committee.
(C) Acceptance by Committee: Contributions under Section 3.3(A)
above so accepted as a rollover to the Plan shall be commingled with the
assets of the Trust Fund and shall be managed according to the terms of the
Trust Agreement; provided, however, that, unless the date of acceptance of
the Rollover Contribution coincides with a Valuation Date, the Trustee
shall hold any such Rollover Contribution in a separate interest bearing
account in the Trust Fund until the next following Valuation Date.
(D) Separate Account: The Committee shall establish and
maintain (or cause to be maintained) a separate account, called the
"Rollover Contribution Account," for each Employee for whom a Rollover
Contribution is accepted, and the Participant shall be credited immediately
with a fully (100%) vested interest in the amount represented by the
Rollover Contribution so accepted. The Rollover Contribution Account will
reflect the Participant's interest in the funds credited on his behalf
under the Plan as a result of his Rollover Contribution.
<PAGE>
SECTION 4
EMPLOYER'S CONTRIBUTIONS
------------------------
4.1 AMOUNT OF EMPLOYER'S CONTRIBUTIONS
(A) Subject to the right reserved by the Employer to modify,
amend or terminate the Plan, as provided in Sections 11.3 and 11.4 hereof,
and subject to the limitations set forth in Section 4.1(D) below, each
Employer (or, with respect to a group of Employers, if any, with respect to
which the Plan represents a single plan who file a consolidated tax return,
the group of such Employers) shall make a contribution (or combined
contribution) each Plan Year to the Trustee in an amount determined in (B)
below.
(B) At the sole discretion of Employer (or group of Employers),
the Employer's Contributions for the Plan Year may include a quarterly
"Matching Contribution" which, if made, shall apply to those Participants
in the Plan during the current Plan Year who made Salary Deferral
Contributions to the Plan during the year, and who are entitled to share in
such contribution for the quarter as provided in Section 7.3(C)(1).
Additionally, at the sole discretion of Employer (or group of Employers),
the Employer's Contributions for the Plan Year may include an annual
"Profit Sharing Contribution" which, if made, shall apply to all
Participants in the Plan during the current Plan Year, who are entitled to
share in such contribution for the Plan Year as provided in Section
7.3(C)(2). Both the Matching Contribution and/or the Profit Sharing
Contribution, if made, shall be an amount which the Employer (or with
respect to such a group of Employers, the board of directors of the parent
corporation) authorizes and announces in writing for the applicable period;
provided, however, that the Employer's Contributions on behalf of any
Participant may be reduced if required and to the extent necessary to lower
his annual addition for the Limitation Year to such amount as is
permissible under Section 7.2 hereof; and provided further, however, that
the Employer's Contributions for any Plan Year shall not exceed the maximum
amount of contribution permitted by law as a tax deductible expense for the
applicable fiscal year as provided in Section 404 of the Code, or any other
applicable provisions of said Code.
(C) The Matching Contributions shall be paid by the Employer to
the Trustee not later than thirty (30) days after the close of the Plan
Year for which the contributions are deemed to be made. Any Profit Sharing
Contribution made by the Employer for the Plan Year shall be paid not later
than the time prescribed by law for filing the federal income tax return of
Employer for such Plan Year including any extensions.
(D) Employer Matching and Participant Contributions Subject to
Nondiscrimination Requirements of Section 401(m) of the Code. For any
given Plan Year, the "average contribution percentage" (as defined herein)
for all Eligible Employees who are Highly Compensated Employees for such
Plan Year may not exceed the greater of:
(a) One and one-quarter (1.25) times the "average
contribution percentage" for all Eligible Employees who are Non-highly
Compensated Employees for such Plan Year; or
(b) Two (2.0) times the "average contribution percentage"
for all eligible Employees who are Non-highly Compensated Employees for
such Plan Year, but not more than the sum of (i) 2% and (ii) the "average
contribution percentage" for all Eligible Employees who are Non-highly
Compensated Employees.
An individual "contribution percentage" is calculated for each
Eligible Employee each Plan Year by dividing the total of his Matching and
Participant Contributions determined under Sections 3.2 and 4.1 and
allocated to him, if any, during the Plan Year by his Compensation for that
portion of the Plan Year during which he was a Participant in the Plan.
The "average contribution percentage" for the Highly Compensated Employees
and the "average contribution percentage" for the Non-highly Compensated
Employees are then determined by adding up the individual contribution
percentages for the applicable group and dividing the number of Eligible
Employees in such group. For purposes of this Section 4.1(D), Eligible
Employee includes any Employee eligible to elect to have Salary Deferral
Contributions or Participant Contributions withheld from his Compensation,
whether or not such election is exercised.
If the Committee determines that a Participant's Matching or
Participant Contributions for any Plan Year would cause the Plan to fail to
meet the nondiscrimination requirements of this subsection (D) or Section
401(m) of the Code and the regulations thereunder (including Regulation
Section 1-401(m)-2(b)), then the Committee (subject to the order of
priority specified below in subparagraph (2)) shall take any or all of the
following preventive measures as, in its sole discretion, it deems
necessary to avoid such discrimination:
(1) From time to time reduce (or suspend, if necessary) the rate
of Matching and/or Participant Contributions for the remainder of the Plan
Year of those Participants who are Highly Compensated Employees (such
reduction first to apply to the highest rates on a uniform basis to all
such Participants who are making or receiving the highest percentages of
Matching or Participant Contributions, and so on, in descending order from
the highest percentage); or
(2) Excess Contributions (as defined herein) plus any income
allocable thereto, first shall be forfeited, if forfeitable, or if not
forfeitable, distributed no later than the last day of the Plan Year
immediately following the Plan Year in which such Excess Contributions were
made, to those Highly Compensated Employees to whose accounts Matching or
Participant Contributions were allocated for such Plan Year in which the
excess occurred, on the basis of their respective portions of the Excess
Contributions attributable to each of such Employees. Such distributions
must be designated by the Employer as a distribution of Excess
Contributions and allocable income. "Excess Contributions" shall mean,
with respect to any Plan Year, the aggregate amount of Matching and/or
Participant Contributions actually paid over to the Trust on behalf of
Highly Compensated Employees for such Plan Year, over the maximum amount of
such contributions permitted under this subsection (D), determined by
reducing Matching and/or Participant Contributions made on behalf of Highly
Compensated Employees in order of the actual contribution percentages
beginning with the highest of such percentages. Excess Contributions shall
be treated as Annual Additions under Section 7.2 of the Plan. The extent
to which a Participant's Excess Contribution shall be forfeitable under
this subparagraph (2) shall be determined by multiplying the total amount
of Matching Contributions comprising such Excess Contribution by the
Participant's non-vested percentage determined in accordance with Section
4.3 of the Plan, if applicable. Forfeitures of Excess Contributions shall
be reallocated as provided in Section 8.2(B); or
(3) Take such other action as may be permissible under
regulations published under Section 401(m) of the Code to avoid such
discrimination.
The Committee shall establish such rules and give such directions to
the Trustee as shall be appropriate to carry out the above provisions of
this section. In any event, the following special rules shall be
applicable in administering the provisions of this subsection (D):
(a) The contribution percentage for any Participant who is a
Highly Compensated Employee and who is eligible to participate in two or
more plans that are maintained by the Employer to which employee
contributions, matching contributions, or both, are made, shall be
determined as if such contributions were made under a single plan.
(b) In the event that the Plan satisfies the requirements of
Section 410(b) of the Code only if aggregated with one or more other plans,
or if one or more other plans satisfy the requirements of Section 410(b) of
the Code only if aggregated with this Plan, then this section shall be
applied by determining the contribution percentages of Participants as if
all such plans were a single plan.
(c) For purposes of determining the contribution percentage of a
Participant who is a 5% owner (as defined in Code Section 416(i)(1)) or one
of the ten (10) most highly-paid Highly Compensated Employees, the
Participant and/or Matching Contributions and Compensation of such
Participant shall include the Participant and/or Matching Contributions and
the Compensation of Family Members (as defined in Code Section
414(q)(6)(B)), and such Family Members shall be disregarded as separate
Employees in determining the contribution percentage for such Participants.
In the case of a Highly Compensated Employee whose contribution percentage
is determined under this family aggregation rule, the determination and
correction of Excess Contributions shall be according to Regulation Section
1-401(m)-1(e)(2)(iii).
(d) The income allocable to Excess Contributions is equal to the
sum of the allocable gains or loss (i) for the Plan Year and (ii) for the
period between the end of the Plan Year and the date of distribution (the
"gap period") and shall include unrealized appreciation in assets held in
the Trust Fund. The income allocable to Excess Contributions shall be
determined by multiplying the income or loss allocable to the Participant's
Matching and/or Participant Contributions for the Plan Year by a fraction,
the numerator of which is the Excess Contributions on behalf of the
Participant for the preceding Plan Year and the denominator of which is the
Participant's total account balance attributable to Matching and/or
Participant Contributions on the last day of the preceding Plan Year,
reduced by gain allocable to such total amount for the Plan Year and
increased by the loss allocable to such total amount for the Plan Year.
The income allocable to Excess Contributions for the gap period shall be
determined in accordance with the Safe Harbor Method referred to in the
Treasury regulations under Section 401(m) of the Code.
(e) The determination of Excess Contributions under this Section
4.1(D) shall be made only after first determining the amount, if any, of
Excess Deferrals under Section 3.1(E) above.
4.2 LIMITATION ON USE OF "TWO TIMES" TEST.
(A) Limitation Described. In no event may the sum of: (i) the
average deferral percentages of Highly Compensated Employees, as determined
under Section 3.1(E), and (ii) the average contribution percentages of
Highly Compensated Employees, as determined under Section 4.1(D), exceed
the "Aggregate Limit".
(B) Aggregate Limit Defined. The "Aggregate Limit" is the
greater of:
(1) The sum of:
(a) 1.25 times the greater of: (i) the average
deferral percentage of Employees who are Non-highly Compensated Employees
as determined under Section 3.1(E), or (ii) the Average Contribution
Percentage of Employees who are Non-highly Compensated Employees as
determined under Section 4.1(D), plus
(b) Two percentage points plus the lesser of the
amounts described in clause (1)(a)(i) and (1)(a)(ii) above, but not to
exceed 200 percent of the lesser of the amounts described in clause
(1)(a)(i) and (1)(a)(ii) above; or
(2) The sum of:
(a) 1.25 times the lesser of: (i) the average
deferral percentage of Employees who are Non-highly Compensated Employees
as determined under Section 3.1(E), or (ii) the Average Contribution
Percentage of Employees who are Non-highly Compensated Employees as
determined under Section 4.1(D), plus
(b) Two percentage points plus the greater of the
amounts described in clause (2)(a)(i) and (2)(a)(ii) above, but not to
exceed 200 percent of the greater of the amounts described in clause
(2)(a)(i) and (2)(a)(ii) above.
4.3 VESTING OF MATCHING AND PROFIT SHARING CONTRIBUTION ACCOUNTS
Except as hereinafter provided, the vested interest of each
Participant in his Matching and Profit Sharing Contribution Accounts shall
equal the excess, if any, of:
(a) the product of:
(i) the Participant's vested percentage as specified in the
schedule below, based upon his number of Years of Service as of the date of
termination of his service;
multiplied by
(ii) the sum of:
(aa) the net credit balance in his Matching and/or
Profit Sharing Contribution Accounts as of his Initial Distribution Date;
and
(bb) the "total debits against the Participant's
Matching and/or Profit Sharing Contribution Accounts for prior
distributions" (as defined in Section 2.3(D) hereof), if any;
over
(b) the "total debits against the Participant's Matching and/or
Profit Sharing Contribution Accounts for prior distributions" (as defined
in Section 2.3(D) hereof), if any.
Years of Service Percentage Vested
---------------- -----------------
Less than 3 years 0%
3 years 20%
4 years 40%
5 years 60%
6 years 80%
7 years 100%.
If the Participant previously shall have made a withdrawal from his
Matching and/or Profit Sharing Contribution Accounts in accordance with
Section 8.5, the sum of such amounts previously withdrawn by or distributed
to the Participant shall, for purposes of this Section, be treated as part
of "total debits against Participant's Matching and/or Profit Sharing
Contribution Accounts for prior distributions" as defined in Section
2.3(D).
4.4 VESTING ON DEATH, DISABILITY OR NORMAL RETIREMENT
Upon a Participant's death, severance of employment due to Total and
Permanent Disability, or attainment of age 65, the full amount of his
Matching and Profit Sharing Contribution Accounts shall become vested and
nonforfeitable.
4.5 VESTING IF PLAN TERMINATED OR EMPLOYER CONTRIBUTIONS DISCONTINUED
Notwithstanding any other provisions of this Section 4, if the Plan is
terminated or Employer contributions to the Trust Fund are permanently
discontinued, the full amount of each Participant's Matching and Profit
Sharing Contribution Accounts shall become fully vested and nonforfeitable.
If the Plan is partially terminated, then the accounts of those
Participants as to whom partial termination occurred shall be fully vested
and nonforfeitable.
4.6 CHANGE IN VESTING SCHEDULE
As to each Employee who had no less than 3 Years of Service on the
date any Plan amendment which directly or indirectly changes the vesting
schedule becomes effective, such Employee may elect to have his vesting
percentage computed without regard to such amendment. Such election will
be irrevocable and must be made in writing to Employer not later than the
latest of the following dates:
(1) 60 days after the amendment is adopted;
(2) 60 days after the effective date of the amendment;
(3) 60 days after the date the Employee is given written notice
of the amendment by the Employer.
<PAGE>
SECTION 5
INVESTMENT OF CONTRIBUTIONS
---------------------------
5.1 INVESTMENT FUNDS
(A) Investment Funds. The Trustee shall establish such
investment funds ("Investment Funds") as the Committee in its discretion
shall direct. Initially, the Trustee shall establish a single Investment
Fund. At the direction of the Committee, the Trustee shall establish other
funds. Such other funds shall be established without necessity of
amendment to this Plan or the Trust and shall have the investment
objectives prescribed by the Committee and consented to by the Trustee.
(b) Investment by Directions of Participants. After such date
as the Trustee establishes more than one Investment Fund, each Participant
will be permitted to direct the investment of such of his accounts as the
Committee shall determine, and the sub-accounts established thereunder, in
accordance with this Section. Investment elections may be made in
accordance with the following procedures:
(1) Investment of Contributions. A Participant may elect
on a form provided by the Committee the percentage or amount of future
contributions that will be made on his behalf to each Fund. Such election
shall be effective for contributions attributable to pay periods ending
after the first Valuation Date which is 15 or more days following the
Commitee's receipt of proper authorization.
(2) Investment of Existing Account Balances. A Participant
may elect on a form provided by the Committee the percentage of his
existing accounts which shall be invested in each Investment Fund. Such
election shall be effective as of the first Valuation Date which is 15 or
more days following the Committee's receipt of proper authorization.
(3) Conditions Applicable to Elections. The Committee
shall have complete discretion to modify the procedures including
applicable election deadlines and the frequency for making and modifying
investment elections hereunder. Any such changes may be made by resolution
of the Board of Directors, or its delegate, without the necessity for any
modification of this Plan document.
<PAGE>
SECTION 6
INDIVIDUAL ACCOUNTS
-------------------
6.1 ESTABLISHING AND MAINTAINING PARTICIPANT'S ACCOUNTS
(A) The Committee shall cause to be established and maintained
for each Participant until his Initial Distribution Date, or until such
later date as of which distribution of the value in such accounts is made,
with respect to each Employer (or group of Employers with respect to which
the Plan represents a single plan) by which the Participant is or has been
employed, three separate accounts, called the "Salary Deferral Contribution
Account," the "Matching Contribution Account," and the "Profit Sharing
Contribution Account". These Accounts also may consist of such subaccounts
as are required to reflect the Participant's interest in the various
Investment Funds in accordance with his directions as specified in Section
5 hereof.
(B) In addition to the separate accounts described in Section
6.1(A) above, the Committee shall cause to be established and maintained
for each applicable Participant until his Initial Distribution date or
until such later date as of which distribution of the value in such account
is made: (1) the Rollover Contribution Account described in Section 3.3
hereof and (2) the Participant Contribution Account described in Section
3.2 hereof. The additional Accounts created pursuant to this Section
6.1(B) may consist of such subaccounts as are required to reflect the
Participant's interest in the various Investment Funds in accordance with
his directions as specified in Section 5 hereof.
(C) Each such account and subaccount maintained on behalf of
each Participant shall be credited or debited to the extent required by the
provisions of the Plan. All entries on such individual accounts shall be
conclusive and binding upon all parties unless patently erroneous. Monies
derived from these accounts shall be held, administered, invested and
disbursed in accordance with the Plan and Trust Agreement.
<PAGE>
SECTION 7
ACCOUNTING
----------
7.1 VALUATION OF ACCOUNTS
As of each Valuation Date, and as of such other interim dates as may
be established by the Committee, the Trustee shall determine the fair
market value of the Investment Funds established under Section 5, and shall
determine the gain or loss experienced by each such Fund since the
immediately preceding Valuation Date. Each Participant's account shall be
credited with a percentage of such Participant's gain or debited with a
percentage of such loss by multiplying the aggregate gain or loss of the
Fund by a fraction the numerator of which for each Participant is the value
of the Participant's interest in the Fund as of the Valuation Date in
question determined before allocation of any earnings, forfeitures and
contributions, and the denominator is the sum of the numerator amounts for
all Participants. The Committee, with the consent of the Trustee, may
establish alternative procedures for allocating on a fair and consistent
basis, earnings and losses of the Trust Fund. Such alternative procedures
may be contained in a resolution of the Board of Directors of the Employer
without the necessity of amending this Plan document.
The value of each Investment Fund as of each Valuation Date will be
determined on the basis of the fair market value of the assets of such
Investment Fund as appraised by the Trustee.
7.2 MAXIMUM ANNUAL ADDITION ON BEHALF OF ANY PARTICIPANT DURING ANY
LIMITATION YEAR
(A) The term "annual addition" as used herein means the sum for
any Limitation Year of:
(1) The amount of the Participant's Salary Deferral
Contributions, Employer's Contributions and forfeitures, if any, allocated
on his behalf for the Limitation Year;
(2) Any salary deferral contributions, employer
contributions and forfeitures allocated on his behalf under all other
Defined Contribution Plans of the Controlled Group Members; and
(3) Any "after-tax" participant contributions by the
Participant for such Limitation Year under the Plan and all other Defined
Contributions Plans of the Controlled Group Members.
(B) Any provisions herein to the contrary notwithstanding, in no
event shall the annual addition of a Participant during any Limitation Year
exceed the maximum limitation for Defined Contribution Plans as specified
in Section 415(c) of the Code. In determining the maximum annual addition
that may be allocated on behalf of any Participant during any Limitation
Year, all Defined Contribution Plans, whether or not terminated, of all
Controlled Members are to be treated as one Defined Contribution Plan. The
proportion of the maximum annual addition applicable to all such Defined
Contribution Plans of such Controlled Group Members during any Limitation
Year shall be determined on a pro rata basis depending upon the amount of
the annual addition that would have otherwise been allocated on his behalf
under each such Defined Contribution Plan during such Limitation Year if
the restriction of this Section 7.2 did not apply. The term "IRC 415
Compensation" shall have the meaning assigned in Section 415 of the Code
and regulations issued with respect thereto. Such compensation shall
include (i) earned income (including earned income from sources outside the
United States, as defined in Section 911(b) of said Code, whether or not
excludable from gross income under Section 911 or deductible under Section
913 of said Code), wages, salaries, fees for professional services, and
other amounts received for personal services actually rendered in the
course of employment with the employer (including, but not limited to,
commissions paid salesmen, compensation for services on the basis of a
percentage of profits, commissions on insurance premiums, tips and
bonuses), (ii) amounts described in Sections 104(a)(3), 105(a) and 105(h)
of the Code, but only to the extent that these amounts are includable in
the gross income of the Participant, (iii) amounts described in Section
105(d) of the Code, whether or not these amounts are excludable from the
gross income of the Participant under that section of said Code, (iv)
amounts paid or reimbursed by the employer for moving expenses incurred by
the Participant, but only to the extent that these amounts are not
deductible by the Participant under Section 217 of the Code, (v) the value
of a nonqualified stock option granted to the Participant by the employer,
but only to the extent that the value of the stock option is includable in
the gross income of the Participant for the taxable year in which granted,
(vi) the amount includable in the gross income of the Participant upon
making the election described in Section 83(b) of the Code and (vii) any
amounts received by the Participant pursuant to an unfunded non-qualified
plan in the year such amounts are includable in the gross income of the
Participant. Such compensation shall exclude (i) contributions by the
employer to a plan of deferred compensation which are not included in the
Participant's gross income for the taxable year in which contributed, (ii)
contributions by the employer under a simplified employee pension plan to
the extent such contributions are deductible by the Participant, (iii) any
distribution from a plan of deferred compensation that is qualified
pursuant to Section 401(a) of the Code, (iv) amounts realized from the
exercise of a nonqualified stock option, (v) amounts realized when
restricted stock (or property) held by the employee either becomes freely
transferable or is no longer subject to a substantial risk of forfeiture,
(vi) amounts realized from the sale, exchange or other disposition of stock
acquired under a qualified stock option, (vii) other amounts which received
special tax benefits and (viii) contributions made by the employer (whether
or not under a salary reduction agreement) towards the purchase of an
annuity described in Section 403(b) of the Code (whether or not the amounts
are actually excludable from the gross income of the Participant).
Notwithstanding the foregoing, the annual Compensation of each Participant
under this Section 7.2 shall not exceed $200,000 or such other amount as
may be specified by the Secretary of the Treasury pursuant to his duties
under Section 401(a)(17) of the Code.
Maximum Annual Addition Due to Restrictions of Section
415(c) of the Code: The total annual addition (the total applicable to all
such Defined Contribution Plans of the Controlled Group Members) which may
be allocated on behalf of a Participant during any Limitation Year shall
not exceed an amount equal to the lesser of:
(a) $30,000 or, if greater, one-fourth (1/4) of the
defined benefit dollar limitation set forth in Section 415(b)(1)(A) of the
Code as in effect as of the last day of such Limitation Year; or
(b) An amount equal to 25% of the IRC 415 Compensation
which the Participant received from the Controlled Group Members during
such Limitation Year.
(C) The above limitations are intended to comply with the
provisions of Section 415 of the Code so that the maximum benefits provided
by plans of the Controlled Group Members shall be exactly equal to the
maximum amounts allowed under Section 415 of the Code and the regulations
issued thereunder which are hereby incorporated by reference. If there is
any discrepancy between the provisions of this Section 7.2 and the
provisions of Section 415 of the Code and the regulations issued
thereunder, such discrepancy shall be resolved so as to give full effect to
the provisions of Section 415 of said Code.
(D) Defined Benefit and Defined Contribution Plans. Where the
Participant is or was also a Participant in one or more defined benefit
plans of the Employer, the sum of such Participant's defined benefit plan
fraction and defined contribution plan fraction, as determined pursuant to
Code Section 415(e) (as modified by Section 416(h) of the Code to the
extent applicable), for any Plan Year may not exceed one (1). The Employer
may, in calculating the defined contribution plan fraction, elect to apply
the transitional rule provided in Section 415(e)(6) of the Code. In the
event that the sum of Participant's defined contribution plan and defined
benefit plan fractions would otherwise exceed one (1) for any Plan Year,
then the Annual Addition which would otherwise be made under all applicable
defined contribution plans for such Participant shall be adjusted pursuant
to Section 7.2(E) to the extent necessary, so that the sum of such fraction
does not exceed one (1). If, after all such adjustments, the sum of the
fractions would still exceed one (1), then the benefit which would
otherwise be accrued with respect to such Participant under any applicable
defined benefit plan shall be considered not to have been accrued and will
be limited to the extent necessary so that the sum does not exceed one (1).
(E) In the event that the Participant's annual addition under
the Defined Contribution Plans for any Limitation Year is restricted as a
result of the above provisions of this section, that portion or all of the
annual addition allocable to the Participant under the Plan for such
Limitation Year which is required to reduce the amount of the annual
addition to the amount permitted under Section 7.2(B) above shall be
eliminated by holding unallocated in a special account, called the
"Unallocated Limitation Account" to the extent necessary, that portion or
all of the Participant's allocable share of the Employer's Matching and/or
Profit Sharing Contributions for the Plan Year, for subsequent allocation
with such Contributions for the next succeeding Plan year (or, if
necessary, Plan Years). The Unallocated Limitation Account shall not be
adjusted for gains or losses as of any Valuation Date. Provided, however,
that the provisions of this subparagraph (E) shall apply only to the extent
such annual addition has not been reduced to the amount permitted under
Section 7.2(B) above by first applying any similar provisions for reducing
such excess annual additions under any other Defined Contribution Plans of
the Controlled Group Members in which the Participant also is an active
participant.
7.3 ALLOCATION AND CREDITING OF EMPLOYER'S CONTRIBUTIONS
(A) As of the last day of March, June, September and December of
each Plan Year, after making the debits or credits to the Participants'
accounts required by Section 7.1 above, the sum of the Employer's "Matching
Contribution," if any, (as defined in Section 4.1(B) hereof) for the
current quarter shall, subject to the maximum limitations on contributions
described in Section 4.1(D) and the limitations of Section 7.2 above, be
allocated and credited to the Matching Contribution Accounts of those
Participants in the Plan who are entitled to share in the allocation in
accordance with Section 7.3(C)(1) below. Matching Contributions, to the
extent made, will be allocated to each Participant in the following order:
(i) on a dollar-for-dollar basis up to the first $300 of Salary Deferral
Contributions made in such Plan Year, and then (ii) with respect to Salary
Deferral Contributions exceeding $300 in such Plan Year (but amounting to
no more than 3% of the Participant's Compensation in such Plan Year while a
Participant), on a 50 cents per dollar basis. Allocations within tiers (i)
and (ii) above (if, for example, Employer's Matching Contribution for the
Plan Year is not sufficient to allocate a 100% match to all Participants
within (i)) shall be on a pro rata basis based on relative Salary Deferral
Contributions considered within the tier involved. All matching
allocations within tier (i) will be made before any allocations are
provided under tier (ii). Additionally, only Salary Deferral Contributions
made during a year for which the Participant is entitled to share in the
allocation of Matching Contributions under Section 7.3(C)(1) shall be
considered in allocating any Matching Contributions for such Plan Year.
(B) As of the last Accounting Date of each Plan Year, after
making the debits or credits to the Participants' accounts required by
Section 7.1 above, the sum of the Employer's "Profit Sharing Contribution,"
if any, (as defined in Section 4.1(B) hereof) for the current Plan Year
shall, subject to the maximum limitations on contributions described in
Section 7.2 above, be allocated and credited to the Profit Sharing
Contribution Accounts of those Participants in the Plan who are entitled to
share in the allocation in accordance with Section 7.3(C)(2) below.
Profit Sharing Contributions, if any, shall be allocated as
follows: there shall first be allocated from the Employer's Profit Sharing
Contribution, to the extent of such contribution, an amount equal to the
Integration Rate of the total Compensation plus the total "excess
compensation" received by all Participants entitled to share in the Profit
Sharing Contribution for such Plan Year. The "excess compensation"
received by each Participant for such Plan Year means the excess amount of
his total Compensation for such year while a Participant under the Plan,
over the "Integration Level". Such total amount, as computed above, shall
be allocated and credited to the Profit Sharing Contribution Account (or
Distribution Account) of each Participant entitled to share in such
contribution for such year in the same proportion that such Participant's
Compensation plus Excess Compensation, as defined above, for the Plan Year,
bears to the total Compensation plus Excess Compensation of all
Participants for such Plan Year.
The entire amount of the Employer's Profit Sharing Contribution
remaining, if any, for such Plan Year after all allocations required by the
preceding paragraph have been made shall be allocated and credited to the
Profit Sharing Contribution Account (or Distribution Account) of each
Participant entitled to share in such contribution for the Plan Year in the
same proportion that such Participant's Compensation for the Plan Year
while a Participant bears to the total Compensation of all such
Participants for such year while Participants under the Plan.
Notwithstanding the above, for each Plan Year, a Participant's
Excess Contribution Percentage shall not exceed the Base Contribution
Percentage by more than the lesser of:
(a) The Participant's Base Contribution Percentage; or
(b) The Integration Rate.
The term "Excess Contribution Percentage" means the percentage of
Compensation which is contributed by the Employer under the Plan with
respect to that portion of each Participant's Compensation in excess of the
Integration Level. Also, the term "Base Contribution Percentage" means the
percentage of Compensation contributed by the Employer under the Plan with
respect to that portion of each Participant's Compensation not in excess of
the Integration Level.
(C) (1) Those Participants who are in the active service of the
Employer on the last day of the quarter or who are not in active service
because of termination of service during the quarter due to death, Total
and Permanent Disability, or retirement on or after age 65, shall be
entitled to share in the Employer's Matching Contributions, if any, for
such quarter.
(2) Those Participants who both (i) are in the active service of
the Employer on the last Accounting Date of the Plan Year (or who are not
in active service because of termination of service during the current Plan
Year due to death, Total and Permanent Disability, or retirement on or
after age 65) and (ii) have completed 1,000 Hours of Service during such
Plan Year, shall be entitled to share in the Employer's Profit Sharing
Contributions, if any, for such Plan Year.
<PAGE>
SECTION 8
DISTRIBUTIONS
-------------
8.1 INITIAL DISTRIBUTION DATE
(A) If a Participant's service is terminated for one of the
following reasons, his Initial Distribution Date shall be as of the
Anniversary Date coincident with or next following his date of termination
of service and distribution of his accounts shall be made, subject to the
provisions of Section 8.3(A) below, as soon after such date as is
administratively practicable:
(1) Total and Permanent Disability;
(2) death; or
(3) retirement or termination after having attained age 65.
(B) The Initial Distribution Date of any other Participant shall
be the date of termination of his service and distribution of his interest
in his accounts shall be made, subject to the provisions of Section 8.3(A)
below, as soon after such date as is administratively practicable.
(C) Notwithstanding any other provision herein, the Initial
Distribution Date of a Participant shall not be later than the end of the
Plan Year in which he attains age 70-1/2, and the disbursement of his
Distribution Account shall be made or begun by April 1 of the calendar year
following the calendar year in which the Participant attains age 70-1/2.
If any Participant under this subsection (C) continues in service after his
Initial Distribution Date, he shall be treated in the same manner as though
he had retired and had been reemployed on his Initial Distribution Date and
had elected to continue to receive distributions of his account during his
period of reemployment.
8.2 ESTABLISHMENT OF DISTRIBUTION ACCOUNT
(A) As of each Participant's Initial Distribution Date, an
amount equal to the vested interest of the net credit balance in his
Accounts to which he is entitled as of such date shall be determined and
transferred and credited to his Distribution Account to be distributed in
accordance with the provisions of Section 8.3 below.
(B) The nonvested interest, if any, in a Participant's Matching
and Profit Sharing Contribution Accounts to which he is not entitled as of
his Initial Distribution Date because his vested percentage is less than
100% shall be held in a separate account on behalf of the Participant,
called the "Suspended Matching and/or Profit Sharing Contribution Account",
and shall be subject to adjustments as of each following Valuation Date, as
specified in Section 7.1 hereof, pending the Participant having incurred a
Break in Service. If the Participant is reemployed by the Employer prior
to having incurred a Break in Service, the balance credited to his
Suspended Matching and/or Profit Sharing Contribution Account as of his
date of reemployment shall be restored to a new Matching or Profit Sharing
Contribution Account on his behalf as of such date of reemployment as
provided in Section 2.3(D) hereof. If the Participant is not reemployed
prior to having incurred a Break in Service, the amount held in his
Suspended Matching and/or Profit Sharing Contribution Account as of the
date on which he incurred a Break in service shall be removed from such
account as of such date and included in the "Amount Forfeited" for the
current Plan Year. Such Amount Forfeited shall first be applied to make
the restorations to the accounts of reemployed Participants during the
current Plan Year as required under Section 2.3(D) hereof. If there is an
excess Amount Forfeited, such excess shall be allocated as follows:
(1) forfeitures from Matching Contribution Accounts shall
be allocated as of the last Accounting Date of each Plan Year to those
Participants who made Salary Deferral Contributions during such year and
who meet the requirements of Section 7.3(C)(1) as of the end of such year,
pro rata according to their relative Compensation for such year while a
Participant; and
(2) forfeitures from Profit Sharing Contribution Accounts
shall be allocated as of the last Accounting Date of each Plan Year in the
manner and to those Participants described in Section 7.3(B).
Forfeitures of Matching Contributions described in Section 3.1(E)(2)
and 4.1(D)(2) shall be allocated as provided in (1) above. Disposition of
forfeitures described in the previous sentence shall occur before the
disposition of forfeitures above.
8.3 METHOD OF DISTRIBUTION
(A) On or after each Participant's Initial Distribution Date,
after all adjustments to his accounts required as of that date shall have
been made, distribution of his vested interest, if any, as determined under
Section 4.3 above shall be made, subject to the provisions below, as soon
after such Initial Distribution Date as administratively feasible, to or
for the benefit of the Participant, or, in the event of his death either
before, at or after his Initial Distribution Date, to or for the benefit of
his Beneficiary, by any of the following methods, as elected by the
Participant, or, if the Participant is not then living, as elected by his
Beneficiary, provided, however, that: (1) any distribution to the
Participant that commences prior to his attainment of the age of 65 years
shall require written consent of the Participant within 90 days of the date
of any such distribution if his vested interest in his accounts exceeds
$3,500; and (2) any distribution shall commence no later than 60 days after
the end of the Plan Year following the later of (a) the 65th anniversary of
the Participant's date of birth or (b) the date of termination of his
service, unless the Participant elects a later distribution date (which
shall not extend beyond April 1st of the calendar year next following the
calendar year in which he attains the age of 70-1/2 years):
(1) by payment in cash or in kind (other than an annuity
contract) of a single-sum amount; or
(2) by payment in a series of cash installments, in equal
amounts or otherwise, spread over a fixed period of years.
Provided, a Participant shall receive an immediate lump sum
distribution of the vested portion of his Accounts, if such vested amounts
do not exceed $3,500.
(B) Notwithstanding any other provision of this section to the
contrary, any form of distribution that is initially payable to the
Participant must provide that the entire interest of the Participant will
be expected to be distributed to the Participant and his Beneficiaries over
one or a combination of the following periods:
(1) the life of the Participant;
(2) The lives of the Participant and his designated
Beneficiary;
(3) a period certain not extending beyond the life
expectancy of the Participant; or
(4) a period certain not extending beyond the joint life
and last survivor expectancy of the Participant and his designated
Beneficiary.
(C) Any distribution to the Participant under Item (2) of
Section 8.3(A) above shall in all events provide that the present value of
the payments to be made to the Participant exceeds 50% of the present value
of the payments to be made to the Participant and his designated
Beneficiary. The amount to be distributed each year shall be determined no
more frequently than annually based on the Participant's life expectancy or
the joint life and last survivor expectancy of the Participant and his
designated Beneficiary; provided, however, any such redetermination shall
not take into consideration the change in life expectancy of a nonspouse
Beneficiary.
(D) Notwithstanding any Plan provision to the contrary, all Plan
distributions shall comply with the requirements of Section 401(a)(9) of
the Code and the regulations thereunder, including Reg. Section
1.401(a)(9)-2. Except to the extent otherwise permissible under Section
401(a)(9) of the Code and regulations issued pursuant thereto, the
distribution of any benefit which is not initially payable to the
Participant must:
(1) commence not later than April 1st of the Participant's
taxable year immediately following (i) the taxable year in which he would
attain the age of 70-1/2 years or (ii) the taxable year in which his
service was terminated, whichever is later; provided, however, if the
Beneficiary is not the Participant's spouse, distribution must commence not
later than one year after the date of the Participant's death or, if the
Participant's surviving spouse was his Beneficiary and such surviving
spouse dies prior to the commencement of benefit payments, distribution
must commence not later than one year after the date of such surviving
spouse's death; and
(2) be expected to distribute the benefit for a period not
extending beyond one or a combination of the following periods:
(i) the life of his Beneficiary; or
(ii) a period certain not extending beyond the life
expectancy of the Beneficiary;
provided, however, if the Participant has no designated
Beneficiary or if the designated Beneficiary is not a living person, such
benefit must be distributed in its entirety to the Beneficiary not later
than the fifth anniversary of the date of (i) the Participant's death or
(ii) the death of the Participant's spouse, whichever death is the later to
occur; and provided further, however, any amount payable to a child of the
Participant shall be treated for the purposes of this Section 8.3(D) as if
it had been payable to the surviving spouse of the Participant if such
amount that is payable to the child will become payable to such surviving
spouse upon such child's reaching majority (or upon the occurrence of such
other designated event permitted under regulations issued with respect to
Section 401(a)(9) of the Code).
(E) If distribution is made in accordance with the method of
distribution in Item (2) of Section 8.3(A) above and distribution is not
completed on or before the Valuation Date next following the Participant's
Initial Distribution Date, the Distribution Account shall continue to share
in subsequent allocations of gains or losses in accordance with Section
7.1; provided, however, upon written request of the Participant, or if
applicable, his Beneficiary, the Committee shall direct the Trustee to
segregate the funds credited to his Distribution Account immediately
following such Valuation Date and deposit the same in an interest-bearing
savings account which shall be a part of the Trust Fund, and any interest
thereon shall be credited to such Participant's Distribution Account at
least annually. Notwithstanding any other provision of the Plan, a
Participant's Distribution Account which has been segregated in accordance
with the provisions of this section shall not be included for the purposes
of Section 7.1 hereof and shall not be subject to the adjustments specified
in such sections on each following Valuation Date; provided, however, if
the Participant is subsequently reemployed and distributions from such
account are suspended as provided in Section 2.3 hereof, the funds credited
to his segregated Distribution Account shall be merged back with the
general assets in the Trust Fund as of the next following Valuation Date
and thereafter subject to the adjustments specified in Section 7.1 hereof.
8.4 SPOUSAL CONSENT REQUIREMENT AND WAIVER
Any provisions herein to the contrary withstanding, if the consent of
the spouse of the Participant is required under the provisions hereof for
any specified action that is required hereunder, such consent must be in
writing and witnessed by a Plan representative or a notary public;
provided, however, that such spousal consent for any such specified action
that is required hereunder shall, unless otherwise required by the
Committee, be waived for the purposes of the Plan if:
(1) the spouse has previously consented to such specified action
in accordance with the provisions above and such previous consent (a)
permits changes with respect to such specified action without any
requirement of further consent by such spouse and (b) acknowledges the
effect of such consent by the spouse; or
(2) it is established to the satisfaction of the Committee that
such consent may not be obtained because there is no spouse, because the
spouse cannot be located or because of such other circumstances as the
Secretary of the Treasury or his delegate may prescribe by regulations as
reasons for waiving the spousal consent requirement.
8.5 WITHDRAWALS WHILE STILL EMPLOYED
A Participant may, while still employed by the Employer, make a
withdrawal of all or any part of those accounts described below, subject to
the following restrictions:
(1) Withdrawals may be made only as of the last day of the
months of March, June, September and December, and/or such other dates as
may be established by the Committee, after all adjustments have been made
to the accounts as described in Section 7.1 hereof.
(2) All withdrawals are subject to the Participant having filed
a written application with the Committee at least 30 days prior to the date
on which the withdrawal is to be made.
(3) All withdrawals shall be in the form of a lump-sum cash
payment and the amounts withdrawn shall be debited from the Participant's
accounts as of the date the payment is made.
(4) Except as provided below, a Participant may withdraw all or
any portion of (i) his Salary Deferral Contribution Account, (ii) the
vested portion of his Matching or Profit Sharing Contribution Accounts or
(iii) his Rollover Contribution Account, only in the event that he
furnishes satisfactory evidence to the Committee that the withdrawal is on
account of "hardship". For this purpose, a distribution shall be on
account of hardship only if it both (i) is made on account of an immediate
and heavy financial need of the Participant and (ii) is necessary to
satisfy such financial need. For the determination of hardship, the
Committee shall adhere to the following rules:
(a) A distribution will be deemed to be made on account of
an immediate and heavy financial need of the Participant if the
distribution is on account of:
(i) Medical expenses described in Section
213(d) of the Code incurred by the Participant, the Participant's spouse or
any dependents of the Participant (as defined in Section 152 of the Code)
or necessary for such persons to obtain medical care described in Section
213(d) of the Code;
(ii) Purchase (excluding mortgage payments)
of a principal residence for the Participant;
(iii) Payment of tuition and related
educational fees for the next 12 months of post-secondary education for the
Participant, his or her spouse, children or dependents; or
(iv) The need to prevent the eviction of the
Participant from his principal residence or foreclosure on the mortgage of
the Participant's principal residence.
(b) A distribution will be deemed to be necessary to
satisfy an immediate and heavy financial need of a Participant if all of
the following requirements are satisfied:
(i) The distribution is not in excess of the
amount of the immediate and heavy financial need of the Participant which
may include any amounts necessary to pay any federal, state, or local
income taxes or penalties reasonably anticipated to result from the
distribution;
(ii) The Participant has obtained all
distributions, other than hardship distributions, and all non-taxable loans
currently available under all plans maintained by the Employer;
(iii) The Participant's Salary Deferral
Contributions under Section 3.1 of the Plan shall be suspended for twelve
(12) months after the Participant's receipt of the hardship distribution;
and
(iv) The Participant's maximum annual
deferral determined under Section 402(g) of the Code and Section 3.1(A) of
the Plan for the Participant's calendar year immediately following the
taxable year of the hardship distribution shall be reduced by the amount of
such Participant's Salary Deferral Contributions for the taxable year of
the hardship distribution.
Provided, however, that the provisions of (b)(ii) - (iv)
shall not apply if the Participant's withdrawal under this Section 8.5(4)
does not include any portion of his Salary Deferral Contribution Account.
Notwithstanding the above language of this paragraph (4) of
this Section 8.5, income allocable to a Participant's Salary Deferral
Contribution Account may not be withdrawn pursuant to a hardship
withdrawal.
(5) A Participant may withdraw, as of any Accounting Date, all
or any part of the optional contributions previously made by him in
accordance with Section 3.2 hereof (but not to exceed the net credit
balance in his Participant's Contribution Account at the time of
withdrawal). A participant may not, however, withdraw the proportionate
share of net interest and gains, if any, previously credited to his
Participant's Contribution Account. Said interest and gains will not be
forfeited but will not be distributed until the Participant's Initial
Distribution Date. A Participant who withdraws all or any part of his
optional contributions will be considered to have suspended further
optional contributions to the Plan as of the date the withdrawal of his
optional contributions is deemed effective, and he cannot again make
optional contributions to the Plan until at least one year has elapsed
following the date of such withdrawal.
(6) The Committee shall establish such rules and give such
directions to the Trustee as shall be appropriate to effectuate the
withdrawal in accordance with the terms hereof.
8.6 ELIGIBLE ROLLOVER DISTRIBUTIONS
This section applies to distributions made on or after January 1,
1993. Notwithstanding any provision of the Plan to the contrary that would
otherwise limit a distributee's election under this section, a distributee
may elect, at the time and in the manner prescribed by the plan
administrator, to have any portion of an eligible rollover distribution
paid directly to an eligible retirement plan specified by the distributee
in a direct rollover.
(a) Eligible Rollover Distribution. An eligible rollover
distribution is any distribution of all or any portion of the balance to
the credit of the distributee, except that an eligible rollover
distribution does not include: any distribution that is one of a series of
substantially equal periodic payments (not less frequently than annually)
made for the life (or life expectancy) of the distributee or the joint
lives (or joint life expectancies) of the distributee and the distributee's
designated beneficiary, or for a specified period of ten years or more; any
distribution to the extent such distribution is required under Section
401(a)(9) of the Code; and the portion of any distribution that is not
includable in gross income (determined without regard to the exclusion for
net unrealized appreciation with respect to employer securities).
(b) Eligible Retirement Plan. An eligible retirement plan is an
individual retirement account described in Section 408(a) of the Code, an
individual retirement annuity described in Section 408(b) of the Code, an
annuity plan described in Section 403(a) of the Code, or a qualified trust
described in Section 401(a) of the Code, that accepts the distributee's
eligible rollover distribution. However, in the case of an eligible
rollover distribution to the surviving spouse, an eligible retirement plan
is an individual retirement account or individual retirement annuity.
(c) Distributee. A distributee includes an employee or former
employee. In addition, the employee's or former employee's surviving
spouse and the employee's or former employee's spouse or former spouse who
is the alternate payee under a qualified domestic relations order, as
defined in Section 414(p) of the Code, are distributees with regard to the
interest of the spouse or former spouse.
(d) Direct Rollover. A direct rollover is a payment by the Plan
to the eligible retirement plan specified by the distributee.
<PAGE>
SECTION 9
SPECIAL PROVISIONS APPLICABLE IF PLAN IS TOP-HEAVY
9.1 APPLICABILITY OF TOP-HEAVY PLAN PROVISIONS
The provisions of this Section 9 shall apply if the Plan becomes a
"top-heavy plan" within the meaning of Section 416(g) of the Code with
respect to any Plan Year that begins after December 31, 1983.
9.2 DETERMINATION OF PLAN YEARS IN WHICH PLAN IS TOP-HEAVY
(A) The Plan shall be "top-heavy" with respect to an applicable Plan
Year if:
(1) either (a) any Participant, former Participant or
Beneficiary is a "Key Employee" (as defined in Section 9.2(B) herein), or
(b) the Plan enables any other plan which is included in the Aggregation
Group (as defined below) and which has a Participant who is a Key Employee,
to meet the requirements of Section 401(a)(4) or Section 410 of said Code;
and
(2) the ratio (determined in accordance with Section 416 of
said Code) as of the last day of the preceding Plan Year or, in the case of
the first Plan Year, the last day of such first Plan Year (such day,
whether applicable to the first Plan Year or to subsequent Plan Years, is
hereinafter referred to in this Section 9 as the "Determination Date") of:
(a) the aggregate of the individual accounts of all
Key Employees under all Defined Contribution Plans included in such
Aggregation Group; to
(b) a similar sum determined for all Participants,
former Participants and Beneficiaries - excluding any Participants and
former Participants (or their Beneficiaries) who have not at any time
during the five-year period ending on the Determination Date performed
services for any employer maintaining a plan included in the Aggregation
Group, under all Defined Contribution Plans included in such Aggregation
Group;
is greater than 60%.
(B) For the purposes of this Section 9, the following terms
shall have the following meanings:
(1) "Aggregation Group". Aggregation Group means:
(a) "Required Aggregation":
(i) each plan of the Employer in which a Key
Employee is a participant (in the Plan Year containing the Determination
Date or any of the four preceding Plan Years), and
(ii) each other plan of the Employer which enables
any plan described in subclause (i) to meet the requirements of Section
401(a)(4) or Section 410 of the Code; or
(b) "Permissive Aggregation": any other plan not
required to be aggregated may be included by the Employer if such group
would continue to meet the requirements of Sections 401(a)(4) and 410 with
such plan being taken into account.
(c) In determining the Aggregation Group, plans
terminated within the five-year period ending on the Determination Date
also shall be taken into consideration.
(2) "Key Employee" means an Employee, former Employee or
the beneficiary of either who, at any time during the Plan Year or any of
the four preceding Plan Years, is:
(a) an officer of the Employer having an annual
compensation greater than 50% of the amount in effect under Section
415(b)(1)(A) for any Plan Year;
(b) one of the 10 Employees having annual compensation
from the Employer of more than the limitation in effect under Section
415(c)(1)(A) of the Code and owning (or considered as owning within the
meaning of Section 318) the largest interests in the Employer;
(c) a 5-percent owner of the Employer;
(d) a 1-percent owner of the Employer having an annual
compensation from the Employer of more than $150,000.
For purposes of clause (a), no more than 50 Employees (or,
if lesser, the greater of 3 or 10 percent of the Employees) shall be
treated as officers. For purposes of clause (b), if 2 Employees have the
same interest in the Employer, the Employee having greater annual
compensation from the Employer shall be treated as having a larger
interest.
(3) "Percentage Owners":
(a) 5-Percent Owner. -- For purposes of this
paragraph, the term "5-percent owner" means --
(i) If the Employer is a corporation, any person
who owns (or is considered as owning within the meaning of Section 318 of
the Code) more than 5 percent of the outstanding stock of the corporation
or stock possessing more than 5 percent of the total combined voting power
of all stock of the corporation, or
(ii) If the Employer is not a corporation, any
person who owns more than 5 percent of the capital or profits interest in
the Employer.
(b) 1-Percent Owner. -- For purposes of this
paragraph, the term "1-percent owner" means any person who would be
described in clause (a) if "1 percent" were substituted for "5 percent"
each place it appears in clause (a).
(c) Constructive Ownership Rules. -- For purposes of
subparagraphs (3)(a) and (b)--
(i) subparagraph (C) of Section 318(a)(2) of the
Code shall be applied by substituting "5 percent" for "50 percent," and
(ii) In the case of any Employer which is not a
corporation, ownership in such employer shall be determined in accordance
with regulations prescribed by the Secretary which shall be based on
principles similar to the principles of Section 318 of the Code (as
modified by subclause (I)).
(d) Aggregation Rules for Determining Ownership in
Employer. -- For purposes of this paragraph (3), the rules of subsections
(b), (c) and (m) of Section 414 of the Code shall not apply for purposes of
determining ownership in the Employer.
(e) Compensation. -- For purposes of this subsection,
the term "compensation" has the meaning given such term by Section
414(q)(7) of the Code.
(4) "Non-Key Employee" means any Employee or former
Employee who is not a Key Employee.
(C) Unless required otherwise under Section 416 of the Code and
regulations issued thereunder, the value of a Participant's (or
Beneficiary') individual account under the Plan as of the Determination
Date shall be equal to the sum of:
(a) the net credit balance in his individual accounts
(exclusive of any amounts credited to his Rollover Contribution Account
unless such amounts are required to be included for purposes of Section
416(g)(4) of the Code) as of the last Accounting Date; plus
(b) any contributions (other than unrelated Rollover
Contributions) actually made after such Accounting Date but on or prior to
the Determination Date or, in the case of the Determination Date applicable
to the first Plan Year, any contributions made after the Determination Date
that are allocated as of a date within such first Plan Year; plus
(c) the aggregate distributions (exclusive of any
distributions from his Rollover Contribution Account unless such amounts
are required to be included for purposes of Section 416(g)(4) of the Code)
made on his behalf during the five-year period ending on the Determination
Date.
Provided, however, that if any individual is a "Non-Key Employee" with
respect to the Plan for any Plan Year, but such individual was a Key
Employee with respect the Plan for any prior Plan Year, such employee's
accounts under the Plan' shall not be taken into account. Furthermore, for
purposes of determining the value of a Participant's (or beneficiary's)
account under the Plan, such amount shall be increased by the aggregate
distributions made with respect to such Employee under the Plan during the
five-year period ending on the Determination Date, including distributions
under a terminated plan which if it had not been terminated would have been
required to be included in an aggregation group.
(D) The aggregate of the individual accounts under the other
Defined Contribution Plans included in such Aggregation Group shall be
determined separately for each such plan in accordance with Section 416 of
the Code and regulations issued with respect thereto as of the
"determination date" that is applicable to each such separate plan and that
falls within the same calendar year that the Determination Date applicable
to the Plan falls.
9.3 MINIMUM VESTING FOR TOP-HEAVY PLAN YEAR
During any Plan Year in which the Plan is top-heavy, the vesting
schedule applicable to Matching and/or Profit Sharing Contribution Accounts
shall be:
Years of Service Percentage Vested
---------------- -----------------
Less than 2 Years 0%
2 Years 20%
3 Years 40%
4 Years 60%
5 Years 80%
6 Years 100%
9.4 MINIMUM CONTRIBUTIONS FOR TOP-HEAVY PLAN YEAR
(A) The Employer's Contributions and forfeitures during any Plan
Year in which the Plan is top-heavy on behalf of a Participant to whom the
provisions of this Section 9.4 are applicable, shall not be less than an
amount equal to the excess, if any, of (1) the lesser of (i) 3% of his IRC
415 Compensation (as defined in Section 7.2(B) above) from the Employer
during the Plan Year and (ii) the highest percentage of IRC 415
Compensation (as defined in Section 7.2(B) above) which is allocated under
the Plan to a Key Employee for such Plan Year; over (2) any employer
contributions and forfeitures allocated on his behalf under the Plan for
such Plan Year plus any allocations of employer contributions and
forfeitures allocated on his behalf under all other Defined Contribution
Plans included in the Aggregation Group for such Plan Year.
(B) The provisions of this Section 9.4 shall apply to all
Participants who are in the active service of the Employer on the last
Accounting Date of the Plan Year and who are not Key Employees.
<PAGE>
SECTION 10
MISCELLANEOUS PROVISIONS REGARDING PARTICIPANTS
-----------------------------------------------
10.1 PARTICIPANTS TO FURNISH REQUIRED INFORMATION
(A) Each Participant and his Beneficiary will furnish to the
Committee such information as the Committee considers necessary or
desirable for purposes of administering the Plan, and the provisions of the
Plan respecting any payments thereunder are conditional upon the
Participant's or Beneficiary's furnishing promptly such true, full and
complete information as the Committee may request.
(B) Each Participant will submit proof of his age and proof of
the age of each Beneficiary designated or selected by him to the Committee
at such time as is required by the Committee. The Committee will, if such
proof of age is not submitted as required, use as conclusive evidence
thereof, such information as is deemed by him to be reliable, regardless of
the source of such information. Any adjustment required by reason of lack
of proof or the misstatement of the age of persons entitled to benefits
hereunder, by the Participant or otherwise, will be in such manner as the
Committee deems equitable.
(C) Any notice or information which, according to the terms of
the Plan or the rules of the Committee, must be filed with the Committee,
shall be deemed so filed at the time that it is actually received by the
Committee.
(D) The Employer, the Committee, and any person or persons
involved in the administration of the Plan shall be entitled to rely upon
any certification, statement, or representation made or evidence furnished
by an Employee, Participant or Beneficiary with respect to this age or
other facts required to be determined under any of the provisions of the
Plan, and shall not be liable on account of the payment of any monies or
the doing of any act or failure to act in reliance thereon. Any such
certification, statement, representation, or evidence, upon being duly made
or furnished, shall be conclusively binding upon the person furnishing
same; but it shall not be binding upon the Employer, the Committee, or any
other person or persons involved in the administration of the Plan, and
nothing herein contained shall be construed to prevent any of such parties
from contesting any such certification, statement, representation, or
evidence or to relieve the Employee, Participant, Beneficiary from the duty
of submitting satisfactory proof of any such fact.
10.2 BENEFICIARIES
Each Participant may, on a form provided for that purpose, signed and
filed with the Committee, designate a Beneficiary to receive the benefit,
if any, which may be payable under the Plan in the event of his death, and
each designation may be revoked by such Participant by signing and filing
with the Committee a new designation of Beneficiary form. If a deceased
Participant who had a spouse at the date of his death either failed to
designate a Beneficiary in the manner above prescribed or if his designated
Beneficiary predeceases him, he shall be deemed to have designated his
spouse as his Beneficiary. If a deceased Participant is survived by a
spouse and he had designated a person other than his spouse as his
Beneficiary and such spouse has not consented in accordance with the
provisions of Section 8.4 hereof, to such other person being designated as
the Beneficiary, the Participant shall be deemed to have revoked his prior
designation and to have designated his spouse as his Beneficiary to receive
the death benefit. If a deceased Participant who did not have a spouse at
the date of his death either failed to name a Beneficiary in the manner
above prescribed or if his Beneficiary predeceases him, the death benefit,
if any, which may be payable under the Plan with respect to such deceased
Participant shall be paid, in the discretion of the Committee but subject
to the provisions of Section 8.4 hereof if the spouse of such deceased
Participant is surviving, either to:
(a) any one or more of the persons comprising the group
consisting of the Participant's spouse, the Participant's descendants, the
Participant's parents or the Participant's heirs-at-law, and the Committee
may direct the payment of the entire benefit to any member of such group or
the apportionment of such benefit among any two or more of them in such
shares as the Committee, in its sole discretion, shall determine; or
(b) the estate of such deceased Participant;
or in the event the Committee does not so direct any of such payments, the
Committee may elect to have a court of applicable jurisdiction determine to
whom a payment or payments shall be paid. Any payment made to any person
pursuant to the power and discretion conferred upon the Committee by the
provisions of this Section 10.2 shall operate as a complete discharge of
all obligations under the Plan with respect to such deceased Participant
and shall not be subject to review by anyone but shall be final, binding
and conclusive on all persons ever interested hereunder.
10.3 CONTINGENT BENEFICIARIES
In the event of the death of a Beneficiary who survives the
Participant and in the event that, at the Beneficiary's death, there is a
balance credited to the individual account (or accounts) of the
Participant, the amount represented by such credit balance shall be payable
to a person (or persons) designated by the Participant (in the manner
provided in Section 10.2 above) to receive the remaining funds payable in
the event of such contingency or, if no person was so named, then to a
person designated by the Beneficiary (in the manner provided in Section
10.2 above) of the deceased Participant to receive the remaining death
benefits, if any, payable in the event of such contingency, or if no person
was so named, then to a person designated by the Beneficiary (in the manner
provided in Section 10.2 above) of the deceased Participant to receive the
remaining death benefits, if any, payable in the event of such contingency;
provided, however, that if no person so designated be living upon the
occurrence of such contingency, then the remaining funds shall be payable
in the discretion of the Committee, either to:
(a) all or any one or more persons comprising the group
consisting of the Participant's spouse, the Beneficiary's spouse, the
Participant's descendants, the Beneficiary's descendants, the Participant's
parents, the Beneficiary's parents, the Participant's heirs-at-law or the
Beneficiary's heirs-at-law, and the Committee may direct the payment of the
entire benefit to any member of such group or the apportionment of such
benefit among any two or more of them in such shares as the Committee, in
its sole discretion, shall determine; or
(b) the estate of such deceased Beneficiary;
or in the event the Committee does not so direct any of such payments, the
Committee may elect to have a court of applicable jurisdiction determine to
whom a payment or payments shall be paid. Any payments made to any person
pursuant to the power and discretion conferred upon the Committee by the
provisions of this Section 10.3 shall operate as a complete discharge of
all obligations under the Plan with respect to such deceased Beneficiary
and shall not be subject to review by anyone but shall be final, binding
and conclusive on all persons ever interested hereunder.
10.4 PARTICIPANTS' RIGHTS IN TRUST FUND
No Participant or other person shall have any interest in or any right
in, to or under the Trust Fund, or any part of the assets thereof, except
as and to the extent expressly provided in the Plan.
10.5 BENEFITS NOT ASSIGNABLE
(A) Subject to the provisions of Section 10.5(B) below, no
benefits, rights or accounts shall exist under the Plan which are subject
in any manner to voluntary or involuntary anticipation, alienation, sale,
transfer, assignment, pledge, encumbrance or charge the same shall be null
and void; nor shall any such benefit, right or account under the Plan be in
any manner liable for or subject to the debts, contracts, liabilities,
engagements, torts or other obligations of the person entitled to such
benefit, right or account; nor shall any benefit, right or account under
the Plan constitute an asset in case of the bankruptcy, receivership or
divorce of any person entitled under the Plan; and any such benefit, right
or account under the Plan shall be payable only directly to the Participant
or Beneficiary, as the case may be.
(B) Where a "qualified domestic relations order" as defined in
Section 414(p) of the Code has been received by the Committee, the terms
and benefits of the Plan will be considered to have been modified with
respect to the affected Participant to the extent such order requires
benefits to be paid to specified individuals other than the Participant.
10.6 BENEFITS PAYABLE TO MINORS AND INCOMPETENTS
(A) Whenever any person entitled to payments under the Plan
shall be a minor or under other legal disability or in the sole judgment of
the Committee shall otherwise be unable to apply such payments to his own
best interest and advantage (as in the case of illness, whether mental or
physical or where the person not under legal disability is unable to
preserve his estate for his own best interest), the Committee may in the
exercise of its discretion direct all or any portion of such payments to be
made in any one or more of the following ways unless claim shall have been
made therefore by an existing and duly appointed guardian, tutor,
conservator, committee or other duly appointed legal representative, in
which event payment shall be made to such representative:
(1) directly to such person unless such person shall be an
infant or shall have been legally adjudicated incompetent at the time of
the payment;
(2) to the spouse, child, parent or other blood relative to
be expended on behalf of the person entitled or on behalf of those
dependents as to whom the person entitled has the duty of support; or
(3) to a recognized charity or governmental institution to
be expended for the benefit of the person entitled or for the benefit of
those dependents as to whom the person entitled has the duty of support.
(B) The decision of the Committee will, in each case, be final
and binding upon all persons and the Committee shall not be obliged to see
to the proper application or expenditure of any payments so made. Any
payment made pursuant to the power herein conferred upon the Committee
shall operate as a complete discharge of the obligation of the Trustee and
of the Committee.
10.7 CONDITIONS OF EMPLOYMENT NOT AFFECTED BY PLAN
The establishment and maintenance of the Plan will not be construed as
conferring any legal rights upon any Participant to the continuation of his
employment with the Employer, nor will the Plan interfere with the right of
the Employer to discipline, lay off or discharge any Participant. The
adoption and maintenance of the plan shall not be deemed to constitute a
contract between the Employer and any Employee or to be consideration for,
inducement to, or condition of employment of any person.
10.8 NOTIFICATION OF MAILING ADDRESS
(A) Each Participant and other person entitled to benefits
hereunder shall file with the Committee from time to time, in writing, his
post office address and each change of post office address, and any check
representing payment hereunder and any communication addressed to a
Participant or a Beneficiary hereunder at his last address filed with the
Committee (or, if no such address has been filed, then at his last address
as indicated on the records of the Employer) shall be binding on such
person for all purposes of the Plan, and neither the Committee nor the
Trustee shall be obliged to search for or ascertain the location of any
such person.
(B) If the Committee, for any reason, is in doubt as to whether
payments are being received by the person entitled thereto, it may by
registered mail addressed to the person concerned at his address last known
to the Committee, notify such person that all unmailed and future payments
shall be henceforth withheld until he provides the Committee with evidence
of his continued life and his proper mailing address or his Beneficiary
provides the Committee with evidence of his death. In the event that (i)
such notification is mailed to such person and his designated Beneficiary,
(ii) the Committee is not furnished with evidence of such person's
continued life and proper mailing address or with evidence of his death,
all payments shall be withheld until a claim is subsequently made by any
such person to whom payment is due under the provisions of the Plan.
10.9 LOST PAYEE
In the event the Administrator is unable, within three years after
payment of a benefit is due to a Participant or Beneficiary to make such
payment because it cannot ascertain the whereabouts of the Participant or
the identity and whereabouts of his Beneficiary or personal representative
by mailing to the last known address shown on the Administrator's records,
and neither the Participant, his Beneficiary or personal representative has
made written claim therefor before the expiration of such three years,
then, and in such case, the Administrator shall direct that such amount
shall be forfeited in the manner provided for forfeited Profit Sharing
Contribution Accounts in Section 8.2(B); provided, however, that such
amount shall be reinstated if and in the event the said Participant or his
Beneficiary or personal representative shall make a valid claim therefor
upon presentation of proper identification.
10.10 WRITTEN COMMUNICATIONS REQUIRED
Any notice, request, instruction, or other communication to be given
or made hereunder shall be in writing and either personally delivered to
the addressee or deposited in the United State mail fully postpaid and
properly addressed to such addressee at the last address for notice shown
on the Committee's records.
10.11 BENEFITS PAYABLE AT OFFICE OF TRUSTEE
All benefits hereunder, and installments thereof, shall be payable
at the office of the Trustee.
10.12 APPEAL TO COMMITTEE
(A) A Participant or Beneficiary who feels he is being denied
any benefit or right provided under the Plan must file a written claim with
the Committee. All such claims shall be submitted on a form provided by
the Committee which shall be signed by the claimant and shall be considered
filed on the date the claim is received by the Committee.
(B) Upon the receipt of such a claim and in the event claim is
denied, the Committee shall, within a reasonable period of time (generally
90 days), provide such claimant a written statement which shall be
delivered or mailed to the claimant by certified or registered mail to his
last known address, which statement shall contain the following:
(1) the specific reason or reasons for the denial of
benefits;
(2) a specific reference to the pertinent provisions of the
Plan upon which the denial is based;
(3) a description of any additional material or information
which is necessary; and
(4) an explanation of the review procedure provided below;
provided, however, in the event that special circumstances require an
extension of time for processing the claim, the Committee shall provide
such claimant with such written statement described above not later than
180 days after receipt of the claimant's claim, but, in such event, the
Committee shall furnish the claimant, within 90 days after its receipt of
such claim, written notification of the extension explaining the
circumstances requiring such extension and the date that it is anticipated
that such written statement will be furnished.
(C) Within 90 days after receipt of a notice of a denial of
benefits as provided above, the claimant or his authorized representative
may request, in writing, to appear before the Committee for a review of his
claim. In conducting its review, the Committee shall consider any written
statement or other evidence presented by the claimant or his authorized
representative in support of his claim. The Committee shall give the
claimant and his authorized representative reasonable access to all
pertinent documents necessary for the preparation of his claim.
(D) Within 60 days after receipt by the Committee of a written
application for review of his claim, the Committee shall notify the
claimant of its decision by delivery or by certified or registered mail to
his last known address; provided, however, in the event of special
circumstances which require an extension of time for processing such
application, the Committee shall notify the claimant of its decision not
later than 120 days after receipt of such application, but in such event,
the Committee shall furnish the claimant, within 60 days after its receipt
of such application, written notification of the extension explaining the
circumstances requiring such extension and the date that it is anticipated
that its decision will be furnished. The decision of the Committee shall
be in writing and shall include the specific reasons for the decision
presented in a manner calculated to be understood by the claimant and shall
contain references to all relevant Plan provisions on which the decision
was based. The decision of the Committee shall be final and conclusive.
<PAGE>
SECTION 11
MISCELLANEOUS PROVISIONS REGARDING THE EMPLOYER
-----------------------------------------------
11.1 EMPLOYER'S CONTRIBUTION IRREVOCABLE
The Employer shall have no right, title or interest in the Trust Fund
or in any part thereof, and no contributions made thereto shall revert to
the Employer, except as provided in Paragraph 2 of Article III of the Trust
Agreement.
11.2 ABSENCE OF RESPONSIBILITY
Subject to any applicable provisions of law, neither the Employer nor
any of the officers, employees, agents nor any members of its board of
directors or other governing board nor any partner or sole proprietor,
guarantees in any manner the payment of benefits hereunder.
11.3 AMENDMENT OF PLAN
(A) The Plan may be amended from time to time in any respect
whatever by resolution of the board of directors of the Company specifying
such amendment, subject only to the following limitations:
(1) Under no condition shall such amendment result in or
permit the return or repayment to any Employer of any property held or
acquired by the Trustee hereunder or the proceeds thereof or result in or
permit the distribution of any such property for the benefit of anyone
other than the Participants and their Beneficiaries, except to the extend
provided by Section 11.6 hereof with respect to expenses of administration.
(2) Under no condition shall such amendment change the
duties or responsibilities of the Trustee hereunder without its written
consent.
(B) Subject to the foregoing limitations, any amendment may be
made retroactively which, in the judgment of the Committee, is necessary or
advisable provided that such retroactive amendment does not deprive a
Participant, without his consent, of a right to receive benefits hereunder
which have already vested and matured in such Participant, except such
modification or amendment as shall be necessary to comply with any laws or
regulations of the United States or of any state to qualify this as a tax-
exempt plan and trust.
(C) The participation in the Plan of Employers other than the
Company shall not limit the power of the Company under the foregoing
provisions; provided, however, that the Company shall deliver a copy of
each amendment to the Plan to each other Employer within 30 days of such
amendment. The provisions of the Plan and any amendments to the Plan by
the Company shall be binding upon all other Employers unless such other
Employer modifies the provisions of the Plan as it pertains only to its own
Employees, by the adoption of a supplement to the Plan with the consent of
the Board of Directors of the Company and through formal action on its part
in the manner described in Section 11.7 hereof; and each Employer shall
have the right to withdraw from the Plan with the consent of the Board of
Directors of the Company and through formal action on its part in the
manner described in Section 11.7 hereof. Any such withdrawing Employer
shall furnish the Committee and the Trustee with evidence of the formal
action of its determination to withdraw and with a written request to the
Board of Directors of the Company for consent to the withdrawal.
(D) Any withdrawal by an Employer may be accompanied by such
modifications to the Plan as such Employer, with the consent of the Board
of Directors of the Company, shall deem proper to continue a Defined
Contribution Plan or a Defined Benefit Plan for its employees separate and
distinct from the Defined Contribution Plan set forth herein. With the
consent of the Board of Directors of the Company, a withdrawal from the
Plan by an Employer may constitute a termination of the Plan with respect
to that Employer.
In the event the withdrawal does not constitute a termination of
the Plan with respect to the withdrawing Employer under the provisions of
Section 11.4, the portion of the Plan attributable to the withdrawing
Employer shall be frozen as of the date of withdrawal in accordance with
the following rules: (1) No further contributions will be made under the
frozen portion of the Plan on or after the date of withdrawal to any
Participant attributable to the withdrawing Employer. (2) All Participants
attributable to the withdrawing Employer who are "affected employees" under
Code Section 411(d)(3) shall be fully vested in their Matching and Profit
Sharing Contribution Accounts on the date of withdrawal. (3) The benefits
of all Participants attributable to the withdrawing Employer shall be
distributable only at such times and upon such events as are specified in
Section 8 of the Plan.
The withdrawal from the Plan by any Employer shall not affect the
continued operation of the Plan with respect to the other Employers.
(E) Any Supplement to the Plan adopted by an Employer or
Employers with the consent of the Board of Directors of the Company shall
only apply to the Employees of the Employer or Employers adopting such
Supplement and shall not affect the continued operation of the Plan with
respect to any other Employers.
11.4 TERMINATION OF PLAN
(A) The Plan may be terminated by the Employers at any time with
the consent of the Board of Directors of the Company by (1) formal action
in the manner described in Section 11.7 hereof on the part of each Employer
then a party to the Plan specifying (a) that the portion of the Plan
attributable to that Employer is being terminated and (b) the date as of
which the termination is to be effective and (2) notifying the Committee
and the Trustee of such termination. Any successor business to an Employer
may provide for continuation of the Plan by formal action on its part in
the manner described in Section 11.7 hereof. The Plan may be terminated in
the manner described above with respect to one, but less than all, of the
Employers only with the consent of the Board of Directors of the Company.
Following any such consent the Plan shall continue for the remaining
Employer or Employers. The Plan shall automatically terminate as to a
particular Employer only upon adjudication by a court of competent
jurisdiction that such Employer is bankrupt or insolvent (whether such
proceedings be voluntary or involuntary), upon dissolution or liquidation
of such Employer resulting in a discontinuation of its business activity.
(B) Upon termination of the Plan in accordance with the
provisions of Section 11.4(A) above, the Committee shall determine the
share of the value of the assets of the trust fund which is attributable to
each Employer (or group of Employers) with respect to which the Plan
represents a single plan as described in Section 2.4 hereof. The Committee
shall then determine whether distribution on behalf of the Participants and
Beneficiaries entitled to benefits under the Plan shall be by payment (1)
in cash or in kind, or (2) by the maintenance of another or substituted
trust fund. As soon as practicable after receipt by the Employer of
notification from the Internal Revenue Service evidencing its approval of
the termination of the Plan and the proposed distribution of assets, and
after payment of all expenses and costs, the Committee shall direct the
Trustee to distribute, in the manner of distribution determined by the
Participant or Beneficiary in accordance with Section 8.3 hereof, the
amount then standing to the credit of the account of each applicable
Participant or Beneficiary.
11.5 MERGER OF PLAN
In the case of the merger of consolidation of the Plan with, or the
transfer of assets of liabilities to, another qualified plan, each
Participant must be entitled to receive a benefit, upon termination of such
other qualified plan after such merger, consolidation or transfer, which is
at least equal to the benefit which he would have been entitled to receive
immediately before the merger, consolidation or transfer if the Plan had
been terminated at that time.
11.6 EXPENSES OF ADMINISTRATION
The Employer may pay all expenses incurred in the establishment and
administration of the Plan, including expenses and fees of the Trustee, but
it shall not be obligated to do so, and any such expenses not so paid by
the Employer shall be paid from the Trust Fund.
11.7 FORMAL ACTION BY EMPLOYER
Any formal action herein permitted or required to be taken by an
Employer shall be:
(a) if and when a partnership, by written instrument executed by
one or more of its general partners or by written instrument executed by a
person or group of persons who has been authorized by written instrument
executed by one or more general partners as having authority to take such
action;
(b) if and when a proprietorship, by written instrument executed
by the proprietor or by written instrument executed by a person or group of
persons who has been authorized by written instrument executed by the
proprietor as having authority to take such action;
(c) if and when a corporation, by resolution of its board of
directors or other governing board, or by written instrument executed by a
person or group of persons who has been authorized by resolution of its
board of directors or other governing board as having authority to take
such action; or
(d) if and when a joint venture, by formal action on the part of
the joint ventures in the manner described above.
<PAGE>
SECTION 12
ADMINISTRATION
--------------
12.1 ADMINISTRATION BY COMMITTEE
The Plan will be administered by an administrative committee (herein
referred to as the "Committee"), consisting of (a) a chairman and at least
one additional member or (b) a single individual, each of whom will be
appointed by formal action on the part of the Company in the manner
described in Section 11.7 hereof. Each member may, but need not, be a
director, proprietor, partner, officer or Employee of any Employer, and
each such member shall be appointed by formal action on the part of the
Company in the manner described in Section 11.7 hereof to serve until his
successor shall be appointed in like manner. Any member of the Committee
may resign by delivering his written resignation to the Company and to the
other members, if any, of the Committee. The Company may, by formal action
on its part in the manner described in Section 11.7 hereof, remove any
member of the Committee by so notifying the member and other Committee
members, if any, in writing. Vacancies on the Committee shall be filled by
formal action on the part of the Company in the manner described in Section
11.7 hereof. The Committee shall be the administrator of the Plan.
12.2 OFFICERS AND EMPLOYEES OF THE COMMITTEE
The Committee may appoint a secretary who may, but need not, be a
member of the Committee and may employ such agents, clerical and other
services, legal counsel, accountants and actuaries as may be required for
the purpose of administering the Plan. Any person or firm so employed may
be a person or firm then, therefore or thereafter serving the Employer in
any capacity. The Committee and any individual member of the Committee and
any agent thereof shall be fully protected when acting in a prudent manner
and relying in good faith upon the advice of the following professional
consultants or advisors employed by the Employer or the Committee: any
attorney insofar as legal matters are concerned, any certified public
accountant insofar as accounting matters are concerned, and any enrolled
actuary insofar as actuarial matters are concerned.
12.3 ACTION BY COMMITTEE
(A) A majority of the members of the Committee shall constitute
a quorum for the transaction of business and shall have full power to act
hereunder. The Committee may act either at a meeting at which a quorum is
present or by a writing subscribed by at least a majority of the members of
the Committee then serving. Any written memorandum signed by the secretary
or any member of the Committee who has been authorized to act on behalf of
the Committee shall have the same force and effect as a formal resolution
adopted in open meeting. Minutes of all meetings of the Committee and a
record of any action taken by the Committee shall be kept in written form
by the secretary appointed by the Committee or, if no secretary has been
appointed by the Committee, by an individual member of the Committee. The
Committee shall give to the Trustee any order, direction, consent or advice
required under the terms of the Trust Agreement, and the Trustee shall be
entitled to rely on any instrument delivered to it and signed by the
secretary or any authorized member of the Committee as evidencing the
action of the Committee.
(B) A member of the Committee may not vote or decide upon any
matter relating solely to himself or vote in any case in which his
individual right or claim to any benefit under the Plan is particularly
involved. If, in any case in which any Committee member is so disqualified
to act, the remaining members cannot agree or if there is only one
individual member of the Committee, the board of directors of the Company
will appoint a temporary substitute member to exercise all of the powers of
a qualified member concerning the matter in which the disqualified member
is not qualified to act.
12.4 RULES AND REGULATIONS OF COMMITTEE
The Committee shall have the authority to make such rules and
regulations and to take such action as may be necessary to carry out the
provisions of the Plan and will, subject to the provisions of the Plan,
decide any questions arising in the administration, interpretation and
application of the Plan, which decisions shall be conclusive and binding on
all parties. The Committee may allocate or delegate any part of its
authority and duties as it deems expedient.
12.5 POWERS OF COMMITTEE
(A) In order to effectuate the purposes of the Plan, the Committee
shall have the following powers:
(1) to make all determinations and computations concerning the
benefits, credits and debits to which any Participant, or other
Beneficiary, is entitled under the Plan;
(2) to determine all questions relating to the eligibility of
employees to become Participants and to determine the amount of
Compensation of each Participant;
(3) to determine all questions relating to acceptance of any
Rollover Contributions to the Plan;
(4) to make rules and regulations for the administration of the
Plan which are not inconsistent with the terms and provisions hereof and to
fix the taxable year of the Trust as required for tax return purposes and
advise the Trustee thereof in writing;
(5) to construe the Plan and to make equitable adjustments for
any mistakes or errors made in the administration of the Plan;
(6) to determine and resolve in its sole discretion all
questions relating to the administration of the Plan and Trust (a) when
differences of opinion arise between the Employer, the Trustee, a
Participant, or any of them and (b) whenever it is deemed advisable to
determine such questions in order to promote the uniform and
nondiscriminatory administration of the Plan for the greatest benefit of
all parties concerned;
(7) to authorize and direct the Trustee to pay from the Trust
Fund all costs and expenses incurred by the Committee in the administration
of the Plan;
(8) to determine whether a Participant is Totally and
Permanently Disabled, and for this purpose it shall require proof in such
form as it may desire, including the certificate of a duly licensed
physician; and
(9) to appoint, in its discretion, in accordance with the
provisions of the Trust Agreement, one or more Investment Managers to
manage, including the power to acquire or dispose of, all or any portion of
the assets of the Plan and Trust Fund.
(B) The foregoing list of express powers is not intended to be
either complete or conclusive, and the Committee shall, in addition, have
such powers as it may reasonably determine to be necessary or appropriate
in the performance of its powers and duties under the Plan.
12.6 DUTIES OF COMMITTEE
(A) The Committee shall, as part of its general duty to
supervise and administer the Plan:
(1) establish and maintain, or cause to be maintained, the
individual accounts described in Section 6.1 hereof and direct the
maintenance of such other records and the preparation of such forms as are
required for the efficient administration of the Plan;
(2) give the Trustee specific directions in writing with
respect to:
(a) the Investment Fund elections of the Participants;
(b) the making of distribution payments, giving the
names of the payees, the amounts to be paid and the time or times when
payments shall be made; and
(c) the making of any other payments which the Trustee
is not by the terms of the Trust Agreement authorized to make without a
direction in writing by the Committee.
(3) prepare an annual report for the Employer, as of the
last day of each Plan Year, in such form as may be required by the
Employer;
(4) maintain records of the age and amount of Compensation
of each Employee;
(5) comply with all applicable lawful reporting and
disclosure requirements of the Employee Retirement Income Security Act of
1974; and
(6) comply (or transfer responsibility for compliance to
the Trustee) with all applicable Federal income tax withholding
requirements for distribution payments imposed by the Tax Equity and Fiscal
Responsibility Act of 1982.
(B) The foregoing list of express duties is not intended to be
either complete or conclusive, and the Committee shall, in addition,
exercise such other powers and perform such other duties as it may deem
necessary, desirable, advisable or proper for the supervision and
administration of the Plan.
12.7 INDEMNIFICATION OF MEMBERS OF COMMITTEE
To the extent not covered by insurance or if there is a failure to
provide full insurance coverage for any reason and to the extent
permissible under corporate by-laws and other applicable laws and
regulations, the Employer agrees to hold harmless and indemnify the members
of the Committee against any and all claims and causes of action by or on
behalf of any and all parties whomsoever, and all losses therefrom,
including, without limitation, costs of defense and attorneys' fees, based
upon or arising out of any act or mission relating to or in connection with
the Plan and Trust Agreement other than losses resulting from any such
person's fraud or willful misconduct.
12.8 PLAN FIDUCIARIES
(A) The Trustee is the named fiduciary hereunder with respect to
the powers, duties and responsibilities of investment of the Trust Fund and
the Committee is the named fiduciary hereunder with respect to the other
powers, duties and responsibilities of the administration of the Plan.
Certain powers, duties and responsibilities of each of said fiduciaries are
specifically delegated to others under the provisions of the Plan and Trust
Agreement and other powers, duties and responsibilities of any fiduciaries
may be delegated by written agreement to others to the extent permitted
under the provisions of the Plan and Trust Agreement.
(B) The powers and duties of each fiduciary hereunder, whether
or not a named fiduciary, shall be limited to those specifically delegated
to each of them under the terms of the Plan and Trust Agreement. It is
intended that the provisions of the Plan and Trust Agreement allocate to
each fiduciary the individual responsibilities for the prudent execution of
the functions assigned to each fiduciary. None of the allocated
responsibilities or any other responsibilities shall be shared by two or
more fiduciaries unless such sharing shall be provided by a specific
provision in the Plan or the Trust Agreement. Whenever one fiduciary is
required by the Plan or the Trust Agreement to follow the directions of
other fiduciary, the two fiduciaries shall not be deemed to have been
assigned a share of any responsibility, but the responsibility of the
fiduciary giving the directions shall be deemed to be his sole
responsibility and the responsibility of the fiduciary receiving those
directions shall be to follow some insofar as such instructions on their
face are proper under applicable law. Any fiduciary may employ one or more
persons to render advice with respect to any responsibility such fiduciary
has under the Plan or Trust Agreement.
(C) Each fiduciary may, but need not, be an employee, partner,
director or officer of the Employer. Nothing in the Plan shall be
construed to prohibit any fiduciary from:
(1) serving in more than one fiduciary capacity with
respect to the Plan and Trust Agreement;
(2) receiving any benefit to which he may be entitled as a
Participant or Beneficiary in the Plan, so long as the benefit is computed
and paid on a basis which is consistent with the terms of the Plan as
applied to all other Participants and Beneficiaries; or
(3) receiving any reasonable compensation for services
rendered, or for the reimbursement of expenses properly and actually
incurred in the performance of his duties with respect to the Plan, except
that no person so serving who already receives full-time pay from the
employer shall receive compensation from the Plan, except for reimbursement
of expenses properly and actually incurred.
(D) Each fiduciary shall be bonded as required by applicable law
or statute of the United States, or of any state having appropriate
jurisdiction, unless such bond may under such law or statute be waived by
the parties to the Trust Agreement. The Employer shall pay the cost of
bonding any fiduciary who is an employee or partner of the Employer.
12.9 APPLICABLE LAW
The Plan will, unless superseded by federal law, be construed and
enforced according to the laws of the State of Arkansas, and all provisions
of the Plan will, unless superseded by federal law, be administered
according to the laws of the said state.
<PAGE>
SECTION 13
TRUST FUND
----------
13.1 PURPOSE OF TRUST FUND
A Trust Fund has been created and will be maintained for the purposes
of the Plan, and the monies thereof will be invested in accordance with the
terms of the agreement and declaration of trust which forms a part of the
Plan. All contributions will be paid into the Trust Fund, and all benefits
under the Plan will be paid from the Trust Fund.
13.2 BENEFITS SUPPORTED ONLY BY TRUST FUND
Any person having any claim under the Plan will look solely to the
assets of the Trust Fund for satisfaction.
13.3 TRUST FUND APPLICABLE ONLY TO PAYMENT OF BENEFITS
The Trust Fund will be used and applied only in accordance with the
provisions of the Plan, to provide the benefits thereof, and no part of the
corpus or income of the Trust Fund will be used for, or diverted to,
purposes other than the exclusive benefit of Participants and other persons
thereunder entitled to benefits, except to the extent provided in Section
11.6 hereof with respect to expenses of administration.
<PAGE>
SECTION 14
LOANS TO PARTICIPANTS
---------------------
14.1 GENERAL PROCEDURE
Subject to such rules and regulations of uniform application as the
Employer may from time to time promulgate with respect to the amount of
loans, purposes of loans, maturity dates, interest rates and security, if
any, the Employer, upon written application of a Participant upon a form
prepared by the Employer, may, in its absolute discretion, direct the
Trustee to make a loan to such Participant upon such terms as the Employer
deems appropriate. The loan program shall be administered by the Committee
or such sub-committee or person as it may appoint ("Loan Administrator").
The Loan Administrator shall adopt written policies and procedures for the
Plan's loan program and such written policies and procedures are hereby
incorporated by reference. A Participant wishing to obtain a loan from the
Plan shall apply to the Loan Administrator by submitting a written loan
application which can be obtained from the Loan Administrator upon request.
All loans shall be made available to Participants who are "Parties in
Interest" as defined in Section 3(14) of ERISA without regard to such
Participant's race, color, religion, age, sex or national origin.
14.2 PURPOSE OF LOANS
A loan shall only be made for the purpose of enabling a Participant to
defray expenses resulting from illness or disability of the Participant or
a member of the Participant's immediate family, or for the purpose of
establishing or preserving the home in which the Participant resides or is
to reside, or for the purpose of providing schooling for the Participant's
children, or to meet an emergency condition in the Participant's financial
affairs so as to alleviate or prevent undue hardship on the Participant.
14.3 AMOUNT OF LOANS
The Loan Administrator may authorize loans in an amount not less than
$1,000 and not more than an amount equal to 50% of the present value of a
Participant's vested accounts under the Plan; provided that such loan
amount shall in no event exceed the lesser of (a) $50,000 reduced by the
excess (if any) of the highest outstanding balance of loans from the Plan
to the Participant during the preceding one year period over the
outstanding balance of loans from the Plan to the Participant as of the
date the loan is made, or (b) one-half of the present value of the
Participant's nonforfeitable accrued benefit under the Plan.
14.4 LOAN CONDITIONS
If approved, each loan to a Participant pursuant to this Section 14
shall comply with the following conditions:
(a) Written Instrument. It shall be evidenced by a negotiable
promissory note.
(b) Interest Rate. The loan shall bear a reasonable rate of
interest which shall be commensurate with the prevailing interest rate
charged by persons in the business of lending money for loans made under
similar circumstances. Subject to this requirement, the Loan Administrator
shall develop rules for determining the interest to be charged on Plan
loans.
(c) Term. The loan, by its terms, must require level
amortization of repayments (to be made not less frequently than quarterly)
over a period not extending beyond five (5) years; provided, however, in
the case of a home loan as described in Section 72(p) of the Code, such
loan may be for a term in excess of five (5) years.
(d) Adequate Security. The loan shall be secured by up to 50%
of the Participant's entire right, title and interest in his accounts under
the Plan. Any Participant who pledges any portion of his vested account
balances under the Plan also shall be required to execute an Automatic
Payroll Deduction Agreement under which loan payments will be deducted from
the Participant's Compensation on a payroll date basis until the amount of
the loan plus interest accrued thereon is paid in full.
(e) Default. In addition to any other conditions or events the
Loan Administrator may specify, a loan shall be considered in default if
the Participant fails to pay any installment when due and such failure is
not cured within sixty (60) days. Any default by the Participant shall, at
the election of the Loan Administrator, cause the remaining outstanding
balance of the loan to be due and payable at once. In addition, the Loan
Administrator shall proceed against the security pledged by the Participant
in connection with the loan at such time and in such manner as it
determines to be in the best interest of the Plan. The Loan Administrator
is expressly authorized to delay enforcement of the security interest in
the Participant's Accounts under the Plan until such time as the
Participant is entitled to a distribution under the terms of the Plan and
the Code provided such delay results in no loss of income or principal to
the Plan. At such time as the Participant is entitled to a distribution
under the terms of the Plan, the Loan Administrator may offset the vested
portion of the Participant's account balances under the Plan against the
remaining unpaid balance of the loan plus interest accrued thereon. In the
event that the Participant's vested percentage is less than 100% at the
time of any liquidation of such outstanding loan from his Matching or
Profit Sharing Contribution Accounts, the amount of any unpaid loan that is
liquidated from such accounts shall be included in the "total debits
against the Participant's Matching and/or Profit Sharing Contribution
Accounts for prior distributions" for the purpose of Section 4.3 hereof.
(f) Liquidation on Maturity. Each loan shall be due and payable
in full by the Participant not later than the earliest of (1) the maturity
date set forth in the promissory note, (2) the Participant's termination of
employment with Employer, or (3) the termination of the Plan. In any
event, all loans will mature at the time provided for any distribution to
the Participant from the Plan, and no distribution shall be made to any
Participant, beneficiary or beneficiaries or to the estate of a Participant
unless and until all loans to such Participant, together with interest
accrued thereon, have been paid in full.
(g) Investment Gain or Loss. To the extent a Participant's loan
is secured by his/her Accounts, the investment gain or loss attributable to
the loan shall not be included in the calculation or allocation of the
increase or decrease in fair market value of the general assets of the
Plan. The entire gain or loss (including any gain or loss attributable to
interest payments or default) shall be allocated to the accounts of the
Participant.
IN WITNESS WHEREOF, FAIRFIELD COMMUNITIES, INC. has caused this
instrument to be executed by its duly authorized officers on this 14th day
of July, 1994.
FAIRFIELD COMMUNITIES, INC.
By: /s/ J. W. McConnell
Title: President
ATTEST:
/s/ Kimberly R. Thompson
FAIRFIELD COMMUNITIES, INC. AND SUBSIDIARIES EXHIBIT 11
Computation of Earnings Per Share
<TABLE>
Primary
---------------------------------------
Six Months
Year Ended Ended
December 31, December 31,
------------------------- ------------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Weighted average shares:
Shares outstanding 12,265,240 10,490,083 3,820,125
Estimated increase in shares outstanding due
to allowed claims exceeding
$85 million (1) 823,035 2,942,977 9,709,287
Less treasury stock and shares
held by wholly owned subsidiaries (2,395,295) (2,395,295) (2,395,295)
Net effect of dilutive warrants based on the
treasury stock method 376,287 - -
Contingent issuance -
Holders of FCI (2) - - -
------------ ------------ ------------
Total weighted average shares outstanding 11,069,267 11,037,765 11,134,117
============ ============ ============
Net earnings $12,269,000 $7,170,000 $1,249,000
============ ============ ============
Earnings per share $1.11 $0.65 $0.11
============ ============ ============
Fully Diluted
---------------------------------------
Six Months
Year Ended Ended
December 31, December 31,
------------------------- ------------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Weighted average shares:
Shares outstanding 12,265,240 10,490,083 3,820,125
Estimated increase in shares outstanding due
to allowed claims exceeding
$85 million (1) 823,035 2,942,977 9,709,287
Less treasury stock and shares
held by wholly owned subsidiaries (2,395,295) (2,395,295) (2,395,295)
Net effect of dilutive warrants based on the
treasury stock method 392,519 66,667 -
Contingent issuance -
Holders of FCI (2) 588,235 588,235 588,235
------------ ------------ ------------
Total weighted average shares outstanding 11,673,734 11,692,667 11,722,352
============ ============ ============
Net earnings $12,269,000 $7,170,000 $1,249,000
============ ============ ============
Earnings per share $1.05 $0.61 $0.11
============ ============ ============
</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 December 31, 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 insufficient
to repay the FCI Notes.
Information for the six months ended June 30, 1992 relates to a period prior
to confirmation of the Plans when the Predecessor Company had a different
capital structure than that of the Company. Per share data pertaining to a
pre-confirmation period is, therefore, neither comparable nor meaningful and
is not disclosed herein.
CORPORATE PROFILE
Fairfield Communities, Inc., incorporated in 1969, is one of the
nation's leading vacation ownership companies, operating and/or
marketing 15 resort and home developments in 10 states. The Company
provides a combination of vacation products, recreational facilities,
homesites and primary and secondary residences to over 150,000
Fairfield property owners.
Fairfield's primary business is the sale and financing of
vacation ownership interests (VOI), popularly known as timeshare, in
its various properties situated either in popular tourist locations or
in proximity to other scenic resort areas. Since its inception
Fairfield has sold over $900 million in VOI. The Company's premier
product, FairShare Plus, is an innovative, personalized vacation
system offering purchasers an enhanced level of flexibility in
planning the timing, size of accommodations, location and length of
their vacations.
Fairfield finances VOI purchases through a wholly owned
subsidiary, Fairfield Acceptance Corporation (FAC), generating
quality, medium-term contracts receivable with attractive yields. FAC
holds these contracts in its portfolio, and in some instances,
securitizes or sells them to third parties. The common stock of
Fairfield Communities, Inc. trades on the Nasdaq National Market under
the symbol "FFCI."<PAGE>
<PAGE>
BUILDING FOR THE FUTURE
Fairfield's property portfolio consists of carefully selected sites
offering a diverse set of vacation experiences to Fairfield Vacation
Club members. In 1994, with the industry having entered a period of
solid growth and heightened interest among American vacationers,
Fairfield began new developments in Nashville, Tennessee and Orlando,
Florida. The Nashville and Orlando projects represent important
additions to Fairfield's portfolio.
The prime benefit of selecting Nashville and Orlando is their
respective status as top destination vacation locations. In today's
vacation ownership industry, offering resorts at time-tested, popular
destinations is vital to attracting customers. Destination spots --
locations which already contain the amenities and attractions which
draw tourists -- increase the value of our products to vacationers.
They also eliminate the need for Fairfield to develop amenities,
lowering our required total investment, and aid the sales effort by
helping generate opportunities for on-site contact. The popularity of
destination locations among our customers has already been proven by
the success of our Williamsburg, Myrtle Beach and Branson properties.
Nashville and Orlando have the potential to add tremendously to that
success.
Fairfield Nashville at Music City USA
Development at Fairfield Nashville was commenced near the end of 1994
on an attractive site directly across from the famous Opryland Hotel.
Fairfield's facility will initially contain 150 units, and the Company
holds an option to purchase an additional 12-acre parcel for the
future development of another 195 units in a second phase. Fairfield
Nashville is located very close to the major Music City USA
attractions, including the Grand Ole Opry, the Opryland Theme Park and
The Hermitage. The property will eventually include amenities such as
indoor and outdoor swimming pools, a health club, clubhouse, picnic
tables, barbecue grills and playgrounds.
Over 8 million people visited the Nashville area in 1994, ranking it
among the nation's larger tourism markets. The number of visitors has
grown over 31% since 1989 and we believe Music City USA is now as
popular as ever. The staying power of Nashville has been helped
immeasurably in recent years by the vastly increasing popularity of
country music among Americans, particularly our key middle-class
target market. It is also an affordable, accessible, family-oriented
locale that draws a substantial number of repeat visits, a
characteristic which adds to the attractiveness of vacation ownership.
Our research indicates that about one-half of Nashville's visitors in
recent years were making return trips.
These attractive demographic statistics justify Music City USA as an
attractive vacation ownership market. In addition to the sizeable
out-of-town tourist draw, Fairfield membership will also be marketed
to a population of approximately 1.1 million people living within a
100-mile radius of the city's major attractions. A large local base of<PAGE>
sales prospects is characteristic of Fairfield's projects, as our
research shows that an increasing number of vacationers prefer shorter
travel distances to their vacation destinations.
Fairfield Orlando at Cypress Palms
Orlando is easily the United States' largest vacation owner-ship
resort location and likely the world's largest. The city's
approximately $408 million in vacation ownership sales in 1993
comprised one-third of the national market and 10% of the world
market, according to industry estimates, and Orlando currently has
well over 5,000 vacation ownership units.
Such statistics might indicate a saturated market, but Fairfield
believes the reality is just the opposite. Over 14 million people
visited Orlando's various attractions in 1994, and although tourism
growth has leveled off in recent years, signs indicate that growth is
on the way up again. Meanwhile, vacation ownership sales have steadily
increased in the market as the products become more sophisticated and
the industry gains popularity.
Cypress Palms, our planned 244-unit project, will be located just
minutes from the Walt Disney World Resort Theme Park, Epcot Center,
Universal Studios and other major attractions. Several new theme parks
promise to add even more excitement to an Orlando vacation, including
a new Walt Disney park based on animals and the Splendid China theme
park.
The Orlando vacation ownership market is characterized by the presence
of major hotel and entertainment companies, most notably Disney,
Hilton and Marriott. Fairfield typically targets customers in income
brackets slightly below those targeted by these companies, a strategy we
believe will work well in family-oriented markets such as Orlando. The
size of the market and the presence of major industry participants
make it important for an industry leader such as Fairfield to also
have a presence there.
Both Nashville and Orlando have demonstrated that they are among
America's most enduring vacation attractions, and thus make excellent
choices for the next generation of Fairfield resort properties. We are
looking forward to the added excitement these properties will bring to
Fairfield owners, as well as the role these resorts will play in
Fairfield's continued growth.<PAGE>
A FOCUS ON SERVICE
To assure the growth Fairfield is seeking to achieve, we must deliver
more than attractive new vacation properties. We must also deliver
consistent, value-added service to support our vacation ownership
products. Service is an important part of fulfilling our obligations
to existing property owners, and is crucial to generating new
customers who may otherwise choose to stay in hotels or select other
vacation alternatives. Fairfield provides what we
believe is a superior level of service through our innovative products
and programs.
FairShare Plus
FairShare Plus is Fairfield's primary vacation ownership product, and
it was designed with customer interest and service in mind. The
product is a personalized vacation system that provides the purchaser
maximum flexibility in structuring the length, location, vacation
season, and even the size of the unit in which his/her family stays.
Virtually all of our new customers opt for FairShare Plus, and many
existing customers are now converting their fixed-week VOIs to the
enhanced product.
FairShare Plus customers assign their use rights granted under the
terms of the purchase contract to a separate trust, from which they
are given an annual allocation of FairShare Plus points symbolic of
their VOI use rights. These points can then be used to reserve
vacations from an available pool of VOIs, based on a published
schedule of exchange rates for various locations.
Customers are granted a great deal of freedom in using their points,
including the ability to borrow points from future years or, under
some circumstances, to carry their unused points forward to later
years.
LeisurePlan
LeisurePlan is an enhanced service that makes it even easier for
Fairfield Vacation Club members to plan their vacations by offering
them additional services, discounts on hotel stays, golf at over 1,000
courses and more. Fairfield also offers a full line of travel services
through an affiliation with the Thomas Cook/American Express travel
agency. Vacationers can use the service to make airline reservations
and rent cars. Fairfield established LeisurePlan in 1993 and we are
finding that it is very popular with our new customers.
VOI Exchange Services
Fairfield is affiliated with Resort Condominiums International (RCI),
the world's largest vacation ownership exchange network. Each
FairShare member is eligible to take advantage of RCI's services. The
exchange network monitors availability and books reservations at
thousands of quality vacation ownership resorts around the globe.<PAGE>
Fairfield also has its own established exchange system, known as FAX,
for FairShare Exchange. This service was designed for the 95,000
longtime Fairfield customers who own fixed-week VOIs. Customers can
use the system to learn of availability at 15 resorts in the U.S.
which are owned and/or managed by the Company. Fairfield is the only
vacation ownership company which offers fixed week customers this
exclusive service.
Vacation Clearinghouse International
As an additional benefit, the Company offers its customers access, for
a nominal charge, to Vacation Clearinghouse International, an
electronic bulletin board on which customers can list their VOI for
resale or rental. Customers can also use the system to rent additional
vacation accommodations. The system, started in 1994, is accessible
via an 800 telephone number and is expected to become a valuable
resource for Fairfield Vacation Club members.
Financing Services
As an added service, Fairfield provides internal financing to VOI and
lot purchasers at fixed interest rates over periods ranging up to 7
years. With the average VOI purchase totaling approximately $8,800,
80% of our customers have historically chosen to finance with
Fairfield. We emphasize to customers a pre-authorized payment program
whereby we automatically deduct monthly payments from customers'
checking accounts.
Financing of VOI purchases is a beneficial service for our customers
and is also smart business for Fairfield. The contracts, which
comprise a substantial portion of the Company's assets, carry an
attractive interest yield and historically have had low delinquency
rates. The contracts are purchased by a separate subsidiary, Fairfield
Acceptance Corporation (FAC), which services the assets and uses the
cash flow they generate to service its own credit facility and
purchase additional contracts. Thus, FAC serves as a low-cost source
of funds to the Company.<PAGE>
COMMON STOCK PRICES
The Company's common stock trades on The Nasdaq Stock Market
under the symbol FFCI. The approximate number of recordholders of the
Company's common stock at January 31, 1995 was 4500. The Company's
Common Stock commenced "regular way" trading on November 4, 1993. For
the period November 4, 1993 through December 31, 1993, the high and
low closing bid prices were $4-5/8 and $2-3/4, respectively. The
Company has paid no dividends in the past two years.
High and low stock prices for 1994 were as follows:
Sales Price
----------------
Quarter Ended High Low
------------- ---- -----
March 31 $6-1/2 $4
June 30 6-1/4 5-1/4
September 30 7 5
December 31 6-3/8 4-1/4
Certain of the Company's financing arrangements prohibit the
Company from paying any cash dividends or other ditributions on its
Common Stock. <PAGE>
FAIRFIELD COMMUNITIES, INC. AND SUBSIDIARIES
SELECTED FINANACIAL DATA
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
<TABLE>
Six Months
Year Ended Ended
December 31, December 31,
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
OPERATING DATA
Revenues:
Vacation ownership, net $ 55,353 $ 34,332 $15,255
Homes and lots, net 13,890 12,073 5,010
Resort management 11,413 10,876 5,145
Interest 20,366 24,089 14,670
Savings and loan operations - 18,762 10,099
Other 9,198 9,596 3,756
Gain on sale of
First Federal 5,200 - -
-------- -------- -------
$115,420 $109,728 $53,935
======== ======== =======
Earnings (loss):
Continuing operations $12,269 $7,170 $1,249
Discontinued operations - - -
Extraordinary credit -
gain on discharge
of debt - - -
------- ------ ------
Net earnings (loss) $12,269 $7,170 $1,249
======= ====== ======
EARNINGS PER SHARE
Primary $1.11 $.65 $.11
===== ==== ====
Fully diluted $1.05 $.61 $.11
===== ==== ====
| Six Months
| Ended Year Ended
| June 30, December 31,
| 1992 1991 1990
| ---- ---- ----
| <C> <C> <C>
| $13,558 $ 34,098 $ 75,859
| 4,513 14,226 26,136
| 4,756 8,056 10,123
| 16,089 37,294 40,790
| 13,597 30,935 32,621
| 7,148 7,668 13,243
| - - -
| ------- -------- --------
| $59,661 $132,277 $198,772
| ======= ======== ========
|$(13,284) $(32,780) $(61,703)
| (6,538) (2,494) (26,756)
| 125,895 - -
|-------- -------- --------
|$106,073 $(35,274) $(88,459)
|======== ======== ========
|
|
| * * *
| * * *
</TABLE>
* Per share amounts are neither comparable nor meaningful due to
reorganization.
BALANCE SHEET DATA
<TABLE>
December 31,
-------------------------------------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Loans receivable, net $137,124 $165,575 $378,037
Total assets 224,026 245,073 586,700
Total financing arrangements 111,943 112,581 180,812
Liabilities subject to
reorganization proceedings - - -
Stockholders' equity (deficit) 66,935 47,148 36,962
| December 31,
| ------------------
| 1991 1990
| ---- ----
| <C> <C>
| $450,031 $495,478
| 685,468 755,134
| 96,081 117,024
|
| 218,808 229,477
| (38,322) (3,227)
</TABLE>
Note: Effective June 30, 1992, the Company implemented "Fresh Start Reporting"
in connection with confirmation of the plans of reorganization. No
dividends have been paid during the previous five years. See Note 14 of
"Notes to Consolidated Financial Statements" for discussion of the
Company's contingencies.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
As of June 30, 1992, the Company implemented the recommended
accounting for entities emerging from reorganization set forth in
Statement of Position 90-7, "Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code" issued by the American
Institute of Certified Public Accountants ("Fresh Start Reporting").
Accordingly, the Company's assets and liabilities were adjusted to
reflect their estimated fair values and the accumulated deficit was
eliminated. Since July 1, 1992, the Company's financial statements
have been prepared as if it were a new reporting entity and a black
line separates this financial information from that of the Company
prior to reorganization ("Predecessor Company") since it has not been
prepared on a comparable basis.
Under Fresh Start Reporting, the fair value of the Company's
assets and liabilities approximated their historical value at June 30,
1992. Accordingly, the results of operations for the six months ended
December 31, 1992 have been combined with those of the Predecessor
Company for the six months ended June 30, 1992 (subsequently referred
to as "Combined 1992") and, for purposes of management's discussion of
results of operations, will be compared to the results of operations
for 1994 and 1993.
For financial statement presentation, the results of operations
in 1993 and Combined 1992 related to the assets of First Federal
Savings and Loan Association of Charlotte ("First Federal") sold in
September 1994 have been reclassified to "Savings and loan operations"
in the Consolidated Statements of Earnings. First Federal's
operating loss for the period ended September 23, 1994 was netted into
the gain recognized on the sale of First Federal (see "Sale of First
Federal" below).
Vacation Ownership
------------------
Gross vacation ownership interval ("VOI") revenues totaled $55.2
million and $35.3 million for 1994 and 1993, respectively. During
1994, the Company experienced revenue increases at several of its
developments, including its destination locations in Myrtle Beach,
South Carolina as well as Branson, Missouri, which began sales efforts
in June 1993. Additionally, the Company recognized $.2 million net of
previously deferred revenue in 1994, under the percentage of
completion method of accounting, as compared to revenue deferred in
1993 of $.9 million. Under the percentage of completion method of
accounting, the portion of revenues attributable to cost 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 remaining costs are incurred.
In December 1994, the Company began sales efforts at its two
newest destination locations in Nashville, Tennessee and Orlando,
Florida. The results of operations for the fourth quarter of 1994
reflect approximately $1 million in start-up expenses associated with
these new developments (included in "Other expenses" in the 1994
Consolidated Statement of Earnings). These expenses are primarily due
to establishing marketing operations in both projects prior to
commencement of the prime selling season, which normally corresponds
with the Company's second and third quarters. During the first
quarter of 1995, the Company will incur additional selling expenses at
both projects as the Company continues its effort to develop these new
marketing operations in time for the prime selling season. The
Company anticipates that the Nashville and Orlando projects will begin
to contribute positively to the Company's operations during the second
quarter of 1995.
Gross VOI revenues increased during 1993, as compared to Combined
1992, as the Company experienced sales increases at its destination
locations in Williamsburg, Virginia and Branson, Missouri. The
increase in gross revenues was offset by a $3 million net increase in
deferred revenue related to the percentage of completion method of
accounting.
Cost of sales, as a percentage of net revenues, was 30.6% for
1994, 29.0% for 1993 and 25.0% for Combined 1992. Included in cost of
sales for 1994 and 1993 are costs related to the Company's LeisurePlan
program, which is a travel and discount club providing its members
with a variety of entertainment, travel and recreational options. The
Company anticipates that the LeisurePlan program, which was
implemented in 1993, will make the Company's VOI products more
attractive to its customers and thereby increase overall sales volume.
The cost of sales percentage of net VOI revenues for 1994 and 1993,
excluding the effect of the additional costs associated with the
LeisurePlan program, was 24.9% and 24.8%, respectively.
Homes and Lots
--------------
Since 1992, sales of homes and lots have been concentrated
primarily at the Company's development located at Fairfield Glade,
Tennessee. Home and lot revenues at this development totaled $11.3
million, $9.7 million and $6.5 million in 1994, 1993 and Combined
1992, respectively. The increase in home sales in 1994 and 1993 at
Fairfield Glade, and on a national basis, is primarily attributable to
lower mortgage interest rates. The Company anticipates that future
sales of homes and lots will be limited primarily to the Fairfield
Glade development.
Selling
-------
Selling expenses for both VOI and lot sales, as a percentage of
related revenues, were 49.4%, 49.4% and 51.6%, for 1994, 1993 and
Combined 1992, respectively. The Company's operating strategy
includes reducing these costs through a variety of mechanisms, such as
decreased reliance on direct mail marketing and increased use of
existing property owner referrals and offsite sales contacts. As noted
above, the Company anticipates some marketing inefficiencies during
the first quarter of 1995 associated with its newest projects in
Nashville and Orlando. Future efficiencies are expected to be
realized as both of these projects mature and expand their base of
property owners.
General and Administrative
--------------------------
General and administrative expenses increased $1 million during
1994, as compared to 1993, resulting from (i) additional expenses
incurred related to the increased VOI sales volumes as previously
discussed and (ii) an increase in the expenses related to the
Company's employee benefit plans (see Note 12 of "Notes to
Consolidated Financial Statements"). As a percentage of total
revenues, general and administrative expenses remained basically
unchanged for 1994 as compared to 1993.
General and administrative expenses decreased in 1993, as
compared to Combined 1992, resulting from management's emphasis on
cost reductions and restructuring of resort site management.
Resort Management
-----------------
During 1994, management's emphasis on more effective cost
controls resulted in net resort management income of $1.4 million, as
compared to a nominal net loss in 1993 and a nominal net gain in
Combined 1992.
Other
-----
Other revenues in 1994 and 1993 include cash distributions
totaling $1.2 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. Other revenues for 1993 also include $.5 million
related to the recovery of a previously written-off note receivable
and $.5 million related to the recovery of certain professional fees
previously expensed. There were no similar revenues for Combined
1992.
Also included in other revenues and other expenses for 1994 are
bulk asset sales and related cost of sales totaling $4.5 million and
$4.2 million, respectively. For 1993, bulk asset sales and related
cost of sales totaled $1.7 million and $1.2 million, respectively, and
for Combined 1992 totaled $7 million and $6.5 million, respectively.
As previously noted, the Company incurred approximately $1
million of start-up expenses in the fourth quarter of 1994 relating to
the Nashville and Orlando projects. These expenses have been
classified in "Other expenses" in the 1994 Consolidated Statement of
Earnings.
SALE OF FIRST FEDERAL
On September 23, 1994, Fairfield completed the sale of 100% of
the capital stock of First Federal to Security Capital Bancorp
("SCBC") for $41 million (the "Sales Price"). Immediately prior to
closing, the Company purchased for cash (a) at book value, $16 million
of certain real estate, loans receivable, 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 $41.6 million.
The Excluded Association Assets and the Contracts Receivable are
collectively referred to as the "Excluded Assets". The Company
recognized a net gain on the sale of $5.2 million, which is net of
operating losses incurred by First Federal during the period ended
September 23, 1994. The gain from the sale of First Federal was not
subject to federal income tax due to a permanent tax basis difference
in First Federal's stock and underlying goodwill. The remaining
Excluded Association Assets, totaling $12.3 million as of December 31,
1994, are classified in "Net assets held for sale" in the 1994
Consolidated Balance Sheet (see Note 11 of "Notes to Consolidated
Financial Statements").
In accordance with the Stock Purchase Agreement, SCBC retained
$1.4 million of the Sales Price 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, $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 its revolving credit agreements, paid $17.7 million
to SCBC in connection with the closing of the sale.
INTEREST
Interest income totaled $20.4 million, $24.1 million and $30.8
million in 1994, 1993 and Combined 1992, respectively. The continued
decrease in interest income is primarily attributable to lower average
balances of outstanding contracts receivable ($146.2 million for 1994,
$177.4 million for 1993 and $223.8 million for Combined 1992).
During 1995, the Company anticipates that the balance of contracts
receivable will increase as originations from sales, including those from the
Company's new developments, will exceed principal reductions.
Interest income is expected to increase in tandem with the net
increase in contracts receivable, with no appreciable increase
expected until 1996.
Interest expense totaled $10.5 million, $14.4 million and $21.5
million in 1994, 1993 and Combined 1992, respectively. This downward
trend is primarily attributable to reductions in the average
outstanding balances of interest-bearing debt, resulting primarily
from asset sales and the conveyance of collateral in lieu of
foreclosure. The average outstanding balance of interest-bearing debt
has decreased from $230.5 million in Combined 1992 to $191.8 million
in 1993 and $137.8 million in 1994. The weighted average interest
rate for the variable portion of the Company's revolving credit
agreements was 8.1%, 8.2% and 8.7% for the years ended December 31,
1994, 1993 and Combined 1992, respectively.
PROVISION FOR INCOME TAXES
Since July 1, 1992, income taxes have been provided in accordance
with Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes" ("SFAS 109"). Under SFAS 109, deferred tax assets
or liabilities are determined based on the difference between the
financial reporting and tax bases of assets and liabilities and
enacted tax rates that will be in effect for the year in which the
differences are expected to reverse. Additionally, under SFAS 109, a
valuation allowance must be established for deferred tax assets if,
based on available evidence, it is "more likely than not" that all or
a portion of the deferred tax assets will not be realized.
Fresh Start Reporting requires the Company to report federal
income tax expense on income before utilization of pre-confirmation
net operating loss carryforwards and recognition of the benefit of
pre-confirmation deductible temporary differences. Benefits realized
from the utilization of pre-confirmation net operating loss
carryforwards and recognition of pre-confirmation deductible temporary
differences are recorded as reductions of the valuation allowance and
as direct additions to paid-in capital. The Company recorded benefits
from the utilization of pre-confirmation tax attributes totaling $7.5
million, $3 million and $.3 million for 1994, 1993 and the six months
ended December 31, 1992, respectively.
At December 31, 1994, the Company had net operating loss
carryforwards totaling $43.6 million which reflects the amount
available to offset taxable income in future periods based on the
Company's current assessment of the limitations imposed by Internal
Revenue Code Section 382 ("Section 382"). Had the Company undergone
an ownership change as defined in Section 382 during the two year
period following the effective date of the plans of reorganization
(which became effective September 1, 1992), the pre-confirmation net
operating loss carryforwards would have been eliminated. Available
carryovers, if not utilized, expire as follows: 2005 - $12.7 million;
2006 - $8.0 million; 2007 - $14.0 million; 2008 - $5.5 million and
2009 - $3.4 million.
Prior to 1994, the Company's deferred tax assets were reduced by
a 100% valuation allowance based on the lack of a historical earnings
record for the Company and the uncertainty as to the potential
limitations that could have been imposed under Section 382 during the
two year period following the effective date of the plans of
reorganization. In 1994, management determined that it was more
likely than not that a portion of the deferred tax assets would be
realized. Management concluded that the Company had not undergone an
ownership change as defined under Section 382 during the two year
period following the effective date of the plans of reorganization and
would therefore realize a certain portion of the deferred tax assets
through (i) estimated future taxable earnings
and (ii) the reversal of deferred tax liabilities during periods in which the
Company has available net operating loss carryforwards and other deductible
temporary differences.
The Company has reported operating earnings since the effective
date of the plans of reorganization and management believes that it is
more likely than not that future taxable earnings will be sufficient
to realize a portion, if not all, of the tax benefits associated with
the future deductible temporary differences and net operating loss
carryforwards prior to their expiration. The 1994 reduction of the
valuation allowance is based on (i) current realization of certain
prior year deferred tax liabilities, (ii) offset of deferred tax
assets against remaining deferred tax liabilities and (iii)
utilization of deferred tax assets to offset estimated taxable
earnings for 1995. Management believes that its projections of 1995
earnings are achievable and provide adequate support for reducing the
valuation allowance in 1994. Future realization of the remaining
unrealized deferred tax assets will depend principally on the
Company's ability to generate taxable earnings sufficient to offset
net operating losses and deductions for temporary differences which
comprise these assets. To the extent of this realization of tax
assets occurs, substantially all of the valuation allowance, totaling
$26.1 million at December 31, 1994, will be reduced through additional
credits to paid-in capital.
The variance between the statutory tax provision and that of the
Predecessor Company for the six months ended June 30, 1992 relates
primarily to the gain on the discharge of debt.
FINANACIAL CONDITION
Total consolidated assets of the Company decreased $21.0 million
from December 31, 1993 to December 31, 1994. This decrease is
primarily attributable to a $28.5 million decrease in loans
receivable, resulting primarily from principal payments exceeding
originations of new receivables, which was partially offset by an
increase in cash and cash equivalents of $9.2 million (see "Liquidity
and Capital Resources" below). At December 31, 1994, net assets held
for sale consisted of (i) those assets collateralizing the Senior
Subordinated Secured Notes, (ii) two remaining golf courses previously
classified in net assets of discontinued operations and (iii) the
remaining balance of the Excluded Association Assets purchased in
conjunction with the sale of First Federal (see Note 11 of "Notes to
Consolidated Financial Statements").
As previously discussed, in addition to current year earnings,
stockholders' equity increased $7.5 million representing recorded
benefits from the utilization of pre-confirmation income tax
attributes (see Note 8 of "Notes to Consolidated Financial
Statements").
IMPACT OF INFLATION
Although inflation has slowed in recent years, it remains a
factor the Company considers. In general, to the extent permitted by
competition, the Company passes increased costs on to its customers
through increased sales prices. The value of a land parcel is
determined by factors such as location, zoning, topography and,
perhaps most importantly, plans for its ultimate use. As some of
these factors change, sometimes as a result of the Company's own
actions, the value of the land may increase or decrease independently
of inflationary pressures. Management believes that capitalizing
interest on land during development reasonably provides for increases
in land value due to inflation. Due to the Company's relatively high
turnover rate in homes, VOIs, building supplies and consumable goods
inventories, historical costs closely approximate current costs.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents of the Company increased $9.2 million
from December 31, 1993 to December 31, 1994. This increase is
primarily attributable to (i) $12.9 million of net cash provided by
operating activities and (ii) $1.5 million of cash provided from
financing activities, which was partially offset by $5.3 million of
cash used in investing activities. Cash used in investing activities
includes $17.7 million paid in connection with the sale of First
Federal as discussed above. Investing activities also include $21.3
million of principal collections on loans receivable exceeding loan
originations. Included in net investment activities of net assets and
liabilities held for sale is $12.9 million of principal collections
related to contracts receivable previously held by First Federal. The
cash of First Federal was included in net liabilities held for sale in
the Consolidated Balance Sheet as of December 31, 1993.
Fairfield finances its vacation ownership and lot sales
internally, resulting in the creation of installment contracts
receivable which produce cash flows as payments are received. Certain
costs have been historically funded to support these sales (primarily
development and marketing costs) from operating cash flows, borrowings
and asset sales, including sales of contracts receivable. Fairfield
has historically relied upon these sources of funds to finance timing
differences between incurring the costs to develop and market its real
estate products and receiving the proceeds from the sale of such
products. In the recent past, the Company has obtained borrowed funds
primarily through various revolving credit arrangements. In a
continuing effort to lower its costs of borrowed funds, the Company
has sought alternative financing sources. In December 1994, the
Company entered into a two phase program which, as described below,
will provide alternative financing on more favorable terms.
At December 31, 1994, Fairfield had no borrowings outstanding
under its Amended and Restated Revolving Credit Agreement (the "FCI
Agreement") with The First National Bank of Boston ("FNBB"). The FCI
Agreement provides for revolving loans of up to $25 million, including
up to $7 million for letters of credit. The FCI Agreement was amended
in December 1994, to provide, among other things, the establishment of
a sublimit for borrowings against certain eligible receivables (as
defined in the FCI Agreement) in an amount up to $10 million. The
revolving loans mature on January 1, 1998, if not extended in
accordance with the terms of the FCI Agreement, with the sublimit
borrowings available through the earlier of (i) termination of the
CapMAC Bond (as defined below) or (ii) April 3, 1995. At December 31,
1994, Fairfield had borrowing availability of $21.8 million, net of
outstanding letters of credit totaling $.5 million.
At December 31, 1994, FAC had borrowings outstanding of $23.7
million under its 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. In December 1994, FAC entered into an
insurance agreement with FNBB and Capital Markets Assurance
Corporation ("CapMAC") pursuant to which CapMAC issued a surety bond
(the "CapMAC Bond") in favor of FNBB, guaranteeing the payments due on
certain contracts receivable collateralizing the outstanding
borrowings under the FAC Agreement. Additionally, the FAC Agreement
was amended to provide, among other things, that through the earlier
of the termination of the CapMAC Bond or April 3, 1995 (i) FAC would
be unable to purchase additional contracts receivable from Fairfield
except to satisfy FAC's obligation during the reinvestment period of
the FFC Notes (as defined below) and (ii) additional borrowings would
be suspended. The revolving loans mature on January 1, 1998, if not
extended in accordance with the terms of the FAC Agreement and
are collateralized by certain loans receivable, with Fairfield being a
guarantor pursuant to the FAC Agreement. At December 31, 1994, FAC
had no additional borrowing availability under the FAC Agreement.
In conjunction with the above refinancing, CapMAC has issued a
commitment letter to FAC, whereby CapMAC would provide a credit
enhanced commercial paper program to provide an alternative financing
source to the FAC Agreement. This facility, which is expected to
become available in the second quarter of 1995, would provide
financing for future purchases of loans receivable from Fairfield.
In 1993, Fairfield Funding Corporation ("FFC"), a wholly owned
subsidiary of FAC, completed a private placement of 7.6% Notes (the
"FFC Notes"). The FFC Notes are secured by and payable from a pool of
contracts receivable purchased from FAC pursuant to the Receivables
Purchase Agreement (the "Agreement") among Fairfield as originator,
FAC, as seller and FFC, as purchaser. The Agreement provides for the
principal amounts collected from the contracts receivable pool to be
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. Excess
funds held in the reinvestment account over $6 million are to be used
to redeem the FFC Notes. The reinvestment period expires March 31,
1995. At December 31, 1994, contracts receivable totaling $84.1
million collateralized the FFC Notes.
As of December 31, 1994, the Company had $13.6 million in cash
and cash equivalents, which will be used in part to fund the Company's
short-term capital requirements to (i) develop its new projects in
Nashville, Tennessee and Orlando, Florida, (ii) fund the acquisition
of future developments and (iii) provide operating cash. The Company
intends to invest available excess cash in highly liquid investments
which are those deemed to have a maturity when purchased of three
months or less.
In addition, the Company expects to finance its long-term cash
needs from (i) contract payments generated from its contracts
receivable portfolio, (ii) operating cash flows, (iii) proceeds from
asset sales and (iv) borrowings under its financing arrangements
including the CapMAC financing discussed above.
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Stockholders and Board of Directors
Fairfield Communities, Inc.
We have audited the accompanying consolidated balance sheets of
Fairfield Communities, Inc. and subsidiaries as of December 31, 1994
and 1993, and the related consolidated statements of earnings,
stockholders' equity and cash flows for the years ended December 31,
1994 and 1993, the six months ended December 31, 1992 and the six
months ended June 30, 1992. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated
financial position of Fairfield Communities, Inc. and subsidiaries at
December 31, 1994 and 1993, and the consolidated results of their
operations and their cash flows for the years ended December 31, 1994
and 1993, the six months ended December 31, 1992 and the six months
ended June 30, 1992, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Little Rock, Arkansas
February 8, 1995
FAIRFIELD COMMUNITIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PAR VALUE)
<TABLE>
December 31,
1994 1993
---- ----
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 13,641 $ 4,475
Loans receivable, net 137,124 165,575
Real estate inventories 31,802 30,012
Restricted cash and escrow accounts 9,507 11,882
Property and equipment, net 5,956 7,527
Net assets held for sale 9,065 -
Other assets 16,931 17,131
Net assets of discontinued operations - 8,471
------- -------
$224,026 $245,073
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Financing arrangements $111,943 $112,581
Deferred revenue 18,956 20,599
Accounts payable 7,647 7,158
Accrued interest 5,404 6,890
Other liabilities 13,141 22,144
Net liabilities held for sale - 28,553
-------- --------
157,091 197,925
-------- --------
Stockholders' Equity:
Common stock, $.01 par value,
25,000,000 shares authorized,
12,359,037 shares issued in
1994 and 9,565,035 in 1993 124 124
Paid-in capital 46,123 38,605
Retained earnings 20,688 8,419
Less treasury stock,
2,395,295 shares, at cost - -
-------- --------
66,935 47,148
-------- --------
$224,026 $245,073
======== ========
</TABLE>
See notes to consolidated financial statements.
FAIRFIELD COMMUNITIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
|Predecessor
| Company
|-----------
Six Months |Six Months
Year Ended Ended | Ended
December 31, December 31,| June 30,
1994 1993 1992 | 1992
---- ---- ---- | ----
<S> <C> <C> <C> | <C>
REVENUES |
Vacation ownership, net $ 55,353 $ 34,332 $15,255 | $ 13,558
Homes and lots, net 13,890 12,073 5,010 | 4,513
Resort management 11,413 10,876 5,145 | 4,756
Interest 20,366 24,089 14,670 | 16,089
Savings and loan operations - 18,762 10,099 | 13,597
Other 9,198 9,596 3,756 | 7,148
Gain on sale of First |
Federal, net 5,200 - - | -
-------- -------- -------- | --------
115,420 109,728 53,935 | 59,661
-------- -------- -------- | --------
EXPENSES |
Vacation ownership 16,952 9,942 3,705 | 3,485
Homes and lots 6,591 5,212 3,283 | 2,908
Provision for loan losses 4,430 3,252 1,253 | 1,166
Selling 32,212 21,850 9,612 | 8,425
Resort management 9,991 11,057 4,893 | 4,710
General and administrative 10,805 9,836 6,317 | 6,771
Interest 10,528 14,449 9,984 | 11,559
Savings and loan operations - 19,345 10,005 | 13,127
Other 8,764 4,458 2,976 | 6,630
------- ------- ------- | -------
100,273 99,401 52,028 | 58,781
------- ------- ------- | -------
Earnings from continuing |
operations before |
reorganization expenses 15,147 10,327 1,907 | 880
Reorganization expenses - - - | (14,010)
------- ------- ------ | -------
Earnings (loss) from |
continuing operations |
before provision |
for income taxes 15,147 10,327 1,907 | (13,130)
Provision for income taxes 2,878 3,157 658 | 154
------- ------- ------ | --------
Earnings (loss) from |
continuing operations 12,269 7,170 1,249 | (13,284)
Loss from discontinued |
operations - - - | (6,538)
Extraordinary gain - |
discharge of debt - - - | 125,895
-------- -------- ------- | --------
Net earnings $ 12,269 $ 7,170 $ 1,249 | $106,073
======== ======== ======= | ========
|
EARNINGS PER SHARE |
Primary $1.11 $.65 $.11 | *
===== ==== ==== |
Fully diluted $1.05 $.61 $.11 | *
===== ==== ==== |
</TABLE>
*Per share amounts are neither comparable nor meaningful due to
reorganization.
See notes to consolidated financial statements.
FAIRFIELD COMMUNITIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(DOLLARS IN THOUSANDS)
<TABLE>
Retained
Common Paid-in Earnings
Stock Capital (Deficit) Total
----- ------- --------- -----
<S> <C> <C> <C> <C>
Balance, December 31, 1991 $ 1,089 $ 66,662 $(106,073) $(38,322)
Net earnings - - 106,073 106,073
Cancellation of common stock (1,088) (66,753) - (67,841)
Issuance of new common stock 124 24,517 - 24,641
Fresh start valuation
adjustment - 10,798 - 10,798
Other (1) 91 - 90
------- ------- -------- --------
Balance, June 30, 1992 124 35,315 - 35,439
Net earnings - - 1,249 1,249
Utilization of pre-
confirmation
income tax attributes - 274 - 274
------- ------- -------- -------
Balance, December 31, 1992 124 35,589 1,249 36,962
Net earnings - - 7,170 7,170
Utilization of pre-confirmation
income tax attributes - 3,016 - 3,016
------- ------- ------- -------
Balance, December 31, 1993 124 38,605 8,419 47,148
Net earnings - - 12,269 12,269
Utilization of pre-confirmation
income tax attributes - 7,518 - 7,518
------- ------- -------- --------
Balance, December 31, 1994 $ 124 $46,123 $ 20,688 $ 66,935
======= ======= ======== ========
</TABLE>
See notes to consolidated financial statements.
FAIRFIELD COMMUNITIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
|Predecessor
| Company
|-----------
Six Months |Six Months
Year Ended Ended | Ended
December 31, December 31,| June 30,
1994 1993 1992 | 1992
---- ---- ---- | ----
<S> <C> <C> <C> | <C>
OPERATING ACTIVITIES: |
Earnings (loss) from |
continuing operations $12,269 $ 7,170 $ 1,249 | $(13,284)
Adjustments to reconcile |
net earnings (loss) to |
net cash provided by |
continuing operations: |
Depreciation 923 1,453 1,049 | 1,028
Amortization of premiums |
and valuation discount 336 484 (1,128) | 430
Provision for |
loan losses 4,430 3,252 1,253 | 1,166
(Earnings) loss from |
unconsolidated |
affiliates (1,236) (1,996) 17 | (44)
Gain on sale of First |
Federal, net (5,200) - - | -
Changes in operating assets |
and liabilities, net 1,405 (863) 4,402 | 22,827
------- ------ ------ | -------
Net cash provided by |
operating activities 12,927 9,500 6,842 | 12,123
------- ------ ------ | -------
|
INVESTING ACTIVITIES: |
Purchases of property |
and equipment, net (572) (1,095) (88) | (884)
Principal collections |
on loans 73,189 131,543 68,318 | 62,215
Loans originated or |
acquired (51,877)(131,598) (59,522) | (49,156)
Net cash received from |
unconsolidated |
affiliates 1,236 2,572 1,838 | 1,210
Net investment activities |
of net assets |
and liabilities |
held for sale (14,802) (14,205) - | -
Net cash used on sale of |
First Federal (17,666) - - | -
Net investing activities |
related to |
savings and loan |
operations - 22,904 35,347 | 21,811
Net investing activities |
of discontinued |
operations 5,239 2,540 (823) | (2,283)
------- ------- ------- | -------
Net cash (used in) |
provided by |
investing activities (5,253) 12,661 45,070 | 32,913
------- ------- ------- | --------
</TABLE>
FAIRFIELD COMMUNITIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
|Predecessor
| Company
|-----------
Six Months | Six Months
Year Ended Ended | Ended
December 31, December 31,| June 30,
1994 1993 1992 | 1992
---- ---- ---- | ----
<S> <C> <C> <C> | <C>
FINANCING ACTIVITIES: |
Proceeds from |
financing arrangements 219,744 138,297 21,664 | 69,185
Repayments of financing |
arrangements (220,627)(187,331)(42,062) |(105,439)
Decrease (increase) |
in restricted |
cash and escrow accounts 2,375 (9,497) 1,072 | 88
Net financing activities |
related to savings and |
loan operations - (20,076)(15,251) | (11,563)
-------- ------- ------- |--------
Net cash provided by (used in) |
financing activities 1,492 (78,607)(34,577) | (47,729)
-------- ------- ------- |--------
Net increase (decrease) in cash |
and cash equivalents 9,166 (56,446) 17,335 | (2,693)
Cash and cash equivalents, |
beginning of period 4,475 60,921 43,586 | 46,279
-------- ------- ------- |--------
Cash and cash equivalents, end |
of period $ 13,641 $ 4,475 $60,921 |$ 43,586
========= ======== ======= ========
</TABLE>
See notes to consolidated financial statements.
FAIRFIELD COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ------ ------------------------------------------
Principles of Consolidation
- ---------------------------
The consolidated financial statements include the accounts of
Fairfield Communities, Inc. ("Fairfield") and its wholly owned
subsidiaries (collectively, the "Company"). Significant intercompany
balances and transactions have been eliminated in consolidation.
Certain amounts in the consolidated financial statements of prior
years have been reclassified to conform to the 1994 presentation.
Fresh Start Reporting
- ---------------------
In 1990, Fairfield and twelve wholly owned subsidiaries filed
voluntary petitions for reorganization under Chapter 11 of the United
States Bankruptcy Code and, in August 1992, the bankruptcy court
confirmed the Amended and Restated Joint Plans of Reorganization (the
"Plans"). As of June 30, 1992, the Company implemented the
recommended accounting for entities emerging from reorganization set
forth in Statement of Position 90-7, "Financial Reporting by Entities
in Reorganization Under the Bankruptcy Code" issued by the American
Institute of Certified Public Accountants ("Fresh Start Reporting").
Accordingly, the Company's assets and liabilities were adjusted to
reflect their estimated fair values and the accumulated deficit was
eliminated. Since July 1, 1992, the Company's financial statements
have been prepared as if it were a new reporting entity and a black
line separates this financial information from that of the Company
prior to reorganization ("Predecessor Company") since it has not been
prepared on a comparable basis.
Cash and Cash Equivalents
- -------------------------
The Company considers all highly liquid investments with a
maturity of three months or less when purchased to be cash
equivalents.
Property and Equipment
- ----------------------
Property and equipment are recorded at cost and depreciated
primarily by the straight-line method based on the estimated useful
lives of the assets, ranging generally from 10 to 25 years for
buildings and from 2 to 7 years for machinery, fixtures and equipment.
Additions and improvements are capitalized while maintenance and
repairs are expensed as incurred. Asset and accumulated depreciation
accounts are relieved for dispositions with resulting gains or losses
reflected in operations.
Earnings Per Share
- ------------------
Primary earnings per share for periods subsequent to June 30,
1992 is computed based on the estimated weighted average number of
common shares and common equivalent shares deemed to be outstanding.
Such shares include those shares issued as authorized by the Plans
plus the additional shares estimated to be issued based on the
resolution of the remaining allowed claims (see Note 9). This
aggregate number of shares has been reduced by the shares held in
treasury and shares held by wholly owned subsidiaries.
The computation of fully diluted earnings per share further
includes 588,235 shares which have been reserved, but not issued, for
the benefit of the holders of the Senior Subordinated Secured Notes.
The weighted average number of common shares and common equivalent
shares outstanding for the calculation of primary earnings per share
was 11,069,267 in 1994, 11,037,765 in 1993 and 11,134,117 for the six
months ended December 31, 1992. The weighted average number of shares
used to compute earnings per share, assuming full dilution, was
11,673,734 in 1994, 11,692,667 in 1993 and 11,722,352 for the six
months ended December 31, 1992.
Information for the six months ended June 30, 1992 relates to
the period prior to confirmation of the Plans when the Predecessor
Company had a different capital structure than that of the Company.
Per share data pertaining to this pre-confirmation period is,
therefore, neither comparable nor meaningful and is not disclosed
herein.
Income Taxes
- ------------
Since July 1, 1992, income taxes have been provided in
accordance with Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("SFAS 109"). Under SFAS 109, deferred
tax assets or liabilities are determined based on the difference
between the financial reporting and tax bases of assets and
liabilities and enacted tax rates that will be in effect for the year
in which the differences are expected to reverse. Additionally, under
SFAS 109, a valuation allowance must be established for deferred tax
assets if, based on available evidence, it is "more likely than not"
that all or a portion of the deferred tax assets will not be realized.
Prior to July 1, 1992, the Company accounted for income taxes in
accordance with Accounting Principles Board Opinion No. 11.
Fresh Start Reporting requires the Company to report federal
income tax expense on income before utilization of pre-confirmation
net operating loss carryforwards and recognition of the benefit of
pre-confirmation deductible temporary differences. Benefits realized
from the utilization of pre-confirmation net operating loss
carryforwards and recognition of pre-confirmation deductible temporary
differences are recorded as reductions of the valuation allowance and
as direct additions to paid-in capital.
Revenue and Profit Recognition
- ------------------------------
Vacation Ownership/Lots
-----------------------
Vacation ownership is a concept whereby either fixed week
intervals or undivided fee simple interests are sold in fully-
furnished vacation homes. Generally, vacation ownership intervals
("VOIs") and lots are sold under contracts for deed which provide for
a down payment and monthly installments, including interest, for
periods up to seven years. Both vacation ownership and lot sales are
included in revenues when a 10% minimum down payment (including
interest) has been received. Revenue is recognized on the percentage
of completion basis and, if appropriate, a valuation discount yielding
a market interest rate is applied to the contract receivable balance.
Under the percentage of completion method, the portion of revenue
applicable to cost 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.
Homes/Property Sales
--------------------
Homes sales are included in revenues when the unit is complete,
ready for occupancy and title is transferred to the buyer. Sales of
bulk acreage are recognized when title has passed to the buyer,
the Company's continuing involvement in the property is limited, if not
eliminated, and sufficient nonrefundable funds have been received to
reasonably assure the continuing commitment of the buyer.
Allowance for Loan Losses
- -------------------------
The Company's contracts receivable are regionally diversified.
A minimum downpayment of 15% is generally required for purchases
financed by contracts receivable. The Company provides for losses on
contracts receivable by a charge against earnings at the time of sale
at a rate based upon historical cancellation experience. When a
contract is cancelled in a year subsequent to the year in which the
underlying sale was recorded, the outstanding balance, less
recoverable costs, is charged to the allowance for loan losses. When
a contract is cancelled in the same year as the related sale, all
entries applicable to the sale are reversed and nonrecoverable selling
expenses are charged to operations. For financial statement purposes,
contracts receivable are considered delinquent and fully reserved if a
payment remains unpaid under the following conditions:
Percent of Contract Delinquency
Price Paid Period
------------------- -----------
Less than 25% 90 days
25% but less than 50% 120 days
50% and over 150 days
Deposits and Deferred Selling Costs
- -----------------------------------
Until a contract for sale qualifies for revenue recognition, all
payments received are accounted for as deposits. Commissions and
other selling costs, directly attributable to the sale, are deferred
until the sale is recorded. If a contract is cancelled before
qualifying as a sale, nonrecoverable selling expenses are charged to
expense and deposits forfeited are credited to income.
Real Estate Inventories
- -----------------------
Real estate inventories are valued at the lower of cost or
estimated net realizable value. Cost includes land, land
improvements, capitalized interest, and a portion of the costs of
amenities constructed for the use and benefit of property owners.
Land and improvement costs are allocated for the purpose of
accumulating costs to match with related sales revenues. The Company
allocates acquisition and carrying costs to these areas on the acreage
or the value basis, as appropriate. Improvement costs in each project
are allocated to the appropriate areas on a specific identification
basis. Certain amenity costs are allocated on an acreage or benefit
basis, as appropriate.
Unexpended costs for committed improvements to areas from which
lots have been sold are calculated using the Company's projections of
the timing and cost of work to be completed, including an inflation
factor. The projections are reviewed and refined annually based on
work completed and current plans for development. The effect of these
revised cost estimates is recognized prospectively.
NOTE 2 - SALE OF FIRST FEDERAL
- ------ ---------------------
On September 23, 1994, Fairfield completed the sale of 100% of
the capital stock of First Federal Savings and Loan Association of
Charlotte ("First Federal") to Security Capital Bancorp ("SCBC") for
$41 million (the "Sales Price"). Immediately prior to closing, the
Company purchased for cash (a) at book value, $16 million of certain
real estate, loans receivable, 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 $41.6 million. The Excluded
Association Assets and the Contracts Receivable are collectively
referred to as the "Excluded Assets". The Company recognized a net
gain on the sale of $5.2 million, which is net of operating losses
incurred by First Federal during the period ended September 23, 1994.
The gain from the sale of First Federal was not subject to federal
income tax due to a permanent tax basis difference in First Federal's
stock and underlying goodwill.
In accordance with the Stock Purchase Agreement, SCBC retained
$1.4 million of the Sales Price to securitize Fairfield's obligation
to indemnify SCBC against three existing lawsuits/claims which have
been asserted against First Federal (see Note 14). In addition, $3
million in net book value of Excluded Association Assets were pledged
to SCBC to provide additional security with respect to both the three
existing lawsuits/claims 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 its revolving credit agreements, paid $17.7 million to
SCBC in connection with the closing of the sale.
NOTE 3 - LOANS RECEIVABLE
- ------ ----------------
Loans receivable consisted of the following (In thousands):
<TABLE>
December 31,
1994 1993
---- ----
<S> <C> <C>
Contracts $136,709 $159,874
Mortgages 12,044 17,366
-------- --------
148,753 177,240
Less: Allowance for loan losses (11,322) (10,992)
Unamortized valuation discount (307) (673)
-------- --------
$137,124 $165,575
======== ========
</TABLE>
The weighted average stated interest rates on the Company's contracts
receivable were 12.6% and 12.3% at December 31, 1994 and 1993,
respectively, with interest rates on these receivables ranging
generally from 9.75% to 16%. Contractual maturities of these
receivables within the next five years are as follows: 1995 - $35.3
million; 1996 - $31.8 million; 1997 - $25.5 million; 1998 - $18.7
million and 1999 - $13.5 million. The Company's contracts receivable
were 98.1% and 98.2% current on a 30-day basis as of December 31, 1994
and 1993, respectively.
NOTE 4 - VACATION OWNERSHIP REVENUES
- ------ ---------------------------
Vacation ownership revenues are summarized as follows (In
thousands):
<TABLE>
Six Months | Six Months
Year Ended Ended | Ended
December 31, December 31,| June 30,
1994 1993 1992 | 1992
---- ---- ---- | ----
<S> <C> <C> <C> | <C>
Vacation ownership revenues $ 55,172 $35,265 $15,107 | $11,616
Less: Deferred revenue |
on current year |
sales, net (1,920) (2,101) (22) | (1,146)
Add: Revenue recognized on |
prior year sales 2,101 1,168 170 | 3,088
------- ------- ------- | -------
$55,353 $34,332 $15,255 | $13,558
======= ======= ======= =======
</TABLE>
NOTE 5 - REAL ESTATE INVENTORIES
- ------ -----------------------
Real estate inventories are summarized as follows (In
thousands):
<TABLE>
December 31,
1994 1993
---- ----
<S> <C> <C>
Land:
Under development $ 4,140 $ 4,895
Undeveloped 17,633 14,771
------- -------
21,773 19,666
------- -------
Residential housing:
Vacation ownership 8,418 8,759
Homes 1,611 1,587
------- -------
10,029 10,346
------- -------
$31,802 $30,012
======= =======
</TABLE>
NOTE 6 - FINANCING ARRANGEMENTS
- ------ ----------------------
Financing arrangements include (i) notes payable totaling $88.3
million and $100.4 million at December 31, 1994 and 1993,
respectively, and (ii) revolving credit agreements with outstanding
borrowings totaling $23.7 million and $12.2 million at December 31,
1994 and 1993, respectively.
Notes Payable
-------------
Notes payable are summarized as follows (Dollars in thousands):
<TABLE>
Average
Interest December 31,
Collateral Rate 1994 1993
---------- -------- ---- ----
<S> <C> <C> <C>
Contracts receivable 7.6% $73,560 $ 81,559
Real estate inventories 9.9% 10,757 13,431
Mortgages receivable 9.3% 3,951 5,368
------- --------
$88,268 $100,358
======= ========
</TABLE>
In 1993, Fairfield Funding Corporation ("FFC"), a wholly owned
subsidiary of Fairfield Acceptance Corporation ("FAC"), completed a
private placement of 7.6% Notes (the "FFC Notes"). The FFC Notes are
secured by and payable from a pool of contracts receivable purchased
from FAC pursuant to the Receivables Purchase Agreement (the
"Agreement") among Fairfield as originator, FAC, as seller and FFC, as
purchaser. The Agreement provides for the principal amounts collected
from the contracts receivable pool to be 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. Excess funds held in the
reinvestment account over $6 million are to be used to redeem the FFC
Notes. The reinvestment period expires March 31, 1995. At December
31, 1994, contracts receivable totaling $84.1 million collateralized
the FFC Notes.
Maturities of notes payable within the next five years are as
follows: 1995 - $13.1 million; 1996 - $21.4 million; 1997 - $17.6
million; 1998 - $12.9 million and 1999 - $11 million.
Revolving Credit Agreements
----------------------------
At December 31, 1994, Fairfield had no borrowings outstanding
under its Amended and Restated Revolving Credit Agreement (the "FCI
Agreement") with The First National Bank of Boston ("FNBB"). The FCI
Agreement provides for revolving loans of up to $25 million, including
up to $7 million for letters of credit. The FCI Agreement was amended
in December 1994, to provide, among other things, the establishment of
a sublimit for borrowings against certain eligible receivables (as
defined in the FCI Agreement) in an amount up to $10 million. The
borrowings under the FCI Agreement related to the sublimit bear
interest at FNBB's base rate plus .25% and all other borrowings bear
interest at FNBB's base rate plus .875%. The FCI Agreement also
provides for an annual facility fee of .625% of the total commitment.
The revolving loans mature on January 1, 1998, if not extended in
accordance with the terms of the FCI Agreement, with the sublimit
borrowings available through the earlier of (i) termination of the
CapMAC Bond (as defined below) or (ii) April 3, 1995. At December 31,
1994, Fairfield had borrowing availability of $21.8 million, net of
outstanding letters of credit totaling $.5 million.
At December 31, 1994, FAC had borrowings outstanding of $23.7
million under its 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. In December 1994, FAC entered into an
insurance agreement with FNBB and Capital Markets Assurance
Corporation ("CapMAC") pursuant to which CapMAC issued a surety bond
(the "CapMAC Bond") in favor of FNBB, guaranteeing the payments due on
certain contracts receivable collateralizing the outstanding
borrowings under the FAC Agreement. Additionally, the FAC Agreement
was amended to provide, among other things, that through the earlier
of the termination of the CapMAC Bond or April 3, 1995 (i) FAC would
be unable to purchase additional contracts receivable from Fairfield
except to satisfy FAC's obligation during the reinvestment period of
the FFC Notes, (ii) additional borrowings would be suspended, (iii)
the facility fee would be reduced to .5% and (iv) borrowings
outstanding would bear interest equal to the thirty day LIBOR rate
plus .25%, subject to an interest rate cap of 8.5%. In addition, the
CapMAC Bond provides for a fee of .625% of the outstanding borrowings.
The revolving loans mature on January 1, 1998, if not extended in
accordance with the terms of the FAC Agreement and are collateralized
by certain loans receivable, with Fairfield being a guarantor pursuant
to the FAC Agreement.
In conjunction with the above refinancing, CapMAC has issued a
commitment letter to FAC, whereby CapMAC would provide a credit
enhanced commercial paper program to provide an alternative financing
source to the FAC Agreement. This facility, which is expected to
become available in the second quarter of 1995, would provide
financing for future purchases of loans receivable from Fairfield.
The facility would bear interest subject to an interest rate cap
similar to the one described above.
NOTE 7 - DEFERRED REVENUE - ESTIMATED COSTS TO DEVELOP LAND SOLD
- ------ -------------------------------------------------------
At December 31, 1994, estimated cost to complete development work
in subdivisions from which lots had been sold totaled $14.2 million.
The estimated costs to complete development work within the next five
years are as follows: 1995 - $1.8 million; 1996 - $1.1 million; 1997
- - $1.1 million; 1998 - $.8 million and 1999 - $.6 million.
NOTE 8 - INCOME TAXES
- ------ ------------
At December 31, 1994, the Company had net operating loss
carryforwards totaling $43.6 million which reflects the amount
available to offset taxable income in future periods based on the
Company's current assessment of the limitations imposed under Internal
Revenue Code Section 382 ("Section 382"). Had the Company undergone
an ownership change as defined in Section 382 during the two year
period following the effective date of the Plans (which became
effective September 1, 1992), the pre-confirmation net operating loss
carryforwards would have been eliminated. Available carryovers, if
not utilized, expire as follows: 2005 - $12.7 million; 2006 - $8.0
million; 2007 - $14.0 million; 2008 - $5.5 million and 2009 - $3.4
million.
Components of the provision for income taxes are as follows (In
thousands):
<TABLE>
Six Months | Six Months
Year Ended Ended | Ended
December 31, December 31, | June 30,
1994 1993 1992 | 1992
---- ---- ---- | ----
<S> <C> <C> <C> | <C>
Current: |
Federal $ - $ - $283 | $ -
State 257 4 57 | 154
----- ----- ---- | ----
257 4 340 | 154
----- ----- ---- | ----
Deferred: |
Federal 2,422 2,770 274 | -
State 199 383 44 | -
----- ----- ---- | ----
2,621 3,153 318 | -
----- ----- ---- | ----
$2,878 $3,157 $658 | $154
====== ====== ==== | ====
Utilization of pre-confirmation |
income tax attributes as |
direct additions to paid-in |
capital $7,518 $3,016 $274 | N/A
====== ====== ====
</TABLE>
Components of the variance between taxes computed at the expected
federal statutory income tax rate and the provision for income taxes
on continuing operations are as follows (In thousands):
<TABLE>
Six Months | Six Months
Year Ended Ended | Ended
December 31, December 31,| June 30,
1994 1993 1992 | 1992
---- ---- ---- | ----
<S> <C> <C> <C> | <C>
Statutory tax |
provision $5,150 $3,511 $648 | $ 36,117
State income taxes, |
net of federal benefit 301 255 38 | 151
Gain on sale of First |
Federal (see Note 2) (2,277) - - | -
Effect of tax |
benefits not recorded - - - | 2,781
Gain on discharge |
of debt - - - | (42,804)
Reorganization expenses - - - | 4,089
Other (296) (609) (28) | (180)
------ ------ ---- | -------
Provision for |
income taxes $2,878 $3,157 $658 | $ 154
====== ====== ==== | =======
</TABLE>
Significant components of the Company's deferred tax assets
(deductible temporary differences) and deferred tax liabilities
(taxable temporary differences) consisted of the following (In
thousands):
<TABLE>
December 31,
1994 1993
---- ----
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 16,767 $14,111
Loan and cancellation loss reserves 4,358 7,081
Tax over book basis in inventory 3,092 3,394
Deferred revenue 2,435 2,425
Credit carryforwards 1,882 1,882
Other 2,065 2,375
Accrual for discontinued operations - 2,381
------- -------
30,599 33,649
Valuation allowance (26,131) (33,649)
------- -------
4,468 -
------- -------
Deferred tax liabilities:
Basis in partnership assets 1,380 1,239
Other 169 370
Book over tax basis of assets - 2,398
Book asset adjustments for
Fresh Start Reporting - 1,276
------- -------
1,549 5,283
------- -------
Net deferred tax assets
(liabilities) $ 2,919 $(5,283)
======= =======
</TABLE>
Prior to 1994, the Company's deferred tax assets were reduced by
a 100% valuation allowance based on the lack of a historical earnings
record for the Company and the uncertainty as to the potential
limitations that could have been imposed under Section 382 during the
two year period following the effective date of the plans of
reorganization. In 1994, management determined that it
was more likely than not that a portion of the deferred tax assets would be
realized. Management concluded that the Company had not undergone an
ownership change as defined under Section 382 during the two year
period following the effective date of the plans of reorganization and
would therefore realize a certain portion of the deferred tax assets
through (i) estimated future taxable earnings and (ii) the reversal of
deferred tax liabilities during periods in which the Company has
available net operating loss carryforwards and other deductible
temporary differences.
The Company has reported operating earnings since the effective
date of the plans of reorganization and management believes that it is
more likely than not that future taxable earnings will be sufficient
to realize a portion, if not all, of the tax benefits associated with
the future deductible temporary differences and net operating loss
carryforwards prior to their expiration. The 1994 reduction of the
valuation allowance is based on (i) current realization of certain
prior year deferred tax liabilities, (ii) offset of deferred tax
assets against remaining deferred tax liabilities and (iii)
utilization of deferred tax assets to offset estimated taxable
earnings for 1995. Management believes that its projections of 1995
earnings are achievable and provide adequate support for reducing the
valuation allowance in 1994. Future realization of remaining
unrealized deferred tax assets will depend principally on the
Company's ability to generate taxable earnings sufficient to offset
net operating losses and deductions for temporary differences which
comprise these assets. To the extent of this realization of tax
assets occurs, substantially all of the valuation allowance, totaling
$26.1 million at December 31, 1994, will be reduced through additional
credits to paid-in capital.
NOTE 9 - STOCKHOLDERS' EQUITY
- ------ --------------------
Pursuant to the Plans, all of the common stock outstanding prior
to reorganization was cancelled effective September 1, 1992.
Thereafter, Fairfield began issuing new stock and is authorized to
issue 25,000,000 shares of Common Stock, par value $.01 per share, and
5,000,000 shares of Preferred Stock, par value $.01 per share. The
rights and preferences of shares of authorized but unissued Preferred
Stock are to be established by Fairfield's Board of Directors at the
time of issuance.
As of December 31, 1994, Fairfield has issued 12,359,037 shares
of Common Stock to holders of unsecured resolved claims, of which
2,395,295 were held in treasury or by wholly owned subsidiaries. In
accordance with the Plans, Fairfield will issue additional shares as
the remaining claims are resolved. The ultimate amount of these
claims and the timing of the resolution of the claims is largely
within the control of the Bankruptcy Court. However, based upon
available information, Fairfield presently estimates that
approximately 13,069,699 shares of Common Stock will be issued.
Additionally, 588,235 shares have been reserved, but not issued, for
the benefit of the holders of the FCI Notes (see Note 11).
In 1992, Fairfield adopted a Rights Agreement which provides for
the issuance of one right for each outstanding share of Fairfield's
Common Stock. The rights, which entitle the holder to purchase from
Fairfield one one-hundredth of a share of Series A Junior
Participating Preferred Stock at $25 per share, become exercisable (i)
ten days after a person becomes the beneficial holder of 20% or more
of Fairfield's Common Stock, other than pursuant to a cash tender
offer for all outstanding shares, or (ii) ten business days following
the commencement of a tender or exchange offer for at least 20% of
Fairfield's Common Stock. Fairfield may redeem the rights at $.01 per
right under certain circumstances. The rights expire on September 1,
2002.
The FCI Agreement prohibits Fairfield from paying any dividends
or other distributions on its Common Stock, other than dividends
payable solely in shares of Common Stock.
NOTE 10 - FAIRFIELD ACCEPTANCE CORPORATION
- ------- ---------------------------------
Condensed consolidated financial information for FAC is
summarized as follows (In thousands):
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
December 31,
1994 1993
---- ----
<S> <C> <C>
ASSETS
Cash $ 895 $ 711
Loans receivable, net 108,093 94,668
Restricted cash 8,120 10,602
Due from parent 12,115 7,392
Other assets 3,008 3,113
-------- --------
$132,231 $116,486
======== ========
LIABILITIES AND EQUITY
Financing arrangements $ 97,235 $ 85,842
Accrued interest and
other liabilities 681 745
Equity 34,315 29,899
-------- --------
$132,231 $116,486
======== ========
</TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
Six Months | Six Months
Year Ended Ended | Ended
December 31, December 31, | June 30,
1994 1993 1992 | 1992
---- ---- ---- | ----
<S> <C> <C> <C> | <C>
Revenues $13,644 $14,582 $7,580 | $7,438
Expenses 8,382 8,198 4,878 | 4,319
------- ------- ------ | ------
Earnings before |
reorganization |
expenses 5,262 6,384 2,702 | 3,119
Reorganization |
expenses - - - | 3,582
Provision for income |
taxes 2,015 2,444 1,035 | 435
------- ------ ------ | ------
Earnings (loss) before |
extraordinary credit 3,247 3,940 1,667 | (898)
Extraordinary credit - |
realization |
of net operating |
loss carryforwards - - - | 435
------ ------- ------ | ------
Net earnings (loss) $3,247 $ 3,940 $1,667 | $ (463)
====== ======= ====== | ======
</TABLE>
In accordance with the terms of the Third Amended and Restated
Operating Agreement entered into on December 9, 1994 (the "Operating
Agreement"), FAC is permitted to purchase eligible receivables from
Fairfield for a price equal to $.94 per $1.00 of such receivables.
Fairfield is required by the Operating Agreement to repurchase
defaulted receivables from FAC at a price equal to $.94 per $1.00 or
substitute an eligible receivable on the basis of $.85 per $1.00 of
such receivables. During 1994 and 1993, FAC purchased receivables
from Fairfield with outstanding principal balances of $69.3 million
and $25.4 million, respectively.
NOTE 11 - NET ASSETS (LIABILITIES) HELD FOR SALE
- ------- --------------------------------------
During 1994, the Company sold substantially all of its remaining
assets of discontinued operations at their approximate book value.
At December 31, 1994, net assets held for sale consisted primarily of
(i) two remaining golf courses previously classified in net assets of
discontinued operations, (ii) those assets collateralizing the Senior
Subordinated Secured Notes ("FCI Notes") as described below and (iii)
the remaining balance of the Excluded Association Assets purchased in
conjunction with the sale of First Federal. Net assets held for sale
have been recorded at the lower of cost or estimated net realizable
value. Subsequent to December 31, 1994, the Company sold $5.3 million
of net assets held for sale at their approximate book value.
The FCI Notes are collateralized by (i) the Company's real estate
inventories located at its Pointe Alexis development in Tarpon
Springs, Florida, (ii) the Company's partnership interest in Sugar
Island limited partnership in St. Croix, U.S. Virgin Islands and (iii)
the Company's partnership interest in Harbour Ridge limited
partnership in Stuart, Florida. The FCI Notes bear interest at 10%
compounded semi-annually and mature on the earlier of (i) the sale of
all the collateral or (ii) the later of (a) 60 days after the FNBB
loans have been paid in full or (b) March 1, 1997. The FCI Notes are
nonrecourse to Fairfield and its two wholly owned subsidiaries that
guarantee the notes. The sole sources of repayment for the FCI Notes
consist of the collateral, any proceeds from the sale of the
collateral and, as described below, the shares of common stock of
Fairfield reserved as additional collateral for the FCI Notes. In the
event the proceeds from the sale of the other collateral presently
securing the FCI Notes, or the fair value of any such collateral not
sold, is not sufficient to repay the FCI Notes, Fairfield will issue
shares of common stock, up to a maximum number equal to what a holder
of a $5 million general unsecured claim was entitled to receive on the
effective date of the Plans (588,235 shares).
During 1994, the Company determined that not all of the remaining
assets collateralizing the FCI Notes would be sold prior to March 1,
1997, and that it would likely convey the remaining assets to the
noteholders on that date, in satisfaction of the outstanding
indebtedness as discussed above. Therefore, the assets
collateralizing the FCI Notes at December 31, 1994 and related debt
were classified as net assets held for sale, and the 1993 amounts have
been reclassified to conform with the 1994 presentation.
Net assets (liabilities) held for sale consisted of the following
(In thousands):
<TABLE>
December 31,
1994 1993
---- ----
<S> <C> <C>
Golf courses $ 3,071 $ -
Collateral for FCI Notes:
Real estate inventories 4,160 4,595
Investment in unconsolidated affiliate 4,951 4,951
Excluded Association Assets:
Real estate inventories 6,941 -
Loans receivable, net 4,830 -
Indemnity escrow 1,387 -
------- -------
25,340 9,546
FCI Notes (14,806) (14,806)
Net liabilities of First Federal
sold (see Note 2) - (23,293)
Accrued liabilities - Excluded
Association Assets (869) -
Notes payable - golf courses (600) -
------- -------
$ 9,065 $(28,553)
======== ========
</TABLE>
NOTE 12 - EMPLOYEE BENEFIT PLANS
- ------- ----------------------
The Company's Profit Sharing Plan covers substantially all
employees with one year or more of credited service, and participants
are fully vested after seven years of credited service. Effective
July 1, 1994, the Profit Sharing Plan was amended to allow employee
elective salary deferrals as permitted under Internal Revenue Code
Section 401(k). Employer discretionary contributions to the Profit
Sharing Plan are determined annually by the Board of Directors and the
amount charged to expense totaled $.7 million and $.5 million for
1994 and 1993, respectively. There were no contributions for the six
months ended December 31, 1992 or the six months ended June 30, 1992.
In 1994, the Company adopted the Excess Benefit Plan, which is a
non-qualified, unfunded plan established to provide designated
employees with benefits to compensate for certain limitations imposed
by federal law on the amount of compensation which may be considered
in determining employer contributions to participants' accounts under
the Profit Sharing Plan. Participant accounts under the Excess
Benefit Plan are credited with amounts that, except for the limits of
the Internal Revenue Code, would have been contributed to such
participants' accounts under the Profit Sharing Plan. Participant
accounts under the Excess Benefit Plan vest in accordance with the
vesting schedule set forth in the Profit Sharing Plan. Interest is
credited to the participants' accounts annually at the base (prime)
rate of interest charged by FNBB. The expense associated with the
Excess Benefit Plan totaled $.1 million for the year ended December
31, 1994.
In 1994, the Company adopted a Key Employee Retirement Plan,
which is a non-qualified, unfunded plan established to provide certain
senior executives of the Company with retirement benefits. Under the
Key Employee Retirement Plan, participant accounts are credited on
each January 1 by a percentage of each participants' preceding year's
total cash compensation. In general, the benefit percentage can range
from 0% to 20%, depending on the Company's moving average rate of
return on stockholders' equity. Participant accounts are fully vested
after seven years of service or upon the occurrence of a change in
control of the Company, death of the participant, termination of
employment due to total disability or retirement on or after the age
55, in each case while employed by the Company. Interest is credited
to participants' accounts monthly at the base (prime) rate of interest
charged by FNBB. The expense associated with the Key Employee
Retirement Plan totaled $.3 million for the year ended December 31,
1994.
Fairfield's First Amended and Restated 1992 Warrant Plan (the
"1992 Plan") provides for the grant of nonqualified stock warrants to
certain key employees and directors to purchase up to 1,000,000 shares
of Common Stock. Warrants under the 1992 Plan are to be granted at
prices not less than the fair market value of such shares on the date
of grant and may be exercisable for periods of up to 10 years from the
date of grant. During 1994, the Board of Directors granted warrants
to purchase a total of 18,000 shares. These warrants were granted
effective November 18, 1994 at an exercise price of $5.50 per share,
and become exercisable on the first anniversary of the date of grant.
During 1993, the Board of Directors granted warrants to purchase a
total of 450,000 shares, at an exercise price of $3.00 per share, of
which 20% of the shares become exercisable on each of the first
through fifth anniversaries from the date of grant. During 1992, the
Board of Directors granted warrants to purchase a total of 350,000
shares, at an exercise price of $3.00 per share, with 25% of such
awards effective September 1, 1992 and additional 25% increments
effective on each anniversary date thereafter. No warrants issued
pursuant to the 1992 Plan have been exercised or cancelled and, at
December 31, 1994, warrants for 316,500 shares were exercisable.
NOTE 13 - SUPPLEMENTAL INFORMATION
- ------ ------------------------
Other revenues in 1994 and 1993 include cash distributions
totaling $1.2 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. Other revenues in 1993 also include $.5 million
related to the recovery of a previously written-off note receivable
and $.5 million related to the recovery of certain professional fees
previously expensed. There were no similar revenues for the six
months ended December 31, 1992 or the six months ended June 30, 1992.
Also included in other revenues and other expenses for 1994 are
bulk asset sales and related cost of sales totaling $4.5 million and
$4.2 million, respectively. For 1993, bulk asset sales and related
cost of sales totaled $1.7 million and $1.2 million, respectively.
For the six months ended December 31, 1992, bulk asset sales and
related cost of sales totaled $2.2 million and $1.8 million,
respectively, and for the six months ended June 30, 1992 totaled $4.8
million and $4.7 million, respectively.
In December 1994, the Company began sales efforts at its two
newest destination locations in Nashville, Tennessee and Orlando,
Florida and incurred approximately $1 million in start-up expenses
associated with these new developments (included in "Other expenses"
in the 1994 Consolidated Statement of Earnings).
Amounts paid related to reorganization totaled $1.2 million, $5.3
million, $3.4 million and $5.5 million for 1994, 1993, the six
months ended December 31, 1992 and the six months ended June 30, 1992,
respectively.
Interest paid totaled $20.5 million, $25.5 million, $17.1 million
and $21.7 million for 1994, 1993, the six months ended December 31,
1992 and the six months ended June 30, 1992, respectively. Of these
amounts, $9 million, $11.1 million, $7.2 million and $12 million,
respectively, were related to First Federal.
Included in other assets at December 31, 1994 and 1993 are (i)
$5.1 million and $5.2 million, respectively, related to the assets of
the Company's life insurance subsidiary and (ii) unamortized
capitalized financing costs of $2.0 million and $2.2 million,
respectively. Also included in other assets at December 31, 1994 are
deferred tax assets totaling $2.9 million (see Note 8). Included in
other liabilities at December 31, 1994 and 1993 are (i) $2.7 million
and $3.2 million, respectively, related to the liabilities of the
Company's life insurance subsidiary and (ii) accruals totaling $3.6
million and $2.7 million, respectively, related to the Company's
employee benefit plans.
NOTE 14 - 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. Fairfield's ability to dispose of the recreational
amenities at Pagosa is restricted until the claim is finally resolved.
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.
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 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 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, and the plaintiffs in the Storm lawsuit have appealed the
Bankruptcy Court's decision in that case, to the District Court. Two
additional related lawsuits have also been filed in the Archuleta
County District Court, raising similar issues and demands as the Storm
and Daleske cases. The Fiedler case, filed on or about October 17,
1994, was filed individually, while the second of these new cases, the
Lobdell case, was filed on or about November 22, 1994, as a proported
class action.
Fairfield intends to defend vigorously the Recreation Fee
Litigation, and the two recently filed related cases, including any
attempt to certify a class in any of these cases. 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, subject to possible appeal
rights. The court has not yet addressed whether Ms. Curry is an appropriate
class representative and has not certified the case as a class action.
Under the Stock Purchase Agreement for the sale of First Federal (see
Note 2), 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.
NOTE 15 - FAIR VALUE OF FINANCIAL INSTRUMENTS
- ------ -----------------------------------
The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amounts reported in the
consolidated balance sheets approximate the fair values.
Restricted cash and escrow accounts: The estimated fair values of
restricted cash and escrow accounts approximate their carrying amounts at
December 31, 1994 and 1993.
Loans receivable: The estimated fair values of loans receivable
approximate their carrying amounts at December 31, 1994 and 1993 based on
valuation models previously developed by independent appraisers.
Financing arrangements: The carrying amounts of the Company's borrowings
under its revolving credit agreements, which bear variable interest rates
approximate their fair values at December 31, 1994 and 1993. The fair
values of the Company's fixed rate notes payable were estimated using
discounted cash flow analyses, based on the Company's current incremental
borrowing rates for similar types of borrowing arrangements. At December
31, 1994, fixed rate notes payable had a carrying amount of $84.3 million
and an estimated fair value of $80.2 million. At December 31, 1993, the
carrying amount of fixed rate notes payable approximated their fair
value.
NOTE 16 - UNAUDITED CONSOLIDATED QUARTERLY FINANCIAL DATA
- ------ -----------------------------------------------
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
<TABLE>
Year Ended December 31, 1994
----------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C> <C>
Total revenues $19,445 $30,815 $38,347 $26,813
Total expenses 17,905 26,995 29,549 25,824
------- ------- ------- -------
Earnings before provision for
income taxes 1,540 3,820 8,798 989
Provision for income taxes 462 1,146 1,079 191
------- ------- ------- -------
Net earnings $ 1,078 $ 2,674 $ 7,719 $ 798
======= ======= ======= =======
Earnings per share:
Primary $.10 $.24 $.70 $.07
==== ==== ==== ====
Fully diluted $.09 $.23 $.66 $.07
==== ==== ==== ====
</TABLE>
<TABLE>
Year Ended December 31, 1993
-----------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C> <C>
Total revenues $21,177 $30,894 $30,851 $26,806
Total expenses 20,945 25,933 27,261 25,262
------- ------- ------- -------
Earnings before provision for
income taxes 232 4,961 3,590 1,544
Provision for income taxes 146 1,639 1,211 161
------- ------- -------- -------
Net earnings $ 86 $ 3,322 $ 2,379 $ 1,383
======= ======= ======== =======
Earnings per share:
Primary $.01 $.30 $.21 $.13
==== ==== ==== ====
Fully diluted $.01 $.28 $.20 $.12
==== ==== ==== ====
</TABLE>
Revenues in the third quarter of 1994 include $5.2 million relating to the net
gain on the sale of First Federal (see Note 2). Certain amounts in the
consolidated financial statements of prior quarters for 1994 have been
reclassified to conform to the fourth quarter presentation.
SUBSIDIARIES OF THE REGISTRANT EXHIBIT 21
The following is a list of the subsidiaries of Fairfield Communities, Inc.
Each subsidiary, some of which are inactive, is wholly-owned by Fairfield
or by a wholly-owned subsidiary of Fairfield, unless otherwise indicated.
State of
Subsidiary Incorporation
---------- -------------
Fairfield Bay, Inc. Arkansas
Shirley Realty Company Arkansas
Fairfield Flagstaff Realty, Inc. Arizona
Fairfield Glade, Inc. Tennessee
Fairfield Mortgage Corporation Arkansas
Fairfield Mortgage Acceptance Corporation Delaware
Fairfield Mountains, Inc. North Carolina
Mountains Utility Company North Carolina
Fairfield Homes Construction Company Florida
Northeast Craven Utility Company North Carolina
Fairfield Sapphire Valley, Inc. North Carolina
Jackson Utility Company North Carolina
Intermont Properties, Inc. Delaware
Fairfield Properties, Inc. Arizona
Fairfield River Ridge, Inc. Florida
Harbour Ridge, Ltd.
(a limited partnership; 35.5.% interest)
Fairfield Equities, Inc. Delaware
Fairfield Acceptance Corporation Delaware
Fairfield Funding Corporation Delaware
Fairfield Pagosa Realty, Inc. Colorado
Fairfield Fort George, Inc. Florida
Fort George Country Club, Inc. Florida
Caribbean Real Property Company, Inc. Florida
Fairfield Communities Purchasing and Design, Inc. Tennessee
The Florida Companies Florida
Imperial Life Insurance Company Arkansas
Rock Island Land Corporation Florida
Fairfield Management Services, Inc. Florida
Suntree Development Company Florida
St. Andrews Club Management Corporation Florida
St. Andrews Realty, Inc. Florida
Commercial Land Equity Corporation Florida
TFC Realty of Indiana, Inc. Florida
Fairfield St. Croix, Inc. Delaware
Sugar Island Associates, Ltd.
(a limited partnership; 25% interest) <PAGE>
EXHIBIT 21 (continued)
State of
Subsidiary Incorporation
---------- -------------
Fairfield Virgin Islands, Inc. Delaware
Davis Beach Co.
(a limited partnership; 50% interest)
Fairfield Myrtle Beach, Inc. Delaware
Ventura Management, Inc. Delaware
Fairfield Resorts International, Ltd. Arkansas
(a limited partnership; 50% interest) <PAGE>
EXHIBIT 23 - CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Fairfield Communities, Inc. of our report dated February 8, 1995, included
in the 1994 Annual Report to Shareholders of Fairfield Communities, Inc.
Our audit also included the financial statement schedule of Fairfield
Communities, Inc. listed in Item 14(a). This schedule is the responsibility of
the Company's management. Our responsibility is to express an opinion based on
our audits. In our opinion, the financial statement schedule referred to above,
when considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
We also consent to the incorporation by reference in the Registration Statement
(Form S-8 No.33-55841) pertaining to the First Amended and Restated 1992 Warrant
Plan of our report dated February 8, 1995, with respect to the consolidated
financial statements incorporated herein by reference, and our report included
in the preceding paragraphs with respect to the financial statement schedule
included in this Annual Report (Form 10-K) of Fairfield Communities, Inc.
ERNST & YOUNG LLP
Little Rock, Arkansas
February 28, 1995<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints John W. McConnell and/or Robert W. Howeth, severally, his true and
lawful attorney in fact and agent with full powers of substitution and
resubstitution for him and his name, place and stead, in any and all
capacities to sign an annual report on Form 10-K for the fiscal year ended
December 31, 1994, and any or all amendments thereto, and to file same
with all exhibits, and other documents in connection therewith, with
the Securities and Exchange Commission, granting unto said attorney
in fact and agent, full power and authority to do and perform each and every
act and thing requisite and necessary to be done in and about the premises, as
fully for all intents and purposes as necessary to be done in and about the
premises, as fully for all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney in fact
and agent or his substitute(s), may lawfully do or cause to be done by
virtue hereof.
Dated: January 24, 1995 /s/ J. Steven Wilson
--------------------------
J. Steven Wilson, Director <PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints John W. McConnell and/or Robert W. Howeth, severally, his true and
lawful attorney in fact and agent with full powers of substitution and
resubstitution for him and his name, place and stead, in any and all
capacities to sign an annual report on Form 10-K for the fiscal year ended
December 31, 1994, and any or all amendments thereto, and to file same
with all exhibits, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney in fact and
agent, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully
for all intents and purposes as necessary to be done in and about the premises,
as fully for all intents and purposes as he might or could do in person,
hereby ratifying and confirming all that said attorney in fact and agent
or his substitute(s), may lawfully do or cause to be done by virtue hereof.
Dated: January 24, 1995 /s/ Russell A. Belinsky
------------------------------
Russell A. Belinsky, Director <PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints John W. McConnell and/or Robert W. Howeth, severally, his true and
lawful attorney in fact and agent with full powers of substitution and
resubstitution for him and his name, place and stead, in any and all
capacities to sign an annual report on Form 10-K for the fiscal year ended
December 31, 1994, and any or all amendments thereto, and to file same
with all exhibits, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney in fact and
agent, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully
for all intents and purposes as necessary to be done in and about the premises,
as fully for all intents and purposes as he might or could do in person,
hereby ratifying and confirming all that said attorney in fact and agent
or his substitute(s), may lawfully do or cause to be done by virtue hereof.
Dated: January 24, 1995 /s/ Ernest D. Bennett, III
-------------------------------
Ernest D. Bennett, III, Director <PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints John W. McConnell and/or Robert W. Howeth, severally, his true and
lawful attorney in fact and agent with full powers of substitution and
resubstitution for him and his name, place and stead, in any and all
capacities to sign an annual report on Form 10-K for the fiscal year ended
December 31, 1994, and any or all amendments thereto, and to file same
with all exhibits, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney in fact and
agent, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully
for all intents and purposes as necessary to be done in and about the premises,
as fully for all intents and purposes as he might or could do in person,
hereby ratifying and confirming all that said attorney in fact and agent
or his substitute(s), may lawfully do or cause to be done by virtue hereof.
Dated: January 24, 1995 /s/ Daryl J. Butcher
---------------------------
Daryl J. Butcher, Director <PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints John W. McConnell and/or Robert W. Howeth, severally, his true and
lawful attorney in fact and agent with full powers of substitution and
resubstitution for him and his name, place and stead, in any and all
capacities to sign an annual report on Form 10-K for the fiscal year ended
December 31, 1994, and any or all amendments thereto, and to file same
with all exhibits, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney in fact and
agent, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully
for all intents and purposes as necessary to be done in and about the premises,
as fully for all intents and purposes as he might or could do in person,
hereby ratifying and confirming all that said attorney in fact and agent
or his substitute(s), may lawfully do or cause to be done by virtue hereof.
Dated: January 24, 1995 /s/ William C. Scott
---------------------------
William C. Scott, Director <PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints John W. McConnell and/or Robert W. Howeth, severally, his true and
lawful attorney in fact and agent with full powers of substitution and
resubstitution for him and his name, place and stead, in any and all
capacities to sign an annual report on Form 10-K for the fiscal year ended
December 31, 1994, and any or all amendments thereto, and to file same
with all exhibits, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney in fact and
agent, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully
for all intents and purposes as necessary to be done in and about the premises,
as fully for all intents and purposes as he might or could do in person,
hereby ratifying and confirming all that said attorney in fact and agent
or his substitute(s), may lawfully do or cause to be done by virtue hereof.
Dated: January 24, 1995 /s/ Philip L. Herrington
-----------------------------
Philip L. Herrington, Director
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Registrant's December 31, 1994 10-K and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<EXCHANGE-RATE> 1
<CASH> 13641
<SECURITIES> 0
<RECEIVABLES> 148753
<ALLOWANCES> 11322
<INVENTORY> 31802
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 224026
<CURRENT-LIABILITIES> 0
<BONDS> 111943
<COMMON> 124
0
0
<OTHER-SE> 66811
<TOTAL-LIABILITY-AND-EQUITY> 224026
<SALES> 80656
<TOTAL-REVENUES> 89854
<CGS> 33534
<TOTAL-COSTS> 42298
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 4430
<INTEREST-EXPENSE> 10528
<INCOME-PRETAX> 15147
<INCOME-TAX> 2878
<INCOME-CONTINUING> 12269
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12269
<EPS-PRIMARY> 1.11
<EPS-DILUTED> 1.05
</TABLE>
Fairfield Communities, Inc.
10% Senior Subordinated Secured Notes
Ombudsman Report
--------------------------------------
For the Period Ending
December 31, 1994
Prepared by
Houlihan Lokey Howard & Zukin
----------------------------------------------------
Date Prepared:
February 10, 1995
<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 December 31, 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 February 9, 1995, the
trading price of Fairfield's common stock was 5 5/8.
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 December 31, 1994 totaled
approximately $206,450 (excluding approximately $7,100) 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 $15,682.72 and $6,502.01 respectively, as of
December 31, 1994. The cash in the Noteholders' Development Account will be
transferred to the Interest Payment Account. It is not anticipated that
collateral proceeds will be used to fund any further development.
Since the effective date of Fairfield's Chapter 11 plan of reorganization,
Noteholders have received distributions totaling $12,014,643, of which
$4,005,365 was interest and $8,009,279 was principal. The remaining principal
balance outstanding as of December 31, 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.
<PAGE>
Pointe Alexis
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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 December 31, 1994, 167 lots had been sold, 47 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
$1,200,375 although some of the interior lots may never yield any appreciable
value and even many of the water-front lots may eventually need to be sold at
prices well below the current release prices. 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 water-front 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 three or four 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, or sold through an auction,
although these alternatives would likely require an aggregate sales price well
below the aforementioned release price.
During the quarter ended December 31, 1994, at Pointe Alexis South, Fairfield
recorded 0 lot sales and 2 lot closings compared to 4 lot sales and 1 lot
closing during the quarter ended December 31, 1993. Total revenues at Pointe
Alexis South during the fourth quarter ended December 31, 1994 totaled $40,000
compared to $30,000 during the fourth quarter ended December 31, 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 water-front lots with docks. The master plan calls for
sales of 180 lots. As of December 31, 1994, 111 lots had been sold and 69
were developed with roads and available for sale. Of the 69 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
$2,328,300, although limited sales activity on the interior lots and a general
slowness of water-front lot sales suggests that a reduction in release prices
may be necessary. After the majority of the remaining water-front lots are
sold, the remaining interior lots may be sold through an auction format which
could prompt further decreases in release prices.
<PAGE>
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During the quarter ended December 31, 1994, at Harbour Watch, Fairfield
recorded 1 lot sales and 1 lot closing, compared to 1 lot sales and 1 lot
closing during the quarter ended December 31, 1993. Total revenues at Harbour
Watch during the quarter ended December 31, 1994 were $31,000 compared to
$312,000 revenue during the quarter ended December 31, 1993.
Many of the homes which have been built are quite large and expensive,
particularly some of the water-front homes. There is an ongoing sales effort
in place with a sales trailer at the entrance to the community. During the
quarter ending December 31, 1994, construction of several new homes continued,
maintaining the community's positive ambiance of ongoing activity. Since
completing the development of the water-front property, 12 water-front lots
have been sold. As of the date of this report, there were 12 water-front lots
available for sale at Harbour Watch with an aggregate release price of
$1,008,800.
Pointe Alexis South and Harbour Watch collectively had monthly cash operating
expenses of approximately $91,582 during the quarter ended December 31, 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. Based on the slow sales pace at
Pointe Alexis discussed above, a reduction in the sales and release prices at
both Pointe Alexis South and Harbour Watch is likely during the next quarter.
<PAGE>
Harbour Ridge
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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 December 31, 1994, 7 units were sold, leaving
approximately 24 more units to be sold. A total of 672 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, water-front/non-water-front properties with
varying prices.
The Noteholders received a distribution of $176,450 from Harbour Ridge during
the quarter ending December 31, 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
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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 water-front 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. During 1994 the resort was reported
to have occupancy of approximately 30%, although the occupancy had increased
to over 50% by the end of the year.
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. Total
rounds played increased from 25,400 during 1993 to 31,200 during 1994.
According to Delray, the Golf Club will continue to reinvest excess cash in
new golf carts and course maintenance which, combined with increasing
insurance costs (principally hurricane) will likely prevent any partnership
distributions during 1995.
<PAGE>
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A severe drought continues to plague St. Croix 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.
During the fourth quarter of 1994, legislation was initiated in St. Croix to
allow gambling on the island. According to Delray, gambling on the island
should increase interest in the Partnership property, although such potential
interest, if any, is unlikely to materialize for several months.
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
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The Bald Mountain Golf Course is one of two golf courses 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
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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>
