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, 1997
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.)
11001 Executive Center Drive, Little Rock, Arkansas 72211
(Address of principal executive offices, including Zip Code)
Registrant's telephone number, including area code: (501)228-2700
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- --------------------
Common Stock, $.01 par value New York
Preferred Stock Purchase Rights New York
with respect to Common Stock,
$.01 par value
Securities registered pursuant to Section 12(g) of the Act: None
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. [ ]
As of February 27, 1998, the number of shares of the registrant's
Common Stock outstanding was 45,072,043 and the aggregate market value of the
registrant's Common Stock held by non-affiliates totaled approximately
$776.3 million.
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, 1997 and the Proxy
Statement to be issued in connection with its 1998 Annual Meeting of
Stockholders.
<PAGE>
INDEX TO
ANNUAL REPORT ON FORM 10-K
Page
PART I ----
------
Item 1. Business....................................................... 3
Item 2. Properties..................................................... 4
Item 3. Legal Proceedings.............................................. 8
Item 4. Submission of Matters to a Vote of Security Holders ........... 8
PART II
-------
Item 5. Market for Registrant's Common Stock and
Related Stockholder Matters.................................... 9
Item 6. Selected Financial Data......................................... 9
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................ 10
Item 8. Financial Statements and Supplementary Data..................... 10
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure......................... 10
PART III
--------
Item 10. Directors and Executive Officers of the Registrant.............. 10
Item 11. Executive Compensation.......................................... 10
Item 12. Security Ownership of Certain Beneficial
Owners and Management.......................................... 10
Item 13. Certain Relationships and Related Transactions.................. 10
PART IV
-------
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K............................................ 11
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<PAGE>
PART I
------
ITEM 1. BUSINESS
- ------ --------
General
-------
Fairfield Communities, Inc. ("Fairfield", and together with its
subsidiaries, the "Company") is one of the largest vacation ownership companies
in the United States in terms of property owners and vacation units constructed.
The Company's operations, following the December 19, 1997 merger with Vacation
Break U.S.A., Inc. ("Vacation Break"), consists of 25 resorts located in 11
states and the Bahamas. Of the Company's 25 resorts, 15 are located in
destination areas with popular vacation attractions ("Destination Resorts") and
10 are located in scenic regional locations ("Regional Resorts"). The resorts
acquired by the Company in conjunction with the Vacation Break merger are
located in Pompano Beach, Florida (four resorts), Orlando, Florida and a
50%-owned resort located in the Bahamas.
The Company's primary business is selling vacation ownership interests
("VOIs"), commonly known as timeshares, primarily through its innovative
points-based vacation system, Fairshare Plus. The VOIs offered by the Company
consist of either undivided fee simple interests or specified fixed week
interval ownership in fully-furnished vacation homes.
The Company believes that it provides VOI owners with an attractive
long-term vacation experience. The VOIs sold by the Company are in full service
resorts that typically feature swimming pools, restaurants and access to golf
courses, marinas, beaches, tennis courts, spa or recreational facilities and
other amenities. The Company maintains close contact with its VOI owners by
virtue of its role as property manager at most of its VOI resorts. This exposure
to VOI owners also enables the Company to improve the management of its resorts,
while reducing marketing expenses which it would otherwise incur to the extent
repeat and referral business is generated through such contacts.
The Company offers financing to the purchasers of VOIs, which results
in the creation of high-quality, medium-term contracts receivable. The Company
holds these receivables and will occasionally securitize them if the
securitization would lower the costs of borrowed funds or maintain borrowing
availability under its credit facilities. Interest income from the Company's
financing activities totaled $37.2 million in 1997. At December 31, 1997, the
Company had a portfolio of approximately 60,000 contracts receivable amounting
to $302.5 million, with outstanding borrowings of $166.6 million collateralized
by the contracts receivable. At December 31, 1997, contracts receivable had a
weighted average maturity of approximately five years and a weighted average
interest rate of 14.6%, as compared to a weighted average cost of associated
debt of 9.6% for the year ended December 31, 1997.
On December 19, 1997, Fairfield's stockholders approved an increase in
the number of authorized common shares from 25,000,000 to 100,000,000. On
December 11, 1997, the Board of Directors declared a two-for-one common stock
split in the form of a stock dividend effective January 30, 1998 to shareholders
of record on January 15, 1998. Additionally, on June 5, 1997, the Board of
Directors declared a three-for-two common stock split in the form of a stock
dividend effective July 15, 1997 to shareholders of record on July 1, 1997.
In 1992, the Company successfully reorganized under Chapter 11 of the
Bankruptcy Code. Since the reorganization, the Company has changed the focus of
its VOI business from developing Regional Resorts to constructing units in
Destination Resorts, thereby eliminating the need for developing large-scale
amenities to attract vacationers, lowering development expense, reducing
development risk and increasing its access to a steady source of potential
customers.
-3-
<PAGE>
Fairfield was incorporated in Delaware in 1969. The Company's principal
executive office is located at 11001 Executive Center Drive, Little Rock,
Arkansas 72211, and its telephone number is (501) 228-2700. At December 31,
1997, the Company had approximately 3,400 full-time employees.
Mergers and Acquisitions
------------------------
On December 19, 1997, Fairfield acquired all of the outstanding common
stock of Vacation Break in exchange for approximately 5,316,000 shares
(10,632,000 shares on a post split basis) of its common stock. Each share of
Vacation Break common stock was exchanged for .6075 of one share of Fairfield
Common Stock on a pre split basis. In addition, outstanding options and warrants
to purchase Vacation Break common stock were converted at the same exchange
ratio into options to purchase Fairfield Common Stock. The merger has been
accounted for as a pooling of interests and, accordingly, all prior period
financial information has been restated as if the merger took place at the
beginning of such periods.
Additionally, on December 19, 1997, Fairfield acquired the remaining 45%
minority interests in Vacation Break's joint ventures in the Palm Aire and Royal
Vista resorts for approximately $13.5 million in cash. These acquisitions have
been accounted for as purchases and the total results of operations of these
resorts have been included in the consolidated financial statements from the
date of acquisition.
On December 3, 1997, Fairfield exchanged 145,719 shares (291,438 shares
on a post split basis) of common stock for all of the outstanding common stock
of Apex Marketing, Inc. ("Apex"). The transaction has been accounted for as a
pooling of interests. The Apex operations are not material to Fairfield's
consolidated financial statements for any period; therefore, financial
statements for periods prior to the merger have not been restated, and the
consolidated financial statements include operations of Apex from the date of
combination.
ITEM 2. PROPERTIES
- ------ ----------
General
-------
Fairfield's objective is to be a leading provider of innovative,
high-quality vacation experiences in the timeshare industry to the broadest
spectrum of households throughout the United States. To capitalize on its
innovative FairShare Plus vacation system and to achieve its objective,
Fairfield has placed an emphasis on acquiring and developing resort properties
in destination locations. These resorts are in areas with well-known attractions
and large tourist populations. The advantage of focusing on sites in destination
locations is the reduced need for developing large-scale amenities to attract
vacationers, yielding lower developmental risks and expenses for Fairfield.
Furthermore, large populations of prospective customers continually pass through
these areas, making them prime areas for Fairfield to operate on-site sales
offices which showcase the Company's property portfolio.
Fairfield's array of other resorts offers a variety of vacation
experiences which are intended to meet the different lifestyles and vacation
needs of its customer base. Fairfield's resort sites vary in size from several
acres to over 18,000 acres. The following summary sets forth certain information
as of December 31, 1997 regarding the Company's more significant resorts.
-4-
<PAGE>
Property Portfolio - Destination Resorts
----------------------------------------
Fairfield Branson
Branson, MO - Fairfield Branson at the Falls, Fairfield's original
Branson development is completed and has 54 units. The second Branson
development, Fairfield Branson at the Meadows, is partially completed with a
planned 232 unit capacity when fully developed.
Fairfield Myrtle Beach
Myrtle Beach, SC - Fairfield Westwinds, Fairfield's first Myrtle Beach
resort built in 1989, is an 82 unit tower on the beachfront. Fairfield's second
Myrtle Beach resort, Fairfield SeaWatch Plantation, is a 10 acre beachfront
property with a planned 640 units consisting of a mixture of condominiums and
hotel units. Fairfield currently has 76 completed units and anticipates adding
another 49 units in 1998, and an additional 52 units from a hotel being built at
the site.
Fairfield Nashville at Music City, USA
Nashville, TN - Fairfield Nashville is located on 19 acres, adjacent to
the Opryland Hotel complex. Fairfield Nashville has 62 units completed and 32
units under construction out of a planned 254 total units. When completed,
amenities at Fairfield Nashville will include indoor and outdoor swimming pools,
health club and clubhouse.
Fairfield Orlando at Cypress Palms
Kissimmee, FL - Fairfield Orlando at Cypress Palms is located in close
proximity to this city's world-famous attractions such as Walt Disney World(R)
Resort, Epcot(R) Center, MGM Studios, Universal Studios and Sea World. When
completed, the resort will include 244 units and a pool and whirlpool spa.
Currently, Fairfield Orlando at Cypress Palms has 106 units completed and 16
units under construction.
Port Lucaya Resort & Yacht Club
Freeport, Grand Bahama - Port Lucaya Resort & Yacht Club is a 50%-owned
resort consisting of 160 hotel rooms and suites. The resort, situated on 5
acres, features a full-service marina, a restaurant, swimming pool, bar area and
several other amenities. The resort is operated as a hotel to provide
accommodations primarily to purchasers of the Company's vacation packages.
The Fairways of Palm-Aire
Pompano Beach, FL - The Fairways of Palm-Aire offers a total of 107
units with an additional 101 units under construction. The resort features a
health spa, swimming pools, a restaurant and banquet facilities as well as
access to adjacent golf courses.
Royal Vista Resort
Pompano Beach, FL - Royal Vista Resort is located on 3.25 acres of
oceanfront property and consists of 99 one-and-two bedroom units. Construction
is estimated to be completed in March 1998, with sales estimated to commence in
the second quarter of 1998.
Santa Barbara Resort and Yacht Club
Pompano Beach, FL - Santa Barbara Resort and Yacht Club is located on
1.25 acres and consists of 90 units. This resort features a swimming pool,
nearby restaurants, banquet facilities, as well as dockage on the Spanish River
and close access to the Atlantic Ocean.
-5-
<PAGE>
Sea Gardens Beach and Tennis Resort
Pompano Beach, FL - Sea Gardens Beach and Tennis Resort is situated on
7.5 acres and includes 250 feet of beachfront property. The resort features
4,000 square feet of banquet facilities, a restaurant and a beachfront activity
center. At year end, the site had 137 completed units, with another 84 units
projected to be completed in the first quarter of 1998.
Fairfield Orlando at Star Island
Orlando, FL - Fairfield Orlando at Star Island is designated as a
five-star resort by Interval International. Fairfield has the exclusive right to
acquire up to 123 condominium units to be sold as VOIs. Fairfield Orlando at
Star Island features a swimming pool, tennis courts, a health club and a
children's playground.
Fairfield Williamsburg
Williamsburg, VA - Fairfield Williamsburg is located just 10 miles from
Jamestown, the first English-speaking settlement in North America, and 15 miles
from Yorktown, where the last battle of the American Revolution was fought.
Fairfield Williamsburg at Patriot's Place, Fairfield's original Williamsburg
development, offers 196 units. Fairfield Williamsburg at Kingsgate, Fairfield's
second Williamsburg location, has 202 completed units out of a planned 300 total
units.
Property Portfolio - Regional Resorts
-------------------------------------
Fairfield Bay
Fairfield Bay, AR - Fairfield Bay offers 217 units in the Ozark
foothills and a lighted 10-court tennis center. Mountain Ranch Golf Course is in
the heart of the resort. The Ozark National Forest is nearby and offers hiking,
camping and other outdoor activities. Fairfield Bay is located on the
40,000-acre Greers Ferry Lake, which has over 300 miles of shoreline.
Fairfield Flagstaff
Flagstaff, AZ - Fairfield Flagstaff provides 125 units in four seasons
of resort vacationing. Fairfield Flagstaff is approximately 75 miles from the
Grand Canyon and 25 miles from Sedona. Nearby Arizona Snowbowl offers a sky-ride
in the summer, as well as downhill and cross-country skiing in the winter. The
resort offers swimming, golf, tennis and horseback riding.
Fairfield Glade
Fairfield Glade, TN - Fairfield Glade offers one 27-hole and three
18-hole golf courses. The resort has 358 units and is surrounded by 12 lakes.
Horseback riding, indoor and outdoor swimming pools and tennis courts are
available to vacationers. Nearby attractions include the Fall Creek Falls and
Cumberland Mountain State Parks and the Great Smoky Mountains National Park.
Harbortown Point
Ventura, CA - Harbortown Point is located between Santa Barbara and Los
Angeles and has 57 units. In addition to the public beaches and water activities
surrounding the resort, on-site facilities include a heated swimming pool and
two glass-enclosed whirlpools. Channel Island National Park, the only aquatic
national park in the continental United States, is just beyond the resort's
docks.
Fairfield Harbour
New Bern, NC - Fairfield Harbour is surrounded by historical towns and
attractions, such as Bath, incorporated in 1705 as the state's first town.
Recreational activities at Fairfield Harbour include golf, indoor and outdoor
pools, whirlpool spa, exercise room with sauna, miniature golf, playground and
community center. The site offers 207 units of VOI.
-6-
<PAGE>
Fairfield Mountains
Lake Lure, NC - Fairfield Mountains offers 215 units amid the Blue
Ridge Mountains, just 45 miles east of Asheville, North Carolina. Lake Lure and
Bald Mountain Lake both offer fishing, as well as boating and private beaches.
The Bald Mountain and Apple Valley golf courses are open year-round.
Fairfield Ocean Ridge
Edisto Island, SC - Fairfield Ocean Ridge is located 45 miles from
Charleston, South Carolina. Recreational activities at Fairfield Ocean Ridge
include golf, tennis courts and outdoor swimming pools. An additional 2.8 acres
of waterfront property was purchased in late 1997 for future VOI units. The site
currently has 190 units of VOI inventory.
Fairfield Pagosa
Pagosa Springs, CO - Fairfield Pagosa has five lakes on the property
and is bordered by two-and-a-half million acres of national forest and
wilderness. Recreational activities at Fairfield Pagosa include 27 holes of
golf, tennis courts and indoor and outdoor pools. The site currently has 188
units completed, two under construction, with another 16 units planned.
Fairfield Plantation
Villa Rica, GA - Fairfield Plantation is located 45 miles west of
Atlanta, Georgia. The resort features 80 units. Recreational activities at
Fairfield Plantation include golf, fishing, its own private beach and three
outdoor pools.
Fairfield Sapphire Valley
Sapphire, NC - Fairfield Sapphire Valley includes 194 units. The resort
lies in the foothills of the Blue Ridge Mountains, 60 miles south of Asheville,
North Carolina. The Pisgah National Forest and Great Smoky Mountains National
Park are nearby and offer backpacking and other outdoor activities. Recreational
activities at Fairfield Sapphire Valley include golf, fishing, white-water
rafting and skiing in the winter months.
Corporate Office
The Company's corporate office is located in Little Rock, Arkansas and
contains approximately 61,000 square feet of office space. The Company also
leases various office space in locations where it conducts its sales and
marketing operations. The Company believes that all of its office space is
adequate to meet its needs for the foreseeable future and that, if necessary, it
can obtain additional space at a reasonable cost without undo operational
disruption.
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 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's strategy
includes expansion through the acquisition of properties in destination
locations, including urban and coastal areas. There can be no assurance that the
Company will be successful in resolving zoning and other property use
restrictions and requirements likely to be encountered in such areas on
favorable terms or that the costs of complying with such restrictions and
requirements will not be greater than the Company has traditionally experienced
in its development activities.
-7-
<PAGE>
The marketing and sales of VOIs and other operations are subject to
extensive regulation by the federal government and by the states in which the
Company's resorts are located and in which the VOIs are marketed and sold. The
federal government and many states have adopted specific laws and regulations
regarding the sale of lots, timeshares, telemarketing and certain of the
Company's other activities, including that a "property report" be provided to
certain purchasers, providing, among other things, detailed information about
the particular community, the development and the purchaser's rights and
obligations as a VOI or lot owner. The Company believes that it is in
substantial compliance with all laws and regulations to which it is currently
subject. However, there is no clear guidance regarding the scope and
interpretation of the registration requirements of various state laws regulating
certain types of timeshare marketing and sales programs. As part of managing its
compliance program, the Company's Vacation Break subsidiary has begun to
register its resorts for VOI sales in additional jurisdictions, consistent with
the Company's practices. There can be no assurance that the costs of compliance
in the applicable states will not be substantial. In addition, no assurance can
be given that the cost of complying with laws and regulations in all
jurisdictions in which the Company desires to conduct sales will not be
significant, will not impair the cost-effectiveness of its marketing programs or
that the Company is in fact in compliance with all applicable laws and
regulations. If the Company is not in substantial compliance with applicable
laws and regulations, among other consequences, it could be subject to
regulatory actions and purchasers of VOIs could have certain rescission rights.
In addition, there can be no assurance that laws and regulations (including
existing interpretations thereof) applicable to the Company in any specific
jurisdiction will not be revised or that other laws or regulations will not be
adopted which could increase the Company's cost of compliance or prevent the
Company from selling VOIs or conducting other operations in such jurisdiction.
In particular, the Company has become more reliant on the use of telemarketing
based marketing programs. Regulation of and laws governing the use of
telemarketing has grown in the recent past and additional laws and regulations
governing these activities may be adopted in the future. Any failure to comply
with any applicable law or regulation, or any increases in the costs of
compliance, could have a material adverse effect on the Company.
ITEM 3. LEGAL PROCEEDINGS
- ------ -----------------
The information required by Item 3 is incorporated herein by reference
to Note 17 - Contingencies of "Notes to Consolidated Financial Statements"
------------------------
included in the Registrant's Annual Report to Stockholders for the year ended
December 31, 1997.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------ -----------------------------------------------------
A special meeting of Fairfield's stockholders was held on December 19,
1997 whereby the stockholders approved the issuance of up to 5,826,281 shares
(11,652,562 shares on a post split basis) of Common Stock to be issued pursuant
to the merger with Vacation Break U.S.A., Inc. The number of votes cast by the
stockholders regarding this proposal are as follows (For - 13,817,548; Against -
158,301; Abstain - 9,243). Additionally, the stockholders approved an amendment
to the Certificate of Incorporation to increase the number of authorized common
shares from 25,000,000 to 100,000,000. The number of votes cast by the
stockholders regarding this proposal are as follows (For - 13,632,917; Against -
339,897; Abstain - 12,278).
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 56, has been with Fairfield
since 1986, serving as President and Chief Executive Officer
since 1991; President and Chief Operating Officer from 1990
to 1991 and Senior Vice President and Chief Financial
Officer prior thereto.
-8-
<PAGE>
Robert Albertson, age 57, has been with Fairfield since
1996, serving as Senior Vice President/Corporate Marketing
since September 1997 and Regional Vice President from 1996.
Mr. Albertson was a sales and marketing consultant from 1992
to 1996 with the Global Group in Europe and other vacation
ownership companies. From 1982 to 1992, Mr. Albertson was
employed by Fairfield serving as a Regional Vice President
and General Manager.
Marcel J. Dumeny, age 47, has been with Fairfield since
1987, serving as Senior Vice President and General Counsel
since 1989 and Senior Vice President/Law and Development
prior thereto.
Clay G. Gring, Sr., age 66, has been with Fairfield
since 1991, serving as Senior Vice President/Development
since February 1998; Senior Vice President/Chief Operating
Officer from 1996 to February 1998 and Senior Vice
President/Leisure Products Group prior thereto. Mr. Gring
was self-employed from 1984 to 1991, specializing in the
development and management of real estate properties,
including resort communities and hospitality related
properties.
Franz Hanning, age 44, has been with Fairfield since
1982, serving as Senior Vice President and Chief Operating
Officer/Vacation Ownership Business since February 1998;
Senior Vice President/Corporate Sales from January 1997 to
February 1998; Regional Vice President from 1991 to January
1997 and Vice President/Sales - Fairfield Williamsburg from
1990 to 1991.
Robert W. Howeth, age 50, has been with Fairfield since
1975, serving as Senior Vice President and Chief Financial
Officer since 1996; Senior Vice President, Chief Financial
Officer and Treasurer from 1994 to 1996; Senior Vice
President and Treasurer from 1993 to 1994 and Senior Vice
President/Planning and Administration from 1990 to 1993.
Mark Nuzzo, age 46, has been with Fairfield since 1983,
serving as Vice President of Property Management since 1995
and as Vice President of Resort Operations from 1991 to
1995.
William G. Sell, age 44, has been with Fairfield since
1981, serving as Vice President, Controller and 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, 1997.
ITEM 6. SELECTED FINANCIAL DATA
- ------ -----------------------
Information required by Item 6 is incorporated herein by reference to
Selected Financial Data included in the Registrant's Annual Report to
- -------- -------- ----
Stockholders for the year ended December 31, 1997.
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<PAGE>
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, 1997.
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 1998 Annual Meeting of
Stockholders.
(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 1998 Annual Meeting of Stockholders.
ITEM 11. EXECUTIVE COMPENSATION
- -------- ----------------------
This item is incorporated by reference to Registrant's Proxy Statement for
its 1998 Annual Meeting of Stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
- -------- ---------------------------------------------------
MANAGEMENT
----------
This item is incorporated by reference to Registrant's Proxy Statement for
its 1998 Annual Meeting of Stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- -------- ----------------------------------------------
This item is incorporated by reference to Registrant's Proxy Statement for
its 1998 Annual Meeting of Stockholders.
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<PAGE>
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, are incorporated
herein by reference:
Consolidated Balance Sheets - December 31, 1997 and 1996
Consolidated Statements of Earnings - Years Ended December 31,
1997, 1996 and 1995
Consolidated Statements of Stockholders' Equity - Years Ended
December 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows - Years Ended December
31, 1997, 1996 and 1995
Notes to Consolidated Financial Statements - December 31, 1997
(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, 1997:
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
-----------------------------------------------
None
(c) Exhibits
--------
The Exhibit Index attached to this report is hereby
incorporated by reference.
(d) Financial Statement Schedules
-----------------------------
Following is the schedule as referenced in the Index to
--------
Financial Statements included in Item 14(a)(2) above.
--------------------
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<PAGE>
SCHEDULE II
Fairfield Communities, Inc. and Subsidiaries
Valuation and Qualifying Accounts
(In thousands)
<TABLE>
Additions
------------------
Charged Balance
Balance at Charged to to at
Beginning Costs and Other End of
Description of Period Expenses Accounts Deductions Period
- ----------------------------- --------- -------- -------- ---------- ------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1997
Deducted from asset accounts:
Allowance for loan losses $16,528 $12,121 $ - $ (7,801) $20,848
======= ======= ==== ======== =======
Year Ended December 31, 1996
Deducted from asset accounts:
Allowance for loan losses $15,471 $ 7,827 $ - $ (6,770)(a) $16,528
======= ======= ==== ======== =======
Valuation allowance for
deferred tax assets $20,415 $ - $ - $(20,415)(b) $ -
======= ======= ==== ======== =======
Year Ended December 31, 1995
Deducted from asset accounts:
Allowance for loan losses $12,011 $ 8,030 $ - $ (4,570)(c) $15,471
======= ======= ==== ======== =======
Valuation allowance for
deferred tax assets $26,131 $ - $547(d)$ (6,263)(e) $20,415
======= ======= ==== ======== =======
</TABLE>
(a) Includes uncollectible loans receivable written-off, net of
recoveries, and $1,200 credited to "Other income".
(b) Includes $19,108 utilization of pre-confirmation income tax attributes
credited to paid-in capital. Other deductions represent the refinement
of prior year estimates of certain deferred tax assets.
(c) Uncollectible loans receivable written-off, net of recoveries.
(d) Represents the refinement of prior year estimates of certain deferred
tax assets.
(e) Utilization of pre-confirmation income tax attributes credited to
paid-in capital.
-12-
<PAGE>
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: March 17, 1998 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: March 17, 1998 By /s/Les R. Baledge*
-------------------------------------
Les R. Baledge, Director
Date: March 17, 1998 By /s/ Ernest D. Bennett, III*
-------------------------------------
Ernest D. Bennett, III, Director
Date: March 17, 1998 By /s/ Philip L. Herrington*
-------------------------------------
Philip L. Herrington, Director
Date: March 17, 1998 By /s/ Bryan D. Langton*
-------------------------------------
Bryan D. Langton, Director
Date: March 17, 1998 By /s/ Charles D. Morgan*
------------------------------------
Charles D. Morgan, Director
Date: March 17, 1998 By /s/ Ralph P. Muller, III*
-------------------------------------
Ralph P. Muller, Director
Date: March 17, 1998 By /s/ William C. Scott*
-------------------------------------
William C. Scott, Director
Date: March 17, 1998 By /s/ J. W. McConnell
------------------------------------
J. W. McConnell, Director, President
and Chief Executive Officer
Date: March 17, 1998 By /s/ Robert W. Howeth
------------------------------------
Robert W. Howeth, Senior Vice President
and Chief Financial Officer
Date: March 17, 1998 By /s/ William G. Sell
-------------------------------------
William G. Sell, Vice President/Controller
(Chief Accounting Officer)
Date: March 17, 1998 *By /s/J. W. McConnell
-------------------------------------
J. W. McConnell, Attorney-in-Fact
-13-
<PAGE>
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) Certificate of Amendment to Amended and Restated Certificate of
Incorporation of the Registrant (previously filed as Exhibit 4.2
to the Registrant's Form S-8, SEC File No. 333-42901, and
incorporated herein by reference)
3(c) Fifth Amended and Restated Bylaws of the Registrant, dated May
9, 1996 (previously filed with the Registrant's Current Report
on Form 8-K dated May 22, 1996 and incorporated herein by
reference)
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, 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, dated September 1, 1992 (previously filed
with the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1992 and incorporated herein by reference)
4.4 Third Supplemental Indenture to the Supplemented and Restated
Indenture, dated March 18, 1993 (previously filed with the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
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 September 28, 1993, by and between the
Registrant, Fairfield Myrtle Beach, Inc. ("FMB"), 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)
-14-
<PAGE>
Exhibit
Number
- ------
10.2 First Amendment to Amended and Restated Revolving Credit
Agreement, dated 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)
10.3 Second Amendment to Amended and Restated Revolving Credit
Agreement, dated December 9, 1994 (previously filed with the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1994 and incorporated herein by reference)
10.4 Third Amendment to Amended and Restated Revolving Credit
Agreement, dated December 19, 1994 (previously filed with the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1994 and incorporated herein by reference)
10.5 Fourth Amendment to Amended and Restated Revolving Credit
Agreement, dated November 20, 1995 (previously filed with the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1995 and incorporated herein by reference)
10.6 Fifth Amendment to Amended and Restated Revolving Credit
Agreement, dated January 25, 1996 (previously filed with the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1995 and incorporated herein by reference)
10.7 Sixth Amendment to Amended and Restated Revolving Credit
Agreement, dated December 12, 1996 (previously filed with the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1996 and incorporated herein by reference)
10.8 Seventh Amendment to Amended and Restated Revolving Credit
Agreement, dated December 19, 1997 (attached)
10.9 Eighth Amendment to Amended and Restated Revolving Credit
Agreement, dated February 13, 1998 (attached)
10.10 Rights Agreement, dated 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)
10.11 Amendment to Rights Agreement, dated September 20, 1994
(previously filed with the Registrant's Form 8-A/A dated
November 1, 1994 and incorporated herein by reference)
10.12 Appointment and Acceptance Agreement, dated 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)
-15-
<PAGE>
Exhibit
Number
- ------
10.13 Sixth Amended and Restated Title Clearing Agreement by and among
the Registrant, FAC, Lawyers Title Insurance Corporation, FNBB,
First Commercial Trust Company, N.A., and Capital Markets
Assurance Corporation, dated July 31, 1996 (previously filed
with the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1996 and incorporated herein by reference)
10.14 Fourth Amended and Restated Title Clearing Agreement by and
among the Registrant, FAC, Colorado Land Title Company, FNBB,
First Commercial Trust Company, N.A. and Capital Markets
Assurance Corporation, dated July 31, 1996 (previously filed
with the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1996 and incorporated herein by reference)
10.15 Westwinds Third Amended and Restated Title Clearing Agreement by
and among the Registrant, FMB, FAC, 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 for the year ended December 31, 1992 and incorporated
herein by reference)
10.16 First Amendment to Westwinds Third Amended and Restated Title
Clearing Agreement, dated September 29, 1993 (previously filed
with the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1996 and incorporated herein by reference)
10.17 Second Amendment to Westwinds Third Amended and Restated
Title Clearing Agreement, dated March 28, 1995 (previously filed
with the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1996 and incorporated herein by reference)
10.18 Third Amendment to Westwinds Third Amended and Restated
Title Clearing Agreement, dated July 31, 1996 (previously filed
with the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1996 and incorporated herein by reference)
10.19 Third Amended and Restated Revolving Credit Agreement between
FAC and FNBB, dated September 28, 1993 (previously filed with
Registrant's Current Report on Form 8-K dated October 1, 1993
and incorporated herein by reference)
10.20 Amendment to Third Amended and Restated Revolving Credit
Agreement, dated December 9, 1994 (previously filed with the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1994 and incorporated herein by reference)
10.21 Second Amendment to Third Amended and Restated Revolving
Credit Agreement, dated December 19, 1994 (previously filed with
the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1994 and incorporated herein by reference)
-16-
<PAGE>
Exhibit
Number
- ------
10.22 Third Amendment to Third Amended and Restated Revolving
Credit Agreement, dated December 12, 1996 (previously filed with
the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1996 and incorporated herein by reference)
10.23 Fourth Amendment to Third Amended and Restated Revolving
Credit Agreement, dated December 19, 1997 (attached)
10.24 Fifth Amendment to Third Amended and Restated Revolving
Credit Agreement, Dated February 13, 1998 (attached)
10.25 Pledge and Servicing Agreement between Fairfield Funding
Corporation, 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)
10.26 Third Amended and Restated Operating Agreement, dated
December 9, 1994, between the Registrant and FAC (previously
filed with the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1994 and incorporated herein by
reference)
10.27 Amended and Restated Credit Agreement, with an effective
restatement date of October 2, 1996, among the Registrant,
Fairfield Capital Corporation ("FCC"), FAC, Triple-A One Funding
Corporation and Capital Markets Assurance Corporation as
Administrative Agent and Collateral Agent (previously filed with
the Registrant's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1996 and incorporated herein by reference)
10.28 First Amendment to Amended and Restated Credit Agreement
(previously filed with the Registrant's Quarterly Report on Form
10-Q for the quarter ended March 31, 1997 and incorporated herein
by reference)
10.29 Letter Agreement on Certain Contracts, Forms of Colorado
Contracts, Environmental Disclosure Schedule and Pool Limit
Excess, dated as of September 8, 1997 between Capital Markets
Assurance Corporation, as Collateral Agent, Triple-A One Funding
Corporation, BankBoston, N.A. as L/C Bank, FCC, FAC, FMB and
Registrant (previously filed with the Registrant's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1997 and
incorporated herein by reference)
10.30 Amended and Restated Receivables Purchase Agreement with an
effective restatement date of October 2, 1996, among the
Registrant, FAC, FMB and FCC (previously filed with the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996 and incorporated herein by reference)
10.31 Amended and Restated Nashville Title Clearing Agreement by and
among the Registrant, FAC, Lawyers Title Insurance Corporation,
FNBB, and Capital Markets Assurance Corporation, dated July 31,
1996 (previously filed with the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1996 and incorporated
herein by reference)
-17-
<PAGE>
Exhibit
Number
- ------
10.32 Amended and Restated Seawatch Plantation Title Clearing
Agreement by and among the Registrant, FMB, FAC, Lawyers Title
Insurance Corporation, FNBB, and Capital Markets Assurance
Corporation, dated July 31, 1996 (previously filed with the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1996 and incorporated herein by reference)
10.33 Third Amended and Restated Supplementary Trust Agreement
(Arizona) by and among the Registrant, FAC, First American Title
Insurance Company, FNBB, and Capital Markets Assurance
Corporation, dated March 28, 1995 (previously filed with the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1996 and incorporated herein by reference)
10.34 First Amendment to Third Amended and Restated Supplementary Trust
Agreement (Arizona), dated July 31, 1996 (previously filed with
the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1996 and incorporated herein by reference)
10.35 Protected Interest Rate Agreement, dated September 4, 1997,
between BankBoston, N.A. and FCC (previously filed with the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1997 and incorporated herein by reference)
10.36 Agreement and Plan of Merger, dated August 8, 1997, among
the Company, FCVB Corp., and Vacation Break U.S.A., Inc.
(previously filed as Exhibit 2.1 to the Registrant's Form S-4,
SEC File No. 333-39615, and incorporated herein by reference)
10.37 Joint Proxy Statement/Prospectus, dated November 10, 1997
(previously filed by the Registrant on November 10, 1997,
pursuant to Rule 424(b) under the Securities Act, and specified
sections of which are incorporated herein by reference)
10.38 Agreement and Plan of Merger among the Registrant, FC Ocean
Ranch, Inc., James E. Lambert, James R. Lambert, Daniel Lambert
and Ocean Ranch Development, Inc. dated December 10, 1997
(attached)
10.39 Agreement and Plan of Merger among the Registrant, FC Palm
Aire, Inc., the Berkley Group, Inc. and Palm Resort Group, Inc.,
dated December 10, 1997 (attached)
10.40 Agreement and Plan of Merger among the Registrant, FA,
Inc., Carl Flemister, C. Wendell Flemister, Jr., and Apex
Marketing, Inc., dated October 22, 1997 (attached)
10.41 Amendment Number One to the Agreement and Plan of Merger
among the Registrant, FA, Inc., Carl Flemister, C. Wendell
Flemister, Jr., and Apex Marketing, Inc., dated October 31, 1997
(attached)
10.42 Amendment Number Two to the Agreement and Plan of Merger
among the Registrant, FA, Inc., Carl Flemister, C. Wendell
Flemister, Jr., and Apex Marketing, Inc., dated December 3, 1997
(attached)
-18-
<PAGE>
Exhibit
Number
- ------
10.43 Principal Stockholders Agreement among the Registrant, FCVB
Corp., Ralph P. Muller, R & A Partnership, Ltd. and Kevin
Sheehan, dated August 8, 1997 (attached)
10.44 Escrow Agreement among the Registrant, Ralph P. Muller, R & A
Partnership, Ltd., Kevin Sheehan and Mercantile Bank of
Arkansas, as escrow agent, dated August 8, 1997 (attached)
COMPENSATORY PLANS OR ARRANGEMENTS
10.45 Form of Warrant Agreement between the Registrant and
directors of the Registrant (previously filed with the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1993 and incorporated herein by reference)
10.46 Registrant's Savings/Profit Sharing Plan, effective July 1,
1994 (previously filed with the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1994 and incorporated
herein by reference)
10.47 Amendment Number One to Registrant's Savings/Profit Sharing
Plan, effective January 1, 1995 (previously filed with the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1996 and incorporated herein by reference)
10.48 Amendment Number Two to Registrant's Savings/Profit Sharing
Plan, effective January 1, 1996 (previously filed with the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1995 and incorporated herein by reference)
10.49 Amendment Number Three to Registrant's Savings/Profit
Sharing Plan, effective September 20, 1996 (previously filed with
the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1996 and incorporated herein by reference)
10.50 Amendment Number Four to Registrant's Savings/Profit
Sharing Plan, effective January 1, 1997 (attached)
10.51 Employment Agreement, dated 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)
10.52 Employment Agreement, dated 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)
10.53 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)
-19-
<PAGE>
Exhibit
Number
- ------
10.54 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 for the quarter ended
September 30, 1993 and incorporated herein by reference)
10.55 Registrant's Third Amended and Restated 1992 Warrant Plan
(attached)
10.56 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)
10.57 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)
10.58 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)
10.59 First Amendment to Excess Benefit Plan, adopted May 11,
1995 (previously filed with the Registrant's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1995 and incorporated
herein by reference)
10.60 Registrant's Key Employee Retirement Plan, adopted January
1, 1994 (previously filed with Registrant's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1994 and incorporated
herein by reference)
10.61 First Amendment to Key Employee Retirement Plan, adopted
May 11, 1995 (previously filed with Registrant's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1995 and incorporated
herein by reference)
10.62 Restricted Stock Agreement between the Registrant and John
W. McConnell, entered into on December 19, 1996 (previously filed
with the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1996 and incorporated herein by reference)
10.63 Registrant's Employee Stock Purchase Plan (attached)
10.64 Registrant's Second Amended and Restated 1997 Stock Option
Plan (attached)
10.65 Vacation Break U.S.A., Inc. 1995 Stock Option Plan, as
amended (previously filed as Exhibit 4.5 to the Registrant's Form
S-8, SEC File No. 333-42901, and incorporated herein by
reference)
13 Portions of Registrant's Annual Report to Stockholders for the
year ended December 31, 1997 which are incorporated herein by
reference: 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 Stockholders' Equity;
Consolidated Statements of Cash Flows and Notes to Consolidated
Financial Statements (attached)
-20-
<PAGE>
Exhibit
Number
- -----
21 Subsidiaries of the Registrant (attached)
23.1 Consent of Ernst & Young LLP, Independent Auditors (attached)
23.2 Consent of Coopers & Lybrand LLP (attached)
24 Powers of Attorney (attached)
27.1 Financial Data Schedule, December 31, 1997 (attached)
27.2 Restated Financial Data Schedules - September 30, 1997, June 30,
1997, March 31, 1997 and December 31, 1996 (attached)
27.3 Restated Financial Data Schedules - September 30, 1996, June 30,
1996, March 31, 1996 and December 31, 1995 (attached)
SEVENTH AMENDMENT TO AMENDED AND
RESTATED REVOLVING CREDIT AGREEMENT
among
FAIRFIELD COMMUNITIES, INC.
FAIRFIELD MYRTLE BEACH, INC.
and
BANKBOSTON, N.A.,
INDIVIDUALLY AND AS AGENT
THIS AMENDMENT (this "Amendment") dated as of December 19, 1997, is
made by and among FAIRFIELD COMMUNITIES, INC., a Delaware corporation (the
"Company", "FCI" or "Fairfield"), FAIRFIELD MYRTLE BEACH, INC., a Delaware
corporation ("Myrtle Beach" or "FMB"), BANKBOSTON, N.A. (formerly The First
National Bank of Boston), a national banking association ("BKB"), and
BANKBOSTON, N.A., 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 and in effect as of at the date hereof, 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, BKB has agreed to establish for Borrowers additional borrowing
availability in the amount of up to and including $100,000,000 during the VB
Override Period, upon the terms and subject to the conditions set forth herein;
NOW, THEREFORE, in consideration of the foregoing premises, FCI, FMB,
FAC, BKB and the Agent hereby agree as follows:
ss.1. Amendments to Credit Agreement. FCI, FMB, BKB and the Agent hereby
-------------------------------
agree to amend the Credit Agreement as follows:
ss.1.1 The definitions of "Borrowing Base", "Commitment" and
"Commitment Amount" appearing in Section 1.1 of the Credit Agreement are hereby
amended by
<PAGE>
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 ss.8.4(f), which is
equal to the following: the sum of (i) 65% of Eligible Receivables,
plus (ii) 30% of Completed Inventory (borrowing availability under this
----
subclause (ii) not to exceed the Maximum Inventory Amount), plus (iii)
----
during the VB Override Period, an amount equal to 80% of VB
Receivables. During the VB Override Period, the borrowing availability
under subclause (iii) above shall be determined no later than 35 days
prior to the date of the most recent Borrowing Base Certificate
delivered to the Agent and the Lenders pursuant to ss.8.4(f), and each
Borrowing Base Report shall indicate the actual date of determination
of 80% of VB Receivables."
"Commitment. With respect to each Lender, the amount set forth on
----------
Schedule 1 hereto as the amount of such Lender's commitment to make
----------
Revolving Credit Loans to the Borrowers; provided, that during the VB
--------
Override Period, the amount of FNBB's Commitment shall be
$125,000,000."
"Commitment Amount. $25,000,000; provided, that during the VB Override
---------- ------ --------
Period, the Commitment Amount shall be $125,000,000."
"Subsidiary." Any corporation, association, trust, partnership or other
----------
business entity of which the designated parent shall at any time own
directly or indirectly through a Subsidiary or Subsidiaries at least a
majority (by number of votes) of the outstanding Voting Stock,
including, without limitation, the VB Partnerships with respect to the
Company or Vacation Break, provided that for purposes of this Agreement
the Arizona Subsidiaries shall not be considered Subsidiaries of the
Company or any other Borrower.
ss.1.2 Section 1.1 of the Credit Agreement is hereby further amended by
inserting the following definitions in alphabetical order therein:
"Ocean Ranch Vacation Group. Ocean Ranch Vacation Group, a Florida
---------------------------
general partnership, of which Vacation Break at Ocean Ranch, Inc. owns
a 55% partnership interest and Ocean Ranch Development, Inc. owns a
45% partnership interest."
"Palm Vacation Group. Palm Vacation Group, a Florida general
----------------------
partnership, of which Vacation Break Resorts at Palm Aire, Inc. owns a
<PAGE>
55% partnership interest and Palm Resort Group, Inc. owns a 45%
interest."
"Vacation Break. Vacation Break USA, Inc., a Florida corporation and a
--------------
wholly-owned Subsidiary of FCI."
"VB Lenders. The lenders listed and described on Schedule 8.12
----------- --------------
hereto."
"VB Originating Subsidiaries. Collectively, Sea Gardens Beach and
-----------------------------
Tennis Resort, Inc., Vacation Break Resorts, Inc., Palm Vacation
Group, Vacation Break Resorts at Star Island, Inc. and Ocean Ranch
Vacation Group."
"VB Override Period. The period commencing on December 19, 1997 and
-------------------
ending on the earlier of: (i) March 18, 1998, or (ii) the closing of
the transaction contemplated by the Fairfield Communities, Inc. VOI
Contract-Backed Commercial Paper Program Indicative Proposal, dated
October 16, 1997, issued by BancBoston Securities, Inc."
"VB Partnerships. Collectively, Palm Vacation Group and Ocean Ranch
----------------
Vacation Group."
"VB Projects. Collectively (i) the vacation ownership resort owned and
-----------
operated by Sea Gardens Beach and Tennis Resort, Inc. known as Sea
Gardens Beach and Tennis Resort located at Pompano Beach, Florida; (ii)
the vacation ownership resort owned and operated by Vacation Break
Resorts, Inc. known as Santa Barbara Resort and Yacht Club located at
Pompano Beach, Florida; (iii) the vacation ownership resort owned and
operated by Palm Vacation Group known as The Fairways of Palm-Aire
located at Pompano Beach, Florida; (iv) the VOIs acquired by Vacation
Break Resorts at Star Island, Inc. in units in the vacation ownership
resort known as Vacation Break at Star Island located at Kissimmee,
Florida; and (v) the vacation ownership resort owned and operated by
Ocean Ranch Vacation Group known as the Royal Vista Resort located at
Pompano Beach, Florida."
"VB Receivables. The principal component of any amount owed to any of
--------------
the VB Originating Subsidiaries arising from any installment contract
or contract for deed, or contracts or notes secured by a mortgage, deed
of trust, vendor's lien or retention of title entered into by such VB
Originating Subsidiary with an unaffiliated purchaser of one or more
VOIs or lots or plots of land which relate only to VB Projects."
<PAGE>
ss.1.3. Section 2.5 of the Credit Agreement is hereby amended by inserting
the following language at the end of the first sentence of said section:
"provided, however, that during the VB Override Period, the outstanding
principal amount of the Revolving Credit Loans shall bear interest at
the rate per annum equal to the Base Rate plus one and three-fourths
percent (1 3/4%)."
ss.1.4. Section 8.12 of the Credit Agreement is hereby amended by adding
the following language at the end of the first sentence of said section:
"and to refinance the Indebtedness of Vacation Break and the VB
Originating Subsidiaries which is listed and described on Schedule 8.12
-------------
hereto; provided, however, that in no event shall the Borrowers use
-------- -------
proceeds of the Revolving Credit Loans to refinance the Indebtedness of
any of Vacation Break and the VB Originating Subsidiaries unless and
until the Agent has received a payoff letter from each of the VB
Lenders to Vacation Break and such VB Originating Subsidiary indicating
the amount required to fully pay off and satisfy the Indebtedness of
Vacation Break and such VB Originating Subsidiary to such Vacation
Break Lender and an acknowledgment by such Vacation Break Lender that
upon receipt of such funds it will forthwith executed and deliver to
the Company for recording or filing all documents and take such other
actions as may be necessary to discharge, release and terminate all
liens or security interests granted by any of Vacation Break, the
Originating VB Subsidiaries, the Company and the Company's Subsidiaries
in favor of such VB Lender to secure such Indebtedness; and further,
-------
provided, that in no event shall the Borrowers use proceeds of the
--------
Revolving Credit Loans to refinance the Indebtedness of either of the
VB Partnerships unless and until (a) the Company, either directly or
indirectly through a Subsidiary of the Company, has acquired all of the
partnership interests in such VB Partnership and each of the partners
of such VB Partnership shall have executed and delivered to the Agent
and the Lenders a Guaranty of the Obligations in form and substance
satisfactory to the Agent; (b) the Company and/or the Company's
Subsidiary, as the case may be, shall have executed and delivered to
the Agent a Collateral Assignment of Partnership Interests and a Stock
Pledge Agreement, each in form and substance satisfactory to the Agent,
pledging and granting to the Agent for the benefit of the Lenders a
first priority security interest in all of the partnership interests in
such VB Partnership and all of the issued and outstanding capital stock
of any subsidiary owing a partnership interest in such VB Partnership;
(c) such Collateral Assignment of Partnership Interests and Stock
Pledge Agreement shall be effective to create in favor of the Agent for
the benefit of the Lenders a legal, valid and enforceable first
priority security interest in and to all of the partnership interests
in such VB Partnership and all of the issued and outstanding capital
stock of any subsidiary owning a partnership interest in such VB
Partnership, and all filings, recordings, deliveries
<PAGE>
of instruments and other actions necessary or desirable in the opinion
of the Agent to maintain, perfect, protect and preserve such security
interests shall have been duly effected (including, without
limitation, the delivery to the Agent of certificates for all shares
of capital stock pledged pursuant to such Stock Pledge Agreement
together with stock powers duly executed in blank); and (d) BKB and
the Agent shall have received a favorable legal opinion addressed to
BKB and the Agent, in form and substance satisfactory to BKB and the
Agent, from the Rose Law Firm and Greenspoon, Marder, Hirschfeld and
Rafkin, P.A., as to the enforceability of the documents, instrument
and agreements referred to in clauses (a) and (b) of this Section
8.12."
ss.1.5. Section 9.1 of the Credit Agreement is hereby amended by
adding the following clause (m) at the end of said section:
"(m) Indebtedness of Vacation Break and its Subsidiaries listed
and described in Schedule 9.1(m) hereto."
-------- -----
ss.1.6. Section 9.2 of the Credit Agreement is hereby amended by
adding the following clause (xi) at the end of said section:
"(xi) liens securing the Indebtedness permitted by Section 9.1(m)
and listed on Schedule 9.1(m) hereto."
-------- ------
ss.1.7. The Credit Agreement is hereby amended by adding thereto
Schedules 8.12 and 9.1(m) attached hereto.
--------- ---- -----
ss.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 FCI and FMB 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.
ss.3. Conditions to Effectiveness. The effectiveness of this Amendment
---------------------------
is subject to satisfaction of all of the following conditions:
(a) Vacation Break Merger. The merger and other
-------- ----- ------
transactions contemplated by that certain Merger
Agreement (the "Vacation Break Merger Agreement"),
dated as of August 8, 1997, by and among FCI,
Vacation Break, and FCVB Corporation shall have
occurred, and Vacation Break shall be a wholly-owned
Subsidiary of FCI.
<PAGE>
(b) Loan Documents. FCI and FMB shall have executed and
--------------
delivered to BKB an amended and restated promissory note
payable to the order of BKB (the "Amended Note") in the
principal amount of $125,000,000, substantially in the form
of Exhibit B to the Credit Agreement, completed with
----------
appropriate insertions. From and after the effectiveness of
this Amendment, the parties agree that all references to the
term "Notes" and "Revolving Credit Notes" in the Credit
Agreement and the other Loan Document shall mean the Amended
Note. FCI shall have executed and delivered to the Agent a
Stock Pledge Agreement in form and substance satisfactory to
the Agent, granting a first priority security interest to
the Agent in and to all of the issued and outstanding
capital stock of Vacation Break. Vacation Break shall have
executed and delivered to the Agent a guaranty of the
obligations of FCI and FMB under the Credit Agreement and
the other Loan Documents, in form and substance satisfactory
to the Agent. Vacation Break shall have executed and
delivered to the Agent a Stock Pledge Agreement, in form and
substance satisfactory to the Agent, granting a first
priority security interest to the Agent in and to all of the
issued and outstanding capital stock of Sea Gardens Beach
and Tennis Resort, Inc., Vacation Break Resorts, Inc.,
Vacation Break Resorts at Palm Aire, Inc., Vacation Break
Resorts at Star Island, Inc. and Vacation Break at Ocean
Ranch, Inc. From and after the effectiveness of this
Amendment, the parties agree that all references to the term
"Security Documents" in the Credit Agreement and the other
Loan Documents shall include the Guaranties, Stock Pledge
Agreements and Collateral Assignments of Partnership
Interests executed and delivered pursuant to this Amendment,
and that all references to the term "Loan Documents" in the
Credit Agreement and other Loan Documents shall include the
Amended Note, Guaranties, Stock Pledge Agreements and
Collateral Assignments of Partnership Interests executed and
delivered pursuant to this Amendment.
(c) Validity of Liens. The Stock Pledge Agreements executed
-----------------
and delivered pursuant to this Amendment shall be effective
to create in favor of the Agent for the benefit of the
Lenders a legal, valid and enforceable first priority
security interest in and to all of the issued and
outstanding capital stock of each of Vacation Break and the
VB Originating Subsidiaries. All filings, recordings,
deliveries of instruments and other actions necessary or
desirable in the opinion of the Agent to maintain, perfect,
protect and preserve such security interests shall have been
duly effected and each of FCI and Vacation Break, pursuant
to such Stock Pledge Agreements, shall
<PAGE>
have delivered share certificates for all shares of capital
stock of Vacation Break and the Originating VB Subsidiaries
together with stock powers duly executed in blank. The Agent
shall have received evidence of the foregoing in form and
substance satisfactory to the Agent.
d) Opinion of Counsel. BKB and the Agent shall have
-------------------- received a favorable legal opinion
addressed to BKB and the Agent, in form and substance
satisfactory to BKB and the Agent, from the Rose Law Firm
and Greenspoon, Marder, Hirschfeld and Rafkin, P.A., counsel
to FCI, FMB, FAC and Vacation Break, as to the
enforceability of this Amendment and the documents,
instruments and agreements executed in connection herewith.
e) Corporate Action. All corporate action necessary for the
----------------
valid execution, delivery and performance by each of the
FCI, FMB, FAC and Vacation Break of this Amendment and the
documents, instruments and agreements executed in connection
herewith shall have been duly and effectively taken and
otherwise be duly authorized, and satisfactory evidence
thereof shall have been provided to the Agent and BKB.
(f) FAC Amendment. BKB and the Agent shall have received
--------------
evidence satisfactory to it of the occurrence of all
conditions precedent to the effectiveness of that certain
Fourth Amendment to Third Amended and Restated Revolving
Credit Agreement among FAC, BKB and the Agent dated of even
date herewith.
ss.4. REPRESENTATIONS AND WARRANTIES. Each of FCI, FMB and FAC hereby
--------------- --- ----------
represents and warrants to BKB and the Agent as follows:
(a) Representations and Warranties in Credit Agreement.
--------------- ---- ---------- -- ------ ---------
Except as disclosed in the Vacation Break Merger
Agreement and in the Officer's Certificate of Vacation Break
delivered to BKB and the Agent on the date hereof, the
representations and warranties of FCI, FMB 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
<PAGE>
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 FCI, FMB, FAC and Vacation Break 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 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
-------------- -- -----------
documents, instruments and agreements executed in
connection herewith, the Credit Agreement as amended hereby,
and the Fairfield Guaranty constitute, the legal, valid and
binding obligations of each of FCI, FMB, Vacation Break and
FAC, as the case may be, 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.
ss.5. RELEASE OF COLLATERAL. Following the expiration of the Override
------- -- ----------
Period the Agent shall, upon the request of the Borrowers, execute and deliver
to the Borrowers for recording or filing all documents and take such other
actions as may be necessary to discharge, release and terminate the security
interests granted to the Agent pursuant to the Stock Pledge Agreements and
Collateral Assignments of Partnership Interests executed and delivered pursuant
to this Amendment, provided that (a) the sum of the outstanding amount of the
Revolving Credit Loans, the Maximum Drawing Amount and all Unpaid Reimbursement
Obligations does not exceed the lesser of (i) $25,000,000 and (ii) the Borrowing
Base, and (b) no Default of Event of Default has occurred and is continuing.
ss.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
<PAGE>
remain in full force and effect. Each of FCI, FMB and FAC confirm and agree that
the Obligations of FCI and FMB to the Lenders and the Agent under the Credit
Agreement, as amended hereby, and the Amended Note, 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.
ss.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.
ss.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 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
----------------------------
FAIRFIELD ACCEPTANCE
CORPORATION
By: /s/ Robert W. Howeth
------------------------------
Name: Robert W. Howeth
-----------------------------
Title: President
----------------------------
BANKBOSTON, N.A.,
Individually and as Agent
By: /s/ Paul F. DeVito
------------------------------
Name: Paul F. DeVito
-----------------------------
Title: Managing Director
---------------------------
EIGHTH AMENDMENT TO AMENDED AND
RESTATED REVOLVING CREDIT AGREEMENT
AMONG
FAIRFIELD COMMUNITIES, INC.
FAIRFIELD MYRTLE BEACH, INC.
AND
BANKBOSTON, N.A.,
INDIVIDUALLY AND AS AGENT
THIS AMENDMENT (this "Amendment") dated as of February 13, 1998, is made by
and among FAIRFIELD COMMUNITIES, INC., a Delaware corporation (the "Company",
"FCI" or "Fairfield"), FAIRFIELD MYRTLE BEACH, INC., a Delaware corporation
("Myrtle Beach" or "FMB"), BANKBOSTON, N.A. (formerly The First National Bank of
Boston), a national banking association ("BKB"), and BANKBOSTON, N.A., 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
and in effect on the date hereof, 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"),
and by Vacation Break USA, Inc., a Florida corporation ("Vacation Break"),
Vacation Break Resorts at Palm Aire, Inc., a Florida corporation ("VBRPA"),
Vacation Break Resorts at Ocean Ranch, Inc., a Florida corporation ("VBROR"),
Palm Resort Group, Inc., a Florida corporation ("PRG"), and Ocean Ranch
Development, Inc., a Florida corporation ("ORD", and together with Vacation
Break, VBRPA, VBROR, PRG and ORD, the "Guarantors"), by reason of the
Guaranties, dated as of December 19, 1997, from each of the Guarantors in favor
of the Agent (the "VB Guaranties", and together with the Fairfield Guaranty, the
"Guaranties"). All capitalized terms used herein and not otherwise defined shall
have the same respective meanings herein as in the Credit Agreement.
WHEREAS, BKB has agreed to reduce that rate of interest during the balance
of VB Override Period, upon the terms and subject to the conditions set forth
herein;
NOW, THEREFORE, in consideration of the foregoing premises, FCI, FMB, FAC,
BKB and the Agent hereby agree as follows:
<PAGE>
-2-
ss.1. AMENDMENTS TO CREDIT AGREEMENT. FCI, FMB, BKB and the Agent hereby
-------------------------------
agree to amend the Credit Agreement as follows:
ss.1.1 The definition of "VB Override Period" is hereby amended by deleting
said definition in its entirety and substituting therefor the following new
definition:
"VB Override Period. The period commencing on December 19, 1997 and
-------------------
ending on the earlier of: (i) March 18, 1998, or (ii) the initial
funding of the loans contemplated by that certain Credit Agreement,
dated as of January 15, 1998, among Fairfield Receivables Corporation,
as borrower, FAC, as servicer, EagleFunding Capital Corporation,
BancBoston Securities, Inc., and BankBoston, N.A., as collateral
agent."
ss.1.2. Section 2.5 of the Credit Agreement is hereby amended by deleting
said section in its entirety and substituting therefor the following new
section:
"2.5. Interest on Revolving Credit Loans. Except as otherwise set
------------------------------------
forth in ss.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 period commencing on December 19, 1997 and ending on February 13,
1998, the outstanding principal amount of the Revolving Credit Loans
shall bear interest at the rate per annum equal to the Base Rate plus
one and three-fourths percent (1 3/4%), and further, provided, that
------- --------
during the period commencing on February 14, 1998 and ending upon the
expiration of the VB Override Period, the outstanding principal amount
of the Revolving Credit Loans shall bear interest at the rate per
annum equal to the Base Rate plus one-fourth of one percent (1/4%).
ss.2. CONSENT OF FAC AND GUARANTORS. Each of FAC and the Guarantors hereby
-----------------------------
consents to the amendments to the Credit Agreement set forth in this Amendment,
and confirm its obligations to the Agent and the Lenders under its Guaranty and
agrees that its Guaranty shall extend to and include the obligations of FCI and
FMB under the Credit Agreement as amended by this Amendment. Each of FAC agrees
that all of its obligations to the Agent and the Lenders evidenced by or
otherwise arising under its Guaranty are in full force and effect and are hereby
ratified and confirmed in all respects.
ss.3. REPRESENTATIONS AND WARRANTIES. Each of FCI, FMB and FAC hereby
--------------------------------
represents and warrants to BKB and the Agent as follows:
(a) Representations and Warranties in Credit Agreement. Except
---------------------------------------------------
as previously disclosed to the Agent in writing prior to the
date hereof, the representations and warranties of FCI, FMB,
FAC
<PAGE>
-3-
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 FCI, FMB, FAC and the Guarantors
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 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 Guaranties
constitute, the legal, valid and binding obligations of each
of FCI, FMB, FAC and the Guarantors, as the case may be,
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.
ss.4. 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 FCI, FMB, FAC and the Guarantors
confirm and agree that the Obligations of FCI and FMB to the Lenders and the
Agent under the Credit Agreement, 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.
<PAGE>
-4-
ss.5. 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.
ss.6. HEADINGS. The captions in this Amendment are for convenience of
--------
reference only and shall not define or limit the provisions hereof.
<PAGE>
-5-
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
---------------------------------
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
--------------------------------
VACATION BREAK USA, INC.
By: /s/Robert W. Howeth
-------------------------------------
Name: Robert W. Howeth
----------------------------------
Title: Vice President
----------------------------------
VACATION BREAK RESORTS AT
PALM AIRE, INC.
By: /s/Robert W. Howeth
----------------------------------
Name: Robert W. Howeth
---------------------------------
Title: Vice President
--------------------------------
<PAGE>
-6-
VACATION BREAK RESORTS AT
OCEAN RANCH, INC.
By: /s/Robert W. Howeth
-----------------------------------
Name: Robert W. Howeth
----------------------------------
Title: Vice President
--------------------------------
PALM RESORT GROUP, INC.
By: /s/Robert W. Howeth
-----------------------------------
Name: Robert W. Howeth
----------------------------------
Title: Vice President
---------------------------------
OCEAN RANCH DEVELOPMENT, INC.
By: /s/ Robert W. Howeth
-----------------------------------
Name: Robert W. Howeth
---------------------------------
Title: Vice President
---------------------------------
BANKBOSTON, N.A.,
Individually and as Agent
By: /s/Paul F. DeVito
-----------------------------------
Name: Paul F. DeVito
---------------------------------
Title: Managing Director
---------------------------------
FOURTH AMENDMENT TO THIRD AMENDED AND
RESTATED REVOLVING CREDIT AGREEMENT
BETWEEN
FAIRFIELD ACCEPTANCE CORPORATION
AND
BANKBOSTON, N.A.,
INDIVIDUALLY AND AS AGENT
THIS AMENDMENT (this "Amendment") dated as of December 19, 1997, is made by
and among FAIRFIELD ACCEPTANCE CORPORATION, a Delaware corporation (the
"Borrower" or "FAC"), BANKBOSTON, N.A. (formerly The First National Bank of
Boston), a national banking association ("BKB"), and BANKBOSTON, N.A., 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 a Consent, Waiver and Agreement, dated as of September 23, 1994, as further
amended by a First Amendment to Third Amended and Restated Revolving Credit
Agreement dated as of December 9, 1994, as further amended by a Second Amendment
to Third Amended and Restated Revolving Credit Agreement dated as of December
19, 1994, and as further amended by a Third Amendment to Third Amended and
Restated Revolving Credit Agreement dated as of December 12, 1996 (as so
amended, the "Credit Agreement"). This Amendment is joined in by Fairfield
Communities, Inc., a Delaware corporation ("FCI") and Fairfield Myrtle Beach,
Inc. ("FMB", "FCI" and "FMB" 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, BKB, FAC and the Agent have agreed to reduce the Commitment and
increase the rate of interest on the Revolving Credit Loans during the VB
Override Period;
NOW, THEREFORE, in consideration of the premises, FAC, BKB, the Guarantors
and the Agent hereby agree as follows:
<PAGE>
ss.1. AMENDMENT TO CREDIT AGREEMENT. FAC, BKB and the Agent hereby agree to
-----------------------------
amend the Credit Agreement as follows:
ss.1.1. The definitions of "Commitment" and "Commitment Amount" 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:
"Commitment. With respect to each Lender, the amount set forth on
----------
Schedule 1 hereto as the amount of such Lender's commitment to
----------
make Revolving Credit Loans to the Borrower; provided, that
during the VB Override Period the amount of FNBB's Commitment
shall be $15,000,000."
"Commitment Amount. $35,000,000; provided, that during the VB
---------- ------
Override Period the Commitment Amount shall be $15,000,000."
ss.1.2. Section 1.1 of the Credit Agreement is further amended by inserting
the following definition immediately following the definition of "Unpaid
Reimbursement Obligation" appearing in said section:
"VB Override Period. The period commencing on December 19, 1997
------------------
and ending on the earlier of: (i) March 18, 1998, or (ii) the
closing of the transaction contemplated by the Fairfield
Communities, Inc. VOI Contract-Backed Commercial Paper Program
Indicative Proposal, dated October 16, 1997, issued by BancBoston
Securities, Inc."
ss.1.3. Section 2.5 of the Credit Agreement is hereby amended by inserting
the following language at the end of the first sentence of said section:
"provided, however, that during the VB Override Period, the
outstanding principal amount of the Revolving Credit Loans shall
bear interest at the rate per annum equal to the Base Rate plus
one and three-fourths percent (1 3/4%)."
ss.2. GUARANTORS CONSENT. The Guarantors hereby consent to the amendment 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.
ss.3. CONDITIONS TO EFFECTIVENESS. The effectiveness of this Amendment is
---------- -- -------------
subject to satisfaction of all of the following conditions:
<PAGE>
(a) Opinion of Counsel. BKB and the Agent shall have received a
------- -- -------
favorable legal opinion addressed to BKB and the Agent, in
form and substance satisfactory to BKB and the Agent, from
the Rose Law Firm, legal counsel to FAC, FCI and FMB, as to
the enforceability of this Amendment.
(b) Corporate Action. All corporate action necessary for the
--------- ------
valid execution, delivery and performance by each of FAC,
FCI and FMB 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 BKB.
(c) FCI Amendment. BKB and the Agent shall have received
--- ---------
evidence satisfactory to it of the occurrence of all
conditions precedent to the effectiveness of that certain
Seventh Amendment to Amended and Restated Revolving Credit
Agreement among FCI, FMB, FAC, BKB and the Agent dated of
even date herewith.
ss.4. REPRESENTATIONS AND WARRANTIES. Each of FAC, FCI and FMB hereby
--------------------------------
represents and warrants to BKB and the Agent as follows:
(a) Representations and Warranties in Credit Agreement. The
--------------- --- ---------- -- ------ ---------
representations and warranties of FAC, FCI and FMB 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 FAC, FCI and FMB 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 or other document to
which any of such
<PAGE>
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 FAC Guaranty constitute
the legal, valid and binding obligations of each of FAC, FCI
and FMB, as the case may be, 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.
ss.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. 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.
ss.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.
ss.7. 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: Sr. Vice President
------------------------------
FAIRFIELD MYRTLE BEACH, INC.
By: /s/Robert W. Howeth
---------------------------------
Name: Robert W. Howeth
-------------------------------
Title: Vice President
------------------------------
BANKBOSTON, N.A.,
Individually and as Agent
By: /s/Paul F. DeVito
-----------------------------------
Name: Paul F. DeVito
---------------------------------
Title: Managing Director
--------------------------------
FIFTH AMENDMENT TO THIRD AMENDED AND
RESTATED REVOLVING CREDIT AGREEMENT
BETWEEN
FAIRFIELD ACCEPTANCE CORPORATION
AND
BANKBOSTON, N.A.,
INDIVIDUALLY AND AS AGENT
THIS AMENDMENT (this "Amendment") dated as of February 13, 1998, is
made by and among FAIRFIELD ACCEPTANCE CORPORATION, a Delaware corporation (the
"Borrower" or "FAC"), BANKBOSTON, N.A. (formerly The First National Bank of
Boston), a national banking association ("BKB"), and BANKBOSTON, N.A., 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
and in effect on the date hereof, the "Credit Agreement"). This Amendment is
joined in by Fairfield Communities, Inc., a Delaware corporation ("FCI") and
Fairfield Myrtle Beach, Inc. ("FMB", "FCI" and "FMB" 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, BKB, FAC and the Agent have agreed to reduce the rate of
interest on the Revolving Credit Loans during the balance of the VB Override
Period;
NOW, THEREFORE, in consideration of the premises, FAC, BKB, the
Guarantors and the Agent hereby agree as follows:
ss.1. Amendment to Credit Agreement. FAC, BKB and the Agent hereby agree to
amend the Credit Agreement as follows:
ss.1.1. The definition of "VB Override Period" appearing in Section 1.1 of
the Credit Agreement is hereby amended by deleting said definition in its
entirety and substituting therefor the following new definition:
<PAGE>
"VB Override Period. The period commencing on December 19, 1997 and
-------------------
ending on the earlier of: (i) March 18, 1998, or (ii) the initial
funding of the loans contemplated by that certain Credit Agreement,
dated as of January 15, 1998, among Fairfield Receivables Corporation,
as borrower, FAC, as servicer, EagleFunding Capital Corporation,
BancBoston Securities, Inc., and BankBoston, N.A., as collateral
agent."
ss.1.2. Section 2.5 of the Credit Agreement is hereby amended by
deleting said section in its entirety and substituting therefor the following
new section:
"2.5. Interest on Revolving Credit Loans. Except as otherwise set forth
----------------------------------
in ss.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-fourth of one percent (1/4%), provided, however, that during the
period commencing on December 19, 1997 and ending on February 13, 1998,
the outstanding principal amount of the Revolving Credit Loans shall
bear interest at the rate per annum equal to the Base Rate plus one and
three-fourths percent (1 3/4%)."
ss.2. CONSENT OF GUARANTORS. The Guarantors hereby consent to the
----------------------
amendment 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.
ss.3. REPRESENTATIONS AND WARRANTIES. Each of FAC, FCI and FMB hereby
--------------------------------
represents and warrants to BKB and the Agent as
follows:
(a) Representations and Warranties in Credit Agreement.
-----------------------------------------------------
The representations and warranties of FAC, FCI and
FMB 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).
<PAGE>
(b) Authority, No Conflicts, Etc. The execution, delivery
----------------------------
and performance by each of FAC, FCI and FMB 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
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 FAC
Guaranty constitute the legal, valid and binding
obligations of each of FAC, FCI and FMB, as the case
may be, 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.
ss.4. 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.
ss.5. 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.
ss.6. 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: Sr. Vice President
--------------------------------
FAIRFIELD MYRTLE BEACH, INC.
By: /s/ Robert W. Howeth
-------------------------------------
Name: Robert W. Howeth
------------------------------------
Title: Vice President
------------------------------------
BANKBOSTON, N.A.,
Individually and as Agent
By: /s/Paul F. DeVito
------------------------------------
Name: Paul F. DeVito
-----------------------------------
Title: Managing Director
----------------------------------
- -------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
AMONG
FAIRFIELD COMMUNITIES, INC.,
FC OCEAN RANCH , INC.,
JAMES E. LAMBERT,
JAMES R. LAMBERT,
DANIEL LAMBERT
AND
OCEAN RANCH DEVELOPMENT, INC.
DATED AS OF DECEMBER 10, 1997
- ------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I
THE MERGER.........................................................1
1.1 The Merger....................................................1
1.2 Closing.......................................................1
1.3 Effective Time................................................2
1.4 Effect of the Merger..........................................2
1.5 Articles of Incorporation.....................................2
1.6 Bylaws........................................................2
1.7 Directors.....................................................2
1.8 Officers......................................................2
ARTICLE II
EFFECTS OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES.................2
2.1 Effect on Capital Stock.......................................2
2.2 Surrender and Payment for Shares..............................3
2.3 Transfer of Shares After the Effective Time...................3
ARTICLE III
REPRESENTATIONS AND WARRANTIES.....................................4
3.1 Representations and Warranties of Fairfield and Merger Sub....4
3.2 Representations and Warranties of Shareholders
and Ocean Ranch...............................................4
3.3 Additional Representation of Shareholders.....................11
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS..........................11
4.1 No Solicitation...............................................11
4.2 Conduct of Business Prior to Effective Time...................11
4.3 Access to Information.........................................13
4.4 Investigation by Fairfield....................................13
4.5 Inspection....................................................13
4.6 Regulatory Compliance.........................................13
4.7 Covenants of Fairfield........................................13
ARTICLE V
ADDITIONAL AGREEMENTS..............................................14
5.1 Confidentiality...............................................14
5.2 Indemnification of Shareholders...............................14
5.3 Indemnification of Fairfield..................................14
5.4 Procedures for Indemnity......................................14
5.5 Exclusivity Of Indemnification For Contractual Breaches.......16
5.6 Reasonable Efforts............................................16
<PAGE>
5.7 Expenses and Fees.............................................16
5.8 Consents......................................................16
5.9 Repayment of PPM Loan; Release of Claims......................16
5.10 Delivery of Information......................................16
5.11 Tax Matters..................................................17
ARTICLE VI
CONDITIONS PRECEDENT; CLOSING......................................20
6.1 Conditions to Each Party's Obligation to Effect the Merger....20
6.2 Conditions to Obligations of Ocean Ranch and Shareholders.....21
6.3 Conditions to Obligations of Fairfield and Merger Sub.........21
6.4 Frustration of Closing Conditions.............................22
6.5 Closing Documents and Procedures..............................22
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER..................................24
7.1 Termination...................................................24
7.2 Effect of Termination.........................................24
7.3 Amendment.....................................................25
7.4 Extension; Waiver.............................................25
ARTICLE VIII
GENERAL PROVISIONS.................................................25
8.1 Survival of Representations and Warranties....................25
8.2 Notices.......................................................25
8.3 Definitions...................................................27
8.4 Interpretation................................................28
8.5 Counterparts..................................................28
8.6 Entire Agreement; No Third-party Beneficiaries................29
8.7 Governing Law.................................................29
8.8 Assignment...................................................29
8.9 Enforcement...................................................29
<PAGE>
AGREEMENT AND PLAN OF MERGER dated as of December 10, 1997 (this
"Agreement"), among FAIRFIELD COMMUNITIES, INC., a Delaware corporation
("Fairfield"), FC Ocean Ranch, Inc., a Florida corporation and a wholly owned
subsidiary of Fairfield ("Merger Sub"), JAMES E. LAMBERT, JAMES R. LAMBERT,
DANIEL LAMBERT and OCEAN RANCH DEVELOPMENT, INC., a Florida corporation ("Ocean
Ranch").
WHEREAS, the respective Boards of Directors of Fairfield, Merger Sub and
Ocean Ranch each have determined that it is in the best interests of their
respective stockholders for Merger Sub to merge with and into Ocean Ranch (the
"Merger"), upon the terms and subject to the conditions set forth in this
Agreement;
WHEREAS, James E. Lambert, James R. Lambert and Daniel Lambert
(collectively, the "Shareholders" and each a "Shareholder") hold all of the
outstanding capital stock of Ocean Ranch;
WHEREAS, the respective Boards of Directors of Fairfield, Merger Sub and
Ocean Ranch have each determined that the Merger and the other transactions
contemplated under this Agreement are consistent with, and in furtherance of,
their respective business strategies and goals; and
WHEREAS, Fairfield, Merger Sub, Shareholders and Ocean Ranch desire to make
certain representations, warranties, covenants and agreements in connection with
the transactions contemplated by this Agreement and also to prescribe various
conditions to the Merger.
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained in this Agreement, the parties hereto agree
as follows:
ARTICLE I
THE MERGER
I.1 The Merger. Upon the terms and subject to the conditions set forth in
this Agreement, and in accordance with the Florida Business Corporation Act (the
"FBCA"), Merger Sub shall be merged with and into Ocean Ranch at the Effective
Time (as hereinafter defined). Following the Merger, the separate corporate
existence of Merger Sub will cease and Ocean Ranch will continue as the
surviving corporation (the "Surviving Corporation") and will succeed to and
assume all the rights and obligations of Merger Sub in accordance with the FBCA.
I.2 Closing. The closing of the Merger (the "Closing") will take place at
10:00 a.m. on the date that is two business days after the expiration of the
Inspection Period (the "Closing Date"), at the offices of Jones, Day, Reavis &
Pogue, 2300 Trammell Crow Center, 2001 Ross Avenue, Dallas, Texas 75201, unless
another date, time or place is agreed to in writing by all of the parties
hereto.
<PAGE>
I.3 Effective Time. Subject to the provisions of this Agreement, as soon as
practicable on or after the Closing Date the parties shall deliver Articles of
Merger (the "Articles of Merger") executed in accordance with the relevant
provisions of the FBCA to the Florida Department of State for filing as required
under the FBCA and shall make all other filings or recordings required under the
FBCA. The Merger shall become effective at such time (the "Effective Time") as
the Articles of Merger have been accepted for filing by the Florida Department
of State (or such later time as stated in the Articles of Merger and permitted
by the Florida Department of State), which will be the Closing Date or as soon
as practicable thereafter.
I.4 Effect of the Merger. The Merger shall have the effects set forth in
Section 607.1106 of the FBCA.
I.5 Articles of Incorporation. Articles of incorporation of Ocean Ranch
shall be amended to read in their entirety as set forth in Exhibit A attached
hereto and shall be the articles of incorporation of the Surviving Corporation
until thereafter changed or amended as provided therein or by applicable law.
I.6 Bylaws. The bylaws of Ocean Ranch shall be amended to read in their
entirety as set forth in Exhibit B and shall be the bylaws of the Surviving
Corporation following the Merger until thereafter changed or amended as provided
therein or by applicable law.
I.7 Directors. The directors of Merger Sub at the Effective Time shall be
the directors of the Surviving Corporation following the Merger, until the
earlier of their resignation or removal or until their respective successors are
duly elected and qualified, as the case may be.
I.8 Officers. The officers of Merger Sub at the Effective Time shall be the
officers of the Surviving Corporation following the Merger, until the earlier of
their resignation or removal or until their respective successors are duly
elected and qualified, as the case may be.
ARTICLE II
EFFECTS OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES
II.1 Effect on Capital Stock. As of the Effective Time, by virtue of the
Merger and without any action on the part of the holder of any shares of the
capital stock of the constituent corporations:
(a) Merger Consideration. All of the shares of Common Stock, par value
--------------------
$1.00 per share, of Ocean Ranch (the "Ocean Ranch Common Stock") issued and
outstanding immediately prior to the Effective Time (other than shares of Ocean
Ranch Common Stock, if any, to be canceled under Section 2.1(c)), shall be
converted into the right to receive a cash payment in an aggregate amount equal
to $7,000,000 (the "Merger Consideration").
<PAGE>
(b) Certificates. All shares of Ocean Ranch Common Stock to be converted
------------
into the right to receive the Merger Consideration pursuant to this Section 2.1
shall cease to be outstanding, shall be canceled and retired and shall cease to
exist, and each holder of a certificate representing any such shares of Ocean
Ranch Common Stock shall thereafter cease to have any rights with respect to
such shares of Ocean Ranch Common Stock, except the right to receive for each of
the shares of Ocean Ranch Common Stock, upon the surrender of such certificate
in accordance with Section 2.2, the amount of Merger Consideration specified in
Section 2.2.
(c) Treasury Shares. Shares of Ocean Ranch Common Stock, if any, held by
----------------
Ocean Ranch as treasury stock immediately prior to the Effective Time shall
cease to be outstanding, shall be canceled and retired without payment of any
consideration therefor, and shall cease to exist.
(d) Stock of Merger Sub. Each share of common stock, par value $.01 per
--------------------
share, of Merger Sub issued and outstanding immediately prior to the Effective
Time shall be converted into and exchanged for one validly issued, fully paid
and nonassessable share of common stock of the Surviving Corporation.
II.2 Surrender and Payment for Shares. At the Closing the Shareholders will
deliver to Fairfield a certificate or certificates representing all of the
shares of Ocean Ranch Common Stock outstanding immediately prior to the
Effective Time. Each Shareholder will be entitled to receive the amount of
Merger Consideration equal to the product, rounded to the nearest whole number,
of (a) the Merger Consideration multiplied by (b) a fraction, the numerator of
which is the aggregate number of shares of Ocean Ranch Common Stock represented
by the certificate or certificates so surrendered and the denominator of which
is the aggregate number of shares of Ocean Ranch Common Stock issued and
outstanding (the "Ocean Ranch Stock Percentage"). Fairfield shall deliver to
each Shareholder the amount in cash which the Shareholder is entitled to receive
under this Section 2.2 by wire transfer of immediately available funds to such
account as shall have been designated by such Shareholder at least two business
days prior to the Closing.
II.3 Transfer of Shares After the Effective Time. No transfers of shares of
Ocean Ranch Common Stock shall be made on the stock transfer books of Ocean
Ranch after the close of business on the day prior to the date of the Effective
Time.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
III.1 Representations and Warranties of Fairfield and Merger Sub. Fairfield
and Merger Sub represent and warrant to Ocean Ranch and Shareholders as follows:
(a) Organization. Each of Fairfield and Merger Sub is a corporation duly
------------
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation.
<PAGE>
(b) Binding Agreement. Each of Fairfield and Merger Sub has full corporate
-----------------
power and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby and has taken all necessary corporate action to
authorize the execution and delivery of this Agreement and to consummate the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by Fairfield and Merger Sub and constitutes the valid and binding
agreement of Fairfield and Merger Sub enforceable in accordance with its terms.
(c) Governmental Approvals. No consent, approval, order, or authorization
----------------------
of, or declaration, filing, or registration with, any Governmental Entity is
required to be obtained or made by Fairfield or Merger Sub in connection with
the execution, delivery, or performance by Fairfield and Merger Sub of this
Agreement or the consummation by Fairfield and Merger Sub of the transactions
contemplated hereby, other than such consents, approvals, orders, or
authorizations that, if not obtained, and such declarations, filings, or
registrations that, if not made, would not, individually or in the aggregate,
have a material adverse effect on Fairfield and its Subsidiaries considered as a
whole.
(d) Broker's Fee. Fairfield has not made any agreement or taken any other
-------------
action which might cause anyone to become entitled to a broker's fee or
commission as a result of the transactions contemplated under this Agreement,
except for the engagement by Fairfield of any financial advisor, broker, agent
or finder for which Fairfield will have full liability for the payment of any
such broker's fee or commission.
(e) Merger Sub. Merger Sub is a newly formed direct wholly owned subsidiary
----------
of Fairfield formed solely for the purpose of engaging in this transaction. As
of the Effective Time, Merger Sub will not have conducted any business nor will
it own any significant assets or owe any significant liabilities.
III.2 Representations and Warranties of Shareholders and Ocean Ranch.
Shareholders and Ocean Ranch hereby jointly and severally represent and warrant
to Fairfield and Merger Sub as follows:
(a) Organization. Ocean Ranch is a corporation duly organized, validly
------------
existing and in good standing under the laws of the State of Florida. Ocean
Ranch has full power to own its properties and to carry on the business
currently being conducted by it, and does not conduct business in any state
other than Florida. Ocean Ranch does not now own and has never owned any capital
stock or any equity interest in any corporation, limited liability company,
partnership or other entity other than its ownership of the Interest and has no
Subsidiary other than the Partnership.
(b) Binding Agreement. The execution, delivery, and consummation of this
-----------------
Agreement has been duly authorized by each of the Shareholders and Ocean Ranch
and approved by all necessary action. This Agreement has been duly executed and
delivered by Ocean Ranch and each Shareholder and constitutes the valid and
binding agreement of each of them enforceable in accordance with its terms.
<PAGE>
(c) No Breach. Neither the execution of this Agreement nor the consummation
---------
of the transactions contemplated hereby will (i) result in the breach of any
term or provision of, or constitute a default under, or be in violation of any
charter provision, bylaw, agreement, instrument, order, law or regulation to
which any Shareholder, Ocean Ranch and/or the Partnership is a party or which is
otherwise applicable, (ii) result in the creation or imposition of any Lien upon
any of the property or assets of the Shareholders, Ocean Ranch or the
Partnership, (iii) violate any Applicable Law binding upon the Shareholders,
Ocean Ranch, or the Partnership, or (iv) violate the terms of or constitute a
default under, any note, bond, mortgage, indenture, or other contract between
third parties and the Shareholders, Ocean Ranch or the Partnership or by which
the Shareholders, Ocean Ranch or the Partnership may be bound or result in the
termination, acceleration or amendment thereof, except, in the case of
clauses (ii) and (iii) above, for any such conflicts, violations or Liens that
would not, individually or in the aggregate, have a material adverse effect on
Ocean Ranch or the Partnership.
(d) Governmental Approvals. No consent, approval, order, or authorization
----------------------
of, or declaration, filing, or registration with, any Governmental Entity is
required to be obtained or made by any Shareholder, Ocean Ranch or the
Partnership in connection with the execution, delivery, or performance by
Shareholders and Ocean Ranch of this Agreement or the consummation by it of the
transactions contemplated hereby.
(e) Partnership Capitalization; Title to Partnership Interests. Except as
------------------------------------------------------------
otherwise set forth in the Partnership Agreement, Ocean Ranch owns and holds the
Interest beneficially and of record and free and clear of any Liens and of any
right of assignment or options of any third party. Ocean Ranch has paid in full
and is not in default with respect to any capital contribution required to be
paid by it pursuant to the Partnership Agreement. There are no rights, options,
subscriptions, or other agreements of any kind to purchase or to acquire,
receive or be issued any interest in respect of the Interest existing in favor
of any person, and there are no agreements of any kind to which Ocean Ranch is a
party, other than the Partnership Agreement and this Agreement, providing for or
restricting the governance or control of the Partnership or the issuance or
transfer, directly or indirectly, of any interest in the Interest. Except as set
forth in the Partnership Agreement, Ocean Ranch has no agreements or commitments
of any kind in its capacity as a general partner of the Partnership to cause the
Partnership to contribute, make loans, or guarantee the contribution or loan of
any Person, whether directly or indirectly, and after the Closing with respect
to the Partnership, Fairfield shall not be deemed to have assumed, been assigned
or otherwise be obligated or responsible for any such agreement or commitment to
the Partnership. The Partnership Agreement is in full force and effect.
<PAGE>
(f) Financial Statements. Shareholders and Ocean Ranch have furnished to
---------------------
Fairfield unaudited balance sheets of Ocean Ranch as of December 31, 1996 and
the related unaudited statements of operations for the fiscal year then ended
and the unaudited balance sheet of Ocean Ranch as of November 30, 1997 and the
related unaudited statements of operations for the interim period then ended
(the "Unaudited Financial Statements"). Those financial statements fairly
present the financial position of Ocean Ranch at, and the results of operations
for the periods ending on, such dates, in a consistent manner throughout the
periods indicated and were prepared based on the books and records maintained
for Ocean Ranch's business. Except as disclosed in the Unaudited Financial
Statements (which includes the notes thereto), Ocean Ranch has no liabilities
(contingent, accrued, actual or otherwise) that were not provided or reserved
for in the November 30, 1997 balance sheet, other than liabilities incurred
since the date of the November 30, 1997 balance sheet in the ordinary course of
business; and all reserves established by Ocean Ranch and reflected in the
November 30, 1997 balance sheet were at the times they were established,
adequate for the purposes indicated therein. Except as disclosed in the
Unaudited Financial Statements, since November 30, 1997, Ocean Ranch has not:
(i) declared or set aside or paid any dividend or made any payment or
distribution in respect of shares of its capital stock; (ii) made any loans or
advances to any person; (iii) entered into any transaction with any affiliate of
Ocean Ranch or either Shareholder; (iv) incurred any indebtedness for money
borrowed; or (v) made or entered into any agreement or understanding to do any
of the foregoing.
(g) Assets. (i) Ocean Ranch does not have, and has not had, any assets or
------
properties, whether tangible or intangible, real, personal or mixed, owned or
leased other than the Interest. Ocean Ranch is not a party to any leases,
subleases, rental agreements, contracts of sale, tenancies or licenses of any
assets or properties. The Interest constitutes all the properties and assets
reflected in the Unaudited Financial Statements and all the assets necessary for
the conduct by Ocean Ranch of its business as now conducted.
(h) Proceedings. There are currently no pending, and Shareholders and Ocean
Ranch are not aware of any threatened, actions, suits, proceedings or
investigations against or affecting Ocean Ranch or the Interest. Ocean Ranch is
not subject to any currently existing order, writ, injunction or decree. The
Shareholders and Ocean Ranch are not aware of any actions, suits, proceedings or
investigations pending or threatened by or before any court or Governmental
Entity (i) against or affecting the Partnership or the Resort Property or
arising out of the development, construction, operation, maintenance or
management of the Resort Property or (ii) that would prevent or hinder the
performance by any Shareholder or Ocean Ranch of its obligations under this
Agreement.
(i) Compliance With Laws. Ocean Ranch and to the knowledge of Shareholders
--------------------
and Ocean Ranch, the Partnership, are and have at all times been, in compliance
in all material respects with all applicable laws, rules, regulations and
orders. There are no pending or, to the knowledge of Shareholders and Ocean
Ranch, proposed laws or governmental rules that have been submitted in writing
to any Governmental Entity for due consideration that, if enacted, would have a
material adverse effect on Ocean Ranch, the Resort Property or the Partnership.
Except as set forth in Schedule 3.2(i), none of Shareholders or Ocean Ranch is
charged or, to each of their knowledge, threatened with, or, is under
investigation with respect to, any violation of any provision of any applicable
law, rule, regulation or order.
(j) Claims. Except as set forth in the Partnership Agreement, there are no
------
claims of the Partnership against, or any obligation owed to the Partnership by,
Ocean Ranch, or any Shareholder. No affiliate of Ocean Ranch or any Shareholder
is owed any obligation by the Partnership, or holds a claim against the
Partnership, except as set forth on Schedule 3.2(j).
<PAGE>
(k) PPM Loan. Schedule 3.2(k) sets forth a true, complete and correct list
--------
of all documents relating to indebtedness for money borrowed from, or any other
obligations or liabilities of Ocean Ranch or the Partnership to, PPM Brokerage
Service, Inc. ("PPM;" all such indebtedness, obligations and liabilities, the
"PPM Loan"), including, without limitation, promissory notes and all mortgages
and other collateral security instruments that secure the PPM Loan and encumber
the Resort Property, including all amendments or supplements thereto
(collectively, the "PPM Loan Documents"). The PPM Loan Documents are in full
-------------------
force and effect and have not been further modified or amended. PPM is the sole
obligee of the PPM Loan. As of December 19, 1997, the outstanding principal
balance of and accrued interest on the PPM Loan was $201,709.50 and $112,379.37,
respectively, and no penalties, fees or other amounts are due or payable with
respect to the PPM Loan. For purposes of this Agreement, "PPM Loan Amount" shall
mean $314,088.87.
(l) Capital Contribution Loan. Schedule 3.2(l) sets forth a true, complete
--------------------------
and correct list of all documents relating to indebtedness for money borrowed
from, or any other obligations or liabilities of Ocean Ranch or the Partnership
to, any Shareholder or an affiliate of any Shareholder in connection with the
capital contribution of Ocean Ranch to the Partnership (the "Capital
-------
Contribution Loan"), including, without limitation, promissory notes and all
- ------------------
mortgages and other collateral security instruments that secure the Capital
Contribution Loan, including all amendments or supplements thereto
(collectively, the "Capital Contribution Loan Documents"). James E. Lambert is
-----------------------------------
the sole obligee of the Capital Contribution Loan. The Capital Contribution Loan
Documents are in full force and effect and have not been further modified or
amended. As of December 19, 1997, the outstanding principal balance of and
accrued interest on the Capital Contribution Loan was $1,500,000 and $249,375,
respectively, and no penalties, fees or other amounts are due or payable with
respect to the Capital Contribution Loan. For purposes of this Agreement,
"Capital Contribution Loan Interest Amount" shall mean $249,375.
(m) Partnership Agreement and Marketing Agreements. To the best knowledge
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of Shareholders and Ocean Ranch, neither partner of the Partnership is in
violation of either the Partnership Agreement or any marketing agreements to
which either entity is subject.
(n) Adverse Change. Since the date of the Unaudited Financial Statements,
--------------
Ocean Ranch has not made or experienced any material adverse change in its
working capital, financial condition, assets, liabilities, reserves, business,
operations or prospects.
(o) Employees. Ocean Ranch does not have, and has not had, any employees
---------
and has no obligation to contribute any amount to any Person in respect of the
compensation, accrued benefits, or vacation and sick leave of any Person. Ocean
Ranch is not a party to any collective bargaining agreements.
(p) Environmental Matters. Ocean Ranch has not and, to the knowledge of
----------------------
Shareholders and Ocean Ranch, the Partnership and the Resort Property have not
been associated with any spill, disposal, discharge or release of any hazardous
materials (which includes any hazardous or toxic substance, material or waste
which is regulated by any Governmental Entity) into or upon or over any real
property or into or upon ground or surface water including without limitation in
either case, any real property that is or has been leased by Ocean Ranch or the
Partnership.
<PAGE>
(q) Broker's Fee. Neither Ocean Ranch nor any Shareholder has made any
-------------
agreement or taken any other action which might cause anyone to become entitled
to a broker's fee or commission as a result of the transactions contemplated
under this Agreement.
(r) Capitalization. The authorized capital stock of Ocean Ranch consists of
--------------
1,000 shares of Ocean Ranch Common Stock, of which 100 shares are issued and
outstanding. All outstanding shares of Ocean Ranch Common Stock have been duly
authorized and validly issued, are fully paid and nonassessable, and are owned
by Shareholders. No options, warrants, subscriptions, rights of conversion or
exchange exist that may obligate Ocean Ranch to issue any additional capital
stock. Neither Ocean Ranch nor any Shareholder is party to any shareholder,
voting or similar agreement or arrangement of any kind affecting or restricting
the sale, transfer, disposition, voting or other rights of or relating to the
Ocean Ranch Common Stock, other than the Partnership Agreement. Set forth on
Schedule 3.2(r) are the number and percentage of shares of Ocean Ranch Common
Stock held of record by each Shareholder.
(s) Benefit Plans; Labor Relations. Ocean Ranch has no "employee benefit
-------------------------------
plan," as such term is defined in Section3(3) of ERISA or other plan, program,
policy, contract or arrangement providing for bonuses, pensions, deferred pay,
stock or stock related awards, severance pay, salary continuation or similar
benefits, hospitalization, medical, dental or disability benefits, life
insurance or other employee benefits, or compensation to or for any current or
former employees, agents, directors, or independent contractors of Ocean Ranch
("Ocean Ranch Employees") or any beneficiaries or dependents of any Ocean Ranch
employees.
(t) Taxes.
-----
(i) All Tax Returns (as defined in paragraph (v) below) required to be
filed by Ocean Ranch or any Shareholder have been duly filed on a timely basis
with the appropriate federal, state, local and foreign tax authorities, or
requests for extensions to file such returns or reports have been timely filed
and granted and have not expired, and all such Tax Returns are complete and
accurate in all material respects. Ocean Ranch and the Shareholders have paid or
made adequate provision in the Unaudited Financial Statements for all Taxes (as
defined in paragraph (v) below) shown as due from each of them on such Tax
Returns. No claim has been made by any authority in a jurisdiction where Ocean
Ranch does not file Tax Returns that it is or may be subject to taxation by that
jurisdiction. The Unaudited Financial Statements reflect adequate reserves for
all Taxes payable by Ocean Ranch for all taxable periods and portions thereof
accrued through the date of such financial statements, and no deficiencies for
any Taxes have been proposed, asserted or assessed against Ocean Ranch that are
not adequately reserved for, except for inadequately reserved Taxes and
inadequately reserved deficiencies that would not, individually or in the
aggregate, have a material adverse effect on Ocean Ranch. There are no liens for
<PAGE>
Taxes (other than for current Taxes not yet due and payable) on the assets of
Ocean Ranch. No requests for waivers of the time to assess any Taxes against
Ocean Ranch have been granted or are pending, except for requests with respect
to such Taxes that have been adequately reserved for in the Unaudited Financial
Statements. Ocean Ranch is not a party to or bound by any agreement providing
for the allocation or sharing of Taxes. Ocean Ranch has not filed a consent
pursuant to or agreed to the application of Section 341(f) of the Code. Ocean
Ranch has disclosed on its federal income tax returns all positions taken
therein that could give rise to a substantial understatement of federal income
tax within the meaning of Section 6662 of the Code. All Taxes that are required
by the laws of the United States, any state or political subdivision thereof, or
any foreign country to be withheld or collected by Ocean Ranch have been duly
withheld or collected and, to the extent required, have been paid to the proper
Governmental Entities or properly deposited as required by applicable laws.
Except as set forth in Schedule 3.2(t), the statute of limitations for all Tax
Returns of Ocean Ranch has expired for all federal, state, local and foreign Tax
purposes. Neither Ocean Ranch nor any Shareholder has received any notice of
deficiency or assessment from any federal, state, local or foreign taxing
authority with respect to liabilities for Taxes of Ocean Ranch which has not
been fully paid or finally settled. No power of attorney has been executed by,
or on behalf of, Ocean Ranch or any Shareholder with respect to any matter
relating to Taxes applicable to Ocean Ranch which is currently in force. Ocean
Ranch is not a party to any agreement, contract, or other arrangement that would
result, separately or in the aggregate, in the requirement to pay any "excess
parachute payments" within the meaning of Section 280G of the Code. Ocean Ranch
is not a party to a tax sharing or tax indemnity agreement or any other
agreement of a similar nature that remains in effect. Ocean Ranch (i) has not
been a member of an affiliated group filing a consolidated federal income tax
return and (ii) has no liability for the taxes of any person (other than Ocean
Ranch) under Treasury Regulation Section 1.1502-6 (or any similar provision of
state, local, or foreign law), as a transferee or successor, by contract or
otherwise.
(ii) Schedule 3.2(t) sets forth each state in which Ocean Ranch has
collected or remitted any sales and/or use Taxes since September 1, 1992. To the
knowledge of Ocean Ranch and Shareholders, Ocean Ranch has not conducted
activities in any other state that would require such Taxes to be collected or
remitted. No claim has ever been made since September 1, 1992 by any authority
in a jurisdiction where Ocean Ranch does not pay sales and/or use Taxes that it
is or may be subject to a requirement to remit such Taxes in that jurisdiction.
(iii) Ocean Ranch has validly elected under Section 1362 of the Code to be
an "S corporation" (the "S Election"). The S Election has been in continuous
effect since the formation of Ocean Ranch, has not been terminated, and is in
full force and effect. Neither Ocean Ranch nor any Shareholder has taken any
action that would cause Ocean Ranch no longer to qualify for the S Election.
Neither Ocean Ranch nor any Shareholder is aware of any fact or circumstance on
the basis of which the S Election could be challenged.
<PAGE>
(iv) Ocean Ranch is not liable for the Taxes of any person as a
"transferee" within the meaning of Section 6901 of the Code.
(v) For purposes of this Agreement, "Taxes" shall mean all taxes, charges,
fees, levies, penalties or other assessments imposed by any United States
federal, state, local or foreign taxing authority, including, but not limited
to, income, gross receipts, excise, property, sales, use (or any similar taxes),
transfer, franchise, payroll, withholding, social security, business license
fees, or other taxes including any interest, penalties or additions thereto. For
purposes of this Agreement, "Tax Return" shall mean any return, report,
information return, schedule or other document (including any related or
supporting information) required to be supplied to a taxing authority with
respect to Taxes.
(u)Voting Requirements. The affirmative vote of the Shareholders (the
--------------------
"Ocean Ranch Shareholder Approval") to approve this Agreement is the only vote
of the holders of capital stock of Ocean Ranch necessary to approve this
Agreement and the transactions contemplated by this Agreement.
(v)No Misleading Statement. To the best knowledge of Shareholders and Ocean
-----------------------
Ranch, neither this Agreement nor any other document, certificate, financial
statement or other instrument delivered to Fairfield in connection herewith
contains any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements contained herein or therein, in
light of the circumstances under which they were made, not misleading.
III.3 Additional Representation of Shareholders. Each Shareholder
represents and warrants on behalf of such Shareholder to Fairfield and Merger
Sub that each Shareholder has relied and will rely upon his own tax advisors for
advice and counseling in regard to the structure, accounting or tax treatment
and all other tax or accounting issues relating to the transactions contemplated
by the parties hereunder. No Shareholder has relied, nor will any Shareholder
rely, on Fairfield or its tax advisors, for any tax advice or counseling in
regard to the transactions contemplated hereunder.
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
IV.1 No Solicitation. Prior to the Effective Time, Ocean Ranch and
Shareholders will not (a) offer for sale the Interest or any interest in Ocean
Ranch; (b) solicit any offers to purchase or make any attempts by preliminary
conversations or negotiations to dispose of the Interest or any equity interest
in Ocean Ranch to any person, firm or entity, other than to Fairfield, or to
engage in any type of business combination with any person, firm or entity,
other than Fairfield; or (c) provide anyone with any written or oral offer to
sell, invitation to purchase or any offering or sales material with respect to
the Interest or any equity interest in Ocean Ranch.
<PAGE>
IV.2 Conduct of Business Prior to Effective Time. Except for transactions
specifically permitted by this Agreement or consented to in writing by
Fairfield, prior to the Effective Time Ocean Ranch shall (and the Shareholders
will cause Ocean Ranch to):
(a) operate its business only in the ordinary course, and employ no
persons;
(b) neither make, nor incur any obligation to make, any capital
expenditures;
(c) make no sale or other disposition of the Interest or any equity
interest in Ocean Ranch;
(d) not enter into, amend, rescind or terminate any contract, arrangement
or commitment;
(e) not declare, set aside or make any dividend, distribution, loan or
other advance to any Shareholder or any other person;
(f) not amend its Articles of Incorporation or Bylaws, nor issue any
additional shares of capital stock, or any options, warrants or other securities
under which any additional shares of its capital stock might be directly or
indirectly authorized or issued;
(g) not fail to comply in any material respect with the laws, regulations,
ordinances or governmental actions or orders applicable to Ocean Ranch;
(h) not make any material tax elections or settle or compromise any
material tax liability;
(i) not take any action that would materially adversely affect the ability
of Ocean Ranch or Shareholders to obtain the consents required for Ocean Ranch
and Shareholders to consummate the transactions contemplated hereby or
materially adversely affect the ability of Ocean Ranch or Shareholders to
perform their respective covenants and agreements under this Agreement;
(j) not change its method of accounting in effect January 1, 1997 or during
any other period included in the Unaudited Financial Statements;
(k) not change its method of reporting income and deductions for federal or
state income taxes in effect January 1, 1997 or during any other period included
in the Unaudited Financial Statements;
(l) not permit or authorize any transfer, sale, assignment or other
disposition of any of the assets of the Partnership other than in the ordinary
course of business consistent with past practices;
<PAGE>
(m) promptly notify Fairfield in writing of any action, suit, proceeding or
investigation commenced, pending or threatened before or by any Governmental
Entity concerning or affecting any of the Interest, Partnership or Resort
Property of which Ocean Ranch or any Shareholder becomes aware;
(n) provide Fairfield copies of any notices of any event of which Ocean
Ranch or any Shareholder becomes aware that may have a material adverse effect
on the Partnership, specifically including, but not limited to, notices of
intent to accelerate and notices of acceleration of any debt secured by the
Resort Property;
(o) not permit or otherwise authorize the Partnership to make any
distributions to, or redeem or purchase the interests of the partners of the
Partnership, or make or repay any loans, advances or capital contributions made
to the Partnership by Ocean Ranch, any Shareholder or any of their affiliates;
(p) not permit or otherwise authorize any sale or other disposition of the
Resort Property, or any part thereof, nor enter into or permit the Partnership
to enter into any agreement for such purposes, except in the ordinary course of
business consistent with past practices;
(q) not amend or modify or permit any amendment or modification of the
Partnership Agreement; and
(r) not, without the prior written consent of Fairfield permit or otherwise
authorize any financing, refinancing, extension, renewal or modification of any
debt of the Partnership other than draws under the existing construction
financing with Bank Atlantic.
IV.3 Access to Information. Between the date hereof and the Closing,
Shareholders and Ocean Ranch (i) shall give Fairfield and Fairfield's
representatives access during normal business hours and upon reasonable notice
to all books and records relating to the Interest, the Resort Property and the
Partnership for purposes of an audit of such books and records and inspection of
the business of Ocean Ranch (the "Inspection") and all of the personal property
owned by the Partnership, to the extent such books and records are within the
control or in the possession of Shareholders or Ocean Ranch, and (ii) shall
cause Ocean Ranch's officers to furnish Fairfield and Fairfield's
representatives with any other information that is to be delivered pursuant to
this Agreement.
IV.4 Investigation by Fairfield. During the period from the date of this
Agreement through the earlier to occur of the Closing or December 31, 1997 (the
"Inspection Period"), Shareholders and Ocean Ranch shall provide to Fairfield
copies of documents reasonably requested by Fairfield relating to the
Partnership, the Resort Property and the Interest and the collectibility,
enforceability and other legal matters related to the Interest, the Resort
Property and the Partnership. Such documents shall be for the purpose of
enabling Fairfield to evaluate, prior to the end of the Inspection Period,
whether Fairfield wishes to proceed with the transactions contemplated by this
Agreement.
<PAGE>
IV.5 Inspection. At or prior to the expiration of the Inspection Period,
Fairfield shall have the right to terminate this Agreement without cause and for
whatever reason or no reason and without liability on the part of either
Fairfield, any Shareholder or Ocean Ranch by delivering to Ocean Ranch, at or
prior to the expiration of the Inspection Period, written notice of Fairfield's
election to terminate this Agreement.
IV.6 Regulatory Compliance. Shareholders and Ocean Ranch shall permit
Fairfield to register or amend existing registrations with Governmental Entities
of the Resort Property and/or the vacation ownership intervals relating to the
Resort Property from the date of this Agreement to reflect the anticipated
effects or, if after the Closing, the effects, of the consummation of the
transactions contemplated by this Agreement as required in accordance with
applicable law or as Fairfield may reasonably deem necessary, and shall
cooperate with Fairfield in effecting such registrations or amendments.
IV.7 Covenants of Fairfield. Except for actions specifically permitted by
this Agreement or consented in writing by Ocean Ranch, prior to the Effective
Time, Fairfield shall not take any action that would materially adversely affect
the ability of Fairfield to obtain the consents required for Fairfield to
consummate the transactions contemplated hereby or materially adversely affect
the ability of Fairfield to perform its covenants and agreements under this
Agreement.
ARTICLE V
ADDITIONAL AGREEMENTS
V.1 Confidentiality. The terms of this Agreement and related agreements,
the terms of all transactions contemplated hereby, and all confidential and
proprietary information furnished to any party pursuant to this Agreement, or in
connection with the transactions contemplated by this Agreement, shall be
treated as confidential, and none of the parties shall use or disclose such
information except with the prior written consent of the other parties hereto;
provided, however, Fairfield may disclose such information (a) to its
representatives, advisors and agents for purposes of its investigation during
the Inspection Period or (b) to comply with any legal requirement; provided,
further, however, Shareholders and Ocean Ranch may disclose such information to
comply with any legal requirement if prompt advance notice is provided to
Fairfield at least two business days prior to any such disclosure so that
Fairfield may seek a protective order or other appropriate remedy.
V.2 Indemnification of Shareholders. Fairfield agrees to indemnify and hold
each Shareholder harmless from and against all expenses, losses, costs,
deficiencies, liabilities and damages (including, without limitation, reasonable
attorneys' fees and expenses) incurred or suffered by such Shareholder from or
arising out of (a) any breach of a representation or warranty made by Fairfield
in or pursuant to this Agreement, (b) any breach of the covenants or agreements
made by Fairfield in this Agreement, (c) any inaccuracy in any certificate
delivered by Fairfield pursuant to this Agreement, or (d) indebtedness of the
Partnership under the existing construction financing with Bank Atlantic, the
existing guaranty of such indebtedness by any Shareholder, or any breach of the
terms or provisions of such indebtedness or guarantees thereof, to the extent
arising after the Closing or as a result of the consummation of the Merger.
<PAGE>
V.3 Indemnification of Fairfield. Shareholders shall jointly and severally
indemnify and hold Fairfield and its affiliates and their respective directors,
officers, employees, agents and attorneys harmless from and against all
expenses, losses, costs, deficiencies, liabilities and damages (including,
without limitation, reasonable attorneys' fees and expenses) incurred or
suffered by Fairfield, Merger Sub or any Subsidiary (including without
limitation Ocean Ranch) of Fairfield resulting from or arising out of (a) any
breach of a representation or warranty made by any Shareholder or Ocean Ranch in
or pursuant to this Agreement, (b) any breach of the covenants or agreements
made by any Shareholder or Ocean Ranch in this Agreement, or (c) any inaccuracy
in any certificate delivered by any Shareholder or Ocean Ranch pursuant to this
Agreement.
V.4 Procedures for Indemnity. (a) Whenever any claim shall arise or any
proceeding shall be instituted involving any person in respect of which
indemnity may be sought pursuant to Section 5.2 or 5.3, such person (the
"Indemnified Party") shall promptly notify (in no event later than ten business
days after receipt of such notice) the person against whom such indemnity may be
sought (the "Indemnifying Party") thereof in writing, including, when known, the
facts constituting the basis for such claim or proceeding and the amount or an
estimate of the amount of the indemnified liability arising therefrom (such
notification being the "Claims Notice"). To the extent that any Claims Notice
relates to the assertion of a claim, the commencement of a suit, action or
proceeding or the imposition of a penalty or assessment by a third party that is
not an Indemnified Party (a "Third-Party Claim"), the Indemnified Party shall
include with the Claims Notice any written demand, complaint, petition, summons
or similar document relating thereto that is then in the Indemnified Party's
possession. The failure by an Indemnified Party to timely furnish to the
Indemnifying Party any notice document required to be furnished under this
Section 5.4(a) shall not relieve the Indemnifying Party from any liability or
obligation hereunder, except to the extent that such failure materially
prejudices the ability of the Indemnifying Party to defend such matter.
(b) In connection with any Third-Party Claim, the Indemnifying Party at its
sole cost and expense may, upon written notice to the Indemnified Party, elect
to assume the defense thereof. If the Indemnifying Party has so elected to
assume the defense of any such Third-Party Claim, such defense shall be
conducted by counsel chosen by the Indemnifying Party, provided that such
counsel is reasonably satisfactory to the Indemnified Party. The Indemnified
Party shall be entitled to participate in (but not control) the defense of any
such Third-Party Claim, with its counsel and at its own expense. If the
Indemnifying Party has elected to assume the defense of any Third-Party Claim as
provided herein, the Indemnified Party shall not be entitled to indemnification
as to fees and expenses of any counsel retained by the Indemnified Party after
the time at which the Indemnifying Party has so elected. The Indemnified Party
shall not settle or compromise any Third-Party Claim without the prior written
consent of the Indemnifying Party, which shall not be unreasonably withheld. In
the event that the Indemnifying Party shall assume the defense of any
Third-Party Claim, it shall not compromise or settle such Third-Party Claim
unless (i) the Indemnified Party gives its prior written consent, which shall
not be unreasonably withheld, or (ii) the terms of the compromise or settlement
of such Third-Party Claim provide that the Indemnified Party shall have no
responsibility for the discharge of any settlement amount and impose no other
obligations or duties on the Indemnified Party, and the compromise or settlement
discharges all rights against the Indemnified Party with respect to such
Third-Party Claim. If a firm offer is made to settle a pending or threatened
Third-Party Claim for which the Indemnified Party may be entitled to
indemnification hereunder and the Indemnifying Party desires to accept and agree
to such offer, the Indemnifying Party shall give written notice to the
Indemnified Party to that effect. If the Indemnified Party fails to consent to
such firm offer within ten calendar days after its receipt of such notice, the
Indemnifying Party may continue to contest or defend such Third-Party Claim and,
in such event, the maximum liability of the Indemnifying Party as to such
Third-Party Claim shall not exceed the amount of such settlement offer. The
Indemnified Party shall cooperate with the defense of any such Third-Party Claim
and shall provide such personnel, technical support and access to information as
may be reasonably requested by the Indemnifying Party in connection with such
defense.
(c) Any claim for indemnification hereunder that is not a Third-Party Claim
shall be asserted by the Indemnified Party by promptly delivering notice thereof
to the Indemnifying Party. If the Indemnifying Party does not respond to such
notice within 45 days after receipt thereof, it shall have no further right to
contest the validity of such claim.
<PAGE>
V.5 Exclusivity Of Indemnification For Contractual Breaches. No party
hereto is making any representation, warranty or covenant other than those
contained herein. Except with respect to the covenants in Section 5.1 and the
covenants and indemnities in Section 5.11, following the Closing, the rights of
the parties under the provisions of Sections 5.2 and 5.3 shall be the sole and
exclusive remedy available to the parties with respect to claims or damages
arising out of breaches of the representations and warranties or other
contractual obligations of the parties set forth in this Agreement.
V.6 Reasonable Efforts. Upon the terms and subject to the conditions set
forth in this Agreement, each of the parties will use all reasonable efforts to
take, or cause to be taken, all actions, and to do, or cause to be done, and to
assist and cooperate with the other parties in doing, all other things
necessary, proper or advisable to consummate and make effective, in the most
expeditious manner practicable, the Merger and the other transactions
contemplated by this Agreement, including (i) the obtaining of all other
necessary actions or nonactions, waivers, consents and approvals from
Governmental Entities and the making of all necessary registrations and filings
(including filings with Governmental Entities, if any) and the taking of all
other reasonable steps as may be necessary to obtain all necessary approvals or
waivers form, or to avoid any action or proceeding by any Governmental Entity,
(ii) the obtaining of all necessary consents, approvals or waivers from third
parties, and (iii) the execution and delivery of any additional instruments
necessary to consummate the transactions contemplated by, and to fully carry out
the purposes of, this Agreement. In further connection with and without limiting
the foregoing, Ocean Ranch and Shareholders shall make appropriate personnel,
contractors and advisors of Ocean Ranch available to Fairfield and provide such
information as may be requested by Fairfield for the purposes of conducting the
Inspection.
<PAGE>
V.7 Expenses and Fees. Except as otherwise provided in this Agreement, all
costs and expenses incurred in connection with the Merger Agreement and the
transactions contemplated hereby shall be paid by the party incurring such costs
or expenses.
V.8 Consents. Ocean Ranch shall use its reasonable efforts to obtain the
Ocean Ranch Consents (as hereinafter defined) before Closing.
V.9 Repayment of PPM Loan; Release of Claims. At or prior to the Closing,
the Partnership will pay the PPM Loan Amount to PPM and the Shareholders and
their affiliates (including PPM) shall release all claims (contingent or
liquidated and known or unknown) against Ocean Ranch, the Partnership and its
partners including, without limitation, the PPM Loan and any other claims in
respect of loans, advances, project management or marketing fees or other
obligations ("Claims"), pursuant to a written release in form and substance
reasonably satisfactory to Fairfield and substantially in the form set forth in
Exhibit C hereto (the "Release").
V.10 Delivery of Information. Two business days before the end of the
Inspection Period, Shareholders shall deliver to Fairfield a certificate
executed by each Shareholder certifying that Ocean Ranch has delivered all
relevant information, documents, agreements, and other materials related to any
written request made by Fairfield during the Inspection Period.
V.11 Tax Matters.
(a) Subject to the following provisions, Fairfield shall prepare and file
(or cause to be prepared and filed) all Tax Returns relating to Ocean Ranch
which are required to be filed (taking into account all applicable extensions)
after the Closing, and shall pay all Taxes shown to be due thereon.
(b) With respect to any Tax Return of Ocean Ranch for a taxable period
ending on or prior to the Closing and not yet filed as of the Closing: (i)
within 90 days of the end of the taxable period to which such return relates,
Ocean Ranch and Fairfield shall prepare and deliver (or cause to be prepared and
delivered) to the Shareholders the financial statements of Ocean Ranch for such
taxable period; (ii) the Shareholders will direct the tax return preparer of
Ocean Ranch to prepare, at the Shareholders' expense, such Tax Returns in
accordance with the prior practice and policies of Ocean Ranch and with
applicable law; (iii) at least thirty (30) days prior to the due date for such
Tax Returns (taking into account all available extensions), the Shareholders
will deliver to Ocean Ranch completed versions of such Tax Returns; and
(iv)Ocean Ranch shall have the right to review such Tax Returns prior to their
filing and, if Ocean Ranch disputes or otherwise disagrees with any amounts
shown due on such Tax Returns, Ocean Ranch and the Shareholders shall consult in
good faith to resolve any issues arising as a result thereof; (v) after Ocean
Ranch's review of such Tax Returns and the resolution of any disputes or
disagreements described in clause (iv) hereof, Ocean Ranch shall timely sign and
file such Tax Returns and pay all amounts shown as due and owing thereon
(reserving any right to indemnification by the Shareholders if otherwise
provided by this Agreement); and (vi) Fairfield and Ocean Ranch shall provide
the Shareholders and their agents (including any return preparer) with
reasonable access during normal business hours to the records of Ocean Ranch as
needed for the preparation of such returns and with such other assistance as may
be reasonably requested by the Shareholders.
<PAGE>
(c) With respect to each Tax Return which relates, in whole or in part, to
periods prior to Closing (other than Tax Returns prepared at the direction of
the Shareholders pursuant to Section 5.11(b) hereof), at least thirty (30) days
prior to the due date for filing such return (including applicable extensions),
Ocean Ranch will deliver to the Shareholders (i) a draft return, (ii) copies of
any workpapers or schedules used to prepare such return, and (iii) a calculation
of the excess (if any) of (A) Taxes to be paid with or with respect to such Tax
Return that relate to periods prior to Closing over (B) the amounts reserved or
otherwise provided for. If the Shareholders do not agree with the amounts set
forth on such draft Tax Return, the parties shall work diligently to resolve the
dispute.
(d) If the parties are unable to resolve any dispute described in Sections
5.11 (b) or 5.11(c) prior to the fifteenth day prior to the due date for such
Tax Return, the dispute will be submitted to Ernst & Young, LLP, or such other
nationally recognized firm of certified public accountants as the parties may
agree upon (the "Firm") with the costs of the Firm's determination to be shared
equally by the parties, except that if the Firm agrees completely with the
calculations of one party, the other party shall bear all costs of the Firm's
determination.
(e) Fairfield shall pay, or shall cause Ocean Ranch to pay, to the
Shareholders the excess, if any, of the amount accrued in the Unaudited
Financial Statements for current Taxes payable by Ocean Ranch over the aggregate
Taxes actually paid by Ocean Ranch in connection with the filing of any Tax
Returns described in Sections 5.11(b) and 5.11(c), within 5 business days of the
filing of the last such Tax Returns. The Shareholders shall pay to Fairfield (or
Ocean Ranch if directed by Fairfield) the amount of the shortfall, if any, by
which the amount accrued in the Unaudited Financial Statements for current Taxes
payable by Ocean Ranch is less than the aggregate Taxes actually paid by Ocean
Ranch in connection with the filing of any Tax Returns described in Section
5.11(c), within 5 business days of the filing of the last such Tax Returns and
receipt of written demand therefore from Fairfield together with copies of such
Tax Returns. Nothing in this Section 5.11(e) shall be read to limit the
Shareholder's indemnification of Fairfield pursuant to Section 5.3 hereof.
(f) The Shareholders shall, jointly and severally, indemnify and hold
harmless Fairfield from and against (i) all Taxes for which Ocean Ranch may be
liable arising in periods ending prior to the Closing Date and for the ratable
portion of any period that begins before and ends after the Closing Date and
(ii) all costs and expenses (including reasonable attorneys' and accountants'
fees) attributable to any contest or dispute involving the foregoing. In the
case of Taxes that are payable with respect to a taxable period that begins
before the Closing Date and ends after the Closing Date, the portion of any such
Tax that is allocable to the portion of the period ending on the Closing Date
shall be:
(i) in the case of Taxes that are either (x) based upon or related to
income or receipts, or (y) imposed in connection with any sale or other
transfer or assignment of property (real or personal, tangible or
intangible), deemed equal to the amount which would be payable if the
taxable year ended with the Closing Date; and
<PAGE>
(ii) in the case of Taxes not described in subparagraph (i) that are
imposed on a periodic basis and measured by the level of any item, deemed
to be the amount of such Taxes for the entire period (or, in the case of
such Taxes determined on an arrears basis, the amount of such Taxes for the
immediately preceding period) multiplied by a fraction the numerator of
which is the number of calendar days in the period ending on the Closing
Date and the denominator of which is the number of calendar days in the
entire period.
For purposes of this Section 5.11(f), the Taxes attributable to Ocean Ranch by
reason of such corporation's distributive share of income, gain, or loss from,
or otherwise in respect of, any partnership in which Ocean Ranch is a member on
the Closing Date shall be determined as if such partnership's taxable year ended
on the Closing Date.
(g) Fairfield shall pay, or shall cause Ocean Ranch to pay, to the
Shareholders all refunds or credits of Taxes or similar benefit (including
any interest or similar benefit received from or credited thereon by the
applicable tax authority) received by Fairfield or Ocean Ranch (or their
respective successors and assigns) after the Closing to the extent
attributable to (i) Taxes paid prior to Closing by the Shareholders or
Ocean Ranch, or (ii) Taxes for which the Shareholders have indemnified
Fairfield or Ocean Ranch under this Agreement; provided, however, that the
Shareholders shall not be entitled to any such refund or credit to the
extent such refund or credit arises as a result of the application of a net
operating loss or similar tax benefit of Ocean Ranch which arises during a
period after the Closing Date and which is carried back to a period prior
to the Closing Date.
(h) If a Tax Return which relates in whole or in part to Taxes for
which the Shareholders might be obligated to indemnify Fairfield or Ocean
Ranch under this Agreement (including without limitation any Tax Return
filed prior to Closing or at the direction of the Shareholders pursuant to
Section 5.11(b) hereof) is audited by the Internal Revenue Service or other
tax authority, (i) Fairfield and Ocean Ranch shall promptly notify the
Shareholders of the commencement of such audit, and any failure to give
such notice will not constitute a waiver of rights to indemnity under this
Agreement for damages arising from such audit and subsequent proceedings,
except to the extent that the Shareholders are precluded by the failure to
give prompt notice from contesting the asserted Tax liability in both the
administrative and judicial forums; (ii) the Shareholders shall have the
right but not the obligation to control the dealings with such tax
authority and any ensuing litigation or administrative proceedings
(collectively, the "Tax Dispute"), including without limitation choice of
tax accountants or counsel and the right to settle or compromise such
matters, provided that the Shareholders shall consult in good faith with
<PAGE>
Ocean Ranch and Fairfield about the Tax Dispute and will give due regard to
such parties' interests and provided, further, that with respect to any
taxable period that begins before and ends after the Closing Date, the
Shareholders shall not be entitled to settle or compromise any such Tax
Dispute without the consent of the Fairfield, which shall not be
unreasonably withheld; (iii) if the Shareholders have a right to control a
Tax Dispute pursuant to clause (ii) but do not choose to exercise such
control, Fairfield shall be entitled, but shall not be obligated, to defend
such Tax Dispute (giving due regard to the Shareholders's interests), shall
keep the Shareholders reasonably informed of the progress of such Tax
Dispute and will not settle or compromise such Tax Dispute without the
prior written consent of the Shareholders, which consent shall not be
unreasonably withheld; and (iv) all parties shall cooperate with each other
in good faith with respect to any Tax Dispute and provide such assistance
to the other parties and their agents as may be necessary for the
resolution thereof. The preparation and filing of any amended Tax Return,
the audit of which would otherwise be subject to this Section 5.11(h),
shall be subject to the principles of this Section 5.11(h).
(i) Fairfield and Ocean Ranch shall retain all records relevant to
Taxes and Tax Returns of Ocean Ranch for periods prior to or including
Closing ("Tax Records") for a period of at least seven years after the
Closing. In addition, at all times that such Tax Records are in the custody
of Fairfield, Ocean Ranch or their successors and assigns, such parties
shall permit the Shareholders and their agents (including without
limitation his tax professionals) reasonable access to such Tax Records in
accordance with the principles of this Section 5.11 to the extent the
Shareholders reasonably deems such access appropriate for Tax and financial
matters.
(j) If there is a disposition of all or substantially all of the
capital stock, of Ocean Ranch assets, or business of Ocean Ranch, Fairfield
agrees to use its reasonable best efforts to ensure that the successor to
Ocean Ranch, such assets or business is contractually obligated to and in
fact does comply with the provisions of this Section 5.11.
(k) Fairfield shall be responsible for the timely payment of all
sales, use, transfer, gains, recording, ad valorem and other similar Taxes
and fees ("Transfer Taxes"), arising out of or in connection with or
attributable to the transactions effected pursuant to this Agreement, and
all Taxes arising as a result of the Merger. Fairfield shall prepare and
timely file all necessary documentation and Tax Returns required to be
filed in respect of Transfer Taxes; provided, that the Shareholders shall
be permitted to prepare any such Tax Returns that are the primary
responsibility of the Shareholders under applicable law. Fairfield shall
provide Fairfield with final copies of the documentation and Tax Returns
referred to in the immediately preceding sentence not later than fifteen
days prior to the filing of such documentation and Tax Returns.
(l) Fairfield, Ocean Ranch and the Shareholders shall treat the day
prior to the Closing Date as the last day of the taxable year of Ocean
Ranch and shall treat the debt assumption described by Section 6.1(f) as
occurring for all Tax purposes on the day prior to the Closing Date.
ARTICLE VI
CONDITIONS PRECEDENT; CLOSING
VI.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligation of each party to effect the Merger is subject to the
satisfaction or waiver on or prior to the Closing Date of the following
conditions:
(a) Corporate Approval. The approval of the transactions hereunder by
------------------
Fairfield's board of directors or appropriate committee thereof shall have
been received.
<PAGE>
(b) Consent of Fairfield's Lender. Fairfield shall have obtained all
------------------------------
applicable consents required under Fairfield's and its subsidiaries' credit
agreements.
(c) Ocean Ranch Consents. Ocean Ranch shall have obtained all
----------------------
applicable consents required from the parties identified on Schedule 6.1(c)
(the "Ocean Ranch Consents").
(d) No Injunctions or Restraints. No judgment, order, decree, statute,
----------------------------
law, ordinance, rule, regulation, temporary restraining order, preliminary
or permanent injunction or other order enacted, entered, promulgated,
enforced or issued by any court of competent jurisdiction or other
Governmental Entity or other legal restraint or prohibition (collectively,
"Restraints") preventing the consummation of the Merger shall be in effect;
provided, however, that each of the parties shall have used reasonable
efforts to prevent the entry of any such Restraints and to appeal as
promptly as possible any such Restraints that may be entered.
(e) No Litigation. There shall not be pending any suit, action or
--------------
proceeding, in each case brought by any Governmental Entity against Ocean
Ranch, Fairfield or Merger Sub with respect to or that would adversely
affect the Merger or the transactions contemplated under this Agreement.
(f) Debt Assumption. On the day prior to the Closing Date, all
----------------
liabilities and obligations of Ocean Ranch and the Partnership arising
under the Capital Contribution Loan shall have been delegated to, and
assumed by Ralph P. Muller and Kevin Sheehan (the "Delegees") pursuant to a
written agreement of assumption in substantially the form set forth in
Exhibit C hereto (the "Assumption Agreement"), and James E. Lambert, as the
sole obligee of the Capital Contribution Loan, (the "Obligee") shall have
consented to such delegation and acknowledged that Ocean Ranch and the
Partnership shall have no obligations thereunder pursuant to the Assumption
Agreement.
(g) Before the Effective Time, the Partnership shall have paid the PPM
Loan Amount to PPM and PPM shall have released Ocean Ranch and the
Partnership from any further liabilities or obligations in respect of the
PPM Loan pursuant to the Release.
VI.2 Conditions to Obligations of Ocean Ranch and Shareholders. The
obligations of Ocean Ranch and Shareholders to effect the Merger are further
subject to the following conditions:
(a) Actions of Fairfield. Fairfield and Merger Sub shall have
----------------------
performed and complied with all the covenants, agreements and obligations
and satisfied all of the conditions required by this Agreement to be
performed or complied with or satisfied by them at or prior to the
Effective Time.
(b) Representations and Warranties. The representations and warranties
------------------------------
of Fairfield and Merger Sub set forth in this Agreement that are qualified
as to materiality shall be true and correct, and the representations and
warranties of Fairfield and Merger Sub set forth in this Agreement that are
not so qualified shall be true and correct in all material respects, in
each case as of the date of this Agreement and (except to the extent such
representations and warranties speak as of an earlier date) as of the
Effective Time as though made on and as of the Effective Time, except as
otherwise contemplated by this Agreement.
<PAGE>
VI.3 Conditions to Obligations of Fairfield and Merger Sub. The obligations
of Fairfield and Merger Sub to effect the Merger are further subject to the
following conditions:
(a) Actions of Shareholders and Ocean Ranch. Shareholders and Ocean
----------------------------------------
Ranch shall have performed and complied with all covenants, agreements and
obligations and satisfied all the conditions required by this Agreement to
be performed or complied with or satisfied by them at or prior to the
Effective Time.
(b) Representations and Warranties. The representations and warranties
------------------------------
of Ocean Ranch and Shareholders set forth in this Agreement that are
qualified as to materiality shall be true and correct, and the
representations and warranties of Ocean Ranch and Shareholders set forth in
this Agreement that are not so qualified shall be true and correct in all
material respects, in each case as of the date of this Agreement and
(except to the extent such representations and warranties speak as of an
earlier date) as of the Effective Time as though made on and as of the
Effective Time, except as otherwise contemplated by this Agreement.
(c) No Material Adverse Change. At any time on or after the date of
----------------------------
this Agreement there shall not have occurred any material adverse change in
Ocean Ranch.
(d) Audit and Inspection. The completion by Fairfield of the
----------------------
Inspection and Fairfield's satisfaction, in its sole discretion, with the
results of the Inspection.
(e) Release. Fairfield shall have received the Release, executed by
-------
the Shareholders and PPM.
(f) Vacation Break Merger. The Merger of FCVB Corp., a wholly owned
----------------------
subsidiary of Fairfield with and into Vacation Break U.S.A., Inc. (the
"Vacation Break Merger") shall have been consummated.
(g) Opinion of Ocean Ranch Counsel. Fairfield shall have received a
-------------------------------
favorable opinion of counsel for Shareholders and Ocean Ranch with respect
to the matters set forth on Schedule 6.3(g).
VI.4 Frustration of Closing Conditions. None of Fairfield, Shareholders,
Merger Sub or Ocean Ranch may rely on the failure of any condition set forth in
Section 6.1, 6.2 or 6.3, as the case may be, to be satisfied if such failure was
caused by such party's failure to use reasonable efforts to consummate the
Merger and the other transactions contemplated by this Agreement, as required by
and subject to Section 5.6.
VI.5 Closing Documents and Procedures. In addition to the other obligations
and procedures to be performed at the Closing, the parties will undertake the
following actions:
<PAGE>
(a) Deliveries of Shareholders. At the Closing, Shareholders shall
---------------------------
deliver to Fairfield:
(i) a certificate or certificates representing each Shareholder's
shares of Ocean Ranch Common Stock outstanding immediately prior to
the Effective Time.
(ii) a certificate executed by each Shareholder certifying that
the representations and warranties set forth in Sections 3.2 and 3.3
are true and correct on and as of the Effective Time, with the same
force and effect as though such representations and warranties had
been made on, as of and with reference to the Effective Time and that
Shareholders have performed and complied with all covenants and
agreements and satisfied all conditions required by this Agreement to
be performed or complied with or satisfied by them for the benefit of
Fairfield at or prior to the Effective Time;
(iii) the Release, executed by the Shareholders and their
affiliates; and
(iv) the Assumption Agreement, executed by the Delegees and the
Obligee.
(b) Deliveries of Ocean Ranch. At the Closing, Ocean Ranch shall
---------------------------
deliver to Fairfield:
(i) a certificate of an officer of Ocean Ranch certifying
that the representations and warranties set forth in Section 3.2
are true and correct on and as of the Effective Time, with the
same force and effect as though such representations and
warranties had been made on, as of and with reference to the
Effective Time and that Ocean Ranch has performed and complied
with all covenants and agreements and satisfied all conditions
required by this Agreement to be performed or complied with or
satisfied by it for the benefit of Fairfield at or prior to the
Effective Time;
(ii) certificates of good standing and corporate existence
for Ocean Ranch;
(iii) the opinion of counsel to Ocean Ranch as set forth in
Section 6.3(h); and
(iv) the Assumption Agreement, executed by Ocean Ranch.
(c) Fairfield's Deliveries. At the Closing, Fairfield shall deliver to
----------------------
the Shareholders:
(i) each Shareholder's Ocean Ranch Percentage of the Merger
Consideration;
(ii) evidence of payment of the PPM Loan Amount;
(iii) evidence of payment of the Capital Contribution Loan
Interest Amount; and
<PAGE>
(iv) a certificate of an officer of Fairfield certifying
that the representations and warranties set forth in Section 3.1
are true and correct on and as of the Effective Time, with the
same force and effect as though such representations and
warranties had been made on, as of and with reference to the
Effective Time and that Fairfield has performed and complied with
all covenants and agreements and satisfied all conditions
required by this Agreement to be performed or complied with or
satisfied by it for the benefit of Ocean Ranch at or prior to the
Effective Time.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
VII.1 Termination. This Agreement may be terminated, and the Merger
contemplated hereby may be abandoned, at any time prior to the Effective Time:
(a) by mutual written consent of Fairfield, Merger Sub and Ocean
Ranch;
(b) by either Fairfield or Ocean Ranch;
(i) if the Merger shall not have been consummated on or before
December 31, 1997, unless the failure to consummate the Merger is the
result of a breach of this Agreement by the party seeking to terminate
this Agreement;
(ii) if any Governmental Entity of competent jurisdiction shall
have issued a restraint or taken any other action permanently
enjoining, restraining or otherwise prohibiting the Merger or any of
the other actions contemplated under the Agreement and such restraint
shall have become final and nonappealable;
(c) by Fairfield if there has been a material violation by
Shareholders of any agreement, representation or warranty contained in this
Agreement that has rendered the satisfaction of any condition to the
obligations of Fairfield impossible and such violation or breach has not
been waived by Fairfield and is not due to Fairfield's default;
(d) by Fairfield, if the Vacation Break Merger has not been
consummated on or before December 31, 1997;
(e) by Fairfield, at or prior to the expiration of the Inspection
Period, without cause and for whatever reason and without liability on the
part of any party hereto, by delivering to Ocean Ranch at or prior to the
expiration of the Inspection Period, written notice of Fairfield's election
to terminate this Agreement;
(f) by either Fairfield or Ocean Ranch if the other shall fail to
fulfill or satisfy any condition precedent to the performance of the first
party's obligations in accordance with the terms hereof; and
(g) by Ocean Ranch, if there has been a material violation by
Fairfield of any agreement, representation or warranty contained in this
Agreement which has rendered the satisfaction of any condition to the
obligations of Shareholders and Ocean Ranch impossible and such violation
or breach has not been waived by Shareholders and Ocean Ranch and is not
due to Shareholders' or Ocean Ranch's default.
<PAGE>
VII.2 Effect of Termination. In the event of termination of this Agreement
by Ocean Ranch or Fairfield as provided in Section 7.1, this Agreement shall
terminate and there shall be no liability on the part of either Ocean Ranch or
Fairfield, except for (a) liabilities arising from a breach of this Agreement
prior to such termination if the termination is made under Section 7.1(b)(i),
and (b) liabilities arising from a breach of a provision of this Agreement which
is to be performed regardless of any such termination.
VII.3 Amendment. This Agreement may not be amended except by an instrument
in writing signed on behalf of each of the parties hereto.
VII.4 Extension; Waiver. At any time prior to the Effective Time, the
parties may (a) extend the time for the performance of any of the obligations or
other acts of the other parties, (b) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto or (c) waive compliance with any of the agreements or conditions
contained herein. Any agreement on the part of a party to any such extension or
waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party. No other action or course of dealing, including, without
limitation, the consummation of the Merger with notice or knowledge of any
inaccuracy in the representations or breach of the warranties of the other party
or any investigation thereof, will operate as a waiver of any rights under this
Agreement. The delay or failure of any party to this Agreement to assert any of
its rights under this Agreement or otherwise shall not constitute a waiver of
such rights.
ARTICLE VIII
GENERAL PROVISIONS
VIII.1 Survival of Representations and Warranties. The respective
covenants, representations, warranties, covenants and the indemnities set forth
in this Agreement shall survive after the Effective Time and shall continue in
full force and effect. VIII.2 Notices. All notices, requests, claims, demands
and other communications hereunder shall be in writing and shall be deemed given
if delivered personally or sent by overnight courier (providing proof of
delivery) to the parties at the following addresses (or at such other address
for a party as shall be specified by like notice):
(a) if to Ocean Ranch:
Ocean Ranch Development, Inc.
3015 North Ocean Boulevard, Suite 121
Fort Lauderdale, Florida 33308
Attention: President
<PAGE>
with a copy to:
Greenspoon, Marder, Hirschfeld,
Rafkin, Ross & Berger
Trade Center South, Suite 700
100 West Cypress Creek Road
Fort Lauderdale, Florida 33309
Attention: Gerald Greenspoon, Esq.
(b) if to Shareholders:
James E. Lambert
3015 North Ocean Boulevard, Suite 121
Fort Lauderdale, Florida 33308
James R. Lambert
3015 North Ocean Boulevard, Suite 121
Fort Lauderdale, Florida 33308
Daniel Lambert
3015 North Ocean Boulevard, Suite 121
Fort Lauderdale, Florida 33308
in each case, with a copy to:
Greenspoon, Marder, Hirschfeld,
Rafkin, Ross & Berger
Trade Center South, Suite 700
100 West Cypress Creek Road
Fort Lauderdale, Florida 33309
Attention: Gerald Greenspoon, Esq.
(c) if to Fairfield or Merger Sub:
Fairfield Communities, Inc.
11001 Executive Center Drive
Little Rock, Arkansas 72211
Attention: Mr. John W. McConnell
with a copy to:
Jones, Day, Reavis & Pogue
2001 Ross Avenue, Suite 2300
Dallas, Texas 75201
Attention: Mark V. Minton, Esq.
<PAGE>
VIII.3 Definitions. For purposes of this Agreement:
(a) an "affiliate" of any person means another person that directly or
indirectly, through one or more intermediaries, controls, is controlled by,
or is under common control with, such first person;
(b) "Code" means the Internal Revenue Code of 1986, as amended, and
all regulations promulgated thereunder, as in effect from time to time;
(c) an "environmental law" means any law, statute, regulation, rule,
order, decree, judgment, consent decree, settlement agreement or
governmental requirement, which relates to or otherwise imposes liability
or standards of conduct concerning mining or reclamation of mined land,
discharges, emissions, releases or threatened releases of noises, odors or
any pollutants, contaminants or hazardous or toxic wastes, substances or
materials, whether as matter or energy, into ambient air, water, or land,
or otherwise relating to the manufacture, processing, generation,
distribution, use, treatment, storage, disposal, cleanup, transport or
handling of pollutants, contaminants, or hazardous wastes, substances or
materials, including (but not limited to) the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, the Superfund Amendments
and Reauthorization Act of 1986, as amended, the Resource Conservation and
Recovery Act of 1976, as amended, the Toxic Substances Control Act of 1976,
as amended, the Federal Water Pollution Control Act Amendments of 1972, the
Clean Water Act of 1977, as amended, any so-called "Superlien" law, and any
other similar Federal, state or local statutes;
(d) "ERISA" means the Employee Retirement Income Security Act of 1974,
as amended, and all regulations promulgated thereunder, as in effect from
time to time;
(e) "Governmental Entity" means any government or any court, arbitral
tribunal, administrative agency or commission or other governmental or
other regulatory authority or agency, federal, state, local or foreign;
(f) "Interest" means the 45% general partner interest in the
Partnership held beneficially and of record by Ocean Ranch;
(g) "knowledge" of any person means actual knowledge and, if such
person is not an individual, actual knowledge of the directors and
executive officers or partners of such person;
(h) "Liens" means liens, charges, pledges, options, mortgages, deeds
of trust, security interests, conditional sales agreements, claims,
restrictions (whether on voting, sale, transfer, disposition or otherwise),
and other encumbrances, adverse claims and interests of every type and
description, whether imposed by law, agreement, understanding or otherwise;
<PAGE>
(i) "material adverse change" or "material adverse effect" means, when
used in connection with Ocean Ranch or Fairfield, any change or effect that
is materially adverse to the business, properties, assets, financial
condition, prospects, or results of operations of such party and its
Subsidiaries taken as a whole;
(j) "Partnership" means Ocean Ranch Vacation Group, a Florida general
partnership;
(k) "Partnership Agreement" means that certain Ocean Ranch Vacation
Group Joint Venture Agreement of the Partnership, dated as of January 10,
1996, between Vacation Break at Ocean Ranch, Inc., and Ocean Ranch
Development, Inc.;
(l) "person" means an individual, corporation, partnership, joint
venture, association, trust, unincorporated organization or other entity;
(m) "Personal Property" means (a) all tangible personal property owned
by the Partnership and located on, attached to, and used in connection with
the operation of the Resort Property including furniture, fixtures and
equipment, (b) the Partnership's interest in all personal property,
licenses, permits, plans, studies and utility arrangements with respect to
the Resort Property, (c) the Partnership's interest in all service,
maintenance, management or other contracts relating to the ownership or
operation of the Resort Property, and (d) the Partnership's interest in all
warranties and guaranties, if any, relating to the Resort Property;
(n) "Resort Property" means that certain resort property known as
Ocean Ranch owned by the Partnership, including the land upon which the
Resort Property is situated, together with all rights appurtenant thereto,
the building, fixtures and other improvements now or hereafter situated
thereon and all leases and/or occupancy agreements for space in such
improvements, including any and all amendments and modifications thereto
and any and all acceptance, guaranty or other agreements related thereto,
and the Personal Property; and
<PAGE>
VIII.4 Interpretation. When a reference is made in this Agreement to a
Section, Exhibit or Schedule, such reference shall be to a Section of, or an
Exhibit or Schedule to, this Agreement unless otherwise indicated. The table of
contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the words "include", "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation".
VIII.5 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signet by each of
the parties and delivered to the other parties.
VIII.6 Entire Agreement; No Third-party Beneficiaries. This Agreement (a)
constitutes the entire agreement, and supersedes all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter of this Agreement and (b) are not intended to confer upon any
person other than the parties any rights or remedies.
VIII.7 Governing Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Florida, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.
VIII.8 Assignment. Neither this Agreement nor any of the rights, interests
or obligations hereunder shall be assigned, in whole or in part, by operation of
law or otherwise by any of the parties without the prior written consent of the
other parties, except that Merger Sub may assign, in its sole discretion, any of
or all its rights, interests and obligations under this Agreement to Fairfield
or to any direct wholly owned corporate subsidiary of Fairfield. Subject to the
preceding sentence, this Agreement will be binding upon, inure to the benefit
of, and be enforceable by, the parties and their respective successors and
assigns.
VIII.9 Enforcement. The parties agree that irreparable damage would occur
in the event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any court of the United States
located in the State of Florida or in Florida state court, this being in
addition to any other remedy to which they are entitled at law or in equity. In
addition, each of the parties hereto (a) consents to submit itself to the
personal jurisdiction of any federal court located in the State of Florida or
any Florida state court in the event any dispute arises out of this Agreement or
the transactions contemplated by this Agreement, (b) agrees that it will not
attempt to deny or defeat such personal jurisdiction by motion or other request
for leave from any such court and (c) agrees that it will not bring any action
relating to this Agreement or the transactions contemplated by this Agreement in
any court other than a federal court sitting in the State of Florida or an
Florida state court.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, Fairfield, Merger Sub and Ocean Ranch have caused this
Agreement to be signed by their respective officers thereunto duly authorized
and Shareholders have signed this Agreement, all as of the date first written
above.
FAIRFIELD COMMUNITIES, INC.
By: /s/ J.W. McConnell
------------------------------------
J.W. McConnell
President and Chief Executive Officer
FC OCEAN RANCH, INC.
By: /s/ J.W. McConnell
------------------------------------
J.W. McConnell
President
OCEAN RANCH DEVELOPMENT, INC.
By: /s/ Daniel Lambert
-----------------------------------
Name: Daniel Lambert
Title: President
/s/ James E. Lambert
----------------------------------
James E. Lambert
/s/ James R. Lambert
----------------------------------
James R. Lambert
/s/ Daniel Lambert
----------------------------------
Daniel Lambert
<PAGE>
EXHIBIT A
SURVIVING CORPORATION
ARTICLES OF INCORPORATION
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
OCEAN RANCH DEVELOPMENT, INC.
On December 19, 1997, the Board of Directors and the shareholders of OCEAN
RANCH DEVELOPMENT, INC. duly adopted the following Amended and Restated Articles
of Incorporation pursuant to the provisions of 607.0704, 607.1003 and 607.1007
of the Florida Business Corporation Act:
ARTICLE I
NAME
The name of the corporation is Ocean Ranch Development, Inc.
ARTICLE II
PRINCIPAL OFFICE AND MAILING ADDRESS
The Corporation's principal office and mailing address is 11001 Executive
Center Drive, Little Rock, Arkansas 72211.
ARTICLE III
SHARES
The Corporation shall have authority to issue 10,000 common shares with a
par value of $.01 per share.
ARTICLE IV
REGISTERED AGENT AND OFFICE
The street address of its registered office is 1200 South Pine Island Road,
Plantation, Florida 33324, and the name of its registered agent at that address
is CT Corporation System.
<PAGE>
ARTICLE V
DIRECTORS
The Corporation initially shall have three (3) directors, whose names and
addresses are:
Name Address
John W. McConnell 11001 Executive Center Drive
Little Rock, Arkansas 72211
Robert W. Howeth 11001 Executive Center Drive
Little Rock, Arkansas 72211
Marcel J. Dumeny 11001 Executive Center Drive
Little Rock, Arkansas 72211
ARTICLE VI
LIMITATION ON DIRECTOR LIABILITY
A director shall not be personally liable to the Corporation or the holders
of shares of capital stock for monetary damages for breach of fiduciary duty as
a director, except (i) for any breach of the duty of loyalty of such director to
the Corporation or such holders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 607.0831 of the Florida Business Corporation Act (the "FBCA"), or
(iv) for any transaction from which such director derives an improper personal
benefit. If the FBCA is hereafter amended to authorize the further or broader
elimination or limitation of the personal liability of directors, then the
liability of a director of the Corporation shall be eliminated or limited to the
fullest extent permitted by the FBCA, as so amended. No repeal or modification
of this Article VII shall adversely affect any right of or protection afforded
to a director of the Corporation existing immediately prior to such repeal or
modification.
ARTICLE VII
INDEMNIFICATION
The Corporation shall indemnify and advance expenses to, and may purchase
and maintain insurance on behalf of, its officers and directors to the fullest
extent permitted by law as now or hereafter in effect. Without limiting the
generality of the foregoing, the Bylaws may provide for indemnification and
advancement of expenses to officers, directors, employees and agents on such
terms and conditions as the Board of Directors may from time to time deem
appropriate or advisable.
IN WITNESS WHEREOF, the undersigned, being the President of the
Corporation, has signed these Amended and Restated Articles of Incorporation
this 19th day of December, 1997.
Robert W. Howeth
Vice President
<PAGE>
EXHIBIT B
SURVIVING CORPORATION BYLAWS
AMENDED AND RESTATED BYLAWS
OF
OCEAN RANCH DEVELOPMENT, INC.
Adopted December 19, 1997
ARTICLE I
Offices
SECTION 1. Principal Office. The principal office of Ocean Ranch
Development, Inc. (the "Corporation") may be located either within or without
the State of Florida as the board of directors (the "Board of Directors" or the
"Board") may designate or as the business of the Corporation may require from
time to time.
SECTION 2. Registered Office. The registered office of the Corporation,
required by the Florida Business Corporation Act to be maintained in the State
of Florida, may be, but need not be, identical to the principal office in the
State of Florida, and the address of the registered office may be changed from
time to time by the Board of Directors.
ARTICLE II
Shareholders
SECTION 1. Annual Meeting. The annual meeting of the shareholders shall be
held on such date as the Board may determine in each year at such hour as may be
specified in a notice of meeting or in a duly executed waiver of notice, for the
purpose of electing Directors and for the transaction of such other business as
may come before the meeting. If the day fixed for the annual meeting shall be a
legal holiday in the State of Florida, the meeting shall be held on the next
succeeding business day. If the election of Directors is not held on the day
designated in these bylaws for any annual meeting of the shareholders, or at any
adjournment of the annual meeting, the Board of Directors shall cause the
election to be held at a special meeting of the shareholders as soon thereafter
as may be convenient.
SECTION 2. Special Meetings. Special meetings of the shareholders, for any
purpose, may be called by the Board, by the holders of not less than ten percent
(10%) of all the votes entitled to be cast on any issue to be considered at the
meeting, or by the President of the Corporation.
SECTION 3. Place of Meeting. The Board may designate any place, either
within or without the State of Florida, unless otherwise prescribed by statute,
as the place of meeting for any annual meeting of shareholders. The Chairman of
the Board, if one is elected, or the President may designate any place, either
within or without the State of Florida, unless otherwise prescribed by statute,
as the place of the meeting. If no designation is made, the place of the meeting
shall be the principal office of the Corporation in the State of Florida.
<PAGE>
SECTION 4. Notice of Meeting. Written notice stating the time, date, and
place of the meeting and, in the case of a special meeting, the purpose or
purposes for which the meeting is called, shall be delivered to each shareholder
of record entitled to vote at such meeting not less than ten (10) nor more than
sixty (60) days before the date of the meeting, either personally, by telegraph,
teletype, or other form of electronic communication, or by mail, by or at the
direction of the President, the Secretary, or the person or persons calling the
meeting. If mailed, such notice shall be deemed to be delivered when deposited
in the United States mail addressed to the shareholder at his address as it
appears on the stock transfer books of the Corporation, postage prepaid.
SECTION 5. Fixing of Record Date. The Board may fix a date nor more than
seventy (70) and not less than ten (10) days prior to the date set for any
meeting of the shareholders as the record date as of when the shareholders of
record entitled to notice of and to vote at such meeting and any adjournment
thereof shall be determined.
SECTION 6. Shareholders' List for Meeting. After fixing the record date for
a meeting, an alphabetical list of the names of all shareholders entitled to
notice of the meeting, arranged by voting group, with the address of and the
number, class, and series, if any, of shares held by each, shall be prepared.
The list shall, upon written demand, be available during regular business hours,
for inspection by any shareholder and at his expense for a period of ten (10)
days prior to the meeting date, or such shorter time as may exist between the
record date and the meeting, and continuing through the meeting, at the
Corporation's principal office, at a place set forth in the meeting notice in
the city where the meeting will be held, or at the office of the Corporation's
transfer agent or registrar. The Corporation shall also make the list available
at the meeting.
SECTION 7. Quorum. A majority of the outstanding shares of the Corporation
entitled to vote, represented in person or by proxy, shall constitute a quorum
at a meeting of the shareholders. When a meeting is adjourned, it shall not be
necessary to give any notice of the adjourned meeting if the time, date, and
place to which the meeting is adjourned are announced at the meeting at which
the adjournment is taken, and any business may be transacted at the adjourned
meeting that might have been transacted at the original date of the meeting. If,
however, following the adjournment, the Board fixes a new record date for the
adjourned meeting, notice of such adjourned meeting shall be given, in
compliance with Section 4 of this Article II, to each shareholder of record on
the new record date entitled to vote at such meeting. After a quorum has been
established at a shareholders' meeting, the subsequent withdrawal of
shareholders, so as to reduce the number of shares entitled to vote at the
meeting below the numbered required for a quorum, shall not affect the validity
of any action taken at the meeting or any adjournment thereof.
SECTION 8. Proxies. Every shareholder entitled to vote at a meeting of
shareholders, or to express consent or dissent without a meeting, or his duly
authorized attorney-in-fact, may authorize another person or persons to act for
him by proxy. The proxy must be executed in writing by the shareholder or his
duly authorized attorney-in-fact. Such proxy shall be filed with the Secretary
of the Corporation before or at the time of such meeting or at the time of
expressing such consent or dissent without a meeting. No proxy shall be valid
after eleven (11) months from the date of its execution, unless otherwise
provided in the proxy.
<PAGE>
SECTION 9. Voting of Shares. Each outstanding share of stock entitled to
vote shall be entitled to one (1) vote upon each matter submitted to a vote at a
meeting of the shareholders.
SECTION 10. Voting of Shares by Certain Holders. Shares of stock standing
in the name of another corporation may be voted by the officer, agent, or proxy
as prescribed by the bylaws of the corporate shareholder or, in the absence of
any applicable bylaw, by such person as the Board of Directors of the corporate
shareholder may designate. Proof of such designation may be made by presentation
of a certified copy of the bylaws or other instrument of the corporate
shareholder. In the absence of such designation, or in case of conflicting
designation by the corporate shareholder, the Chairman of the Board, the
President, any Vice President, the Secretary, and the Treasurer of the corporate
shareholder shall be presumed to possess, in that order, authority to vote such
shares.
Shares of stock held by an administrator, executor, guardian, personal
representative, or conservator may be voted by him, either in person or by
proxy, without a transfer of such shares into his name.
Shares of stock standing in the name of a trustee may be voted by him,
either in person or by proxy, but no trustee shall be entitled to vote shares
held by him without a transfer of such shares into his name or the name of his
nominee.
Shares of stock standing in the name of a receiver, a trustee in bankruptcy
proceedings, or an assignee for the benefit of creditors may be voted by him or
her without the transfer thereof into his or her name.
A shareholder whose shares of stock are pledged shall be entitled to vote
such shares until the shares have been transferred into the name of the pledgee,
and thereafter the pledgee or his nominee shall be entitled to vote the shares
so transferred.
Shares of stock owned by another corporation the majority of whose shares
of stock entitled to vote for Directors is owned or controlled by the
Corporation shall not be voted, directly or indirectly, at any meeting.
ARTICLE III
Board of Directors
SECTION 1. General Powers. All corporate powers shall be exercised by or
under the authority of, and the business and affairs of the Corporation shall be
managed under the direction of, the Board of Directors.
SECTION 2. Number, Tenure, and Qualification. The number of Directors of
the Corporation initially shall be three (3). The number of Directors may be
increased or decreased from time to time by amendment of these bylaws, provided
that the Corporation shall always have at least one (1) director. Any increase
in the number of Directors shall be effective immediately. Any decrease in the
number of Directors shall be effective at the time of the next succeeding annual
meeting of the Shareholders unless there shall be vacancies on the Board, in
which case such decrease may become effective at any time prior to the next
succeeding annual meeting to the extent of the number of vacancies.
<PAGE>
Except as otherwise provided by statute, the Directors shall be elected at
the annual meeting of Shareholders and, at each meeting of Shareholders for the
election of Directors at which a quorum is present, the persons receiving a
plurality of the votes cast at such election shall be elected as Directors.
Each initial director shall hold office until the first shareholders'
meeting at which Directors are elected. Thereafter, each director shall hold
office until the next annual meeting of shareholders and until his successor is
elected and qualified or until his earlier resignation, death, or removal from
office.
SECTION 3. Chairman of the Board. The Board of Directors of the Corporation
may elect a Chairman who, if so elected, shall preside at all meetings of the
Board of Directors. The Chairman shall have such other powers and shall perform
all duties as from time to time may be granted or assigned to him by the Board
of Directors and as provided by law.
SECTION 4. Annual and Regular Meetings. The annual meeting of the Board of
Directors shall be held without other notice than this bylaw immediately after
and at the same place as the annual meeting of shareholders. The Board of
Directors may provide, by resolution, the time, date, and place for the holding
of regular meetings without other notice than such resolution.
SECTION 5. Special Meetings. Special meetings of the Board of Directors may
be called by the Chairman of the Board, by the President, or by any two
Directors. The Chairman of the Board, if one is elected, or the President shall
fix the place for holding such special meeting.
SECTION 6. Notice. Notice of any special meeting shall be given at least
two (2) days before the meeting by written notice delivered personally, or by
mail, telecopy, telegram, cablegram, or other form of electronic communication
to each director at his business address, unless in case of emergency, the
Chairman of the Board, if one is elected, or the President shall prescribe a
shorter notice to be given personally or by telegraph, telecopy, cablegram, or
other electronic communication to each director at his residence or business
address. If a notice of meeting is mailed, such notice shall be deemed to be
delivered five (5) days after its deposit in the United States mail, if mailed,
postpaid and correctly addressed. Any director may waive notice of any meeting,
before or after the meeting. The attendance of a director at a meeting shall
constitute a waiver of notice of such meeting and a waiver of any and all
objections to the place of the meeting, the time or date of the meeting, or the
manner in which it has been called or convened, except when a director states,
at the beginning of the meeting, any objection to the transaction of business
because the meeting is not lawfully called or convened.
SECTION 7. Quorum. A majority of the number of Directors fixed pursuant to
Section 2 of this Article III shall constitute a quorum for the transaction of
business at any meeting of the Board of Directors. A majority of the Directors
present, whether or not a quorum exists, may adjourn any meeting of the Board to
another time and place. Notice of any such adjourned meeting shall be given to
the Directors who were not present at the time of the adjournment and, unless
the time and place of the adjourned meeting are announced at the time of the
adjournment, to the other Directors.
<PAGE>
SECTION 8. Manner of Acting. The act of the majority of the Directors
present at a meeting at which a quorum is present shall be the act of the Board
of Directors.
SECTION 9. Vacancies. Any vacancy occurring on the Board, including any
vacancy created by reason of an increase in the number of Directors, may be
filled by the affirmative vote of a majority of the remaining Directors though
less than a quorum of the Board of Directors. A director elected to fill a
vacancy shall hold office only until the next annual meeting of shareholders and
until his successor shall have been elected and qualified or until his earlier
resignation, removal from office, or death.
SECTION 10. Compensation. By resolution of the Board of Directors, the
Directors may be paid their expenses, if any, for attendance at each meeting of
the Board of Directors, and may be paid a fixed sum for attendance at each
meeting of the Board or may be paid a stated salary as director. No such payment
shall preclude any director from serving the Corporation in any other capacity
and receiving compensation therefor.
SECTION 11. Presumption of Assent. A director of the Corporation who is
present at a meeting of the Board of Directors at which action on any corporate
matter is taken shall be presumed to have assented to the action taken, unless
he objects at the beginning of the meeting to holding it or transacting
specified business at the meeting or he votes against or abstains from the
action taken.
SECTION 12. Constructive Presence at a Meeting. A member of the Board of
Directors may participate in a meeting of such Board by any means of
communication by which all persons participating in the meeting may
simultaneously hear each other during the meeting. Participating by such means
shall constitute presence in person at a meeting.
SECTION 13. Action Without a Meeting. Any action required or permitted by
law to be taken at any meeting of the Board or a committee thereof, may be taken
without a meeting if the action is taken by all members of the Board or of the
committee. The action must be evidenced by one or more written consents
describing the action taken and signed by each director or committee member. The
action so taken is effective when the last director signs the consent, unless
the consent specifies a difference effective date. A consent so signed has the
effect of a meeting vote and may be described as such in any document.
ARTICLE IV
Officers
SECTION 1. Number. The officers of the Corporation shall be a President, a
Secretary, and a Treasurer, each of whom shall be elected by the Board of
Directors. One or more Vice Presidents and such other officers and assistant
officers and agents as may be deemed necessary may be elected or appointed by
the Board of Directors.
<PAGE>
SECTION 2. Election and Term of Office. The officers of the Corporation to
be elected by the Board of Directors shall be elected annually by the Board of
Directors at the regular meeting of the Board of Directors held after each
annual meeting of the shareholders. If the election of officers shall not be
held at such meeting, such election shall be held as soon thereafter as may be
convenient. Each officer shall hold office until his successor shall have been
elected and qualified or until his earlier resignation, removal from office, or
death.
SECTION 3. Removal. Any officer or agent elected or appointed by the Board
of Directors may be removed by the Board of Directors whenever, in its judgment,
the best interests of the Corporation would be served thereby, but such removal
shall be without prejudice to the contract rights, if any, of the person so
removed. Election or appointment of an officer or agent shall not of itself
create contract rights.
SECTION 4. Vacancies. A vacancy, however occurring, in any office may be
filled by the Board of Directors for the unexpired portion of the term.
SECTION 5. President. The President shall be the principal executive
officer of the Corporation and, subject to the control of the Board of
Directors, shall in general supervise and control all of the business affairs of
the Corporation. He shall, when present, preside at all meetings of the
shareholders. The President shall also preside at the meetings of the Board of
Directors, unless the Board of Directors has elected a Chairman and the Chairman
is present at such meetings. The President may sign any deeds, mortgages, bonds,
contracts, or other instruments which the Board of Directors has authorized to
be executed, except in cases where the signing and execution thereof shall be
expressly delegated by the Board of Directors or by these bylaws to some other
officer or agent of the Corporation, or shall be required by law to be otherwise
signed or executed. The President shall in general perform all duties as from
time to time may be assigned to him by the Board of Directors.
SECTION 6. Vice President. In the absence of the President or in the event
of his death or his inability or refusal to act, the Vice President, if one is
elected, shall have the duties of the President, and when so acting, shall have
all the powers of, and be subject to all the restrictions upon, the President.
The Vice President, if one is elected, shall perform such other duties as from
time to time may be assigned to him by the President or the Board of Directors.
If more than one Vice President is elected, the Board of Directors shall
designate which Vice President shall serve until the election of a successor
President.
SECTION 7. Secretary. The Secretary shall: (a) keep the minutes of all the
meetings of the shareholders and the Board of Directors in one or more books
provided for that purpose; (b) see that all notices are duly given in accordance
with the provisions of these bylaws or as required by law; (c) be custodian of
the corporate records and of the seal of the Corporation and see that the seal
of the Corporation is affixed to all documents the execution of which on behalf
of the Corporation under its seal is duly authorized; (d) keep a register of the
post office address of each shareholder which shall be furnished to the
Secretary by such shareholder; (e) have general charge of the stock transfer
books of the Corporation; (f) authenticate all records of the Corporation; and
(g) in general, perform all duties incident to the office of Secretary and such
other duties as from time to time may be assigned to him by the President or by
the Board of Directors.
SECTION 8. Treasurer. The Treasurer shall: (a) have charge and custody of
and be responsible for all funds and securities of the Corporation; (b) receive
and give receipts for monies due and payable to the Corporation from any source
whatsoever, and deposit all such monies in the name of the Corporation in such
banks, trust companies, or other depositories as shall be selected in accordance
with the provisions of Article VI of these bylaws; (c) in general, perform all
of the duties incident to the office of Treasurer and such other duties as from
time to time may be assigned to him by the President or by the Board of
Directors. 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 surety
or sureties as the Board of Directors shall determine.
<PAGE>
SECTION 9. Compensation. The compensation of the officers shall be fixed
from time to time by the Board of Directors and no officer shall be prevented
from receiving such compensation by reason of the fact that he is also a
director of the Corporation.
ARTICLE V
Resignations
Any director of the Corporation may resign by delivering written notice to
the Board of Directors or its Chairman or to the Corporation. Any officer of the
Corporation may resign at any time by giving written notice to the Corporation.
Any such resignation shall take effect when delivered unless the notice
specifies a later effective date.
ARTICLE VI
Contracts, Loans, Checks, and Deposits
SECTION 1. Contracts. The Board of Directors may authorize any officer or
officers, agent or agents to enter into any contract or execute and deliver any
instrument in the name of and on behalf of the Corporation, unless otherwise
restricted by law. Such authority may be general or confined to specific
instances.
SECTION 2. Loans. No loans shall be contracted on behalf of the Corporation
and no evidence of indebtedness shall be issued in its name unless authorized by
a resolution of the Board of Directors. Such authority may be general or
confined to specific instances.
SECTION 3. Checks, Drafts, Etc. All checks, drafts, or other orders for the
payment of money, notes, or other evidences of indebtedness issued in the name
of the Corporation, shall be signed by such officer or officers, agent or agents
of the Corporation in such manner as shall from time to time be determined by
resolution of the Board of Directors.
SECTION 4. Deposits. All funds of the Corporation not otherwise employed
shall be deposited from time to time to the credit of the Corporation in such
banks, trust companies, or other depositories as the Board of Directors may
select.
ARTICLE VII
Certificates for Shares and Their Transfer
SECTION 1. Certificates for Shares. Certificates representing shares of the
Corporation shall be in such form as shall be determined by the Board of
Directors. Certificates shall be signed by the President or by such other
officers as authorized by law. All certificates for shares shall be
consecutively numbered or otherwise identified. The name and address of the
person to whom the shares represented thereby are issued, with the number of
shares and date of issue, shall be entered on the stock transfer books of the
Corporation. All certificates surrendered to the Corporation for transfer shall
be canceled, and no new certificate shall be issued until the former certificate
for a like number of shares shall have been surrendered and canceled, except
that in case of a lost, destroyed, or mutilated certificate, a new one may be
issued therefor upon such terms and indemnity to the Corporation as the Board of
Directors may prescribe.
<PAGE>
SECTION 2. Transfer of Shares. Transfer of shares of the Corporation shall
be made on the stock transfer books of the Corporation only when the holder of
record thereof or his legal representative, or his attorney thereunto authorized
by power of attorney duly executed and filed with the Secretary of the
Corporation, shall furnish proper evidence of authority to transfer, and when
there is surrendered for cancellation the certificate for such shares, properly
endorsed. The person in whose name shares stand on the books of the Corporation
shall be deemed by the Corporation to be the owner thereof for all purposes.
ARTICLE VIII
Fiscal Year
The fiscal year of the Corporation shall begin on January 1 and end on
December 31 in each year, except its first fiscal year, which shall begin on the
date of incorporation.
ARTICLE IX
Dividends
The Board of Directors may from time to time declare, and the Corporation
may pay, dividends on its outstanding shares in the manner and upon the terms
and conditions provided by law and its Articles of Incorporation.
ARTICLE X
Indemnification of Officers
Directors, Employees and Agents
SECTION 1. Indemnification. The Corporation shall, and does hereby,
indemnify and hold harmless to the fullest extent permitted or authorized by
current or future legislation or current or future judicial or administrative
decisions (but, in the case of any such future legislation or decisions, only to
the extent that it permits the Corporation to provide broader indemnification
rights than permitted prior to such legislation or decisions), each person
(including here and hereinafter, the heirs, executors, administrators, personal
representatives or estate of such person) who was or is a party, or is
threatened to be made a party, or was or is a witness, to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (a "Proceeding"), from, against and in respect
of any liability (which for purposes of this Article X shall include any
judgment, settlement, penalty or fine) or cost, charge or expense (including
attorneys' fees and expenses) asserted against him or incurred by him by reason
of the fact that such indemnified person (1) is or was a director or officer of
the Corporation or (2) is or was an employee or agent of the Corporation as to
whom the Corporation has agreed in writing to grant such indemnity or (3) is or
was serving, at the request of the Corporation, as a director, officer, employee
or trustee of another corporation, partnership, joint venture, trust or other
enterprise (including serving as a fiduciary of an employee benefit plan) or is
or was serving as an agent of such other corporation, partnership, joint
venture, trust or other enterprise, in each case, as to whom the Corporation has
agreed in writing to grant such indemnity. Each director, officer, employee or
agent of the Corporation as to whom indemnification rights have been granted
under this Section 1 of this Article X shall be referred to as an "Indemnified
Person."
<PAGE>
Notwithstanding the foregoing, except as specified in Section 3 of this
Article X, the Corporation shall not be required to indemnify an Indemnified
Person in connection with a Proceeding (or any part thereof) initiated by such
Indemnified Person unless the authorization for such Proceeding (or any part
thereof) was not denied by the Board of Directors of the Corporation within
sixty (60) days after receipt of notice thereof from such Indemnified Person
stating his intent to initiate such Proceeding and only then upon such terms and
conditions as the Board of Directors may deem appropriate.
SECTION 2. Advance of Costs, Charges and Expenses. Costs, charges and
expenses (including attorneys' fees and expenses) incurred by an officer or
director who is an Indemnified Person in defending a Proceeding shall be paid by
the Corporation, to the fullest extent permitted or authorized by current or
future legislation or current or future judicial or administrative decisions
(but, in the case of any such future legislation or decisions, only to the
extent that it permits the Corporation to provide broader rights to advance
costs, charges and expenses than permitted prior to such legislation or
decisions), in advance of the final disposition of such Proceeding, upon receipt
of an undertaking by or on behalf of the Indemnified Person to repay all amounts
so advanced in the event that it shall ultimately be determined that such person
is not entitled to be indemnified by the Corporation as authorized in this
Article X. The Corporation may, upon approval of the Indemnified Person,
authorize the Corporation's counsel to represent such person in any Proceeding,
whether or not the Corporation is a party to such Proceeding. Such authorization
may be made by the Chairman of the Board of Directors, unless he is a party to
such Proceeding, or by the Board of Directors by majority vote, including
directors who are parties to such Proceeding.
SECTION 3. Procedure for Indemnification. Any indemnification or advance
under this Article X shall be made promptly and in any event within forty-five
(45) days upon the written request of the Indemnified Person. The right to
indemnification or advances as granted by this Article X shall be enforceable by
the Indemnified Person in any court of competent jurisdiction, if the
Corporation denies such request under this Article, in whole or in part, or if
no disposition thereof is made within forty-five (45) days. Such Indemnified
Person's costs and expenses incurred in connection with successfully
establishing his right to indemnification or advances, in whole or in part, in
any such action shall also be indemnified by the Corporation. It shall be a
defense to any such action that the claimant has not met the standard of
conduct, if any, required by current or future legislation or by current or
future judicial or administrative decisions for indemnification (but, in the
case of any such future legislation or decisions, only to the extent that it
does not impose a more stringent standard of conduct than permitted prior to
such legislation or decision), but the burden of proving such defense shall be
on the Corporation. Neither the failure of the Corporation (including its Board
of Directors or any committee thereof, its independent legal counsel, and its
shareholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he has met the applicable standard of conduct, if any, nor the fact that
there has been an actual determination by the Corporation (including its Board
of Directors or any committee thereof, its independent legal counsel, or its
shareholders) that the claimant has not met such applicable standard of conduct,
shall be a defense to the action or create a presumption that the claimant has
not met the applicable standard of conduct.
<PAGE>
SECTION 4. Rights Not Exclusive; Contract Right; Survival. The
indemnification provided by this Article X shall not be deemed exclusive of any
other rights to which those indemnified may be entitled under any agreement,
vote of shareholders or disinterested directors or otherwise, both as to actions
in such person's official capacity and as to actions in another capacity while
holding such office, and shall continue as to an Indemnified Person who has
ceased to be a director, officer, employee or agent and shall inure to the
benefit of the heirs, executors, administrators, personal representatives and
estate of such person. All rights to indemnification and advances under this
Article X shall be deemed to be a contract between the Corporation and each
Indemnified Person who serves or served in such capacity at any time while this
Article X is in effect and, as such, are enforceable against the Corporation.
Any repeal or modification of this Article X or any repeal or modification of
relevant provisions of Florida's corporation law or any other applicable laws
shall not in any way diminish these rights to indemnification of or advances to
such Indemnified Person, or the obligations of the Corporation arising
hereunder, for claims relating to matters occurring prior to such repeals or
modification.
SECTION 5. Insurance. The Corporation may purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee, trustee or agent of another corporation,
partnership, joint venture, trust or other enterprise (including serving as a
fiduciary of an employee benefit plan), with respect to any liability asserted
against him and incurred by him in any such capacity or arising out of his
status as such, whether or not the Corporation would have the power to indemnify
him against such liability under the provisions of this Article X or the
applicable provisions of Florida law.
SECTION 6. Savings Clause. If this Article X or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify and hold harmless, and make advances
to, each Indemnified Person as to costs, charges and expenses (including
attorneys' fees), liabilities, judgments, fines and amounts paid in settlement
with respect to any Proceeding, including any action by or in the right of the
Corporation, to the full extent permitted by any applicable portion of this
Article X that shall not have been invalidated and as otherwise permitted by
applicable law.
ARTICLE XI
Seal
The Board of Directors shall provide a corporate seal which shall be circular in
form and shall have inscribed thereon the name of the Corporation, the state of
incorporation, and the words, "Corporate Seal."
<PAGE>
ARTICLE XII
Waiver of Notice
Unless otherwise provided by law, whenever any notice is required to be
given to any shareholder or director of the Corporation under the provisions of
these bylaws or under the provisions of its Articles of Incorporation, a waiver
thereof in writing, signed by the person or persons entitled to such notice,
whether before or after the time stated therein, shall be deemed equivalent to
the giving of such notice. ARTICLE XIII Rules of Order
Roberts' Rules of Order, Newly Revised, shall prescribe the rules of
conduct for all meetings of the Corporation so far as not inconsistent with the
laws of Florida, with the Articles of Incorporation, or with these bylaws.
ARTICLE XIV
Amendments
These bylaws may be altered, amended, or repealed and new bylaws may be
adopted by a vote of the Board of Directors.
ARTICLE XV
Corporate Records
The Corporation shall maintain in written form or in a form capable of
conversion into written form (a) permanent records of minutes of all meetings of
its shareholders and Board of Directors, or any committee thereof; or a record
of all action taken without a meeting of its shareholders or Board of Directors,
or any committee thereof; (b) accurate accounting records; (c) a record of its
shareholders in a form that permits preparation of a list of names and addresses
of all shareholders in alphabetical order by class of shares showing the number
and series held by each. Additionally, the Corporation shall keep a copy of (a)
its Articles of Incorporation and all amendments currently in effect; (b) its
Bylaws, or restated Bylaws, and all amendments currently in effect; (c)
resolutions adopted by its Board of Directors creating one or more classes or
series of shares and affixing their relative rights, preferences, and
limitations, if shares issued pursuant thereto are outstanding; (d) minutes of
all shareholders' meetings and records of all action taken by shareholders
without a meeting for the past three years; (e) written communications to all
shareholders, generally, or all shareholders of a class or series within the
past three years, including the financial statements furnished for the past
three years pursuant to the Florida Business Corporation Act; (f) a list of
names and business street addresses of its current Directors and officers; and
(g) its most recent annual report delivered to the Florida Department of State
pursuant to the Florida Business Corporation Act.
ARTICLE XVI
Emergency Bylaws
In the event that a quorum of the Corporation's Board of Directors cannot
readily be assembled because of a catastrophic event, the following emergency
bylaws are in effect until termination of the emergency:
<PAGE>
(a) Notice of a meeting of the Board of Directors need only be given
to those Directors whom it is practicable to reach and may be given in any
practicable manner, including by publication and radio;
(b) One or more officers of the Corporation present at the meeting of
the Board of Directors may be deemed to be Directors for the meeting, in
order of rank and within the same rank in order of seniority, as necessary
to achieve a quorum; and
(c) The Director or Directors in attendance at a meeting shall
constitute a quorum.
The Corporation's bylaws not inconsistent with the emergency bylaws shall
remain in effect during an emergency. During an emergency as set forth herein,
the Board of Directors may:
(a) Modify lines of succession to accommodate the incapacity of any
director, officer, employee, or agent; and
(b) Relocate the principal office or designate alternative principal
or regional offices or authorize the officers to do so.
<PAGE>
EXHIBIT C
COMPLETE AND FINAL RELEASE
WHEREAS, Ocean Ranch Development, Inc., a Florida corporation ("Ocean
Ranch"), James E. Lambert, James R. Lambert and Daniel Lambert (each a
"Shareholder" and collectively, the "Shareholders") have entered into the
Agreement and Plan of Merger, dated as of December 10, 1997 (the "Merger
Agreement"), among Fairfield Communities, Inc., a Delaware corporation
("Fairfield"), Fairfield Ocean Ranch, Inc., a Florida corporation and a
wholly owned subsidiary of Fairfield ("Merger Sub"), the Shareholders and
Ocean Ranch;
WHEREAS, pursuant to the Merger Agreement the Shareholders have agreed
to deliver, and in consideration of the payment of the PPM Loan Amount (as
defined in the Merger Agreement) PPM Brokerage Service, Inc. ("PPM") has
agreed to deliver, a complete and final release of all claims against Ocean
Ranch, Ocean Ranch Vacation Group, a Florida general partnership (the
"Partnership") and its partners; and
WHEREAS, each of the Shareholders acknowledges that he has read and
understands this Release, that he has conferred with his counsel concerning
the effect of this Release, and he is executing this Release of his own
free will.
NOW, THEREFORE, each of the Shareholders, for himself and his
affiliates, legal representatives, heirs, successors and assigns, and PPM,
for itself and its affiliates, successors and assigns, does hereby fully
and forever release, relinquish, acquit and discharge (a) Ocean Ranch, its
successors and assigns, and its and their shareholders, directors,
officers, attorneys, employees, agents, representatives and assets, and all
persons or entities in privity with them or any of them from (i) all debts,
obligations, liabilities, liens and duties under the PPM Loan, (ii) all
claims in respect of loans, advances, project management or marketing fees
or other obligations, and (iii) any and all actions, causes of action,
claims, suits, debts, sums of money, accounts, bonds, bills, covenants,
contracts, agreements, promises, damages, judgments, claims and demands
whatsoever, in law or equity, whether known or unknown and whether now
existing or hereafter arising including, without limitation, any matter
described on Schedule 3.2(j) to the Merger Agreement, except claims arising
under Sections 5.1, 5.2 and 5.3 of the Merger Agreement, and (b) the
Partnership, its successors, assigns and partners, and its and their
directors, officers, attorneys, employees, agents, representatives, and
assets, and all persons or entities in privity with them or any of them
from (i) all debt, obligations, liabilities, liens and duties under the
Partnership Agreement (as defined in the Merger Agreement), (ii) all claims
in respect of loans, advances, project management or marketing fees or
other obligations, and (iii) all actions, causes of action, claims, suits,
debts, sums of money, accounts, bonds, bills, covenants, contracts,
agreements, promises, damages, judgments, claims and demands whatsoever, in
law or equity, whether known or unknown and whether now existing or
hereafter arising including, without limitation, any matter described on
Schedule 3.2(j) to the Merger Agreement, except claims arising under
Sections 5.1, 5.2 and 5.3 of the Merger Agreement.
<PAGE>
The Shareholders and PPM hereby covenant and agree with Ocean Ranch
and the Partnership to sign, seal, execute and deliver, or cause to be
signed, sealed, executed and delivered, and to make or cause to be done or
made, upon the reasonable request of Ocean Ranch or the Partnership, any
and all agreements, instruments, papers, deeds, acts or things,
supplemental, confirmatory or otherwise, as may reasonably be required by
Ocean Ranch or the Partnership for the purpose of, or in connection with,
the releases granted hereunder.
IN WITNESS WHEREOF, this Complete and Final Release is executed as of
the 19th day of December, 1997.
/s/James E. Lambert
------------------------------
James E. Lambert
/s/James R. Lambert
------------------------------
James R. Lambert
/s/Daniel Lambert
-----------------------------
Daniel Lambert
PPM BROKERAGE SERVICE, INC.
By: /s/Linda M. Fenner
----------------------------------
Name: Linda M. Fenner
----------------------------------
Title: President
---------------------------------
<PAGE>
EXHIBIT D
AGREEMENT OF ASSUMPTION
This AGREEMENT OF ASSUMPTION (the "Assumption Agreement"), is made and
entered into as of December 19, 1997, by and among James E. Lambert ("JL"),
Ocean Ranch Development, Inc., a Florida corporation ("Ocean Ranch"), Ralph
P. Muller ("RM") and Kevin M. Sheehan ("KS" and together with RM, the
"Delegees"). Capitalized terms used and not otherwise defined in this
Agreement have the meanings ascribed to those terms in the Merger Agreement
referred to below.
WHEREAS, pursuant to the terms and provisions of that certain
Agreement and Plan of Merger (the "Merger Agreement"), dated as of December
10, 1997, among Fairfield Communities, Inc., a Delaware corporation
("Fairfield"), Fairfield Ocean Ranch, Inc., a Florida corporation and a
wholly owned subsidiary of Fairfield ("Merger Sub"), JL, James R. Lambert,
Daniel Lambert and Ocean Ranch, Merger Sub will merge with and into Ocean
Ranch, with Ocean Ranch as the surviving corporation (the "Merger") and, as
a result of the Merger, Ocean Ranch will become a wholly owned subsidiary
of Fairfield;
WHEREAS, as a condition to the willingness of Fairfield and Merger Sub
to consummate the transactions contemplated by the Merger Agreement, and in
order to induce Fairfield and Merger Sub to consummate the transactions
contemplated by the Merger Agreement, each of the Delegees is willing to
assume and agree to pay, perform and discharge the Capital Contribution
Loan; and
WHEREAS, the execution and delivery by the Delegees of this Assumption
Agreement is a condition precedent to the obligations of the parties to the
Merger Agreement to consummate the transactions contemplated by the Merger
Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and intending to be legally
bound hereby, the parties hereto hereby agree as follows:
1. Assumption. Ocean Ranch hereby delegates to the Delegees, and
RM, to the extent of 80% of all liabilities and obligations hereunder,
and KS, to the extent of 20% of all liabilities and obligations
hereunder, severally, hereby assume and agree to pay, perform or
otherwise discharge in full the principal amount of $1,500,000,
together with interest thereon at the rate of 6% per annum to the date
of payment thereof, as and when the same shall become due and payable
in accordance with the terms and provisions of the Capital
Contribution Loan Documents, as modified hereby.
2. Modification of Payment Terms. JL covenants and agrees with
the Delegees and Ocean Ranch that, notwithstanding any contrary
provision of the Capital Contribution Loan Documents, JL shall accept
payment of the principal amount of $1,500,000 together with interest
thereon at the rate of 6% per annum to the date of payment thereof, on
or before June 30, 1998 in full payment and satisfaction of the
Capital Contribution Loan.
<PAGE>
3. Consent and Acknowledgment. JL hereby represents and warrants
that JL is the sole obligee of the Capital Contribution Loan and no
other person or entity has any other rights under the Capital
Contribution Loan. JL hereby acknowledges and consents to the
delegation to the Delegees and the assumption by the Delegees of the
Capital Contribution Loan. JL agrees to accept the assumption of the
Capital Contribution Loan and the agreement by the Delegees to pay the
Capital Contribution Loan as modified hereby in full substitution for
Ocean Ranch under the Capital Contribution Loan Documents. JL further
agrees that Ocean Ranch and its affiliates (other than the Delegees)
shall have no further liability with respect to the Capital
Contribution Loan.
4. Further Assurances. The Delegees hereby covenant and agree
with Ocean Ranch and JL to sign, seal, execute and deliver, or cause
to be signed, sealed, executed and delivered, and to make or cause to
be done or made, upon the reasonable request of Ocean Ranch or JL, any
and all agreements, instruments, papers, deeds, acts or things,
supplemental, confirmatory or otherwise, as may reasonably be required
by Ocean Ranch or JL for the purpose of, or in connection with, the
assumption by the Delegees of the Capital Contribution Loan.
5. Release. JL, for himself and his affiliates, legal
representatives, heirs, successors and assigns, does hereby fully and
forever release, relinquish, acquit and discharge Ocean Ranch,
Fairfield, and Ocean Ranch Vacation Group, a Florida general
partnership, and their successors and assigns, and their respective
shareholders, directors, officers, partners, attorneys, employees,
agents, representatives and assets, and all persons or entities in
privity with them or any of them from all claims, debts, obligations,
liabilities, liens and duties under the Capital Contribution Loan.
6. Miscellaneous. This Assumption Agreement is made for and shall
inure to the benefit of Ocean Ranch and its successors and assigns,
and this Assumption Agreement shall be governed by, enforced in
accordance with, and interpreted under the internal substantive laws
of the State of Florida, without giving effect to the principles
thereof relating to conflicts of law.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have signed this
Assumption Agreement personally or by their respective officers
thereunto duly authorized this 19th day of December, 1997.
/s/James E. Lambert
---------------------------------
James E. Lambert
OCEAN RANCH DEVELOPMENT, INC.
By: /s/Daniel Lambert
-------------------------------
Name: Daniel Lambert
-------------------------------
Title: President
-------------------------------
/s/Ralph P. Muller
---------------------------------
Ralph P. Muller
/s/Alice Muller
---------------------------------
Alice Muller
/s/Kevin M. Sheehan
---------------------------------
Kevin M. Sheehan
ACKNOWLEDGED AND AGREED
AS TO SECTION 5 OF
THIS ASSUMPTION AGREEMENT:
FAIRFIELD COMMUNITIES, INC.
By:/s/ Robert W. Howeth
---------------------------
Robert W. Howeth
Title: Senior Vice President and
Chief Financial Officer
<PAGE>
OCEAN RANCH VACATION GROUP
By: Ocean Ranch Development, Inc.,
General Partner
By: /s/ Daniel Lambert
--------------------------------
Name: Daniel Lambert
------------------------------
Title: President
------------------------------
<PAGE>
Schedule 6.3(h)
OPINION OF COUNSEL FOR
SHAREHOLDERS AND OCEAN RANCH
1. Ocean Ranch is a corporation duly organized, validly existing and in
good standing under the laws of the State of Florida, has full power to own its
properties and to the knowledge of counsel, to carry on the business currently
being conducted by it, and to the knowledge of counsel, does not conduct
business in any state other than Florida. To the knowledge of counsel, Ocean
Ranch does not now own and has never owned any capital stock or any equity
interest in any corporation, limited liability company, partnership or other
entity except the Interest.
2. The execution, delivery, and consummation of the Agreement has been duly
authorized each of the Shareholders and Ocean Ranch and approved by all
necessary action. The Agreement has been duly executed and delivered by each
Shareholder and Ocean Ranch and constitutes the valid and binding agreement of
each of them enforceable in accordance with its terms.
3. To the knowledge of counsel, neither the execution of the Agreement nor
the consummation of the transactions contemplated thereby will result in the
breach of any term or provision of, or constitute a default under, or be in
violation of any charter provision, bylaw, agreement, instrument, order, law or
regulation to which any Shareholder, Ocean Ranch and/or the Partnership is a
party or which is otherwise applicable.
4. To the knowledge of counsel, there is not (i) any pending or threatened
actions, suits, proceedings or investigations against or affecting Ocean Ranch
or the Interest or (ii) any currently existing order, writ, injunction or decree
to which Ocean Ranch is subject.
5. To the knowledge of counsel, Ocean Ranch and the Partnership are and
have at all times been, in compliance in all material respects with all
applicable laws, rules and regulations and orders.
6. To the knowledge of counsel, there is no fact or circumstance that would
cause any representation or warranty, in whole or in part, of Shareholders and
Ocean Ranch contained in the Agreement not to be true.
<PAGE>
SCHEDULE 3.2(i)
None
<PAGE>
SCHEDULE 3.2(j)
None
<PAGE>
SCHEDULE 3.2(k)
None
<PAGE>
SCHEDULE 3.2(l)
None
<PAGE>
SCHEDULE 3.2(r)
None
<PAGE>
SCHEDULE 3.2(t)
None
<PAGE>
SCHEDULE 6.1(c)
None
<PAGE>
SCHEDULE 6.3(g)
None
<PAGE>
SCHEDULE 6.3(h)
None
AGREEMENT AND PLAN OF MERGER
among
FAIRFIELD COMMUNITIES, INC.,
FC PALMAIRE, INC.,
THE BERKLEY GROUP, INC.
and
PALM RESORT GROUP, INC.
Dated as of December 10, 1997
<PAGE>
i
TABLE OF CONTENTS
PAGE
ARTICLE I
THE MERGER.......................................................1
1.1 The Merger..................................................1
1.2 Closing.....................................................1
1.3 Effective Time..............................................2
1.4 Effect of the Merger........................................2
1.5 Articles of Incorporation...................................2
1.6 Bylaws......................................................2
1.7 Directors...................................................2
1.8 Officers....................................................2
ARTICLE II
EFFECTS OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES...............2
2.1 Effect on Capital Stock.....................................2
2.2 Surrender and Payment for Shares............................3
2.3 Transfer of Shares After the Effective Time.................3
ARTICLE III
REPRESENTATIONS AND WARRANTIES...................................3
3.1 Representations and Warranties of Fairfield and Merger Sub..3
3.2 Representations and Warranties of Shareholder
and Palm Resort............................................4
3.3 Additional Representation of Shareholder....................10
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS........................10
4.1 No Solicitation.............................................10
4.2 Conduct of Business Prior to Effective Time.................11
4.3 Access to Information.......................................12
4.4 Investigation by Fairfield..................................13
4.5 Inspection..................................................13
4.6 Regulatory Compliance.......................................13
4.7 Covenants of Fairfield......................................13
ARTICLE V
ADDITIONAL AGREEMENTS............................................13
5.1 Confidentiality.............................................13
5.2 Indemnification of Shareholder..............................14
5.3 Indemnification of Fairfield................................14
5.4 Procedures for Indemnity....................................14
5.5 Exclusivity Of Indemnification For Contractual Breaches.....15
5.6 Reasonable Efforts..........................................16
<PAGE>
5.7 Expenses and Fees...........................................16
5.8 Consents....................................................16
5.9 Repayment of PPM Loan; Release of Claims....................16
5.10 Delivery of Information....................................16
5.11 Tax Matters................................................16
ARTICLE VI
CONDITIONS PRECEDENT; CLOSING....................................20
6.1 Conditions to Each Party's Obligation to Effect the Merger..20
6.2 Conditions to Obligations of Palm Resort and Shareholder....21
6.3 Conditions to Obligations of Fairfield and Merger Sub.......21
6.4 Frustration of Closing Conditions...........................22
6.5 Closing Documents and Procedures............................22
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER................................24
7.1 Termination.................................................24
7.2 Effect of Termination.......................................25
7.3 Amendment...................................................25
7.4 Extension; Waiver...........................................25
ARTICLE VIII
GENERAL PROVISIONS...............................................25
8.1 Survival of Representations and Warranties..................25
8.2 Notices.....................................................25
8.3 Definitions.................................................26
8.4 Interpretation..............................................28
8.5 Counterparts................................................28
8.6 Entire Agreement; No Third-party Beneficiaries..............28
8.7 Governing Law...............................................28
8.8 Assignment..................................................29
8.9 Enforcement.................................................29
<PAGE>
AGREEMENT AND PLAN OF MERGER dated as of December 10, 1997 (this
"Agreement"), among FAIRFIELD COMMUNITIES, INC., a Delaware corporation
("Fairfield"), FC PALM-AIRE, INC., a Florida corporation and a wholly owned
subsidiary of Fairfield ("Merger Sub"), THE BERKLEY GROUP, INC., a Florida
corporation ("Shareholder") and PALM RESORT GROUP, INC., a Florida corporation
("Palm Resort").
WHEREAS, the respective Boards of Directors of Fairfield, Merger Sub,
Shareholder and Palm Resort each have determined that it is in the best
interests of their respective stockholders for Merger Sub to merge with and into
Palm Resort (the "Merger"), upon the terms and subject to the conditions set
forth in this Agreement;
WHEREAS, Shareholder holds all of the outstanding capital stock of Palm
Resort;
WHEREAS, the respective Boards of Directors of Fairfield, Merger Sub
and Palm Resort have each determined that the Merger and the other transactions
contemplated under this Agreement are consistent with, and in furtherance of,
their respective business strategies and goals; and
WHEREAS, Fairfield, Merger Sub, Shareholder and Palm Resort desire to
make certain representations, warranties, covenants and agreements in connection
with the transactions contemplated by this Agreement and also to prescribe
various conditions to the Merger.
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained in this Agreement, the parties hereto agree
as follows:
ARTICLE I
THE MERGER
I.1 The Merger. Upon the terms and subject to the conditions set forth
in this Agreement, and in accordance with the Florida Business Corporation Act
(the "FBCA"), Merger Sub shall be merged with and into Palm Resort at the
Effective Time (as hereinafter defined). Following the Merger, the separate
corporate existence of Merger Sub will cease and Palm Resort will continue as
the surviving corporation (the "Surviving Corporation") and will succeed to and
assume all the rights and obligations of Merger Sub in accordance with the FBCA.
I.2 Closing. The closing of the Merger (the "Closing") will take place
at 10:00 a.m. on the date that is two business days after the expiration of the
Inspection Period (the "Closing Date"), at the offices of Jones, Day, Reavis &
Pogue, 2300 Trammell Crow Center, 2001 Ross Avenue, Dallas, Texas 75201, unless
another date, time or place is agreed to in writing by all of the parties
hereto.
I.3 Effective Time. Subject to the provisions of this Agreement, as
soon as practicable on or after the Closing Date the parties shall deliver
Articles of Merger (the "Articles of Merger") executed in accordance with the
relevant provisions of the FBCA to the Florida Department of State for filing as
required under the FBCA and shall make all other filings or recordings required
under the FBCA. The Merger shall become effective at such time (the "Effective
Time") as the Articles of Merger are accepted for filing by the Florida
Department of State (or such later time as stated in the Articles of Merger and
permitted by the Florida Department of State), which will be the Closing Date or
as soon as practicable thereafter.
<PAGE>
I.4 Effect of the Merger. The Merger shall have the effects set forth
in Section 607.1106 of the FBCA.
I.5 Articles of Incorporation. Articles of incorporation of Palm Resort
shall be amended to read in their entirety as set forth in Exhibit A attached
hereto and shall be the articles of incorporation of the Surviving Corporation
until thereafter changed or amended as provided therein or by applicable law.
I.6 Bylaws. The bylaws of Palm Resort shall be amended to read in their
entirety as set forth in Exhibit B and shall be the bylaws of the Surviving
Corporation following the Merger until thereafter changed or amended as provided
therein or by applicable law.
I.7 Directors. The directors of Merger Sub at the Effective Time shall
be the directors of the Surviving Corporation following the Merger, until the
earlier of their resignation or removal or until their respective successors are
duly elected and qualified, as the case may be.
I.8 Officers. The officers of Merger Sub at the Effective Time shall be
the officers of the Surviving Corporation following the Merger, until the
earlier of their resignation or removal or until their respective successors are
duly elected and qualified, as the case may be.
ARTICLE II
EFFECTS OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES
II.1 Effect on Capital Stock. As of the Effective Time, by virtue of
the Merger and without any action on the part of the holder of any shares of the
capital stock of the constituent corporations:
(a) Merger Consideration. All of the shares of Common Stock,
par value $1.00 per share, of Palm Resort (the "Palm Resort Common
Stock") issued and outstanding immediately prior to the Effective Time
(other than shares of Palm Resort Common Stock, if any, to be canceled
under Section 2.1(c)), shall be converted into the right to receive a
cash payment in an aggregate amount equal to $6,500,000 (the "Merger
Consideration").
(b) Certificates. All shares of Palm Resort Common Stock to be
converted into the right to receive the Merger Consideration pursuant
to this Section 2.1 shall cease to be outstanding, shall be canceled
and retired and shall cease to exist, and each holder of a certificate
representing any such shares of Palm Resort Common Stock shall
thereafter cease to have any rights with respect to such shares of Palm
Resort Common Stock, except the right to receive for each of the shares
of Palm Resort Common Stock, upon the surrender of such certificate in
accordance with Section 2.2, the amount of Merger Consideration
specified in Section 2.2.
<PAGE>
(c) Treasury Shares. Shares of Palm Resort Common Stock, if
any, held by Palm Resort as treasury stock immediately prior to the
Effective Time shall cease to be outstanding, shall be canceled and
retired without payment of any consideration therefor, and shall cease
to exist.
(d) Stock of Merger Sub. Each share of common stock, par value
$.01 per share, of Merger Sub issued and outstanding immediately prior
to the Effective Time shall be converted into and exchanged for one
validly issued, fully paid and nonassessable share of common stock of
the Surviving Corporation.
II.2 Surrender and Payment for Shares. At the Closing, the Shareholder
will deliver to Fairfield a certificate or certificates representing all of the
shares of Palm Resort Common Stock outstanding immediately prior to the
Effective Time. Fairfield shall deliver to Shareholder the Merger Consideration
by wire transfer of immediately available funds to such account as is designated
by Shareholder at least two business days prior to the Closing.
II.3 Transfer of Shares After the Effective Time. No transfers of
shares of Palm Resort Common Stock shall be made on the stock transfer books of
Palm Resort after the close of business on the day prior to the date of the
Effective Time.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
III.1 Representations and Warranties of Fairfield and Merger Sub.
Fairfield and Merger Sub represent and warrant to Palm Resort and Shareholder as
follows:
(a) Organization. Each of Fairfield and Merger Sub is a
corporation duly organized, validly existing and in good standing under
the laws of its jurisdiction of incorporation.
(b) Binding Agreement. Each of Fairfield and Merger Sub has
full corporate power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby and
has taken all necessary corporate action to authorize the execution and
delivery of this Agreement and to consummate the transactions
contemplated hereby. This Agreement has been duly executed and
delivered by Fairfield and Merger Sub and constitutes the valid and
binding agreement of Fairfield and Merger Sub enforceable in accordance
with its terms.
<PAGE>
(c) Governmental Approvals. No consent, approval, order, or
authorization of, or declaration, filing, or registration with, any
Governmental Entity is required to be obtained or made by Fairfield or
Merger Sub in connection with the execution, delivery, or performance
by Fairfield and Merger Sub of this Agreement or the consummation by
Fairfield and Merger Sub of the transactions contemplated hereby, other
than such consents, approvals, orders, or authorizations that, if not
obtained, and such declarations, filings, or registrations that, if not
made, would not, individually or in the aggregate, have a material
adverse effect on Fairfield and its Subsidiaries considered as a whole.
(d) Broker's Fee. Fairfield has not made any agreement or
taken any other action which might cause anyone to become entitled to a
broker's fee or commission as a result of the transactions contemplated
under this Agreement, except for the engagement by Fairfield of any
financial advisor, broker, agent or finder for which Fairfield will
have full liability for the payment of any such broker's fee or
commission.
(e) Merger Sub. Merger Sub is a newly formed direct wholly
owned subsidiary of Fairfield formed solely for the purpose of engaging
in this transaction. As of the Effective Time, Merger Sub will not have
conducted any business nor will it own any significant assets or owe
any significant liabilities.
III.2 Representations and Warranties of Shareholder and Palm Resort.
Shareholder and Palm Resort hereby jointly and severally represent and warrant
to Fairfield and Merger Sub as follows:
(a) Organization. Palm Resort is a corporation duly organized,
validly existing and in good standing under the laws of the State of
Florida. Palm Resort has full power to own its properties and to carry
on the business currently being conducted by it, and does not conduct
business in any state other than Florida. Palm Resort does not now own
and has never owned any capital stock or any equity interest in any
corporation, limited liability company, partnership or other entity
other than its ownership of the Interest and has no Subsidiary other
than the Partnership.
(b) Binding Agreement. The execution, delivery, and
consummation of this Agreement has been duly authorized by each of the
Shareholder and Palm Resort and approved by all necessary action. This
Agreement has been duly executed and delivered by Palm Resort and
Shareholder and constitutes the valid and binding agreement of each of
them enforceable in accordance with its terms.
(c) No Breach. Neither the execution of this Agreement nor the
consummation of the transactions contemplated hereby will (i) result in
the breach of any term or provision of, or constitute a default under,
or be in violation of any charter provision, bylaw, agreement,
instrument, order, law or regulation to which Shareholder, Palm Resort
and/or the Partnership is a party or which is otherwise applicable,
(ii) result in the creation or imposition of any Lien upon any of the
property or assets of the Shareholder, Palm Resort or the Partnership,
(iii) violate any Applicable Law binding upon the Shareholder, Palm
Resort, or the Partnership, or (iv) violate the terms of or constitute
a default under, any note, bond, mortgage, indenture, or other contract
between third parties and the Shareholder, Palm Resort or the
Partnership or by which the Shareholder, Palm Resort or the Partnership
may be bound or result in the termination, acceleration or amendment
thereof, except, in the case of clauses (ii) and (iii) above, for any
such conflicts, violations or Liens that would not, individually or in
the aggregate, have a material adverse effect on Palm Resort or the
Partnership.
<PAGE>
(d) Governmental Approvals. No consent, approval, order, or
authorization of, or declaration, filing, or registration with, any
Governmental Entity is required to be obtained or made by Shareholder,
Palm Resort or the Partnership in connection with the execution,
delivery, or performance by Shareholder and Palm Resort of this
Agreement or the consummation by it of the transactions contemplated
hereby.
(e) Partnership Capitalization; Title to Partnership
Interests. Except as otherwise set forth in the Partnership Agreement,
Palm Resort owns and holds the Interest beneficially and of record and
free and clear of any Liens and of any right of assignment or options
of any third party. Palm Resort has paid in full and is not in default
with respect to any capital contribution required to be paid by it
pursuant to the Partnership Agreement. There are no rights, options,
subscriptions, or other agreements of any kind to purchase or to
acquire, receive or be issued any interest in respect of the Interest
existing in favor of any person, and there are no agreements of any
kind to which Palm Resort is a party, other than the Partnership
Agreement and this Agreement, providing for or restricting the
governance or control of the Partnership or the issuance or transfer,
directly or indirectly, of any interest in the Interest. Except as set
forth in the Partnership Agreement, Palm Resort has no agreements or
commitments of any kind in its capacity as a general partner of the
Partnership to cause the Partnership to contribute, make loans, or
guarantee the contribution or loan of any Person, whether directly or
indirectly, and after the Closing with respect to the Partnership,
Fairfield shall not be deemed to have assumed, been assigned or
otherwise be obligated or responsible for any such agreement or
commitment to the Partnership. The Partnership Agreement is in full
force and effect.
<PAGE>
(f) Financial Statements. Shareholder and Palm Resort have
furnished to Fairfield unaudited balance sheets of Palm Resort as of
December 31, 1996 and the related unaudited statements of operations
for the fiscal year then ended and the unaudited balance sheet of Palm
Resort as of November 30, 1997 and the related unaudited statements of
operations for the interim period then ended (the "Unaudited Financial
Statements"). Those financial statements fairly present the financial
position of Palm Resort at, and the results of operations for the
periods ending on, such dates, in a consistent manner throughout the
periods indicated and were prepared based on the books and records
maintained for Palm Resort's business. Except as disclosed in the
Unaudited Financial Statements (which includes the notes thereto), Palm
Resort has no liabilities (contingent, accrued, actual or otherwise)
that were not provided or reserved for in the November 30, 1997 balance
sheet, other than liabilities incurred since the date of the November
30, 1997 balance sheet in the ordinary course of business; and all
reserves established by Palm Resort and reflected in the November 30,
1997 balance sheet were at the times they were established, adequate
for the purposes indicated therein; subject, however, to the limitation
that Palm Resort has not accrued reserves for tax liabilities.
Fairfield acknowledges such limitation of the Unaudited Financial
Statements. Except as disclosed in the Unaudited Financial Statements,
since November 30, 1997, Palm Resort has not: (i) declared or set aside
or paid any dividend or made any payment or distribution in respect of
shares of its capital stock; (ii) made any loans or advances to any
person; (iii) entered into any transaction with any affiliate of Palm
Resort or Shareholder; (iv) incurred any indebtedness for money
borrowed; or (v) made or entered into any agreement or understanding to
do any of the foregoing.
(g) Assets. (i) Palm Resort does not have, and has not had,
any assets or properties, whether tangible or intangible, real,
personal or mixed, owned or leased other than the Interest. Palm Resort
is not a party to any leases, subleases, rental agreements, contracts
of sale, tenancies or licenses of any assets or properties. The
Interest constitutes all the properties and assets reflected in the
Unaudited Financial Statements and all the assets necessary for the
conduct by Palm Resort of its business as now conducted.
(h) Proceedings. There are currently no pending, and
Shareholder and Palm Resort are not aware of any threatened, actions,
suits, proceedings or investigations against or affecting Palm Resort
or the Interest. Palm Resort is not subject to any currently existing
order, writ, injunction or decree. The Shareholder and Palm Resort are
not aware of any actions, suits, proceedings or investigations pending
or threatened by or before any court or Governmental Entity (i) against
or affecting the Partnership or the Resort Property or arising out of
the development, construction, operation, maintenance or management of
the Resort Property or (ii) that would prevent or hinder the
performance by Shareholder or Palm Resort of its obligations under this
Agreement.
(i) Compliance With Laws. Palm Resort and to the knowledge of
Shareholder and Palm Resort, the Partnership, are and have at all times
been, in compliance in all material respects with all applicable laws,
rules, regulations and orders. There are no pending or, to the
knowledge of Shareholder and Palm Resort, proposed laws or governmental
rules that have been submitted in writing to any Governmental Entity
for due consideration that, if enacted, would have a material adverse
effect on Palm Resort, the Resort Property or the Partnership. Except
as set forth in Schedule 3.2(i), none of Shareholder or Palm Resort is
charged or, to each of their knowledge, threatened with, or, is under
investigation with respect to, any violation of any provision of any
applicable law, rule, regulation or order.
(j) Claims. Except as set forth in the Partnership Agreement,
there are no claims of the Partnership against, or any obligation owed
to the Partnership by, Palm Resort, or Shareholder. No affiliate of
Palm Resort or Shareholder is owed any obligation by the Partnership,
or holds a claim against the Partnership, except as set forth on
Schedule 3.2(j).
<PAGE>
(k) PPM Loan. Schedule 3.2(k) sets forth a true, complete and
correct list of all documents relating to indebtedness for money
borrowed from, or any other obligations or liabilities of Palm Resort
or the Partnership to, PPM Brokerage Service, Inc. ("PPM;" all such
indebtedness, obligations and liabilities, the "PPM Loan"), including,
without limitation, promissory notes and all mortgages and other
collateral security instruments that secure the PPM Loan and encumber
the Resort Property, including all amendments or supplements thereto
(collectively, the "PPM Loan Documents"). The PPM Loan Documents are in
full force and effect and have not been further modified or amended.
PPM is the sole obligee of the PPM Loan. As of December 19, 1997 the
outstanding principal balance of and accrued interest on the PPM Loan
was $3,620,975 and $399,302, respectively, and no penalties, fees or
other amounts are due or payable with respect to the PPM Loan except
expenses of $30,000. For purposes of this Agreement, "PPM Loan Amount"
shall mean $4,050,277.
(l) Partnership Agreement and Marketing Agreements. To the
best knowledge of Shareholder and Palm Resort, neither partner of the
Partnership is in violation of either the Partnership Agreement or any
marketing agreements to which either entity is subject.
(m) Adverse Change. Since the date of the Unaudited Financial
Statements, Palm Resort has not made or experienced any material
adverse change in its working capital, financial condition, assets,
liabilities, reserves, business, operations or prospects.
(n) Employees. Palm Resort does not have, and has not had, any
employees and has no obligation to contribute any amount to any Person
in respect of the compensation, accrued benefits, or vacation and sick
leave of any Person. Palm Resort is not a party to any collective
bargaining agreements.
(o) Environmental Matters. Palm Resort has not and, to the
knowledge of Shareholder and Palm Resort, the Partnership and the
Resort Property have not been associated with any spill, disposal,
discharge or release of any hazardous materials (which includes any
hazardous or toxic substance, material or waste which is regulated by
any Governmental Entity) into or upon or over any real property or into
or upon ground or surface water including without limitation in either
case, any real property that is or has been leased by Palm Resort or
the Partnership.
(p) Broker's Fee. Neither Palm Resort nor Shareholder has made
any agreement or taken any other action which might cause anyone to
become entitled to a broker's fee or commission as a result of the
transactions contemplated under this Agreement.
<PAGE>
(q) Capitalization. The authorized capital stock of Palm
Resort consists of 7,500 shares of Palm Resort Common Stock, of which
100 shares are issued and outstanding. All outstanding shares of Palm
Resort Common Stock have been duly authorized and validly issued, are
fully paid and nonassessable, and are owned by Shareholder. No options,
warrants, subscriptions, rights of conversion or exchange exist that
may obligate Palm Resort to issue any additional capital stock. Neither
Palm Resort nor Shareholder is party to shareholder, voting or similar
agreement or arrangement of any kind affecting or restricting the sale,
transfer, disposition, voting or other rights of or relating to the
Palm Resort Common Stock, other than the Partnership Agreement. Set
forth on Schedule 3.2(q) are the number and percentage of shares of
Palm Resort Common Stock held of record by Shareholder.
(r) Benefit Plans; Labor Relations. Palm Resort has no
"employee benefit plan," as such term is defined in Section 3(3) of
ERISA or other plan, program, policy, contract or arrangement providing
for bonuses, pensions, deferred pay, stock or stock related awards,
severance pay, salary continuation or similar benefits,
hospitalization, medical, dental or disability benefits, life insurance
or other employee benefits, or compensation to or for any current or
former employees, agents, directors, or independent contractors of Palm
Resort ("Palm Resort Employees") or any beneficiaries or dependents of
any Palm Resort employees.
(s) Taxes.
(i) All Tax Returns (as defined in paragraph (iv)
below) required to be filed by Palm Resort or Shareholder have
been duly filed on a timely basis with the appropriate
federal, state, local and foreign tax authorities, or requests
for extensions to file such returns or reports have been
timely filed and granted and have not expired, and all such
Tax Returns are complete and accurate in all material
respects. Palm Resort and the Shareholder have paid or made
adequate provision in the Unaudited Financial Statements for
all Taxes (as defined in paragraph (iv) below) shown as due
from each of them on such Tax Returns. No claim has been made
by any authority in a jurisdiction where Palm Resort does not
file Tax Returns that it is or may be subject to taxation by
that jurisdiction. The Unaudited Financial Statements reflect
adequate reserves for all Taxes payable by Palm Resort for all
taxable periods and portions thereof accrued through the date
of such financial statements, and no deficiencies for any
Taxes have been proposed, asserted or assessed against Palm
Resort that are not adequately reserved for, except for
inadequately reserved Taxes and inadequately reserved
deficiencies that would not, individually or in the aggregate,
have a material adverse effect on Palm Resort. There are no
liens for Taxes (other than for current Taxes not yet due and
payable) on the assets of Palm Resort. No requests for waivers
of the time to assess any Taxes against Palm Resort have been
granted or are pending, except for requests with respect to
such Taxes that have been adequately reserved for in the
Unaudited Financial Statements. Palm Resort is not a party to
or bound by any agreement providing for the allocation or
sharing of Taxes; except by reason of its inclusion in the
<PAGE>
consolidated federal tax returns of Shareholder as noted
below. Palm Resort has not filed a consent pursuant to or
agreed to the application of Section 341(f) of the Code. Palm
Resort has disclosed on its federal income tax returns all
positions taken therein that could give rise to a substantial
understatement of federal income tax within the meaning of
Section 6662 of the Code. All Taxes that are required by the
laws of the United States, any state or political subdivision
thereof, or any foreign country to be withheld or collected by
Palm Resort have been duly withheld or collected and, to the
extent required, have been paid to the proper Governmental
Entities or properly deposited as required by applicable laws.
Except as set forth in Schedule 3.2(s), the statute of
limitations for all Tax Returns of Palm Resort has expired for
all federal, state, local and foreign Tax purposes. Neither
Palm Resort nor Shareholder has received any notice of
deficiency or assessment from any federal, state, local or
foreign taxing authority with respect to liabilities for Taxes
of Palm Resort which has not been fully paid or finally
settled. No power of attorney has been executed by, or on
behalf of, Palm Resort or Shareholder with respect to any
matter relating to Taxes applicable to Palm Resort which is
currently in force. Palm Resort is not a party to any
agreement, contract, or other arrangement that would result,
separately or in the aggregate, in the requirement to pay any
"excess parachute payments" within the meaning of Section 280G
of the Code. Palm Resort is not a party to a tax sharing or
tax indemnity agreement or any other agreement of a similar
nature that remains in effect. Palm Resort (i) has not been a
member of an affiliated group filing a consolidated federal
income tax return except with respect to the consolidated
federal income tax return of Shareholder and (ii) has no
liability for the taxes of any person (other than Palm Resort)
under Treasury Regulation Section 1.1502-6 (or any similar
provision of state, local, or foreign law), as a transferee or
successor, by contract or otherwise.
(ii) Schedule 3.2(s) sets forth each state in which
Palm Resort has collected or remitted any sales and/or use
Taxes since September 1, 1992. To the knowledge of Palm Resort
and Shareholder, Palm Resort has not conducted activities in
any other state that would require such Taxes to be collected
or remitted. No claim has ever been made since September 1,
1992 by any authority in a jurisdiction where Palm Resort does
not pay sales and/or use Taxes that it is or may be subject to
a requirement to remit such Taxes in that jurisdiction.
(iii) Palm Resort is not liable for the Taxes of any
person as a "transferee" within the meaning of Section 6901 of
the Code.
(iv) For purposes of this Agreement, "Taxes" shall
mean all taxes, charges, fees, levies, penalties or other
assessments imposed by any United States federal, state, local
or foreign taxing authority, including, but not limited to,
income, gross receipts, excise, property, sales, use (or any
similar taxes), transfer, franchise, payroll, withholding,
social security, business license fees, or other taxes
including any interest, penalties or additions thereto. For
purposes of this Agreement, "Tax Return" shall mean any
return, report, information return, schedule or other document
(including any related or supporting information) required to
be supplied to a taxing authority with respect to Taxes.
<PAGE>
(t) Voting Requirements. The affirmative vote of the
Shareholder (the "Palm Resort Shareholder Approval") to approve this
Agreement is the only vote of the holders of capital stock of Palm
Resort necessary to approve this Agreement and the transactions
contemplated by this Agreement.
(u) No Misleading Statement. To the best knowledge of
Shareholder and Palm Resort, neither this Agreement nor any other
document, certificate, financial statement or other instrument
delivered to Fairfield in connection herewith contains any untrue
statement of a material fact or omits to state a material fact
necessary in order to make the statements contained herein or therein,
in light of the circumstances under which they were made, not
misleading.
III.3 Additional Representation of Shareholder. Shareholder represents
and warrants on behalf of Shareholder to Fairfield and Merger Sub that
Shareholder has relied and will rely upon his own tax advisors for advice and
counseling in regard to the structure, accounting or tax treatment and all other
tax or accounting issues relating to the transactions contemplated by the
parties hereunder. Shareholder has not relied, nor will Shareholder rely, on
Fairfield or its tax advisors, for any tax advice or counseling in regard to the
transactions contemplated hereunder.
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
IV.1 No Solicitation. Prior to the Effective Time, Palm Resort and
Shareholder will not (a) offer for sale the Interest or any interest in Palm
Resort; (b) solicit any offers to purchase or make any attempts by preliminary
conversations or negotiations to dispose of the Interest or any equity interest
in Palm Resort to any person, firm or entity, other than to Fairfield, or to
engage in any type of business combination with any person, firm or entity,
other than Fairfield; or (c) provide anyone with any written or oral offer to
sell, invitation to purchase or any offering or sales material with respect to
the Interest or any equity interest in Palm Resort.
IV.2 Conduct of Business Prior to Effective Time. Except for
transactions specifically permitted by this Agreement or consented to in writing
by Fairfield, prior to the Effective Time Palm Resort shall (and the Shareholder
will cause Palm Resort to):
(a) operate its business only in the ordinary course, and employ no
persons;
(b) neither make, nor incur any obligation to make, any capital
expenditures;
<PAGE>
(c) make no sale or other disposition of the Interest or any equity
interest in Palm Resort;
(d) not enter into, amend, rescind or terminate any contract,
arrangement or commitment;
(e) not declare, set aside or make any dividend, distribution, loan or
other advance to Shareholder or any other person (except the payment to
Shareholder of the $369,000 marketing fee shown on Schedule 3.2(j) (the
"Marketing Fee") and not more than $5,000 of operating cash distributed to
Shareholder;
(f) not amend its Articles of Incorporation or Bylaws, nor issue any
additional shares of capital stock, or any options, warrants or other
securities under which any additional shares of its capital stock might be
directly or indirectly authorized or issued;
(g) not fail to comply in any material respect with the laws,
regulations, ordinances or governmental actions or orders applicable to
Palm Resort;
(h) not make any material tax elections or settle or compromise any
material tax liability;
(i) not take any action that would materially adversely affect the
ability of Palm Resort or Shareholder to obtain the consents required for
Palm Resort and Shareholder to consummate the transactions contemplated
hereby or materially adversely affect the ability of Palm Resort or
Shareholder to perform their respective covenants and agreements under this
Agreement;
(j) not change its method of accounting in effect January 1, 1997 or
during any other period included in the Unaudited Financial Statements;
(k) not change its method of reporting income and deductions for
federal or state income taxes in effect January 1, 1997 or during any other
period included in the Unaudited Financial Statements;
(l) not permit or authorize any transfer, sale, assignment or other
disposition of any of the assets of the Partnership other than in the
ordinary course of business consistent with past practices;
(m) promptly notify Fairfield in writing of any action, suit,
proceeding or investigation commenced, pending or threatened before or by
any Governmental Entity concerning or affecting any of the Interest,
Partnership or Resort Property of which Palm Resort or Shareholder becomes
aware;
(n) provide Fairfield copies of any notices of any event of which Palm
Resort or Shareholder becomes aware that may have a material adverse effect
on the Partnership, specifically including, but not limited to, notices of
intent to accelerate and notices of acceleration of any debt secured by the
Resort Property;
<PAGE>
(o) not permit or otherwise authorize the Partnership to make any
distributions to, or redeem or purchase the interests of the partners of
the Partnership, or make or repay any loans, advances or capital
contributions made to the Partnership by Palm Resort, Shareholder or any of
their affiliates;
(p) not permit or otherwise authorize any sale or other disposition of
the Resort Property, or any part thereof, nor enter into or permit the
Partnership to enter into any agreement for such purposes, except in the
ordinary course of business consistent with past practices;
(q) not amend or modify or permit any amendment or modification of the
Partnership Agreement; and
(r) not, without the prior written consent of Fairfield permit or
otherwise authorize any financing, refinancing, extension, renewal or
modification of any debt of the Partnership other than draws under the
existing construction financing with Bank Atlantic and the receivables
financing with Heller Financial, Inc.
IV.3 Access to Information. Between the date hereof and the Closing,
Shareholder and Palm Resort (i) shall give Fairfield and Fairfield's
representatives access during normal business hours and upon reasonable notice
to all books and records relating to the Interest, the Resort Property and the
Partnership for purposes of an audit of such books and records and inspection of
the business of Palm Resort (the "Inspection") and all of the personal property
owned by the Partnership, to the extent such books and records are within the
control or in the possession of Shareholder or Palm Resort, and (ii) shall cause
Palm Resort's officers to furnish Fairfield and Fairfield's representatives with
any other information that is to be delivered pursuant to this Agreement.
IV.4 Investigation by Fairfield. During the period from the date of
this Agreement through the earlier to occur of the Closing or December 31, 1997
(the "Inspection Period"), Shareholder and Palm Resort shall provide to
Fairfield copies of documents reasonably requested by Fairfield relating to the
Partnership, the Resort Property and the Interest and the collectibility,
enforceability and other legal matters related to the Interest, the Resort
Property and the Partnership. Such documents shall be for the purpose of
enabling Fairfield to evaluate, prior to the end of the Inspection Period,
whether Fairfield wishes to proceed with the transactions contemplated by this
Agreement.
IV.5 Inspection. At or prior to the expiration of the Inspection
Period, Fairfield shall have the right to terminate this Agreement without cause
and for whatever reason or no reason and without liability on the part of either
Fairfield, Shareholder or Palm Resort by delivering to Palm Resort, at or prior
to the expiration of the Inspection Period, written notice of Fairfield's
election to terminate this Agreement.
IV.6 Regulatory Compliance. Shareholder and Palm Resort shall permit
Fairfield to register or amend existing registrations with Governmental Entities
of the Resort Property and/or the vacation ownership intervals relating to the
Resort Property from the date of this Agreement to reflect the anticipated
effects or, if after the Closing, the effects, of the consummation of the
transactions contemplated by this Agreement as required in accordance with
applicable law or as Fairfield may reasonably deem necessary, and shall
cooperate with Fairfield in effecting such registrations or amendments.
<PAGE>
IV.7 Covenants of Fairfield. Except for actions specifically permitted
by this Agreement or consented in writing by Palm Resort, prior to the Effective
Time, Fairfield shall not take any action that would materially adversely affect
the ability of Fairfield to obtain the consents required for Fairfield to
consummate the transactions contemplated hereby or materially adversely affect
the ability of Fairfield to perform its covenants and agreements under this
Agreement.
ARTICLE V
ADDITIONAL AGREEMENTS
V.1 Confidentiality. The terms of this Agreement and related
agreements, the terms of all transactions contemplated hereby, and all
confidential and proprietary information furnished to any party pursuant to this
Agreement, or in connection with the transactions contemplated by this
Agreement, shall be treated as confidential, and none of the parties shall use
or disclose such information except with the prior written consent of the other
parties hereto; provided, however, Fairfield may disclose such information (a)
to its representatives, advisors and agents for purposes of its investigation
during the Inspection Period or (b) to comply with any legal requirement;
provided, further, however, Shareholder and Palm Resort may disclose such
information to comply with any legal requirement if prompt advance notice is
provided to Fairfield at least two business days prior to any such disclosure so
that Fairfield may seek a protective order or other appropriate remedy.
V.2 Indemnification of Shareholder. Fairfield agrees to indemnify and
hold Shareholder harmless from and against all expenses, losses, costs,
deficiencies, liabilities and damages (including, without limitation, reasonable
attorneys' fees and expenses) incurred or suffered by Shareholder from or
arising out of (a) any breach of a representation or warranty made by Fairfield
in or pursuant to this Agreement, (b) any breach of the covenants or agreements
made by Fairfield in this Agreement, (c) any inaccuracy in any certificate
delivered by Fairfield pursuant to this Agreement, or (d) indebtedness of the
Partnership under the existing construction financing/with Bank Atlantic, the
existing receivables financing with Heller Financial, Inc., the existing
guaranty of such indebtedness by shareholder, or any breach of the terms or
provisions of such indebtedness or guaranty thereof, to the extent arising after
the Closing or as a result of the consummation of the Merger.
<PAGE>
V.3 Indemnification of Fairfield. Shareholder shall indemnify and hold
Fairfield and its affiliates and their respective directors, officers,
employees, agents and attorneys harmless from and against all expenses, losses,
costs, deficiencies, liabilities and damages (including, without limitation,
reasonable attorneys' fees and expenses) incurred or suffered by Fairfield,
Merger Sub or any Subsidiary (including without limitation Palm Resort) of
Fairfield resulting from or arising out of (a) any breach of a representation or
warranty made by Shareholder or Palm Resort in or pursuant to this Agreement,
(b) any breach of the covenants or agreements made by Shareholder or Palm Resort
in this Agreement, or (c) any inaccuracy in any certificate delivered by
Shareholder or Palm Resort pursuant to this Agreement.
V.4 Procedures for Indemnity.
(a) Whenever any claim shall arise or any proceeding shall be
instituted involving any person in respect of which indemnity may be
sought pursuant to Section 5.2 or 5.3, such person (the "Indemnified
Party") shall promptly notify (in no event later than ten business days
after receipt of such notice) the person against whom such indemnity
may be sought (the "Indemnifying Party") thereof in writing, including,
when known, the facts constituting the basis for such claim or
proceeding and the amount or an estimate of the amount of the
indemnified liability arising therefrom (such notification being the
"Claims Notice"). To the extent that any Claims Notice relates to the
assertion of a claim, the commencement of a suit, action or proceeding
or the imposition of a penalty or assessment by a third party that is
not an Indemnified Party (a "Third-Party Claim"), the Indemnified Party
shall include with the Claims Notice any written demand, complaint,
petition, summons or similar document relating thereto that is then in
the Indemnified Party's possession. The failure by an Indemnified Party
to timely furnish to the Indemnifying Party any notice document
required to be furnished under this Section 5.4(a) shall not relieve
the Indemnifying Party from any liability or obligation hereunder,
except to the extent that such failure materially prejudices the
ability of the Indemnifying Party to defend such matter.
(b) In connection with any Third-Party Claim, the Indemnifying
Party at its sole cost and expense may, upon written notice to the
Indemnified Party, elect to assume the defense thereof. If the
Indemnifying Party has so elected to assume the defense of any such
Third-Party Claim, such defense shall be conducted by counsel chosen by
the Indemnifying Party, provided that such counsel is reasonably
satisfactory to the Indemnified Party. The Indemnified Party shall be
entitled to participate in (but not control) the defense of any such
Third-Party Claim, with its counsel and at its own expense. If the
Indemnifying Party has elected to assume the defense of any Third-Party
Claim as provided herein, the Indemnified Party shall not be entitled
to indemnification as to fees and expenses of any counsel retained by
the Indemnified Party after the time at which the Indemnifying Party
has so elected. The Indemnified Party shall not settle or compromise
any Third-Party Claim without the prior written consent of the
Indemnifying Party, which shall not be unreasonably withheld. In the
event that the Indemnifying Party shall assume the defense of any
Third-Party Claim, it shall not compromise or settle such Third-Party
<PAGE>
Claim unless (i) the Indemnified Party gives its prior written consent,
which shall not be unreasonably withheld, or (ii) the terms of the
compromise or settlement of such Third-Party Claim provide that the
Indemnified Party shall have no responsibility for the discharge of any
settlement amount and impose no other obligations or duties on the
Indemnified Party, and the compromise or settlement discharges all
rights against the Indemnified Party with respect to such Third-Party
Claim. If a firm offer is made to settle a pending or threatened
Third-Party Claim for which the Indemnified Party may be entitled to
indemnification hereunder and the Indemnifying Party desires to accept
and agree to such offer, the Indemnifying Party shall give written
notice to the Indemnified Party to that effect. If the Indemnified
Party fails to consent to such firm offer within ten calendar days
after its receipt of such notice, the Indemnifying Party may continue
to contest or defend such Third-Party Claim and, in such event, the
maximum liability of the Indemnifying Party as to such Third-Party
Claim shall not exceed the amount of such settlement offer. The
Indemnified Party shall cooperate with the defense of any such
Third-Party Claim and shall provide such personnel, technical support
and access to information as may be reasonably requested by the
Indemnifying Party in connection with such defense.
(c) Any claim for indemnification hereunder that is not a
Third-Party Claim shall be asserted by the Indemnified Party by
promptly delivering notice thereof to the Indemnifying Party. If the
Indemnifying Party does not respond to such notice within 45 days after
receipt thereof, it shall have no further right to contest the validity
of such claim.
V.5 Exclusivity Of Indemnification For Contractual Breaches. No party
hereto is making any representation, warranty or covenant other than those
contained herein. Except with respect to the covenants in Section 5.1 and the
covenants and indemnities in Section 5.11, following the Closing, the rights of
the parties under the provisions of Sections 5.2 and 5.3 shall be the sole and
exclusive remedy available to the parties with respect to claims or damages
arising out of breaches of the representations and warranties or other
contractual obligations of the parties set forth in this Agreement.
V.6 Reasonable Efforts. Upon the terms and subject to the conditions
set forth in this Agreement, each of the parties will use all reasonable efforts
to take, or cause to be taken, all actions, and to do, or cause to be done, and
to assist and cooperate with the other parties in doing, all other things
necessary, proper or advisable to consummate and make effective, in the most
expeditious manner practicable, the Merger and the other transactions
contemplated by this Agreement, including (i) the obtaining of all other
necessary actions or nonactions, waivers, consents and approvals from
Governmental Entities and the making of all necessary registrations and filings
(including filings with Governmental Entities, if any) and the taking of all
other reasonable steps as may be necessary to obtain all necessary approvals or
waivers form, or to avoid any action or proceeding by any Governmental Entity,
(ii) the obtaining of all necessary consents, approvals or waivers from third
parties, and (iii) the execution and delivery of any additional instruments
necessary to consummate the transactions contemplated by, and to fully carry out
the purposes of, this Agreement. In further connection with and without limiting
the foregoing, Palm Resort and Shareholder shall make appropriate personnel,
contractors and advisors of Palm Resort available to Fairfield and provide such
information as may be requested by Fairfield for the purposes of conducting the
Inspection.
<PAGE>
V.7 Expenses and Fees. Except as otherwise provided in this Agreement,
all costs and expenses incurred in connection with the Merger Agreement and the
transactions contemplated hereby shall be paid by the party incurring such costs
or expenses.
V.8 Consents. Palm Resort shall use its reasonable efforts to obtain
the Palm Resort Consents (as hereinafter defined) before Closing.
V.9 Repayment of PPM Loan; Release of Claims. At or prior to the
Closing, the Partnership will pay the PPM Loan Amount to PPM and the Shareholder
and its affiliates (including PPM) shall release all claims (contingent or
liquidated and known or unknown) against Palm Resort, the Partnership and its
partners including, without limitation, the PPM Loan and any other claims in
respect of loans, advances, project management or marketing fees or other
obligations ("Claims"), pursuant to a written release in form and substance
reasonably satisfactory to Fairfield and substantially in the form set forth in
Exhibit C hereto (the "Release").
V.10 Delivery of Information. Two business days before the end of the
Inspection Period, Shareholder shall deliver to Fairfield a certificate executed
by Shareholder certifying that Palm Resort has delivered all relevant
information, documents, agreements, and other materials related to any written
request made by Fairfield during the Inspection Period.
V.11 Tax Matters.
(a) Subject to the following provisions, Fairfield shall
prepare and file (or cause to be prepared and filed) all Tax Returns
relating to Palm Resort which are required to be filed (taking into
account all applicable extensions) after the Closing, and shall pay all
Taxes shown to be due thereon.
(b) With respect to any Tax Return of Palm Resort for a
taxable period ending on or prior to the Closing and not yet filed as
of the Closing: (i) within 90 days of the end of the taxable period to
which such return relates, Palm Resort and Fairfield shall prepare and
deliver (or cause to be prepared and delivered) to the Shareholder the
financial statements of Palm Resort for such taxable period; (ii) the
Shareholder will direct the tax return preparer of Palm Resort to
prepare, at the Shareholder's expense, such Tax Returns in accordance
with the prior practice and policies of Palm Resort and with applicable
law; (iii) at least thirty (30) days prior to the due date for such Tax
Returns (taking into account all available extensions), the Shareholder
will deliver to Palm Resort completed versions of such Tax Returns; and
(iv) Palm Resort shall have the right to review such Tax Returns prior
to their filing and, if Palm Resort disputes or otherwise disagrees
with any amounts shown due on such Tax Returns, Palm Resort and the
Shareholder shall consult in good faith to resolve any issues arising
as a result thereof; (v) after Palm Resort's review of such Tax Returns
and the resolution of any disputes or disagreements described in clause
(iv) hereof, Palm Resort shall timely sign and file such Tax Returns
and pay all amounts shown as due and owing thereon (reserving any right
to indemnification by the Shareholder if otherwise provided by this
Agreement); and (vi) Fairfield and Palm Resort shall provide the
Shareholder and their agents (including any return preparer) with
reasonable access during normal business hours to the records of Palm
Resort as needed for the preparation of such returns and with such
other assistance as may be reasonably requested by the Shareholder.
<PAGE>
(c) With respect to each Tax Return which relates, in whole or
in part, to periods prior to Closing (other than Tax Returns prepared
at the direction of the Shareholder pursuant to Section 5.11(b)
hereof), at least thirty (30) days prior to the due date for filing
such return (including applicable extensions), Palm Resort will deliver
to the Shareholder (i) a draft return, (ii) copies of any workpapers or
schedules used to prepare such return, and (iii) a calculation of the
excess (if any) of (A) Taxes to be paid with or with respect to such
Tax Return that relate to periods prior to Closing over (B) the amounts
reserved or otherwise provided for. If the Shareholder do not agree
with the amounts set forth on such draft Tax Return, the parties shall
work diligently to resolve the dispute.
(d) If the parties are unable to resolve any dispute described
in Sections 5.11 (b) or 5.11(c) prior to the fifteenth day prior to the
due date for such Tax Return, the dispute will be submitted to Ernst &
Young, LLP, or such other nationally recognized firm of certified
public accountants as the parties may agree upon (the "Firm") with the
costs of the Firm's determination to be shared equally by the parties,
except that if the Firm agrees completely with the calculations of one
party, the other party shall bear all costs of the Firm's
determination.
(e) Fairfield shall pay, or shall cause Palm Resort to pay, to
the Shareholder the excess, if any, of the amount accrued in the
Unaudited Financial Statements for current Taxes payable by Palm Resort
over the aggregate Taxes actually paid by Palm Resort in connection
with the filing of any Tax Returns described in Sections 5.11(b) and
5.11(c), within 5 business days of the filing of the last such Tax
Returns. The Shareholder shall pay to Fairfield (or Palm Resort if
directed by Fairfield) the amount of the shortfall, if any, by which
the amount accrued in the Unaudited Financial Statements for current
Taxes payable by Palm Resort is less than the aggregate Taxes actually
paid by Palm Resort in connection with the filing of any Tax Returns
described in Section 5.11(c), within 5 business days of the filing of
the last such Tax Returns and receipt of written demand therefore from
Fairfield together with copies of such Tax Returns. Nothing in this
Section 5.11(e) shall be read to limit the Shareholder's
indemnification of Fairfield pursuant to Section 5.3 hereof.
<PAGE>
(f) The Shareholder shall indemnify and hold harmless
Fairfield from and against (i) all Taxes for which Palm Resort may be
liable arising in periods ending prior to the Closing Date and for the
ratable portion of any period that begins before and ends after the
Closing Date; (ii) all Taxes imposed on Palm Resort by reason of being
a member of any affiliated group with which Palm Resort has filed a Tax
Return on a consolidated or combined basis for a taxable period ending
on or before the Closing Date; and (iii) all costs and expenses
(including reasonable attorneys' and accountants' fees) attributable to
any contest or dispute involving the foregoing. In the case of Taxes
that are payable with respect to a taxable period that begins before
the Closing Date and ends after the Closing Date, the portion of any
such Tax that is allocable to the portion of the period ending on the
Closing Date shall be:
(1) in the case of Taxes that are either (x) based
upon or related to income or receipts, or (y) imposed in
connection with any sale or other transfer or assignment of
property (real or personal, tangible or intangible), deemed
equal to the amount which would be payable if the taxable year
ended with the Closing Date; and
(2) in the case of Taxes not described in
subparagraph (i) that are imposed on a periodic basis and
measured by the level of any item, deemed to be the amount of
such Taxes for the entire period (or, in the case of such
Taxes determined on an arrears basis, the amount of such Taxes
for the immediately preceding period) multiplied by a fraction
the numerator of which is the number of calendar days in the
period ending on the Closing Date and the denominator of which
is the number of calendar days in the entire period.
For purposes of this Section 5.11(f), the Taxes attributable to Palm
Resort by reason of such corporation's distributive share of income,
gain, or loss from, or otherwise in respect of, any partnership in
which Palm Resort is a member on the Closing Date shall be determined
as if such partnership's taxable year ended on the Closing Date.
(g) Fairfield shall pay, or shall cause Palm Resort to pay, to
the Shareholder all refunds or credits of Taxes or similar benefit
(including any interest or similar benefit received from or credited
thereon by the applicable tax authority) received by Fairfield or Palm
Resort (or their respective successors and assigns) after the Closing
to the extent attributable to (i) Taxes paid prior to Closing by the
Shareholder or Palm Resort, or (ii) Taxes for which the Shareholder has
indemnified Fairfield or Palm Resort under this Agreement; provided,
however, that the Shareholder shall not be entitled to any such refund
or credit to the extent such refund or credit arises as a result of the
application of a net operating loss or similar tax benefit of Palm
Resort which arises during a period after the Closing Date and which is
carried back to a period prior to the Closing Date.
(h) If a Tax Return which relates in whole or in part to Taxes
for which the Shareholder might be obligated to indemnify Fairfield or
Palm Resort under this Agreement (including without limitation any Tax
Return filed prior to Closing or at the direction of the Shareholder
pursuant to Section 5.11(b) hereof) is audited by the Internal Revenue
Service or other tax authority, (i) Fairfield and Palm Resort shall
promptly notify the Shareholder of the commencement of such audit, and
any failure to give such notice will not constitute a waiver of rights
to indemnity under this Agreement for damages arising from such audit
<PAGE>
and subsequent proceedings, except to the extent that the Shareholder
are precluded by the failure to give prompt notice from contesting the
asserted Tax liability in both the administrative and judicial forums;
(ii) the Shareholder shall have the right but not the obligation to
control the dealings with such tax authority and any ensuing litigation
or administrative proceedings (collectively, the "Tax Dispute"),
including without limitation choice of tax accountants or counsel and
the right to settle or compromise such matters, provided that the
Shareholder shall consult in good faith with Palm Resort and Fairfield
about the Tax Dispute and will give due regard to such parties'
interests and provided, further, that with respect to any taxable
period that begins before and ends after the Closing Date, the
Shareholder shall not be entitled to settle or compromise any such Tax
Dispute without the consent of the Fairfield, which shall not be
unreasonably withheld; (iii) if the Shareholder has a right to control
a Tax Dispute pursuant to clause (ii) but does not choose to exercise
such control, Fairfield shall be entitled, but shall not be obligated,
to defend such Tax Dispute (giving due regard to the Shareholder's
interests), shall keep the Shareholder reasonably informed of the
progress of such Tax Dispute and will not settle or compromise such Tax
Dispute without the prior written consent of the Shareholder, which
consent shall not be unreasonably withheld; and (iv) all parties shall
cooperate with each other in good faith with respect to any Tax Dispute
and provide such assistance to the other parties and their agents as
may be necessary for the resolution thereof. The preparation and filing
of any amended Tax Return, the audit of which would otherwise be
subject to this Section 5.11(h), shall be subject to the principles of
this Section 5.11(h).
(i) Fairfield and Palm Resort shall retain all records
relevant to Taxes and Tax Returns of Palm Resort for periods prior to
or including Closing ("Tax Records") for a period of at least seven
years after the Closing. In addition, at all times that such Tax
Records are in the custody of Fairfield, Palm Resort or their
successors and assigns, such parties shall permit the Shareholder and
their agents (including without limitation his tax professionals)
reasonable access to such Tax Records in accordance with the principles
of this Section 5.11 to the extent the Shareholder reasonably deems
such access appropriate for Tax and financial matters.
(j) If there is a disposition of all or substantially all of
the capital stock, of Palm Resort assets, or business of Palm Resort,
Fairfield agrees to use its reasonable best efforts to ensure that the
successor to Palm Resort, such assets or business is contractually
obligated to and in fact does comply with the provisions of this
Section 5.11.
(k) Fairfield shall be responsible for the timely payment of
all sales, use, transfer, gains, recording, ad valorem and other
similar Taxes and fees ("Transfer Taxes"), arising out of or in
connection with or attributable to the transactions effected pursuant
to this Agreement, and all Taxes arising as a result of the Merger.
Fairfield shall prepare and timely file all necessary documentation and
Tax Returns required to be filed in respect of Transfer Taxes;
provided, that the Shareholder shall be permitted to prepare any such
Tax Returns that are the primary responsibility of the Shareholder
under applicable law. Fairfield shall provide Fairfield with final
copies of the documentation and Tax Returns referred to in the
immediately preceding sentence not later than fifteen days prior to the
filing of such documentation and Tax Returns.
<PAGE>
V.12 Shareholder shall not be responsible for the payment of Taxes to
the extent arising from its pro-rata allocation of income in excess of $9
million that results from a change by the Partnership in the tax treatment it
elects for the period ending December 31, 1997 as compared to the tax treatment
elected for the period ending December 31, 1996.
V.13 Fairfield shall not sell any timeshare contracts or timeshare
receivables of the Partnership prior to January 1, 1998.
ARTICLE VI
CONDITIONS PRECEDENT; CLOSING
VI.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligation of each party to effect the Merger is subject to the
satisfaction or waiver on or prior to the Closing Date of the following
conditions:
(a) Corporate Approval. The approval of the transactions
hereunder by Fairfield's board of directors or appropriate committee
thereof shall have been received.
(b) Consent of Fairfield's Lender. Fairfield shall have
obtained all applicable consents required under Fairfield's and its
subsidiaries' credit agreements.
(c) Palm Resort Consents. Palm Resort shall have obtained all
applicable consents required from the parties identified on Schedule
6.1(c) (the "Palm Resort Consents").
(d) No Injunctions or Restraints. No judgment, order, decree,
statute, law, ordinance, rule, regulation, temporary restraining order,
preliminary or permanent injunction or other order enacted, entered,
promulgated, enforced or issued by any court of competent jurisdiction
or other Governmental Entity or other legal restraint or prohibition
(collectively, "Restraints") preventing the consummation of the Merger
shall be in effect; provided, however, that each of the parties shall
have used reasonable efforts to prevent the entry of any such
Restraints and to appeal as promptly as possible any such Restraints
that may be entered.
(e) No Litigation. There shall not be pending any suit, action
or proceeding, in each case brought by any Governmental Entity against
Palm Resort, Fairfield or Merger Sub with respect to or that would
adversely affect the Merger or the transactions contemplated under this
Agreement.
(f) Before the Effective Time, the Partnership shall have paid
the PPM Loan Amount to PPM and PPM shall have released Palm Resort and
the Partnership from any further liabilities or obligations in respect
of the PPM Loan pursuant to the Release.
<PAGE>
VI.2 Conditions to Obligations of Palm Resort and Shareholder. The
obligations of Palm Resort and Shareholder to effect the Merger are further
subject to the following conditions:
(a) Actions of Fairfield. Fairfield and Merger Sub shall have
performed and complied with all the covenants, agreements and
obligations and satisfied all of the conditions required by this
Agreement to be performed or complied with or satisfied by them at or
prior to the Effective Time.
(b) Representations and Warranties. The representations and
warranties of Fairfield and Merger Sub set forth in this Agreement that
are qualified as to materiality shall be true and correct, and the
representations and warranties of Fairfield and Merger Sub set forth in
this Agreement that are not so qualified shall be true and correct in
all material respects, in each case as of the date of this Agreement
and (except to the extent such representations and warranties speak as
of an earlier date) as of the Effective Time as though made on and as
of the Effective Time, except as otherwise contemplated by this
Agreement.
VI.3 Conditions to Obligations of Fairfield and Merger Sub. The
obligations of Fairfield and Merger Sub to effect the Merger are further subject
to the following conditions:
(a) Actions of Shareholder and Palm Resort. Shareholder and
Palm Resort shall have performed and complied with all covenants,
agreements and obligations and satisfied all the conditions required by
this Agreement to be performed or complied with or satisfied by them at
or prior to the Effective Time.
(b) Representations and Warranties. The representations and
warranties of Palm Resort and Shareholder set forth in this Agreement
that are qualified as to materiality shall be true and correct, and the
representations and warranties of Palm Resort and Shareholder set forth
in this Agreement that are not so qualified shall be true and correct
in all material respects, in each case as of the date of this Agreement
and (except to the extent such representations and warranties speak as
of an earlier date) as of the Effective Time as though made on and as
of the Effective Time, except as otherwise contemplated by this
Agreement.
(c) No Material Adverse Change. At any time on or after the
date of this Agreement there shall not have occurred any material
adverse change in Palm Resort.
(d) Audit and Inspection. The completion by Fairfield of the
Inspection and Fairfield's satisfaction, in its sole discretion, with
the results of the Inspection.
(e) Release. Fairfield shall have received the Release,
executed by the Shareholder and PPM.
<PAGE>
(f) Vacation Break Merger. The Merger of FCVB Corp., a wholly
owned subsidiary of Fairfield, with and into Vacation Break U.S.A.,
Inc. (the "Vacation Break Merger") shall have been consummated.
(g) Opinion of Palm Resort Counsel. Fairfield shall have
received a favorable opinion of counsel for Shareholder and Palm Resort
with respect to the matters set forth on Schedule 6.3(g).
VI.4 Frustration of Closing Conditions. None of Fairfield, Shareholder,
Merger Sub or Palm Resort may rely on the failure of any condition set forth in
Section 6.1, 6.2 or 6.3, as the case may be, to be satisfied if such failure was
caused by such party's failure to use reasonable efforts to consummate the
Merger and the other transactions contemplated by this Agreement, as required by
and subject to Section 5.6.
VI.5 Closing Documents and Procedures. In addition to the other
obligations and procedures to be performed at the Closing, the parties will
undertake the following actions:
(a) Deliveries of Shareholder. At the Closing, Shareholder shall
deliver to Fairfield:
(i) a certificate or certificates representing
Shareholder's shares of Palm Resort Common Stock outstanding
immediately prior to the Effective Time.
(ii) a certificate executed by Shareholder certifying
that the representations and warranties set forth in Sections
3.2 and 3.3 are true and correct on and as of the Effective
Time, with the same force and effect as though such
representations and warranties had been made on, as of and
with reference to the Effective Time and that Shareholder has
performed and complied with all covenants and agreements and
satisfied all conditions required by this Agreement to be
performed or complied with or satisfied by them for the
benefit of Fairfield at or prior to the Effective Time; and
(iii) the Release, executed by the Shareholder and
its affiliates.
(b) Deliveries of Palm Resort. At the Closing, Palm Resort shall
deliver to Fairfield:
(i) a certificate of an officer of Palm Resort
certifying that the representations and warranties set forth
in Section 3.2 are true and correct on and as of the Effective
Time, with the same force and effect as though such
representations and warranties had been made on, as of and
with reference to the Effective Time and that Palm Resort has
performed and complied with all covenants and agreements and
satisfied all conditions required by this Agreement to be
performed or complied with or satisfied by it for the benefit
of Fairfield at or prior to the Effective Time;
<PAGE>
(ii) certificates of good standing and corporate
existence for Palm Resort; and
(iii) the opinion of counsel to Palm Resort as set
forth in Section 6.3(g).
(c) Fairfield's Deliveries. At the Closing, Fairfield shall
deliver to the Shareholder:
(i) Shareholder's Palm Resort Percentage of the Merger Consideration;
(ii) evidence of payment of the PPM Loan Amount;
(iii) evidence of payment of the Marketing Fee; and
(iv) a certificate of an officer of Fairfield certifying that the
representations and warranties set forth in Section 3.1 are true and
correct on and as of the Effective Time, with the same force and effect as
though such representations and warranties had been made on, as of and with
reference to the Effective Time and that Fairfield has performed and
complied with all covenants and agreements and satisfied all conditions
required by this Agreement to be performed or complied with or satisfied by
it for the benefit of Palm Resort at or prior to the Effective Time.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
VII.1 Termination. This Agreement may be terminated, and the Merger
contemplated hereby may be abandoned, at any time prior to the Effective Time:
(a) by mutual written consent of Fairfield, Merger Sub and
Palm Resort;
(b) by either Fairfield or Palm Resort;
(i) if the Merger shall not have been consummated on
or before December 31, 1997, unless the failure to consummate
the Merger is the result of a breach of this Agreement by the
party seeking to terminate this Agreement;
(ii) if any Governmental Entity of competent
jurisdiction issues a restraint or takes any other action
permanently enjoining, restraining or otherwise prohibiting
the Merger or any of the other actions contemplated under the
Agreement and such restraint becomes final and nonappealable;
<PAGE>
(c) by Fairfield if there has been a material violation by
Shareholder of any agreement, representation or warranty contained in
this Agreement that has rendered the satisfaction of any condition to
the obligations of Fairfield impossible and such violation or breach
has not been waived by Fairfield and is not due to Fairfield's default;
(d) by Fairfield, if the Vacation Break Merger has not been
consummated on or before December 31, 1997;
(e) by Fairfield, at or prior to the expiration of the
Inspection Period, without cause and for whatever reason and without
liability on the part of any party hereto, by delivering to Palm Resort
at or prior to the expiration of the Inspection Period, written notice
of Fairfield's election to terminate this Agreement;
(f) by either Fairfield or Palm Resort if the other shall fail
to fulfill or satisfy any condition precedent to the performance of the
first party's obligations in accordance with the terms hereof; and
(g) by Palm Resort, if there has been a material violation by
Fairfield of any agreement, representation or warranty contained in
this Agreement which has rendered the satisfaction of any condition to
the obligations of Shareholder and Palm Resort impossible and such
violation or breach has not been waived by Shareholder and Palm Resort
and is not due to Shareholder's or Palm Resort's default.
VII.2 Effect of Termination. In the event of termination of this
Agreement by Palm Resort or Fairfield as provided in Section 7.1, this Agreement
shall terminate and there shall be no liability on the part of either Palm
Resort or Fairfield, except for (a) liabilities arising from a breach of this
Agreement prior to such termination if the termination is made under Section
7.1(b)(i), and (b) liabilities arising from a breach of a provision of this
Agreement which is to be performed regardless of any such termination.
VII.3 Amendment. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto.
VII.4 Extension; Waiver. At any time prior to the Effective Time, the
parties may (a) extend the time for the performance of any of the obligations or
other acts of the other parties, (b) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto or (c) waive compliance with any of the agreements or conditions
contained herein. Any agreement on the part of a party to any such extension or
waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party. No other action or course of dealing, including, without
limitation, the consummation of the Merger with notice or knowledge of any
inaccuracy in the representations or breach of the warranties of the other party
or any investigation thereof, will operate as a waiver of any rights under this
Agreement. The delay or failure of any party to this Agreement to assert any of
its rights under this Agreement or otherwise shall not constitute a waiver of
such rights.
<PAGE>
ARTICLE VIII
GENERAL PROVISIONS
VIII.1 Survival of Representations and Warranties. The respective
covenants, representations, warranties, covenants and the indemnities set forth
in this Agreement shall survive after the Effective Time and shall continue in
full force and effect.
VIII.2 Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be deemed given if
delivered personally or sent by overnight courier (providing proof of delivery)
to the parties at the following addresses (or at such other address for a party
as shall be specified by like notice):
(a) if to Palm Resort:
Palm Resort Group, Inc.
3015 North Ocean Boulevard, Suite 121
Fort Lauderdale, Florida 33308
Attention: President
with a copy to:
Greenspoon, Marder, Hirschfeld,
Rafkin, Ross & Berger
Trade Centre South, Suite 700
100 West Cypress Creek Road
Fort Lauderdale, Florida 33309
Attention: Gerald , Esq.
(b) if to Shareholder:
The Berkley Group, Inc.
3015 North Ocean Boulevard, Suite 121
Fort Lauderdale, Florida 33308
Attention: President
with a copy to:
Greenspoon, Marder, Hirschfeld,
Rafkin, Ross & Berger
Trade Centre South, Suite 700
100 West Cypress Creek Road
Fort Lauderdale, Florida 33309
Attention: Gerald Greenspoon, Esq.
(c) if to Fairfield or Merger Sub:
<PAGE>
Fairfield Communities, Inc.
11001 Executive Center Drive
Little Rock, Arkansas 72211
Attention: Mr. John W. McConnell
with a copy to:
Jones, Day, Reavis & Pogue
2001 Ross Avenue, Suite 2300
Dallas, Texas 75201
Attention: Mark V. Minton, Esq.
VIII.3 Definitions. For purposes of this Agreement:
(a) an "affiliate" of any person means another person that
directly or indirectly, through one or more intermediaries, controls,
is controlled by, or is under common control with, such first person;
(b) "Code" means the Internal Revenue Code of 1986, as
amended, and all regulations promulgated thereunder, as in effect from
time to time;
(c) an "environmental law" means any law, statute, regulation,
rule, order, decree, judgment, consent decree, settlement agreement or
governmental requirement, which relates to or otherwise imposes
liability or standards of conduct concerning mining or reclamation of
mined land, discharges, emissions, releases or threatened releases of
noises, odors or any pollutants, contaminants or hazardous or toxic
wastes, substances or materials, whether as matter or energy, into
ambient air, water, or land, or otherwise relating to the manufacture,
processing, generation, distribution, use, treatment, storage,
disposal, cleanup, transport or handling of pollutants, contaminants,
or hazardous wastes, substances or materials, including (but not
limited to) the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, the Superfund Amendments and Reauthorization Act
of 1986, as amended, the Resource Conservation and Recovery Act of
1976, as amended, the Toxic Substances Control Act of 1976, as amended,
the Federal Water Pollution Control Act Amendments of 1972, the Clean
Water Act of 1977, as amended, any so-called "Superlien" law, and any
other similar Federal, state or local statutes;
(d) "ERISA" means the Employee Retirement Income Security Act
of 1974, as amended, and all regulations promulgated thereunder, as in
effect from time to time;
(e) "Governmental Entity" means any government or any court,
arbitral tribunal, administrative agency or commission or other
governmental or other regulatory authority or agency, federal, state,
local or foreign;
(f) "Interest" means the 45% general partner interest in the
Partnership held beneficially and of record by Palm Resort;
<PAGE>
(g) "knowledge" of any person means actual knowledge and, if
such person is not an individual, actual knowledge of the directors and
executive officers or partners of such person;
(h) "Liens" means liens, charges, pledges, options, mortgages,
deeds of trust, security interests, conditional sales agreements,
claims, restrictions (whether on voting, sale, transfer, disposition or
otherwise), and other encumbrances, adverse claims and interests of
every type and description, whether imposed by law, agreement,
understanding or otherwise;
(i) "material adverse change" or "material adverse effect"
means, when used in connection with Palm Resort or Fairfield, any
change or effect that is materially adverse to the business,
properties, assets, financial condition, prospects, or results of
operations of such party and its Subsidiaries taken as a whole;
(j) "Partnership" means Palm Vacation Group, a Florida
general partnership;
(k) "Partnership Agreement" means that certain Palm Vacation
Group Joint Venture Agreement, dated as of March 30, 1995, between
Vacation Break Resorts at Palm-Aire, Inc., and Palm Resort Group, Inc.;
(l) "person" means an individual, corporation, partnership,
joint venture, association, trust, unincorporated organization or other
entity;
(m) "Personal Property" means (a) all tangible personal
property owned by the Partnership and located on, attached to, and used
in connection with the operation of the Resort Property including
furniture, fixtures and equipment, (b) the Partnership's interest in
all personal property, licenses, permits, plans, studies and utility
arrangements with respect to the Resort Property, (c) the Partnership's
interest in all service, maintenance, management or other contracts
relating to the ownership or operation of the Resort Property, and (d)
the Partnership's interest in all warranties and guaranties, if any,
relating to the Resort Property;
(n) "Resort Property" means that certain resort property known
as Palm-Aire Resort and Spa owned by the Partnership, including the
land upon which the Resort Property is situated, together with all
rights appurtenant thereto, the building, fixtures and other
improvements now or hereafter situated thereon and all leases and/or
occupancy agreements for space in such improvements, including any and
all amendments and modifications thereto and any and all acceptance,
guaranty or other agreements related thereto, and the Personal
Property; and
VIII.4 Interpretation. When a reference is made in this Agreement to a
Section, Exhibit or Schedule, such reference shall be to a Section of, or an
Exhibit or Schedule to, this Agreement unless otherwise indicated. The table of
contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the words "include", "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation".
<PAGE>
VIII.5 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signet by each of
the parties and delivered to the other parties.
VIII.6 Entire Agreement; No Third-party Beneficiaries. This Agreement
(a) constitutes the entire agreement, and supersedes all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter of this Agreement and (b) are not intended to confer upon any
person other than the parties any rights or remedies.
VIII.7 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Florida, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
laws thereof.
VIII.8 Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned, in whole or in part, by
operation of law or otherwise by any of the parties without the prior written
consent of the other parties, except that Merger Sub may assign, in its sole
discretion, any of or all its rights, interests and obligations under this
Agreement to Fairfield or to any direct wholly owned corporate subsidiary of
Fairfield. Subject to the preceding sentence, this Agreement will be binding
upon, inure to the benefit of, and be enforceable by, the parties and their
respective successors and assigns.
VIII.9 Enforcement. The parties agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any court of the United States
located in the State of Florida or in Florida state court, this being in
addition to any other remedy to which they are entitled at law or in equity. In
addition, each of the parties hereto (a) consents to submit itself to the
personal jurisdiction of any federal court located in the State of Florida or
any Florida state court in the event any dispute arises out of this Agreement or
the transactions contemplated by this Agreement, (b) agrees that it will not
attempt to deny or defeat such personal jurisdiction by motion or other request
for leave from any such court and (c) agrees that it will not bring any action
relating to this Agreement or the transactions contemplated by this Agreement in
any court other than a federal court sitting in the State of Florida or an
Florida state court.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, Fairfield, Merger Sub and Palm Resort have caused
this Agreement to be signed by their respective officers thereunto duly
authorized and Shareholder has signed this Agreement, all as of the date first
written above.
FAIRFIELD COMMUNITIES, INC.
By:/s/ Robert W. Howeth
---------------------------------
Robert W. Howeth
Senior Vice President and
Chief Financial Officer
FC PALM-AIRE, INC.
By: /s/ Robert W. Howeth
-------------------------------
Robert W. Howeth
Vice President
PALM RESORT GROUP, INC.
By: /s/ Rebecca A. Foster
--------------------------------
Name: Rebecca A. Foster
Title: President
THE BERKLEY GROUP, INC.
By: /s/ Rebecca A. Foster
--------------------------------
Name: Rebecca A. Foster
Title: President
<PAGE>
EXHIBIT A
SURVIVING CORPORATION
ARTICLES OF INCORPORATION
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
VACATION BREAK USA, INC.
On December 19, 1997, the Board of Directors and the shareholders of
PALM RESORT GROUP, INC. duly adopted the following Amended and Restated Articles
of Incorporation pursuant to the provisions of 607.0704, 607.1003 and 607.1007
of the Florida Business Corporation Act:
ARTICLE I
NAME
The name of the corporation is Palm Resort Group, Inc.
ARTICLE II
PRINCIPAL OFFICE AND MAILING ADDRESS
The Corporation's principal office and mailing address is 11001
Executive Center Drive, Little Rock, Arkansas 72211.
ARTICLE III
SHARES
The Corporation shall have authority to issue 10,000 common shares with
a par value of $.01 per share.
ARTICLE IV
REGISTERED AGENT AND OFFICE
The street address of its registered office is 1200 South Pine Island
Road, Plantation, Florida 33324, and the name of its registered agent at that
address is CT Corporation System.
<PAGE>
ARTICLE V
DIRECTORS
The Corporation initially shall have three (3) directors, whose names
and addresses are:
Name Address
John W. McConnell 11001 Executive Center Drive
Little Rock, Arkansas 72211
Robert W. Howeth 11001 Executive Center Drive
Little Rock, Arkansas 72211
Marcel J. Dumeny 11001 Executive Center Drive
Little Rock, Arkansas 72211
ARTICLE VI
LIMITATION ON DIRECTOR LIABILITY
A director shall not be personally liable to the Corporation or the
holders of shares of capital stock for monetary damages for breach of fiduciary
duty as a director, except (i) for any breach of the duty of loyalty of such
director to the Corporation or such holders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 607.0831 of the Florida Business Corporation Act (the
"FBCA"), or (iv) for any transaction from which such director derives an
improper personal benefit. If the FBCA is hereafter amended to authorize the
further or broader elimination or limitation of the personal liability of
directors, then the liability of a director of the Corporation shall be
eliminated or limited to the fullest extent permitted by the FBCA, as so
amended. No repeal or modification of this Article VII shall adversely affect
any right of or protection afforded to a director of the Corporation existing
immediately prior to such repeal or modification.
ARTICLE VII
INDEMNIFICATION
The Corporation shall indemnify and advance expenses to, and may purchase
and maintain insurance on behalf of, its officers and directors to the fullest
extent permitted by law as now or hereafter in effect. Without limiting the
generality of the foregoing, the Bylaws may provide for indemnification and
advancement of expenses to officers, directors, employees and agents on such
terms and conditions as the Board of Directors may from time to time deem
appropriate or advisable.
IN WITNESS WHEREOF, the undersigned, being the President of the
Corporation, has signed these Amended and Restated Articles of Incorporation
this 19th day of December, 1997.
John W. McConnell
President
<PAGE>
EXHIBIT B
SURVIVING CORPORATION BYLAWS
AMENDED AND RESTATED BYLAWS
OF
PALM RESORT GROUP, INC.
Adopted December 19, 1997
ARTICLE I
Offices
SECTION 1. Principal Office. The principal office of Palm Resort Group,
Inc. (the "Corporation") may be located either within or without the State of
Florida as the board of directors (the "Board of Directors" or the "Board") may
designate or as the business of the Corporation may require from time to time.
SECTION 2. Registered Office. The registered office of the Corporation,
required by the Florida Business Corporation Act to be maintained in the State
of Florida, may be, but need not be, identical to the principal office in the
State of Florida, and the address of the registered office may be changed from
time to time by the Board of Directors.
ARTICLE II
Shareholders
SECTION 1. Annual Meeting. The annual meeting of the shareholders shall
be held on such date as the Board may determine in each year at such hour as may
be specified in a notice of meeting or in a duly executed waiver of notice, for
the purpose of electing Directors and for the transaction of such other business
as may come before the meeting. If the day fixed for the annual meeting shall be
a legal holiday in the State of Florida, the meeting shall be held on the next
succeeding business day. If the election of Directors is not held on the day
designated in these bylaws for any annual meeting of the shareholders, or at any
adjournment of the annual meeting, the Board of Directors shall cause the
election to be held at a special meeting of the shareholders as soon thereafter
as may be convenient.
SECTION 2. Special Meetings. Special meetings of the shareholders, for
any purpose, may be called by the Board, by the holders of not less than ten
percent (10%) of all the votes entitled to be cast on any issue to be considered
at the meeting, or by the President of the Corporation.
SECTION 3. Place of Meeting. The Board may designate any place, either
within or without the State of Florida, unless otherwise prescribed by statute,
as the place of meeting for any annual meeting of shareholders. The Chairman of
the Board, if one is elected, or the President may designate any place, either
within or without the State of Florida, unless otherwise prescribed by statute,
as the place of the meeting. If no designation is made, the place of the meeting
shall be the principal office of the Corporation in the State of Florida.
<PAGE>
SECTION 4. Notice of Meeting. Written notice stating the time, date,
and place of the meeting and, in the case of a special meeting, the purpose or
purposes for which the meeting is called, shall be delivered to each shareholder
of record entitled to vote at such meeting not less than ten (10) nor more than
sixty (60) days before the date of the meeting, either personally, by telegraph,
teletype, or other form of electronic communication, or by mail, by or at the
direction of the President, the Secretary, or the person or persons calling the
meeting. If mailed, such notice shall be deemed to be delivered when deposited
in the United States mail addressed to the shareholder at his address as it
appears on the stock transfer books of the Corporation, postage prepaid.
SECTION 5. Fixing of Record Date. The Board may fix a date nor more
than seventy (70) and not less than ten (10) days prior to the date set for any
meeting of the shareholders as the record date as of when the shareholders of
record entitled to notice of and to vote at such meeting and any adjournment
thereof shall be determined.
SECTION 6. Shareholders' List for Meeting. After fixing the record date
for a meeting, an alphabetical list of the names of all shareholders entitled to
notice of the meeting, arranged by voting group, with the address of and the
number, class, and series, if any, of shares held by each, shall be prepared.
The list shall, upon written demand, be available during regular business hours,
for inspection by any shareholder and at his expense for a period of ten (10)
days prior to the meeting date, or such shorter time as may exist between the
record date and the meeting, and continuing through the meeting, at the
Corporation's principal office, at a place set forth in the meeting notice in
the city where the meeting will be held, or at the office of the Corporation's
transfer agent or registrar. The Corporation shall also make the list available
at the meeting.
SECTION 7. Quorum. A majority of the outstanding shares of the
Corporation entitled to vote, represented in person or by proxy, shall
constitute a quorum at a meeting of the shareholders. When a meeting is
adjourned, it shall not be necessary to give any notice of the adjourned meeting
if the time, date, and place to which the meeting is adjourned are announced at
the meeting at which the adjournment is taken, and any business may be
transacted at the adjourned meeting that might have been transacted at the
original date of the meeting. If, however, following the adjournment, the Board
fixes a new record date for the adjourned meeting, notice of such adjourned
meeting shall be given, in compliance with Section 4 of this Article II, to each
shareholder of record on the new record date entitled to vote at such meeting.
After a quorum has been established at a shareholders' meeting, the subsequent
withdrawal of shareholders, so as to reduce the number of shares entitled to
vote at the meeting below the numbered required for a quorum, shall not affect
the validity of any action taken at the meeting or any adjournment thereof.
SECTION 8. Proxies. Every shareholder entitled to vote at a meeting of
shareholders, or to express consent or dissent without a meeting, or his duly
authorized attorney-in-fact, may authorize another person or persons to act for
him by proxy. The proxy must be executed in writing by the shareholder or his
duly authorized attorney-in-fact. Such proxy shall be filed with the Secretary
of the Corporation before or at the time of such meeting or at the time of
expressing such consent or dissent without a meeting. No proxy shall be valid
after eleven (11) months from the date of its execution, unless otherwise
provided in the proxy.
<PAGE>
SECTION 9. Voting of Shares. Each outstanding share of stock entitled
to vote shall be entitled to one (1) vote upon each matter submitted to a vote
at a meeting of the shareholders.
SECTION 10. Voting of Shares by Certain Holders. Shares of stock
standing in the name of another corporation may be voted by the officer, agent,
or proxy as prescribed by the bylaws of the corporate shareholder or, in the
absence of any applicable bylaw, by such person as the Board of Directors of the
corporate shareholder may designate. Proof of such designation may be made by
presentation of a certified copy of the bylaws or other instrument of the
corporate shareholder. In the absence of such designation, or in case of
conflicting designation by the corporate shareholder, the Chairman of the Board,
the President, any Vice President, the Secretary, and the Treasurer of the
corporate shareholder shall be presumed to possess, in that order, authority to
vote such shares.
Shares of stock held by an administrator, executor, guardian, personal
representative, or conservator may be voted by him, either in person or by
proxy, without a transfer of such shares into his name.
Shares of stock standing in the name of a trustee may be voted by him,
either in person or by proxy, but no trustee shall be entitled to vote shares
held by him without a transfer of such shares into his name or the name of his
nominee.
Shares of stock standing in the name of a receiver, a trustee in
bankruptcy proceedings, or an assignee for the benefit of creditors may be voted
by him or her without the transfer thereof into his or her name.
A shareholder whose shares of stock are pledged shall be entitled to
vote such shares until the shares have been transferred into the name of the
pledgee, and thereafter the pledgee or his nominee shall be entitled to vote the
shares so transferred.
Shares of stock owned by another corporation the majority of whose
shares of stock entitled to vote for Directors is owned or controlled by the
Corporation shall not be voted, directly or indirectly, at any meeting.
ARTICLE III
Board of Directors
SECTION 1. General Powers. All corporate powers shall be exercised by or
under the authority of, and the business and affairs of the Corporation shall be
managed under the direction of, the Board of Directors.
<PAGE>
SECTION 2. Number, Tenure, and Qualification. The number of Directors
of the Corporation initially shall be three (3). The number of Directors may be
increased or decreased from time to time by amendment of these bylaws, provided
that the Corporation shall always have at least one (1) director. Any increase
in the number of Directors shall be effective immediately. Any decrease in the
number of Directors shall be effective at the time of the next succeeding annual
meeting of the Shareholders unless there shall be vacancies on the Board, in
which case such decrease may become effective at any time prior to the next
succeeding annual meeting to the extent of the number of vacancies.
Except as otherwise provided by statute, the Directors shall be elected
at the annual meeting of Shareholders and, at each meeting of Shareholders for
the election of Directors at which a quorum is present, the persons receiving a
plurality of the votes cast at such election shall be elected as Directors.
Each initial director shall hold office until the first shareholders'
meeting at which Directors are elected. Thereafter, each director shall hold
office until the next annual meeting of shareholders and until his successor is
elected and qualified or until his earlier resignation, death, or removal from
office.
SECTION 3. Chairman of the Board. The Board of Directors of the
Corporation may elect a Chairman who, if so elected, shall preside at all
meetings of the Board of Directors. The Chairman shall have such other powers
and shall perform all duties as from time to time may be granted or assigned to
him by the Board of Directors and as provided by law.
SECTION 4. Annual and Regular Meetings. The annual meeting of the Board
of Directors shall be held without other notice than this bylaw immediately
after and at the same place as the annual meeting of shareholders. The Board of
Directors may provide, by resolution, the time, date, and place for the holding
of regular meetings without other notice than such resolution.
SECTION 5. Special Meetings. Special meetings of the Board of Directors may
be called by the Chairman of the Board, by the President, or by any two
Directors. The Chairman of the Board, if one is elected, or the President shall
fix the place for holding such special meeting.
SECTION 6. Notice. Notice of any special meeting shall be given at
least two (2) days before the meeting by written notice delivered personally, or
by mail, telecopy, telegram, cablegram, or other form of electronic
communication to each director at his business address, unless in case of
emergency, the Chairman of the Board, if one is elected, or the President shall
prescribe a shorter notice to be given personally or by telegraph, telecopy,
cablegram, or other electronic communication to each director at his residence
or business address. If a notice of meeting is mailed, such notice shall be
deemed to be delivered five (5) days after its deposit in the United States
mail, if mailed, postpaid and correctly addressed. Any director may waive notice
of any meeting, before or after the meeting. The attendance of a director at a
meeting shall constitute a waiver of notice of such meeting and a waiver of any
and all objections to the place of the meeting, the time or date of the meeting,
or the manner in which it has been called or convened, except when a director
states, at the beginning of the meeting, any objection to the transaction of
business because the meeting is not lawfully called or convened.
<PAGE>
SECTION 7. Quorum. A majority of the number of Directors fixed pursuant
to Section 2 of this Article III shall constitute a quorum for the transaction
of business at any meeting of the Board of Directors. A majority of the
Directors present, whether or not a quorum exists, may adjourn any meeting of
the Board to another time and place. Notice of any such adjourned meeting shall
be given to the Directors who were not present at the time of the adjournment
and, unless the time and place of the adjourned meeting are announced at the
time of the adjournment, to the other Directors.
SECTION 8. Manner of Acting. The act of the majority of the Directors
present at a meeting at which a quorum is present shall be the act of the Board
of Directors.
SECTION 9. Vacancies. Any vacancy occurring on the Board, including any
vacancy created by reason of an increase in the number of Directors, may be
filled by the affirmative vote of a majority of the remaining Directors though
less than a quorum of the Board of Directors. A director elected to fill a
vacancy shall hold office only until the next annual meeting of shareholders and
until his successor shall have been elected and qualified or until his earlier
resignation, removal from office, or death.
SECTION 10. Compensation. By resolution of the Board of Directors, the
Directors may be paid their expenses, if any, for attendance at each meeting of
the Board of Directors, and may be paid a fixed sum for attendance at each
meeting of the Board or may be paid a stated salary as director. No such payment
shall preclude any director from serving the Corporation in any other capacity
and receiving compensation therefor.
SECTION 11. Presumption of Assent. A director of the Corporation who is
present at a meeting of the Board of Directors at which action on any corporate
matter is taken shall be presumed to have assented to the action taken, unless
he objects at the beginning of the meeting to holding it or transacting
specified business at the meeting or he votes against or abstains from the
action taken.
SECTION 12. Constructive Presence at a Meeting. A member of the Board
of Directors may participate in a meeting of such Board by any means of
communication by which all persons participating in the meeting may
simultaneously hear each other during the meeting. Participating by such means
shall constitute presence in person at a meeting.
SECTION 13. Action Without a Meeting. Any action required or permitted
by law to be taken at any meeting of the Board or a committee thereof, may be
taken without a meeting if the action is taken by all members of the Board or of
the committee. The action must be evidenced by one or more written consents
describing the action taken and signed by each director or committee member. The
action so taken is effective when the last director signs the consent, unless
the consent specifies a difference effective date. A consent so signed has the
effect of a meeting vote and may be described as such in any document.
<PAGE>
ARTICLE IV
Officers
SECTION 1. Number. The officers of the Corporation shall be a
President, a Secretary, and a Treasurer, each of whom shall be elected by the
Board of Directors. One or more Vice Presidents and such other officers and
assistant officers and agents as may be deemed necessary may be elected or
appointed by the Board of Directors.
SECTION 2. Election and Term of Office. The officers of the Corporation
to be elected by the Board of Directors shall be elected annually by the Board
of Directors at the regular meeting of the Board of Directors held after each
annual meeting of the shareholders. If the election of officers shall not be
held at such meeting, such election shall be held as soon thereafter as may be
convenient. Each officer shall hold office until his successor shall have been
elected and qualified or until his earlier resignation, removal from office, or
death.
SECTION 3. Removal. Any officer or agent elected or appointed by the
Board of Directors may be removed by the Board of Directors whenever, in its
judgment, the best interests of the Corporation would be served thereby, but
such removal shall be without prejudice to the contract rights, if any, of the
person so removed. Election or appointment of an officer or agent shall not of
itself create contract rights.
SECTION 4. Vacancies. A vacancy, however occurring, in any office may
be filled by the Board of Directors for the unexpired portion of the term.
SECTION 5. President. The President shall be the principal executive
officer of the Corporation and, subject to the control of the Board of
Directors, shall in general supervise and control all of the business affairs of
the Corporation. He shall, when present, preside at all meetings of the
shareholders. The President shall also preside at the meetings of the Board of
Directors, unless the Board of Directors has elected a Chairman and the Chairman
is present at such meetings. The President may sign any deeds, mortgages, bonds,
contracts, or other instruments which the Board of Directors has authorized to
be executed, except in cases where the signing and execution thereof shall be
expressly delegated by the Board of Directors or by these bylaws to some other
officer or agent of the Corporation, or shall be required by law to be otherwise
signed or executed. The President shall in general perform all duties as from
time to time may be assigned to him by the Board of Directors.
SECTION 6. Vice President. In the absence of the President or in the
event of his death or his inability or refusal to act, the Vice President, if
one is elected, shall have the duties of the President, and when so acting,
shall have all the powers of, and be subject to all the restrictions upon, the
President. The Vice President, if one is elected, shall perform such other
duties as from time to time may be assigned to him by the President or the Board
of Directors. If more than one Vice President is elected, the Board of Directors
shall designate which Vice President shall serve until the election of a
successor President.
<PAGE>
SECTION 7. Secretary. The Secretary shall: (a) keep the minutes of all
the meetings of the shareholders and the Board of Directors in one or more books
provided for that purpose; (b) see that all notices are duly given in accordance
with the provisions of these bylaws or as required by law; (c) be custodian of
the corporate records and of the seal of the Corporation and see that the seal
of the Corporation is affixed to all documents the execution of which on behalf
of the Corporation under its seal is duly authorized; (d) keep a register of the
post office address of each shareholder which shall be furnished to the
Secretary by such shareholder; (e) have general charge of the stock transfer
books of the Corporation; (f) authenticate all records of the Corporation; and
(g) in general, perform all duties incident to the office of Secretary and such
other duties as from time to time may be assigned to him by the President or by
the Board of Directors.
SECTION 8. Treasurer. The Treasurer shall: (a) have charge and custody
of and be responsible for all funds and securities of the Corporation; (b)
receive and give receipts for monies due and payable to the Corporation from any
source whatsoever, and deposit all such monies in the name of the Corporation in
such banks, trust companies, or other depositories as shall be selected in
accordance with the provisions of Article VI of these bylaws; (c) in general,
perform all of the duties incident to the office of Treasurer and such other
duties as from time to time may be assigned to him by the President or by the
Board of Directors. 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
surety or sureties as the Board of Directors shall determine.
SECTION 9. Compensation. The compensation of the officers shall be
fixed from time to time by the Board of Directors and no officer shall be
prevented from receiving such compensation by reason of the fact that he is also
a director of the Corporation.
ARTICLE V
Resignations
Any director of the Corporation may resign by delivering written notice
to the Board of Directors or its Chairman or to the Corporation. Any officer of
the Corporation may resign at any time by giving written notice to the
Corporation. Any such resignation shall take effect when delivered unless the
notice specifies a later effective date.
ARTICLE VI
Contracts, Loans, Checks, and Deposits
SECTION 1. Contracts. The Board of Directors may authorize any officer
or officers, agent or agents to enter into any contract or execute and deliver
any instrument in the name of and on behalf of the Corporation, unless otherwise
restricted by law. Such authority may be general or confined to specific
instances.
SECTION 2. Loans. No loans shall be contracted on behalf of the Corporation
and no evidence of indebtedness shall be issued in its name unless authorized by
a resolution of the Board of Directors. Such authority may be general or
confined to specific instances.
<PAGE>
SECTION 3. Checks, Drafts, Etc. All checks, drafts, or other orders for
the payment of money, notes, or other evidences of indebtedness issued in the
name of the Corporation, shall be signed by such officer or officers, agent or
agents of the Corporation in such manner as shall from time to time be
determined by resolution of the Board of Directors.
SECTION 4. Deposits. All funds of the Corporation not otherwise
employed shall be deposited from time to time to the credit of the Corporation
in such banks, trust companies, or other depositories as the Board of Directors
may select.
ARTICLE VII
Certificates for Shares and Their Transfer
SECTION 1. Certificates for Shares. Certificates representing shares of
the Corporation shall be in such form as shall be determined by the Board of
Directors. Certificates shall be signed by the President or by such other
officers as authorized by law. All certificates for shares shall be
consecutively numbered or otherwise identified. The name and address of the
person to whom the shares represented thereby are issued, with the number of
shares and date of issue, shall be entered on the stock transfer books of the
Corporation. All certificates surrendered to the Corporation for transfer shall
be canceled, and no new certificate shall be issued until the former certificate
for a like number of shares shall have been surrendered and canceled, except
that in case of a lost, destroyed, or mutilated certificate, a new one may be
issued therefor upon such terms and indemnity to the Corporation as the Board of
Directors may prescribe.
SECTION 2. Transfer of Shares. Transfer of shares of the Corporation
shall be made on the stock transfer books of the Corporation only when the
holder of record thereof or his legal representative, or his attorney thereunto
authorized by power of attorney duly executed and filed with the Secretary of
the Corporation, shall furnish proper evidence of authority to transfer, and
when there is surrendered for cancellation the certificate for such shares,
properly endorsed. The person in whose name shares stand on the books of the
Corporation shall be deemed by the Corporation to be the owner thereof for all
purposes.
ARTICLE VIII
Fiscal Year
The fiscal year of the Corporation shall begin on January 1 and end on
December 31 in each year, except its first fiscal year, which shall begin on the
date of incorporation.
ARTICLE IX
Dividends
The Board of Directors may from time to time declare, and the
Corporation may pay, dividends on its outstanding shares in the manner and upon
the terms and conditions provided by law and its Articles of Incorporation.
<PAGE>
ARTICLE X
Indemnification of Officers
Directors, Employees and Agents
SECTION 1. Indemnification. The Corporation shall, and does hereby,
indemnify and hold harmless to the fullest extent permitted or authorized by
current or future legislation or current or future judicial or administrative
decisions (but, in the case of any such future legislation or decisions, only to
the extent that it permits the Corporation to provide broader indemnification
rights than permitted prior to such legislation or decisions), each person
(including here and hereinafter, the heirs, executors, administrators, personal
representatives or estate of such person) who was or is a party, or is
threatened to be made a party, or was or is a witness, to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (a "Proceeding"), from, against and in respect
of any liability (which for purposes of this Article X shall include any
judgment, settlement, penalty or fine) or cost, charge or expense (including
attorneys' fees and expenses) asserted against him or incurred by him by reason
of the fact that such indemnified person (1) is or was a director or officer of
the Corporation or (2) is or was an employee or agent of the Corporation as to
whom the Corporation has agreed in writing to grant such indemnity or (3) is or
was serving, at the request of the Corporation, as a director, officer, employee
or trustee of another corporation, partnership, joint venture, trust or other
enterprise (including serving as a fiduciary of an employee benefit plan) or is
or was serving as an agent of such other corporation, partnership, joint
venture, trust or other enterprise, in each case, as to whom the Corporation has
agreed in writing to grant such indemnity. Each director, officer, employee or
agent of the Corporation as to whom indemnification rights have been granted
under this Section 1 of this Article X shall be referred to as an "Indemnified
Person."
Notwithstanding the foregoing, except as specified in Section 3 of this
Article X, the Corporation shall not be required to indemnify an Indemnified
Person in connection with a Proceeding (or any part thereof) initiated by such
Indemnified Person unless the authorization for such Proceeding (or any part
thereof) was not denied by the Board of Directors of the Corporation within
sixty (60) days after receipt of notice thereof from such Indemnified Person
stating his intent to initiate such Proceeding and only then upon such terms and
conditions as the Board of Directors may deem appropriate.
SECTION 2. Advance of Costs, Charges and Expenses. Costs, charges and
expenses (including attorneys' fees and expenses) incurred by an officer or
director who is an Indemnified Person in defending a Proceeding shall be paid by
the Corporation, to the fullest extent permitted or authorized by current or
future legislation or current or future judicial or administrative decisions
(but, in the case of any such future legislation or decisions, only to the
extent that it permits the Corporation to provide broader rights to advance
costs, charges and expenses than permitted prior to such legislation or
decisions), in advance of the final disposition of such Proceeding, upon receipt
of an undertaking by or on behalf of the Indemnified Person to repay all amounts
so advanced in the event that it shall ultimately be determined that such person
is not entitled to be indemnified by the Corporation as authorized in this
Article X. The Corporation may, upon approval of the Indemnified Person,
authorize the Corporation's counsel to represent such person in any Proceeding,
whether or not the Corporation is a party to such Proceeding. Such authorization
may be made by the Chairman of the Board of Directors, unless he is a party to
such Proceeding, or by the Board of Directors by majority vote, including
directors who are parties to such Proceeding.
<PAGE>
SECTION 3. Procedure for Indemnification. Any indemnification or
advance under this Article X shall be made promptly and in any event within
forty-five (45) days upon the written request of the Indemnified Person. The
right to indemnification or advances as granted by this Article X shall be
enforceable by the Indemnified Person in any court of competent jurisdiction, if
the Corporation denies such request under this Article, in whole or in part, or
if no disposition thereof is made within forty-five (45) days. Such Indemnified
Person's costs and expenses incurred in connection with successfully
establishing his right to indemnification or advances, in whole or in part, in
any such action shall also be indemnified by the Corporation. It shall be a
defense to any such action that the claimant has not met the standard of
conduct, if any, required by current or future legislation or by current or
future judicial or administrative decisions for indemnification (but, in the
case of any such future legislation or decisions, only to the extent that it
does not impose a more stringent standard of conduct than permitted prior to
such legislation or decision), but the burden of proving such defense shall be
on the Corporation. Neither the failure of the Corporation (including its Board
of Directors or any committee thereof, its independent legal counsel, and its
shareholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he has met the applicable standard of conduct, if any, nor the fact that
there has been an actual determination by the Corporation (including its Board
of Directors or any committee thereof, its independent legal counsel, or its
shareholders) that the claimant has not met such applicable standard of conduct,
shall be a defense to the action or create a presumption that the claimant has
not met the applicable standard of conduct.
SECTION 4. Rights Not Exclusive; Contract Right; Survival. The
indemnification provided by this Article X shall not be deemed exclusive of any
other rights to which those indemnified may be entitled under any agreement,
vote of shareholders or disinterested directors or otherwise, both as to actions
in such person's official capacity and as to actions in another capacity while
holding such office, and shall continue as to an Indemnified Person who has
ceased to be a director, officer, employee or agent and shall inure to the
benefit of the heirs, executors, administrators, personal representatives and
estate of such person. All rights to indemnification and advances under this
Article X shall be deemed to be a contract between the Corporation and each
Indemnified Person who serves or served in such capacity at any time while this
Article X is in effect and, as such, are enforceable against the Corporation.
Any repeal or modification of this Article X or any repeal or modification of
relevant provisions of Florida's corporation law or any other applicable laws
shall not in any way diminish these rights to indemnification of or advances to
such Indemnified Person, or the obligations of the Corporation arising
hereunder, for claims relating to matters occurring prior to such repeals or
modification.
SECTION 5. Insurance. The Corporation may purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee, trustee or agent of another corporation,
partnership, joint venture, trust or other enterprise (including serving as a
fiduciary of an employee benefit plan), with respect to any liability asserted
against him and incurred by him in any such capacity or arising out of his
status as such, whether or not the Corporation would have the power to indemnify
him against such liability under the provisions of this Article X or the
applicable provisions of Florida law.
<PAGE>
SECTION 6. Savings Clause. If this Article X or any portion hereof
shall be invalidated on any ground by any court of competent jurisdiction, then
the Corporation shall nevertheless indemnify and hold harmless, and make
advances to, each Indemnified Person as to costs, charges and expenses
(including attorneys' fees), liabilities, judgments, fines and amounts paid in
settlement with respect to any Proceeding, including any action by or in the
right of the Corporation, to the full extent permitted by any applicable portion
of this Article X that shall not have been invalidated and as otherwise
permitted by applicable law.
ARTICLE XI
Seal
The Board of Directors shall provide a corporate seal which shall be
circular in form and shall have inscribed thereon the name of the Corporation,
the state of incorporation, and the words, "Corporate Seal."
ARTICLE XII
Waiver of Notice
Unless otherwise provided by law, whenever any notice is required to be
given to any shareholder or director of the Corporation under the provisions of
these bylaws or under the provisions of its Articles of Incorporation, a waiver
thereof in writing, signed by the person or persons entitled to such notice,
whether before or after the time stated therein, shall be deemed equivalent to
the giving of such notice.
ARTICLE XIII
Rules of Order
Roberts' Rules of Order, Newly Revised, shall prescribe the rules of
conduct for all meetings of the Corporation so far as not inconsistent with the
laws of Florida, with the Articles of Incorporation, or with these bylaws.
ARTICLE XIV
Amendments
These bylaws may be altered, amended, or repealed and new bylaws may be
adopted by a vote of the Board of Directors.
<PAGE>
ARTICLE XV
Corporate Records
The Corporation shall maintain in written form or in a form capable of
conversion into written form (a) permanent records of minutes of all meetings of
its shareholders and Board of Directors, or any committee thereof; or a record
of all action taken without a meeting of its shareholders or Board of Directors,
or any committee thereof; (b) accurate accounting records; (c) a record of its
shareholders in a form that permits preparation of a list of names and addresses
of all shareholders in alphabetical order by class of shares showing the number
and series held by each. Additionally, the Corporation shall keep a copy of (a)
its Articles of Incorporation and all amendments currently in effect; (b) its
Bylaws, or restated Bylaws, and all amendments currently in effect; (c)
resolutions adopted by its Board of Directors creating one or more classes or
series of shares and affixing their relative rights, preferences, and
limitations, if shares issued pursuant thereto are outstanding; (d) minutes of
all shareholders' meetings and records of all action taken by shareholders
without a meeting for the past three years; (e) written communications to all
shareholders, generally, or all shareholders of a class or series within the
past three years, including the financial statements furnished for the past
three years pursuant to the Florida Business Corporation Act; (f) a list of
names and business street addresses of its current Directors and officers; and
(g) its most recent annual report delivered to the Florida Department of State
pursuant to the Florida Business Corporation Act.
ARTICLE XVI
Emergency Bylaws
In the event that a quorum of the Corporation's Board of Directors
cannot readily be assembled because of a catastrophic event, the following
emergency bylaws are in effect until termination of the emergency:
(a) Notice of a meeting of the Board of Directors need only be given to
those Directors whom it is practicable to reach and may be given in any
practicable manner, including by publication and radio;
(b) One or more officers of the Corporation present at the meeting of
the Board of Directors may be deemed to be Directors for the meeting, in order
of rank and within the same rank in order of seniority, as necessary to achieve
a quorum; and
(c) The Director or Directors in attendance at a meeting shall
constitute a quorum.
The Corporation's bylaws not inconsistent with the emergency bylaws
shall remain in effect during an emergency. During an emergency as set forth
herein, the Board of Directors may:
(a) Modify lines of succession to accommodate the incapacity of any
director, officer, employee, or agent; and
(b) Relocate the principal office or designate alternative principal or
regional offices or authorize the officers to do so.
<PAGE>
EXHIBIT C
COMPLETE AND FINAL RELEASE
WHEREAS, Palm Resort Group, Inc., a Florida corporation ("Palm
Resort"), and The Berkley Group, Inc., a Florida corporation, ("Shareholder"),
have entered into the Agreement and Plan of Merger, dated as of December 10,
1997 (the "Merger Agreement"), among Fairfield Communities, Inc., a Delaware
corporation ("Fairfield"), FC Palm-Aire, Inc., a Florida corporation and a
wholly owned subsidiary of Fairfield ("Merger Sub"), the Shareholder and Palm
Resort;
WHEREAS, pursuant to the Merger Agreement the Shareholder has agreed to
deliver, and in consideration of the payment of the PPM Loan Amount (as defined
in the Merger Agreement) PPM Brokerage Service, Inc. ("PPM") has agreed to
deliver, a complete and final release of all claims against Palm Resort, Palm
Vacation Group, a Florida general partnership (the "Partnership") and its
partners; and
WHEREAS, the Shareholder acknowledges that it has conferred with its
counsel concerning the effect of this Release.
NOW, THEREFORE, the Shareholder, for itself and its affiliates,
successors and assigns, and PPM, for itself and its affiliates, successors and
assigns, does hereby fully and forever release, relinquish, acquit and discharge
(a) Palm Resort, its successors and assigns, and its and their shareholders,
directors, officers, attorneys, employees, agents, representatives and assets,
and all persons or entities in privity with them or any of them from (i) all
debts, obligations, liabilities, liens and duties under the PPM Loan, (ii) all
claims in respect of loans, advances, project management or marketing fees or
other obligations, and (iii) any and all actions, causes of action, claims,
suits, debts, sums of money, accounts, bonds, bills, covenants, contracts,
agreements, promises, damages, judgments, claims and demands whatsoever, in law
or equity, whether known or unknown and whether now existing or hereafter
arising including, without limitation, any matter described on Schedule 3.2(j)
to the Merger Agreement, except claims arising under Sections 5.1, 5.2 and 5.3
of the Merger Agreement, and (b) the Partnership, its successors, assigns and
partners, and its and their directors, officers, attorneys, employees, agents,
representatives, and assets, and all persons or entities in privity with them or
any of them from (i) all debt, obligations, liabilities, liens and duties under
the Partnership Agreement (as defined in the Merger Agreement), (ii) all claims
in respect of loans, advances, project management or marketing fees or other
obligations, and (iii) all actions, causes of action, claims, suits, debts, sums
of money, accounts, bonds, bills, covenants, contracts, agreements, promises,
damages, judgments, claims and demands whatsoever, in law or equity, whether
known or unknown and whether now existing or hereafter arising including,
without limitation, any matter described on Schedule 3.2(j) to the Merger
Agreement, except claims arising under Sections 5.1, 5.2 and 5.3 of the Merger
Agreement.
The Shareholder and PPM hereby covenant and agree with Palm Resort and
the Partnership to sign, seal, execute and deliver, or cause to be signed,
sealed, executed and delivered, and to make or cause to be done or made, upon
the reasonable request of Palm Resort or the Partnership, any and all
agreements, instruments, papers, deeds, acts or things, supplemental,
confirmatory or otherwise, as may reasonably be required by Palm Resort or the
Partnership for the purpose of, or in connection with, the releases granted
hereunder.
<PAGE>
IN WITNESS WHEREOF, this Complete and Final Release is executed as of
the 19th day of December, 1997.
THE BERKLEY GROUP, INC.
By:/s/Rebecca A. Foster
-----------------------------
Name: Rebecca A. Foster
---------------------------
Title: President
PPM BROKERAGE SERVICE, INC.
By:/s/ Linda M. Fenner
----------------------------
Name: Linda M. Fenner
--------------------------
Title: President
<PAGE>
Schedule 6.3(g)
OPINION OF COUNSEL FOR
SHAREHOLDER AND PALM RESORT
1. Palm Resort is a corporation duly organized, validly existing and in
good standing under the laws of the State of Florida, has full power to own its
properties and to the knowledge of counsel, to carry on the business currently
being conducted by it, and to the knowledge of counsel, does not conduct
business in any state other than Florida. To the knowledge of counsel, Palm
Resort does not now own and has never owned any capital stock or any equity
interest in any corporation, limited liability company, partnership or other
entity except the Interest.
2. The execution, delivery, and consummation of the Agreement has been
duly authorized by the Shareholder and Palm Resort and approved by all necessary
action. The Agreement has been duly executed and delivered by Shareholder and
Palm Resort and constitutes the valid and binding agreement of each of them
enforceable in accordance with its terms.
3. To the knowledge of counsel, neither the execution of the Agreement
nor the consummation of the transactions contemplated thereby will result in the
breach of any term or provision of, or constitute a default under, or be in
violation of any charter provision, bylaw, agreement, instrument, order, law or
regulation to which Shareholder, Palm Resort and/or the Partnership is a party
or which is otherwise applicable.
4. To the knowledge of counsel, there is not (i) any pending or
threatened actions, suits, proceedings or investigations against or affecting
Palm Resort or the Interest or (ii) any currently existing order, writ,
injunction or decree to which Palm Resort is subject.
5. To the knowledge of counsel, Palm Resort and the Partnership are and
have at all times been, in compliance in all material respects with all
applicable laws, rules and regulations and orders.
6. To the knowledge of counsel, there is no fact or circumstance that
would cause any representation or warranty, in whole or in part, of Shareholder
and Palm Resort contained in the Agreement not to be true.
<PAGE>
SCHEDULE 3.2(i)
None
<PAGE>
SCHEDULE 3.2(j)
None
<PAGE>
SCHEDULE 6.3(g)
None
AGREEMENT AND PLAN OF MERGER
among
FAIRFIELD COMMUNITIES, INC.,
FA, INC.,
CARL FLEMISTER,
C. WENDELL FLEMISTER, JR.
and
APEX MARKETING, INC.
Dated as of October 22, 1997
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I
THE MERGER.........................................................1
1.1 The Merger...................................................1
1.2 Closing......................................................2
1.3 Effective Time...............................................2
1.4 Effect of the Merger.........................................2
1.5 Articles of Incorporation....................................2
1.6 Bylaws.......................................................2
1.7 Directors....................................................2
1.8 Officers.....................................................2
ARTICLE II
EFFECTS OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES.................3
2.1 Effect on Capital Stock......................................3
2.2 Surrender and Payment for Shares.............................4
2.3 Transfer of Shares After the Effective Time..................4
ARTICLE III
REPRESENTATIONS AND WARRANTIES.....................................4
3.1 Representations and Warranties of Fairfield and Merger Sub...4
3.2 Representations and Warranties of Shareholders and Apex......7
3.3 Additional Representations of Shareholders..................15
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS.........................15
4.1 No Solicitation.............................................15
4.2 Conduct of Business Prior to Effective Time.................16
4.3 Cooperation Between the Parties.............................17
4.4 Covenants of Fairfield......................................17
4.5 Adverse Changes in Condition................................18
ARTICLE V
ADDITIONAL AGREEMENTS.............................................18
5.1 Confidentiality.............................................18
5.2 Indemnification of Shareholders.............................18
5.3 Indemnification of Fairfield................................18
5.4 Exclusivity Of Indemnification For Contractual Breaches.....21
5.5 Arbitration.................................................21
5.6 Reasonable Efforts..........................................21
5.7 Expenses and Fees...........................................22
5.8 Consents....................................................22
<PAGE>
5.9 Pooling of Interests.........................................22
5.10 Transfer Restrictions........................................22
5.11 Tax Treatment................................................24
5.12 Non-Competition and Non-Solicitation Covenants...............24
5.13 Payment of Bonus.............................................25
5.14 Registration Rights..........................................25
ARTICLE VI
CONDITIONS PRECEDENT...............................................27
6.1 Conditions to Each Party's Obligation to Effect the Merger...27
6.2 Conditions to Obligations of Apex and Shareholders...........28
6.3 Conditions to Obligations of Fairfield and Merger Sub........28
6.4 Frustration of Closing Conditions............................29
6.5 Closing Documents and Procedures.............................29
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER..................................31
7.1 Termination..................................................31
7.2 Effect of Termination........................................32
7.3 Amendment....................................................32
7.4 Extension; Waiver............................................32
ARTICLE VIII
GENERAL PROVISIONS.................................................32
8.1 Survival of Representations and Warranties...................32
8.2 Notices......................................................33
8.3 Definitions..................................................34
8.4 Interpretation...............................................35
8.5 Counterparts.................................................35
8.6 Entire Agreement; No Third-party Beneficiaries...............35
8.7 Governing Law................................................35
8.8 Assignment...................................................35
8.9 Enforcement..................................................36
<PAGE>
AGREEMENT AND PLAN OF MERGER dated as of October 22, 1997 (this
"Agreement"), among FAIRFIELD COMMUNITIES, INC., a Delaware corporation
("Fairfield"), FA, Inc., an Arkansas corporation and a wholly owned subsidiary
of Fairfield ("Merger Sub"), CARL FLEMISTER, C. WENDELL FLEMISTER, JR. and APEX
MARKETING, INC., an Arkansas corporation ("Apex").
WHEREAS, the respective Boards of Directors of Fairfield, Merger Sub
and Apex each have determined that it is in the best interests of their
respective stockholders for Merger Sub to merge with and into Apex (the
"Merger"), upon the terms and subject to the conditions set forth in this
Agreement;
WHEREAS, Carl Flemister and C. Wendell Flemister, Jr. (collectively, the
"Shareholders" and each a "Shareholder") hold all of the outstanding capital
stock of Apex;
WHEREAS, the respective Boards of Directors of Fairfield, Merger Sub
and Apex have each determined that the Merger and the other transactions
contemplated under this Agreement are consistent with, and in furtherance of,
their respective business strategies and goals;
WHEREAS, Fairfield, Merger Sub, Shareholders and Apex desire to make
certain representations, warranties, covenants and agreements in connection with
the transactions contemplated by this Agreement and also to prescribe various
conditions to the Merger;
WHEREAS, for federal income tax purposes, it is intended that the
Merger shall qualify as a reorganization within the meaning of Section 368(a) of
the Code; and
WHEREAS, for financial accounting purposes, it is intended that the
Merger will be accounted for as a pooling of interests transaction.
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained in this Agreement, the parties hereto agree
as follows:
ARTICLE I
THE MERGER
I.1 The Merger. Upon the terms and subject to the conditions set forth
in this Agreement, and in accordance with the Arkansas Business Corporation Act
of 1987 (the "ABCA"), Merger Sub shall be merged with and into Apex at the
Effective Time (as hereinafter defined). Following the Merger, the separate
corporate existence of Merger Sub will cease and Apex will continue as the
surviving corporation (the "Surviving Corporation") and will succeed to and
assume all the rights and obligations of Merger Sub in accordance with the ABCA.
I.2 Closing. The closing of the Merger (the "Closing") will take place
at 10:00 a.m. on the date that is two business days after the expiration of the
Inspection Period (the "Closing Date"), at the offices of Fairfield, 11001
Executive Center Drive, Little Rock, Arkansas 72211, unless another date, time
or place is agreed to in writing by all of the parties hereto.
<PAGE>
I.3 Effective Time. Subject to the provisions of this Agreement, as
soon as practicable on or after the Closing Date the parties shall deliver
Articles of Merger (the "Articles of Merger") executed in accordance with the
relevant provisions of the ABCA to the Arkansas Secretary of State for filing as
required under the ABCA and shall make all other filings or recordings required
under the ABCA. The Merger shall become effective at such time (the "Effective
Time") as the Articles of Merger have been accepted for filing by the Arkansas
Secretary of State (or such later time as stated in the Articles of Merger and
permitted by the Arkansas Secretary of State), which will be the Closing Date or
as soon as practicable thereafter.
I.4 Effect of the Merger. The Merger shall have the effects set forth
in Section 4-27-1106 of the ABCA.
I.5 Articles of Incorporation. Articles of incorporation of Apex shall
be amended to read in their entirety as set forth in Exhibit A attached hereto
and shall be the articles of incorporation of the Surviving Corporation until
thereafter changed or amended as provided therein or by applicable law.
I.6 Bylaws. The bylaws of Apex shall be amended to read in their
entirety as set forth in Exhibit B and shall be the bylaws of the Surviving
Corporation following the Merger until thereafter changed or amended as provided
therein or by applicable law.
I.7 Directors. The directors of Merger Sub at the Effective Time shall
be the directors of the Surviving Corporation following the Merger, until the
earlier of their resignation or removal or until their respective successors are
duly elected and qualified, as the case may be.
I.8 Officers. The officers of Merger Sub at the Effective Time shall be
the officers of the Surviving Corporation following the Merger, until the
earlier of their resignation or removal or until their respective successors are
duly elected and qualified, as the case may be.
ARTICLE II
EFFECTS OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES
II.1 Effect on Capital Stock. As of the Effective Time, by virtue of
the Merger and without any action on the part of the holder of any shares of the
capital stock of the constituent corporations:
<PAGE>
(a)Exchanged Shares. All of the shares of Common Stock, par value
$.01 per share, of Apex (the "Apex Common Stock") issued and outstanding
immediately prior to the Effective Time (other than shares of Apex Common Stock,
if any, to be canceled under Section 2.1(c)), shall be converted into the right
to receive the number (the "Exchanged Shares") of validly issued, fully paid and
nonassessable shares of Common Stock, par value $.01 per share, of Fairfield
(the "Fairfield Common Stock") as determined pursuant to the following sentence.
If on the second business day immediately preceding the Closing Date the closing
sale price per share of Fairfield Common Stock ("Closing Price Per Share") as
reported in the New York Stock Exchange Composite Transaction Tape is:
(i) less than $24 per share, the total number of shares of
Fairfield Common Stock included in the Exchanged Shares shall be equal
to $5,400,000 divided by the Closing Price Per Share;
(ii) at least $24 per share but not more than $30 per share,
the total number of shares of Fairfield Common Stock included in the
Exchanged Shares shall be 225,000 shares of Fairfield Common Stock; or
(iii) more than $30 per share, the total number of shares of
Fairfield Common Stock included in the Exchanged Shares shall be equal
to $6,750,000 divided by the Closing Price Per Share.
In each case, the number of Exchanged Shares shall be rounded to the nearest
whole share. If, subsequent to the date hereof and prior to the Effective Time,
Fairfield should split, reclassify or combine the shares of Fairfield Common
Stock, or pay a stock dividend or other stock distribution in Fairfield Common
Stock, or otherwise change or convert the Fairfield Common Stock into any other
securities, or make any other dividend or distribution on the Fairfield Common
Stock (other than normal cash dividends), or if a record date with respect to
any of the foregoing shall have been set, then the Exchanged Shares will be
appropriately adjusted to reflect such split, reclassification, combination,
dividend or other distribution or change.
(b)Certificates. All shares of Apex Common Stock to be converted
into the right to receive shares of Fairfield Common Stock pursuant to this
Section 2.1 shall cease to be outstanding, shall be canceled and retired and
shall cease to exist, and each holder of a certificate representing any such
shares of Apex Common Stock shall thereafter cease to have any rights with
respect to such shares of Apex Common Stock, except the right to receive for
each of the shares of Apex Common Stock, upon the surrender of such certificate
in accordance with Section 2.2, the amount of Exchanged Shares specified in
Section 2.2.
(c)Treasury Shares. Shares of Apex Common Stock, if any, held by
Apex as treasury stock immediately prior to the Effective Time shall cease to be
outstanding, shall be canceled and retired without payment of any consideration
therefor, and shall cease to exist.
(d)Stock of Merger Sub. Each share of common stock, par value of
$.01 per share, of Merger Sub issued and outstanding immediately prior to the
Effective Time shall be converted into and exchanged for one validly issued,
fully paid and nonassessable share of common stock of the Surviving Corporation.
<PAGE>
II.2 Surrender and Payment for Shares. Upon surrender to Fairfield of a
certificate or certificates representing the Shareholder's shares of Apex Common
Stock outstanding immediately prior to the Effective Time, each Shareholder will
be entitled to receive the number of Exchanged Shares equal to the product,
rounded to the nearest whole number, of (a) the Exchanged Shares multiplied by
(b) a fraction, the numerator of which is the aggregate number of shares of Apex
Common Stock represented by the certificate or certificates so surrendered and
the denominator of which is the aggregate number of shares of Apex Common Stock
issued and outstanding (the "Apex Stock Percentage"). Fairfield shall deliver to
such holder a certificate representing 90% of the number of shares the
Shareholder is entitled to receive under this Section 2.2, with the remaining
shares of Fairfield Common Stock due to that Shareholder (the "Holdback Shares")
to be held in escrow and delivered in accordance with Section 5.3 and the escrow
agreement to be entered into upon terms mutually agreeable to the parties and
the escrow agent (the "Escrow Agreement").
II.3 Transfer of Shares After the Effective Time. No transfers of
shares of Apex Common Stock shall be made on the stock transfer books of Apex
after the close of business on the day prior to the date of the Effective Time.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
III.1 Representations and Warranties of Fairfield and Merger Sub.
Fairfield and Merger Sub represent and warrant to Apex and Shareholders as
follows:
(a)Organization. Each of Fairfield and Merger Sub is a
corporation duly organized, validly existing and in good standing under the laws
of its jurisdiction of incorporation and has the requisite corporate power and
authority to carry on its business as now being conducted. Each of Fairfield and
Merger Sub is duly qualified or licensed to do business and is in good standing
in each jurisdiction in which the nature of its business or the ownership or
leasing of its properties makes such qualification or licensing necessary, other
than in such jurisdictions where the failure to be so qualified or licensed or
to be in good standing (individually or in the aggregate) could not have a
material adverse effect on Fairfield.
(b)Binding Agreement. This Agreement has been duly executed and
delivered by Fairfield and Merger Sub and constitutes the valid and binding
agreement of Fairfield and Merger Sub enforceable in accordance with its terms.
(c)No Breach. Neither the execution of this Agreement nor the
consummation of the transactions contemplated hereby will result in the breach
of any term or provision of, or constitute a default under, any charter
provision, bylaw, agreement, indenture, instrument, order, law or regulation to
which Fairfield and/or Merger Sub is a party or which is otherwise applicable to
both or either of them which would have a material adverse effect on Fairfield
and its Subsidiaries (as the term "subsidiary" is defined in Rule 12b-2
promulgated under the Exchange Act) (including Merger Sub) taken as a whole
other than the credit agreements described in Section 6.1(b).
<PAGE>
(d)Merger Sub. Merger Sub is a newly formed direct wholly owned
subsidiary of Fairfield formed solely for the purpose of engaging in this
transaction. As of the Effective Date, Merger Sub will not have conducted any
business nor will it own any significant assets or owe any significant
liabilities.
(e)Capitalization. The authorized capital stock of Fairfield
consists of 25,000,000 shares of Fairfield Common Stock and 5,000,000 shares of
preferred stock, par value $.01 per share ("Fairfield Preferred Stock"). At the
close of business on September 18, 1997, (i) 16,689,192 shares of Fairfield
Common Stock were issued and outstanding, (ii) 2,305,640 shares of Fairfield
Common Stock were held by Fairfield in its treasury, (iii) no shares of
Fairfield Preferred Stock were issued and outstanding, (iv) no shares of
Fairfield Preferred stock were held by Fairfield in its treasury and (v) not
more than 5,093,155 shares of Fairfield Common Stock were reserved for issuance
(A) upon exercise of outstanding employee and director stock options and
warrants to purchase shares of Fairfield Common Stock, (B) under Fairfield's
plan of reorganization and related agreements and settlements, and (C) under its
employee stock purchase plan. Except as set forth above, as of the date of this
Agreement, no shares of capital stock or other voting securities of Fairfield
were issued, reserved for issuance or outstanding. As of the date of this
Agreement, all outstanding shares of capital stock of Fairfield are, and all
shares which may be issued pursuant to this Agreement will be, when issued in
accordance with the terms hereof, duly authorized, validly issued, fully paid
and nonassessable, and not subject to preemptive rights.
(f)Compliance With Laws. Fairfield has obtained all, and is not
in default under any, permits, licenses, certificates, approvals, orders,
franchises, registrations and other authorizations required for the operation of
its business, except where the failure to obtain a permit, or a default under
such permits, would not, individually or in the aggregate, adversely affect the
business or prospects of Fairfield.
(g)SEC Documents; Undisclosed Liabilities. Fairfield has filed
all required reports, schedules, forms, statements and other documents with the
SEC since January 1, 1996 (the "Fairfield SEC Documents"). As of their
respective dates, the Fairfield SEC Documents complied in all material respects
with the requirements of the Securities Act or the Exchange Act, as the case may
be, and the rules and regulations of the SEC promulgated thereunder applicable
to such Fairfield SEC Documents, and none of the Fairfield SEC Documents when
filed contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. Except to the extent that information contained in any Fairfield
SEC Document has been revised or superseded by a later Fairfield SEC Document,
none of the Fairfield SEC Documents contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading. The financial statements of
Fairfield included in the Fairfield SEC Documents comply as to form, as of their
<PAGE>
respective dates of filing with the SEC, in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC with respect thereto, have been prepared in accordance with generally
accepted accounting principles (except, in the case of unaudited statements, as
permitted by Form 10-Q of the SEC) applied on a consistent basis during the
periods involved (except as may be indicated in the notes thereto) and fairly
present in all material respects the consolidated financial position of
Fairfield and its consolidated Subsidiaries as of the dates thereof and the
consolidated results of their operations and cash flows for the periods then
ended (subject, in the case of unaudited statements, to normal recurring
year-end audit adjustments). Except (i) as reflected in such financial
statements or in the notes thereto, (ii) as contemplated hereunder, (iii) for
liabilities incurred in connection with this Agreement or the transactions
contemplated hereby, (iv) for liabilities and obligations incurred since
December 31, 1996 in the ordinary course of business consistent with past
practice, and (v) as set forth in Schedule 3.1(g), neither Fairfield nor any of
its Subsidiaries has any material liabilities or obligations of any nature
(whether accrued, absolute, contingent or otherwise), including liabilities
arising under any environmental laws or laws relating to the protection of
health or safety required by generally accepted accounting principles to be
reflected in a consolidated balance sheet of Fairfield and its consolidated
Subsidiaries and which, individually or in the aggregate, could reasonable be
expected to have a material adverse effect on Fairfield.
(h)Absence of Certain Changes or Events. Except (i) as disclosed
in the Fairfield SEC Documents, (ii) for the transactions provided for herein,
(iii) as set forth in Schedule 3.1(g), and (iv) for liabilities incurred in
connection with or as a result of this Agreement, since the date of the most
recent financial statements included in the Fairfield SEC Documents, Fairfield
has conducted its business only in the ordinary course, and there has not been
(1) any material adverse change in Fairfield, (2) any declaration, setting aside
or payment of any dividend or other distribution (whether in cash, stock or
property) with respect to any of Fairfield's capital stock other than the stock
dividend effected on July 15, 1997, (3) any split, combination or
reclassification of any of Fairfield's capital stock or any issuance or the
authorization of any issuance of any other securities in respect of, in lieu of
or in substitution for shares of Fairfield's capital stock other than the
adjustment of share purchase rights in connection with the stock dividend
effected on July 15, 1997, or (4) except insofar as may have been disclosed in
the Fairfield SEC Documents or required by a change in generally accepted
accounting principles, any change in accounting methods, principles or practices
by Fairfield materially affecting its assets, liabilities or business.
(i)Proceedings. Except as set forth in the Fairfield SEC
Documents, there are currently no pending, and Fairfield is not aware of any
threatened, lawsuits or administrative or other proceedings against Fairfield or
its assets that would adversely affect the business or prospects of Fairfield.
(j)Tax Matters. Fairfield has not taken any action that is
reasonably likely to prevent the Merger from qualifying as a reorganization
within the meaning of Section 368(a) of the Code.
III.2 Representations and Warranties of Shareholders and Apex.
Shareholders and Apex hereby represent and warrant to Fairfield and Merger Sub
as follows:
<PAGE>
(a)Organization. Apex is a corporation duly organized, validly
existing and in good standing under the laws of the State of Arkansas. Apex has
full power to own its properties and to carry on the business currently being
conducted by it, and does not conduct business in any state other than Arkansas,
Missouri and Texas. Apex does not now own and has never owned any capital stock
any or equity interest in any corporation, limited liability company,
partnership or other entity and has no Subsidiary.
(b)Binding Agreement. The execution, delivery, and consummation
of this Agreement has been duly authorized by Shareholders and Apex and approved
by all necessary action. This Agreement has been duly executed and delivered by
Apex and each Shareholder and constitutes the valid and binding agreement of
each of them enforceable in accordance with its terms.
(c)No Breach. Neither the execution of this Agreement nor the
consummation of the transactions contemplated hereby will result in the breach
of any term or provision of, or constitute a default under, or be in violation
of any charter provision, bylaw, agreement, instrument, order, law or regulation
to which any Shareholder and/or Apex is a party or which is otherwise
applicable.
(d)Financial Statements. Shareholders and Apex have furnished to
Fairfield unaudited balance sheets of Apex as of April 30, 1997 and the related
unaudited statements of operations for the fiscal year then ended and the
unaudited balance sheet of Apex as of August 31, 1997 and the related unaudited
consolidated statements of operations for the four months then ended (the
"Unaudited Financial Statements"). Those financial statements fairly present the
financial position of Apex at, and the results of operations for the periods
ending on, such dates, in a consistent manner throughout the periods indicated
and were prepared based on the books and records maintained for Apex's business.
Except as disclosed in the Unaudited Financial Statements (which includes the
notes thereto), Apex has no liabilities (contingent, accrued, actual or
otherwise) that were not provided or reserved for in the August 31, 1997 balance
sheet, other than liabilities incurred since the date of the August 31, 1997
balance sheet in the ordinary course of business; and all reserves established
by Apex and reflected in the August 31, 1997 balance sheet were at the times
they were established, adequate for the purposes indicated therein. Except as
disclosed in those financial statements (which includes the notes thereto),
since August 31, 1997, Apex has not: (i) declared or set aside or paid any
dividend or made any payment or distribution in respect of shares of its capital
stock; (ii) made any loans or advances to any person; (iii) entered into any
transaction with any affiliate of Apex or either Shareholder; (iv) incurred any
indebtedness for money borrowed; or (v) made or entered into any agreement or
understanding to do any of the foregoing.
<PAGE>
(e)Accounts Receivable. The accounts receivable reflected on the
balance sheet included in the Unaudited Financial Statements, and the accounts
receivable created after the date thereof, are valid and genuine and arose from
bona fide performance of services or other transactions in the ordinary course
of the business of Apex. The accounts receivable have been collected in full
since those dates, or are collectible at their full amounts as of the Closing
Date.
(f)Assets.
(i) Schedule 3.2(f) is a complete and accurate list of all
owned or leased real property (the "Real Property"), and a list of
personal property (individual items with a depreciated book value in
excess of $3,000) (the "Personal Property"), which is owned or leased
by Apex. Except as set forth on Schedule 3.2(f), Apex is not a party to
any leases, subleases, rental agreements, contracts of sale, tenancies
or licenses (collectively, "Leases") of any portion of the Real
Property or the Personal Property. Subject to the stated book value
threshold, the Real Property and the Personal Property include all
property (whether real, personal or mixed) which Apex purports to own,
including, without limitation, all the properties and assets reflected
in the Unaudited Financial Statements (except for such properties or
assets disposed of since the date of the Unaudited Financial Statements
in the ordinary course of business), and all the properties and assets
purchased by Apex since the date of the Unaudited Financial Statements
and all such properties are all the assets necessary for the conduct by
Apex of its business as now conducted.
(ii) Except as set forth on Schedule 3.2(f), Apex has good,
valid and marketable fee simple title to all Real Property owned by
Apex, free and clear of all liens, mortgages, pledges, deeds of trust,
security interest, conditional sales agreements, charges, encumbrances
and other adverse claims or interests of any kind (together, "Liens"),
other than Liens for property taxes not yet due and payable and other
interests which do not materially affect the usefulness of the Real
Property to the present conduct of business of Apex. Apex has not
granted any leases, subleases, tenancies or licenses of or entered into
any rental agreement or contract of sale with respect to any portion of
the Real Property. Except as set forth on Schedule 3.2(f), each Lease
to which any of the Real Property is subject is valid, binding and
enforceable in accordance with its material terms, subject to
bankruptcy, insolvency, reorganization, moratorium and similar laws
affecting the enforcement of rights generally and to general principles
of equity, neither Apex nor any other party thereto is in default under
any Lease and no event or circumstance has occurred which, without
notice or lapse of time or both, would constitute a default under any
material provision of such Lease.
(iii) Except as set forth on Schedule 3.2(f), all Personal
Property is free and clear of all Liens, and Apex has good and
marketable title thereto.
(iv) Except as set forth on Schedule 3.2(f), each Lease to
which the Personal Property is subject is valid, binding and
enforceable in accordance with its material terms, subject to
bankruptcy, insolvency, reorganization, moratorium and similar laws
affecting the enforcement of rights generally and to general principles
of equity, neither Apex nor any other party thereto is in default under
any Lease and no event or circumstance has occurred which, without
notice or lapse of time or both, would constitute a default under any
material provision of such Lease.
(v) Apex has not received notice as of the date of this
Agreement that the whole or any portion of the Real Property or any
other assets or property of Apex is subject to any governmental decree
or order to be sold or is being condemned, expropriated or otherwise
taken by any public authority.
<PAGE>
(g)Proceedings. There are currently no pending, and Shareholders
and Apex are not aware of any threatened, lawsuits or administrative or other
proceedings against Apex or its assets other than as set forth on Schedule
3.2(g). Apex is not subject to any currently existing order, writ, injunction or
decree. Apex is not aware of any pending or proposed legislation, ordinances or
laws that would affect adversely the business or prospects of Apex.
(h)Compliance With Laws. The business conducted by Apex has been,
and currently is being, conducted in material compliance with all, and Apex is
not in breach of any, applicable laws, rules and regulations or orders,
including but not limited to those relating to telemarketing, of each
jurisdiction in which its business is carried on and all governing instruments
applicable to Apex and to the conduct of its business, except for noncompliance
or breach which, individually or in the aggregate, will not affect adversely the
business or prospects of its business or Apex. Apex has obtained all, and is not
in default under any, permits, licenses, certificates, approvals, orders,
franchises, registrations and other authorizations required for the operation of
its business, except where the failure to obtain a permit, or a default under
such permits, would not, individually or in the aggregate, adversely affect the
business or prospects of Apex. Schedule 3.2(h) identifies each state in which
Apex conducts telemarketing activities and specifies whether Apex conducts those
activities pursuant to all required licenses or permits necessary to conduct
telemarketing activities in that state or whether Apex conducts those activities
pursuant to an exemption from the telemarketing laws of that state.
(i)Employees. Schedule 3.2(i) contains a true and correct list of
all current key employees of Apex, including the commencement date of their
employment and their current compensation including all accrued benefits,
vacation and sick leave. Apex is not a party to any collective bargaining
agreements.
(j)Intellectual Property. Apex does not possess or use any
patents, copyrights, trade names, trademarks, assumed name (fictitious name)
filings or service marks, other than as described in Schedule 3.2(j) hereto.
(k)No Adverse Change. Subsequent to June 30, 1997, there have not
been any material changes in the business, operations, assets or liabilities or
the condition, financial or otherwise, or prospects of Apex, other than changes
in the ordinary course of business none of which individually or in the
aggregate has been materially adverse, nor has there occurred any other event or
condition of any character which has materially and adversely affected or which
could materially and adversely affect the business, operations, properties,
assets or liabilities, the condition, financial or otherwise, or prospects of
Apex or its business.
(l)Contracts. Schedule 3.2(l) contains a list of all contracts,
agreements or other arrangements ("Contracts") to which Apex is party which are
reasonably expected to require the payment of more than $3,000 and which are not
terminable without penalty or termination fee upon no more than 30 days' written
notice, copies of which have been provided to Fairfield. Each of the Contracts
is in full force and effect and is a binding obligation of each party thereto,
and the Merger will not be a default under any of the Contracts. Apex has good
relations with each party to the Contracts and, no party has made or threatened,
any claim against Apex or either or both of Shareholders for breach of or
failure to perform under any Contract and no disputes exist regarding any
Contract. No event has occurred that has caused, or with the passage of time or
giving of notice would cause, Apex to be in default under any Contract.
<PAGE>
(m)Environmental Matters. The assets of Apex have not been
associated with any spill, disposal, discharge or release of any hazardous
materials (which includes any hazardous or toxic substance, material or waste
which is regulated by any Governmental Entity) into or upon or over any real
property or into or upon ground or surface water including without limitation in
either case the property which is the subject of any Real Property that is or
has been leased by Apex.
(n)Reserves. Apex has adequately insured for or reserved against
all liabilities which can reasonably be determined to have arisen or may arise
as a result of the operation of its business.
(o)Broker's Fee. Neither Apex nor either Shareholder has made any
agreement or taken any other action which might cause anyone to become entitled
to a broker's fee or commission as a result of the transactions contemplated
under this Agreement.
(p)Capitalization. The authorized capital stock of Apex consists
of 1,000 shares of common stock, par value $.01 per share, of which 1,000 shares
of common stock are issued and outstanding. All outstanding shares of common
stock have been duly authorized and validly issued, are fully paid and
nonassessable, and are owned by Shareholders. No options, warrants,
subscriptions, rights of conversion or exchange exist that may obligate Apex to
issue any additional capital stock. Neither Apex nor either Shareholder is party
to any shareholder, voting or similar voting affecting or restricting the sale,
transfer, disposition, voting or other rights of or relating to the Apex Common
Stock.
(q) Pooling. Neither Apex nor either Shareholder has taken any of the
-------
actions set forth on Schedule 3.2(q).
(r)Absence of Changes in Benefit Plans; Labor Relations.
(i) Schedule 3.2(r) sets forth a true and complete list of all
the following: (x) each "employee benefit plan," as such term is
defined in Section 3(3) of ERISA, pursuant to which Apex has (A) any
liability in respect of current or former employees, agents, directors,
or independent contractors of Apex ("Apex Employees") or any
beneficiaries or dependents of any Apex Employees or (B) any obligation
to issue capital stock of Apex (each, an "Apex Employee Plan"), and (y)
each other plan, program, policy, contract or arrangement providing for
bonuses, pensions, deferred pay, stock or stock related awards,
severance pay, salary continuation or similar benefits,
hospitalization, medical, dental or disability benefits, life insurance
or other employee benefits, or compensation to or for any Apex
Employees or any beneficiaries or dependents of any Apex Employees
(other than directors' and officers' liability policies), whether or
not insured or funded, (A) pursuant to which Apex has any material
<PAGE>
liability or (B) constituting an employment or severance agreement or
arrangement with any officer or director of Apex or with any holder of
shares of Apex Common Stock (each, an "Apex Benefit Arrangement"). Apex
has provided to Fairfield with respect to each Apex Employee Plan and
Apex Benefit Arrangement: (i) a true and complete copy of all written
documents comprising such Apex Employee Plan or Apex Benefit
Arrangement and any related trust agreement, insurance contract or
other funding vehicle (including amendments and individual agreements
relating thereto, or, if there is no such written document, an accurate
and complete description of such Apex Employee Plan or Apex Benefit
Arrangement); (ii) the most recent Form 5500 or Form 5500-C/R
(including all schedules thereto), if applicable; (iii) the most recent
financial statements and actuarial reports or valuations, if any; (iv)
the summary plan description currently in effect and all material
modifications thereof, if any; and (v) the most recent Internal Revenue
Service determination letter, if any.
(ii) Each Apex Employee Plan and Apex Benefit Arrangement has
been established, operated and maintained in all material respects in
accordance with its terms and in material compliance with all
applicable laws and the rules and regulations thereunder, including,
but not limited to, ERISA and the Code. None of Shareholders or Apex or
any of its respective current or former directors, officers, or
employees, nor, to the best knowledge of Shareholders and Apex, any
other disqualified person or party-in-interest with respect to any Apex
Employee Plan, have engaged directly or indirectly in any "prohibited
transaction," as such term is defined in Section 4975 of the Code or
Section 406 of ERISA, with respect to which Apex could reasonably be
expected to have or has any material liability. All contributions and
other payments required to be made for any period through the date to
which this representation speaks to the Apex Employee Plans and Apex
Benefit Arrangements (or to any person pursuant to the terms thereof)
have been made or paid in a timely fashion, or, to the extent not
required to be made or paid on or before the date to which this
representation speaks, have been reflected in the Unaudited Financial
Statements. Each Apex Employee Plan that is intended to be qualified
under Section 401(a) of the Code has been determined by the Internal
Revenue Service to be so qualified or an application for such a
determination, which was filed before the expiration of the applicable
remedial amendment period, is pending, and, to the best knowledge of
Apex and Shareholders, no circumstances exist that are reasonably
expected by Apex and Shareholders to result in the revocation of any
such determination.
(iii) With respect to each Apex Employee Plan that is subject
to Title IV of ERISA: (i) as of the last applicable annual valuation
date, the present value of all benefits under such Apex Employee Plan
did not exceed the value of the assets of such Apex Employee Plan
allocable to such benefits, on a projected benefits basis, using the
actuarial methods, factors and assumptions used for the most recent
actuarial report with respect to such Apex Employee Plan; and (ii)
there has been no termination, partial termination or "reportable
event" (as defined in Section 4043 of ERISA) with respect to any such
Apex Employee Plan. No Apex Employee Plan that is subject to Section
<PAGE>
412 of the Code has incurred any "accumulated funding deficiency" (as
defined in Section 412 of the Code), whether or not waived. No event
has occurred, and, to the best knowledge of Apex and Shareholders,
there do not exist any circumstances, that could reasonably be expected
to subject Apex to any material liability arising under ERISA. With
respect to the Apex Employee Plans and Apex Benefit Arrangements,
individually and in the aggregate, no event has occurred, and, to the
best knowledge of Apex and Shareholders, there do not exist any
circumstances, that could reasonably be expected to subject Apex to any
material liability under the Code or other applicable law, or under any
indemnity agreement to which Apex is a party, excluding liability for
benefit claims, administrative expenses and funding obligations payable
in the ordinary course.
(iv) No Apex Employee Plan is a "multiemployer plan" as that
term is defined in Section 3(37) of ERISA or a "multiple employer plan"
described in Section 4063(a) of ERISA, nor has Apex or any ERISA
Affiliate of Apex at any time since January 1, 1992, contributed to or
been obligated to contribute to such a multiemployer plan or multiple
employer plan.
(v) Except with respect to an Apex Employee Plan, neither Apex
nor any ERISA Affiliate of Apex has any Controlled Group Liability, nor
do any circumstances exist that could result in any of them having any
Controlled Group Liability. "Controlled Group Liability" means any and
all liabilities under (i) Title IV of ERISA, (ii) Section 302 of ERISA,
(iii) Sections 412 and 4971 of the Code and (iv) the continuation
coverage requirements of Section 601 et seq. of ERISA and Section 4980B
of the Code.
(vi) Neither the execution or delivery of this Agreement, nor
the consummation of the transactions contemplated hereby (either alone
or together with any additional or subsequent events), constitutes an
event under any Apex Employee Plan, Apex Benefit Arrangement, loan to,
or individual agreement or contract with, an Apex Employee that may
result in any payment (whether of severance pay or otherwise),
restriction or limitation upon the assets of any Apex Employee Plan or
Apex Benefit Arrangement, acceleration of payment or vesting, increase
in benefits or compensation, or required funding, with respect to any
Apex Employee, or the forgiveness of any loan or other commitment of
any Apex Employees.
(vii) There are no actions, suits, arbitrations, inquiries,
investigations or other proceedings (other than routine claims for
benefits) pending or, to the knowledge of Apex or Shareholders,
threatened, with respect to any Apex Employee Plan or Apex Benefit
Arrangement.
(viii) No Apex Employees and no beneficiaries or dependents of
Apex Employees are or may become entitled under any Apex Employee Plan
or Apex Benefit Arrangement to post-employment or retiree welfare
benefits of any kind, including without limitation death or medical
benefits, other than coverage mandated by Part 6 of Title I of ERISA or
Section 4980B of the Code or other applicable law.
<PAGE>
(s)Taxes.
(i) Except as set forth in Schedule 3.2(s), Apex has filed all
tax returns and reports required to be filed by it, or requests for
extensions to file such returns or reports have been timely filed and
granted and have not expired, and all tax returns and reports are
complete and accurate in all respects, except to the extent that such
failures to file or be complete and accurate in all respects, as
applicable, individually or in the aggregate, would not have a material
adverse effect on Apex. Apex has paid or made provision for all taxes
shown as due on such tax returns and reports. No claim has been made
since September 1, 1992 by any authority in a jurisdiction where Apex
does not file tax returns that it is or may be subject to taxation by
that jurisdiction. The Unaudited Financial Statements reflect adequate
reserves for all taxes payable by Apex for all taxable periods and
portions thereof accrued through the date of such financial statements,
and no deficiencies for any taxes have been proposed, asserted or
assessed against Apex that are not adequately reserved for, except for
inadequately reserved taxes and inadequately reserved deficiencies that
would not, individually or in the aggregate, have a material adverse
effect on Apex. There are no liens for taxes (other than for current
taxes not yet due and payable) on the assets of Apex. No requests for
waivers of the time to assess any taxes against Apex have been granted
or are pending, except for requests with respect to such taxes that
have been adequately reserved for in the Unaudited Financial
Statements, or, to the extent not adequately reserved, the assessment
of which would not, individually or in the aggregate, have a material
adverse effect on Apex. Apex is not a party to or bound by any
agreement providing for the allocation or sharing of taxes. Apex has
not filed a consent pursuant to or agreed to the application of Section
341(f) of the Code. Apex has disclosed on its federal income tax
returns all positions taken therein that could give rise to a
substantial understatement of federal income tax within the meaning of
Section 6662 of the Code. All taxes that are required by the laws of
the United States, any state or political subdivision thereof, or any
foreign country to be withheld or collected by Apex have been duly
withheld or collected and, to the extent required, have been paid to
the proper Governmental Entities or properly deposited as required by
applicable laws. Apex (i) has not been a member of an affiliated group
filing a consolidated federal income tax return (other than a group the
common parent of which was Apex), or (ii) has no any liability for the
taxes of any person (other than Apex) under Treasury Regulation Section
1.1502-6 (or any similar provision of state, local, or foreign law), as
a transferee or successor, by contract or otherwise. For purposes of
this Agreement, the term tax (including, with correlative meaning, the
terms "taxes" and "taxable") shall include all federal, state, local,
and foreign income, profits, franchise, gross receipts, payroll, sales,
employment, use, property, withholding, excise, and other taxes,
duties, or assessments of any nature whatsoever, together with all
interest, penalties, and additions imposed with respect to such
amounts.
(ii) Schedule 3.2(s) sets forth each state in which Apex has
collected or remitted any sales and/or use taxes since September 1,
1992. To knowledge of Apex and Shareholders, Apex has not conducted
activities in any other state that would require such taxes to be
collected or remitted. No claim has ever been made since September 1,
1992 by any authority in a jurisdiction where Apex does not pay sales
and/or use taxes that it is or may be subject to a requirement to remit
such taxes in that jurisdiction.
<PAGE>
(iii) Apex has not taken any action that is reasonably likely
to prevent the Merger from qualifying as a reorganization within the
meaning of Section 368(a) of the Code.
(t)Voting Requirements. The affirmative vote of the Shareholders
(the "Apex Shareholder Approval") to approve this Agreement is the only vote of
the holders of capital stock of Apex necessary to approve this Agreement and the
transactions contemplated by this Agreement.
(u)No Excess Parachute Payments. Except as described in Schedule
3.2(u), no amount that could be received (whether in cash or property or the
vesting of property) as a result of any of the transactions contemplated by this
Agreement by any employee, officer or director of Apex or any of its Affiliates
who is a "disqualified individual" (as such term is defined in Section 280G(c)
of the Code or proposed Treasury Regulation Section 1.280G-1) under any
employment, severance or termination agreement, other compensation arrangement
or Apex Employee Plan or Benefit Arrangement currently in effect would be an
"excess parachute payment" (as such term is defined in Section 280G(b) (l) of
the Code).
(v)Ownership of Fairfield Common Stock. Except as set forth in
Schedule 3.2(v), neither Apex nor, to its or Shareholders' knowledge, any of its
affiliates (including but not limited to Shareholders), (i) beneficially owns
(as such term is defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, or (ii) is a party to any agreement, arrangement or understanding
for the purpose of acquiring, holding, voting or disposing of, in each case,
shares of capital stock of Fairfield. For each beneficial owner, Schedule 3.2(v)
sets forth the name of the beneficial owner, the number of shares owned and the
date such shares were acquired by the beneficial owner.
III.3 Additional Representations of Shareholders. Each Shareholder
represents and warrants on behalf of such Shareholder to Fairfield and Merger
Sub as follows:
(a)Exchanged Shares Not Registered. Shareholder understands that
the Exchanged Shares have not been registered under the Securities Act and may
be transferred only if so registered or if an exemption therefrom is available.
Shareholder will not sell or dispose of any of the Exchanged Shares without (1)
the registration, qualification, approval and listing of the Exchanged Shares,
or (2) the delivery to Fairfield of an opinion of counsel, in form and substance
reasonably satisfactory to counsel for Fairfield, that such proposed sale or
disposition is exempt from the provisions of Section 5 of the Securities Act and
any applicable states securities laws.
(b)Restrictions on Transfer. Until such time as, and unless, the
registration, qualification, approval and listing of the Exchanged Shares is
effected, Shareholder understands that the certificates for the Exchanged Shares
received by him pursuant to the transactions set forth herein shall bear legends
and be subject to the restrictions set forth in Section 5.10.
(c)Tax Advice. Each Shareholder has relied and will rely upon his
own tax advisor(s) or tax advisor(s) for Apex, for advice and counseling in
regard to the structure, accounting or tax treatment and all other tax or
accounting issues relating to the transactions contemplated by the parties
hereunder. Neither Shareholder has relied, nor will either Shareholder rely, on
Fairfield or its tax advisors, for any tax advice or counseling in regard to the
transactions contemplated hereunder.
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
IV.1 No Solicitation. Prior to the Effective Time, Apex and
Shareholders will not (a) offer for sale any of the assets of or any interest in
Apex; (b) solicit any offers to purchase or make any attempts by preliminary
conversations or negotiations to dispose of any of the assets of or any equity
interest in Apex to any person, firm or entity, other than to Fairfield, or to
engage in any type of business combination with any person, firm or entity,
other than Fairfield; or (c) provide anyone with any written or oral offer to
sell, invitation to purchase or any offering or sales material with respect to
any of the assets of or the equity of Apex.
IV.2 Conduct of Business Prior to Effective Time. Except for
transactions specifically permitted by this Agreement or consented to in writing
by Fairfield, prior to the Effective Time Apex shall (and the Shareholders will
cause Apex to):
(a) operate its business only in the ordinary course, and
employ no additional persons or promote or otherwise expand the responsibilities
of any present officer of Apex;
(b) except as set forth on Schedule 4.2(b) or otherwise in the
ordinary course of its business and consistent with past practices, make (i) no
increase in the current rate of salary or other compensation payable to any
officer, employee or agent; (ii) no bonus payment to any officer, employee or
agent; or (iii) no contract for any of the foregoing;
(c) except as set forth on Schedule 4.2(c), neither make, nor
incur any obligation to make, any capital expenditures except capital
expenditures in the ordinary course of businesses in an amount not to exceed
$3,000;
(d) act in a manner that will preserve or attempt to preserve
the goodwill of Apex, and suppliers, customers and others having business
relations with Apex;
(e) make no such sale or other disposition of any asset owned
or used by Apex in its business (whether or not capitalized or expensed for tax
or financial reporting purposes), except (i) sales or other dispositions in the
ordinary course of business in an amount not to exceed $3,000; and (ii) sales or
other dispositions pursuant to commitments existing on the date hereof that are
identified on Schedule 4.2(e) hereto;
<PAGE>
(f) not enter into, amend, rescind or terminate any Contract,
arrangement or commitment except contracts, arrangements or commitments made in
the ordinary course of its business consistent with its past practices;
(g) except as set forth on Schedule 4.2(g), not declare, set
aside or make any dividend, distribution, loan or other advance to either
Shareholder or any other person;
(h) not amend its Articles of Incorporation or Bylaws, nor
issue any additional shares of capital stock, or any options, warrants or other
securities under which any additional shares of its capital stock might be
directly or indirectly authorized or issued;
(i) not fail to comply in any material respect with the laws,
regulations, ordinances or governmental actions or orders applicable to Apex;
(j) not enter into or materially modify or alter any Employee
Plan or Benefit Arrangement;
(k) not make any material tax elections or settle or compromise
any material tax liability;
(l) not take any action that would prevent the Merger from
qualifying (i) as a reorganization within the meaning of Section
368(a) of the Code or (ii) for "pooling of interest" accounting
treatment under Opinion 16 of the Accounting Principles Board and
applicable SEC rules and regulations, and Apex and Shareholders will
use all reasonable efforts to achieve both such qualifications;
(m) not take any action that would materially adversely affect
the ability of Apex or Shareholders to obtain the consents required
for Apex and Shareholders to consummate the transactions contemplated
hereby or materially adversely affect the ability of Apex or
Shareholders to perform their respective covenants and agreements
under this Agreement;
(n) not change its method of accounting in effect April 30, 1997;
and
(o) not change its method of reporting income and deductions for
federal or state income taxes in effect April 30, 1997.
Notwithstanding the foregoing, Apex may, prior to Closing, distribute any or all
of the property set forth in Schedule 4.2(g) to either or both Shareholders
provided that (i) Apex is released in writing from any liability in connection
with mortgages, liens or encumbrances on such property and such liability is
assumed by Shareholders and (ii) prior to any such distribution(s), Apex
provides Fairfield with a written opinion of Apex's certified public accountants
that such distribution(s) will not (x) violate the requirements for the
transactions contemplated under this Agreement to be accounted for under the
"pooling-of-interest" method of accounting or (y) prevent the Merger from
qualifying as a reorganization within the meaning of Section 368(a) of the Code.
Apex and Shareholders represent and warrant that the property set forth in
Schedule 4.2(g) has an aggregate fair market value of not more than $300,000 and
is not integral or essential to the business of Apex.
<PAGE>
IV.3 Cooperation Between the Parties. During the period from the
date hereof through the Closing, Apex shall cause the employees and agents of
Apex to cooperate with Fairfield and its agents for the purpose of effecting the
transactions contemplated by this Agreement, including without limitation,
providing all information and materials pertaining to Apex and access to all
premises of Apex reasonably requested by Fairfield or its agents.
IV.4 Covenants of Fairfield. Except for transactions specifically
permitted by this Agreement or consented in writing by Apex, prior to the
Effective Time, Fairfield shall (i) not take any action that would materially
adversely affect the ability of Fairfield to obtain the consents required for
Fairfield to consummate the transactions contemplated hereby or materially
adversely affect the ability of Fairfield to perform its covenants and
agreements under this Agreement or (ii) not take any action that would prevent
the Merger from qualifying (A) as a reorganization within the meaning of Section
368(a) of the Code or (B) for "pooling of interest" accounting treatment under
Opinion 16 of the Accounting Principles Board and applicable SEC rules and
regulations, and Fairfield will use all reasonable efforts to achieve both such
qualifications.
IV.5 Adverse Changes in Condition. Each party hereto agrees to give
written notice promptly to the other party upon becoming aware of the occurrence
or impending occurrence of any event or circumstance relating to it or any of
its Subsidiaries which (i) is reasonably likely to have, individually or in the
aggregate, a material adverse effect on it or (ii) would cause or constitute a
material breach of any of its representations, warranties or covenants contained
herein, and to use its reasonable efforts to prevent or promptly to remedy the
same.
ARTICLE V
ADDITIONAL AGREEMENTS
V.1 Confidentiality. The terms of this Agreement and related
agreements, the terms of all transactions contemplated hereby, and all
confidential and proprietary information furnished to any party pursuant to this
Agreement, or in connection with the transactions contemplated by this
Agreement, shall be treated as confidential, and none of the parties shall use
or disclose such information except with consent of the other parties hereto;
provided, however, Fairfield may disclose such information to comply with any
legal requirement.
V.2 Indemnification of Shareholders. Fairfield agrees to indemnify
and hold each of Shareholders harmless from and against all expenses, losses,
costs, deficiencies, liabilities and damages (including, without limitation,
reasonable attorneys' fees and expenses) incurred or suffered by Shareholders
(collectively, "Shareholder Indemnifiable Damages") from or arising out of (a)
any breach of a representation or warranty made by Fairfield in or pursuant to
this Agreement, (b) any breach of the covenants or agreements made by Fairfield
in this Agreement, or (c) any inaccuracy in any certificate delivered by
Fairfield pursuant to this Agreement. Notwithstanding the foregoing, the maximum
amount for which Fairfield may be liable for indemnification hereunder shall not
exceed 10% of the value of the Exchanged Shares based on the Closing Price Per
Share.
<PAGE>
V.3 Indemnification of Fairfield.
(a) Indemnity. Shareholders, severally (each in proportion to his
Apex Stock Percentage), and not jointly, agree to indemnify and hold Fairfield
harmless from and against all expenses, losses, costs, deficiencies, liabilities
and damages (including, without limitation, reasonable attorneys' fees and
expenses) incurred or suffered by Fairfield, Merger Sub or any Subsidiary
(including without limitation Apex) of Fairfield (collectively, "Fairfield
Indemnifiable Damages") resulting from or arising out of (a) any breach of a
representation or warranty made by either Shareholder or both of them or Apex in
or pursuant to this Agreement, (b) any breach of the covenants or agreements
made by either Shareholder or both of them or Apex in this Agreement, or (c) any
inaccuracy in any certificate delivered by either Shareholder or both of them or
Apex pursuant to this Agreement. If the Closing occurs, the maximum amount for
which Shareholders may be liable for indemnification hereunder shall not exceed
the aggregate amount of the value of the Holdback Shares at the Closing Date and
the maximum amount payable by each Shareholder shall not exceed the value of the
Holdback Shares deposited by that Shareholder.
(b) Security and Procedures. As security for the agreement by
Shareholders to indemnify and hold Fairfield harmless as described in Section
5.3(a), at the Closing, Shareholders shall place in an escrow with an escrow
agent designated by Fairfield (the "Escrow Agent") pursuant to the Escrow
Agreement, certificates representing the Holdback Shares issued pursuant to this
Agreement. Further, there shall also be deposited with the Escrow Agent, all
shares of Fairfield Common Stock issued to Shareholders as a result of any stock
split, dividend or reclassification with respect to the Holdback Shares. Any
shares of Fairfield Common Stock that are applied by Fairfield to satisfy
indemnification claims hereunder shall be valued for this purpose at the Closing
Price Per Share (subject to appropriate adjustment in the event of any stock
split, dividend or reclassification). All Holdback Shares shall be deemed to be
beneficially owned by Shareholders, and Shareholders shall be entitled to vote
the Holdback Shares, and subject to the terms of the Escrow Agreement, to
receive promptly as paid by Fairfield all cash dividends or distributions paid
thereon in respect thereof until any such shares are actually delivered to
Fairfield as provided in the Escrow Agreement. The procedures to be followed in
applying the Holdback Shares to satisfy Fairfield Indemnifiable Claims shall be
as follows:
(i) Fairfield shall give written notice (the "Fairfield Claim
Notice") to Shareholders that Fairfield believes that it has the right
to apply the Holdback Shares to satisfy a claim for Fairfield
Indemnifiable Damages. The Fairfield Claim Notice shall include all of
the information required by the Escrow Agreement.
(ii) Shareholders shall have the right to contest the
Fairfield Claim Notice by written notice (the "Contest Notice") to
Fairfield given within the 45-day period (the "Notice Contest Period")
following the receipt by Shareholders of the Fairfield Claim Notice.
<PAGE>
(iii) If Shareholders contest the Fairfield Claim Notice,
Shareholders and Fairfield shall attempt in good faith to resolve any
disputed matter within the 45-day period following the date of the
delivery of the Contest Notice to Fairfield (the "Resolution Period").
If Shareholders and Fairfield are unable to resolve the matter, then
the parties shall settle the dispute through final and binding
arbitration in Little Rock, Arkansas. The arbitration shall be
conducted by a committee of three arbitrators (one appointed by
Shareholders, one appointed by Fairfield and one appointed by the two
arbitrators so appointed), all of which appointments shall be made
within thirty (30) days after the expiration of the Resolution Period.
If Shareholders do not appoint an arbitrator within such period, then
the arbitrator appointed by Fairfield shall arbitrate the dispute. If
Fairfield does not appoint an arbitrator within such period, then
Fairfield shall be deemed to have irrevocably withdrawn its claim for
indemnification with respect to the matter covered by the applicable
Fairfield Claim Notice. The arbitrators shall abide by the rules of the
American Arbitration Association and their decision shall be made
within 45 days following their appointment, and the Escrow Agent shall
act accordingly, as provided in the Escrow Agreement, and such decision
shall be final and binding on all parties and enforceable by the
parties as a final judgment.
(iv) Notwithstanding the foregoing provisions of this Section
5.3(b), in the event that the Fairfield Indemnifiable Claim for which
Fairfield is seeking to apply the Holdback Shares relates to a claim
for liquidated damages by a third-party against Fairfield, Merger Sub
or any Subsidiary of Fairfield covered under this Section 5.3, which
has not been satisfied or discharged by Shareholders, Fairfield may
cause the Holdback Shares to be released to it to satisfy such claim
upon written notice to the Shareholders, provided that Fairfield shall
thereafter apply the value of the Holdback Shares to satisfy the claim.
(c) Application of Holdback Shares. If Fairfield applies any
Holdback Shares against Fairfield Indemnifiable Damages, such application shall
be effected against Shareholders' Holdback Shares in accordance with their Apex
Common Stock Percentages.
(d) Beneficial Ownership. All Holdback Shares shall be deemed to
be owned by Shareholders, and Shareholders shall be entitled to vote such shares
and to receive promptly as paid by Fairfield all dividends or distributions paid
thereon or issued in respect thereof until any such shares are actually redeemed
by Fairfield as provided in the Escrow Agreement. Further, Shareholders may
require that all or any portion of the Holdback Shares be sold in market
transactions at any time (provided that such sales shall be made in compliance
with state and federal securities laws, are made on a pro rata basis among
Shareholders and not in violation of the provisions of this Agreement), and
Fairfield shall reasonably act to cause the Escrow Agent to sell the shares
requested and deposit the net sales proceeds into an escrow account which shall
be an interest bearing account (invested as directed by Shareholders) with the
interest payable to Shareholders as provided in the Escrow Agreement.
<PAGE>
(e) Release of Holdback Shares. If no claim by Fairfield for
indemnification is outstanding on the one-year anniversary of the Closing, all
Holdback Shares shall be released by the Escrow Agent as provided in the Escrow
Agreement. In other circumstances, the release of Holdback Shares shall be
determined in accordance with the terms of the Escrow Agreement.
(f) Counsel; Cooperation. Fairfield shall defend each Fairfield
Indemnifiable Claim and shall retain legal counsel to assist it in such defense
("Counsel") who shall be reasonably satisfactory to the Shareholders. Fairfield
shall have sole authority to instruct Counsel with respect to the Fairfield
Indemnifiable Claims and Counsel shall be entitled to rely on such instructions
without verification or confirmation from any other person or entity. Each of
the Shareholders shall cooperate with and assist Fairfield and Counsel in
Fairfield's defense of the Fairfield Indemnifiable Claims and prosecution of any
claims.
V.4 Exclusivity Of Indemnification For Contractual Breaches. No
party hereto is making any representation, warranty or covenant other than those
contained herein. Anything herein to the contrary notwithstanding, following the
Closing, the rights of the parties under the provisions of Sections 5.2, 5.3 and
5.5 shall be the sole and exclusive remedy available to the parties with respect
to claims or damages arising out of breaches of the representations and
warranties or other contractual obligations of the parties set forth in this
Agreement.
V.5 Arbitration. The parties agree that the arbitrators appointed
to serve in the arbitration proceeding described in Section 5.3(b)(iii) shall
have the authority to consider all qualifying claims for Fairfield Indemnifiable
Damages ("Qualifying Claims") asserted by the parties under this Agreement. All
awards of the arbitrators shall be final and binding on all parties and
enforceable by the parties as a final judgment. In addition to the resolution of
Qualifying Claims under Section 5.3(b)(iii), the parties agree to resolve other
claims for indemnification arising under this Agreement through final and
binding arbitration in Little Rock, Arkansas. The arbitration in such other
cases shall be arbitrated by a committee of three arbitrators (one appointed by
Shareholders, one appointed by Fairfield and one appointed by the two
arbitrators so appointed), all of which appointments shall be made within thirty
(30) days after notice has been given by Fairfield to Shareholders or by
Shareholders to Fairfield that such party or parties desire to resolve a claim
for indemnification arising under this Agreement pursuant to an arbitration
proceeding. If Shareholders do not appoint an arbitrator within such period,
then the arbitrator appointed by Fairfield shall arbitrate the dispute. If
Fairfield does not appoint an arbitrator within such period, then the arbitrator
appointed by Shareholders shall arbitrate the dispute. The arbitrators shall
abide by the rules of the American Arbitration Association and their decision
shall be made within 45 days following their appointment, and such decision
shall be final and binding on all parties and enforceable by the parties as a
final judgment. The costs of any such arbitration and reasonable attorneys' fees
incurred in any such proceeding shall be paid by the non-prevailing party, and
the arbitrators shall have the right, in their discretion, to increase the award
made to the prevailing party by any or all of such costs.
<PAGE>
V.6 Reasonable Efforts. Upon the terms and subject to the conditions
set forth in this Agreement, each of the parties will use all reasonable efforts
to take, or cause to be taken, all actions, and to do, or cause to be done, and
to assist and cooperate with the other parties in doing, all other things
necessary, proper or advisable to consummate and make effective, in the most
expeditious manner practicable, the Merger and the other transactions
contemplated by this Agreement, including (i) the obtaining of all other
necessary actions or nonactions, waivers, consents and approvals from
Governmental Entities and the making of all necessary registrations and filings
(including filings with Governmental Entities, if any) and the taking of all
other reasonable steps as may be necessary to obtain an approval in waiver form,
or to avoid an action or proceeding by any Governmental Entity, (ii) the
obtaining of all necessary consents, approvals or waivers from third parties,
(iii) the defending of any lawsuits or other legal proceedings, whether judicial
or administrative, challenging this Agreement or the consummation of the
transactions contemplated by this Agreement, including seeking to have any stay
or temporary restraining order entered by any court or other Governmental Entity
vacated or reversed and (iv) the execution and delivery of any additional
instruments necessary to consummate the transactions contemplated by, and to
fully carry out the purposes of, this Agreement. In connection with and without
limiting the foregoing, the parties and their respective Board of Directors
shall, if any state takeover statute or similar statute or regulation is or
becomes applicable to the Merger, this Agreement or the other transactions
contemplated by this Agreement, use all reasonable efforts to ensure that the
Merger and the other transactions contemplated by this Agreement may be
consummated as promptly as practicable on the terms contemplated by this
Agreement and otherwise to minimize the effect of such statute or regulation on
the Merger and the other transactions contemplated by this Agreement. In further
connection with and without limiting the foregoing, Apex and Shareholders shall
make employees, contractors and advisors of Apex available to Fairfield and
provide such information as may be requested by Fairfield for the purposes of
conducting the Inspection set forth in Section 6.3(d).
V.7 Expenses and Fees. Regardless of whether the Closing occurs
and notwithstanding any termination of this Agreement, Fairfield shall pay all
of the costs and expenses incurred by Fairfield and Merger Sub in connection
with this Agreement or in consummating the Merger (including, but not limited
to, disbursements and expenses of their respective attorneys, accountants and
advisers) and Apex shall pay all of the reasonable costs and expenses up to an
aggregate of $40,000 incurred by Shareholders and Apex in connection with this
Agreement or in consummating the Merger (including, but not limited to,
disbursements and expenses of their respective attorneys, accountants and
advisers) and any such costs and expenses of Shareholders and/or Apex exceeding
an aggregate of $40,000 shall be paid by Shareholders.
V.8 Consents. Apex shall use its reasonable efforts to obtain the Apex
Consents (as hereinafter defined) before Closing.
V.9 Pooling of Interests. Each of the parties to this Agreement agrees
to use its reasonable efforts to qualify the Merger for pooling of interests
treatment under Opinion 16 of the Accounting Principles Board and applicable SEC
rules and regulations, and such accounting treatment to be accepted by each of
Fairfield's and Apex's independent auditors, respectively, and each of Fairfield
and Apex agrees that it will voluntarily take no action that would cause such
accounting treatment not to be obtained.
<PAGE>
V.10 Transfer Restrictions.
(a) Rule 145 Affiliates. Each Shareholder acknowledges that he may
be deemed an "affiliate" of Apex within the meaning of Rule 145 under the
Securities Act or for purposes of qualifying the Merger for pooling of interests
accounting treatment under Opinion 16 of the Accounting Principles Board and
applicable SEC rules and regulations (in either case, a "Rule 145 Affiliate"),
although nothing contained in this Agreement should be construed as admission
that the Shareholder is a Rule 145 Affiliate.
(b) Restrictions on Sale. Each Shareholder represents to and
covenants with Fairfield that he will not sell, assign or transfer any of the
shares of Fairfield Common Stock received by him in connection with the Merger
except (i) pursuant to an effective registration statement under the Securities
Act, (ii) in conformity with the volume and other limitations of Rule 145 or
(iii) in a transaction which, in the opinion of the general counsel of Fairfield
or other counsel reasonably satisfactory to Fairfield or as described in a
"no-action" or interpretive letter from the Staff of the SEC specifically issued
with respect to a transaction to be engaged in by that Shareholder, is not
required to be registered under the Securities Act; provided, however, that in
any such case, such sale, assignment or transfer shall be permitted only if, in
the opinion of counsel to Fairfield, such transaction would not have, directly
or indirectly, any adverse consequences for Fairfield with respect to the
treatment of the Merger for tax purposes.
(c) Results of Operations Published. Each Shareholder further
represents to and covenants with Fairfield that he has not, within 30 days of
the date of this Agreement, sold, transferred or otherwise disposed of any
shares of Apex Common Stock and that he will not sell, transfer or otherwise
dispose of any shares of Fairfield Common Stock received by him in connection
with the Merger until after such time as results covering at least 30 days of
combined operations of Fairfield and Apex have been published by Fairfield, in
the form of a quarterly earnings report, an effective registration statement
filed with the SEC, a report filed with the SEC on Form 10-K, 10-Q or 8-K, or
any other public filing or announcement with includes such combined results of
operations.
(d) Evidence of Compliance. In the event of a sale or other
disposition by a Shareholder of shares of Fairfield Common Stock pursuant to
Rule 145, the Shareholder will supply Fairfield with evidence of compliance with
such Rule, in the form of a letter in the form of Exhibit C hereto and the
opinion of counsel or no-action letter referred to above. Each Shareholder
acknowledges that Fairfield may instruct its transfer agent to withhold the
transfer of any shares of Fairfield Common Stock disposed of by the Shareholder,
but that (provided such transfer is not prohibited by any other provision of
this Agreement) upon receipt of such evidence of compliance, Fairfield shall
cause the transfer agent to effectuate the transfer of the shares of Fairfield
Common Stock sold as indicated in such letter.
<PAGE>
(e) Covenant of Fairfield. Fairfield covenants that it will take
all such actions as may be reasonably available to it to permit the sale or
other disposition of shares of Fairfield Common Stock by the Shareholder under
Rule 145 in accordance with the terms thereof.
(f) Legend. A legend in substantially the following form will be
placed upon the certificates representing shares of Fairfield Common Stock
issued to the Shareholders pursuant to the Merger, which legends shall be
removed by delivery of substitute certificates upon receipt of an opinion in
form and substance reasonably satisfactory to Fairfield to the effect that such
legends are no longer required for the purposes of the Securities Act:
"The shares represented by this certificate were issued
pursuant to a business combination which is being accounted for as a
pooling of interests, in a transaction to which Rule 145 promulgated
under the Securities Act of 1933 applies. The shares have not been
acquired by the holder with a view to, or for resale in connection
with, any distribution thereof within the meaning of the Securities Act
of 1933. The shares may not be sold, pledged or otherwise transferred
(i) until such time as Fairfield shall have published financial results
covering at least 30 days of combined operations after the effective
time of the business combination and (ii) except in accordance with an
exemption from the registration requirements of the Securities Act of
1933 or pursuant to an effective registration statement under that
act."
V.11 Tax Treatment. Each of Fairfield and Apex shall use reasonable
efforts to cause the Merger to qualify as a reorganization under the provisions
of Section 368(a) of the Code.
V.12 Non-Competition and Non-Solicitation Covenants.
(a) Condition to Closing. The parties recognize that Fairfield's
willingness to proceed with the transactions contemplated under this Agreement
is conditioned upon each Shareholder's agreement that he will not engage in any
businesses in competition with the business to be conducted by Apex after the
Closing or solicit any employees of Fairfield or any of its subsidiaries or
affiliated entities all as set forth in this Section 5.12.
(b) Non-Competition. Each Shareholder shall not until the
expiration of a period of 3 years from the Effective Time, directly or
indirectly, engage in or have any interest in any sole proprietorship,
partnership, corporation, limited liability company, firm, association or
business or any other person or entity (whether as an employee, officer,
director, partner, member, agent, security holder, creditor, consultant or
otherwise) that, directly or indirectly engages in sales of leads for marketing,
or sales of vacation packages relating to or associated with, vacation ownership
products (the "Business") in the District of Columbia and States of Arkansas,
Arizona, Colorado, Florida, Georgia, Illinois, Maryland, Michigan, Missouri, New
Jersey, North Carolina, South Carolina, Tennessee, Texas and Virginia.
(c) Non-Solicitation. Each Shareholder shall not, for a period of
one year from the Effective Time, directly or indirectly, for himself or for any
sole proprietorship, partnership, corporation, limited liability company, firm,
association or business or any other person or entity, employ or attempt to
employ, or enter into any contractual arrangement with any employee or sale
agent or former employee or former sales agent of Fairfield or any of its
subsidiaries or affiliated entities (collectively, "Fairfield Subsidiaries"),
unless such person has not been employed or otherwise engaged by Fairfield or
any Fairfield Subsidiary for a period in excess of six months.
<PAGE>
(d) Reasonableness. Shareholders agree and acknowledge that Apex
is currently and has been engaged in the Business and in the geographic areas
described in Section 5.12(b) and that the restrictions set forth in this Section
5.12 are reasonable.
V.13 Payment of Bonus. Fairfield agrees that if prior to Closing
Apex pays less than the entire amount of the bonus payment or payments described
on Schedule 4.2(b), Fairfield shall cause Apex to pay any unpaid portion of such
bonus payment or payments on or prior to May 1, 1998.
V.14 Registration Rights.
(a) Registration. Fairfield shall use its reasonable best efforts
to file as promptly as practicable after the Effective Time, but no later than
the close of business on the tenth day following the Effective Time, the
registration on Form S-3 and/or qualification with, or the approval of, any
Governmental Entity under any federal or state securities laws of the Exchanged
Shares issued as consideration hereunder. Fairfield may, upon written notice to
Shareholders, defer such registration for a reasonable period but not in excess
of 90 days if it has made a good faith determination that the filing of a
registration statement at such time would require the disclosure of material
information which Fairfield has a bona fide business interest for preserving as
confidential or that Fairfield is unable to comply with Securities and Exchange
Commission requirements. Fairfield shall be under no obligation to effect an
underwritten offering of the Exchanged Shares.
(b) Effectiveness. Fairfield shall use its reasonable best efforts
to keep effective and maintain any registration, qualification, approval or
listing of the Exchanged Shares required pursuant to this Section 5.14, and from
time to time to amend or supplement the prospectus used in connection therewith
to the extent necessary in order to comply with applicable federal and state
securities laws, until the earlier of the date on which all of the Exchanged
Shares covered by the registration statement have been sold by Shareholders or
the first anniversary of the Effective Time. Fairfield shall furnish to
Shareholders such number of copies of such prospectus, as amended from time to
time, and supplements thereto, as Shareholders may reasonable request.
(c) Expenses. All expenses incident to the obligations of
Fairfield under Sections 5.14(a) and 5.14(b) hereof (including without
limitation, registration fees, printing or document reproduction expenses, and
fees and expenses of its counsel and accountants) shall be born by Fairfield,
and all the other expenses incident to the disposition by a Shareholder of the
Exchanged Shares (including, without limitation, fees and expenses of his
counsel and all underwriting discounts, if any, brokerage commissions and
similar fees) shall be born by such Shareholder.
<PAGE>
(d) Shareholder Agreements. Each Shareholder shall (i) furnish to
Fairfield such information as Fairfield may from time to time reasonably request
in connection with the registration statement and prospectus, any amendment or
supplement thereto or any other filings required by this Section 5.14, (ii) from
and after the Effective Time and for so long as the registration, qualification,
approval or listing remains effective, promptly after the sale or any other
disposition by him of Exchanged Shares, give Fairfield written notice of same,
(iii) promptly notify Fairfield of any event which comes to his attention which
would necessitate an amendment or supplement to the registration statement,
prospectus or any of the other filings required by this Section 5.14, and (iv)
suspend sales of Exchanged Shares under such registration statement promptly
upon receipt of notice from Fairfield that such sales may not be made until such
registration statement and prospectus are amended or supplemented as necessary.
(e) Indemnification of Shareholders. Fairfield agrees to
indemnify, to the extent permitted by law, each Shareholder and hold him
harmless all times after the date of this Agreement from and against and in
respect of any and all liabilities, losses, damages, settlements, claims, costs
or expenses, including, without limitation, attorneys' fees (collectively, the
"Liabilities"), under the Securities Act, common law or otherwise, arising out
of or due to (i) any untrue statement or alleged untrue statement of a material
fact contained in any registration statement or prospectus relating to the
registration or qualification of the Exchanged Shares, or (ii) any omission or
alleged omission to state in such registration statement or prospectus a
material fact required to be stated therein or necessary to make the statements
therein in light of the circumstances under which they were made, not
misleading, except insofar as such Liabilities arise out of or are due to any
untrue statement of a material fact contained in, or omission of a material fact
from, information furnished in writing to Fairfield by such Shareholder
expressly for use in such registration statement or prospectus.
(f) Indemnification of Fairfield. Each Shareholder agrees to
indemnify, to the extent permitted by law, Fairfield, its directors and officers
and each person, if any, who controls Fairfield within the meaning of Section 15
of the Securities Act and hold them harmless at all times after the date of this
Agreement from and against and in respect of any and all Liabilities arising out
of or due to (i) any untrue statement or alleged untrue statement of a material
fact contained in any registration statement or prospectus relating to the
registration or qualification of the Exchanged Shares, or (ii) any omission or
alleged omission to state in such registration statement or prospectus a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, but only to the extent that such Liabilities arise out of or are due
to any untrue statement of material fact contained in, or omission of a material
fact from, information furnished in writing to Fairfield by Shareholder
expressly for use in such registration statement or prospectus.
(g) Contribution. In order to provide for just and equitable
contribution in circumstances in which the indemnity agreement provided for in
this Section 5.14 is for any reason held to be unenforceable although applicable
in accordance with its terms, Fairfield and Shareholders will contribute to the
aggregate losses, liabilities, claims, damages and expenses of the nature
contemplated by such indemnity agreement incurred by Fairfield and Shareholders,
in such proportion as is appropriate to reflect the relative fault of Fairfield
on the one hand and each Shareholder on the other, in connection with the
<PAGE>
statements or omissions which resulted in such losses, claims, damages,
liabilities or expenses, as well as any other relevant equitable considerations.
The relative fault of the indemnifying party and indemnified party shall be
determined by reference to, among other things, whether the action in question,
including any untrue or alleged untrue statement of a material fact or omission
or alleged omission to state a material fact, has been made by, or relates to
information supplied by, the indemnifying party or the indemnified party, and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such action. The parties hereto agree that it would not be
just or equitable if contribution pursuant to this Section 5.14(g) were
determined by pro rata allocation or by any other method of allocation which
does not take account of the equitable considerations referred to in the
immediately preceding paragraph.
Notwithstanding the foregoing, no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
will be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this Section 5.14(g), each
director of Fairfield, each officer of Fairfield who signed the applicable
registration statement and each person, if any, who controls Fairfield within
the meaning of Section 15 of the Securities Act will have the same rights to
contribution as Fairfield.
(h) No Other Obligation to Register. Except as otherwise expressly
provided in this Section 5.14, Fairfield will have no obligation to register the
Exchanged Shares under the Securities Act.
V.15 Exchange Listing. Fairfield shall use its reasonable efforts to
list as soon as practicable after the Effective Time, on the New York Stock
Exchange ("NYSE"), subject to official notice of issuance, the Exchanged Shares
and Fairfield shall give all notices and make all filings with the NYSE required
in connection with the transactions contemplated herein.
V.16 Schedules. Except for Schedule 3.1(g), Apex shall deliver the
Schedules to this Agreement to Fairfield within 20 days after the date of this
Agreement.
V.17 Delivery of Information. Two business days before the end of the
Inspection Period, Shareholders shall deliver to Fairfield a certificate
executed by each Shareholder certifying that Apex has delivered all relevant
information, documents, agreements, and other materials related to any written
request made by Fairfield during the Inspection Period.
ARTICLE VI
CONDITIONS PRECEDENT; CLOSING
VI.1 Conditions to each party's obligation to effect the Merger. The
respective obligation of each party to effect the Merger is subject to the
satisfaction or waiver on or prior to the Closing Date of the following
conditions:
<PAGE>
(a) Corporate Approval. The approval of the transactions hereunder by
Fairfield's board of directors or appropriate committee thereof shall have been
received.
(b) Consent of Fairfield's Lender. Fairfield shall have obtained all
applicable consents required under Fairfield's and its subsidiaries' credit
agreements.
(c) Apex Consents. Apex shall have obtained all applicable consents
required from the parties identified on Schedule 6.1(c) (the "Apex Consents").
(d) No Injunctions or Restraints. No judgment, order, decree, statute,
law, ordinance, rule, regulation, temporary restraining order, preliminary or
permanent injunction or other order enacted, entered, promulgated, enforced or
issued by any court of competent jurisdiction or other Governmental Entity or
other legal restraint or prohibition (collectively, "Restraints") preventing the
consummation of the Merger shall be in effect; provided, however, that each of
the parties shall have used reasonable efforts to prevent the entry of any such
Restraints and to appeal as promptly as possible any such Restraints that may be
entered.
(e) No Litigation. There shall not be pending any suit, action or
proceeding, in each case brought by any Governmental Entity against Apex,
Fairfield or Merger Sub with respect to or that would adversely affect the
Merger or the transactions contemplated under this Agreement.
VI.2 Condition to obligation of Apex and Shareholders. The obligations
of Apex and Shareholders to effect the Merger are further subject to the
following conditions:
(a) Actions of Fairfield. Fairfield and Merger Sub shall have performed
and complied with all the covenants, agreements and obligations and satisfied
all of the conditions required by this Agreement to be performed or complied
with or satisfied by them at or prior to the Effective Time.
(b) Representations and Warranties. The representations and warranties
of Fairfield and Merger Sub set forth in this Agreement that are qualified as to
materiality shall be true and correct, and the representations and warranties of
Fairfield and Merger Sub set forth in this Agreement that are not so qualified
shall be true and correct in all material respects, in each case as of the date
of this Agreement and (except to the extent such representations and warranties
speak as of an earlier date) as of the Effective Time as though made on and as
of the Effective Time, except as otherwise contemplated by this Agreement.
(c) No Material Adverse Change. At any time on or after the date of
this Agreement there shall not have occurred any material adverse change in
Fairfield.
VI.3 Conditions to obligations of Fairfield and Merger Sub. The
obligations of Fairfield and Merger Sub to effect the Merger are further
subject to the following conditions:
(a) Actions of Shareholders and Apex. Shareholders and Apex shall have
performed and complied with all covenants, agreements and obligations and
satisfied all the conditions required by this Agreement to be performed or
complied with or satisfied by them at or prior to the Effective Time.
<PAGE>
(b) Representations and Warranties. The representations and warranties
of Apex and Shareholders set forth in this Agreement that are qualified as to
materiality shall be true and correct, and the representations and warranties of
Apex and Shareholders set forth in this Agreement that are not so qualified
shall be true and correct in all material respects, in each case as of the date
of this Agreement and (except to the extent such representations and warranties
speak as of an earlier date) as of the Effective Time as though made on and as
of the Effective Time, except as otherwise contemplated by this Agreement.
(c) No Material Adverse Change. At any time on or after the date of
this Agreement there shall not have occurred any material adverse change in
Apex.
(d) Audit and Inspection. The completion by Fairfield of an audit of
the books and records and inspection of the business of Apex (the "Inspection")
and Fairfield's satisfaction, in its sole discretion, with the results of the
Inspection. Apex shall cooperate fully with Fairfield in the conduct of the
Inspection, including but not limited to allowing Fairfield to have access to
the books and records of Apex, which shall be completed by Fairfield within 30
calendar days of its receipt of the Schedules to this Agreement (the "Inspection
Period").
(e) Pooling Letter. Fairfield shall have received a letter from Ernst &
Young LLP dated as of the Closing Date, addressed to Fairfield, stating in
substance that the Merger will qualify as a pooling of interests transaction
under Opinion 16 of the Accounting Principles Board and applicable SEC rules and
regulations.
(f) Tax Certificates. Fairfield shall have received from Shareholders
and Apex the representation letters and certificates substantially in the form
attached hereto as Exhibit D.
(g) Employment Agreements. As soon as the final terms can be negotiated
after the Closing Date, each Shareholder will enter into an employment agreement
with Apex upon the terms and in the substantial form set forth in Exhibit E
hereto (the "Employment Agreements").
(h) Opinion of Apex Counsel. Fairfield shall have received a favorable
opinion of counsel for Apex with respect to the matters set forth on Schedule
6.3(h).
VI.4 Frustration of Closing Conditions. Neither Fairfield, Shareholders,
Merger Sub nor Apex may rely on the failure of any condition set forth in
Section 6.1, 6.2 or 6.3, as the case may be, to be satisfied if such failure was
caused by such party's failure to use reasonable efforts to consummate the
Merger and the other transactions contemplated by this Agreement, as required by
and subject to Section 5.6.
VI.5 Closing Documents and Procedures. In addition to the other obligations
and procedures to be performed at the Closing, the parties will undertake the
following actions:
<PAGE>
(a) Deliveries of Shareholders. At the Closing, Shareholders shall
deliver to Fairfield:
(i) a certificate executed by each Shareholder certifying that
the representations and warranties set forth in Sections 3.2 and 3.3
are true and correct on and as of the Effective Time, with the same
force and effect as though such representations and warranties had been
made on, as of and with reference to the Effective Time and that
Shareholders have performed and complied with all covenants and
agreements and satisfied all conditions required by this Agreement to
be performed or complied with or satisfied by them for the benefit of
Fairfield at or prior to the Effective Time;
(ii) the Employment Agreements set forth in Section 6.3(g),
each executed by the appropriate Shareholder; and
(iii) the Escrow Agreement, executed by Shareholders.
(b) Deliveries of Apex. At the Closing, Apex shall deliver to
Fairfield:
(i) a certificate of an officer of Apex certifying that the
representations and warranties set forth in Section 3.2 are true and
correct on and as of the Effective Time, with the same force and effect
as though such representations and warranties had been made on, as of
and with reference to the Effective Time and that Apex has performed
and complied with all covenants and agreements and satisfied all
conditions required by this Agreement to be performed or complied with
or satisfied by it for the benefit of Fairfield at or prior to the
Effective Time;
(ii) the Escrow Agreement, executed by Apex;
(iii) the representation letters and certificates in
substantially the form set forth in the form attached hereto as Exhibit
D, executed by Shareholders and Apex;
(iv) the consent of each of the lessors under the Real
Property, if consent of such lessor is required under the relevant
agreements or documents, and each of the other persons, if any,
identified on Schedule 6.1(c) to the transactions contemplated
hereunder;
(v) certificates of good standing and corporate existence for Apex;
(vi) the Employment Agreements set forth in Section 6.3(g), executed
by Apex; and
(vii) the opinion of counsel to Apex as set forth in Section 6.3(h) .
(c) Fairfield's Deliveries. At the Closing, Fairfield shall deliver to
Apex:
(i) the Exchanged Shares;
<PAGE>
(ii) the Escrow Agreement, executed by Fairfield; and
(iii) a certificate of an officer of Fairfield certifying that
the representations and warranties set forth in Section 3.1 are true
and correct on and as of the Effective Time, with the same force and
effect as though such representations and warranties had been made on,
as of and with reference to the Effective Time and that Fairfield has
performed and complied with all covenants and agreements and satisfied
all conditions required by this Agreement to be performed or complied
with or satisfied by it for the benefit of Apex at or prior to the
Effective Time.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
VII.1 Termination. This Agreement may be terminated, and the Merger
contemplated hereby may be abandoned, at any time prior to the Effective Time:
(a) by mutual written consent of Fairfield, Merger Sub and Apex;
(b) by either Fairfield or Apex;
(i) if the Merger shall not have been consummated on or before
December 1, 1997, unless the failure to consummate the Merger is the
result of a breach of this Agreement by the party seeking to terminate
this Agreement; provided, however, that the passage of such period
shall be tolled for any part thereof during which any party shall be
subject to a nonfinal order, decree, ruling or action restraining,
enjoining or otherwise prohibiting the consummation of the Merger or
the calling or holding of the related shareholders meeting; or
(ii) if any Governmental Entity of competent jurisdiction
shall have issued a Restraint or taken any other action permanently
enjoining, restraining or otherwise prohibiting the Merger or any of
the other actions contemplated under the Agreement and such Restraint
shall have become final and nonappealable;
(c) by Fairfield if Apex does not deliver the Schedules to this
Agreement pursuant to Section 5.16;
(d) by Fairfield, if on the date that is two business days before the
Closing Date the Closing Price Per Share of Fairfield Common Stock is less than
$20;
(e) by Fairfield, at or prior to the expiration of the Inspection
Period, without cause and for whatever reason and without liability on the part
of any party hereto, by delivering to Apex at or prior to the expiration of the
Inspection Period, written notice of Fairfield's election to terminate this
Agreement;
<PAGE>
(f) by either Fairfield or Apex if the other shall fail to fulfill or
satisfy any condition precedent to the performance of the first party's
obligations in accordance with the terms hereof; and
(g) by Apex, if prior to the close of business on the 20th day
following the date of this Agreement, Apex delivers to Fairfield a copy of
written notice from legal counsel or tax advisors of Apex advising that the
Merger will not qualify as a reorganization under the provisions of Section
368(a) of the Code.
VII.2 Effect of Termination. In the event of termination of this
Agreement by Apex or Fairfield as provided in Section 7.1, this Agreement shall
terminate and there shall be no liability on the part of either Apex or
Fairfield, except for (a) liabilities arising from a breach of this Agreement
prior to such termination if the termination is made under Section 7.1(b)(i),
and (b) liabilities arising from a breach of a provision of this Agreement which
is to be performed regardless of any such termination.
VII.3 Amendment. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto.
VII.4 Extension; Waiver. At any time prior to the Effective Time, the
parties may (a) extend the time for the performance of any of the obligations or
other acts of the other parties, (b) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto or (c) subject to the proviso of Section 7.3, waive compliance
with any of the agreements or conditions contained herein. Any agreement on the
part of a party to any such extension or waiver shall be valid only if set forth
in an instrument in writing signed on behalf of such party. The failure of any
party to this Agreement to assert any of its rights under this Agreement or
otherwise shall not constitute a waiver of such rights.
ARTICLE VIII
GENERAL PROVISIONS
VIII.1 Survival of Representations and Warranties. The respective
covenants, representations and warranties and the indemnities set forth in this
Agreement shall survive for a period of one year after the Effective Time and
shall continue in full force and effect during such period. No claim may be
asserted against any party hereto and no party hereto shall have any liability
to the other party hereto, with respect to any inaccuracy in or any breach of
any representation or warranty after the survival period, except that if a claim
shall be first asserted within the applicable period, such claim shall not
thereafter be barred. Notwithstanding any knowledge of facts determined or
determinable by any party by investigation, each party shall have the right to
fully rely on the representations, warranties, covenants and agreements of the
other parties contained in this Agreement or in any other documents or papers
delivered in connection herewith. Each representation, warranty, covenant and
agreement of the parties contained in this Agreement is independent of each
other representation, warranty, covenant and agreement.
<PAGE>
VIII.2 Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be deemed given if
delivered personally or sent by overnight courier (providing proof of delivery)
to the parties at the following addresses (or at such other address for a party
as shall be specified by like notice):
(a) if to Apex:
Apex Marketing, Inc.
3600 Cantrell Road
Little Rock, AR 72202
Attention: President
with a copy to:
Garland Binns, Esq.
Horne, Hollingsworth & Parker
401 W. Capitol Ave., Suite 501
Little Rock, Arkansas 72201
(b) if to Shareholders:
Carl Flemister
2920 Justin Matthews Drive
North Little Rock, AR 72116
C. Wendell Flemister, Jr.
27 Nimrod
Maumelle, AR 72113
<PAGE>
with a copy to:
Garland Binns, Esq.
Horne, Hollingsworth & Parker
401 W. Capitol Ave., Suite 501
Little Rock, Arkansas 72201
(c) if to Fairfield or Merger Sub:
Fairfield Communities, Inc.
11001 Executive Center Drive
Little Rock, Arkansas 72211
Attention: Mr. John W. McConnell
with a copy to:
Jones, Day, Reavis & Pogue
2001 Ross Avenue, Suite 2300
Dallas, Texas 75201
Attention: Mark V. Minton, Esq.
VIII.3 Definitions. For purposes of this Agreement:
(a) an "affiliate" of any person means another person that directly or
indirectly, through one or more intermediaries, controls, is controlled by, or
is under common control with, such first person;
(b) "Code" means the Internal Revenue Code of 1986, as amended, and all
regulations promulgated thereunder, as in effect from time to time;
(c) an "environmental law" means any law, statute, regulation, rule,
order, decree, judgment, consent decree, settlement agreement or governmental
requirement, which relates to or otherwise imposes liability or standards of
conduct concerning mining or reclamation of mined land, discharges, emissions,
releases or threatened releases of noises, odors or any pollutants, contaminants
or hazardous or toxic wastes, substances or materials, whether as matter or
energy, into ambient air, water, or land, or otherwise relating to the
manufacture, processing, generation, distribution, use, treatment, storage,
disposal, cleanup, transport or handling of pollutants, contaminants, or
hazardous wastes, substances or materials, including (but not limited to) the
Comprehensive Environmental Response, Compensation and Liability Act of 1980,
the Superfund Amendments and Reauthorization Act of 1986, as amended, the
Resource Conservation and Recovery Act of 1976, as amended, the Toxic Substances
Control Act of 1976, as amended, the Federal Water Pollution Control Act
Amendments of 1972, the Clean Water Act of 1977, as amended, any so-called
"Superlien" law, and any other similar Federal, state or local statutes;
(d) "ERISA" means the Employee Retirement Income Security Act of 1974,
as amended, and all regulations promulgated thereunder, as in effect from time
to time;
(e) "ERISA Affiliate" means any trade or business, whether or not
incorporated, that is now or has at any time in the past been treated as a
single employer with Apex or Fairfield (as applicable) or any of their
respective Subsidiaries under Section 414(b), (c), (m) or (o) of the Code and
the Treasury Regulations thereunder;
(f) "Exchange Act" means the Securities Exchange Act of 1934, as
amended, and all rules and regulations promulgated thereunder, as in effect from
time to time;
(g) "Governmental Entity" means any government or any court, arbitral
tribunal, administrative agency or commission or other governmental or other
regulatory authority or agency, federal, state, local or foreign;
<PAGE>
(h) "key employee" means any employee whose current salary and
targeted bonus exceeds $40,000 per annum;
(i) "knowledge" of any person means actual knowledge of the directors
and executive officers of such person;
(j) "material adverse change" or "material adverse effect" means, when
used in connection with Apex or Fairfield, any change or effect that is
materially adverse to the business, properties, assets, financial condition,
prospects, or results of operations of such party and its Subsidiaries taken as
a whole;
(k) "person" means an individual, corporation, partnership, joint
venture, association, trust, unincorporated organization or other entity; and
(l) "Securities Act" means the Securities Act of 1933, as amended, and
all rules and regulations promulgated thereunder, as in effect from time to
time.
VIII.4 Interpretation. When a reference is made in this Agreement to a
Section, Exhibit or Schedule, such reference shall be to a Section of, or an
Exhibit or Schedule to, this Agreement unless otherwise indicated. The table of
contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the words "include", "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation".
VIII.5 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signet by each of
the parties and delivered to the other parties.
VIII.6 Entire Agreement; No Third-party Beneficiaries. This Agreement
(a) constitutes the entire agreement, and supersedes all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter of this Agreement and (b) are not intended to confer upon any
person other than the parties any rights or remedies.
VIII.7 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Arkansas, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
laws thereof.
VIII.8 Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned, in whole or in part, by
operation of law or otherwise by any of the parties without the prior written
consent of the other parties, except that Merger Sub may assign, in its sole
discretion, any of or all its rights, interests and obligations under this
Agreement to Fairfield or to any direct wholly owned corporate subsidiary of
Fairfield. Subject to the preceding sentence, this Agreement will be binding
upon, inure to the benefit of, and be enforceable by, the parties and their
respective successors and assigns.
<PAGE>
VIII.9 Enforcement. The parties agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any court of the United States
located in the State of Arkansas or in Arkansas state court, this being in
addition to any other remedy to which they are entitled at law or in equity. In
addition, each of the parties hereto (a) consents to submit itself to the
personal jurisdiction of any federal court located in the State of Arkansas or
any Arkansas state court in the event any dispute arises out of this Agreement
or the transactions contemplated by this Agreement, (b) agrees that it will not
attempt to deny or defeat such personal jurisdiction by motion or other request
for leave from any such court and (c) agrees that it will not bring any action
relating to this Agreement or the transactions contemplated by this Agreement in
any court other than a federal court sitting in the State of Arkansas or an
Arkansas state court.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, Fairfield, Merger Sub and Apex have caused this
Agreement to be signed by their respective officers thereunto duly authorized
and Shareholders have signed this Agreement, all as of the date first written
above.
FAIRFIELD COMMUNITIES, INC.
By: /s/ Clayton G. Gring, Sr.
------------------------------
Clayton G. Gring, Sr.
Senior Vice President
FA, INC.
By: /s/ Clayton G. Gring, Sr.
------------------------------
Clayton G. Gring, Sr.
President
APEX MARKETING, INC.
By: /s/ C. Wendell Flemister, Jr.
---------------------------------
C. Wendell Flemister, Jr.
President
/s/ Carl Flemister
---------------------------------
Carl Flemister
/s/ C. Wendell Flemister, Jr.
---------------------------------
C. Wendell Flemister, Jr.
<PAGE>
EXHIBIT A
SURVIVING CORPORATION
ARTICLES OF INCORPORATION
<PAGE>
EXHIBIT B
SURVIVING CORPORATION BYLAWS
<PAGE>
EXHIBIT C
FORM OF RULE 145 LETTER
<PAGE>
EXHIBIT D
RELATING TO TAX ISSUES CERTIFICATES OF APEX AND SHAREHOLDERS
<PAGE>
EXHIBIT E
FORMS OF EMPLOYMENT AGREEMENTS
<PAGE>
Schedule 3.1 (g)
FAIRFIELD LIABILITIES
The liabilities of Fairfield under an Agreement and Plan of Merger among
Fairfield, FCVB Corp. and Vacation Break USA, Inc. dated as of August 8, 1997
<PAGE>
Schedule 3.2(q)
POOLING CONDITIONS
No changes in the equity interest of the Apex Common Stock in contemplation of
effecting the Merger for a period of two years before the Merger is initiated
and between initiation and the Closing (hereinafter collectively referred to as
the "Prohibited Period").
No reacquisitions of outstanding Apex Common Stock unless for purposes other
than the Merger, and then not in an abnormal amount.
No entering into other financial arrangements for the benefit of any
Shareholder, such as guaranty of a loan.
No purchases of Fairfield Common Stock prior to the Closing except as set forth
on Schedule 3.2(v).
No distributions to any Shareholder that are greater than normal dividends, and
only if based on established dividend policy.
No changes in the voting rights of outstanding Apex Common Stock during the
Prohibited Period.
No stock option plans during the Prohibited Period.
No arrangements to sell any Shareholder's interests to an independent third
party.
No new agreements during the Prohibited Period to purchase interests of any
Shareholder in Apex.
No dispositions of significant assets during the Prohibited Period.
No stock dividends prior to the Closing.
No reacquisitions of outstanding Apex Stock for purposes of effecting the
Merger.
No new employment contracts with any Shareholder other than the employment
agreement described in Section 6.5(c).
No agreements to assist any Shareholder to sell his shares after the Merger,
which involve compensation or other financial inducements.
No purchases of Apex Common Stock by any Shareholder.
No transfer of Apex Common Stock from any Shareholder to any employee or
employees of Apex in contemplation of the Merger, unless in compensation of past
service.
No agreements which would restrict any Shareholder's individual voting rights
after the Merger.
No sales of Exchanged Shares within thirty days prior to consummation of the
Merger.
<PAGE>
Schedule 4.2(b)
SALARY AND BONUS
Apex may, in its sole discretion, pay at or before the Closing each of
Carl Flemister, C. Wendell Flemister, Jr. and Wanda Flemister a bonus for the
months of May 1997 through October 1997. Such bonus shall be no more than 6/12
of the total bonus actually paid to such person for the 1996 fiscal year,
regardless of such person's 1997 sales or performance.
<PAGE>
Schedule 4.2(g)
PERMITTED DISTRIBUTIONS
1) Emerald Point Condominium, Unit C-2, located in Hollister, Missouri
2) 1997 GMC Yukon
3) Wattensaw Land Company
4) Lot 39, Phase I, Diamond Pointe Addition, City of Maumelle, Arkansas
<PAGE>
Schedule 6.3(h)
OPINION OF COUNSEL FOR APEX
1. Apex is a corporation duly organized, validly existing and in good standing
under the laws of the State of Arkansas, has full power to own its properties
and to the knowledge of counsel, to carry on the business currently being
conducted by it, and to the knowledge of counsel, does not conduct business in
any state other than Arkansas, Missouri and Texas. To the knowledge of counsel,
Apex does not now own and has never owned any capital stock any or equity
interest in any corporation, limited liability company, partnership or other
entity and has no Subsidiary.
2. The execution, delivery, and consummation of the Agreement has been duly
authorized and approved by all necessary action. The Agreement has been duly
executed and delivered and constitutes the valid and binding agreement of Apex
enforceable in accordance with its terms.
3. To the knowledge of counsel, neither the execution of the Agreement nor the
consummation of the transactions contemplated thereby will result in the breach
of any term or provision of, or constitute a default under, or be in violation
of any charter provision, bylaw, agreement, instrument, order, law or regulation
to which Apex is a party or which is otherwise applicable.
4. To the knowledge of counsel, there is not (i) any pending or threatened
lawsuits or administrative or other proceedings against Apex or its assets other
than as set forth on Schedule 3.2(g) to the Agreement or (ii) any currently
existing order, writ, injunction or decree to which Apex is subject.
5. To the knowledge of counsel (i) the business conducted by Apex has been, and
currently is being, conducted in material compliance with all, and Apex is not
in breach of any, applicable laws, rules and regulations or orders, including
but not limited to those relating to telemarketing, of each jurisdiction in
which its business is carried on and all governing instruments applicable to
Apex and to the conduct of its business, except for noncompliance or breach
which, individually or in the aggregate, will not affect adversely the business
or prospects of its business or Apex, and (ii) Apex has obtained all, and is not
in default under any, permits, licenses, certificates, approvals, orders,
franchises, registrations and other authorizations required for the operation of
its business, except where the failure to obtain a permit, or a default under
such permits, would not, individually or in the aggregate, adversely affect the
business or prospects of Apex.
6. Except as set forth in Schedule 3.2(v) to the Agreement, to the knowledge of
counsel, neither Apex nor any of its affiliates (including but not limited to
Shareholders), (i) beneficially owns (as such term is defined in Rule 13d-3
under the Exchange Act), directly or indirectly, or (ii) is a party to any
agreement, arrangement or understanding for the purpose of acquiring, holding,
voting or disposing of, in each case, shares of capital stock of Fairfield.
7. To the knowledge of counsel, there is no fact or circumstance that would
cause any representation or warranty, in whole or in part, of Apex contained in
the Agreement not to be true.
AMENDMENT NO. 1 TO
AGREEMENT AND PLAN OF MERGER
THIS AMENDMENT NO. 1 TO AGREEMENT AND PLAN OF MERGER is entered into as of
October 31, 1997 (this "Amendment"), among FAIRFIELD COMMUNITIES, INC., a
Delaware corporation ("Fairfield"), FA, Inc., an Arkansas corporation and a
wholly owned subsidiary of Fairfield ("Merger Sub"), FLEMISTER FAMILY, LLC, an
Arkansas limited liability company ("LLC"), CARL FLEMISTER, C. WENDELL
FLEMISTER, JR. and APEX MARKETING, INC., and Arkansas corporation ("Apex").
WHEREAS, Fairfield, Merger Sub, Carl Flemister, C. Wendell Flemister, Jr.
and Apex are parties to that certain Agreement and Plan of Merger dated as of
October 22, 1997 (the "Merger Agreement"); and
WHEREAS, the parties desire to amend the Merger Agreement to reflect that
LLC is a shareholder of Apex and to include LLC as a party to the Merger
Agreement.
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained in this Amendment, the parties hereto agree
as follows:
1. The second recital to the Merger Agreement is hereby amended in its
entirety as follows:
WHEREAS, LLC and C. Wendell Flemister, Jr. hold all of the outstanding
capital stock of Apex and Carl Flemister formerly held shares of capital
stock of Apex (collectively, LLC, C. Wendell Flemister, Jr. and Carl
Flemister are referred to as the "Shareholders" and each as a
"Shareholder");
2. The following Section 3.2(u) is hereby added to the Merger Agreement:
(u) No Transfers. Other than pursuant to the Merger Agreement and the
-- ----------
transfer of 450 shares of Apex Common Stock from Carl Flemister to LLC
on or about January 2, 1996, none of the Shareholders has transferred
or entered into any agreement to transfer any shares of Apex Common
Stock to any person or entity.
3. The following Sections 3.3(d) and (e) are hereby added to the
Merger Agreement:
(d) Organization. LLC is a limited liability company duly organized,
-------------
validly existing and in good standing under the laws of the State of
Arkansas.
<PAGE>
(e) Transfer of shares The transfer of 450 shares of Apex Common
-------- -- -------
Stock from Carl Flemister to LLC on or about January 2, 1996 was not
made in contemplation of effecting the Merger.
4. Section 6.5(a)(iii) of the Merger Agreement is hereby amended in
its entirety as follows, and the following Section 6.5(a)(iv) and (v)
are hereby added to the Merger Agreement:
(iii) the Escrow Agreement, executed by LLC and C. Wendell Flemister,
Jr.:
(iv) a copy of the resolutions of LLC approving the Merger and other
transactions contemplated under this Agreement, certified
by an appropriate officer of LLC; and
(v) an opinion of counsel to LLC stating that (1) LLC is a limited
liability company duly organized, validly existing and in good
standing under the laws of the State of Arkansas and has full
power to own its properties, (2) all transfers of interests in
the LLC have been properly made and the names of all person with
ownership interest in the LLC with their respective ownership
interests set forth beside each name are set forth on a schedule
to the opinion and (3) the execution and delivery of the Merger
Agreement and all documents and agreements contemplated
thereunder and the consummation of the transactions contemplated
thereunder by LLC, has been duly authorized by all necessary
action and the Agreement has been duly executed and delivered and
constitutes the valid and binding agreement of LLC enforceable in
accordance with its terms.
5. The following hereby added to Section 8.2(b) of the Merger Agreement after
the line "Maumelle, Arkansas 72113":
Flemister Family, LLC
2920 Justin Matthews Drive
North Little Rock, AR 72116
Attention: President
6. The following sentences are hereby added to the end of Section 8.4 of the
Merger Agreement:
Pronouns referring to one gender shall be deemed to refer to any other
gender (including neutral) or genders where the context so requires. The
singular shall include the plural and vice versa, where the context so
requires.
7. All terms with initial capital letters in this Amendment shall have the
same meaning as set forth in the Merger Agreement unless otherwise defined
herein or unless the context requires otherwise.
<PAGE>
8. Each of Apex, Carl Flemister, C. Wendell Flemister, Jr. and LLC represent
and warrant that C. Wendell Flemister, Jr. and LLC are the sole beneficial
and record owners of Apex Common Stock and there are no other beneficial or
record owners of Apex Common Stock.
9. Carl Flemister represents and warrants that he is a Manager and an
authorized officer of LLC and that he is duly authorized by LLC to take all
actions on behalf of LLC necessary to execute and deliver this Amendment
and to consummate the transactions contemplated under the Merger Agreement.
10. LLC agrees to be bound by the representations and warranties of
Shareholders set forth in the Merger Agreement and hereby confirms accuracy
of such representations and warranties, and Apex, Carl Flemister and C.
Wendell Flemister, Jr. hereby reconfirm their respective representations
and warranties set forth in the Merger Agreement.
11. LLC agrees to be bound by all of the terms and conditions applicable to a
Shareholder in the Merger Agreement as if LLC had originally executed and
delivered the Merger Agreement.
12. This Amendment may be executed in one or more counterparts, all of which
shall be considered one and the same agreement and shall become effective
when one or more counterparts have been signed by each of the parties and
delivered to the other parties.
13. Except as expressly amended by this Agreement, the Merger Agreement
continues in full force and effect.
14. This amendment shall be governed by, and construed in accordance with, the
laws of the State of Arkansas, regardless of the laws that might otherwise
govern under applicable principles of conflicts of laws thereof.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, Fairfield, Merger Sub, Apex and LLC have caused
this Amendment to be signed by their respective officers thereunto duly
authorized and Carl Flemister and C. Wendell Flemister, Jr. have signed
this Amendment, all as of the date first written above.
FAIRFIELD COMMUNITIES, INC.
By: /s/Clayton G. Gring, Sr.
-------------------------------
Clayton G. Gring, Sr.
Senior Vice President
FA, INC.
By: /s/Clayton G. Gring, Sr.
-------------------------------
Clayton G. Gring, Sr.
President
APEX MARKETING, INC.
By: /s/ C. Wendell Flemister, Jr.
-------------------------------
C. Wendell Flemister, Jr.
President
/s/ Carl Flemister
-------------------------------
Carl Flemister
/s/C. Wendell Flemister, Jr.
-------------------------------
C. Wendell Flemister, Jr.
FLEMISTER FLAMILY, LLC
By: /s/ Carl W. Flemister
------------------------------
Carl W. Flemister
President
AMENDMENT NO. 2 TO
AGREEMENT AND PLAN OF MERGER
THIS AMENDMENT NO. 2 TO AGREEMENT AND PLAN OF MERGER is entered into as of
December 3, 1997 (this "Amendment"), among FAIRFIELD COMMUNITIES, INC., a
Delaware corporation ("Fairfield"), FA, Inc., an Arkansas Corporation and a
wholly owned subsidiary of Fairfield ("Merger Sub"), FLEMISTER FAMILY, LLC, an
Arkansas limited liability company ("LLC"), CARL FLEMISTER, C. WENDELL
FLEMISTER, JR. and APEX MARKETING, INC., an Arkansas corporation ("Apex").
WHEREAS, Fairfield, Merger Sub, Carl Flemister, C. Wendell Flemister,
Jr., Apex and LLC are parties to that certain Agreement and Plan of Merger dated
as of October 22, 1997, as amended by that certain Amendment No. 1 to Agreement
and Plan of Merger dated as of October 31, 1997 (as amended, the "Merger
Agreement"); and
WHEREAS, the parties desire to amend the Merger Agreement to set
November 26, 1997 as the date on which the Closing Price Per Share is
determined, to provide for additional Holdback Shares and to provide for certain
payments to Apex from certain of its shareholders prior to closing.
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained in this Amendment, the parties hereto agree
as follows:
1. Section 1.2 of the Merger Agreement is hereby amended in its entirety as
follows:
The closing of the Merger (the "Closing") will take place at 1:30 p.m.
on December 3, 1997 (the "Closing Date"), at the offices of Fairfield,
11001 Executive Center Drive, Little Rock, Arkansas 72211, unless
another date, time or place is agreed to in writing by all of the
parties hereto.
2. The second sentence of Section 2.1(a) of the Merger Agreement is hereby
amended in its entirety as follows:
The total number of shares of Fairfield Common Stock included in the
Exchanged Shares will be equal to $6,750,000 divided by the closing
sale price per share of Fairfield Common Stock as reported in the New
York Stock Exchange Composite Transaction Tape on November 26, 1997
($46 5/16 per share) (the "Closing Price Per Share"), such number being
145,749 shares of Fairfield Common Stock.
3. The final sentence of Section 2.2 of the Merger Agreement is hereby amended
in its entirety as follows:
Fairfield shall deliver to C. Wendell Flemister, Jr. a certificate
representing 66,208 shares of Fairfield Common Stock and to LLC a
certificate representing 54,170 shares of Fairfield Common Stock. Of
the remainder of the aggregate shares the Shareholders are
<PAGE>
entitled to receive under this Section 2.2; 14,575 share of Fairfield
Common Stock (the "General Holdback Shares") and 10,796 shares of
Fairfield Common Stock (the "Tax Holdback Shares," together with the
General Holdback Shares, the "Holdback Shares") shall be held in
escrow and delivered in accordance with Section 5.3 and the escrow
agent (the "Escrow Agreement"). The Tax Holdback Shares and the
General Holdback Shares shall be deposited in sub-accounts in
accordance with the Shareholders' Apex Stock Percentages pursuant to
the terms of the Escrow Agreement.
4. The following is hereby added at the end of Section 4.2:
At or prior to Closing, the shareholders shall contribute to Apex
$34,313.88 that was expended by Apex in relation to the Wattensaw Land
Company.
5. Section 5.3(a) of the Merger Agreement is hereby amended in its entirety as
follows:
(a) Indemnity. Shareholders, severally (each in proportion to his or
its Apex Stock Percentage), and not jointly, agree to indemnify and
hold Fairfield harmless from and against all expenses, losses, costs,
deficiencies, liabilities and damages (including, without limitation,
reasonable attorneys' fees and expenses) incurred or suffered by
Fairfield, Merger Sub or any Subsidiary (including without limitation
Apex) of Fairfield (collectively, "Fairfield Indemnifiable Damages")
from or arising our of (i) any breach of a representation or warranty
made by any Shareholder or Apex pursuant to this Agreement, (ii) any
breach of the covenants or agreements made by any Shareholder or Apex
pursuant to this Agreement, (iii) any inaccuracy in any certificate
delivered by any Shareholder or Apex pursuant to this Agreement, (iv)
notwithstanding any disclosure by Shareholders to Fairfield prior to
Closing, any allocation of contributions to the Apex Marketing, Inc.
Cash or Deferred Profit Sharing Plan (the "Apex Plan") made prior to
Closing that were not made in accordance with the Apex Plan or
applicable laws, rules, regulations or orders, or any other violation
or (v) Apex's failure to make any filing with or to make any
remittance, payment or withholding to the State of Missouri with
respect to Apex's operations prior to Closing ("Missouri Tax
Liabilities"). If the Closing occurs, (i) the maximum amount for which
Shareholders may be liable for indemnification hereunder, other than
the amount for Missouri Tax Liabilities, shall not exceed the aggregate
amount of the value of the General Holdback Shares at the Closing Date
and the maximum amount payable by each Shareholder shall not exceed the
value of the General Holdback Shares deposited by that Shareholder and
(ii) the maximum amount for which Shareholders may be liable for
indemnification in respect of Missouri Tax Liabilities shall not exceed
the aggregate amount of the value of the Tax Holdback Shares at the
Closing Date and the maximum amount payable by each Shareholder shall
not exceed the value of the Tax Holdback Shares deposited by that
Shareholder. With respect to items (iv) and (v) alone, Fairfield
Indemnifiable Damages will include without limitation any contributions
to the Apex Plan or any remittances or withholdings owned to the State
of Missouri and any federal, state or other taxes and all related
interest or penalties, together with any and all fees and expenses of
any tax, legal pension, accounting or other advisors incurred in
connection with any
<PAGE>
audit, amendment or any return, compliance program or settlement of
any such matters and any related filing, user or review fees of any
governmental entity. The shareholders agree that Fairfield and/or Apex
shall be entitle to submit matters relating to the Apex Plan to the
Voluntary Compliance Resolution Program of the Internal Revenue
Service.
6. Section 5.3(b)(i) is hereby amended in its entirety as follows:
Fairfield shall give written notice (the "Fairfield Claim Notice") to
Shareholders that Fairfield believes that it has the right to apply
either General Holdback Shares or Tax Holdback Shares, as appropriate,
to satisfy a claim for Fairfield Indemnifiable Damages. The Fairfield
Claim Notice shall include all of the information required by the
Escrow Agreement and shall specify whether General Holdback Share or
Tax Holdback Shares are to be applied.
7. Section 5.3(e) is hereby amended in its entirety as follows:
If no claim by Fairfield for indemnification is outstanding on the
one-year anniversary of the Closing, all General Holdback Shares shall
be released by the Escrow Agent as provided in the Escrow Agreement.
Unless otherwise released in accordance with the terms of the Escrow
Agreement, Tax Holdback Shares shall be held by the Escrow Agent until
the earlier of the resolution of all issues relating to Missouri Tax
Liabilities or the expiration of all applicable statute of limitations
relating to Missouri Tax Liabilities. In other circumstances, the
release of General Holdback Shares or Tax Holdback Shares shall be
determined in accordance with the terms of the Escrow Agreement.
8. The following is hereby added at the end of Section 5.3(f):
Fairfield shall have the sole right to negotiate and settle all
Missouri Tax Liabilities and apply the appropriate number of Tax
Holdback Shares in satisfaction of Fairfield Indemnifiable Claims
related thereto.
9. This Amendment may be executed in one or more counterparts, all of
which shall be considered one and the same agreement and shall become
effective when one or more counterparts have been signed by each of the
parties and delivered to the other parties.
10. Except as expressly amended by this Agreement, the Merger
Agreement continues in full force and effect.
11. This Amendment shall be governed by, and construed in accordance with,
the laws of the State of Arkansas, regardless of the laws that might
otherwise govern under applicable principles of conflicts of laws
thereof.
<PAGE>
IN WITNESS WHEREOF, Fairfield, Merger Sub, Apex and LLC have caused
this Amendment to be signed by their respective officers thereunto duly
authorized and Carl Flemister and C. Wendell Flemister, Jr. have signed this
Amendment, all as of the date first written above.
FAIRFIELD COMMUNITIES, INC.
By: /s/ Clayton G. Gring, Sr.
--------------------------------------------
Clayton G. Gring, Sr., Senior Vice President
FA, Inc.
By: /s/ Clayton G. Gring, Sr.
---------------------------------------------
Clayton G. Gring, Sr., Senior Vice President
APEX MARKETING, INC.
By: /s/ C. Wendell Flemister, Jr.
--------------------------------------------
C. Wendell Flemister, Jr., President
/s/Carl W. Flemister
--------------------------------------------
Carl W. Flemister
/s/ C. Wendell Flemister, Jr.
-------------------------------------------
C. Wendell Flemister, Jr.
FLEMISTER FAMILY, LLC
By: /s/Carl W. Flemister
-------------------------------------------
Carl W. Flemister, President
PRINCIPAL STOCKHOLDERS AGREEMENT
This PRINCIPAL STOCKHOLDERS AGREEMENT (this "Agreement"), is made and
entered into as of August 8, 1997, by and among Fairfield Communities, Inc., a
Delaware corporation ("Fairfield"), FCVB Corp., a Florida corporation and wholly
owned subsidiary of Fairfield ("Merger Sub"), Ralph P. Muller ("RM"), R & A
Partnership, Ltd., a Texas limited partnership ("R&A"), and Kevin Sheehan ("KS"
and together with RM and R&A, the "Stockholders"). Capitalized terms used and
not otherwise defined in this Agreement have the meanings ascribed to those
terms in the Merger Agreement referred to below.
RECITALS
A. As of the date of this Agreement, RM beneficially owns (such term being used
herein within the meaning of Rule 13d-3 promulgated under the Securities
Exchange Act of 1934, as amended) 5,172,026 shares of Common Stock, par value
$.01 per share ("Vacation Break Common Stock"), of Vacation Break USA, Inc., a
Florida corporation ("Vacation Break"), of which 5,150,526 shares are owned
beneficially and of record by R&A (of which 350,000 shares (the "RM/JN Option
Shares") are subject to an option granted to Joyce North ("JN")) and 21,500
shares are owned beneficially and of record by RM and RM's spouse as joint
tenants (such 5,172,026 shares of Vacation Break Common Stock together with any
other voting or equity securities of Vacation Break of which RM acquires
beneficial ownership after the date of this Agreement but prior to the
consummation of the Merger being referred to herein collectively as the "RM
Shares"). As of the date of this Agreement, KS beneficially owns 1,428,572
shares of Vacation Break Common Stock, of which 175,000 shares are issuable upon
the exercise of currently exercisable options and 1,253,572 shares are held of
record by KS (of which 50,000 shares (the "KS/JN Option Shares") are subject to
an option granted to JN) (such 1,428,572 shares of Vacation Break Common Stock
together with any other voting or equity securities of Vacation Break of which
KS acquires beneficial ownership after the date of this Agreement but prior to
the consummation of the Merger being referred to herein collectively as the "KS
Shares"). The shares of Vacation Break Common Stock described in the preceding
two sentences together with any other voting or equity securities of Vacation
Break of which the Stockholders acquire beneficial ownership after the date of
this Agreement but prior to the consummation of the Merger are referred to
herein collectively as the "Shares". Each Stockholder is entitled to vote the
Shares beneficially owned by the Stockholder, and no Stockholder has entered
into any voting arrangement with respect to the Shares except as provided in
this Agreement or granted any proxy in respect of any of the Shares.
B. Concurrently with the execution of this Agreement, Fairfield, Merger
Sub and Vacation Break are entering into an Agreement and Plan of Merger (as the
same may be amended or modified from time to time, the "Merger Agreement"),
pursuant to which and upon the terms and subject to the conditions of which,
Merger Sub will be merged with and into Vacation Break and shares of Vacation
Break Common Stock outstanding immediately prior to the Effective Time of the
Merger will be converted into and represent the right to receive, among other
things, a number of shares of Common Stock, par value $.01 per share, of
Fairfield ("Fairfield Common Stock").
<PAGE>
C. As a condition to the willingness of Fairfield and Merger Sub to
enter into the Merger Agreement, Fairfield and Merger Sub have required that
each of the Stockholders agree, and in order to induce Fairfield and Merger Sub
to enter into the Merger Agreement, each of the Stockholders is willing to
agree, to (i) vote the Shares owned by such Stockholder for the adoption of the
Merger Agreement and the approval of the Merger and the other transactions
contemplated by the Merger Agreement subject to the conditions set forth herein,
and (ii) the other matters provided for in this Agreement, upon the terms and
subject to the conditions set forth herein.
D. The Stockholders acknowledge receipt and review of a copy of the
Merger Agreement.
NOW THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements contained herein, and intending to be legally bound
hereby, the parties hereto hereby agree as follows:
1. Voting Agreement.
(a) Vacation Break Stockholders Meeting. Subject to Section 1(c)
hereof, at the Vacation Break Stockholders Meeting or any meeting of the
stockholders of Vacation Break, however called, and in any action by consent of
the stockholders of Vacation Break, each of the Stockholders will vote all of
the Shares beneficially owned by such Stockholder and entitled to vote (i) for
approval of the Merger Agreement and the other transactions contemplated by the
Merger Agreement, (ii) against any action or agreement that would result in a
breach of any representation, warranty, covenant, agreement or other obligation
of Vacation Break under the Merger Agreement or may result in any of the
conditions to Vacation Break's obligations under the Merger Agreement not being
fulfilled and (iii) in favor of any other matter necessary to consummate the
transactions contemplated by the Merger Agreement and considered and voted upon
by the stockholders of Vacation Break.
(b) Other Actions. Subject to Section 1(c) hereof, the Stockholders
will not solicit, encourage or recommend to other holders of Vacation Break
Common Stock that those holders (i) vote their shares of Vacation Break Common
Stock or any other securities of Vacation Break in any manner that would,
directly or indirectly, impede or adversely effect stockholder approval of the
Merger Agreement and the other transactions contemplated by the Merger
Agreement, (ii) at the Vacation Break Stockholders Meeting, abstain from voting,
or otherwise fail to vote, their shares of Vacation Break Common Stock, (iii)
sell, transfer, tender or otherwise dispose of their shares of Vacation Break
Common Stock or (iv) exercise any dissenters' appraisal or other similar rights.
(c) Limitation on Obligations. The obligations of each Stockholder
under Sections 1(a) and 1(b) who is a director or officer of Vacation Break are
subject to his obligation to faithfully discharge his duties as a director or an
officer of Vacation Break; provided, however, if Vacation Break has not
terminated the Merger Agreement pursuant to Section 7.1(e) of the Merger
Agreement, each such Stockholder will vote his Shares in accordance with
Sections 1(a) and 1(b).
<PAGE>
2. Transfer of Shares. Until the close of business on the date on which
results covering at least 30 days of combined operations of Fairfield and
Vacation Break have been published by Fairfield, in the form of a quarterly
earnings report, an effective registration statement filed with the SEC, a
report filed with the SEC on Form 10-K, 10-Q or 8-K, or any other public filing
or announcement which includes those combined results of operations (a "Combined
Operations Filing"), none of the Stockholders will, directly or indirectly, (a)
sell, assign, transfer, pledge, encumber or otherwise dispose of any of the
Shares or the shares of Fairfield Common Stock into which the Shares are
converted or exchanged pursuant to the Merger Agreement (the "Merger Shares"),
(b) deposit any of the Merger Shares into a voting trust or enter into a voting
agreement or arrangement with respect to any of the Merger Shares or grant any
proxy or power of attorney with respect thereto or (c) enter into any contract,
option or other arrangement or undertaking with respect to the direct or
indirect sale, assignment, transfer or other disposition of any Shares or Merger
Shares. Notwithstanding the foregoing restrictions of this Section 2, R&A (or
RM) may transfer the RM/JN Option Shares to JN following the exercise of the
options covering the RM/JN Option Shares and maintain the existing pledges of
3,000,000 RM Shares to Morgan Stanley and not more than 550,000 RM Shares to
Bear Sterns (collectively, the "RM Pledged Shares"), and KS may transfer the
KS/JN Option Shares to JN following the exercise of the options covering the
KS/JN Option Shares and maintain the existing pledges of 200,000 KS Shares to
Sun Trust Bank, 233,000 KS Shares to Josephthal Lyon & Ross Incorporated and
133,000 KS Shares to PPM, Inc. (collectively, the "KS Pledged Shares").
Fairfield will cause a Combined Operations Filing to be filed or announced as
promptly as practicable consistent with past practice in making such filings or
announcements.
3. Registration Rights. At the Effective Time, Fairfield, R&A and KS
will enter into a Registration Rights Agreement in substantially the form of
Exhibit A in respect of the Merger Shares to be acquired by each of RM, R&A and
KS in the Merger. Notwithstanding any provisions of the Registration Rights
Agreement, each of RM, R&A and KS acknowledges that neither any rights provided
under the Registration Rights Agreement nor any registration effected thereunder
will relieve R&A or KS of their respective obligations under this Agreement.
4. Restrictive Covenants.
(a) Non-competition. Each of RM and KS shall not, for a period
of one year following the Effective Time, or if employed by or otherwise engaged
to provide services to Fairfield or any of its Subsidiaries or elected to the
Board of Directors of Fairfield, during such employment, engagement, or tenure
on the Board of Directors and for a period of one year after the termination of
that employment, engagement, or tenure on the Board of Directors, directly or
indirectly, engage in or have any interest in any sole proprietorship,
partnership, corporation, limited liability company, firm, association or
business or any other person or entity (whether as an employee, officer,
director, partner, member, agent, security holder, creditor, consultant or
otherwise) that, directly or indirectly, engages in sales of leads for vacation
<PAGE>
ownership marketing, marketing or sales of vacation ownership interests,
timeshares, travel certificates, vacation packages, or other travel or vacation
related services or products and any other business or activity in which
Vacation Break and its Subsidiaries is engaged (the "Business") in the State of
Florida with respect to marketing or sales of vacation ownership interests or
timeshares, and in any geographic area in which Vacation Break and its
Subsidiaries presently conduct any part of the Business with respect to all
other aspects of the Business that are conducted in that area; provided,
however, that each of RM and KS may (i) devote his time and efforts to the
business and affairs of companies which are part of Fairfield's consolidated
group or (ii) continue to hold securities of Fairfield and/or acquire, solely as
an investment, shares of capital stock or other equity securities of any company
which are traded on any national securities exchange or are regularly quoted in
the over-the-counter market, so long as he does not control, acquire a
controlling interest in or become a member of a group which exercises direct or
indirect control of, more than one percent of any class of capital stock of such
corporation; and provided further, however, that RM's involvement with the
respective businesses as presently conducted, and ownership of the capital
stock, of Coconut Bay Resort Properties, Inc. and Intracoastal Resorts, Inc.,
which have completed the development of the properties owned or managed by such
corporations, and Serenity Homes, Sea America and Serenity shall not be deemed
to be a violation of this Section 4(a).
(b) Nondisclosure. Each of RM and KS, as applicable, shall not
divulge, communicate, use to the detriment of Fairfield or its Subsidiaries
(including, without limitation, Vacation Break and its Subsidiaries) or for the
benefit of any other person or persons, or misuse in any way, any Confidential
Information (as hereinafter defined) pertaining to the business of Fairfield and
its Subsidiaries (including, without limitation, Vacation Break and its
Subsidiaries). Any Confidential Information or data now or hereafter acquired by
Fairfield with respect to the business of Fairfield or its Subsidiaries
(including, without limitation, Vacation Break and its Subsidiaries), which
shall include, but not be limited to, information concerning their financial
condition, prospects, technology, customers, methods of doing business, and
marketing and promotion of their services and products, shall be deemed a
valuable, special and unique asset of Fairfield and its Subsidiaries that is
received by RM or KS, as applicable, in confidence and as a fiduciary, and RM or
KS, as applicable, shall remain a fiduciary to Fairfield and its Subsidiaries
(including, without limitation, Vacation Break and its Subsidiaries) with
respect to all of such Confidential Information. For purposes of this Agreement,
"Confidential Information" means information disclosed to RM or KS, as
applicable, or known by RM or KS, as applicable, as a consequence of or through
his employment by Vacation Break or Fairfield or any of their respective
Subsidiaries or service as a director of Vacation Break or Fairfield or any of
their respective Subsidiaries or as a consequence of the Merger and all related
transactions (including information conceived, originated, discovered or
developed by RM or KS, as applicable) prior to or after the date hereof, and not
known to the general public, about Fairfield and its Subsidiaries, Vacation
Break and its Subsidiaries, and their respective businesses. Confidential
Information shall not include information that on the date of this Agreement is,
or, other than a result of the public disclosure by or at the direction of RM or
KS or disclosure by a Person who RM or KS should have known was subject to an
obligation to maintain the confidentiality of such information, subsequent to
the date of this Agreement becomes, (i) publicly available, (ii) generally
available in the timeshare industry, (iii) non-proprietary to Fairfield and its
<PAGE>
Subsidiaries (including Vacation Break and its Subsidiaries), such as general
information related to marketing programs widely utilized in the timeshare
industry. If RM or KS, as applicable, is legally compelled, pursuant to a
subpoena, civil investigative demand or similar process, to disclose any
Confidential Information, RM or KS, as applicable, shall promptly, and in all
cases prior to disclosing the same, notify Fairfield to permit Fairfield to seek
a protective order or take other appropriate action. RM or KS, as applicable,
shall also cooperate in Fairfield's efforts to obtain a protective order or
other reasonable assurance that confidential treatment will be accorded such
Confidential Information. If, in the absence of a protective order, RM or KS, as
applicable, is, in the written opinion of their respective counsel addressed to
Fairfield, compelled as a matter of law to disclose such Confidential
Information, RM or KS, as applicable shall disclose to the party compelling
disclosure only that part of such Confidential Information as is required by law
to be disclosed (in which case, prior to such disclosure, RM or KS, as
applicable, shall advise and consult with Fairfield and its counsel as to such
disclosure and the nature and wording of such disclosure), and RM or KS, as
applicable, shall use his best efforts to obtain confidential treatment for any
Confidential Information so disclosed.
(c) Nonsolicitation of Employees. Each of RM and KS shall not,
for a period of two years following the Effective Time, or if employed by or
otherwise engaged to provide services to Fairfield or any of its Subsidiaries or
elected to the Board of Directors of Fairfield, during such employment,
engagement or tenure on the Board of Directors and for a period of two years
after the termination of that employment, engagement, or tenure on the Board of
Directors, directly or indirectly, for himself or for any sole proprietorship,
partnership, corporation, limited liability company, firm, association or
business or any other person or entity, employ or attempt to employ, or enter
into any contractual arrangement with any employee or sales agent or former
employee or former sales agent of Fairfield or Vacation Break or their
respective Subsidiaries (except with respect to the employment of Mr. William
Schmidt by RM), unless such person has not been employed or otherwise engaged by
Fairfield or Vacation Break or their respective Subsidiaries for a period in
excess of six months.
(d) Books and Records. All books, records, accounts and
similar repositories of Confidential Information of Fairfield or Vacation Break
or their respective Subsidiaries, whether prepared by RM or KS or otherwise
coming into his possession, shall be the exclusive property of Fairfield and
shall be returned immediately to Fairfield on Fairfield's request at any time.
5. Indemnification.
(a) Indemnification of Fairfield.
(i) Subject to Sections 5(a)(ii) and 5(d), RM and R&A, jointly and
severally as a group, and KS, severally and not jointly, indemnify and hold
Fairfield and its Subsidiaries (including, without limitation, Vacation Break
and its Subsidiaries) (each an "Indemnified Person") harmless from and against
the sum of (1) 75% of any and all losses, deficiencies, liabilities and damages
incurred or suffered by an Indemnified Person resulting from or arising out of
the matters that are the subject of the proceedings described on Schedule 1
(each, an "Indemnified Matter"), plus (2) 25% of all Litigation Expenses (as
hereinafter defined) incurred by any Indemnified Person in connection with or as
a result of any Indemnified Matter in excess of the lesser of (A) $500,000 or
(B) any reserve for the Indemnified Matter that is reflected in Vacation Break's
consolidated financial statements at June 30, 1997 (the sum of (1) and (2) are
referred to as an "Indemnifiable Loss"). Litigation Expenses shall mean all
reasonable legal, investigatory, expert and similar fees and expenses, witness
fees, transcript costs, court costs, appeal bonds, appeal bond premiums and
printing costs related to the defense of an Indemnified Matter.
<PAGE>
(ii) Subject to Section 5(g), the maximum liability that the Stockholders
may incur under this Section 5(a) with respect to any Indemnified Matter is the
amount (the "Maximum Amount") specified on Schedule 1 opposite the respective
Indemnified Matter and the maximum liability of RM and R&A, as a group, and KS
under this Section 5(a) with respect to an Indemnified Matter is 80% and 20%,
respectively, of the Maximum Amount for that Indemnified Matter. The
Stockholders will satisfy any indemnity obligation under this Section 5 by
payment of Holdback Shares (as hereinafter defined) from the Escrow Account (as
hereinafter defined) valued at the Share Value (as hereinafter defined) unless
some or all of the Holdback Shares have been sold or otherwise disposed of in
accordance with this Agreement, in which case the payment will be made first
from the cash held in the Escrow Account and then from the Holdback Shares in
accordance with the Escrow Agreement. For purposes of this Section 5, Share
Value will mean the closing price of a share of Fairfield Common Stock on the
New York Stock Exchange (or, if not quoted on the New York Stock Exchange, on
the principal national securities exchange upon which the Fairfield Common Stock
is then traded) on the business day immediately preceding the Closing Date, as
such price may be equitably adjusted after that date to give effect to any stock
split, dividend, or combination or reclassification of Fairfield's capital
stock.
(b) Security for Indemnification of Fairfield.
(i) As security for the agreement by the Stockholders to indemnify and hold
the Indemnified Persons harmless under Section 5(a), at the Effective Time the
Stockholders shall place in an escrow (the "Escrow Account") with a title
company or financial institution reasonably acceptable to Fairfield (the "Escrow
Agent"), pursuant to an escrow agreement in substantially the form of Exhibit B,
certificates representing Merger Shares equal to $7.0 million divided by the
Share Value (the "Holdback Shares"). The Holdback Shares so deposited shall be
free and clear of any Liens. Further, there shall also be deposited with the
Escrow Agent all cash dividends paid on the Holdback Shares and all shares of
Fairfield Common Stock or other securities issued or distributed to the
Stockholders with respect to the Holdback Shares as a result of any stock split,
stock dividend, or combination or reclassification of or in respect of
Fairfield's capital stock, together with any associated share purchase rights.
RM and R&A will deposit 80% and KS will deposit 20% of the Holdback Shares in
the Escrow Account. In no event will the number of Holdback Shares (valued at
the Share Value) plus any proceeds from any such shares that are sold or
otherwise disposed of pursuant to the terms of this Section 5, plus any other
securities or other cash amounts required to be deposited in the Escrow Account
that are received in respect of such shares or other cash amounts, that may be
applied to the Stockholders' obligations under Section 5(a) with respect to an
Indemnified Matter exceed the Maximum Amount.
<PAGE>
(ii) All Holdback Shares shall be deemed to be beneficially owned by the
Stockholders, and the Stockholders shall be entitled to vote the Holdback Shares
and, subject to the terms of the Escrow Agreement, to receive promptly as paid
by Fairfield all cash dividends or distributions paid thereon in respect thereof
until any such shares are actually delivered to Fairfield as provided in the
Escrow Agreement. To the extent that Fairfield applies the Holdback Shares
against Indemnifiable Losses, such application shall be effected against the
Stockholders' Holdback Shares in the manner set forth in the Escrow Agreement.
The Stockholders may require that all or any portion of the Holdback Shares be
sold in market transactions at any time in accordance with the provisions of the
Escrow Agreement, provided that such sales shall be made in compliance with
state and federal securities laws and not in violation of the provisions of this
Agreement. The net sales proceeds of any such sales of Holdback Shares shall be
retained in the Escrow Account pending disbursement to Fairfield or distribution
to the Stockholders in accordance with the Escrow Agreement (the Holdback
Shares, any other securities required to be deposited in the Escrow Account, and
any cash proceeds, interest thereon, dividends paid on the Holdback Shares and
any other amounts required to be deposited in the Escrow Account are referred to
as the "Escrow Funds"). All cash proceeds held in the Escrow Account shall be
invested in obligations issued or unconditionally guaranteed by the United
States government, or issued by any agency or instrumentality thereof and backed
by the full faith and credit of the United States government, which obligations
mature within one year from the date of investment or as otherwise provided in
the Escrow Agreement, and any interest received in respect of any investment
shall be disbursed in accordance with the Escrow Agreement.
(iii) If an Indemnified Matter is finally and fully resolved pursuant to an
approved settlement or a final, nonappealable judgment or order of a court of
competent jurisdiction, any Escrow Funds allocated to the payment of
Indemnifiable Losses arising from such Indemnified Matter in excess of the
Escrow Funds paid to Fairfield to satisfy the Stockholders' obligations under
this Section 5 will be released to the Stockholders in accordance with the
Escrow Agreement. Before the fourth anniversary of the Closing Date (the
"Release Date"), Fairfield and the Stockholders will meet and confer in good
faith to agree upon and establish prior to the Release Date the realistic
Exposure (as defined below) to the Indemnified Persons with respect to each
Indemnified Matter which has not previously been adjudicated, dismissed or
settled with respect to each such remaining Indemnified Matter. As used herein,
"Exposure" shall mean the reasonably projected cost of defense or prosecution
through a final judgment of such matter (including attorneys' fees, costs and
any direct expenses of the Indemnified Persons in connection therewith) plus a
realistic assessment expressed as a dollar amount of the likelihood and amount
of either an adverse or favorable judgment on all claims and counterclaims in
connection with each of such matters. The portion of the Exposure determined for
each of such Indemnified Matters remaining as of the Release Date plus the
cumulative amount of unreimbursed Litigation Expenses through the Release Date
for which the Stockholders would be responsible under this Section 5 if such sum
was an actual Indemnifiable Loss shall be the "Cumulative Exposure" in
connection with an Indemnified Matter pending on the Release Date. Escrow Funds
held in the Escrow Account on the Release Date in excess of the Escrow Funds
<PAGE>
required to satisfy any Cumulative Exposure in respect of the Indemnified Matter
for which those Escrow Funds were allocated under Section 5(b)(i) will be
released to Stockholders in accordance with the terms of the Escrow Agreement;
provided, however, if an Indemnified Person has suffered an Indemnifiable Loss
pursuant to an order or judgment in respect of an Indemnified Matter and the
Indemnified Person has appealed or stayed the execution of such order or
judgment, none of the Escrow Funds allocated for the payment of an Indemnifiable
Loss in respect of that Indemnified Matter shall be released from the Escrow
Account to the Stockholders and shall remain subject to the terms of the Escrow
Agreement and this Section 5 until 30 days after a final, nonappealable order or
judgment has been entered (unless earlier settled or compromised) in respect of
that Indemnified Matter and all related Litigation Expenses have been paid.
(iv) The Stockholders acknowledge that, subject to the provisions of this
Section 5 and acting in good faith, Fairfield will pursue settlements of the
Indemnified Matters in a manner or on terms that it reasonably determines are in
the best interests of its stockholders.
(c) Waiver. The Stockholders waive any claim for
indemnification or contribution against any Indemnified Person (including
Vacation Break and its Subsidiaries) with respect to any Indemnifiable Matter
for which they have any obligation under this Section 5.
(d) Payment of Litigation Expenses. Upon Fairfield's delivery
to the Stockholders no more frequently than once each calendar quarter of
reasonable documentation evidencing any Litigation Expenses, Fairfield will be
entitled to obtain reimbursement for the portion of Litigation Expenses the
Stockholders are obligated to pay under this Section 5 from the Holdback Shares
or cash held in the Escrow Account. Fairfield will also deliver to the Escrow
Agent copies of the documentation evidencing the Litigation Expenses as set
forth in the Escrow Agreement.
(e) Counsel; Cooperation. Fairfield shall defend each
Indemnified Matter and shall prosecute any reasonable counterclaim or third
party claim in respect of any Indemnified Matter in a reasonable manner
consistent with its management of other litigation. Fairfield shall retain legal
counsel to assist it in the defense of the Indemnified Matters ("Counsel") who
shall be reasonably satisfactory to the Stockholders. The Stockholders
acknowledged that the existing counsel for each Indemnified Matter, as well as
Jones, Day, Reavis & Pogue, Carlton Fields and Akerman, Senterfitt & Eidson,
P.A. are satisfactory. Fairfield shall have sole authority to instruct Counsel
with respect to the Indemnified Matters and Counsel shall be entitled to rely
upon such instructions without verification or confirmation from any other
Person. Each of the Stockholders shall cooperate with and assist Fairfield and
Counsel in Fairfield's defense of the Indemnified Matters and prosecution of any
claims. Stockholders and counsel to Vacation Break have identified to Fairfield
defenses that they reasonably believe to be good and valid defenses to the
Indemnified Matters. In connection therewith, the Stockholders (i) shall be
available to Fairfield and Counsel at mutually agreeable times and will make
available their records and other documents that are relevant to the Indemnified
Matters, (ii) shall assist Fairfield and Counsel in locating and maintaining
those records and other documents that would be necessary or useful in preparing
to defend and/or in defending the Indemnified Matters, and (iii) shall execute
such affidavits, certificates, pleadings, discovery responses and similar
documents ("Litigation Papers") as are necessary in the conduct of the defense
of the Indemnified Matters, in each case, however, after review and approval
(which approval shall not be unreasonably withheld or delayed) of such
Litigation Papers.
<PAGE>
(f) Status. On a regular basis, Fairfield and Counsel shall
advise the Stockholders of all material aspects of such Indemnified Matter to
the extent that such discussions between Fairfield (and its officers, agents and
affiliates), Counsel and Stockholders would not impair the attorney client
privilege. Counsel will provide copies of all material pleadings and
correspondence regarding each Indemnified Matter to Stockholders.
(g) Settlement. Fairfield and Counsel will keep the
Stockholders fully advised in a timely manner of all settlement proposals,
discussions and negotiations concerning an Indemnified Matter. Fairfield will
not effect any settlement of the first Indemnified Matter identified on Schedule
1 (the "MRG Matter") without the Stockholders' consent (which consent will not
be unreasonably withheld); provided, however, if the Stockholders' obligation
under Section 5(a) with respect to that settlement would be less than $2.0
million (excluding Litigation Expenses), Fairfield may settle the MRG Matter
without Stockholders' consent. If Fairfield receives a settlement proposal with
respect to the MRG Matter pursuant to which the Stockholders' obligation under
Section 5(a) (excluding Litigation Expenses) exceeds $2.0 million that Fairfield
desires to accept, Fairfield will notify the Stockholders in writing of its
desire and submit to the Stockholders that settlement proposal for their
approval. If the Stockholders approve that proposed settlement within 5 business
days (or fail to respond to such request within such 5 business day period of
their receipt of that notice), Fairfield may settle the MRG Matter on
substantially the terms described in that notice and the Stockholders will pay
Fairfield from the Escrow Fund, subject to the limits set forth herein, the
Indemnifiable Loss in respect thereof. If the Stockholders do not approve of the
settlement, they shall (i) notify Fairfield in writing that they do not approve
the proposed settlement within such 5 business day period and (ii) provide
Fairfield a written undertaking that they (A) will be responsible, jointly and
severally, for any Indemnifiable Loss up to the amount of the proposed
settlement and shall, jointly and severally, indemnify the Indemnified Persons
for 100% of any Indemnifiable Loss in excess of the proposed settlement
(including 100% of Litigation Expenses incurred after that date) and (B) assume
the defense of that Indemnified Matter, and shall have sole authority to retain
and direct Counsel with respect to such Indemnified Matter, on the same terms as
set forth in Sections 5(e) and 5(f). The Stockholders shall not effect a
settlement of the MRG Matter unless Fairfield reasonably consents to that
settlement or the settlement includes an unconditional release of each
Indemnified Person.
(h) Application of Awards. Any monetary damages awarded to,
and received by Fairfield or its Subsidiaries, or insurance proceeds received by
Fairfield or its Subsidiaries, in respect of an Indemnified Matter, shall be
applied after termination of such Indemnified Matter on a pro rata basis, first
to reimburse the parties for any Litigation Expenses and then to reduce the
Indemnifiable Losses arising from such Indemnified Matter and to reimburse the
parties for payments made in respect of the Indemnified Matter. All amounts
exceeding the Indemnifiable Losses arising from such Indemnified Matter shall be
retained by Fairfield or its Subsidiaries.
<PAGE>
(i) Continuing Obligations. Any failure of Fairfield to
perform any of its obligations under Sections 5(e), 5(f) or the first sentence
of 5(g) will not relieve the Stockholders of their obligations under this
Agreement. If the Stockholders know or have reason to believe that Fairfield has
failed to perform its obligations under Section 5(f) or the first sentence of
Section 5(g), the Stockholders must notify Fairfield in writing thereof and
permit Fairfield 15 business days to cure any such failure before Fairfield will
be deemed to be in breach of such obligations. If the Stockholders believe that
Fairfield is not performing its obligations under the first sentence of Section
5(e), they shall notify Fairfield in writing of their belief. Within 10 business
days after Fairfield's receipt of that notice, an executive officer of Fairfield
and the Stockholders will meet at a mutually agreed time and place to discuss
the Indemnified Matters and Fairfield will consult in good faith with the
Stockholders regarding the defense of any Indemnified Matter or prosecution of
any claim.
6. Effectiveness; Termination. Sections 4 and 5 will not be effective
until the Effective Time has occurred. This Agreement shall terminate upon the
earlier of (a) any termination of the Merger Agreement in accordance with the
terms thereof and (b) the mutual written consent of the parties hereto.
7. Share Ownership. RM and R&A represent and warrant to Fairfield that,
as of the date of this Agreement, the RM Shares constitute all of the shares of
Vacation Break Common Stock beneficially owned by RM and R&A and the description
of the beneficial and record ownership of the RM Shares and of the voting rights
related thereto in Recital A of this Agreement is in all respects true, complete
and correct and such shares, other than the RM Pledged Shares, are owned free
and clear of any Liens. KS represents and warrants to Fairfield that, as of the
date of this Agreement, the KS Shares constitute all of the shares of Vacation
Break Common Stock beneficially owned by KS and the description of the
beneficial and record ownership of the KS Shares and of the voting rights
related thereto in Recital A of this Agreement is in all respects true, complete
and correct and such shares, other than the KS Pledged Shares, are owned free
and clear of any Liens.
8. Severance Waiver. Each of RM and KS waives any severance or other
compensation which he would otherwise be entitled to receive under his existing
employment agreement (or any other agreement) with Vacation Break or any of its
Subsidiaries as a consequence of the termination of his employment by, or
service on the board of directors of, Vacation Break or any of its Subsidiaries
except, with respect to KS, any amount payable to him under the Amendment to
Amended and Restated Employment Agreement dated of even date herewith.
9. Release of Guarantees. Fairfield and the Surviving Corporation shall
use their reasonable efforts (but will not be required to expend any funds or
incur any additional liability) to obtain the release by the applicable lender
of RM from any obligation under any outstanding guarantee of indebtedness for
borrowed money of the Surviving Corporation and its Subsidiaries and shall
indemnify and hold RM harmless from any losses or liabilities incurred by RM
after the Effective Time under any such guarantee.
<PAGE>
10. Miscellaneous.
(a) Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be deemed given if
delivered personally or sent by overnight courier (providing proof of delivery)
to the parties at the following addresses (or at such other address for a party
as shall be specified by like notice):
(i) if to Fairfield or Merger Sub:
Fairfield Communities, Inc.
11001 Executive Center Drive
Little Rock, Arkansas 72211
Attention: Mr. John W. McConnell
with a copy to:
Jones, Day, Reavis & Pogue
2001 Ross Avenue, Suite 2300
Dallas, Texas 75201
Attention: Mark V. Minton, Esq.
(ii) if to RM:
Mr. Ralph P. Muller
Vacation Break USA, Inc.
6400 N. Andrews Avenue
Park Plaza, Suite 200
Ft. Lauderdale, Florida 33309
with a copy to:
Greenberg, Traurig, Hoffman,
Lipoff, Rosen & Quentel, P.A.
1221 Brickell Avenue
Miami, Florida 33131
Attention: Gary M. Epstein, Esq.
(iii) if to R&A:
R & A Partnership, Ltd.
2435 S. Ocean Boulevard
Highland Beach, Florida 33487
Attention: Mr. Ralph P. Muller
<PAGE>
with a copy to:
Baker & McKenzie
Barnett Tower
701 Brickell Avenue
Suite 1600
Miami, Florida 33131-2827
Attention: Nicholas DeNovio, Esq.
(iv) if to KS:
Mr. Kevin Sheehan
Vacation Break USA, Inc.
6400 N. Andrews Avenue
Park Plaza, Suite 200
Ft. Lauderdale, Florida 33309
with a copy to:
Greenberg, Traurig, Hoffman,
Lipoff, Rosen & Quentel, P.A.
1221 Brickell Avenue
Miami, Florida 33131
Attention: Gary M. Epstein, Esq.
(b) Severability. If any term or provision of this Agreement is found
to be invalid, illegal or unenforceable by a final determination of a court of
competent jurisdiction (i) the remaining terms and provisions hereof shall be
unimpaired and shall nevertheless remain in full force and effect and (ii) the
invalid or unenforceable term or provision shall be deemed replaced by a term or
provision that is valid and enforceable and that comes closest to expressing the
intention of the invalid or unenforceable term or provision. In the event that,
notwithstanding the preceding sentence, any of the provisions of Section 4
hereof relating to the geographic or temporal scope of the covenants contained
therein or the nature of the business restricted thereby shall be declared by a
court of competent jurisdiction to exceed the maximum restrictiveness such court
deems enforceable, such provision shall be deemed to be replaced herein by the
maximum restriction deemed enforceable by such court.
(c) Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties.
(d) Entire Agreement; No Third-party Beneficiaries. This Agreement
constitutes the entire agreement, and supersede all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter of this Agreement and except for the provisions of Section 5, are
not intended to confer upon any person other than the parties any rights or
remedies.
<PAGE>
(e) Governing Law. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of Florida, regardless of the laws
that might otherwise govern under applicable principles of conflicts of laws
thereof.
(f) Assignment. Neither this Agreement nor any of the rights, interests
or obligations hereunder shall be assigned, in whole or in part, by operation of
law or otherwise by any of the parties without the prior written consent of the
other parties. This Agreement will be binding upon, inure to the benefit of, and
be enforceable by, the parties and their respective heirs, legal
representatives, successors and assigns.
(g) Enforcement. The parties agree that irreparable injury would occur
for which there is no adequate remedy at law in the event that any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to an injunction or injunctions to prevent breaches of
this Agreement and to enforce specifically the terms and provisions of this
Agreement in any court of the United States located in the State of Florida or
in Florida state court, without posting bond, this being in addition to any
other remedy to which they are entitled at law or in equity. In addition, each
of the parties hereto (a) consents to submit itself to the personal jurisdiction
of any federal court located in the State of Florida or any Florida state court
in the event any dispute arises out of this Agreement or the transactions
contemplated by this Agreement, (b) agrees that it will not attempt to deny or
defeat such personal jurisdiction by motion or other request for leave from any
such court and (c) agrees that it will not bring any action relating to this
Agreement or the transactions contemplated by this Agreement in any court other
than a federal court sitting in the State of Florida or a Florida state court.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the parties have signed this Agreement personally
or by their respective officers thereunto duly authorized, all as of the date
first written above.
FAIRFIELD COMMUNITIES, INC.
By:/s/ J. W. McConnell
-------------------------------
Name: J. W. McConnell
Title: President and Chief Executive Officer
FCVB CORP.
By: /s/ J. W. McConnell
--------------------------------
Name: J. W. McConnell
Title: President
R & A PARTNERSHIP, LTD.
By: RPM Investments, Inc.,
Its General Partner
By:/s/ Linda M. Fenner
-----------------------------------
Name: Linda M. Fenner
Title: President
/s/ Ralph P. Muller
------------------------------------
Ralph P. Muller
/s/ Kevin Sheehan
------------------------------------
Kevin Sheehan
<PAGE>
IN WITNESS WHEREOF, the parties have signed this Agreement personally
or by their respective officers thereunto duly authorized, all as of the date
first written above.
FAIRFIELD COMMUNITIES, INC.
By:/s/ J. W. McConnell
--------------------------------
Name: J. W. McConnell
Title: President and Chief Executive Officer
FCVB CORP.
By:/s/ J. W. McConnell
---------------------------------
Name: J. W. McConnell
Title: President
R & A PARTNERSHIP, LTD.
By: RPM Investments, Inc.,
Its General Partner
By:/s/ Linda M. Fenner
--------------------------------
Name: Linda M. Fenner
Title: President
/s/ Ralph P. Muller
---------------------------------
Ralph P. Muller
/s/Kevin Sheehan
--------------------------------
Kevin Sheehan
<PAGE>
Schedule 1
Indemnified Matters Maximum Amount
1. Market Response Group and Laser $6,000,000
Company, Inc. v. Vacation Break USA, Inc.
2. Global Marketing & Travel, Inc. v. 500,000
Vacation Break USA, Inc.
3. David Johnson, et al. v. 500,000
Vacation Break USA, Inc.
ESCROW AGREEMENT
THIS ESCROW AGREEMENT (this "Agreement") is made and entered
into as of December 19, 1997, by and among Fairfield Communities, Inc., a
Delaware corporation ("Fairfield"), Ralph P. Muller ("RM"), R & A Partnership,
Ltd., a Texas limited partnership ("R&A"), and Kevin Sheehan ("KS" and together
with RM and R&A, the "Stockholders"), and Mercantile Bank of Arkansas, as Escrow
Agent ("Escrow Agent").
RECITALS
A. Fairfield, FCVB Corp., a Florida corporation and wholly owned
subsidiary of Fairfield ("Merger Sub") and Vacation Break USA, Inc., a Florida
corporation ("Vacation Break"), have entered into an Agreement and Plan of
Merger (as the same may be amended or modified from time to time, the "Merger
Agreement"), pursuant to which and upon the terms and subject to the conditions
thereof, Merger Sub will be merged with and into Vacation Break and shares of
Common Stock, par value $.01 per share, of Vacation Break outstanding
immediately prior to the effective time of the Merger (the "Effective Time")
will be converted into and represent the right to receive, among other things, a
number of shares of Common Stock, par value $.01 per share, of Fairfield
("Fairfield Common Stock").
B. Concurrently with the execution of the Merger Agreement, Fairfield,
Merger Sub, and the Stockholders entered into a Principal Stockholders Agreement
(as the same may be amended or modified from time to time, the "Principal
Stockholders Agreement"), pursuant to which and upon the terms and conditions
thereof, RM and R&A, jointly and severally as a group, and KS, severally and not
jointly, will indemnify and hold Fairfield and its subsidiaries (including
Vacation Break and its subsidiaries) (each an "Indemnified Person") harmless
from and against certain liabilities.
C. As security for the respective obligations of RM and R&A, as a
group, and KS, to indemnify and hold the Indemnified Persons harmless as
described in Section 5 of the Principal Stockholders Agreement, RM and R&A have
given irrevocable instructions to cause to be deposited 222,287 shares of
Fairfield Common Stock (the "RM/RA Shares") with the Escrow Agent and KS has
given irrevocable instructions to cause to be deposited 55,572 shares of
Fairfield Common Stock (the "KS Shares") with the Escrow Agent.
NOW, THEREFORE, in consideration of the foregoing and the
mutual covenants and agreements contained herein, and intending to be legally
bound hereby, the parties agree as follows:
<PAGE>
1. Certain Definitions.
For the purposes of this Agreement, the following terms shall
have the following meanings:
"Additional Matter" shall mean the matter described in Section
5(a)(iii) of the Principal Stockholders Agreement.
"Disbursement Notice" shall mean any notice delivered pursuant
to Section 7(a) or 7(b) instructing the Escrow Agent to release any Escrow
Shares or Escrow Funds from the escrow under this Agreement.
"Escrow Funds" shall mean any and all proceeds of Escrow
Shares sold or disposed of in accordance with Section 4(c) of this Agreement,
any interest or increase received on the investment of such proceeds, and any
cash dividends paid on Escrow Shares held in escrow.
"Escrow Shares" shall mean (i) the shares of Fairfield Common
Stock, deposited in escrow as provided in Section 4 together with all rights
associated with such shares, plus (ii) subject to Section 4(b), all shares or
other securities or property (other than cash) paid as a dividend on or issued
or distributed in respect of such deposited shares, and any shares or other
securities into which such deposited shares may be changed or for which they may
be exchanged pursuant to any stock split, dividend, combination,
reclassification or other corporate action of Fairfield affecting shares of
Fairfield Common Stock generally.
"Indemnified Matter" shall mean each matter that is the
subject of the proceedings described on Schedule 1 hereto.
"KS Indemnified Matter Escrow Amount" shall mean (i) the
number of KS Shares that have on the date of this Agreement an aggregate Share
Value equal to the KS Indemnified Matter Maximum Amount for a particular
Indemnified Matter less the number of those shares sold or disposed of in
accordance with Section 4(c), plus (ii) the Escrow Funds directly attributable
to that number of KS Shares, such KS Shares and Escrow Funds being allocated
under this Agreement to be released under Sections 7(a) and 7(b) in respect of
that Indemnified Matter.
"KS Indemnified Matter Maximum Amount" shall mean with respect
to each Indemnified Matter the amount listed opposite such Indemnified Matter in
the column so named on Schedule 1.
<PAGE>
"RM/RA Indemnified Matter Escrow Amount" shall mean (i) the
number of RM/RA Shares that have on the date of this Agreement an aggregate
Share Value equal to the RM/RA Indemnified Matter Maximum Amount for a
particular Indemnified Matter less the number of those shares sold or disposed
of in accordance with Section 4(c), plus (ii) the Escrow Funds directly
attributable to that number of RM/RA Shares, such RM/RA Shares and Escrow Funds
being allocated under this Agreement to be released under Sections 7(a) and 7(b)
in respect of that Indemnified Matter.
"RM/RA Indemnified Matter Maximum Amount" shall mean with
respect to each Indemnified Matter the amount listed opposite such Indemnified
Matter in the column so named on Schedule 1.
"Share Value" shall mean $43 3/16 per share of Fairfield
Common Stock, subject to equitable adjustment by Fairfield to give effect to any
stock split, stock dividend or combination or reclassification of or in respect
of Fairfield Common Stock.
"Stockholder Percentage" shall mean 80% in the case of RM and R&A, as a
group, and 20% in the case of KS.
"Stockholder Sub-account" shall mean the separate sub-account
for each of RM and R&A, as a group, and KS established and maintained by the
Escrow Agent in which the RM/RA Shares and KS Shares deposited on behalf of RM
and R&A, as a group, and KS, respectively, and the Escrow Funds derived
therefrom, shall be held on deposit in escrow as provided in this Agreement.
2. Appointment of Escrow Agent. The Stockholders and Fairfield
hereby appoint Mercantile Bank of Arkansas as Escrow Agent for the purposes set
forth in this Agreement, and the Escrow Agent hereby accepts that appointment
and agrees to be bound by the terms and conditions of this Agreement.
3. Deposit in Escrow. The Stockholders have, pursuant to
irrevocable instructions, directed the Exchange Agent (as defined in the Merger
Agreement) to deposit on behalf of RM and R&A, as a group, and KS in escrow with
the Escrow Agent a certificate or certificates representing the RM/RA Shares and
the KS Shares, respectively, registered in the name of the Escrow Agent or the
nominee or nominees of the Escrow Agent. The Escrow Agent shall issue an
appropriate receipt for the RM/RA Shares and the KS Shares so deposited on
behalf of RM and R&A, and KS upon delivery of such certificate or certificates
and shall hold the RM/RA Shares and the KS Shares and any and all Escrow Funds
derived therefrom in separate Stockholder Sub-accounts for the benefit of
Fairfield and the applicable Stockholder as the source of payment to Fairfield
of any amount owed by the Stockholders under Section 5 of the Principal
Stockholders Agreement (an "Indemnifiable Loss").
4. Voting Rights and Distributions; Conversion of Escrow Shares.
(a) Voting Rights of Escrow Shares. All voting rights with
respect to the Escrow Shares held in each Stockholder Sub-account may be
exercised by the applicable Stockholder and the Escrow Agent shall from time to
time execute and deliver to the Stockholders such proxies, consents or other
documents as may be necessary to enable the Stockholders to exercise such
rights.
<PAGE>
(b) Distributions on Escrow Shares. All cash and non-cash
dividends and other distributions paid or made with respect to or on the Escrow
Shares held in the Stockholder Sub-account for each Stockholder from time to
time, including, without limitation, all shares or other securities or property
paid as a dividend on or distributed in respect of such Escrow Shares, shall be
received by the Escrow Agent and held in the same Stockholder Sub-account as the
Escrow Shares on which or in respect of which they were paid, pending
disbursement or distribution thereof in accordance with this Agreement.
(c) Conversion of Escrow Shares. The Escrow Agent shall be
entitled, upon the written direction of each Stockholder, to effect the sale,
for cash, of any or all of the Escrow Shares held in the Stockholder Sub-account
for such Stockholder in market transactions with unrelated third parties at
market prices reflecting arm's-length negotiation, provided that all proceeds of
any such sale of Escrow Shares are held as Escrow Funds, pending disbursement or
distribution thereof in accordance with this Agreement. All Escrow Funds may be
invested exclusively in one or more of the investments described in Schedule 2
hereto as each Stockholder shall direct in writing with respect to the Escrow
Funds held in the Stockholder Sub-account for such Stockholder and any interest
or increase received in respect of any investment will be held as Escrow Funds
pending disbursement or distribution thereof in accordance with this Agreement.
(d) Reliance on Stockholder Action. The applicable Stockholder
for the Stockholder Sub-account in which the RM/RA Shares are deposited is RM
and R&A, as a group, and the Escrow Agent shall be entitled to rely on
directions from either RM or R&A with respect to any action, consent or
directive to be taken or given in respect of the Escrow Shares and Escrow Funds
in that Stockholder Sub-account.
(e) Release of Excess Escrow Funds. If at the time of payment
of any cash dividend on or distribution in respect of any Escrow Shares held in
any Stockholder Sub-account, the receipt of proceeds from the sale of any Escrow
Shares in accordance with Section 4(c) or receipt of any interest on or increase
in respect of any investment of the proceeds thereof held in any Stockholder
Sub-account, the sum of (i) the aggregate value of the Escrow Shares (based upon
the Share Value) and the Escrow Funds held in such Stockholder Sub-account
comprising the KS Indemnified Matter Escrow Amount or the RM/RA Indemnified
Matter Escrow Amount, as applicable, for each Indemnified Matter, plus (ii) the
aggregate value of the Escrow Shares and Escrow Funds theretofore disbursed from
such Stockholder Sub-account to Fairfield for application against Indemnifiable
Losses in respect of each Indemnified Matter, exceeds the corresponding KS
Indemnified Matter Maximum Amount or RM/RA Indemnified Matter Maximum Amount for
each Indemnified Matter, then, to the extent of such excess, the Escrow Agent
shall distribute the cash dividends, distributions, sale proceeds or interest
payments to the applicable Stockholder.
5. Assessments on Escrow Shares and Escrow Funds. Each of the
Stockholders shall be liable for, and shall from time to time when due and
payable, pay and discharge all taxes, assessments and governmental charges,
including, without limitation, income taxes assessed on dividends and
distributions on the Escrow Shares and Escrow Funds held in the Stockholder
Sub-account for such Stockholder or any sale or other disposition of any Escrow
Shares, imposed on the Escrow Shares and Escrow Funds in such Stockholder
<PAGE>
Sub-account, or on any cash, securities or other property then held in escrow
hereunder or on any dividends or interest or other income arising therefrom
payable to such Stockholder under this Agreement. If the Escrow Agent is
obligated to withhold any amount of any cash dividend or cash distribution or
sale proceeds, interest thereon or other amount for payment of a Stockholder's
taxes, the Stockholder upon 2 business days' notice from the Escrow Agent will
promptly pay that amount to the Escrow Agent or deposit an equal amount of funds
in the escrow.
6. Beneficial Ownership; No Liens or Encumbrances. Except to
the extent otherwise contemplated by this Agreement, each Stockholder shall, at
all times, beneficially own all Escrow Shares and Escrow Funds on deposit with
the Escrow Agent in the applicable Stockholder Sub-account. The Stockholders
shall not pledge, encumber or permit the imposition of any pledge, claim, lien,
charge, encumbrance or security interest of any kind or nature on, the Escrow
Shares or Escrow Funds or any rights of the Stockholders in, to, or under the
Escrow Shares, Escrow Funds or this Agreement in any manner whatsoever.
7. Release of Escrow Shares and Escrow Funds.
(a) Litigation Expenses. Promptly following receipt of a
Disbursement Notice in the form of Exhibit A signed by Fairfield and specifying
the amount of the Indemnified Matter Escrow Amount to be released, the Escrow
Agent will release Escrow Shares or Escrow Funds or both in accordance with
Sections 7(c), 7(d) and 7(e) equal to the amount set forth in the Disbursement
Notice. A Disbursement Notice under this Section 7(a) may be delivered at any
time and the Escrow Agent will release the specified amount within 5 business
days after receipt of that Disbursement Notice.
(b) Settlements; Other Releases.
(i) If Fairfield is required under Section 5(g) of the
Principal Stockholders Agreement to obtain the Stockholders' approval
of a settlement of an Indemnified Matter, Fairfield, KS, and RM or R&A
will deliver a Disbursement Notice in the form of Exhibit B specifying
the amounts of the Indemnified Matter Escrow Amount to be released from
the escrow. The Escrow Agent will release Escrow Shares or Escrow Funds
or both in accordance with Sections 7(c), 7(d) and 7(e) equal to the
amount specified in the Disbursement Notice.
(ii) If Fairfield is not required under Section 5(g) of the
Principal Stockholders Agreement to obtain the Stockholders' approval
(or the Stockholders are deemed to have approved) of a settlement of an
Indemnified Matter or a final, nonappealable judgment or order of a
court has been entered in respect of a Indemnified Matter, Fairfield
may deliver to the Escrow Agent a Disbursement Notice in the form of
Exhibit C specifying the amounts of the Indemnified Matter Escrow
Amount to be released. The Escrow Agent will release Escrow Shares or
Escrow Funds or both in accordance with Sections 7(c), 7(d) and 7(e)
equal to the amount specified in the Disbursement Notice.
<PAGE>
(iii) Promptly following the full and final settlement of, or
the entry of a final, nonappealable judgment or order in respect of, an
Indemnified Matter and the payment of all Indemnifiable Losses in
connection therewith, Fairfield shall deliver to the Escrow Agent a
Disbursement Notice in the form of Exhibit B, directing the Escrow
Agent release to KS the remaining portion of the KS Indemnified Matter
Escrow Amount and to release to RM and R&A the remaining portion of the
RM/RA Indemnified Matter Escrow Amount in respect of that Indemnified
Matter.
(iv) If permitted under Section 5(k) of the Principal
Stockholders Agreement, Fairfield and the Stockholders may deliver to
the Escrow Agent a Disbursement Notice in the form of Exhibit D
specifying the amounts of the Indemnified Matter Escrow Amount to be
released. The Escrow Agent will release Escrow Shares or Escrow Funds
or both in accordance with Sections 7(c), 7(d) and 7(e) equal to the
amount specified in the Disbursement Notice.
(v) A Disbursement Notice may be delivered under this Section
7(b) at any time, and the Escrow Agent will release the specified
amount within 5 business days after receipt of the Disbursement Notice.
(c) Priority. The Escrow Agent shall release to each Person
specified in a Disbursement Notice the required amount of each of the KS
Indemnified Matter Escrow Amount and the RM/RA Indemnified Matter Escrow Amount
from the Escrow Funds and/or Escrow Shares that comprise that KS Indemnified
Matter Escrow Amount and RM/RA Indemnified Matter Escrow Amount for the
applicable Indemnified Matter up to the corresponding KS Indemnified Matter
Maximum Amount and RM/RA Indemnified Matter Maximum Amount for the Indemnified
Matter. The number of Escrow Shares to be released will be based on the Share
Value.
(d) Certificates. Certificates and other evidence of Escrow
Shares delivered to Fairfield pursuant to this Agreement shall be duly endorsed
(with signature guaranteed) by the Escrow Agent for transfer to Fairfield or its
nominee or designee. Certificates and other evidence of Escrow Shares delivered
to the Stockholders shall be duly endorsed (with signature guaranteed) by the
Escrow Agent for transfer in such name or names as they shall direct.
(e) Allocation Among Sub-accounts. The Escrow Shares and
Escrow Funds to be released under Sections 7(a) and 7(b) shall be withdrawn by
the Escrow Agent from the Escrow Shares and Escrow Funds that comprise the
appropriate KS Indemnified Matter Escrow Amount and RM/RA Indemnified Matter
Escrow Amount in the Stockholder Sub-accounts in the following manner: first,
Escrow Funds to the extent thereof, and, second, such number of Escrow Shares
(to the nearest whole Escrow Share). In no event will the sum of (i) the amount
of Escrow Funds and value of Escrow Shares to be released from each Stockholder
Sub-account pursuant to a Disbursement Notice, plus (ii) the aggregate amount of
Escrow Funds and value of Escrow Shares theretofore released from such
Stockholder Sub-account and delivered to Fairfield with respect to the
particular Indemnified Matter to which that Disbursement Notice relates, exceed
the applicable KS Indemnified Matter Maximum Amount or RM/RA Indemnified Matter
Maximum Amount for such Indemnified Matter. Of any amount to be released under
Sections 7(a) or 7(b) to satisfy a Stockholder's obligation under Section 5(a)
of the Principal Stockholders Agreement, an amount equal to 20% and 80%,
respectively, of that amount shall be withdrawn (to the extent of the balance
thereof) from Escrow Funds and/or Escrow Shares then held in each Stockholder
Sub-account that comprise such KS Indemnified Matter Escrow Amount and such
RM/RA Indemnified Matter Escrow Amount. No fractional Escrow Shares shall be
created or released under this Section 7.
<PAGE>
8. Escrow Agent.
(a) Agreements to Govern. The duties and obligations of the
Escrow Agent hereunder shall be determined solely by the express provisions of
this Agreement.
(b) Liability. The Escrow Agent shall not be liable to anyone
whatsoever by reason of any error of judgment or for any act done or step taken
or omitted by it in good faith or any mistake of fact or law or for anything
which it may do or refrain from doing in connection herewith, unless caused by
or arising out of its own gross negligence or willful misconduct. Fairfield and
the Stockholders shall, jointly and severally, indemnify and hold the Escrow
Agent harmless from any and all liability and expense which may arise out of any
action taken or omitted by it as Escrow Agent in accordance with this Agreement,
as the same may be amended, modified or supplemented, except such liability and
expense as may result from the gross negligence or willful misconduct of the
Escrow Agent.
(c) Reliance on Instructions. The Escrow Agent shall be
entitled to rely and shall be protected in acting in reliance upon any
instructions or directions furnished to it in writing by Fairfield or the
Stockholders, or pursuant to any provision of this Agreement and shall be
entitled to treat as genuine, and as the document it purports to be, any letter,
paper or other document furnished to it by Fairfield or the Stockholders and
believed by it to be genuine and to have been signed and presented by the proper
party or parties.
(d) Resignation of Escrow Agent; Appointment of Successor. The
Escrow Agent, or any successor to it hereafter appointed, may at any time resign
by giving notice in writing to Fairfield and the Stockholders and shall be
discharged from its duties hereunder upon the acceptance of appointment of a
successor Escrow Agent as hereinafter provided. In the event of any such
resignation, a successor Escrow Agent, which shall be a title insurance company
or financial institution acceptable to Fairfield, shall be appointed by
Fairfield. Any such successor Escrow Agent shall deliver to Fairfield and the
Stockholders a written instrument accepting such appointment hereunder, and
thereupon it shall succeed to all the rights and duties of the Escrow Agent
hereunder and shall be entitled to receive all the Escrow Shares and Escrow
Funds held by the predecessor Escrow Agent hereunder.
(e) Consultation with Counsel. The Escrow Agent may consult
with counsel to be selected and employed by it and shall be fully protected with
respect to any action under this Agreement taken or suffered in good faith by
the Escrow Agent in accordance with the opinion of such counsel.
<PAGE>
(f) Compensation and Expenses. The Escrow Agent shall receive
compensation for its services at its customary rates as in effect from time to
time, together with reimbursement of out-of-pocket expenses incurred by Escrow
Agent in connection with this Agreement, including reasonable attorneys' fees
incurred pursuant to Section 9(e). Fairfield shall pay such compensation and
expenses to the Escrow Agent and shall be reimbursed by RM and R&A, as a group,
and KS, in accordance with their respective Stockholder Percentages, up to 50%
of the aggregate amount thereof that Fairfield has paid at the time of each
distribution to any of the Stockholders under this Agreement, such reimbursement
to be payable solely from amounts that would have been otherwise distributed to
the Stockholders.
(g) Records; Reports. The Escrow Agent will maintain
sufficient records to determine the Indemnified Matter Escrow Amount for each
Indemnified Matter and will provide monthly reports in reasonable detail of the
Indemnified Matter Escrow Amount and its components for each Indemnified Matter.
The Escrow Agent will also provide a monthly report of any amounts released from
the escrow in respect of each Indemnified Matter.
9. Miscellaneous.
(a) Amendment. This Agreement may be amended only by a writing
executed by Fairfield, each of the Stockholders, and the Escrow Agent.
(b) Entire Agreement. This Agreement and the other agreements
expressly referred to herein set forth the entire understanding of the parties
hereto regarding the subject matter hereof and supersede all prior contracts,
agreements, arrangements, communications, discussions, representations and
warranties, whether oral or written, between the parties regarding the subject
matter hereof.
(c) Notices.
If to Fairfield:
Fairfield Communities, Inc.
11001 Executive Center Drive
Little Rock, Arkansas 72211
Attention: Mr. John W. McConnell
with a copy to:
Jones, Day, Reavis & Pogue
2001 Ross Avenue, Suite 2300
Dallas, Texas 75201
Attention: Mark V. Minton, Esq.
<PAGE>
If to RM:
Mr. Ralph P. Muller
Vacation Break USA, Inc.
6400 N. Andrews Avenue
Park Plaza, Suite 200
Ft. Lauderdale, Florida 33309
with a copy to:
Greenberg, Traurig, Hoffman,
Lipoff, Rosen & Quentel, P.A.
1221 Brickell Avenue
Miami, Florida 33131
Attention: Gary M. Epstein, Esq.
If to R&A:
R & A Partnership, Ltd.
2435 S. Ocean Boulevard
Highland Beach, Florida 33487
Attention: Mr. Ralph P. Muller
with a copy to:
Baker & McKenzie
Barnett Tower
701 Brickell Avenue
Suite 1600
Miami, Florida 33131-2827
Attention: Nicholas DeNovio, Esq.
If to KS:
Mr. Kevin Sheehan
Vacation Break USA, Inc.
6400 N. Andrews Avenue
Park Plaza, Suite 200
Ft. Lauderdale, Florida 33309
with a copy to:
Greenberg, Traurig, Hoffman,
Lipoff, Rosen & Quentel, P.A.
1221 Brickell Avenue
Miami, Florida 33131
Attention: Gary M. Epstein, Esq.
If to the Escrow Agent:
Mercantile Bank of Arkansas
One Riverfront Place
North Little Rock, Arkansas 72114
Attention: Cecil H. Hull
(d) Governing Law. This Agreement shall in all respects be
governed by, and construed in accordance with, the laws of the State of Florida,
regardless of the laws that might otherwise govern under applicable principles
of conflicts of laws thereof.
(e) Severability. Each section and subsection of this
Agreement constitutes a separate and distinct provision hereof. It is the intent
of the parties hereto that the provisions of this Agreement be enforced to the
fullest extent permissible under the laws and public policies applicable in each
jurisdiction in which enforcement is sought. Accordingly, if any provision of
this Agreement shall be adjudicated to be invalid, ineffective or unenforceable,
the remaining provisions shall not be affected thereby. The invalid, ineffective
or unenforceable provision shall, without further action by the parties, be
automatically amended to effect the original purpose and intent of the invalid,
ineffective or unenforceable provision; provided, however, that such amendment
shall apply only with respect to the operation of such provision in the
particular jurisdiction with respect to which such adjudication is made.
<PAGE>
(f) Waivers. Any waiver by any party of any violation of,
breach of or default under any provision of this Agreement, by the other party
shall not be construed as, or constitute, a continuing waiver of such provision,
or waiver of any other violation of, breach of or default under any other
provision of this Agreement or any other agreements provided for herein.
(g) Headings. The headings in this Agreement are solely for
convenience of reference and shall not be given any effect in the construction
or interpretation of this Agreement.
(h) Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be deemed to be an original, and all of
which together will constitute one and the same instrument.
(i) Third Parties. Nothing expressed or implied in this
Agreement is intended, or shall be construed, to confer upon or give any person
or entity other than Fairfield, the Stockholders, and the Escrow Agent any
rights or remedies under, or by reason of, this Agreement.
(j) Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned, in whole or in part, by
operation of law or otherwise by any of the parties without the prior written
consent of the other parties. This Agreement will be binding upon, inure to the
benefit of, and be enforceable by, the parties and their respective heirs, legal
representatives, successors and assigns.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the parties have signed this Agreement personally
or by their respective officers thereunto duly authorized, all as of the date
first written above.
FAIRFIELD COMMUNITIES, INC.
By:/s/Robert W. Howeth
---------------------------------
Name: Robert W. Howeth
-------------------------------
Title:Sr. Vice President and CFO
-----------------------------
R & A PARTNERSHIP, LTD., a Texas limited partnership
By:RPM Investments, Inc., General Partner
-------------------------------------
By:/s/Linda M. Fenner , as General Partner
---------------------------------------
Name: Linda M. Fenner
-------------------------------------
Title: President
------------------------------------
Ralph P. Muller
Kevin Sheehan
MERCANTILE BANK OF ARKANSAS,
as Escrow Agent
By:/s/ Cecil H. Hull
-------------------------
Name: Cecil H. Hull
----------------------
Title: Vice President
---------------------
<PAGE>
SCHEDULE 1
<TABLE>
- ----------------------------------- ---------------------------------------------------------
Indemnified Matters KS Indemnified Matter RM/RA Indemnified Matter
Maximum Amount Maximum Amount
- ----------------------------------- ------------------------ ---------------------------
- ----------------------------------- ------------------------ ---------------------------
<S> <C> <C>
1. Market Response Group and Laser $ 1,200,000 $4,800,000
Company, Inc. v. Vacation Break
USA, Inc.
- ----------------------------------- ------------------------ ---------------------------
- ------------------------------------ ----------------------- ---------------------------
2. Global Marketing & Travel, Inc. v. 100,000 400,000
Vacation Break USA, Inc.
- ----------------------------------- ------------------------ ---------------------------
- ----------------------------------- ------------------------ ---------------------------
3. David Johnson, et al. v. Vacation 100,000 400,000
Break USA, Inc.
- ----------------------------------- ------------------------ ---------------------------
- ----------------------------------- ------------------------ ---------------------------
4. Additional Matter 1,000,000 4,000,000
- ----------------------------------- ------------------------ ---------------------------
</TABLE>
<PAGE>
SCHEDULE 2
Obligations issued or unconditionally guaranteed by the United States
government, or issued by any agency or instrumentality thereof and backed by the
full faith and credit of the United States government, which obligations mature
within one year from the date of investment.
<PAGE>
EXHIBIT A
Mercantile Bank of Arkansas
One Riverfront Place
North Little Rock, Arkansas 72114
Attention: Hank Hull
Re: Escrow Agreement, dated as of December 19, 1997, among Fairfield, RM, R&A,
KS and Mercantile Bank of Arkansas, as escrow agent (the "Escrow Agreement")
Gentlemen/Ladies:
Unless otherwise defined in this Disbursement Notice, all terms used
with initial capital letters will have the meanings ascribed to those terms in
the Escrow Agreement. This Disbursement Notice is delivered pursuant to Section
7(a) of the Escrow Agreement. Attached is a reasonably detailed schedule of
litigation expenses incurred which constitute Indemnifiable Losses. The
undersigned hereby certifies that it is entitled pursuant to the terms of
Section 5(d) of the Principal Stockholders Agreement to the release of
$___________ of the Indemnified Matter Escrow Amount in respect of the
[first/second/third/fourth] Indemnified Matter identified on Schedule 1 to the
Escrow Agreement. Release that amount to Fairfield. A copy of this Disbursement
Notice has been sent to the Stockholders.
Very truly yours,
Fairfield Communities, Inc.
By:
Name:
Title:
<PAGE>
EXHIBIT B
Mercantile Bank of Arkansas
One Riverfront Place
North Little Rock, Arkansas 72114
Attention: Hank Hull
Re: Escrow Agreement, dated as of December 19, 1997, among Fairfield, RM, R&A,
KS and Mercantile Bank of Arkansas, as escrow agent (the "Escrow Agreement")
Gentlemen/Ladies:
Unless otherwise defined in this Disbursement Notice, all terms used
with initial capital letters will have the meanings ascribed to those terms in
the Escrow Agreement. This Disbursement Notice is delivered pursuant to Section
7(b)(i) or (iii) of the Escrow Agreement in respect of the
[first/second/third/fourth] Indemnified Matter on Schedule 1 to the Escrow
Agreement. Of the KS Indemnified Matter Escrow Amount in respect of that
Indemnified Matter, release $_________ of that amount to Fairfield. Of the RM/RA
Indemnified Matter Escrow Amount in respect of that Indemnified Matter, release
$_________ of that amount to Fairfield.
Very truly yours,
Fairfield Communities, Inc.
By:
Name:
Title:
Ralph P. Muller
Kevin Sheehan
R & A Partnership, Ltd.
By:
By: , as General Partner
<PAGE>
EXHIBIT C
Mercantile Bank of Arkansas
One Riverfront Place
North Little Rock, Arkansas 72114
Attention: Hank Hull
Re: Escrow Agreement, dated as of December 19, 1997, among Fairfield, RM, R&A,
KS and Mercantile Bank of Arkansas, as escrow agent (the "Escrow Agreement")
Gentlemen/Ladies:
Unless otherwise defined in this Disbursement Notice, all terms used
with initial capital letters will have the meanings ascribed to those terms in
the Escrow Agreement. This Disbursement Notice is delivered pursuant to Section
7(b)(ii) of the Escrow Agreement in respect of the [first/second/third/fourth]
Indemnified Matter on Schedule 1 to the Escrow Agreement. [Attached is a
reasonably detailed schedule of amounts paid or payable which constitute
Indemnifiable Losses.] Of the KS Indemnified Matter Escrow Amount in respect of
that Indemnified Matter, release $_______________ of that amount to
[Fairfield/KS]. Of the RM/RA Indemnified Matter Escrow Amount in respect of that
Indemnified Matter release $_____________ to [Fairfield/RM]. All payments and
deliveries should be made at the addresses identified in the Escrow Agreement
[or identified as the attached Schedule 1.].
A copy of this Disbursement Notice has been sent to the Stockholders.
Very truly yours,
Fairfield Communities, Inc.
By:
Name:
Title:
<PAGE>
EXHIBIT D
Mercantile Bank of Arkansas
One Riverfront Place
North Little Rock, Arkansas 72114
Attention: Hank Hull
Re: Escrow Agreement, dated as of December 19, 1997, among Fairfield, RM, R&A,
KS and Mercantile Bank of Arkansas, as escrow agent (the "Escrow Agreement")
Gentlemen/Ladies:
Unless otherwise defined in this Disbursement Notice, all terms used
with initial capital letters will have the meanings ascribed to those terms in
the Escrow Agreement. This Disbursement Notice is delivered pursuant to Section
7(b)(iv) of the Escrow Agreement in respect of the fourth Indemnified Matter on
Schedule 1 to the Escrow Agreement. Of the KS Indemnified Matter Escrow Amount
in respect of that Indemnified Matter, release $_________ of that amount to KS.
Of the RM/RA Indemnified Matter Escrow Amount in respect of that Indemnified
Matter, release $_________ of that amount to RM.
Very truly yours,
Fairfield Communities, Inc.
By:
Name:
Title:
Ralph P. Muller
Kevin Sheehan
R & A Partnership, Ltd.
By:
By: , as General Partner
AMENDMENT NUMBER FOUR
to
FAIRFIELD COMMUNITIES, INC.
SAVINGS/PROFIT SHARING PLAN
---------------------------
(effective January 1, 1997)
THIS AMENDMENT to the Fairfield Communities, Inc. Savings/Profit
Sharing Plan (the "Plan"), which Plan was originally effective March 1, 1976,
was restated effective July 1, 1994, and was amended effective January 1, 1995,
January 1, 1996 and September 20, 1996, is hereby entered into effective as of
January 1, 1997.
WHEREAS, it is desirable to amend the Plan in compliance with the Small
Business Job Protection Act of 1996; and
WHEREAS, Fairfield Communities, Inc., by resolutions adopted at a duly
convened meeting of its Board of Directors held on October 21, 1997, in
accordance with the provisions of Section 11.3 of the Plan, adopted the
following amendments to the Plan, effective as of January 1, 1997;
NOW, THEREFORE, Sections 1.1(A)(7), (16) and (17) and 2.2, 3.1(D) and
(E) and 3.2, 4.1(D), 7.2, 8.1(C), 8.3(A), 8.5 and 8.6(e) of the Plan are hereby
amended, effective January 1, 1997, to provide as follows:
SECTION 1.1(A)(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
ss.401(a)(17) of the Code. In addition to other
1
<PAGE>
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 ss.401(a)(17)(B) of the Internal Revenue
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 the 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 ss.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.
SECTION 1.1(A)(16)
------------------
"Highly Compensated Employee" shall mean any Employee who --
(A) was a 5-percent owner (as defined in Code
ss.416(i)(l)) at any time during the Plan Year or the
preceding Plan Year, or
(B) had compensation (as defined in Code
ss.415(c)(3)) from Employer in excess of $80,000 for the
preceding Plan Year.
The $80,000 amount under subsection (B) above shall be
adjusted at the same time and in the same manner as under Code
ss.415(d), except that the base period shall be the calendar quarter
ending September 30, 1996.
"Non-Highly Compensated Employee" shall mean an Employee who
is not a Highly Compensated Employee as defined above.
SECTION 1.1(A)(17)
------------------
"Hour of Service" means:
2
<PAGE>
(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 ss.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. Notwithstanding any provision of this Plan to the
contrary, contributions, benefits and service credit with
respect to qualified military service will be provided in
accordance with Code ss.414(u).
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
3
<PAGE>
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.
SECTION 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. Notwithstanding any provision
of this Plan to the contrary, contributions, benefits and service
credit with respect to qualified military service will be provided in
accordance with Code ss.414(u).
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
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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.
SECTION 3.1(D) AND (E)
----------------------
(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 (but in any event not
later than the 15th business day of the month following the month in
which the contributions are deducted) 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.
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(E) Salary Deferral Contributions Subject to Nondiscrimination
----------------------------------------------------------
Requirements of ss.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 the preceding Plan Year;
or
(b) Two (2.0) times the "average deferral percentage"
for all Eligible Employees who are Non-highly Compensated
Employees for the preceding 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 ss.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
6
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the excess occurred, on the basis of the amount of Salary Deferral
Contributions by, or on behalf of, 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 amounts beginning with the highest of
such amounts. 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 ss.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 ss.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 ss.401(k) are aggregated for purposes of ss.ss.401(a)(4) or
410(b), such arrangements shall be treated as one such arrangement.
(c) 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
7
<PAGE>
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 ss.401(k) of the Code.
SECTION 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 for the
first pay period commencing on or after the January 1st, April 1st,
July 1st or October 1st 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, subject to the maximum rates
specified above, or he may suspend such contributions, effective as
soon as administratively practicable as of any payroll period
subsequent to filing proper written authorization. Not more than one
change in his rate of contributions shall be made within a calendar
quarter and having once suspended contributions, a Participant may not
resume contributions until the following calendar quarter after such
contributions were suspended.
The Participant Contributions to the Plan shall be paid by the
Employer to the Trustee as promptly as practicable after they are
received by Employer or deducted from the Participant's Compensation
(but in any event not later than the 15th business day of the month
following the month in which the contributions are received or
deducted).
SECTION 4.1(D)
--------------
Employer Matching and Participant Contributions Subject to
--------------------------------------------------------------
Nondiscrimination Requirements of ss.401(m) of the Code. For any given
--------------------------------------------------------
Plan Year, the "average
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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 the preceding Plan Year;
or
(b) Two (2.0) times the "average contribution
percentage" for all eligible Employees who are Non-highly
Compensated Employees for the preceding 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 ss.401(m) of the Code and the regulations thereunder (including
Regulation ss.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
9
<PAGE>
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 the
amount of Excess Contributions by, or on behalf of, 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 amounts beginning with
the highest of such amounts. 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 ss.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
ss.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 ss.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) 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
10
<PAGE>
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 ss.401(m) of the Code.
(d) 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.
SECTION 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 ss.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
11
<PAGE>
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 ss.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 ss.911(b) of said Code,
whether or not excludable from gross income under ss.911 or deductible
under ss.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
ss.ss.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 ss.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 ss.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 ss.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 ss.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
ss.403(b) of the Code (whether or not the amounts are actually
excludable from the gross income of the Participant). Effective
January 1, 1998, the term "IRC 415 Compensation" shall include (i) any
elective deferral (as defined in Code ss.402(g)(3)), and (ii) any
amount which is contributed or deferred by Employer at the election of
a Participant and which is not includable in gross income by reason of
Code ss.ss.125 or 457. Notwithstanding the foregoing, the annual
Compensation of each Participant under this Section 7.2 shall not
exceed $200,000 or such other amount
12
<PAGE>
as may be specified by the Secretary of the Treasury pursuant to his
duties under ss.401(a)(17) of the Code.
Maximum Annual Addition Due to Restrictions of
-----------------------------------------------------
ss.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
ss.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 ss.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 ss.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 ss.415 of the Code and the regulations issued thereunder,
such discrepancy shall be resolved so as to give full effect to the
provisions of ss.415 of said Code.
(D) 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:
(1) First, his Salary Deferral Contributions and/or
Participant's Contributions, including any gains attributable
thereto, to the extent that the return would reduce the amount
by which the annual addition exceeds such limits, shall be
returned to the Participant; and
(2) Second, 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).
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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
(D) 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.
SECTION 8.1(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 retires or attains age 70-1/2, whichever is
later, and the disbursement of his Distribution Account shall be made
or begun by April 1 of the following calendar year; provided, however,
that the Initial Distribution Date of a Participant who is a 5% owner
(as defined in Code ss.416(i)(l)) 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
following calendar year. 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.
SECTION 8.3(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 following
the calendar year in which he attains age 70-1/2 or retires, whichever
is later; provided, however, that for 5% owners distributions must
commence no later than April 1st following the calendar year in which
the Participant attains age 70-1/2):
14
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(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.
SECTION 8.5
-----------
WITHDRAWALS WHILE STILL EMPLOYED
--------------------------------
A Participant may, after attaining age 70-1/2 and while still
employed by the Employer, make a withdrawal of all or any part of his
accounts under the Plan.
A Participant may, before attaining age 70-1/2 and 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 as soon as
administratively practicable after filing proper
authorization, 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.
(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:
15
<PAGE>
(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 ss.213(d) of the Code incurred by the
Participant, the Participant's spouse or any
dependents of the Participant (as defined in
ss.152 of the Code) or necessary for such
persons to obtain medical care described in
ss.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 ss.402(g)
of the Code and Section 3.1(A) of the
16
<PAGE>
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 soon as
administratively practicable after filing proper
authorization, 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.
SECTION 8.6(e)
--------------
Timing of Distributions. If a distribution is one to which
------------------------
ss.ss.401(a)(11) and 417 of the Code do not apply, such distribution
may commence less than 30 days after the notice required under
ss.1.411(a)-11(c) of the Income Tax Regulations is given, provided
that:
(i) the Administrator clearly informs the Participant
that the Participant has a right to a period of at least 30
days after receiving the notice to consider the decision of
whether or not to elect a distribution (and, if applicable, a
particular distribution option); and
17
<PAGE>
(ii) the Participant, after receiving the notice,
affirmatively elects a distribution.
IN WITNESS WHEREOF, Fairfield Communities, Inc. has caused this
Amendment to be executed by its duly authorized officer.
FAIRFIELD COMMUNITIES, INC.
By: /s/ Marcel J. Dumeny
--------------------------------
Marcel J. Dumeny
Secretary
18
FAIRFIELD COMMUNITIES, INC.
THIRD AMENDED AND RESTATED 1992 WARRANT PLAN
Fairfield Communities, Inc., a Delaware corporation (the "Corporation")
hereby establishes this Third Amended and Restated 1992 Warrant Plan (this
"Plan") effective as of September 1, 1992.
1. PURPOSE. The purpose of this Plan is to attract and retain
Directors of the Corporation and officers and other key executives and
employees of the Corporation and its Subsidiaries.
2. DEFINITIONS. As used in this Plan, the following terms have the
following meanings when used herein with initial capital letters:
"BOARD" means the Board of Directors of the Corporation and,
to the extent of any delegation by the Board to a committee pursuant to Section
8 of this Plan, such committee.
"COMMON SHARES" means shares of the common stock, $.01 par
value, of the Corporation or any security into which such Common Shares may be
changed by reason of any transaction or event of the type referred to in Section
6 of this Plan.
"DATE OF GRANT" means the date specified by the Board on which
a grant of Warrants shall become effective (which date shall not be earlier than
the date on which the Board takes action with respect thereto).
"MARKET VALUE PER SHARE" means any of the following, as
determined by the Board at the time of any such determination: (i) the closing
sale price per share of the Common Shares as reported in the United States
securities exchange on which the Common Shares are traded (the "Exchange") for
the trading day immediately preceding such date, or such other date or dates as
the Board of Directors may in its sole discretion establish, or if there are no
sales on such date, on the next preceding day on which there were sales, (ii)
the average (whether weighted or not) or mean price, determined by reference to
the closing sales prices, average between the high and low sales prices, or any
other standard for determining price adopted by the Board, per share of the
Common Shares as reported in the Exchange or (iii) in the event that the Common
Shares are not listed for trading on an exchange, an amount determined in
accordance with standards adopted by the Board.
<PAGE>
"PARTICIPANT" means a person who is selected by the Board to
receive benefits under this Plan and who at the time is a Director of the
Corporation or an officer, executive or other employee of the Corporation or any
one or more of its Subsidiaries, or who has agreed to commence serving in any of
such capacities.
"SUBSIDIARY" means a corporation, more than 50 percent of
whose outstanding shares or securities (representing the right to vote for the
election of directors) are, now or hereafter, owned or controlled, directly or
indirectly, by the Corporation.
"WARRANTS" means the warrants issued pursuant to Section 4
of this Plan that entitle the holder thereof to purchase Common Shares.
"WARRANT PRICE" means the purchase price payable upon exercise
of a Warrant.
3. SHARES AVAILABLE UNDER THE PLAN. Subject to adjustment as provided in
Section 6 of this Plan, the number of Common Shares that may be issued or
transferred upon the exercise of the Warrants shall not exceed in the aggregate
2,587,000 shares. Such shares may be shares of original issuance or treasury
shares or a combination of the foregoing.
4. WARRANTS. The Board may from time to time and upon such terms and
conditions as it may determine, authorize the granting to Participants of
Warrants to purchase Common Shares. Each such grant may utilize any or all of
the authorizations, and shall be subject to all of the requirements, contained
in the following provisions:
(a) Each grant shall specify the number of Common Shares to
which it pertains.
(b) Each grant shall specify a Warrant Price per share, which
may be equal to or more than the Market Value per Share on the Date of
Grant.
(c) Each grant shall specify whether the Warrant Price shall
be payable (i) in cash or by check acceptable to the Corporation, (ii)
by the actual or constructive transfer to the Corporation of
nonforfeitable, unrestricted Common Shares already owned by the Warrant
holder having a value at the time of exercise equal to the total
Warrant Price, (iii) by a combination of such methods of payment or
(iv) such other consideration as the Board of Directors may in its sole
discretion prescribe.
<PAGE>
(d) Any grant may provide for deferred payment of the Warrant
Price from the proceeds of sale through a bank or broker on the
exercise date of some or all of the shares to which such exercise
related.
(e) Successive grants may be made to the same Participant
whether or not any Warrants previously granted to such Participant
remain unexercised.
(f) Each grant shall specify the period or periods of
continuous service by the Warrant holder with the Corporation or any
Subsidiary which is necessary before the Warrants or installments
thereof will become exercisable and may provide for the earlier
exercise of such Warrants in the event of a change in control of the
Corporation or other similar transaction or event.
(g) Each grant of a Warrant shall be evidenced by an agreement
executed on behalf of the Corporation by any officer and delivered to
the Warrant holder and containing such terms and provisions, consistent
with this Plan, as the Board may approve.
5. TRANSFERABILITY. (a) Warrants granted under this Plan shall not be
transferable by a Warrant holder other than by will or the laws of descent and
distribution, except (in the case of a Participant who is not a Director or
officer of the Corporation) to a fully revocable trust of which the Warrant
holder is treated as the owner for federal income tax purposes. Warrants shall
be exercisable during the Warrant holder's lifetime only by him or by his
guardian or legal representative.
(b) The Board may specify at the Date of Grant that part or
all of the Common Shares that are to be issued or transferred by the Corporation
upon the exercise of a Warrant shall be subject to further restrictions on
transfer.
6. ADJUSTMENTS. The Board may make or provide for such adjustments in
the numbers of Common Shares covered by outstanding Warrants granted hereunder,
in the prices per share applicable to such Warrants and in the kind of shares
covered thereby, as the Board may determine is equitably required to prevent
dilution or enlargement of the rights of Participants that otherwise would
result from (a) any stock dividend, stock split, combination of shares,
recapitalization or other change in the capital structure of the Corporation,
(b) any merger, consolidation, spin-off, split-off, spin-out, split-up,
reorganization, partial or complete liquidation or other distribution of assets,
issuance of rights or warrants to purchase securities or (c) any other corporate
transaction or event having an effect similar to any of the foregoing. In the
event of any such transaction or event, the Board, in its discretion, may
provide in substitution for any or all outstanding awards under this Plan such
alternative
<PAGE>
consideration as it may determine to be equitable in the circumstances and may
require in connection therewith the surrender of all awards so replaced. The
Board may also make or provide for such adjustments in the numbers of shares
specified in Section 3 of this Plan as the Board may determine is appropriate to
reflect any transaction or event described in this Section 6. The number of
shares specified in Section 3 of this Plan has been adjusted for the 3-for-2
share split of the Common Stock which became effective on July 15, 1997 and the
2-for-1 share split of the Common Stock which became effective on January 30,
1998.
7. WITHHOLDING TAXES. To the extent that the Corporation is required to
withhold federal, state, local or foreign taxes in connection with any benefit
realized by a Participant or other person under this Plan, and the amounts
available to the Corporation for such withholding are insufficient, it shall be
a condition to the realization of such benefit that the Participant or such
other person make arrangements satisfactory to the Corporation for payment of
the balance of such taxes required to be withheld, which arrangements (in the
discretion of the Board) may include relinquishment of a portion of such
benefit. The Corporation and a Participant or such other person may also make
similar arrangements with respect to the payment of any taxes with respect to
which withholding is not required.
8. ADMINISTRATION OF THE PLAN. (a) This Plan shall be administered by
the Board, which may from time to time delegate all or any part of its authority
under this Plan to a committee of the Board, in accordance with the By-Laws of
the Corporation.
(b) The Board shall take such actions as are required to be
taken by it hereunder, may take the actions permitted to be taken by it
hereunder, and shall have the authority from time to time to interpret this Plan
and to adopt, amend and rescind rules and regulations for implementing and
administering this Plan. All such actions shall be in the sole discretion of the
Board, and when taken, shall be final, conclusive and binding. Without limiting
the generality or effect of the foregoing, the interpretation and construction
by the Board of any provision of this Plan or of any agreement, notification or
document evidencing the grant of Warrants and any determination by the Board in
its sole discretion pursuant to any provision of this Plan or of any such
agreement, notification or document shall be final and conclusive. Without
limiting the generality or effect of any provision of the Certificate of
Incorporation of the Corporation, no member of the Board shall be liable for any
such action or determination made in good faith.
(c) The provisions of Section 4 shall be interpreted as
authorizing the Board, in taking any action under or pursuant to this Plan, to
take any action it determines in its sole discretion to be appropriate subject
only to the express
<PAGE>
limitations therein contained and no authorization in such Section or other
provision of this Plan is intended or may be deemed to constitute a limitation
on the authority of the Board.
(d) The existence of this Plan or any right granted or other
action taken pursuant hereto shall not affect the authority of the Board or the
Corporation to take any other action, including in respect of the grant or award
of any option, security or other right or benefit, whether or not authorized by
this Plan, subject only to limitations imposed by applicable law as from time to
time applicable thereto.
9. AMENDMENTS, ETC. (a) This Plan may be amended from time to time by
the Board, but without further approval by the stockholders of the Corporation
no such amendment shall increase the maximum number of shares specified in
Section 3 of this Plan (except that adjustments and additions expressly
authorized by this Plan shall not be limited by this provision).
(b) The Board may, with the concurrence of the affected
Warrant holder, cancel any agreement evidencing Warrants granted under this
Plan. In the event of such cancellation, the Board may authorize the granting of
new Warrants (which may or may not cover the same number of Common Shares which
had been the subject of the prior award) in such manner, at such Warrant Price
and subject to such other terms, conditions and discretions as would have been
applicable under this Plan had the canceled Warrants not been granted.
(c) In case of termination of employment by reason of death,
disability or normal or early retirement, or in the case of hardship or other
special circumstances, of a Participant who holds a Warrant not immediately
exercisable in full, the Board may, in its sole discretion, accelerate the time
at which such Warrant may be exercised.
(d) This Plan shall not confer upon any Participant any right
with respect to continuance of employment or other service with the Corporation
or any Subsidiary, nor shall it interfere in any way with any right the
Corporation or any Subsidiary would otherwise have to terminate such
Participant's employment or other service at any time.
Amended and Restated by authority of the Board of Directors of
the Corporation through actions taken on September 29, 1993, June 5, 1997 and
December 11, 1997.
FAIRFIELD COMMUNITIES, INC.
By: /s/ Marcel J. Dumeny
--------------------------------
Marcel J. Dumeny
Secretary
FAIRFIELD COMMUNITIES, INC.
EMPLOYEE STOCK PURCHASE PLAN
PURPOSE
The Fairfield Communities, Inc. Employee Stock Purchase Plan (the "Plan")
is intended to give employees of Fairfield Communities, Inc. and its
subsidiaries (except for those subsidiaries the participation of which is
excluded during such time as may be determined by the Board of Directors (the
"Board") of Fairfield Communities, Inc.) (collectively, the "Company") the
opportunity to purchase, through regular payroll deductions, shares of common
stock of the Company ("Common Stock") at a 15% discount to the market price of
the Common Stock and without paying any brokerage commissions.
WHO IS ELIGIBLE
All active full-time, commission sales and seasonal employees (in each case
as defined in the Company's employee handbook) of the Company may purchase
shares through the Plan, provided they are actively employed on the first day of
the fourth calendar month of employment with the Company and have attained the
age of majority in their states. Employees whose service with the Company
terminates (excluding employees who return to active employment at the
expiration of approved leaves of absences) who subsequently are reemployed by
the Company will be considered to be new employees as of the effective dates of
their reemployment.
PURCHASES THROUGH PAYROLL DEDUCTIONS
The Company is making its payroll deduction facilities available to
eligible employees to enable them to make purchases. Use the accompanying Plan
Enrollment Form if you desire to authorize payroll deductions. The amount of the
deduction will be the amount of your choice between 1% and 10% of your gross
cash compensation (defined as salary, wages, commissions and cash bonus payments
(including any amounts which have been deducted for 401(k) plans, salary
reduction deferral agreements, ss. 125 cafeteria-style plans, etc., but
excluding moving expenses, severance pay, benefit plan distributions,
disability, etc.)) (minimum of $5.00 per pay period), rounded off to the next
highest even dollar. You may not, however, purchase more than $25,000 of Common
Stock per year through payroll deductions under the Plan. The purchase price for
Common Stock will be the closing price on the Composite Tape of the New York
Stock Exchange (or such other principal exchange on which the Common Stock may
be listed for trading from time to time) on the last trading day of the month
for which deductions were accumulated. No interest will be paid on funds held
pending purchases of the Common Stock.
You may increase or decrease the amount of your payroll deductions once
each quarter or discontinue deductions entirely at any time with re-entry
permitted at the beginning of a subsequent quarter. Any changes will take effect
as soon as possible after your written request is received by the Human
Resources Department of the Company.
<PAGE>
Merrill Lynch, Pierce, Fenner & Smith Incorporated or a successor brokerage
firm selected by the Company (the "Broker") will act as the agent of the Plan to
purchase shares of Common Stock for the participants' accounts.
DIRECT PURCHASES
In addition to the payroll deduction method of purchasing shares, you may
also make "direct" purchases of shares by sending a check, along with written
instructions, directly to the Broker. Because you are a Plan participant,
transaction fees and commissions related to direct purchases will be discounted
from the Broker's regular rates.
Orders for direct purchases of additional Common Stock will be combined on
a daily basis with all orders received by the Broker for shares of the Company's
Common Stock. Orders will typically be entered on the first business day
following acceptance of your order by the Broker, or as soon as practicable
thereafter. Shares purchased in the open market may be purchased over a period
of time. In this case, your price will be the average of all shares purchased
over that period.
LISTING OF THE COMMON STOCK
The Company's Common Stock is traded on the New York Stock Exchange. The
price is listed in major newspapers every day under the trading symbol "FFD."
The listing in the newspaper typically includes, among other things, the high
price, the low price and the closing price for the prior day.
OWNERSHIP
The shares purchased through the Plan will be allocated to each employee
based upon the amount of his or her payroll deduction and the average cost of
shares purchased for the Plan on a given date. The allocation will be made in
whole shares and in fractions calculated to one ten-thousandth of a share (4
decimals). Upon allocation of shares to an employee's account, the employee will
acquire immediate and full ownership of such shares.
RECORD OF PURCHASE
The Broker will mail a quarterly statement of account to you showing the
status of your account including the number of shares purchased, the price per
share and the total number of shares, including fractions, held in your account.
COSTS OF INVESTMENT
The brokerage commissions on all purchases through payroll deductions, as
well as the costs of administering the Plan, will be paid by the Company.
<PAGE>
REGISTRATION OF SHARES
The certificates for shares purchased, whether through payroll deduction or
direct purchase, will be registered in the name of a nominee of the Broker. The
certificates will be held in safekeeping, and the Broker will act as custodian
without charge to you.
You may also designate a co-owner to be a joint tenant of your account by
completing a Joint Account Agreement available from your site or office benefits
coordinator.
SHAREHOLDER PRIVILEGES
You are the legal owner of the shares in your account. You will receive
notices of meetings, proxy statements, annual and interim reports and other
communications sent to shareholders. You will have the right to vote whole
shares and to receive any dividends paid with respect to your shares.
SALE OF SHARES
You may instruct the Broker to arrange for the sale of any or all of the
whole shares in your account. However, the Company will not pay the costs of the
sale of your shares. Promptly after executing the sale, the Broker will mail you
a check for the proceeds, less the normal commission and any transfer taxes that
may be applicable.
You may, of course, also sell your shares by requesting your certificates,
pursuant to the procedure described in "How To Obtain Certificates" below, and
selling them through the broker of your choice.
HOW TO OBTAIN CERTIFICATES
You may request the Broker to issue a certificate for any or all of the
whole shares held in your account, but you will be charged a certificate fee by
the Broker.
The shares so issued will be registered in your name (or jointly with a
co-owner) and mailed to you.
TERMINATION
You may terminate your participation in the Plan at any time. If you
terminate your participation in the Plan, your account with the Broker will
remain open unless you choose to close it. You can continue to buy and sell
securities through your brokerage account, but different transaction fees and an
annual account fee will apply. If you wish to close your account, you should
instruct the Broker to:
(1) Issue a certificate to you for the whole shares and sell any fraction
in your account; or
(2) Sell all shares and any fraction in your account. Promptly after the
sale, the Broker will remit by check the total proceeds from the sale
less the normal commission and transfer taxes that may be applicable.
A brokerage confirmation of the transaction will also be mailed.
CONTINUATION OF THE PLAN
The Plan became effective on or about January 1, 1997. The Company has
reserved 526,364 shares of Common Stock (as adjusted for the 3-for-2 share stock
split which became effective on July 15, 1997 and as further adjusted for the
2-for-1 share stock split which became effective on January 30, 1998) held in
its treasury to be purchased from the Company and sold pursuant to the Plan.
Upon the sale of all 526,364 shares, the Plan will terminate, unless extended by
the Company. Through January 15, 1998, 48,662 shares of Common Stock had been
sold pursuant to the Plan. The Company reserves the right to amend or terminate
the Plan at any time. Upon termination of the Plan, you will have the same
options for the disposition of your shares as if you had elected to terminate
your participation in the Plan.
ADJUSTMENTS
The Board may make or provide for such adjustments in the number or kind of
shares of the Common Stock that may be sold under the Plan as the Board in its
sole discretion may determine is equitably required in connection with (a) any
stock dividend, stock split, combination of shares, recapitalization or other
change in the capital structure of the Company, (b) any merger, consolidation,
spin-off, split-off, spin-out, split-up, separation, reorganization,
liquidation, or other distribution of assets or issuance of rights or warrants
to purchase Common Stock, or (c) any other corporate transaction or event having
an effect similar to any of the foregoing.
CONFLICTS
In the event of any conflict or inconsistency between the provisions of
this Plan and any other document, the provisions of the Plan shall govern with
respect to the matter.
ADMINISTRATION
This Plan will be administered by the Compensation Committee of the Board.
The Compensation Committee currently consists of three members of the Board who
are selected annually by the Board and may be removed at any time by action of
the Board. The Compensation Committee will have authority to interpret the Plan,
to prescribe, amend and rescind rules relating to it, and to make all other
determinations deemed necessary or advisable in administering the Plan. The
Compensation Committee's determination with respect to any matter pertaining to
the Plan will be final, absent manifest error. No trust or fiduciary
relationship with the Company is created hereby. No officer, director or
employee of the Company shall be liable to any person for any action taken or
omitted in connection with the administration of this Plan, nor shall the
Company be liable to any such person for any such omission.
<PAGE>
EMPLOYMENT RIGHTS
Neither the establishment of this Plan nor the status of an employee as a
participant shall give any participant any right to be retained in the employ of
the Company.
GOVERNING LAW
The construction, validity and operation of the Plan will be governed by
the laws of the State of Arkansas.
ASSIGNMENT
Participants may not assign or hypothecate their interests in the Plan.
HOW TO PARTICIPATE
If you desire to participate in the Plan, complete the accompanying Plan
Enrollment Form as indicated and give it to your site or office benefits
coordinator or mail it to the Company at the following address:
Human Resources Department
Employee Stock Purchase Plan
Fairfield Communities, Inc.
11001 Executive Center Drive
Little Rock, Arkansas 72211
FAIRFIELD COMMUNITIES, INC.
SECOND AMENDED AND RESTATED 1997 STOCK OPTION PLAN
--------------------------------------------------
Fairfield Communities, Inc., a Delaware corporation (the "Company"),
hereby establishes this 1997 Stock Option Plan (the "Plan"), effective as of
March 7, 1997, as amended and restated pursuant to action taken by the
Compensation Committee of the Board of Directors of the Company on June 5, 1997,
to reflect adjustments resulting from the 3-for-2 share split of the Company's
Common Stock which became effective on July 15, 1997, which action was approved
by the Board of Directors of the Company on June 5, 1997, and as further amended
and restated pursuant to action taken by the Compensation Committee of the Board
of Directors of the Company as of December 22, 1997, to reflect adjustments
resulting from the 2-for-1 share split of the Company's Common Stock which
became effective on January 30, 1998.
1. Purpose. The purpose of the Plan is to attract and retain the best
-------
available talent and encourage the highest level of performance by executive
officers, key employees, directors, advisors and consultants, and to provide
them with incentives to put forth maximum efforts for the success of the
Company's business, in order to serve the best interests of the Company and its
stockholders. All options granted under the Plan are intended to be nonstatutory
stock options.
2. Definitions. The following terms, when used in the Plan with initial
-----------
capital letters, will have the following meanings:
(a) "Act" means the Securities Exchange Act of 1934, as in
effect from time to time.
(b) "Board" means the Board of Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as in
effect from time to time.
(d) "Common Stock" means the common stock, par value $.01 per
share, of the Company or any security into which such common stock may
be changed by reason of any transaction or event of the type described
in Paragraph 6.
(e) "Compensation Committee" means the Compensation Committee
which is a committee of the Board whose members are appointed by the
Board from time to time. All of the members of the Compensation
Committee, which may not be less than two, are intended at all times to
qualify as "outside directors" within the meaning of Section 162(m) of
the Code and as "Non-Employee Directors" within the meaning of Rule
16b-3; provided, however, that the failure of a member of such
-------- -------
committee to so qualify shall not be deemed to invalidate any Stock
Option granted by such committee.
<PAGE>
(f) "Date of Grant" means the date specified by the
Compensation Committee or the Board, as applicable, on which a grant of
Stock Options will become effective (which date will not be earlier
than the date on which such committee or the Board takes action with
respect thereto).
(g) "Market Value per Share" means the fair market value per
share of the Common Stock on the Date of Grant as determined by the
Compensation Committee or the Board, as applicable.
(h) "Option Price" means the purchase price per share payable
on exercise of a Stock Option.
(i) "Participant" means a person who is selected by the
Compensation Committee or the Board, as applicable, to receive Stock
Options under Paragraph 5 of the Plan and who is at that time (i) an
executive officer or other key employee of the Company or any
Subsidiary, (ii) an advisor or consultant to the Company or any
Subsidiary, or (iii) a member of the Board.
(j) "Rule 16b-3" means Rule 16b-3 under Section 16 of the Act,
as such Rule is in effect from time to time.
(k) "Stock Option" means the right to purchase a share of
Common Stock upon exercise of an option granted pursuant to Paragraph
5.
(l) "Subsidiary" means any corporation, partnership, joint
venture or other entity in which the Company owns or controls, directly
or indirectly, not less than 50% of the total combined voting power or
equity interests represented by all classes of stock issued by such
corporation, partnership, joint venture or other entity.
3. Shares Available Under Plan. The shares of Common Stock which may be
---------------------------
issued under the Plan will not exceed in the aggregate 1,650,000 shares, subject
to adjustment as provided in this Paragraph 3. Such shares may be shares of
original issuance or treasury shares or a combination of the foregoing.
(a) Any shares of Common Stock which are subject to Stock
Options that are terminated unexercised, forfeited or surrendered or
that expire for any reason will again be available for issuance under
the Plan.
(b) The shares available for issuance under the Plan also will
be subject to adjustment as provided in Paragraph 6.
4. Individual Limitation on Stock Options. The maximum aggregate number
--------------------------------------
of shares of Common Stock with respect to which Stock Options may be granted to
any Participant during any calendar year will not exceed 300,000 shares.
5. Grants of Stock Options. The Compensation Committee or the Board may
-----------------------
from time to time authorize grants to any Participant of Stock Options upon such
terms and conditions as such committee or the Board, as applicable, may
determine in accordance with the provisions set forth below.
<PAGE>
(a) Each grant will specify the number of shares of Common
Stock to which it pertains.
(b) Each grant will specify the Option Price, which will not
be less than 100% of the Market Value per Share on the Date of Grant.
(c) Each grant will specify whether the Option Price will be
payable (i) in cash or by check acceptable to the Company, (ii) by the
transfer to the Company of shares of Common Stock owned by the
Participant for at least six months (or, with the consent of the
Compensation Committee or the Board, as applicable, for less than six
months) having an aggregate fair market value per share at the date of
exercise equal to the aggregate Option Price, (iii) with the consent of
the Compensation Committee or the Board, as applicable, by authorizing
the Company to withhold a number of shares of Common Stock otherwise
issuable to the Participant having an aggregate fair market value per
share on the date of exercise equal to the aggregate Option Price or
(iv) by a combination of such methods of payment; provided, however,
that the payment methods described in clauses (ii) and (iii) will not
be available at any time that the Company is prohibited from purchasing
or acquiring such shares of Common Stock. Any grant may provide for
deferred payment of the Option Price from the proceeds of sale through
a bank or broker of some or all of the shares to which such exercise
relates.
(d) Successive grants may be made to the same Participant
whether or not any Stock Options previously granted to such Participant
remain unexercised.
(e) Each grant will specify the required period or periods (if
any) of continuous service by the Participant with the Company or any
Subsidiary and/or any other conditions to be satisfied before the Stock
Options or installments thereof will become exercisable, and any grant
may provide, or may be amended to provide, for the earlier exercise of
the Stock Options in the event of a change in control of the Company
(as defined in the stock option agreement evidencing such grant or in
any agreement referred to in such stock option agreement) or in the
event of any other similar transaction or event.
(f) Each Stock Option granted pursuant to this Paragraph 5 may
be made subject to such transfer restrictions as the Compensation
Committee or the Board, as applicable, may determine.
(g) Each grant will be evidenced by a stock option agreement
executed on behalf of the Company by the Chief Executive Officer (or
another officer designated by the Compensation Committee or the Board,
as applicable) and delivered to the Participant and containing such
further terms and provisions, consistent with the Plan, as such
committee or the Board, as applicable, may approve.
6. Adjustments. The Compensation Committee or the Board will make or
-----------
provide for such adjustments in the maximum number of shares specified in
Paragraph 3 and Paragraph 4, in the number of shares of Common Stock covered by
outstanding Stock Options granted hereunder, in the Option Price applicable to
any such Stock Options, and/or in the kind of shares covered thereby (including
shares of another issuer), as such committee or the Board, as applicable, in its
sole discretion, exercised in good faith, may determine is equitably required to
prevent dilution or enlargement of the rights of Participants that otherwise
would result from any stock dividend, stock split, combination of shares,
recapitalization or other change in the capital structure of the Company,
merger, consolidation, spin-off, reorganization, partial or complete
liquidation, issuance of rights or warrants to purchase securities or any other
corporate transaction or event having an effect similar to any of the foregoing.
In the event the Compensation Committee disagrees with the Board with respect to
the foregoing adjustments, the Board's determination will be final and
conclusive. Any fractional shares resulting from the foregoing adjustments will
be eliminated.
7. Withholding of Taxes. To the extent that the Company is required to
--------------------
withhold federal, state, local or foreign taxes in connection with any benefit
realized by a Participant under the Plan, or is requested by a Participant to
withhold additional amounts with respect to such taxes, and the amounts
available to the Company for such withholding are insufficient, it will be a
condition to the realization of such benefit that the Participant make
arrangements satisfactory to the Company for payment of the balance of such
taxes required or requested to be withheld. In addition, if permitted by the
Compensation Committee or the Board, a Participant may elect to have any
withholding obligation of the Company satisfied with shares of Common Stock that
would otherwise be transferred to the Participant on exercise of the Stock
Option.
8. Administration of the Plan.
---------------------------
(a) The Plan will be administered by the Compensation Committee
and the Board.
(b) The Compensation Committee and the Board have the full
authority and discretion to administer the Plan and to take any action
that is necessary or advisable in connection with the administration of
the Plan, including without limitation the authority and discretion to
interpret and construe any provision of the Plan or of any agreement,
notification or document evidencing the grant of a Stock Option. The
interpretation and construction by the Compensation Committee or the
Board, as applicable, of any such provision and any determination by
the Compensation Committee or the Board pursuant to any provision of
the Plan or of any such agreement, notification or document will be
final and conclusive; provided, that in the event the Compensation
Committee disagrees with the Board with respect to such interpretation,
construction or determination, the Board's determination will be final
and conclusive. No member of the Compensation Committee or the Board
will be liable for any such action or determination made in good faith.
(c) Notwithstanding any provision of the Plan to the contrary,
the Compensation Committee will have the exclusive authority and
discretion to take any action required or permitted to be taken under
the provisions of Paragraph 6, Paragraph 8(a), Paragraph 8(b),
Paragraph 9(a) and Paragraph 9(b) with respect to Stock Options granted
under the Plan that are intended to comply with the requirements of
Section 162(m) of the Code.
<PAGE>
9. Amendments, Etc.
---------------
(a) The Compensation Committee or the Board, as applicable,
may, without the consent of the Participant, amend any agreement
evidencing a Stock Option granted under the Plan, or otherwise take
action, to accelerate the time or times at which the Stock Option may
be exercised, to extend the expiration date of the Stock Option, to
waive any other condition or restriction applicable to such Stock
Option or to the exercise of such Stock Option, to reduce the exercise
price of such Stock Option, to amend the definition of a change in
control of the Company (if such a definition is contained in such
agreement) to expand the events that would result in a change in
control of the Company and to add a change in control provision to such
agreement (if such provision is not contained in such agreement) and
may amend any such agreement in any other respect with the consent of
the Participant.
(b) The Plan may be amended from time to time by the Board or
any duly authorized committee thereof. In the event any law, or any
rule or regulation issued or promulgated by the Internal Revenue
Service, the Securities and Exchange Commission, the National
Association of Securities Dealers, Inc., any stock exchange upon which
the Common Stock is listed for trading, or any other governmental or
quasi-governmental agency having jurisdiction over the Company, the
Common Stock or the Plan, requires the Plan to be amended, or in the
event Rule 16b-3 is amended or supplemented (e.g., by addition of
alternative rules) or any of the rules under Section 16 of the Act are
amended or supplemented, in either event to permit the Company to
remove or lessen any restrictions on or with respect to Stock Options,
the Compensation Committee and the Board each reserves the right to
amend the Plan to the extent of any such requirement, amendment or
supplement, and all Stock Options then outstanding will be subject to
such amendment.
(c) The Plan may be terminated at any time by action of the
Board. The termination of the Plan will not adversely affect the terms
of any outstanding Stock Option.
(d) The Plan will not confer upon any Participant any right
with respect to continuance of employment or other service with the
Company or any Subsidiary, nor will it interfere in any way with any
right the Company or any Subsidiary would otherwise have to terminate a
Participant's employment or other service at any time.
FAIRFIELD COMMUNITIES, INC.
By: /s/ Marcel J. Dumeny
-----------------------
Marcel J. Dumeny
Secretary
FAIRFIELD COMMUNITIES, INC. AND SUBSIDIARIES
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
Year Ended December 31,
----------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
OPERATING DATA (1)(2)(3)(4)
Revenues:
Vacation ownership, net $256,141 $194,612 $125,751 $ 80,729 $ 56,701
Resort management 28,237 26,987 22,264 17,808 15,079
Interest 37,179 28,651 23,815 22,874 24,960
Other 24,686 25,132 27,691 35,879 52,972
-------- -------- -------- -------- --------
$346,243 $275,382 $199,521 $157,290 $149,712
======== ======== ======== ======== ========
Net earnings $21,177 $22,103 $13,874 $20,034 $12,846
======= ======= ======= ======= =======
Earnings before merger costs
and extraordinary loss $34,009 $22,103 $13,874 $20,034 $12,846
======= ======= ======= ======= =======
Net earnings per share:
Basic $.48 $.54 $.37 $.54 $.40
==== ==== ==== ==== ====
Diluted $.46 $.51 $.35 $.51 $.39
==== ==== ==== ==== ====
Earnings per share before merger
costs and extraordinary loss:
Basic $.77 $.54 $.37 $.54 $.40
==== ==== ==== ==== ====
Diluted $.73 $.51 $.35 $.51 $.39
==== ==== ==== ==== ====
Weighted average shares
outstanding:
Basic 44,200 40,558 37,691 37,432 32,107
====== ====== ====== ====== ======
Diluted 46,282 43,265 39,888 39,497 33,034
====== ====== ====== ====== ======
BALANCE SHEET DATA
(AT PERIOD END): (1)(3)
Loans receivable, net $291,209 $225,098 $185,098 $162,114 $176,268
Total assets 463,932 385,570 320,112 280,612 277,219
Total financing
arrangements 170,081 113,295 117,763 130,720 122,051
Stockholders' equity 187,182 162,125 100,485 74,282 43,450
</TABLE>
(1) On December 19, 1997, Fairfield completed a merger with Vacation Break
U.S.A. ("Vacation Break") which has been accounted for as a pooling of
interests and, accordingly, all prior period consolidated financial
information has been restated as if the merger took place at the
beginning of the periods presented. In conjunction with the merger,
Fairfield recorded merger costs of $16.9 million ($12.8 million after
taxes), of which $3.6 million ($2.2 million after taxes) related to
the extraordinary loss resulting from early extinguishment of
substantially all of Vacation Break's debt.
(2) On June 5, 1997 and December 19, 1997, Fairfield's Board of Directors
declared a three-for-two and a two-for-one common stock split,
respectively. References to per share amounts and weighted average
shares outstanding have been restated to reflect the effect of the
stock splits for all periods presented.
(3) Prior to October 31, 1995, certain subsidiaries of Vacation Break were
taxed as S Corporations under the Internal Revenue Code and were,
therefore, not subject to federal and state income taxes at the
corporate level. On October 31, 1995, these subsidiaries terminated
their S Corporation elections and, accordingly, became subject to
federal and state income taxes. The net earnings shown above, for the
years prior to 1995, include pro forma amounts for federal and state
income taxes as if all Vacation Break subsidiaries had been subject to
federal and state taxation for each of the periods presented. The pro
forma amounts of federal and state taxes reduced net earnings and
stockholders' equity by $4.5 million for 1994 and $4.7 million for
1993.
(4) Other revenues for the year ended December 31, 1994 includes a $5.2
million gain from the sale of First Federal, and for the year ended
December 31, 1993 includes $18.8 million of revenue generated by
savings and loan operations.
F-1
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
On December 19, 1997, Fairfield acquired all of the outstanding common
stock of Vacation Break in exchange for approximately 5,316,000 shares
(10,632,000 shares on a post split basis) of its common stock. The resorts
acquired by the Company in conjunction with the merger are located in Pompano
Beach, Florida (four resorts), Orlando, Florida and a 50%-owned resort located
in the Bahamas. The merger has been accounted for as a pooling of interests and,
accordingly, all prior period financial information has been restated as if the
merger took place at the beginning of such periods.
Additionally, on December 19, 1997, Fairfield acquired the remaining 45%
minority interests in Vacation Break's joint ventures in the Palm Aire and Royal
Vista resorts for approximately $13.5 million in cash. These acquisitions have
been accounted for as purchases and the total results of operations of these
resorts have been included in the consolidated financial statements from the
date of acquisition.
Vacation Ownership
------------------
Gross sales of vacation ownership interests ("VOIs") totaled $250.8
million, $193.3 million and $135.7 million for 1997, 1996 and 1995,
respectively. Increased sales volumes at the Vacation Break resorts coupled with
positive sales trends at Fairfield's existing locations resulted in a 29.7%
increase in VOI sales revenue between 1996 and 1997. Gross VOI sales at the
Company's destination resorts, which include Branson, Missouri; Myrtle Beach,
South Carolina; Nashville, Tennessee; Orlando, Florida; Pompano Beach, Florida
and Williamsburg, Virginia continue to be the largest dollar contributor to
total VOI sales. During 1997, gross VOI sales increased 26.5% at the Company's
destination locations, 49.8% at the Company's regional resort locations and
33.8% at the Company's off-site sales offices. The Company's growth strategy
includes the (i) acquisition and development of properties in new destination
locations, (ii) further development at its existing destination resorts and
(iii) expansion of its sales and marketing programs, including the establishment
of additional off-site sales offices. Future sales growth should be realized as
the Company continues to direct its opportunities to destination locations which
have a higher and more consistent stream of potential customers generated by
existing attractions.
Net VOI revenues increased to $256.1 million for the year ended
December 31, 1997 from $194.6 million in 1996 and $125.8 million for 1995. The
increase in net VOI revenues is attributable to the same factors as noted above
and the recognition of previously net deferred revenue of $5.3 million during
1997, related to the percentage of completion method of accounting, as compared
to the recognition of previously net deferred revenue of $1.3 million during
1996 and the net deferral of VOI revenue totaling $9.9 million during 1995.
Under the percentage of completion method of accounting, the portion of revenues
attributable to costs incurred as compared to total estimated construction costs
and selling expense, is recognized in the period of sale. The remaining revenue
is deferred and recognized as the remaining costs are incurred.
In addition to VOI sales, the Company sells vacation package
certificates on a non-refundable basis. The customer has up to eighteen months
to exercise the certificate, at which time the certificate expires, if not
extended for up to an additional twelve months generally upon payment of a
nominal fee. The earnings impact related to the sale of vacation package
certificates is deferred until either the vacation is taken or the expiration
period, including extension, has expired and the Company is no longer
contractually obligated to fulfill the vacation.
F-2
<PAGE>
Selling
-------
Selling expenses, including commissions, as a percentage of related
revenues, were 48.1%, 51.7% and 51.3%, for 1997, 1996 and 1995, respectively.
The decrease from 1996 to 1997 is primarily attributable to efficiencies
experienced at the Company's destination resorts in Orlando, Florida and
Nashville, Tennessee. The increase in selling expenses from 1995 to 1996, as a
percentage of related revenues, was primarily attributable to inefficiencies
experienced at these destination resorts which began sales efforts in December
1994. New projects typically experience lower operating margins in the
"start-up" phase of operations as the Company develops its property owner base
and establishes an efficient sales and marketing program at each new location.
Management continues to work to improve sales efficiencies at its newer resorts
and future efficiencies are expected as these projects mature and expand their
bases of property owners.
General and Administrative
--------------------------
Increases in general and administrative expenses during 1997 and 1996
resulted primarily from additional corporate overhead associated with the
increased VOI sales volumes as previously discussed, and the increased expenses
related to the Company's employee benefit plans (see Note 15 of "Notes to
Consolidated Financial Statements"). Additionally, in 1997, Vacation Break
incurred charges for legal fees and the establishment of reserves in conjunction
with the settlement of various legal and regulatory matters. As a percentage of
total revenues, general and administrative expenses were 9.4%, 9.2% and 10.8%
for 1997, 1996 and 1995, respectively. Management anticipates certain cost
savings and synergies to be realized in 1998 upon integrating the operations of
Vacation Break into the Company.
Interest
--------
Interest income totaled $37.2 million, $28.7 million and $23.8 million
in 1997, 1996 and 1995, respectively. The increase in interest income is
primarily attributable to higher average balances of outstanding contracts
receivable, which totaled $302.5 million at December 31, 1997, as compared to
$230.2 million and $187.5 million at December 31, 1996 and 1995, respectively.
The weighted average stated interest rate of the Company's contracts receivable
were 14.6%, 14.5% and 14.0% at December 31, 1997, 1996 and 1995, respectively.
The Company anticipates interest income to increase in tandem with the net
increase in contracts receivable.
Interest expense, net of amounts capitalized, totaled $10.4 million,
$10.8 million and $10.5 million in 1997, 1996 and 1995, respectively. The
fluctuations in interest expense are primarily attributable to an increase in
weighted average interest rates in 1996 as compared to 1997 and 1995, which was
partially offset in 1997 by an increase in the average outstanding balance of
interest-bearing debt. The weighted average interest rate for the Company's
financing arrangements, including certain fees and expenses, was 10.0%, 10.6%
and 9.8% for the years ended December 31, 1997, 1996 and 1995, respectively. The
average outstanding balance of interest-bearing debt was $133.7 million, $125.8
million and $124.4 million for the years ended December 31, 1997, 1996 and 1995,
respectively.
Other
-----
Other revenues in 1997, 1996 and 1995 include home sales totaling $11.1
million, $8.8 million and $6.7 million, respectively. Also included in other
revenues for 1997, 1996 and 1995 are lot sales revenue totaling $8.1 million,
$8.7 million and $7.8 million, respectively.
Other expenses for 1997, 1996 and 1995 include costs of home sales,
including selling expenses, totaling $9.8 million, $8.2 million and $6.0
million, respectively. Also included in other
F-3
<PAGE>
expenses for 1997, 1996 and 1995 are costs of lot sales totaling $2.2 million,
$2.1 million and $2.0 million, respectively.
PROVISION FOR INCOME TAXES
The Company provides for income taxes under the liability method in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 109,
"Accounting for Income Taxes." The Company emerged from reorganization in 1992
and is required 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
additions to paid-in capital. The Company recorded benefits from the utilization
of pre-confirmation tax attributes totaling $19.1 million and $6.3 million for
1996 and 1995, respectively. The Company has reported operating earnings since
1992 and management believes that it is more likely than not that future taxable
earnings will be sufficient to realize the tax benefits associated with the
future deductible temporary differences and net operating loss carryforwards
prior to their expiration; therefore, the Company eliminated the remaining
valuation allowance in 1996.
At December 31, 1997, the Company had net operating loss carryforwards
totaling $96.0 million which reflect the amount available to offset taxable
income in future periods. Under limitations imposed by Internal Revenue Code
Section 382 ("Section 382"), certain potential changes in ownership of the
Company, which may be outside the Company's knowledge or control, may restrict
future utilization of these carryforwards. More specifically, changes in
ownership occurring within a rolling three-year period, taking into
consideration filings with the Securities and Exchange Commission on Schedules
13D and 13G by holders of 5% or more of Fairfield's Common Stock, whether
involving the acquisition or disposition of Fairfield's Common Stock, may impose
a material limitation on the Company's use of these carryforwards. If an
ownership change triggers the Section 382 limitations, the annual limitation
imposed on the use of pre-change carryforwards under present law is an amount
equal to the value of the Company immediately before the ownership change
multiplied by the federally prescribed long-term tax-exempt rate for the period
in which the change occurs. At December 31, 1997, available carryovers, if not
utilized, expire as follows: 2005 - $12.6 million; 2006 - $8.0 million; 2007 -
$14.5 million; 2008 - $6.3 million; 2009 - $3.5 million; 2010 - $22.0 million;
2011 - $24.2 million and 2012 - $4.9 million.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents of the Company decreased $10.2 million from
December 31, 1996 to December 31, 1997. Cash provided by operating activities
totaled $44.0 million, $33.8 million and $28.8 million in 1997, 1996 and 1995,
respectively. The deferred tax provision of $16.8 million in 1997 resulted in a
deferred tax liability of $10.3 million at December 31, 1997, as compared to a
deferred tax asset of $10.4 million at December 31, 1996. Real estate
inventories increased in 1997 primarily from land acquisitions and new VOI
construction at several of the Company's resorts, including the Royal Vista and
Sea Gardens resorts.
Cash used in investing activities totaled $105.3 million, $53.9 million
and $25.2 million in 1997, 1996 and 1995, respectively. In 1997, the Company
acquired the remaining inventory interests in two of Vacation Break's joint
ventures for approximately $13.5 million in cash. Additionally, due to
F-4
<PAGE>
increased VOI sales volumes, originations of loans receivable exceeded principal
collections by $76.6 million in 1997, as compared to $45.5 million and $29.9
million in 1996 and 1995, respectively.
Cash provided by financing activities totaled $51.1 million and $22.8
million in 1997 and 1996, respectively, as compared to the usage of cash of $7.3
million in 1995. During 1997, the Company financed its operations (including the
payment of certain merger expenses) and the increase in loans receivable through
additional borrowings obtained under its financing arrangements. In 1997,
borrowings from the Company's financing arrangements exceeded repayments by
$56.8 million, as compared to repayments of financing arrangements exceeding
proceeds therefrom during 1996 and 1995 of $3.6 million and $7.1 million,
respectively.
The Company generates cash for operations primarily from the sale and
financing of VOIs which include (i) cash sales, (ii) customer down payments,
(iii) principal collections on its contracts receivable and (iv) borrowing
availability generated by customer contracts receivable in amounts which
typically range from 65% to 80% of the outstanding balance of the contracts
receivable. The Company generates additional cash from the financing of VOI
sales equal to the difference between the interest charged on the customer
contracts receivable (which averaged 14.6% at December 31, 1997) and the
interest paid on the related borrowings (which averaged 9.6% for the year ended
December 31, 1997).
Historically, funds from operating cash flows, borrowings and asset
sales have been used to fund certain costs which support the Company's sales
efforts (primarily development and marketing costs). Additionally, the Company
has securitized its contracts receivable in an effort to lower the cost of
borrowed funds and maintain borrowing availability under its credit facilities.
The Company continues to evaluate the acquisition and/or development of certain
resort properties. In addition, the Company is currently evaluating several VOI,
marketing and property management acquisitions to integrate into or to expand
the operations of the Company. The Company expects to finance its short- and
long-term cash needs from (i) operating cash flows, (ii) borrowings under its
credit facilities as described below and (iii) future financings, including
additional securitizations of contracts receivable.
On December 19, 1997, Fairfield amended its Amended and Restated Credit
Agreement (the "FCI Agreement"), which provided for additional interim borrowing
availability of up to $100.0 million ($125.0 million in total, including up to
$7.0 million for letters of credit) for a period ending no later than March 18,
1998. Proceeds from the additional borrowing availability were used to retire
substantially all of the secured obligations of Vacation Break totaling $81.4
million, including interest, and to pay certain expenses associated with the
merger. The revolving loans mature on January 1, 1999, if not extended in
accordance with the terms of the FCI Agreement. At December 31, 1997, Fairfield
had borrowing availability of $26.4 million, net of outstanding letters of
credit totaling $3.4 million.
At December 31, 1997, FAC had no borrowings outstanding under its Third
Amended and Restated Revolving Credit Agreement (the "FAC Agreement"). The FAC
Agreement provides for revolving loans of up to $15.0 million, including up to
$1.0 million for letters of credit. The revolving loans mature on January 1,
1999, if not extended in accordance with the terms of the FAC Agreement, with
Fairfield being a guarantor pursuant to the FAC Agreement. At December 31, 1997,
FAC had borrowing availability of $15.0 million.
On January 15, 1998, Fairfield Receivables Corporation ("FRC"), a
wholly owned subsidiary of FAC, entered into a Credit Agreement (the "FRC
Agreement") which provided for borrowings of up to $150.0 million for the
purchase of contracts receivable from FAC pursuant to the Receivable Purchase
Agreement, among Fairfield as originator, FAC as the seller and FRC as
purchaser.
F-5
<PAGE>
In 1996, Fairfield Capital Corporation ("FCC"), a wholly owned
subsidiary of FAC, amended its Credit Agreement (the "FCC Agreement") which
provides for total borrowings of up to $90.0 million (the "FCC Notes") for the
purchase of contracts receivable from FAC pursuant to the Amended and Restated
Receivables Purchase Agreement, among Fairfield as originator, FAC as seller and
FCC as purchaser. At December 31, 1997, borrowings outstanding under the FCC
Agreement totaled $60.1 million.
At December 31, 1997, Fairfield Funding Corporation ("FFC"), a wholly
owned subsidiary of FAC, had borrowings outstanding totaling $12.3 million under
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 among Fairfield as originator, FAC as
seller and FFC as purchaser. At December 31, 1997, contracts receivable totaling
$22.5 million collateralized the FFC Notes.
In 1996, the Company completed an underwritten public offering of
900,000 shares (2,700,000 shares on a post split basis) of Common Stock at a
price of $21.63 per share ($7.21 per share on a post split basis) (the
"Offering"). The net proceeds from the Offering of $17.7 million were used to
repay certain indebtedness, totaling $9.1 million, including accrued interest of
$2.7 million, issued in connection with the Company's reorganization and to
temporarily pay down the outstanding indebtedness under the Company's revolving
credit agreements, with the remaining balance of $3.8 million invested in
short-term investment grade securities (included in "Cash and cash equivalents"
in the Consolidated Balance Sheet at December 31, 1996). In February 1997, the
Company was able to draw $7.9 million against its revolving credit agreements to
repay, in part, the outstanding indebtedness under the Senior Subordinated
Secured Notes.
FINANCIAL CONDITION
Total consolidated assets of the Company increased $78.4 million from
December 31, 1996 to December 31, 1997. This increase is primarily attributable
to an increase in net loans receivable of $66.1 million resulting from
originations of loans receivable exceeding principal collections, and a $26.1
million increase in real estate inventories. The increase in real estate
inventories is due primarily to a $15.3 million increase in new VOI construction
at the Company's Royal Vista and Sea Gardens resorts in Pompano Beach, Florida
and the acquisitions of additional land located on Edisto Island, South Carolina
and near Orlando, Florida. Total consolidated liabilities of the Company
increased $53.3 million in 1997 due to a net increase in the Company's financing
arrangements of $56.8 million, resulting from the continued development of the
Company's resorts and the net increase in outstanding contracts receivable.
Total stockholders' equity increased by $25.1 million from December 31,
1996 to December 31, 1997. In addition to current year net earnings of $21.2
million, the increase in stockholders' equity is primarily attributable to the
issuance of common stock under the Company's employee stock benefit plans.
SEASONALITY
The Company has historically experienced and expects to continue to
experience seasonal fluctuations in its gross revenues and net earnings from the
sale of VOIs, which have been generally
F-6
<PAGE>
higher in the second and third quarters. This seasonality may cause significant
fluctuations in the quarterly operating results of the Company. In addition,
material fluctuations in operating results may occur due to the timing of
construction of future VOI inventory and the Company's use of the percentage of
completion method of accounting for recognizing revenues and related expenses on
incomplete buildings.
IMPACT OF INFLATION
Inflation and changing prices have not had a material impact on the
Company's revenues and net earnings during any of the Company's three most
recent years. Due to the current economic climate, the Company does not expect
that inflation and changing prices will have a material impact on the Company's
revenues or net earnings. To the extent inflationary trends affect short-term
interest rates, a portion of the Company's debt service costs may be affected as
well as the rates the Company charges on its contracts receivable. To the extent
permitted by competition, the Company passes increased costs on to its customers
through increased sales prices.
MARKET CONCENTRATIONS
As a result of the merger with Vacation Break, the Company will operate
25 resorts, and anticipates approximately one-half of VOI revenues will be
concentrated in the Florida market. The Company believes that certain
fundamental aspects of Florida, as a location for resort properties (including
climate, quality of life, and opportunities for sports and leisure activities)
have contributed and will continue to contribute to the Company's ability to
sell VOIs. The Florida market is one of the largest markets for VOI sales in the
United States. However, Florida is also one of the most competitive markets for
VOI sales. In addition, historically, natural disasters and media coverage of
crimes committed in Florida have had significant adverse effects on tourism in
Florida. Accordingly, there can be no assurance that the Florida market will
continue to be favorable for VOI sales or that the Company will not be adversely
affected by the concentration in the Florida market.
IMPACT OF YEAR 2000
The Year 2000 issue is the result of computer programs being written
using two digits rather than four to define the applicable year. As a result,
these computer programs may have time-sensitive software that recognize a date
using "00" as the year 1900 rather than the year 2000. This could result in a
system failure or miscalculations causing disruptions of operations, including,
among other things, a temporary inability to process transactions, send
invoices, or engage in similar normal business activities.
The Company has completed an initial assessment which indicates that it
will have to modify portions of its software so that its computer systems will
function properly with respect to dates in the year 2000 and thereafter. As of
December 31, 1997, the reservation and customer service software systems are
year 2000 compliant, with all other software systems scheduled to achieve Year
2000 compliance by December 31, 1998. The Company believes it has allocated
sufficient programming resources to this project and does not anticipate the
need to engage outside consultants. Therefore, the costs associated with Year
2000 compliance will not be material. Additionally, hardware support software is
projected to be Year 2000 compliant by December 31, 1998.
The Company believes that with modifications to existing software and
conversions to new software, the Year 2000 issue will not pose significant
operational problems for its computer systems. However, if such modifications
and conversions are not made, or not completed timely, the Year 2000 issue could
have a material impact on the operations of the Company.
F-7
<PAGE>
The costs of the project and the date on which the Company believes it
will complete the Year 2000 modifications are based on management's best
estimates, which were derived utilizing numerous assumptions of future events,
including the continued availability of certain resources and other factors.
However, there can be no guarantee that these estimates will be achieved and
actual results could differ materially from those anticipated. Specific factors
that might cause such material differences include, but are not limited to, the
availability and cost of personnel trained in this area, the ability to locate
and correct all relevant computer codes, and similar uncertainties.
The Company has initiated formal communications with all of its
significant vendors to determine the extent to which the Company's interface
systems are vulnerable to those third parties' failure to remediate their own
Year 2000 issues. There is no guarantee that the systems of other companies on
which the Company's systems rely will be timely converted and would not have an
adverse effect on the Company's systems.
FORWARD-LOOKING INFORMATION
This Management's Discussion and Analysis of Financial Condition and
Results of Operations, other filings by the Company with the Securities and
Exchange Commission and other oral and written statements by the Company and its
management may contain certain forward-looking statements, including (without
limitation) statements with respect to anticipated future operating and
financial performance, growth and acquisition opportunities and other similar
forecasts and statements of expectation. Words such as "expects," "anticipates,"
"intends," "plans," "believes," "seeks," "estimates," and "should," and
variations of these words and similar expressions, are intended to identify
these forward-looking statements. Forward-looking statements made by the Company
and its management are based on estimates, projections and beliefs of management
made at the time of such statements and are not guarantees of future
performance. The Company disclaims any obligation to update or revise any
forward-looking statement based on the occurrence of future events, the receipt
of new information, or otherwise.
Actual future performance, outcomes and results may differ materially
from those expressed in forward-looking statements made by the Company and its
management as a result of a number of risks, uncertainties and assumptions,
including those relating to the operations and results of operations following
the merger with Vacation Break. Representative examples of these factors include
(without limitation) general industry and economic conditions; interest rate
trends; regulatory changes; cost of capital and capital requirements;
availability of real estate properties; competition from national hospitality
companies and other competitive factors and pricing pressures; shifts in
customer demands; changes in operating expenses, including employee wages,
commission structures, benefits and training; economic cycles; the continued
availability of financing in the amounts and at the terms necessary to support
the Company's future business; assumed cost savings and other synergistic
benefits of the merger with Vacation Break and the success achieved or problems
encountered in integrating the operations of Vacation Break into the Company.
F-8
<PAGE>
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, 1997 and 1996,
and the related consolidated statements of earnings, stockholders' equity and
cash flows for each of the three years in the period ended December 31, 1997.
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 did not audit the 1996 and 1995 consolidated financial
statements of Vacation Break U.S.A., Inc., a wholly-owned subsidiary, which
statements reflect total assets constituting 36% in 1996, and total revenues
constituting 37% in 1996, and 30% in 1995 of the related consolidated totals.
Those statements were audited by other auditors whose report has been furnished
to us, and our opinion, insofar as it relates to data included for Vacation
Break U.S.A., Inc., is based solely on the report of the other auditors.
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, based on our audits and, for 1996 and 1995, the report
of other auditors, 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, 1997 and 1996, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Little Rock, Arkansas
February 2, 1998
F-9
<PAGE>
FAIRFIELD COMMUNITIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PAR VALUE)
<TABLE>
December 31,
---------------------------------
1997 1996
---- ----
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 3,074 $ 13,316
Loans receivable, net 291,209 225,098
Real estate inventories 93,139 67,594
Restricted cash and escrow accounts 25,607 17,604
Property and equipment, net 24,370 24,802
Deferred tax assets, net - 10,368
Other assets 26,533 26,788
-------- --------
$463,932 $385,570
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Financing arrangements $170,081 $113,295
Deferred revenue 29,769 43,327
Accounts payable 20,398 16,035
Net liabilities of assets held for sale - 8,293
Other liabilities 56,502 42,495
-------- --------
276,750 223,445
-------- --------
Stockholders' Equity:
Common stock, $.01 par value,
authorized 100,000,000 shares
in 1997 and 25,000,000 in 1996;
outstanding 49,491,666 shares in
1997 and 44,150,714 shares in 1996 495 189
Paid-in capital 107,920 105,324
Retained earnings 79,083 57,906
Unamortized value of restricted stock (316) (1,294)
Treasury stock, at cost, 4,573,266 shares
in 1997 and 4,670,590 shares in 1996 - -
-------- --------
187,182 162,125
-------- --------
$463,932 $385,570
======== ========
</TABLE>
See notes to consolidated financial statements.
F-10
<PAGE>
FAIRFIELD COMMUNITIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
Year Ended December 31,
---------------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
REVENUES
Vacation ownership, net $256,141 $194,612 $125,751
Resort management 28,237 26,987 22,264
Interest 37,179 28,651 23,815
Other 24,686 25,132 27,691
-------- -------- --------
346,243 275,382 199,521
-------- -------- --------
EXPENSES
Vacation ownership 67,846 51,385 33,338
Provision for loan losses 12,121 7,827 8,030
Selling 123,122 100,679 64,528
Resort management 25,945 25,418 21,375
General and administrative 32,383 25,466 21,610
Interest, net 10,353 10,754 10,521
Other 18,066 18,410 17,911
Costs associated with merger 13,308 - -
-------- -------- --------
303,144 239,939 177,313
-------- -------- --------
Earnings before provision for
income taxes and extraordinary
loss 43,099 35,443 22,208
Provision for income taxes 19,727 13,340 8,334
-------- -------- --------
Earnings before extraordinary loss 23,372 22,103 13,874
Extraordinary loss from early
extinguishment of debt, net of
income tax benefit of $1,379 2,195 - -
-------- -------- --------
Net earnings $ 21,177 $ 22,103 $ 13,874
======== ======== ========
BASIC EARNINGS PER SHARE:
Earnings before extraordinary loss $ .53 $.54 $.37
Extraordinary loss (.05) - -
----- ---- ----
Net earnings $ .48 $.54 $.37
===== ==== ====
DILUTED EARNINGS PER SHARE:
Earnings before extraordinary loss $ .51 $.51 $.35
Extraordinary loss (.05) - -
----- ---- ----
Net earnings $ .46 $.51 $.35
===== ==== ====
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 44,200 40,558 37,691
====== ====== ======
Diluted 46,282 43,265 39,888
====== ====== ======
</TABLE>
See notes to consolidated financial statements.
F-11
<PAGE>
FAIRFIELD COMMUNITIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
Unamortized
Common Stock value of
-------------- Paid-in Retained Restricted
Shares Amount Capital Earnings Stock Total
------ ------ ------- -------- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 -
Previously Reported 12,640 $127 $ 46,120 $20,688 $ - $ 66,935
Pooling of interests with
Vacation Break U.S.A., Inc. 3 - 5,191 6,673 - 11,864
------ ---- -------- ------- ------- --------
Balance, December 31, 1994 -
Restated 12,643 127 51,311 27,361 - 78,799
Net earnings - - - 13,874 - 13,874
Utilization of pre-
confirmation
income tax attributes - - 6,263 - - 6,263
Initial public offering,
stock split and
stockholder distribution
of Vacation Break
U.S.A., Inc. 5,039 50 6,931 (5,432) - 1,549
Other (33) - - - - -
------ ---- -------- ------- ------- --------
Balance, December 31, 1995 17,649 177 64,505 35,803 - 100,485
Net earnings - - - 22,103 - 22,103
Utilization of pre-
confirmation income
tax attributes - - 19,108 - - 19,108
Net proceeds of stock
offering 1,078 11 19,054 - - 19,065
Issuance of restricted
stock - - 1,380 - (1,380) -
Amortization of unearned
compensation - restricted
stock - - - - 86 86
Activity related to
employee stock
benefit plans 159 1 1,277 - - 1,278
------ ---- -------- ------- ------- --------
Balance, December 31, 1996 18,886 189 105,324 57,906 (1,294) 162,125
Net earnings - - - 21,177 - 21,177
Amortization of unearned
compensation -
restricted stock - - - - 978 978
Effect of stock splits 30,354 304 (318) - - (14)
Activity related to
employee stock
benefit plans 106 1 2,915 - - 2,916
Other 146 1 (1) - - -
------ ---- -------- ------- ------- --------
Balance, December 31, 1997 49,492 $495 $107,920 $79,083 $ (316)$187,182
====== ==== ======== ======= ======= ========
</TABLE>
See notes to consolidated financial statements.
F-12
<PAGE>
FAIRFIELD COMMUNITIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
Year Ended December 31,
----------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net earnings $ 21,177 $ 22,103 $ 13,874
Adjustments to reconcile net
earnings to net cash provided
by operating activities:
Depreciation 5,157 3,984 3,158
Amortization 2,187 1,233 784
Provision for loan losses 12,121 7,827 8,030
Utilization of pre-confirmation
income tax attributes - 19,108 6,263
Deferred taxes, net 16,784 (7,860) 1,037
Tax benefit from exercise of
stock warrants 612 801 -
Charges associated with merger 5,869 - -
Changes in operating assets and
liabilities, net of acquisitions:
Real estate inventories (16,647) (7,240) (16,312)
Deferred revenue (13,558) (6,231) 16,318
Other 10,283 116 (4,369)
-------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 43,985 33,841 28,783
-------- -------- --------
INVESTING ACTIVITIES:
Purchases of property
and equipment, net (7,019) (11,187) (6,925)
Cash paid for acquisitions (13,500) - -
Principal collections on
loans receivable 150,344 104,302 81,932
Originations of loans receivable (226,897) (149,841) (111,871)
Net investment activities of
net liabilities held for sale (8,293) 1,509 9,375
Other 51 1,306 2,309
--------- --------- ---------
NET CASH USED IN INVESTING ACTIVITIES (105,314) (53,911) (25,180)
--------- --------- ---------
FINANCING ACTIVITIES:
Proceeds from financing arrangements 356,199 357,026 247,326
Repayments of financing arrangements (299,413) (360,662) (254,390)
Net proceeds of stock offerings - 19,065 6,982
Activity related to employee
stock benefit plans 2,304 477 -
Net (increase) decrease in restricted
cash and escrow accounts (8,003) 5,386 (5,141)
Other - 1,500 (2,044)
-------- --------- ---------
Net cash provided by (used in)
financing activities 51,087 22,792 (7,267)
-------- --------- ---------
Net (decrease) increase in cash
and cash equivalents (10,242) 2,722 (3,664)
Cash and cash equivalents,
beginning of year 13,316 10,594 14,258
-------- --------- ---------
Cash and cash equivalents, end of year $ 3,074 $ 13,316 $ 10,594
======== ========= =========
</TABLE>
See notes to consolidated financial statements.
F-13
<PAGE>
FAIRFIELD COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ------ -----------------------------------------------------------
ORGANIZATION
- ------------
Fairfield Communities, Inc. ("Fairfield" and together with its
subsidiaries, the "Company") is one of the largest vacation ownership companies
in the United States in terms of property owners and vacation units constructed.
The Company's operations, following the December 19, 1997 merger with Vacation
Break U.S.A., Inc. ("Vacation Break"), consist of 25 resorts located in 11
states and the Bahamas. Of the Company's 25 resorts, 15 are located in
destination areas with popular vacation attractions and 10 are located in scenic
regional locations.
The Company's primary business is selling vacation ownership interests
("VOIs"), commonly known as timeshares, primarily through its innovative
points-based vacation system, Fairshare Plus. The VOIs offered by the Company
consist of either undivided fee simple interest or specified fixed week interval
ownership in fully-furnished vacation homes. The Company also offers financing
for VOI purchasers, which results in the creation of high-quality, medium-term
contracts receivable. The Company holds these receivables and will occasionally
securitize them if the securitization would lower the cost of borrowed funds or
maintain borrowing availability under its credit facilities.
Principles of Consolidation
- ---------------------------
The consolidated financial statements include the accounts of Fairfield
and its wholly owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation. Certain amounts in the
consolidated financial statements of prior years have been reclassified to
conform to the current year presentation.
Use of Estimates
- ----------------
The preparation of the consolidated financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts and disclosures reported in
the consolidated financial statements and accompanying notes. Consequently,
actual results could differ from estimates.
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 three to seven
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.
F-14
<PAGE>
Real Estate Inventories
- -----------------------
Real estate inventories are valued at the lower of cost or estimated net
realizable value. Costs include land; land improvements; construction, including
capitalized interest; furnishing of the units and a portion of the costs of
amenities constructed for the use and benefit of the 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.
Loans Receivable
- ----------------
Contracts
---------
The Company's contracts receivable are regionally diversified.
Generally, VOIs are sold under installment contracts requiring a 10% - 15% down
payment and monthly installments, including interest, for periods of up to seven
years. The Company provides for losses on contracts receivable by a charge
against earnings at the time of sale at a rate based upon the Company's
historical cancellation experience and management's estimate of future losses.
The allowance for contracts receivable is maintained at a level believed
adequate by management based on periodic valuation of the contracts receivable
portfolio.
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 Price Paid Delinquency Period
------------------------------ ------------------
Less than 25% 90 days
25% but less than 50% 120 days
50% and over 150 days
Mortgages
---------
The Company's mortgages receivable consist of a small number of
non-homogeneous loans collateralized primarily by real estate geographically
dispersed throughout the country. The allowance for mortgages receivable is
maintained at a level believed adequate by management based on periodic
evaluation of each mortgage receivable. Management's evaluation of the adequacy
of this allowance is based on past loss experience, known inherent risks in the
portfolio, adverse situations that may affect the borrower's ability to repay
(including the timing of future payments), the estimated value of any underlying
collateral, composition of the mortgage receivable portfolio, current economic
conditions and other relevant factors. This evaluation is inherently subjective
as it requires material estimates including the amounts and timing of future
cash flows.
Revenue and Profit Recognition
- ------------------------------
VOIs sold by the Company consist of either undivided fee simple interests
or specified fixed week interval ownership in fully-furnished vacation homes.
VOI revenue is recognized when a binding sales contract has been executed and a
10% minimum down payment (including interest) has been received. Revenue
relating to sales of VOIs in projects under construction is recognized using the
F-15
<PAGE>
percentage of completion method. Under this method, the portion of revenues
applicable to costs incurred, as compared to total estimated acquisition,
construction and selling costs, is recognized in the period of sale. The
remaining revenue is deferred and recognized as the remaining costs are
incurred. Sales commissions and direct marketing costs relating to the VOIs
accounted for under the percentage of completion method are deferred until the
associated revenues are recorded.
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.
The Company sells vacation package certificates on a non-refundable
basis. The customer has up to eighteen months to exercise the certificate, at
which time the certificate expires, if not extended for up to an additional
twelve months generally upon payment of a nominal fee. The earnings impact
related to the sale of vacation package certificates is deferred until either
the vacation is taken or the expiration period, including extension, has expired
and the Company is no longer contractually obligated to fulfill the vacation.
Earnings Per Share
- ------------------
In 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share". SFAS No. 128 replaced the calculation of primary and fully diluted
earnings per share with basic and diluted earnings per share. In accordance with
SFAS No. 128, basic earnings per share excludes the dilutive effects of options,
warrants and convertible securities. Diluted earnings per share considers the
dilutive effect of the Company's outstanding options and warrants. Earnings per
share amounts for all periods have been restated to conform to the requirements
of SFAS No. 128.
Income Taxes
- ------------
The Company provides for income taxes under the liability method in
accordance with SFAS No. 109, "Accounting for Income Taxes". The Company is
required 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 additions to paid-in capital.
In connection with the Company's 1992 reorganization under Chapter 11 of
the Bankruptcy Code, the Company implemented the provisions of the American
Institute of Certified Public Accountants' Statement of Position 90-7,
"Financial Reporting by Entities in Reorganization Under the Bankruptcy Code"
("Fresh Start Reporting"). 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 additions to paid-in capital.
Disclosure About Segments of an Enterprise
- ------------------------------------------
In 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information". SFAS No. 131, which the Company will be
required to adopt in 1998,
F-16
<PAGE>
establishes standards for the way that public business enterprises report
information about operating segments in annual financial statements and requires
that those enterprises report selected information about operating segments in
interim financial reports. SFAS No. 131 also establishes standards for related
disclosures about products and services, geographic areas of operations and
major customers. Management is currently studying and analyzing SFAS No. 131 as
well as the Company's operations to determine the applicability of SFAS No. 131.
NOTE 2 - MERGERS AND ACQUISITIONS
- ------ ------------------------
On December 19, 1997, Fairfield acquired all of the outstanding common
stock of Vacation Break in exchange for approximately 5,316,000 shares
(10,632,000 shares on a post split basis) of its common stock. Of these shares,
approximately 5.2% are held in escrow to cover liability and litigation costs,
if any, which may arise from the litigation described in Note 17. Each share of
Vacation Break common stock was exchanged for .6075 of one share of Fairfield
Common Stock on a pre split basis. In addition, all outstanding options and
warrants to purchase Vacation Break common stock were converted at the same
exchange factor into options to purchase Fairfield Common Stock.
The merger has been accounted for as a pooling of interests and,
accordingly, all prior period financial information has been restated as if the
merger took place at the beginning of such periods. Certain reclassifications
were made to the Vacation Break financial statements to conform to Fairfield's
presentation.
Net revenues and net income of the merged entities prior to the merger
are presented in the following table (In thousands):
<TABLE>
Nine Months Ended Year Ended
September 30, December 31,
--------------------------
1997 1996 1995
---- ---- ----
(Unaudited)
<S> <C> <C> <C>
Net revenues
Fairfield $169,838 $172,478 $140,775
Vacation Break 93,383 102,904 58,746
-------- -------- --------
Combined $263,221 $275,382 $199,521
======== ======== ========
Net income
Fairfield $ 19,876 $ 14,863 $ 8,029
Vacation Break 7,619 7,240 5,845
-------- -------- --------
Combined $ 27,495 $ 22,103 $ 13,874
======== ======== ========
</TABLE>
Additionally, Fairfield acquired the remaining 45% minority interests in
Vacation Break's joint ventures in the Palm Aire and Royal Vista resorts for
approximately $13.5 million in cash. These acquisitions have been accounted for
as purchases and the total results of operations of these resorts have been
included in the consolidated financial statements from the date of acquisition.
Transaction costs and certain other charges associated with the merger
of $13.3 million ($10.6 million after taxes) were incurred and have been charged
to operating expenses in the fourth quarter of 1997. These costs included
expenses for investment banker and professional fees, and severance related
costs. In addition, $3.4 million of the merger costs related to the writedown of
unutilized assets and charges to standardize the accounting practices of the
companies. In conjunction with the merger, the Company retired substantially all
of the secured obligations of Vacation Break
F-17
<PAGE>
totaling $81.4 million, including interest, and refinanced such debt with
another lender. As a result of the debt extinguishment, the Company accelerated
amortization of the unamortized debt issue costs and incurred prepayment and
termination penalties totaling approximately $3.6 million ($2.2 million after
tax), which has been presented as an extraordinary loss in the consolidated
statement of earnings.
On December 3, 1997, Fairfield exchanged 145,719 shares (291,438 shares
on a post split basis) of common stock for all of the outstanding common stock
of Apex Marketing, Inc. ("Apex"). The transaction has been accounted for as a
pooling of interests. The Apex operations are not material to Fairfield's
consolidated financial statements for any period; therefore, financial
statements for periods prior to the merger have not been restated, and the
consolidated financial statements include operations of Apex from the date of
combination.
NOTE 3 - LOANS RECEIVABLE
- ------ ----------------
Loans receivable consisted of the following (In thousands):
<TABLE>
December 31,
1997 1996
---- ----
<S> <C> <C>
Contracts $302,519 $230,213
Mortgages 9,538 11,413
-------- --------
312,057 241,626
Less allowance for loan losses (20,848) (16,528)
-------- --------
$291,209 $225,098
======== ========
</TABLE>
The weighted average stated interest rates on the Company's contracts
receivable were 14.6% and 14.5% at December 31, 1997 and 1996, respectively,
with interest rates on these receivables ranging generally from 12.0% to 17.5%.
The Company's contracts receivable were 96.7% and 96.9% current on a 60 day
basis at December 31, 1997 and 1996, respectively. Amounts charged against the
allowance for loan losses, net of recoveries, totaled $7.8 million, $6.8 million
and $4.6 million during 1997, 1996 and 1995, respectively.
NOTE 4 - VACATION OWNERSHIP REVENUES
- ------ ---------------------------
Vacation ownership revenues are summarized as follows (In thousands):
<TABLE>
Year Ended December 31,
-------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Vacation ownership revenues $250,802 $193,335 $135,672
Less: Deferred revenue on
current year sales, net (5,225) (10,564) (11,841)
Add: Revenue recognized on
prior year sales 10,564 11,841 1,920
-------- -------- --------
$256,141 $194,612 $125,751
======== ======== ========
</TABLE>
F-18
<PAGE>
NOTE 5 - REAL ESTATE INVENTORIES
------ -----------------------
Real estate inventories are summarized as follows (In thousands):
<TABLE>
December 31,
---------------------------
1997 1996
---- ----
<S> <C> <C>
Land:
Under development $20,186 $16,196
Undeveloped 6,480 5,515
------- -------
26,666 21,711
------- -------
Residential housing:
Vacation ownership 62,410 42,075
Homes 4,063 3,808
------- -------
66,473 45,883
------- -------
$93,139 $67,594
======= =======
</TABLE>
NOTE 6 - PROPERTY AND EQUIPMENT
- ------ ----------------------
Property and equipment is summarized as follows (In thousands):
<TABLE>
December 31,
--------------------------
1997 1996
---- ----
<S> <C> <C>
Land, buildings and improvements:
Administration $ 19,659 $ 16,902
Lodging and other 4,393 4,201
Furniture, fixtures and equipment 18,273 17,830
-------- --------
42,325 38,933
Accumulated depreciation (17,955) (14,131)
-------- --------
$ 24,370 $ 24,802
======== ========
</TABLE>
The Company has operating leases which consist primarily of (i) building
and office space used for its sales and marketing operations and (ii) telephone
and office equipment. Rental expense under operating leases totaled $4.8 million
for both 1997 and 1996 and $3.8 million for 1995. The future minimum lease
commitments for non-cancelable operating leases with initial or remaining terms
in excess of one year are as follows: 1998 - $3.7 million; 1999 - $3.4 million;
2000 - $2.1 million; 2001 - $.9 million and 2002 - $.5 million.
F-19
<PAGE>
NOTE 7 - FINANCING ARRANGEMENTS
- ------ ----------------------
Financing arrangements are summarized as follows (In thousands):
<TABLE>
December 31,
-----------------------
1997 1996
---- ----
<S> <C> <C>
Revolving credit agreements $ 94,101 $ 42,394
Notes payable collateralized by
contracts receivable:
FCC Notes 60,147 29,944
FFC Notes 12,330 24,370
Notes payable - other 3,503 16,587
-------- --------
$170,081 $113,295
======== ========
</TABLE>
Revolving Credit Agreements
---------------------------
On December 19, 1997, Fairfield amended its Amended and Restated Credit
Agreement (the "FCI Agreement"), which provided for additional interim borrowing
availability of up to $100.0 million ($125.0 million in total, including up to
$7.0 million for letters of credit) for a period ending no later than March 18,
1998. Proceeds from the additional borrowing availability were used to retire
substantially all of the secured obligations of Vacation Break totaling $81.4
million, including interest, and to pay certain expenses associated with the
merger. At December 31, 1997, borrowings under the FCI Agreement bear interest
at the lender's base rate plus 1.75% (10.25%) and are collateralized primarily
by contracts receivable, which had a book value of $161.5 million. The revolving
loans mature on January 1, 1999, if not extended in accordance with the terms of
the FCI Agreement. At December 31, 1997, Fairfield had borrowing availability of
$26.4 million, net of outstanding letters of credit totaling $3.4 million.
At December 31, 1997, FAC had no borrowings outstanding under its Third
Amended and Restated Revolving Credit Agreement (the "FAC Agreement"). The FAC
Agreement provides for revolving loans of up to $15.0 million, including up to
$1.0 million for letters of credit. Borrowings under the FAC Agreement bear
interest at the lender's base rate plus 1.75% (10.25%) at December 31, 1997 and
are collateralized primarily by contracts receivable, which had a book value of
$20.8 million at December 31, 1997. The revolving loans mature on January 1,
1999, if not extended in accordance with the terms of the FAC Agreement, with
Fairfield being a guarantor pursuant to the FAC Agreement. At December 31, 1997,
FAC had borrowing availability of $15.0 million.
On January 15, 1998, Fairfield Receivables Corporation ("FRC"), a wholly
owned subsidiary of FAC, entered into a Credit Agreement (the "FRC Agreement")
which provided for borrowings of up to $150.0 million for the purchase of
contracts receivable from FAC pursuant to the Receivable Purchase Agreement,
among Fairfield as originator, FAC as the seller and FRC as purchaser.
Notes Payable Collateralized by Contracts Receivable
----------------------------------------------------
In 1996, Fairfield Capital Corporation ("FCC"), a wholly owned
subsidiary of FAC, amended its Credit Agreement (the "FCC Agreement") which
provides for total borrowings of up to $90.0 million (the "FCC Notes") for the
purchase of contracts receivable from FAC pursuant to the Amended and Restated
Receivables Purchase Agreement, among Fairfield as originator, FAC as seller and
FCC as purchaser. Borrowings under the FCC Agreement mature principally within
60 months and bear interest at varying rates, based on commercial paper rates.
As of December 31, 1997, the weighted average interest rate on the FCC Notes was
5.6%, including fees totaling .375%. At December 31, 1997, contracts receivable
totaling $79.8 million collateralized the FCC Notes.
F-20
<PAGE>
On February 2, 1998, FAC entered into an interest rate swap with its
primary lender, which provides for an interest rate of 5.63% on $50.0 million of
FCC Notes. This arrangement is subject to the scheduled amortization of
contracts receivable securing the FCC Notes and will expire on February 2, 2002.
FCC is a wholly owned but separate corporate entity of FAC with its own
separate creditors. In the event of a liquidation of FCC, such creditors would
be entitled to satisfy their claims from FCC prior to any distribution to FAC.
Fairfield Funding Corporation ("FFC") is a wholly owned subsidiary of
FAC, with outstanding borrowings issued under private placement notes that bear
interest at a rate of 7.6% (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 among Fairfield as originator, FAC as seller and
FFC as purchaser. At December 31, 1997, contracts receivable totaling $22.5
million collateralized the FFC Notes.
At December 31, 1997 and 1996, restricted cash accounts totaling $3.7
million and $2.6 million, respectively, were required to be maintained in
accordance with the terms of the FCC and FFC Notes. Contractual maturities
within the next five years of contracts receivable which serve as collateral for
and will be used to reduce the notes payable are as follows: 1998 - $21.8
million; 1999 - $19.4 million; 2000 - $18.6 million; 2001 - $17.7 million and
2002 - $15.3 million.
NOTE 8 - DEFERRED REVENUE - ESTIMATED COSTS TO DEVELOP LAND SOLD
- ------ -------------------------------------------------------
At December 31, 1997, 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:
1998 - $.6 million; 1999 - $.4 million; 2000 - $.5 million; 2001 - $.3 million
and 2002 - $.5 million.
NOTE 9 - INCOME TAXES
- ------ ------------
At December 31, 1997, the Company had net operating loss carryforwards
totaling $96.0 million which reflect the amount available to offset taxable
income in future periods. Under limitations imposed by Internal Revenue Code
Section 382 ("Section 382"), certain potential changes in ownership of the
Company, which may be outside the Company's knowledge or control, may restrict
future utilization of these carryforwards. More specifically, changes in
ownership occurring within a rolling three-year period, taking into
consideration filings with the Securities and Exchange Commission on Schedules
13D and 13G by holders of 5% or more of Fairfield's Common Stock, whether
involving the acquisition or disposition of Fairfield's Common Stock, may impose
a material limitation on the Company's use of these carryforwards. If an
ownership change triggers the Section 382 limitations, the annual limitation
imposed on the use of pre-change carryforwards under present law is an amount
equal to the value of the Company immediately before the ownership change
multiplied by the federally prescribed long-term tax-exempt rate for the period
in which the change occurs. At December 31, 1997, available carryovers, if not
utilized, expire as follows: 2005 - $12.6 million; 2006 - $8.0 million; 2007 -
$14.5 million; 2008 - $6.3 million; 2009 - $3.5 million; 2010 - $22.0 million;
2011 - $24.2 million and 2012 - $4.9 million.
F-21
<PAGE>
Components of the provision for income taxes are as follows (In
thousands):
<TABLE>
Year Ended December 31,
--------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Current:
Federal $ 2,779 $ 254 $ 491
State 164 426 542
------- ------- ------
2,943 680 1,033
Deferred:
Federal 14,050 11,380 6,559
State 2,734 1,280 742
------- ------- ------
16,784 12,660 7,301
------- ------- ------
$19,727 $13,340 $8,334
======= ======= ======
Utilization of pre-confirmation
income tax attributes $ -- $19,108 $6,263
======= ======= ======
</TABLE>
During 1997, the Company recorded a tax benefit of approximately $1.4
million related to the extraordinary loss resulting from early extinguishment of
substantially all of Vacation Break's debt.
Components of the variance between taxes computed at the expected
federal statutory income tax rate and the provision for income taxes are as
follows (In thousands):
<TABLE>
Year Ended December 31,
-----------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Statutory tax provision $15,085 $12,405 $7,773
State income taxes, net of
federal benefit 1,720 1,109 834
Non-deductible merger expenses 2,294 - -
Other 628 (174) (273)
------- ------- ------
Provision for income taxes $19,727 $13,340 $8,334
======= ======= ======
</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,
-----------------------
1997 1996
---- ----
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 38,259 $34,176
Loan and cancellation loss reserves 8,308 6,459
Deferred revenue 4,619 9,228
Tax over book basis in inventory
and fixed assets 724 3,471
Credit carryforwards 4,338 1,459
Other 3,271 4,022
-------- -------
59,519 58,815
-------- -------
Deferred tax liabilities:
Installment sales 68,234 44,556
Other 1,558 3,891
-------- -------
69,792 48,447
-------- -------
Net deferred tax (liabilities) assets $(10,273) $10,368
======== =======
</TABLE>
F-22
<PAGE>
The Company has reported operating earnings since emerging from
reorganization in 1992 and management believes that it is more likely than not
that future taxable earnings will be sufficient to realize the tax benefits
associated with the future deductible temporary differences and net operating
loss carryforwards prior to their expiration; therefore, the Company eliminated
the remaining valuation allowance in 1996.
NOTE 10 - OTHER LIABILITIES
- ------- -----------------
Other liabilities consisted of the following (In thousands):
<TABLE>
December 31,
1997 1996
---- ----
<S> <C> <C>
Employee compensation and benefits $13,973 $10,605
Deferred tax liability 10,273 -
Deposits associated with sales contracts 6,639 5,883
Accrual for Discovery fulfillment 5,588 3,077
Accrued merger costs 2,028 -
Accrued legal reserves 1,645 382
Accrued association subsidies 1,549 924
Minority interests in joint ventures - 10,100
Other 14,807 11,524
------- -------
$56,502 $42,495
======= =======
</TABLE>
NOTE 11 - STOCKHOLDERS' EQUITY
- ------- --------------------
On December 19, 1997, Fairfield's stockholders approved an increase in the
number of authorized common shares from 25,000,000 to 100,000,000. On December
11, 1997, the Board of Directors declared a two-for-one common stock split in
the form of a stock dividend effective January 30, 1998 to shareholders of
record on January 15, 1998. Additionally, on June 5, 1997, the Board of
Directors declared a three-for-two common stock split in the form of a stock
dividend effective July 15, 1997 to shareholders of record on July 1, 1997. In
connection with these stock splits, Fairfield reclassified $304,000, the par
value of the additional shares resulting from the splits, from paid-in capital
to common stock. All references to the number of common shares, per share
amounts and average shares outstanding in the consolidated financial statements,
except for shares authorized at December 31, 1996, have been restated to reflect
the effect of these stock splits.
In 1996, the Company completed an underwritten public offering of
900,000 shares (2,700,000 shares on a post split basis) of Common Stock at a
price of $21.63 per share ($7.21 per share on a post split basis) (the
"Offering"). The net proceeds from the Offering of $17.7 million were used to
repay certain indebtedness, totaling $9.1 million, issued in connection with the
Company's reorganization and to temporarily pay down the outstanding
indebtedness under the Company's revolving credit agreements.
In 1996, the Company issued, from treasury, 60,000 shares (180,000
shares on a post split basis) of Common Stock to the Chief Executive Officer
subject to restriction and risk of forfeiture (the "Restricted Stock"). The
Restricted Stock was issued at no cost to the Chief Executive Officer, in
substitution for certain other compensation arrangements, and vests as to
one-half of the shares on each of the first and second anniversaries of the date
of grant. At issuance of the Restricted Stock, unearned compensation equivalent
to the market value at the date of grant was charged to stockholders' equity and
will be amortized over the restricted period.
F-23
<PAGE>
The Company is authorized to issue 5,000,000 shares of preferred stock
par value $.01 per share. One million shares of preferred stock, which have been
designated as the Series A Junior Participating Preferred Stock, have been
reserved for possible issuance in connection with Fairfield's Rights Agreement
as discussed below. The rights and preferences of the remaining shares of
authorized but unissued Preferred Stock are to be established by Fairfield's
Board of Directors at the time of issuance.
Fairfield has a Rights Agreement which provides for the issuance, on a post
split basis, of one-third of a 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 business days after a person becomes
the beneficial holder of 20% or more of Fairfield's Common Stock 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.
Certain of the Company's financing arrangements contain restrictive
covenants relating to the maintenance of certain financial ratios and other
financial requirements. Under the most restrictive covenants, the Company is
prohibited from paying dividends or making other distribution on its Common
Stock.
NOTE 12 - EARNINGS PER SHARE
- ------- ------------------
The following table sets forth the computation of basic and diluted
earnings per share ("EPS") (In thousands, except per share data):
<TABLE>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Numerator:
Net income before extraordinary loss $23,372 $22,103 $13,874
Extraordinary loss from early
extinguishment of debt 2,195 - -
------- ------- -------
Numerator for basic and diluted EPS $21,177 $22,103 $13,874
======= ======= =======
Denominator:
Denominator for basic EPS-
weighted-average shares 44,200 40,558 37,691
Effect of dilutive securities:
Contingently issuable common stock 90 180 -
Options and warrants 1,626 1,600 1,270
Increase in shares outstanding due to
allowed claims exceeding $85 million (1) - 561 561
Common stock held in escrow 366 366 366
------- ------- -------
Dilutive potential common shares 2,082 2,707 2,197
------- ------- -------
Denominator for diluted EPS-
adjusted weighted-average shares
and assumed conversions 46,282 43,265 39,888
====== ====== ======
Basic earnings per share $.48 $.54 $.37
==== ==== ====
Diluted earnings per share $.46 $.51 $.35
==== ==== ====
</TABLE>
(1) On June 30, 1997, the Bankruptcy Court approved a settlement agreement
between the Company and the county and the property owners' association
for its Pagosa Springs, Colorado resort location. Based on the terms of
the settlement, the Company subsequently issued 280,500 shares (561,000
shares on a post split basis) of its Common Stock.
F-24
<PAGE>
NOTE 13 - FAIRFIELD ACCEPTANCE CORPORATION
- ------- --------------------------------
Condensed consolidated financial information for FAC is summarized as
follows (In thousands):
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
December 31,
------------------------------
1997 1996
---- ----
<S> <C> <C>
ASSETS
Cash $ 494 $ 462
Loans receivable, net 111,071 96,760
Restricted cash 3,749 2,622
Due from parent 6,710 --
Other assets 2,390 2,279
-------- --------
$124,414 $102,123
======== ========
LIABILITIES AND EQUITY
Financing arrangements $ 72,477 $ 54,314
Accrued interest and other liabilities 703 586
Due to parent -- 2,554
Equity 51,234 44,669
-------- --------
$124,414 $102,123
======== ========
</TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
Year Ended December 31,
----------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Revenues $17,634 $16,565 $15,009
Expenses 6,832 6,649 8,103
------- ------- -------
Earnings before provision
for income taxes 10,802 9,916 6,906
Provision for income taxes 4,237 3,812 2,656
------- ------- -------
Net earnings $ 6,565 $ 6,104 $ 4,250
======= ======= =======
</TABLE>
In accordance with the terms of the Third Amended and Restated Operating
Agreement (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 1997 and 1996, FAC purchased receivables from Fairfield with outstanding
principal balances of $60.8 million and $42.6 million, respectively.
NOTE 14 - NET LIABILITIES OF ASSETS HELD FOR SALE
- ------- ---------------------------------------
During the first quarter of 1997, the Company transferred $7.9 million
in cash and the assets collateralizing the 10% Senior Subordinated Secured Notes
(the "FCI Notes"), with an appraised market value of $7.2 million (the "Real
Estate Collateral"), in settlement of the FCI Notes. The indenture trustee, at
the direction of the majority noteholders, has filed suit, pending in the United
States District Court for the Southern District of New York, contesting the
Company's method of satisfying this obligation and claiming a default under the
indenture securing the FCI Notes (see Note 17).
F-25
<PAGE>
At December 31, 1996, the Real Estate Collateral assets held for sale
totaled $6.5 million and consisted of those assets collateralizing the FCI Notes
which had an outstanding balance of $14.8 million. During the fourth quarter of
1996, the Company recorded a valuation adjustment of $1.0 million based on
current information that indicated the carrying value of the Real Estate
Collateral was in excess of the fair value. This valuation adjustment was
included in "Other expenses" in the 1996 Consolidated Statement of Earnings.
NOTE 15 - EMPLOYEE BENEFIT PLANS
- ------- ----------------------
Savings/Profit Sharing Plan
---------------------------
The Savings/Profit Sharing Plan (the "Plan") covers substantially all
employees with one year or more of credited service, and participants are fully
vested after seven years of credited service. The Plan includes a profit sharing
feature, with annual employer discretionary contributions, and a 401(k) feature,
which allows employee elected salary deferrals, with the Company currently
matching a portion of such deferrals. The amount charged to expense related to
the Plan totaled $2.0 million, $1.2 million and $.6 million for 1997, 1996 and
1995, respectively.
All full time employees of Vacation Break, who had completed one year of
service, were eligible to participate in a 401(k) plan (the "Vacation Break
Plan") that allowed each participating employee to contribute up to 15% of their
earnings to the Vacation Break Plan. Vacation Break matched 50% of employee
contributions up to 3% of employee earnings. In conjunction with the merger with
Fairfield, the Vacation Break Plan was frozen as of December 31, 1997. The
amount charged to expense related to the Vacation Break Plan totaled $104,000,
$72,000 and $25,000 for 1997, 1996 and 1995, respectively.
Excess Benefit Plan
-------------------
The Excess Benefit Plan is a non-qualified, unfunded plan established to
provide qualifying 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
Savings/Profit Sharing Plan. Participants' 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 Savings/Profit Sharing Plan. Participants' accounts under the Excess Benefit
Plan vest in accordance with the vesting schedule for profit sharing accounts
under the Savings/Profit Sharing Plan. Interest is credited to the participants'
accounts annually. The expense associated with the Excess Benefit Plan totaled
$0.3 million for 1997 and $0.1 million for each of 1996 and 1995.
Retirement Plan
---------------
The Key Employee Retirement Plan (the "Retirement Plan") is a
non-qualified, unfunded plan established to provide certain senior executives of
the Company with retirement benefits. Under the Retirement Plan, participants'
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 three-year moving average rate
of return on stockholders' equity. Participants' 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. The expense
associated with the Retirement Plan totaled $0.3 million for each of 1997, 1996
and 1995. Effective August 1, 1997, the Company suspended benefit accruals under
the Retirement Plan.
F-26
<PAGE>
Employee Stock Purchase Plan
----------------------------
Effective January 1, 1997, the Company established the Employee Stock
Purchase Plan (the "Stock Plan"), whereby all full time employees are eligible
to purchase shares of the Company's Common Stock at a 15% discount to the market
price on the date of purchase. The Stock Plan is not qualified under Section
401(a) of the Internal Revenue Code of 1996, as amended, and is not subject to
the provisions of the Employee Retirement Income Security Act of 1974.
Option and Warrant Plans
------------------------
The 1992 Warrant Plan, as amended, (the "1992 Plan") provides for the
grant of non-qualified stock warrants to purchase up to 1,000,000 shares
(2,587,000 shares on a post split basis) of the Company's Common Stock at prices
not less than the fair market value of such shares at the date of grant. The
stock warrants generally become exercisable over one to five years from the date
of grant and must be exercised within ten years from the date of grant.
During May 1997, the Company's stockholders approved the 1997 Stock
Option Plan ("1997 Plan"). Under the terms of the 1997 Plan, nonqualified stock
options to purchase a maximum of 550,000 shares (1,650,000 shares on a post
split basis) of the Company's Common Stock may be granted at prices not less
than the fair market value of such shares at the date of grant. The stock
options generally become exercisable over two to five years from the date of
grant and must be exercised within ten years from the date of grant.
Vacation Break's 1995 Stock Option Plan and the Directors' Stock Option
Plan (collectively, the "Option Plans")provided for the grant of incentive and
non-qualified stock options to purchase shares of Vacation Break common stock at
prices not less than the fair market value of such shares at the date of grant.
In conjunction with the merger, all outstanding options to purchase Vacation
Break common stock related to the Option Plans became immediately vested and
were converted into options to purchase the Company's Common Stock at an
exchange rate of .6075 on a pre split basis. The Company does not intend to
grant any additional options under the Option Plans.
The following table summarizes the activity under the Company's option
and warrant plans:
<TABLE>
Weighted Average
Shares Price Per Share
------------------------------- --------------------
1997 1996 1995 1997 1996 1995
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of period 3,103,000 3,028,000 2,454,000 $ 2.03 $1.52 $1.02
Granted 2,299,000 674,000 617,000 10.78 3.83 3.58
Exercised (380,000) (488,000) - 3.51 1.28 N/A
Forfeited (220,000) (111,000) (43,000) 6.70 1.68 2.55
--------- --------- ---------
Outstanding at end
of period 4,802,000 3,103,000 3,028,000 5.66 2.03 1.52
========= ========= =========
Exercisable at end
of period 2,739,000 1,779,000 1,629,000
========= ========= =========
Reserved for future
issuance 360,000 107,000 396,000
======= ======= =======
</TABLE>
F-27
<PAGE>
The following table summarizes information concerning outstanding and
exercisable stock options and warrants as of December 31, 1997 adjusted to
reflect the two-for-one stock split effective January 31, 1998:
<TABLE>
Outstanding Exercisable
- ----------------------------------------------------- ----------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life Price Exercisable Price
--------------- ----------- ---- ----- ----------- -----
<S> <C> <C> <C> <C> <C>
Less than $4 2,172,000 5.7 years $ 1.25 1,689,000 $1.14
$4 - $9 1,050,000 5.8 years 5.43 1,050,000 5.43
$10 or more 1,580,000 9.5 years 11.88 - -
--------- ---------
4,802,000 2,739,000
========= =========
</TABLE>
The Company has elected to account for stock options and warrants as
prescribed by the provisions of Accounting Principles Board Opinion No. 25
versus the alternative fair value accounting provided for under Statement of
Financial Accounting Standards No. 123 "Accounting for Stock-Based Compensation"
("SFAS No. 123"). Accordingly, the Company does not recognize compensation
expense on the issuance of its stock options and warrants as the option terms
are fixed and the exercise price equals the market price of the underlying stock
on date of grant.
Pro forma information regarding net income and earnings per share is
required by SFAS No. 123 and has been determined as if the Company had accounted
for its stock options and warrants under the fair value method. The fair value
of these options and warrants was estimated at date of grant using a Black
Scholes option pricing model with the following weighted-average assumptions for
1997, 1996 and 1995, respectively: risk free interest rates of 6.6%, 6.5% and
5.6%; dividend yields of 0% for each year presented; volatility factors of the
expected market price of the Company's Common Stock of 43.8, 44.5 and 45.5; and
the weighted-average expected life of the options and warrants of six years in
1997 and 1996 and five years in 1995. The weighted-average fair value of the
options and warrants granted in 1997, 1996, and 1995 was $4.90, $2.07 and $1.71,
respectively.
For purposes of pro forma disclosures, the estimated fair value of stock
options and warrants is amortized to expense over their respective vesting
periods. The pro forma net earnings and earnings per share, assuming the Company
had elected to account for its stock options and warrants in accordance with
SFAS No. 123, would have been $19.6 million or $.42 per diluted share, $21.5
million or $.50 per diluted share and $13.7 million or $.34 per diluted share,
for 1997, 1996 and 1995, respectively. Such pro forma effects are not
necessarily indicative of the effect on future years.
NOTE 16 - SUPPLEMENTAL INFORMATION
- ------- ------------------------
Other revenues consisted of the following (In thousands):
<TABLE>
Year Ended December 31,
---------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Home sales $11,124 $ 8,752 $ 6,719
Lot sales 8,060 8,735 7,817
Fairshare Plus conversion fees 2,069 1,076 931
Other 3,433 6,569 12,224
------- ------- -------
$24,686 $25,132 $27,691
======= ======= =======
</TABLE>
F-28
<PAGE>
Other expenses consisted of the following (In thousands):
<TABLE>
Year Ended December 31,
-------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Home cost of sales $ 9,819 $ 8,162 $ 5,979
Lot cost of sales 2,170 2,068 1,970
Fairshare Plus conversion commissions 706 462 587
Other 5,371 7,718 9,375
------- ------- -------
$18,066 $18,410 $17,911
======= ======= =======
</TABLE>
Included in other assets at December 31, 1997 and 1996 are (i) other
receivables of $4.6 million and $8.3 million, respectively, (ii) unamortized
capitalized financing costs of $2.4 million and $2.3 million, respectively, and
(iii) $2.0 million and $2.9 million, respectively, related to the assets of the
Company's life insurance subsidiary. Interest paid, net of amounts capitalized,
totaled $11.2 million, $15.5 million and $10.8 million for 1997, 1996 and 1995,
respectively. Interest paid in 1996 included $2.7 million paid in connection
with the retirement of obligations issued as a result of the Company's
reorganization. Capitalized interest for 1997, 1996 and 1995 totaled $3.0
million, $2.6 million and $1.6 million, respectively.
NOTE 17 - CONTINGENCIES
------- -------------
In July 1993 and September 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
plaintiffs have asserted in court appearances that the actions focus on
recreation fees collected in Pagosa for lots from September 1, 1992 to the
present. 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 nature of the litigation, Fairfield is unable
to determine with certainty the dollar amount sought by plaintiffs, but
estimates that is has collected approximately $570,000 in recreation fees during
the relevant period for lots at Pagosa. In November 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. 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
F-29
<PAGE>
believed to have purchased their lots prior to August 14, 1992. Fairfield
appealed the Bankruptcy Court's decision in the Daleske lawsuit, and the
plaintiffs in the Storm lawsuit appealed the Bankruptcy Court's decision in that
case, to the United States District Court, Eastern Division of Arkansas, Western
Division (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 in October 1994, was
filed individually, while the second of these cases, the Lobdell case, was filed
in November 1994, as a purported class action. In February 1995, Fairfield filed
an adversary proceeding in the Bankruptcy Court against the Fiedler and the
Lobdell plaintiffs, seeking relief similar to that requested in the Storm and
Daleske adversary proceeding. The Colorado District Court entered summary
judgment against Fairfield in the Fiedler case, holding that the individual lot
in question is not subject to the recreation fee, based upon facts unique to the
Fiedler case. Fairfield appealed the summary judgment decision in the Fiedler
case. The Bankruptcy Court determined, by decision dated September 18, 1995,
that it does not have jurisdiction in the Fiedler case, but also determined that
it does have jurisdiction in the Lobdell case, based upon similar reasoning to
the Storm case. Both the Fiedler and the Lobdell cases were appealed to the
District Court. By order dated March 27, 1997, the District Court ruled in the
Daleske, Storm and Lobdell appeals, finding in favor of the plaintiffs that the
recreation fees arising after August 14, 1992 are post-confirmation claims and
that the plaintiffs may pursue actions seeking to enjoin Fairfield from
continuing to collect such fees. Fairfield filed a notice of appeal from the
District Court's decision with the United States Court of Appeals for the Eighth
Circuit, which held oral argument on January 16, 1998, but no decision has been
announced. Motions and cross motions for summary judgment have been filed in
Colorado state court in three of the cases and remain pending. Fairfield intends
to defend vigorously the Recreation Fee Litigation, and the two related cases,
including any attempt to certify a class in any of the cases. Fairfield has
previously implemented recreation fee charges at certain other of its resort
sites which are not subject to the pending action.
In December 1993, Charlotte T. Curry, who, with her husband, purchased
a lot from Fairfield under an installment sale contract subsequently sold to
First Federal Savings and Loan Association of Charlotte ("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. In April 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 cancelled 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. By order filed September 15,
1995, the court denied the plaintiff's motion for class certification. The
plaintiff appealed the denial of the motion for class certification to the North
Carolina Court of Appeals, which dismissed the appeal by order dated January 8,
1997. Subsequently, the plaintiff requested that the
F-30
<PAGE>
Supreme Court of North Carolina grant discretionary review of the decision
denying class certification, which the Supreme Court of North Carolina declined.
Trial on this litigation is scheduled for April 1998. On January 7, 1998, the
attorneys representing Ms. Curry filed another lawsuit (the Scarvey lawsuit),
also pending in Superior Court in Mecklenburg County, North Carolina, as a
purported class action, against First Federal, alleging breach of contract,
breach of fiduciary duty and unfair trade practices, and seeking damages as
outlined above in the Curry case. The Scarvey case seeks to relitigate the North
Carolina courts' refusal to certify the Curry case as a class action and asserts
that the Curry case tolled the statute of limitations for Ms. Scarvey's claims,
which are alleged to post-date Ms. Curry's claims. Under the Stock Purchase
Agreement for the sale of First Federal, Fairfield agreed to indemnify the buyer
against any liability in the Curry litigation. Fairfield does not believe that
it is obligated to indemnify the buyer of First Federal for the Scarvey
litigation, but, based upon receipt of a request for indemnification from the
buyer, this interpretation of the Stock Purchase Agreement may be contested.
While Fairfield is no longer a defendant in the litigation, it intends to
coordinate the defense of the Curry lawsuit 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.
During the first quarter of 1997, the Company transferred $7.9 million
in cash and the assets collateralizing the 10% Senior Subordinated Secured Notes
(the "FCI Notes"), with an appraised market value of $7.2 million (the "Real
Estate Collateral"), in settlement of the FCI Notes. The indenture trustee, at
the direction of the majority noteholders, has filed suit, pending in the United
States District Court for the Southern District of New York, contesting the
Company's method of satisfying this obligation and claiming a default under the
indenture securing the FCI Notes. This action alternatively (a) disputes the
Company's right to transfer the Real Estate Collateral in satisfaction of the
FCI Notes, seeking instead a cash payment of $7.2 million, plus penalty interest
and the fees and expenses of the action, or (b) disputes the $7.9 million cash
transfer, seeking instead the issuance of 1,764,706 shares (after giving effect
to the 2-for-1 share stock split, effective January 30, 1998) of the Company's
Common Stock (the "Contested Shares"), previously reserved for issuance if a
deficiency resulted on the FCI Notes at maturity. Pursuant to the indenture for
the FCI Notes, the noteholders are entitled to retain, as a premium, up to $2
million from the proceeds of the collateral transferred in satisfaction of the
FCI Notes (including, if applicable, shares of the Company's Common Stock) in
excess of the amount of principal and accrued interest due at maturity. The
indenture trustee has asserted that the $2 million premium limit is not
applicable to the Contested Shares, has accordingly claimed entitlement to all
of the Contested Shares and on September 24, 1997 filed a motion seeking to
require the immediate issuance and sale of the Contested Shares, with the
proceeds to be held in escrow, pending the outcome of the litigation. The
Company has opposed the Indenture Trustee's motion and has requested summary
judgment, asserting that the noteholders are not entitled to any of the
Contested Shares. The Company has been advised that the Real Estate Collateral
has been sold for approximately $4.4 million. The Company intends to vigorously
defend this action and believes that it has substantive defenses. The Contested
Shares are not included in the number of shares outstanding for earnings per
share or other purposes.
On March 28, 1997, a lawsuit was filed against Vacation Break in the
Circuit Court for Pinellas County, Florida by Market Response Group & Laser
Company, Inc. ("MRG&L") alleging that Vacation Break and others conspired to
boycott MRG&L and fix prices for mailings in violation of the Florida Antitrust
Act, and in concert with others, engaged in various acts of unfair competition,
deceptive trade practices and common law conspiracy. The complaint also alleges
that Vacation Break breached its contract with MRG&L, that Vacation Break
misappropriated proprietary information from MRG&L and that Vacation Break
interfered with, and caused other companies to breach their, contracts with
MRG&L.
F-31
<PAGE>
The complaint demands that Vacation Break indemnify MRG&L for costs incurred by
it to defend a 1996 Federal Trade Commission action. While the Company cannot
calculate the total amount of damages sought by MRG&L under its complaint, it
appears to be in excess of $50 million. The Company intends to vigorously defend
this action and assert counterclaims if and when appropriate. Under the terms of
the Principal Stockholders Agreement, entered into in connection with the
acquisition of Vacation Break, Fairfield has been indemnified for (a) 75% of the
damages which may be incurred in connection with the MRG&L litigation and (b)
25% of the expense incurred in defending the MRG&L litigation, in excess of the
June 30, 1997 reserve on Vacation Break's books, with the maximum amount of
indemnification to be $6 million. Such indemnification agreement has been
collateralized by, and recourse under the indemnity agreement is limited to, the
pledge of shares of the Company's Common Stock, valued as of December 18, 1997,
(adjusted for stock splits and certain other similar items) and the proceeds
thereof.
The Company is involved in various other or threatened lawsuits and
contingencies on an ongoing basis as a result of its day-to-day operations.
However, the Company does not believe that any of these other or threatened
lawsuits or contingencies will have a materially adverse effect on the Company's
financial position or results of operations.
NOTE 18 - FAIR VALUE OF FINANCIAL INSTRUMENTS
- ------- -----------------------------------
The fair value estimates presented herein are based on relevant market
information. As these estimates are subjective in nature and involve
uncertainties and significant judgment, they are not necessarily indicative of
the amount that the Company could realize on a current market exchange. The fair
value disclosures for financial instruments are as follows:
Cash and cash equivalents: The carrying amounts reported in the
consolidated balance sheets approximate their fair values at December
31, 1997 and 1996.
Restricted cash and escrow accounts: The estimated fair values of
restricted cash and escrow accounts approximate their carrying amounts
at December 31, 1997 and 1996.
Loans receivable: The carrying amounts of loans receivable are a
reasonable estimate of their fair values at December 31, 1997 and 1996
based on valuation models using risk adjusted interest rates and
historical prepayment experiences.
Financing arrangements: The carrying amounts of the Company's
borrowings with variable interest rates approximated their fair values
at December 31, 1997 and 1996. The carrying amounts of the Company's
borrowings with fixed interest rates totaled $14.3 million and $26.8
million at December 31, 1997 and 1996, respectively. The fair values
of these borrowings totaled $14.2 million and $26.2 million at
December 31, 1997 and 1996, respectively, and were estimated using
discounted cash flow analyses based on the Company's current borrowing
rates for similar types of borrowing arrangements.
F-32
<PAGE>
NOTE 19 - UNAUDITED CONSOLIDATED QUARTERLY FINANCIAL DATA
- ------- ------------------------------------------------
Dollars in thousands, except per share data
<TABLE>
Year Ended December 31, 1997
--------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
<S> <C> <C> <C> <C>
Total revenues $68,784 $95,163 $99,274 $83,022
Total expenses 58,999 78,109 80,833 85,203
------- ------- ------- -------
Earnings (loss) before provision for
income taxes and extraordinary loss 9,785 17,054 18,441 (2,181)
Provision for income taxes 3,734 6,710 7,342 1,941
------- ------- ------- -------
Net earnings (loss) before extraordinary loss 6,051 10,344 11,099 (4,122)
Extraordinary loss from early extinguishment
of debt, net of income tax benefit of $1,379 - - - 2,195
------- ------- ------- -------
Net earnings (loss) $ 6,051 $10,344 $11,099 $(6,317)
======= ======= ======= =======
Basic earnings (loss) per share:
Earnings (loss) before extraordinary loss $.14 $.24 $.25 $(.09)
Extraordinary loss - - - (.05)
---- ---- ---- -----
Net earnings (loss) $.14 $.24 $.25 $(.14)
==== ==== ==== =====
Diluted earnings (loss) per share:
Earnings (loss) before extraordinary loss $.13 $.23 $.23 $(.09)
Extraordinary loss - - - (.05)
---- ---- ---- -----
Net earnings (loss) $.13 $.23 $.23 $(.14)
==== ==== ==== =====
Year Ended December 31, 1996
--------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
Total Revenues $51,994 $87,546 $68,216 $67,626
Total expenses 46,706 71,685 60,267 61,281
------- ------- ------- -------
Earnings before provision for income taxes 5,288 15,861 7,949 6,345
Provision for income taxes 1,907 5,983 3,218 2,232
------- ------- ------- -------
Net earnings $ 3,381 $ 9,878 $ 4,731 $ 4,113
======= ======= ======= =======
Basic earnings per share $.08 $.24 $.12 $.10
==== ==== ==== ====
Diluted earnings per share $.08 $.23 $.11 $.09
==== ==== ==== ====
</TABLE>
In conjunction with the closing of the Vacation Break merger on December
19, 1997, Fairfield recorded merger costs of $16.9 million ($12.8 million after
taxes), of which $3.6 million ($2.2 million after taxes) related to the
extraordinary loss resulting from early extinguishment of substantially all of
Vacation Break's debt.
Certain amounts in the unaudited consolidated financial data of prior
quarters for 1997 and 1996 have been reclassified to conform to the 1997 fourth
quarter presentation.
F-33
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
---------- -------------
Apex Marketing, Inc. Arkansas
Caribbean Real Property Company, Inc. Florida
Commercial Land Equity Corporation Florida
Fairfield Acceptance Corporation Delaware
Fairfield Capital Corporation Delaware
Fairfield Funding Corporation Delaware
Fairfield Bay, Inc. Arkansas
Fairfield Equities Delaware
Fairfield Flagstaff Realty, Inc. Arizona
Fairfield Fort George, Inc. Florida
Fort George Country Club, Inc. Florida
Fairfield Glade, Inc. Tennessee
Fairfield Homes Construction Company Florida
Fairfield Management Services, Inc. Florida
Fairfield Mortgage Acceptance Corporation Delaware
Fairfield Mortgage Corporation Arkansas
Fairfield Mountains, Inc. North Carolina
Fairfield Myrtle Beach, Inc. Delaware
Fairfield Pagosa Realty, Inc. Colorado
Fairfield Properties, Inc. Arizona
Fairfield Sapphire Valley, Inc. North Carolina
Fairfield Virgin Islands, Inc. Delaware
Imperial Life Insurance Company Arkansas
Intermont Properties, Inc. Delaware
Jackson Utility Company North Carolina
Mountains Utility Company North Carolina
Northeast Craven Utility Company North Carolina
Ocean Ranch Development, Inc. Florida
Palm Resort Group, Inc. Florida
Rock Island Land Corporation Florida
Shirley Realty Company Arkansas
Suntree Development Company Florida
St. Andrews Club Management Corporation Florida
St. Andrews Realty, Inc. Florida
TFC Realty of Indiana, Inc. Florida
The Florida Companies Florida
<PAGE>
Ventura Management, Inc. Delaware
Vacation Break U.S.A., Inc. Florida
Atlantic Marketing Realty, Inc. Florida
Resorts Title, Inc. Florida
Resort Yachts of America, Inc. Florida
Sea Gardens Beach and Tennis Resort, Inc. Florida
Serenity Yacht Club, Inc. Florida
Vacation Break at Ocean Ranch, Inc. Florida
Vacation Break Construction, Inc. Florida
Vacation Break Management, Inc. Florida
Vacation Break Resorts at Palm Aire, Inc. Florida
Vacation Break Resorts at Star Island, Inc. Florida
Vacation Break Resorts, Inc. Florida
Vacation Break Welcome Centers, Inc. Florida
Vacation Break International Limited Bahamas
Vacation Break Marketing Co. Limited Bahamas
Port Lucaya Resort Company Limited (50%) Bahamas
Davis Beach Co. (50%) Virgin Islands
Palm Vacation Group (100%) Florida
Ocean Ranch Vacation Group (100%) Florida
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 2, 1998, included in
the 1997 Annual Report to Shareholders of Fairfield Communities, Inc.
Our audits 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. We did not audit the 1996 and 1995 consolidated financial statements
of Vacation Break U.S.A., Inc., a wholly-owned subsidiary, which statements
reflect total assets constituting 36% in 1996, and total revenues constituting
37% in 1996, and 30% in 1995 of the related consolidated totals. Those
statements were audited by other auditors whose report has been furnished to us,
and our opinion, insofar as it relates to data included for Vacation Break
U.S.A., Inc., is based solely on the report of the other auditors. In our
opinion, based on our audits and, for 1996 and 1995, the report of other
auditors, 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 Statements
(Form S-3, No. 333-19261) pertaining to the December 19, 1996 Restricted Stock
Agreement, (Form S-3, No. 333-43045) pertaining to the Vacation Break U.S.A.,
Inc. "Selling Stockholders", (Form S-3, No. 333-42963) pertaining to the Apex
Marketing, Inc. "Selling Stockholders", (Form S-8 No.33-55841) pertaining to the
Fairfield Communities, Inc. Third Amended and Restated 1992 Warrant Plan, (Form
S-8, No. 333-16605) pertaining to the Fairfield Communities, Inc. Employee Stock
Purchase Plan, (Form S-8 No. 333-27833) pertaining to the Fairfield Communities,
Inc. Second Amended and Restated 1997 Stock Option Plan, and (Form S-8, No.
333-42901) pertaining to the Vacation Break U.S.A., Inc. Directors' Stock Option
Plan and the Vacation Break U.S.A., Inc. 1995 Stock Option Plan of our report
dated February 2, 1998, with respect to the consolidated financial statements
incorporated herein by reference and our report included in the preceding
paragraph with respect to the financial statement schedule included in this
Annual Report (Form 10-K) of Fairfield Communities, Inc.
Little Rock, Arkansas
March 12, 1998
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Form 10-K of Fairfield
Communities, Inc. of our report dated March 14, 1997, except for Notes 22 and
24, as to which the date is October 9, 1997, on our audits of the consolidated
financial statements of Vacation Break U.S.A., Inc. as of December 31, 1996, and
for the two years in the period ended December 31, 1996, appearing in the
registration statement on Form S-4 (SEC Registration No. 333-39615) of Fairfield
Communities, Inc. filed with the Securities and Exchange Commission pursuant to
the Securities Act of 1933.
Coopers & Lybrand L.L.P.
Miami, Florida
March 12, 1998
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 in his name, place and stead, in any and all
capacities, to sign an annual report on Form 10-K for the fiscal year of
Fairfield Communities, Inc., a Delaware corporation, ended December 31, 1997,
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 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: February 24, 1998 /s/ Les R. Baledge
-------------------------------
Les R. Baledge
<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 in his name, place and stead, in any and all
capacities, to sign an annual report on Form 10-K for the fiscal year of
Fairfield Communities, Inc., a Delaware corporation, ended December 31, 1997,
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 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: February 24, 1998 /s/ Ernest D. Bennett, III
----------------------------------
Ernest D. Bennett, III
<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 in his name, place and stead, in any and all
capacities, to sign an annual report on Form 10-K for the fiscal year of
Fairfield Communities, Inc., a Delaware corporation, ended December 31, 1997,
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 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: February 24, 1998 /s/ Philip L. Herrington
----------------------------------
Philip L. Herrington
<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 in his name, place and stead, in any and all
capacities, to sign an annual report on Form 10-K for the fiscal year of
Fairfield Communities, Inc., a Delaware corporation, ended December 31, 1997,
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 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: February 24, 1998 /s/ Gerald Johnston
---------------------------------
Gerald Johnston
<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 in his name, place and stead, in any and all
capacities, to sign an annual report on Form 10-K for the fiscal year of
Fairfield Communities, Inc., a Delaware corporation, ended December 31, 1997,
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 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: February 24, 1998 /s/ Bryan D. Langton
--------------------------------
Bryan D. Langton
<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 in his name, place and stead, in any and all
capacities, to sign an annual report on Form 10-K for the fiscal year of
Fairfield Communities, Inc., a Delaware corporation, ended December 31, 1997,
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 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: March 5, 1998 /s/ Charles D. Morgan
--------------------------------
Charles D. Morgan
<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 in his name, place and stead, in any and all
capacities, to sign an annual report on Form 10-K for the fiscal year of
Fairfield Communities, Inc., a Delaware corporation, ended December 31, 1997,
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 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: February 24, 1998 /s/ Ralph P. Muller
---------------------------------
Ralph P. Muller
<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 in his name, place and stead, in any and all
capacities, to sign an annual report on Form 10-K for the fiscal year of
Fairfield Communities, Inc., a Delaware corporation, ended December 31, 1997,
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 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: February 24, 1998 /s/ William C. Scott
-------------------------------------
William C. Scott
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Registrant's December 31, 1997 10-K and is qualified in its entirety by
refence to such financial statements.
</LEGEND>
<CIK> 0000276189
<NAME> Fairfield Communities, Inc.
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> year
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1.000
<CASH> 3074
<SECURITIES> 0
<RECEIVABLES> 312057
<ALLOWANCES> 20848
<INVENTORY> 93139
<CURRENT-ASSETS> 0
<PP&E> 42325
<DEPRECIATION> 17955
<TOTAL-ASSETS> 463932
<CURRENT-LIABILITIES> 0
<BONDS> 170081
0
0
<COMMON> 495
<OTHER-SE> 186687
<TOTAL-LIABILITY-AND-EQUITY> 463932
<SALES> 284378
<TOTAL-REVENUES> 309064
<CGS> 93791
<TOTAL-COSTS> 111857
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 12121
<INTEREST-EXPENSE> 10353
<INCOME-PRETAX> 43099
<INCOME-TAX> 19727
<INCOME-CONTINUING> 23372
<DISCONTINUED> 0
<EXTRAORDINARY> 2195
<CHANGES> 0
<NET-INCOME> 21177
<EPS-PRIMARY> .48
<EPS-DILUTED> .46
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains restated summary financial information compiled
from the Registrant's and Vacation Break U.S.A., Inc.'s Form 10-Ks and
Form 10-Qs for the periods indicated and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 9-MOS 6-MOS 3-MOS Year
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997 DEC-31-1997 DEC-31-1996
<PERIOD-END> SEP-30-1997 JUN-30-1997 MAR-31-1997 DEC-31-1996
<CASH> 22208 6739 6712 13316
<SECURITIES> 0 0 0 0
<RECEIVABLES> 300395 278913 252157 241626
<ALLOWANCES> 20099 17446 16474 16528
<INVENTORY> 75147 69458 71978 67594
<CURRENT-ASSETS> 0 0 0 0
<PP&E> 42176 40292 39496 38933
<DEPRECIATION> 15670 15132 14163 14131
<TOTAL-ASSETS> 444712 413322 394093 385570
<CURRENT-LIABILITIES> 0 0 0 0
<BONDS> 151924 126594 125172 113295
0 0 0 0
0 0 0 0
<COMMON> 249 189 189 189
<OTHER-SE> 192496 180317 169166 161936
<TOTAL-LIABILITY-AND-EQUITY> 444712 413322 394093 385570
<SALES> 217758 135115 54992 221599
<TOTAL-REVENUES> 236626 147105 60483 246731
<CGS> 70764 44752 18997 76803
<TOTAL-COSTS> 84552 53908 23219 95213
<OTHER-EXPENSES> 0 0 0 0
<LOSS-PROVISION> 9383 4958 1775 7827
<INTEREST-EXPENSE> 7420 4913 2193 10754
<INCOME-PRETAX> 45280 26839 9785 35443
<INCOME-TAX> 17786 10444 3734 13340
<INCOME-CONTINUING> 27494 16395 6051 22103
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 27494 16395 6051 22103
<EPS-PRIMARY> .63 .38 .14 .54
<EPS-DILUTED> .59 .36 .13 .51
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains restated summary financial information compiled
from the Registrant's and Vacation Break U.S.A., Inc.'s Form 10-Ks and
Form 10-Qs for the periods indicated and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 9-MOS 6-MOS 3-MOS Year
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996 DEC-1-1996 DEC-31-1995
<PERIOD-END> SEP-30-1996 JUN-30-1996 MAR-31-1996 DEC-31-1995
<CASH> 13088 10636 11368 10594
<SECURITIES> 0 0 0 0
<RECEIVABLES> 229898 219452 205601 185645
<ALLOWANCES> 16246 15989 15541 15471
<INVENTORY> 66355 63995 63525 58855
<CURRENT-ASSETS> 0 0 0 0
<PP&E> 36640 34765 32789 30648
<DEPRECIATION> 14045 13399 12998 12471
<TOTAL-ASSETS> 361594 347692 339604 320112
<CURRENT-LIABILITIES> 0 0 0 0
<BONDS> 121863 123243 117105 117763
0 0 0 0
0 0 0 0
<COMMON> 180 179 179 177
<OTHER-SE> 130459 118396 106170 100308
<TOTAL-LIABILITY-AND-EQUITY> 361594 347692 339604 320112
<SALES> 168201 114516 41753 148015
<TOTAL-REVENUES> 187103 126284 45598 175706
<CGS> 58158 40288 15265 54713
<TOTAL-COSTS> 71097 48211 17926 72624
<OTHER-EXPENSES> 0 0 0 0
<LOSS-PROVISION> 5059 3386 1329 8030
<INTEREST-EXPENSE> 7700 5274 2866 10521
<INCOME-PRETAX> 29098 21149 5288 22208
<INCOME-TAX> 11108 7890 1907 8334
<INCOME-CONTINUING> 17990 13259 3381 13847
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 17990 13259 3381 13847
<EPS-PRIMARY> .44 .32 .08 .37
<EPS-DILUTED> .42 .31 .08 .35
</TABLE>
