UNITED STATES
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, 1998
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.)
8669 Commodity Circle, #200, Orlando, Florida 32819
(Formerly 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 March 1, 1999, the number of shares of the registrant's Common
Stock outstanding was 44,281,145 and the aggregate market value of the
registrant's Common Stock held by non-affiliates totaled approximately $305.2
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, 1998 and the Proxy
Statement to be issued in connection with its 1999 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.......... 9
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 7A. Quantitative and Qualitative Disclosures About Market Risk... 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............... 11
PART IV
-------
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K......................................... 11
<PAGE>
PART I
------
Item 1. BUSINESS
- ------ --------
General
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Fairfield Communities, Inc. ("Fairfield", and together with its
consolidated subsidiaries, the "Company") is one of the largest vacation
ownership companies in the United States in terms of property owners, vacation
units constructed and revenues from sales of vacation ownership interests. The
Company markets vacation products and manages resort properties that provide
quality recreational experiences to its more than 240,000 property owners. At
December 31, 1998, the Company's portfolio of resorts consisted of 26 resorts
located in 11 states and the Bahamas. Additionally, the Company has five
destination resorts under development, located in Sedona, Arizona; Durango,
Colorado; Daytona Beach, Florida; Las Vegas, Nevada and Gatlinburg, Tennessee.
The Company's primary business is the sale of vacation ownership interests
through its innovative points-based vacation system, FairShare Plus. The
vacation ownership interests offered by the Company consist of either undivided
fee simple interests or specified fixed week interval ownership in
fully-furnished vacation units. The Company believes that it provides its owners
of vacation ownership interests with a flexible long-term vacation experience.
The vacation ownership interests sold by the Company are typically in resort
locations that feature amenities such as swimming pools, restaurants, and access
to golf courses, marinas, beaches, tennis courts or other recreational
facilities.
The Company offers financing to the purchasers of vacation ownership
interests, which results in the creation of high-quality, medium-term contracts
receivable. The Company initially holds these contracts receivable and will
either securitize them or sell them to its special purpose entities. During
1998, the Company initiated a program whereby it sells contracts receivable to
its two special purpose entities, which are wholly owned but unconsolidated
subsidiaries of Fairfield Acceptance Corporation - Nevada, a wholly owned
subsidiary of Fairfield. Due to favorable interest rates available through the
credit facilities of the special purpose entities, the Company intends to sell
contracts receivable to these entities until such time as these credit
facilities are fully utilized. Additionally, this will also provide the Company
with additional borrowing availability under its existing credit facilities. At
December 31, 1998, the Company's contracts receivable portfolio totaled $197.9
million, with outstanding borrowings of $72.8 million collateralized by the
contracts receivable. At December 31, 1998, the contracts receivable portfolio
had a weighted average maturity of approximately five years, a weighted average
interest rate of 14.2% and a weighted average stated interest rate on associated
debt of 6.3%.
The Company serves as property manager at most of its resorts, allowing it
to maintain close contact with the owners of vacation ownership interests and to
ensure that the quality of the resorts is well maintained. In addition, by being
the on-site manager at its resorts and other resorts, the Company is presented
with additional sales and marketing opportunities to the persons using the
resorts.
The Company's operations involve one reportable segment - Vacation
Ownership operations. This segment derives its revenues from the sale of
vacation ownership interests and from the associated interest income on
contracts receivable generated by the Company's financing of vacation ownership
interest sales. See Note 11 of "Notes to Consolidated Financial Statements".
Fairfield was incorporated in Delaware in 1969. The Company's principal
executive office is located at 8669 Commodity Circle, #200, Orlando, Florida
32819, and its telephone number is (407) 370-5200. At December 31, 1998, the
Company had approximately 4,700 full-time employees.
<PAGE>
Mergers and Acquisitions
------------------------
In 1997, Fairfield acquired all of the outstanding common stock of Vacation
Break U.S.A., Inc. in exchange for approximately 10.6 million shares of its
common stock. The merger was accounted for as a pooling of interests and,
accordingly, all financial information prior to 1997 was restated as if the
merger took place at the beginning of the periods presented. Additionally, in
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.
Item 2. PROPERTIES
- ------ ----------
The Company's objective is to be a leading provider of innovative,
high-quality vacation experiences in the vacation ownership interest 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 which decreases developmental risks and expenses. Furthermore, large
populations of prospective customers continually pass through these areas,
making them prime locations for the Company to operate on-site sales offices
that showcase the Company's resort property portfolio.
The Company'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. The Company's resort sites vary in size from several
acres to over 18,000 acres. The Company's properties are generally unencumbered
as the Company has historically financed its operations through borrowings which
utilize its contracts receivable portfolio as its primary form of collateral.
The following summary sets forth certain information as of December 31, 1998
regarding the Company's more significant resorts.
Property Portfolio - Destination Resorts
----------------------------------------
Fairfield Branson
Branson, MO - Fairfield Branson at the Falls, Fairfield's original Branson
development, is complete and has 54 units. The second Branson development,
Fairfield Branson at the Meadows, has 184 units completed and 24 units under
construction out of a planned 232 units. When completed, amenities at Fairfield
Branson at the Meadows will include an indoor and outdoor swimming pool, health
club and clubhouse. In 1998, the Company acquired an additional six acres of
undeveloped land for a planned 96 units.
Fairfield Myrtle Beach
Myrtle Beach, SC - Fairfield Westwinds, Fairfield's first Myrtle Beach
resort is a 10-story, 82 unit beachfront tower. Fairfield's second Myrtle Beach
resort, Fairfield SeaWatch Plantation, is a 10 acre beachfront property with a
planned 226 units. Fairfield SeaWatch Plantation currently has 128 completed
units and 28 units under construction.
Fairfield Nashville at Music City, USA
Nashville, TN - Fairfield Nashville is located on 19 acres, adjacent to the
Opryland Hotel complex. Fairfield Nashville has 110 units completed and 16 units
under construction out of a planned 254 units. Amenities at Fairfield Nashville
include an indoor swimming pool, health club and clubhouse.
<PAGE>
Fairfield Orlando at Cypress Palms
Kissimmee, FL - Fairfield Orlando at Cypress Palms has 174 units completed
and 20 units under construction. When completed, the resort will include 244
units, two outdoor pools and an activity/recreation building.
Port Lucaya Resort & Yacht Club
Freeport, Grand Bahama - Port Lucaya Resort & Yacht Club is a resort
50%-owned by the Company 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 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. Upon completion, the resort will have 398 units.
Royal Vista Resort
Pompano Beach, FL - Royal Vista Resort, completed in 1998, is located on
3.25 acres of beachfront property and consists of 99 units. On-site amenities
include two beachfront swimming pools.
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, banquet
facilities, as well as dockage on the Spanish River and close access to the
Atlantic Ocean.
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, four swimming pools, seven tennis courts, a
restaurant and a beachfront activity center. The resort contains 217 units.
Fairfield Orlando at Star Island
Orlando, FL - Fairfield Orlando at Star Island contains 123 units and
features a swimming pool, tennis courts, a health club and a children's
playground. Construction of an additional 40 units began in the first quarter of
1999, with completion scheduled for 2000.
Fairfield Washington, D.C.
Alexandria, VA - Fairfield Washington, D. C. is located in downtown
Alexandria, adjacent to the Kings Street Station metro terminal. Construction of
this resort is estimated to be completed in the third quarter of 1999 and will
contain 88 units.
Fairfield Williamsburg
Williamsburg, VA - Fairfield Williamsburg is located 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 238 completed units out of a planned 300
units.
In 1998, the Company acquired an additional 28.5 acres in Williamsburg.
Anticipated development activities include construction of 350 units, swimming
pools and a nine hole golf course.
<PAGE>
Property Portfolio - Regional Resorts
-------------------------------------
Fairfield Bay
Fairfield Bay, AR - Fairfield Bay contains 217 units in the Ozark foothills
and offers golf and a lighted 10-court tennis center. 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 a climate that
provides four seasons of resort vacationing. Fairfield Flagstaff is
approximately 80 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 completed and four under construction.
Horseback riding, indoor and outdoor swimming pools and tennis courts are
available to vacationers. The resort is surrounded by 12 lakes and 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 in Ventura Harbor 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 historic 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. A full service marina can accommodate vessels up to 60 feet in
length and provides boat rentals and fishing cruises. The site offers 207 units.
Fairfield Mountains
Lake Lure, NC - Fairfield Mountains offers 215 units amid the Blue Ridge
Mountains, 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. The site currently has
190 units and an additional 2.8 acres of waterfront property has been acquired
for future development of vacation ownership interests.
Fairfield Pagosa
Pagosa Springs, CO - Fairfield Pagosa, located 60 miles from Durango,
Colorado, is an 18,000 acre resort with 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
<PAGE>
and indoor and outdoor pools. The site currently has 198 units completed, eight
under construction, with another 22 units planned.
Fairfield Plantation
Villa Rica, GA - Fairfield Plantation is a 2,400 acre resort which is
located 45 miles west of Atlanta, Georgia. The resort features 80 units.
Recreational activities at Fairfield Plantation include an 18 hole golf course,
fishing on three lakes, a private beach and three outdoor swimming 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 southwest 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.
Property Portfolio - Resorts Under Development
----------------------------------------------
During 1998, the Company acquired land or entered into agreements for
the acquisition of vacation ownership interest inventories at five new
Destination Resorts. The exact number of vacation ownership interests units
ultimately constructed may differ from the following estimates based on future
land planning, zoning and site layout considerations.
. Sedona, Arizona - This development is situated on 20 acres and is
planned to include 64 units. Construction of the first eight units
is scheduled to begin in the second quarter of 1999, with
completion scheduled for the fourth quarter of 1999.
. Durango, Colorado - This development is situated on 20 acres and
is planned to include 102 units. Construction of the first 16
units is anticipated to begin in the third quarter of 1999, with
completion scheduled in 2000.
. Daytona Beach, Florida - Development plans for this 19-story
oceanfront resort includes a planned 124 units. Construction of
this resort began in the first quarter of 1999, with completion
scheduled in 2000.
. Las Vegas, Nevada - This development is situated on seven acres
located two blocks from Las Vegas Boulevard, near the MGM Grand
Hotel and Casino. The Company plans phased construction of one
13-story and one 17-story building, with an estimated 122 units
available at the conclusion of the first phase and 416 units
available upon completion. Construction of the first phase is
planned to begin in the fourth quarter of 1999, with completion
scheduled in 2000.
. Gatlinburg, Tennessee - Located on 15 acres near the Great Smokey
Mountains National Park, this development is planned to include
208 units. Construction of the first 16 units began in the first
quarter of 1999, with completion scheduled in the fourth quarter
of 1999. Additionally, the Company has an option to build an
additional 48 units on five acres of land.
Corporate Office Locations
--------------------------
The Company maintains two corporate office locations. The principal
executive office is located in Orlando, Florida and the Company's operations
center is located in Little Rock, Arkansas. Additionally, during 1998, the
Company relocated its credit and collections functions to Las Vegas, Nevada. 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
<PAGE>
for the foreseeable future and that, if necessary, it can obtain additional
space at a reasonable cost without significant operational disruption.
Development/Regulation
- ----------------------
In some of its developments, the Company engages in master planning of
land, commercial construction and management of resort and conference
facilities. Many state and local authorities have imposed restrictions and
additional regulations on developers of vacation ownership interests and lots.
Although these restrictions have generally increased the cost of selling
vacation ownership interests 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.
The marketing and sales of vacation ownership interests 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 vacation
ownership interests are marketed and sold. The federal government and many
states have adopted specific laws and regulations regarding the sale of lots and
vacation ownership interests, telemarketing and other aspects of the Company's
activities. For example, the federal government in many states require that a
"property report" be furnished to purchasers of vacation ownership interests and
lots, providing, among other things, detailed information about the particular
community, the development and the purchaser's rights and obligations as a
vacation ownership interest or lot owner. Similarly, regulations and laws
governing the Company use of telemarketing based marketing programs have grown
in the recent past and additional laws and regulations governing these
activities may be adopted in the future. The Company believes that it is in
substantial compliance with all laws and regulations to which it is currently
subject. The cost of complying with laws and regulations in all jurisdictions in
which the Company desires to conduct sales may be significant and may impair the
cost-effectiveness of the Company's marketing programs. There is no assurance
that the Company is in fact in compliance with all applicable laws and
regulations, that any applicable law will not be revised, or that other laws or
regulations will not be adopted which could increase the Company's costs of
compliance or prevent the Company from selling vacation ownership interests or
conducting other operations in a jurisdiction.
If the Company is not in substantial compliance with applicable laws
and regulations, the Company could be subjected to regulatory actions and
purchasers of vacation ownership interests or lots could have certain rescission
rights. 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 14 - Contingencies of "Notes to Consolidated Financial Statements"
included in the Registrant's Annual Report to Stockholders for the year ended
December 31, 1998.
<PAGE>
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------ ---------------------------------------------------
There were no matters submitted to a vote of Fairfield's stockholders
during the fourth quarter of 1998.
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 any director or other executive
officers:
John W. McConnell, age 57, 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.
Robert Albertson, age 58, 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 48, 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.
Franz Hanning, age 45, 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 51, 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 47, has been with Fairfield since 1983,
serving as Vice President, Property Management since 1995 and as Vice
President of Resort Operations from 1991 to 1995.
William G. Sell, age 45, 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, 1998.
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, 1998.
<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, 1998.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- -------- ----------------------------------------------------------
Information required by Item 7A 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, 1998.
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 1999 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 1999 Annual Meeting of Stockholders.
Item 11. EXECUTIVE COMPENSATION
- ------- ----------------------
This item is incorporated by reference to Registrant's Proxy Statement for
its 1999 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 1999 Annual Meeting of Stockholders.
<PAGE>
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- -------- ----------------------------------------------
This item is incorporated by reference to Registrant's Proxy Statement for
its 1999 Annual Meeting of Stockholders.
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, 1998 and 1997
Consolidated Statements of Earnings - Years Ended December
31, 1998, 1997 and 1996
Consolidated Statements of Stockholders' Equity - Years
Ended December 31, 1998, 1997 and 1996
Consolidated Statements of Cash Flows - Years Ended December
31, 1998, 1997 and 1996
Notes to Consolidated Financial Statements - December 31,
1998
The Report of PricewaterhouseCoopers LLP, Independent
Accountants of Vacation Break U.S.A., Inc. for the year
ended December 31, 1996, which was dated March 14, 1997,
except for Notes 22 and 24, as to which the date is October
9, 1997, is incorporated by reference and appears 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.
(2) None. Financial statement schedules are omitted because
they are not applicable or the required information is set
forth 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
-----------------------------
None
<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 30,1999 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 30, 1999 By /s/ Ernest D. Bennett, III*
----------------------------------
Ernest D. Bennett, III, Director
Date: March 30, 1999 By /s/ Philip L. Herrington*
----------------------------------
Philip L. Herrington, Director
Date: March 30, 1999 By /s/ Gerald Johnston*
----------------------------------
Gerald Johnston, Director
Date: March 30, 1999 By /s/ Bryan D. Langton*
----------------------------------
Bryan D. Langton, Director
Date: March 30, 1999 By /s/ Charles D. Morgan*
----------------------------------
Charles D. Morgan, Director
Date: March 30, 1999 By /s/ Ralph P. Muller*
----------------------------------
Ralph P. Muller, Director
Date: March 30, 1999 By /s/ William C. Scott*
----------------------------------
William C. Scott, Director
Date: March 30, 1999 By /s/ J. W. McConnell
----------------------------------
J.W. McConnell, Director, President
and Chief Executive Officer
Date: March 30, 1999 By /s/ Robert W. Howeth
----------------------------------
Robert W. Howeth, Senior Vice President
and Chief Financial Officer
Date: March 30, 1999 By /s/ William G. Sell
----------------------------------
William G. Sell, Vice President/Controller
(Chief Accounting Officer)
Date: March 30, 1999 *By /s/J.W. McConnell
----------------------------------
J. W. McConnell, Attorney-in-Fact
<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)
<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 (previously filed with the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1997 and incorporated herein by reference)
10.9 Eighth Amendment to Amended and Restated Revolving Credit
Agreement, dated February 13, 1998 (previously filed with the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1997 and incorporated herein by reference)
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)
<PAGE>
Exhibit
Number
- -----
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)
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 First 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)
<PAGE>
Exhibit
Number
- ------
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)
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 (previously filed with the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1997 and incorporated herein by reference)
10.24 Fifth Amendment to Third Amended and Restated Revolving Credit
Agreement, Dated February 13, 1998 (previously filed with the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1997 and incorporated herein by reference)
10.25 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)
10.26 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)
10.27 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)
10.28 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)
10.29 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)
<PAGE>
Exhibit
Number
- -----
10.30 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)
10.31 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)
10.32 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)
10.33 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)
10.34 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)
10.35 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
(previously filed with the Registrant's Annual Report on Form
10-K for the year ended December 31, 1997 and herein incorporated
by reference)
10.36 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 (previously filed with the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1997 and
incorporated herein by reference)
10.37 Agreement and Plan of Merger among the Registrant, FA, Inc., Carl
Flemister, C. Wendell Flemister, Jr., and Apex Marketing, Inc.,
dated October 22, 1997 (previously filed with the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1997
and incorporated herein by reference)
10.38 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 (previously
filed with the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1997 and incorporated herein by
reference)
<PAGE>
Exhibit
Number
- ------
10.39 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
(previously filed with the Registrant's Annual Report on Form
10-K for the year ended December 31, 1997 and incorporated
herein by reference)
10.40 Principal Stockholders Agreement among the Registrant, FCVB
Corp., Ralph P. Muller, R & A Partnership, Ltd. and Kevin
Sheehan, dated August 8, 1997 (previously filed with the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1997 and incorporated herein by reference)
10.41 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 (previously
filed with the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1997 and incorporated herein by
reference)
10.42 Amended and Restated Revolving Credit Agreement between Fairfield
Communities, Inc. and BankBoston, N.A., dated January 15, 1998
(previously filed with the Registrant's Quarterly Report on Form
10-Q for the quarter ended March 31, 1998 and incorporated herein
by reference)
10.43 First Amendment to Amended and Restated Revolving Credit
Agreement between Fairfield Communities, Inc. and BankBoston,
N.A., dated July 13, 1998 (previously filed with the Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998
and incorporated herein by reference)
10.44 Second Amendment to Amended and Restated Revolving Credit
Agreement between Fairfield Communities, Inc. and BankBoston,
N.A., dated October 20, 1998 (previously filed with the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998 and incorporated herein by reference)
10.45 Amended and Restated Revolving Credit Agreement between Fairfield
Acceptance Corporation and BankBoston, N.A., dated January 15,
1998 (previously filed with the Registrant's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1998 and incorporated
herein by reference)
10.46 First Amendment to Amended and Restated Revolving Credit
Agreement between Fairfield Acceptance Corporation and
BankBoston, N.A., dated July 13, 1998 (previously filed with the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1998 and incorporated herein by reference)
10.47 Second Amendment to Amended and Restated Revolving Credit
Agreement between Fairfield Acceptance Corporation - Nevada and
BankBoston, N.A., dated October 20, 1998 (previously filed with
the Registrant's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1998 and incorporated herein by reference)
<PAGE>
Exhibit
Number
- ------
10.48 Third Amendment to Amended and Restated Revolving Credit
Agreement and First Amendment to Amended and Restated
Unconditional Payment and Performance Guaranty between Fairfield
Acceptance Corporation - Nevada, BankBoston, N.A., and First
Massachusetts Bank, N.A., dated February 8, 1999 (attached)
10.49 Pledge and Servicing Agreement between Fairfield Funding
Corporation, II, Fairfield Acceptance Corporation-Nevada,
Fairfield Communities, Inc., First Security Bank, N.A. and
BankBoston, N.A., dated July 31, 1998 (previously filed with the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998 and incorporated herein by reference)
10.50 Receivables Purchase Agreement between Fairfield Acceptance
Corporation, Fairfield Communities, Inc. and Fairfield
Receivables Corporation, dated January 15, 1998 (previously filed
with the Registrant's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1998 and incorporated herein by
reference)
10.51 Credit Agreement among Fairfield Receivables Corporation,
EagleFunding Capital Corporation, Fairfield Acceptance
Corporation, Fairfield Communities, Inc., BankBoston Securities,
Inc. and BankBoston, N.A., dated January 15, 1998 (previously
filed with the Registrant's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1998 and incorporated herein by
reference)
10.52 Receivables Purchase Agreement between Fairfield Funding
Corporation, II, Fairfield Acceptance Corporation - Nevada and
Fairfield Communities, Inc., dated July 31, 1998 (previously
filed with the Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1998 and incorporated herein by
reference)
10.53 Fourth Amended and Restated Operating Agreement, dated January
15, 1998, by and between Fairfield Communities, Inc., Fairfield
Myrtle Beach, Inc., Sea Gardens Beach and Tennis Resort, Inc.,
Vacation Break Resorts, Inc., Vacation Break Resort at Star
Island, Inc., Palm Vacation Group, Ocean Ranch Vacation Group and
Fairfield Acceptance Corporation (previously filed with the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1998 and incorporated herein by reference)
10.54 Fifth Amended and Restated Operating Agreement, dated July 14,
1998, by and between Fairfield Communities, Inc., Fairfield
Myrtle Beach, Inc., Sea Gardens Beach and Tennis Resort, Inc.,
Vacation Break Resorts, Inc., Vacation Break Resort at Star
Island, Inc., Palm Vacation Group, Ocean Ranch Vacation Group and
Fairfield Acceptance Corporation - Nevada (previously filed with
the Registrant's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1998 and incorporated herein by reference)
<PAGE>
COMPENSATORY PLANS OR ARRANGEMENTS
Exhibit
Number
- ------
10.55 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)
10.56 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)
10.57 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)
10.58 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)
10.59 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)
10.60 Amendment Number Four to Registrant's Savings/Profit Sharing
Plan, effective January 1, 1997 (previously filed with the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1997 and incorporated herein by reference)
10.61 Amendment Number Five to Registrant's Savings/Profit Sharing
Plan, effective January 1, 1998 (attached)
10.62 Amendment Number Six to Registrant's Savings/Profit Sharing Plan,
effective January 1, 1998 (attached)
10.63 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)
10.64 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)
10.65 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)
<PAGE>
Exhibit
Number
- ------
10.66 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)
10.67 Registrant's Third Amended and Restated 1992 Warrant Plan
(previously filed with the Registrant's Annual Report on Form
10-K for the year ended December 31, 1997 and incorporated herein
by reference)
10.68 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)
10.69 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)
10.70 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)
10.71 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)
10.72 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)
10.73 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)
10.74 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)
10.75 Registrant's Employee Stock Purchase Plan (previously filed with
the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1997 and incorporated herein by reference)
10.76 Registrant's Second Amended and Restated 1997 Stock Option Plan
(previously filed with the Registrant's Annual Report on Form
10-K for the year ended December 31, 1997 and incorporated herein
by reference)
<PAGE>
Exhibit
Number
- ------
10.77 Registrant's Third Amended and Restated 1997 Stock Option Plan
(previously filed with the Registrant's Current Report on Form
S-8 dated August 31, 1998 and incorporated herein by reference)
10.78 Vacation Break U.S.A., Inc. 1995 Stock Option Plan, as amended
(previously filed was Exhibit 4.5 to the Registrant's Form S-8,
SEC File No. 333-42901, and incorporated herein by reference)
10.79 Employment Agreement, dated October 23, 1998, by and between the
Registrant and Mr. Franz Hanning (previously filed with the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998 and incorporated herein by reference)
13 Portions of Registrant's Annual Report to Stockholders for the
year ended December 31, 1998 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)
21 Subsidiaries of the Registrant (attached)
23.1 Consent of Ernst & Young LLP, Independent Auditors (attached)
23.2 Consent of Pricewaterhouse Coopers, LLC (attached)
24 Powers of Attorney (attached)
27 Financial Data Schedule, December 31, 1998 (attached)
THIRD AMENDMENT TO AMENDED AND
RESTATED REVOLVING CREDIT AGREEMENT
and
FIRST AMENDMENT TO AMENDED AND RESTATED UNCONDITIONAL
PAYMENT AND PERFORMANCE GUARANTY
THIS AMENDMENT (this "Amendment") dated as of February 8, 1999, is made
by and among FAIRFIELD ACCEPTANCE CORPORATION-NEVADA (successor by merger to
Fairfield Acceptance Corporation), a Nevada domiciled Delaware corporation (the
"Company", "FAC" or the "Borrower"), BANKBOSTON, N.A., a national banking
association ("BKB"), FIRST MASSACHUSETTS BANK, NATIONAL ASSOCIATION, a national
banking association ("First Massachusetts" and together with BKB and the other
lending institutions that are or may become a party to the Credit Agreement, the
"Banks"), and BANKBOSTON, N.A., as agent for itself and the Banks (the "Agent"),
all parties (or successors in interest to parties) to a certain Amended and
Restated Revolving Credit Agreement dated as of January 15, 1998 (as amended and
in effect as of the date hereof, the "Credit Agreement"), and BKB, as Collateral
Agent (the "Collateral Agent") under that certain Collateral Agency Agreement
dated as of January 15, 1998, as amended by a First Amendment to Collateral
Agency Agreement dated as of July 31, 1998, by and among the parties hereto
other than First Massachusetts (including the Guarantors, as defined below),
BKB, as agent under the FCI Credit Agreement, BancBoston Securities, Inc., Eagle
Funding Capital Corporation and First Security Bank, National Association. This
Amendment is joined in by Fairfield Communities, Inc., a Delaware corporation
("FCI"), Fairfield Myrtle Beach, Inc. ("FMB"), Vacation Break USA, Inc.
("Vacation Break"), Sea Gardens Beach and Tennis Resorts, Inc. ("SGR"), Vacation
Break Resorts, Inc. ("VBR"), Vacation Break Resorts at Star Island, Inc.
("VBRS"), Palm Vacation Group ("PVG") and Ocean Ranch Vacation Group ("ORV")
(FCI, FMB, Vacation Break, SGR, VBR, VBRS, PVG and ORV are hereinafter
collectively referred to as the "Guarantors") by reason of the Amended and
Restated Unconditional Payment and Performance Guaranty, dated as of January 15,
1998, from the Guarantors in favor of the Agent and the Banks (the "FAC
Guaranty"). All capitalized terms used herein and not otherwise defined shall
have the same respective meanings herein as in the Credit Agreement.
WHEREAS, FAC has requested and the Banks and the Agent have agreed to
make certain amendments to the Credit Agreement, in order to provide for, among
other things, elimination of the Tranche B Loans, modification of the Borrowing
Base and the accession from time to time of additional Banks to the Credit
Agreement, all upon the terms and subject to the conditions set forth herein;
and
<PAGE>
WHEREAS, the Banks, the Agent and the Guarantors have agreed to make
certain amendments to the Guaranty, in order to provide for, among other things,
the Guarantors to make certain of the covenants set forth in the FCI Credit
Agreement, upon the terms and subject to the conditions set forth herein;
NOW, THEREFORE, in consideration of the foregoing premises, FAC, the
Banks, the Agent and the Guarantors hereby agree as follows:
ss.1. AMENDMENTS TO CREDIT AGREEMENT. FAC, the Banks and the Agent hereby
------------------------------
agree that upon the effectiveness of this Amendment in accordance with Section 5
below, the Credit Agreement shall be amended as follows:
ss.1.1. The following definitions are hereby inserted into Section 1.1
of the Credit Agreement in the appropriate alphabetical sequence:
"Acceding Bank. See ss.19.1(b)."
-------------
"FCI Banks. BKB and the other lending institutions which are
---------
or may become parties to the FCI Credit Agreement."
"FCI Guaranty. The Amended and Restated Unconditional Payment
------------
and Performance Guaranty dated as of January 15, 1998 made by FAC and
certain of FCI's other Subsidiaries with respect to the obligations of
FCI to the FCI Agent and the FCI Banks under the FCI Credit Agreement."
"Instrument of Accession. See ss.19.1(b)."
-----------------------
ss.1.2. The definition of "Banks" appearing in Section 1.1 of the
Credit Agreement is hereby amended by inserting the words "or which becomes an
Acceding Bank pursuant to ss.19 hereof" immediately before the period at the end
of such definition.
ss.1.3. The definitions of "Borrowing Base" appearing in Section 1.1 of
the Credit Agreement is hereby amended by (i) deleting the figure "85%"
appearing in clause (b) of such definition and replacing it with the figure
"80%", (ii) deleting the word "plus" at the end of clause (c) of such definition
----
and substituting therefor a period, and (iii) deleting clause (d) of such
definition in its entirety.
ss.1.4. The definition of "Commitment" appearing in Section 1.1 of the
Credit Agreement is hereby amended by inserting the words "modified pursuant to
ss.19.1(b) or as" immediately after the words "as the same may be" in the fourth
line of such definition.
ss.1.5. The definition of "Eligible Assignee" appearing in Section 1.1
of the Credit Agreement is hereby amended by inserting the words "; provided
--------
that notwithstanding anything in the foregoing to the contrary, First
- ----
Massachusetts Bank, National Association, shall be an Eligible Assignee for all
purposes hereunder" immediately before the period at the end of such definition.
<PAGE>
ss.1.6. The definition of "Revolving Credit Loans" appearing in
Section 1.1 of the Credit Agreement is hereby amended by deleting such
definition in its entirety and substituting therefor the following new
definition:
"Revolving Credit Loans. Revolving credit loans made or to
-----------------------
be made by the Banks to the Borrower pursuant to ss.2."
ss.1.7. The definitions of "Tranche A Borrowing Base", "Tranche B
Borrowing Base", "Tranche A Loans", and "Tranche B Loans" appearing in Section
1.1 of the Credit Agreement are hereby amended by deleting such definitions in
their entirety.
ss.1.8. Section 2.1 of the Credit Agreement is hereby amended by
deleting such section in its entirety and by substituting therefor the following
new section:
"2.1. COMMITMENT TO LEND. Subject to the terms and
-------------------
conditions set forth in this Credit Agreement, each of the
Banks severally agrees to lend to the Borrower and the
Borrower may borrow, repay, and reborrow from time to time
from the Closing Date up to but not including the Revolving
Credit Loan Maturity Date upon notice by the Borrower to the
Agent given in accordance with ss.2.5, such sums as are
requested by the Borrower up to a maximum aggregate amount
outstanding (after giving effect to all amounts requested) at
any one time equal to such Bank's Commitment minus such Bank's
Commitment Percentage of the sum of the Maximum Drawing Amount
and all Unpaid Reimbursement Obligations; provided that the
sum of the outstanding amount of the Revolving Credit Loans
(after giving effect to all amounts requested) plus the
Maximum Drawing Amount and all Unpaid Reimbursement
Obligations shall not at any time exceed the lesser of (i) the
Total Commitment and (ii) the Borrowing Base. The Revolving
Credit Loans shall be made pro rata in accordance with each
Bank's Commitment Percentage. Each request for a Revolving
Credit Loan hereunder shall constitute a representation and
warranty by the Borrower that the conditions set forth in
ss.11 and ss.12, in the case of the initial Revolving Credit
Loans to be made on the Closing Date, and ss.12, in the case
of all other Revolving Credit Loans, have been satisfied on
the date of such request."
ss.1.9. Section 2.4 of the Credit Agreement is hereby amended by
deleting such section in its entirety and by substituting therefor the following
new section:
"2.4. INTEREST ON REVOLVING CREDIT LOANS. Except as
--------------------------------------
otherwise provided in ss.5.10,
(a) Each Base Rate Loan that is a Revolving
Credit Loan shall bear interest for the period
commencing with the Drawdown Date thereof and ending
on the last day of the Interest Period with
<PAGE>
respect thereto at the rate of three-quarters of one
of one percent (3/4%) per annum below the Base Rate.
(b) Each Eurodollar Rate Loan that is a
Revolving Credit Loan shall bear interest for the
period commencing with the Drawdown Date thereof and
ending on the last day of the Interest Period with
respect thereto at the rate of two percent (2%) per
annum above the Eurodollar Rate determined for such
Interest Period.
(c) The Borrower promises to pay interest on
each Revolving Credit Loan in arrears on each
Interest Payment Date with respect thereto."
ss.1.10. Section 2.5 of the Credit Agreement is hereby amended by
deleting the text of clause (D) of the second sentence thereof in its entirety
and by substituting therefor the words "[Intentionally Omitted]".
ss.1.11. Subsection 2.10.2(a) of the Credit Agreement is hereby amended
by deleting such subsection in its entirety and by substituting therefor the
following new subsection:
"(a) Prior to the occurrence of an Event of Default of which the
account officers of the Agent active on the Borrower's account have
knowledge, all funds transferred to the BKB Concentration Account and for
which the Borrower has received credits shall be applied to the Obligations
as follows:
(i) first, to pay amounts then due and payable under
this Agreement, the Notes and the other Loan Documents;
(ii) second, to reduce Revolving Credit Loans which are
Base Rate Loans;
(iii) third, to reduce Revolving Credit Loans which are
Eurodollar Rate Loans; and
(iv) fourth, except as otherwise required by ss.4.2(b)
and (c), to the Operating Account."
ss.1.12. Section 3.2 of the Credit Agreement is hereby amended by
deleting such section in its entirety and by substituting therefor the following
new section:
"3.2. MANDATORY REPAYMENTS OF REVOLVING CREDIT LOANS.
----------------------------------------------
If at any time the sum of the outstanding amount of the
Revolving Credit Loans, the Maximum Drawing Amount and all
Unpaid Reimbursement Obligations exceeds the lesser of (i) the
Total Commitment and (ii) the
<PAGE>
Borrowing Base, then the Borrower shall immediately pay the
amount of such excess to the Agent for the respective
accounts of the Banks for application: first, to any Unpaid
Reimbursement Obligations; second, to the Revolving Credit
Loans; and third, to provide to the Agent cash collateral
for Reimbursement Obligations as contemplated by ss.4.2(b)
and (c). Each payment of any Unpaid Reimbursement
Obligations or prepayment of Revolving Credit Loans shall be
allocated among the Banks, in proportion, as nearly as
practicable, to each Reimbursement Obligation or (as the
case may be) the respective unpaid principal amount of each
Bank's Revolving Credit Note, with adjustments to the extent
practicable to equalize any prior payments or repayments not
exactly in proportion."
ss.1.13. Section 4.1.1 of the Credit Agreement is hereby amended by
deleting the proviso at the end of such section in its entirety and by
substituting therefor the following new proviso:
"provided, however, that, after giving effect to such request,
-------- -------
(a) the sum of the aggregate Maximum Drawing Amount and all
Unpaid Reimbursement Obligations shall not exceed $1,000,000
at any one time and (b) the sum of (i) the Maximum Drawing
Amount, (ii) all Unpaid Reimbursement Obligations, and (iii)
the amount of all Revolving Credit Loans outstanding shall not
exceed the lesser of (A) the sum of the Total Commitment and
(B) the Borrowing Base."
ss.1.14. Section 6.2 of the Credit Agreement is hereby amended by
deleting the word "of" appearing after the word "described" in the seventh line
thereof and by substituting therefor the word "in".
ss.1.15. The Credit Agreement is hereby amended by inserting, immediately
after Section 7.22 thereof, the following new section:
"7.23 YEAR 2000 PROBLEM. The Borrower and its Subsidiaries
------------------
have (i) reviewed or caused third parties to review the areas within
their businesses and operations which they reasonably believe could be
adversely affected by failure to become "Year 2000 Compliant" (i.e.
that computer applications, imbedded microchips and other systems used
by the Borrower or any of its Subsidiaries, will be able properly to
recognize and perform properly date-sensitive functions involving
certain dates prior to and any date after December 31, 1999), (ii)
developed a detailed plan and timetable to become Year 2000 Compliant
in a timely manner, and (iii) committed adequate programming resources
to support the Year 2000 plan of the Borrower and its Subsidiaries.
Based upon such review, the Borrower reasonably believes that the
Borrower and its Subsidiaries will become "Year 2000 Compliant" in a
timely manner except to the extent that failure to do so will not have
any materially adverse effect on the business or financial condition of
the Borrower or any of its Subsidiaries."
<PAGE>
ss.1.16. Subsection 8.4(f) of the Credit Agreement is hereby amended by
deleting such subsection in its entirety and by substituting therefor the
following new subsection:
"(f) within three Business Days after the
fifteenth and last day of each month, or at such
earlier time as the Agent may reasonably request, a
Borrowing Base Report setting forth the Borrowing
Base as of the 15th day and last day of such month or
other date so requested by the Agent, provided that
immediately prior to the occurrence of a sale or
other disposition of assets permitted by ss.9.5.2
hereof, the Borrower shall deliver to the Banks (A) a
Borrowing Base Report setting forth the Borrowing
Base prior to such permitted sale or disposition, and
(B) a Borrowing Base Report indicating the Borrowing
Base after giving effect to such sale or disposition
(provided, however, that the Borrowing Base Reports
required by the foregoing clauses (A) and (B) need
not be delivered to the Agent in connection with the
sale or disposition of Base Contracts to FCI, FCC,
FRC and FFC, II pursuant to paragraph (i) of ss.9.5.2
until such time as the Agent has given the Borrower a
notice to the effect that such Borrowing Base Reports
shall thereafter be delivered);"
ss.1.17. Subsection 8.4(i) of the Credit Agreement is hereby amended by
deleting such subsection in its entirety and by substituting therefor the
following new subsection:
"(i) at least two days prior to any Sales of
Base Contracts by FCI or any of its Subsidiaries to
the Borrower, the list of Base Contracts which the
Borrower proposes to buy from FCI or such Subsidiary
pursuant to the Operating Agreement (provided,
however, that such lists of Base Contracts need not
be delivered to the Agent until such time as the
Agent has given the Borrower a notice to the effect
that such Base Contracts shall thereafter be
delivered); and"
ss.1.18. Subsection 9.1(a) of the Credit Agreement is hereby amended by
deleting such subsection in its entirety and by substituting therefor the
following new subsection:
"(a) Indebtedness to the Banks and the Agent
arising under any of the Loan Documents and to the
FCI Banks and the FCI Agent arising under the FCI
Guaranty;"
ss.1.19. Subsection 9.2(g) of the Credit Agreement is hereby amended by
deleting such subsection in its entirety and by substituting therefor the
following new subsection:
"(g) liens in favor of the Collateral Agent for the
benefit of the Banks and the Agent under the Loan Documents
and in
<PAGE>
favor of the Collateral Agent for the benefit of the FCI
Banks and the FCI Agent under the Security Documents; and"
ss.1.20. Section 15.4.2 of the Credit Agreement is hereby amended by
deleting the words "to be consent" appearing in the seventh line thereof and by
substituting therefor the word "consented."
ss.1.21. Section 15.10 of the Credit Agreement is hereby amended by
inserting, immediately after the words "under this ss.15.10" appearing in the
fourth line thereof, the words "or upon learning of a Default or an Event of
Default in its capacity as Agent".
ss.1.22. Section 19 of the Credit Agreement is hereby amended by
deleting such section in its entirety and by substituting therefor the following
new section:
"19. ASSIGNMENT AND PARTICIPATION; ACCESSION.
----------------------------------------
19.1. CONDITIONS TO ASSIGNMENT AND ACCESSION BY BANKS.
------------------------------------------------
(a) Except as provided herein, each Bank may assign
to one or more Eligible Assignees all or a portion of its
interests, rights and obligations under this Credit Agreement
(including all or a portion of its Commitment Percentage and
Commitment and the same portion of the Loans at the time owing
to it, the Notes held by it and its participating interest in
the risk relating to any Letters of Credit); provided that (i)
--------
the Agent shall have given its prior written consent to such
assignment, (ii) each such assignment shall be of a constant,
and not a varying, percentage of all the assigning Bank's
rights and obligations under this Credit Agreement, (iii) each
assignment shall be in the amount of $10,000,000 or a greater
whole multiple of $1,000,000, and (iv) the parties to such
assignment shall execute and deliver to the Agent, for
recording in the Register (as hereinafter defined), an
Assignment and Acceptance, substantially in the form of
Exhibit F hereto (an "Assignment and Acceptance"), together
---------
with any Notes subject to such assignment. Upon such
execution, delivery, acceptance and recording, from and after
the effective date specified in each Assignment and
Acceptance, which effective date shall be at least five (5)
Business Days after the execution thereof, (x) the assignee
thereunder shall be a party hereto and, to the extent provided
in such Assignment and Acceptance, have the rights and
obligations of a Bank hereunder, and (y) the assigning Bank
shall, to the extent provided in such assignment and upon
payment to the Agent of the registration fee referred to in
ss.19.3, be released from its obligations under this Credit
Agreement.
(b) Except as otherwise provided herein, Eligible
Assignees (each such Eligible Assignee, an "Acceding Bank")
may become party to this Credit Agreement by entering into an
Instrument of Accession in substantially the form of Exhibit G
------- -
hereto (an "Instrument of Accession")
<PAGE>
with the Borrower and the Agent and assuming thereunder a
Commitment to make Revolving Credit Loans and participate in
the risk relating to the Letters of Credit pursuant to the
terms hereof, and the Total Commitment shall thereupon be
increased by the amount of such Acceding Bank's Commitment;
provided, however, that (a) the Agent shall have given its
prior written consent to such accession, and (b) in no event
shall the Total Commitment be increased under any one or
more of such Instruments of Accession so as to exceed, in
the aggregate, $80,000,000. On the effective date specified
in any Instrument of Accession, Schedule 1 hereto shall be
-------- -
amended by the Agent (each of the Borrower and the Banks
hereby consenting to such amendment) to reflect (a) the
name, address, Commitment and Commitment Percentage of such
Acceding Bank, (b) the Total Commitment as increased by such
Acceding Bank's Commitment, and (c) the changes to the other
Banks' respective Commitment Percentages and any changes to
the other Banks' respective Commitments (in the event such
Bank is also the Acceding Bank) resulting from such
assumption and such increased Total Commitment.
19.2. CERTAIN REPRESENTATIONS AND WARRANTIES; LIMITATIONS;
------------------------------------------------------
COVENANTS. By executing and delivering an Assignment and Acceptance or
---------
Instrument of Accession, as the case may be, the parties to the
assignment thereunder (or such Instrument or Accession, as the case may
be) confirm to and agree with each other and the other parties hereto
as follows:
(a) other than the representation and warranty that
it is the legal and beneficial owner of the interest being
assigned (in the case of an Assignment and Acceptance) thereby
free and clear of any adverse claim, the assigning Bank makes
no representation or warranty, express or implied, and assumes
no responsibility with respect to any statements, warranties
or representations made in or in connection with this Credit
Agreement or the execution, legality, validity,
enforceability, genuineness, sufficiency or value of this
Credit Agreement, the other Loan Documents or any other
instrument or document furnished pursuant hereto or the
attachment, perfection or priority of any security interest or
mortgage,
(b) the assigning Bank makes no representation or
warranty and assumes no responsibility with respect to the
financial condition of the Borrower and its Subsidiaries or
any of the Guarantors or any other Person primarily or
secondarily liable in respect of any of the Obligations, or
the performance or observance by the Borrower and its
Subsidiaries or any of the Guarantors or any other Person
primarily or secondarily liable in respect of any of the
Obligations of any of their obligations under this Credit
Agreement or any of the other Loan Documents or any other
instrument or document furnished pursuant hereto or thereto;
(c) such assignee or Acceding Bank, as the case may
be, confirms that it has received a copy of this Credit
Agreement, together with copies
<PAGE>
of the most recent financial statements referred to in
ss.7.4 and ss.8.4 and such other documents and information
as it has deemed appropriate to make its own credit analysis
and decision to enter into such Assignment and Acceptance or
Instrument of Accession, as the case may be;
(d) such assignee or Acceding Bank, as the case may
be, will, independently and without reliance upon the
assigning Bank, the Agent or any other Bank and based on such
documents and information as it shall deem appropriate at the
time, continue to make its own credit decisions in taking or
not taking action under this Credit Agreement;
(e) such assignee or Acceding Bank, as the case may
be, represents and warrants that it is an Eligible Assignee;
(f) such assignee or Acceding Bank, as the case may
be, appoints and authorizes the Agent to take such action as
agent on its behalf and to exercise such powers under this
Credit Agreement and the other Loan Documents as are delegated
to the Agent by the terms hereof or thereof, together with
such powers as are reasonably incidental thereto;
(g) such assignee or Acceding Bank, as the case may
be, agrees that it will perform in accordance with their terms
all of the obligations that by the terms of this Credit
Agreement are required to be performed by it as a Bank;
(h) such assignee or Acceding Bank, as the case may
be, represents and warrants that it is legally authorized to
enter into such Assignment and Acceptance or Instrument of
Accession, as the case may be; and
(i) such assignee or Acceding Bank, as the case may
be, acknowledges that it has made arrangements with the
assigning Bank satisfactory to such assignee with respect to
its pro rata share of Letter of Credit Fees in respect of
--- ----
outstanding Letters of Credit.
19.3. REGISTER. The Agent shall maintain a copy of each
--------
Assignment and Acceptance and Instrument of Accession delivered to it
and a register or similar list (the "Register") for the recordation of
the names and addresses of the Banks and the Commitment Percentage of,
and principal amount of the Revolving Credit Loans owing to and Letter
of Credit Participations purchased by, the Banks from time to time. The
entries in the Register shall be conclusive, in the absence of manifest
error, and the Borrower, the Agent and the Banks may treat each Person
whose name is recorded in the Register as a Bank hereunder for all
purposes of this Credit Agreement. The Register shall be available for
inspection by the Borrower and the Banks at any reasonable time and
from time to time upon reasonable prior notice. Upon each such
recordation, the assigning Bank agrees to pay to the Agent a
registration fee in the sum of $3,000.
<PAGE>
19.4. NEW NOTES. Upon its receipt of an Assignment and
----------
Acceptance (together with each Note subject to such assignment) or
Instrument of Accession, as the case may be, executed by the parties
thereto the Agent shall (i) record the information contained therein in
the Register, and (ii) give prompt notice thereof to the Borrower and
the Banks (other than the assigning Bank). Within five (5) Business
Days after receipt of such notice, the Borrower, at its own expense,
shall execute and deliver to the Agent, in exchange for each
surrendered Note, a new Note to the order of such Eligible Assignee or
Acceding Bank, as the case may be, in an amount equal to the amount
assumed by such Eligible Assignee or Acceding Bank, as the case may be,
pursuant to such Assignment and Acceptance or Instrument of Accession,
as the case may be, and, in the event of an assignment, if the
assigning Bank has retained some portion of its obligations hereunder,
a new Note to the order of the assigning Bank in an amount equal to the
amount retained by it hereunder. Such new Notes shall provide that they
are replacements for the surrendered Notes, shall be in an aggregate
principal amount equal to the aggregate principal amount of the
surrendered Notes, shall be dated the effective date of such in
Assignment and Acceptance and shall otherwise be substantially the form
of the assigned Notes. Within five (5) days of issuance of any new
Notes pursuant to this ss.20.4, the Borrower shall deliver an opinion
of counsel, addressed to the Banks and the Agent, relating to the due
authorization, execution and delivery of such new Notes and the
legality, validity and binding effect thereof, in form and substance
satisfactory to the Banks. The surrendered Notes shall be cancelled and
returned to the Borrower.
19.5. PARTICIPATIONS. Each Bank may sell participations to one
--------------
or more banks or other entities in all or a portion of such Bank's
rights and obligations under this Credit Agreement and the other Loan
Documents; provided that (i) any such sale or participation shall not
--------
affect the rights and duties of the selling Bank hereunder to the
Borrower and (ii) the only rights granted to the participant pursuant
to such participation arrangements with respect to waivers, amendments
or modifications of the Loan Documents shall be the rights to approve
waivers, amendments or modifications that would reduce the principal of
or the interest rate on any Loans, extend the term or increase the
amount of the Commitment of such Bank as it relates to such
participant, reduce the amount of any commitment fees or Letter of
Credit Fees to which such participant is entitled or extend any
regularly scheduled payment date for principal or interest.
19.6. DISCLOSURE. The Borrower agrees that in addition to
----------
disclosures made in accordance with standard and customary banking
practices any Bank may disclose information obtained by such Bank
pursuant to this Credit Agreement to assignees or participants and
potential assignees or participants hereunder; provided that such
--------
assignees or participants or potential assignees or participants shall
agree (i) to treat in confidence such information unless such
information otherwise becomes public knowledge, (ii) not to disclose
such information to a third party, except as required by law or legal
process and (iii) not to make use of such information for purposes of
transactions unrelated to such contemplated assignment or
participation.
<PAGE>
19.7. ASSIGNEE OR PARTICIPANT AFFILIATED WITH THE BORROWER. If
----------------------------------------------------
any assignee Bank or Acceding Bank is an Affiliate of the Borrower,
then any such assignee Bank or Acceding Bank shall have no right to
vote as a Bank hereunder or under any of the other Loan Documents for
purposes of granting consents or waivers or for purposes of agreeing to
amendments or other modifications to any of the Loan Documents or for
purposes of making requests to the Agent pursuant to ss.13.1 or
ss.13.2, and the determination of the Majority Banks shall for all
purposes of this Credit Agreement and the other Loan Documents be made
without regard to such assignee Bank's or Acceding Bank's interest in
any of the Loans or Reimbursement Obligations. If any Bank sells a
participating interest in any of the Loans or Reimbursement Obligations
to a participant, and such participant is the Borrower or an Affiliate
of the Borrower, then such transferor Bank shall promptly notify the
Agent of the sale of such participation. A transferor Bank shall have
no right to vote as a Bank hereunder or under any of the other Loan
Documents for purposes of granting consents or waivers or for purposes
of agreeing to amendments or modifications to any of the Loan Documents
or for purposes of making requests to the Agent pursuant to ss.13.1 or
ss.13.2 to the extent that such participation is beneficially owned by
the Borrower or any Affiliate of the Borrower, and the determination of
the Majority Banks shall for all purposes of this Credit Agreement and
the other Loan Documents be made without regard to the interest of such
transferor Bank in the Loans or Reimbursement Obligations to the extent
of such participation.
19.8. MISCELLANEOUS ASSIGNMENT PROVISIONS. Any assigning Bank
-----------------------------------
shall retain its rights to be indemnified pursuant to ss.16 with
respect to any claims or actions arising prior to the date of such
assignment. If any assignee Bank or Acceding Bank is not incorporated
under the laws of the United States of America or any state thereof, it
shall, prior to the date on which any interest or fees are payable
hereunder or under any of the other Loan Documents for its account,
deliver to the Borrower and the Agent certification as to its exemption
from deduction or withholding of any United States federal income
taxes. If any Reference Bank transfers all of its interest, rights and
obligations under this Credit Agreement, the Agent shall, in
consultation with the Borrower and with the consent of the Borrower and
the Majority Banks, appoint another Bank to act as a Reference Bank
hereunder. Anything contained in this ss.19 to the contrary
notwithstanding, any Bank may at any time pledge all or any portion of
its interest and rights under this Credit Agreement (including all or
any portion of its Notes) to any of the twelve Federal Reserve Banks
organized under ss.4 of the Federal Reserve Act, 12 U.S.C. ss.341. No
such pledge or the enforcement thereof shall release the pledgor Bank
from its obligations hereunder or under any of the other Loan
Documents.
19.9. ASSIGNMENT BY BORROWER. The Borrower shall not assign or
----------------------
transfer any of its rights or obligations under any of the Loan
Documents without the prior written consent of each of the Banks."
<PAGE>
ss.1.23. Section 26 of the Credit agreement is hereby amended by
inserting the words "(other than changes which are contemplated and permitted by
ss.19.1(b))" immediately after the words "the amounts of the Commitments of the
Banks" in the fourteenth line of such section.
ss.1.24. The Credit Agreement is hereby amended by deleting Exhibit C
------- -
thereto in its entirety and substituting therefore Exhibit C attached hereto.
------- -
ss.1.25. The Credit Agreement is hereby amended by attaching as Exhibit
-------
G thereto Exhibit G attached hereto.
- - ------- -
ss.1.26. The Credit Agreement is hereby amended by deleting Schedule 1
-------- -
thereto in its entirety and substituting therefore Schedule 1 attached hereto.
-------- -
ss.2. CONFORMED COPY OF CREDIT AGREEMENT. FAC, the Banks and the Agent
----------------------------------
hereby agree that upon the effectiveness of this Amendment in accordance with
Section 5 below, for purposes of reference only the Credit Agreement (without
Schedules and Exhibits) as amended prior to and on the date of this Amendment
shall be deemed to have been restated in the form of the conformed copy thereof
attached hereto as Annex A.
----- -
ss.3. AMENDMENT TO THE FAC GUARANTY. The Banks, the Agent and the
-------------------------------
Guarantors hereby agree that upon the effectiveness of this Amendment in
accordance with Section 5 below, the FAC Guaranty shall be amended by inserting,
immediately following Section 16 thereof, the following new section:
"17. COVENANTS OF THE GUARANTORS. In consideration of the
----------------------------
financial accommodations provided by the Banks under the Credit
Agreement, each Guarantor hereby jointly and severally covenants and
agrees with the Banks and the Agent that so long as this Guaranty shall
remain in effect it shall comply with each of the covenants set forth
in Sections 8, 9 and 10 of the FCI Credit Agreement as in effect as of
February ___, 1999, in each case without giving effect to any
amendment, modification, supplement, restatement or termination of the
same occurring after such date. The provisions of each of such sections
of the FCI Credit Agreement, together with any definitions referred to
therein or otherwise applicable thereto, are hereby incorporated into
this Guaranty by reference as if set forth herein in full."
ss.4. RELEASE OF PLEDGE OF FRC SUBORDINATED NOTE. Upon the
--------------------------------------------------
effectiveness of this Amendment in accordance with Section 5 below, the
Collateral Agent's security interest on behalf of the Banks in the FRC
Subordinated Note shall be released and the Collateral Agent shall, within a
reasonable time thereafter, return the FRC Subordinated Note to FAC endorsed to
FAC without recourse.
ss.5. CONDITIONS TO EFFECTIVENESS. The effectiveness of this Amendment
---------------------------
is subject to satisfaction of all of the following conditions:
<PAGE>
(a) Assignment and Acceptance. BKB, First
---------- --- ----------
Massachusetts and FAC shall have executed
and delivered an Assignment and Acceptance
substantially in the form of Exhibit F to
------- -
the Credit Agreement (the "First
Massachusetts Assignment and Acceptance")
pursuant to which BKB shall assign to First
Massachusetts a portion of its interests,
rights and obligations under the Credit
Agreement equal to $10,000,000. All
conditions to the effectiveness of the First
Massachusetts Assignment and Acceptance
shall have been satisfied in all respects.
(b) Replacement Notes. FAC shall have executed
----------- -----
and delivered to BKB and First Massachusetts
replacement promissory notes in the
principal amounts of $50,000,000, and
$10,000,000, respectively, payable to the
order of BKB and First Massachusetts,
respectively, which such notes shall be
substantially in the form of Exhibit B
------- -
to the Credit Agreement, completed with
appropriate insertions (the "Replacement
Notes"). 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 Documents shall
refer to the Replacement Notes. Upon the
execution and delivery of the Replacement
Notes and satisfaction of the other
conditions set forth in this section, BKB
shall return the original of its former Note
to FAC for cancellation.
(c) Opinion of Counsel. BKB, First
------- -- -------
Massachusetts, the Agent and the Collateral
Agent shall have received a favorable legal
opinion addressed to BKB, First
Massachusetts, the Agent and the Collateral
Agent, in form and substance satisfactory to
BKB, First Massachusetts, the Agent and the
Collateral Agent, from Kutak Rock, as to the
enforceability of this Amendment, the First
Massachusetts Assignment and Acceptance, the
Replacement Notes, and the other documents,
instruments and agreements executed in
connection herewith.
(d) Corporate Action. All corporate action
--------- ------
necessary for the valid execution, delivery
and performance by each of FAC and the
Guarantors of this Amendment, the First
Massachusetts Assignment and Acceptance, the
Replacement Notes and the other documents,
instruments and agreements executed in
connection herewith shall have been duly and
effectively taken and otherwise be duly
<PAGE>
authorized, and satisfactory evidence
thereof shall have been provided to the
Agent, BKB and First Massachusetts.
ss.6. GUARANTORS' CONSENT. The Guarantors hereby consent to the
---------- -------
amendments to the Credit Agreement set forth in this Amendment and the execution
and delivery of the Replacement Notes by FAC to BKB and First Massachusetts, and
each confirms its obligation to the Agent and the Banks under the FAC Guaranty
as amended by this Amendment and agrees that the FAC Guaranty as amended by this
Amendment shall extend to and include the obligations of FAC under the
Replacement Notes and the Credit Agreement as amended by this Amendment. Each of
the Guarantors agrees that all of its obligations to the Agent and the Banks
evidenced by or otherwise arising under the FAC Guaranty as amended by this
Amendment are in full force and effect and are hereby ratified and confirmed in
all respects.
ss.7. REPRESENTATIONS AND WARRANTIES. Each of FAC and the Guarantors
--------------- --- ----------
hereby represents and warrants to the Banks, the Agent and the Collateral Agent
as follows:
(a) Representations and Warranties in Credit Agreement.
--------------- --- ---------- -- ------ ---------
The representations and warranties of FAC and the
Guarantors, as the case may be, 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 or 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 expressly relate solely to an earlier
date) and no Default or Event of Default has occurred
or is continuing under the Credit Agreement.
(b) Authority, No Conflicts, Etc. The execution, delivery
--------- -- --------- ---
and performance by each FAC and the Guarantors, as
the case may be, of this Amendment, the First
Massachusetts Assignment and Acceptance and the
Replacement Notes, and the consummation of the
transactions contemplated hereby and thereby, (i) are
within the corporate power of each respective party
and have been duly authorized by all necessary
corporate action on the part of each respective
party, (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
such party or any of its properties are bound or
affected.
<PAGE>
(c) Enforceability of Obligations. This Amendment, the
-----------------------------
First Massachusetts Assignment and Acceptance, the
Replacement Notes, the Credit Agreement as amended
hereby, the FAC Guaranty as amended hereby and the
other Loan Documents constitute the legal, valid
and binding obligations of each of FAC and the
Guarantors parties thereto, enforceable against such
party in accordance with their respective terms,
provided that (i) enforcement may be limited by
--------
applicable bankruptcy, insolvency, reorganization,
moratorium or similar laws of general application
affecting the rights and remedies of creditors, and
(ii) enforcement may be subject to general
principles of equity, and the availability of the
remedies of specific performance and injunctive
relief may be subject to the discretion of the court
before which any proceedings for such remedies may be
brought.
ss.8. OTHER AMENDMENTS. Except as expressly provided in this Amendment,
----- ----------
all of the terms and conditions of the Credit Agreement, the FAC Guaranty and
the other Loan Documents remain in full force and effect. FAC and each Guarantor
confirm and agree that the Obligations of FAC to the Banks and the Agent under
the Credit Agreement, as amended hereby, the FAC Guaranty, as amended hereby,
and the Replacement Notes, 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.9. 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.10. HEADINGS. The captions in this Amendment are for convenience
--------
of reference only and shall not define or limit the provisions hereof.
[Remainder of page intentionally left blank.]
<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-NEVADA
By:/s/Ralph E. Turner
---------------------------
Name: Ralph E. Turner
-------------------------
Title: President
------------------------
FAIRFIELD COMMUNITIES, INC.
By:/s/Robert W. Howeth
----------------------------
Name: Robert W. Howeth
--------------------------
Title: Senior Vice President
-------------------------
FAIRFIELD MYRTLE BEACH, INC.
By:/s/Robert W. Howeth
----------------------------
Name: Robert W. Howeth
--------------------------
Title: Vice President
-------------------------
VACATION BREAK USA, INC.
By:/s/Robert W. Howeth
----------------------------
Name: Robert W. Howeth
--------------------------
Title: Vice President
-------------------------
SEA GARDENS BEACH AND TENNIS
RESORTS, INC.
By:/s/Robert W. Howeth
---------------------------
Name: Robert W. Howeth
-------------------------
Title: Vice President
------------------------
<PAGE>
VACATION BREAK RESORTS, INC.
By: /s/Robert W. Howeth
-------------------------------
Name: Robert W. Howeth
-----------------------------
Title: Vice President
----------------------------
VACATION BREAK RESORTS AT
STAR ISLAND, INC.
By:/s/Robert W. Howeth
------------------------------
Name:Robert W. Howeth
----------------------------
Title: Vice President
----------------------------
PALM VACATION GROUP, by its
General Partners:
VACATION BREAK RESORTS
AT PALM AIRE, 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
-------------------------
<PAGE>
OCEAN RANCH VACATION GROUP,
by its General Partners:
VACATION BREAK AT OCEAN
RANCH, 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, as Agent and as
Collateral Agent
By:/s/Lori Litow
----------------------------
Name: Lori Litow
--------------------------
Title: Vice President
------------------------
FIRST MASSACHUSETTS BANK,
NATIONAL ASSOCIATION
By: /s/Richard Henderson
----------------------------
Name: Richard Henderson
--------------------------
Title: Senior Vice President
-------------------------
<PAGE>
SCHEDULE 1
----------
Banks and Commitment
--------------------
Name and Address Commitment
---------------- ----------
of Banks Percentage Commitment
---------------- ---------- ----------
BankBoston, N.A.
100 Federal Street
Boston, MA 02110 83-1/3% $50,000,000
First Massachusetts Bank,
National Association
99 West Street 16-2/3% $10,000,000
Pittsfield, MA 01201 ------- -----------
TOTAL 100% $60,000,000
AMENDMENT NUMBER FIVE
TO
FAIRFIELD COMMUNITIES, INC.
SAVINGS/PROFIT SHARING PLAN
---------------------------
(effective January 1, 1998)
THIS AMENDMENT to the Fairfield Communities, Inc. Savings/Profit
Sharing Plan (the "Plan"), which Plan was originally effective March 1, 1976,
and was restated effective July 1, 1994, and was amended effective January 1,
1995, January 1, 1996, September 20, 1996 and January 1, 1997, is hereby entered
into effective as of January 1, 1998.
WHEREAS, the Corporation adopted the amended and restated "Fairfield
Communities, Inc. Savings/Profit Sharing Plan", effective July 1,
1994, as subsequently amended, (the "Plan") which includes provision
for a 401(k) plan, with a discretionary "Matching Contribution" by
the Corporation, in such amount as may be determined by the Board of
Directors of the Corporation; and
WHEREAS, the Board or Directors desires to change, effective January
1, 1998, the amount of the "Matching Contribution" established by the
resolution adopted by the Board of Directors on June 21, 1994;
NOW, THEREFORE, BE IT RESOLVED, that the "Matching Contribution"
under the Plan for each Plan Year beginning with January 1, 1998 is
hereby established, for each Participant in the Plan, as an amount
equal to the sum of:
(a) Dollar for dollar for the first $600 of such Participant's Salary
Deferral Contributions to the Plan during each Plan Year, plus
(b) Fifty cents on the dollar of the amount, if any, of such
Participant's Salary Deferral Contributions to the Plan in excess of
$600 during each Plan Year, except that the amount of Salary Deferral
Contributions for which a "Matching Contribution" shall be made under
this subparagraph (b) is limited to (i) three percent of such
Participant's Compensation for the Plan Year minus (ii) such amount
as was matched during such Plan Year under subparagraph (a) above.
<PAGE>
In addition to the other rights retained by the Board of Directors
under the Plan and the related trust agreement, the Board of
Directors hereby specifically retains the right, at any time
hereafter, or from time to time, in its sole and unlimited
discretion, to (A) change the amount of the "Matching Contribution",
(B) change the method, provided above, of calculating the "Matching
Contribution" or (C) eliminate the "Matching Contribution" in its
entirety, in which event, any such change shall become effective as
of the date adopted by resolution of the Board of Directors or such
later date as the Board of Directors may specify. The terms "Matching
Contribution", "Salary Deferral Contributions" and "Compensation"
shall have the meanings set forth in the Plan.
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
AMENDMENT NUMBER SIX
to
FAIRFIELD COMMUNITIES, INC.
SAVINGS/PROFIT SHARING PLAN
---------------------------
(effective January 1, 1998)
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, September 20, 1996, January 1, 1997 and January 1, 1998, is
hereby entered into effective as of January 1, 1998.
WHEREAS, it is desirable to amend the Plan in compliance with the
Taxpayer Relief Act of 1997; and
WHEREAS, Fairfield Communities, Inc., by resolutions adopted at a duly
convened meeting of its Board of Directors held on December 15, 1998, in
accordance with the provisions of Section 11.3 of the Plan, adopted the
following amendments to the Plan, effective as of January 1, 1998;
NOW, THEREFORE, Sections 8.3(A) and 10.5 of the Plan are hereby
amended, effective January 1, 1998, to provide as follows:
SECTION 8.3(A):
(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 $5,000; 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
<PAGE>
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):
(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 $5,000.
SECTION 10.5:
10.5 BENEFITS NOT ASSIGNABLE
-----------------------
(A) Subject to the provisions of Sections 10.5(B) and (C)
below, no benefits, rights or accounts shall exist under the Plan which
are subject in any manner to voluntary or involuntary anticipation,
alienation, sale, transfer, assignment, pledge, encumbrance or charge
the same shall be null and void; nor shall any such benefit, right or
account under the Plan be in any manner liable for or subject to the
debts, contracts, liabilities, engagements, torts or other obligations
of the person entitled to such benefit, right or account; nor shall any
benefit, right or account under the Plan constitute an asset in case of
the bankruptcy, receivership or divorce of any person entitled under
the Plan; and any such benefit, right or account under the Plan shall
be payable only directly to the Participant or Beneficiary, as the case
may be.
(B) Where a "qualified domestic relations order" as defined in
ss.414(p) of the Code has been received by the Committee, the terms and
benefits of the Plan will be considered to have been modified with
respect to the affected Participant to the extent such order requires
benefits to be paid to specified individuals other than the
Participant.
(C) A Participant's benefits under the Plan shall be reduced
if a court order or requirement to pay the Plan arises from: (1) a
judgment of conviction for a crime involving the Plan; (2) a civil
judgment (or consent order or decree) that is entered by a court in an
action brought in connection with a breach (or alleged breach) of
fiduciary duty under ERISA; or (3) a settlement agreement entered into
by the Participant and either the Secretary of Labor or the Pension
Benefit Guaranty Corporation in connection with a breach of fiduciary
duty under ERISA by a fiduciary or any other person. The court order,
judgment, decree or settlement agreement must specifically require that
all or part of the amount the Participant is required to pay the Plan
be offset against the Participant's Plan
<PAGE>
benefits. This Plan Section 10.5(C) shall be interpreted under and
subject to the requirements of Code ss.ss.401(a)(13)(C) and (D).
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
FAIRFIELD COMMUNITIES, INC. AND SUBSIDIARIES
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
Year Endeded December 31,
------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
OPERATING DATA: (1)(2)(3)(4)
Revenues:
Vacation ownership
interests, net $301,119 $256,141 $194,612 $125,751 $ 80,729
Resort management 37,210 28,237 26,987 22,264 17,808
Interest 33,916 37,179 28,651 23,815 22,874
Net interest income and
fees from qualifying
special purpose entities 9,739 - - - -
Other 25,909 24,622 23,562 27,691 35,879
-------- -------- -------- -------- --------
$407,893 $346,179 $273,812 $199,521 $157,290
======== ======== ======== ======== ========
Net earnings $43,628 $21,177 $22,103 $13,874 $20,034
======= ======= ======= ======= =======
Earnings before merger costs
and extraordinary loss $43,628 $34,009 $22,103 $13,874 $20,034
======= ======= ======= ======= =======
Net earnings per share:
Basic $.98 $.48 $.54 $.37 $.54
==== ==== ==== ==== ====
Diluted $.93 $.46 $.51 $.35 $.51
==== ==== ==== ==== ====
Earnings per share before merger
costs and extraordinary loss:
Basic $.98 $.77 $.54 $.37 $.54
==== ==== ==== ==== ====
Diluted $.93 $.73 $.51 $.35 $.51
==== ==== ==== ==== ====
Weighted average shares outstanding:
Basic 44,544 44,200 40,558 37,691 37,432
====== ====== ====== ====== ======
Diluted 46,846 46,282 43,265 39,888 39,497
====== ====== ====== ====== ======
BALANCE SHEET DATA (AT PERIOD END): (1)(2)(3)
Receivables, net $202,849 $296,699 $227,627 $188,250 $165,378
Total assets 431,093 463,932 385,570 320,112 280,612
Total financing arrangements 79,441 170,081 113,295 117,763 130,720
Stockholders' equity 222,630 187,182 162,125 100,485 74,282
</TABLE>
(1) During 1998, the Company incorporated two qualifying special purpose
entities for the specific purpose of purchasing contracts receivable from
the Company. At December 31, 1998, the qualifying special purpose entities
held $172.1 million of contracts receivable, with related borrowings
totaling $142.9 million.
(2) In 1997, Fairfield completed the merger with Vacation Break U.S.A.,
Inc. ("Vacation Break") which was 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 earliest
period 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.
(3) Prior to 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. In 1995,
these subsidiaries terminated their S Corporation elections and,
accordingly, became subject to federal and state income taxes. Net earnings
for 1994 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 that year. The pro forma amounts of federal and state taxes
reduced 1994 net earnings and stockholders' equity by $4.5 million.
(4) Other revenues for the year ended December 31, 1994 include a $5.2 million
gain from the sale of the Company's savings and loan operations.
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ------ ---------------------------------------------------------------
RESULTS OF OPERATIONS
--------------------
RESULTS OF OPERATIONS
During 1998, the Company's operations consisted of 26 resorts located
in 11 states and the Bahamas. Of these resorts, 16 are located in destination
areas with popular vacation attractions and 10 are located in scenic regional
locations. Additionally, the Company has five destination resorts under
development, located in Sedona, Arizona; Durango, Colorado; Daytona Beach,
Florida; Las Vegas, Nevada and Gatlinburg, Tennessee.
In 1997, the Company acquired all of the outstanding common stock of
Vacation Break U.S.A., Inc. ("Vacation Break") in exchange for approximately
10.6 million shares of its common stock. The merger was accounted for as a
pooling of interests and, accordingly, all prior period financial information
was restated as if the merger took place at the beginning of the earliest period
presented. In conjunction with the merger, the Company 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 the early
extinguishment of substantially all of Vacation Break's debt. Additionally, in
1997, Fairfield acquired the remaining 45% minority interest 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.
The following table sets forth certain consolidated operating
information for the years ended December 31, 1998, 1997 and 1996:
<TABLE>
Year Ended December 31,
-------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
As a percentage of total revenues:
Vacation ownership interests, net 73.8% 74.0% 71.1%
Resort management 9.1 8.2 9.8
Interest income 8.3 10.7 10.5
Net interest income and fees
from qualifying special purpose
entities 2.4 - -
Other revenue 6.4 7.1 8.6
----- ----- -----
100.0% 100.0% 100.0%
===== ===== =====
As a percentage of related revenues:
Cost of sales - vacation
ownership interests 27.8% 26.5% 26.4%
Resort management 85.5% 87.1% 91.6%
Sales and marketing 46.9% 46.0% 48.9%
Provision for loan losses 4.7% 4.7% 4.0%
As a percentage of interest revenues:
Interest expense, net 19.4% 27.8% 37.5%
As a percentage of total revenues:
General and administrative 7.2% 8.7% 8.5%
Depreciation 1.7% 1.5% 1.5%
Other expense 4.5% 5.2% 6.1%
</TABLE>
<PAGE>
Vacation Ownership
------------------
The Company's growth strategy continues to include the (i) acquisition and
development of properties in new destination locations, (ii) further development
at its existing destination resorts and (iii) expansion of sales and marketing
programs, including the establishment of additional off-site sales offices.
Future sales growth should be realized as the Company expands its development of
destination resort locations which have a higher and more consistent stream of
potential customers generated by existing attractions.
Gross revenues from vacation ownership interests ("VOIs") totaled $304.1
million, $250.8 million and $193.3 million for 1998, 1997 and 1996,
respectively. Gross VOI revenues at the Company's destination resorts continue
to be the largest dollar contributor to VOI sales, accounting for 77.4%, 80.3%
and 82.4% of total VOI sales for the years ended December 31, 1998, 1997 and
1996, respectively. During 1998, gross VOI sales increased 16.8% at the
Company's destination locations, 24.4% at the Company's regional resort
locations and 75.9% at the Company's off-site sales offices. Management
anticipates revenue growth will improve in 1999 due to the addition of resort
locations in Sedona, Arizona; Durango, Colorado; Daytona Beach, Florida; Las
Vegas, Nevada and Gatlinburg, Tennessee, as well as a full year of sales at the
Royal Vista resort located in Pompano Beach, Florida and at the Company's
Alexandria, Virginia destination resort.
Net VOI revenue increased to $301.1 million for the year ended December 31,
1998 from $256.1 million in 1997 and $194.6 million in 1996. Net VOI revenue
growth trends were affected by the same factors that impacted gross VOI revenue
growth trends, as well as revenue deferrals resulting from the percentage of
completion accounting method.
Revenue relating to sales of VOIs in projects under construction is
recognized using the percentage of completion accounting method. Under this
method, the portion of revenues attributable to costs incurred, as compared to
total estimated acquisition, construction and selling expenses, is recognized in
the period of sale. The remaining revenue is deferred and recognized as the
remaining costs are incurred. As previously noted, the Company is currently in
the development stage at certain of its projects and it is anticipated that VOI
sales at these projects will generate deferred revenue as the Company completes
sales at a more rapid pace than the completion of the related VOI units. At
December 31, 1998, the Company had deferred revenue totaling $8.2 million which
will be recognized upon completion of the respective VOI units.
The following table reconciles VOI sales recorded to VOI revenues
recognized for the respective periods (In thousands):
<TABLE>
Year Ended December 31,
----------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Vacation ownership interests $304,119 $250,802 $193,335
Add: Deferred revenue at
beginning of year 5,225 10,564 11,841
Less: Deferred revenue at
end of year (8,225) (5,225) (10,564)
-------- -------- --------
Vacation ownership interests, net $301,119 $256,141 $194,612
======== ======== ========
</TABLE>
VOI cost of sales, as a percentage of related net revenues, was 27.8%,
26.5% and 26.4% for the years ended December 31, 1998, 1997 and 1996,
respectively. The increase in 1998 was directly related to higher product costs
(including beachfront property purchased at higher prices and increased
construction costs) at certain of the Company's destination resorts. In February
1999, the Company initiated sales price increases to partially offset the higher
product costs.
<PAGE>
Sales and marketing expenses, as a percentage of related net revenues, were
46.9%, 46.0% and 48.9%, for the years ended December 31, 1998, 1997 and 1996,
respectively. The decrease from 1996 to 1997 was primarily attributable to
efficiencies experienced at certain of the Company's destination resorts which
began sales operations in 1996. New sales operations typically experience lower
operating margins in the "start-up" phase of operations as the Company develops
its property owner base and establishes sales and marketing programs for each
new location. Management anticipates that sales and marketing expenses, as a
percentage of related net revenues, will decline during 1999 as the Company
realizes the benefits of its new sales and marketing programs as well as sales
efficiencies anticipated from the full integration of the marketing programs at
Vacation Break.
The provision for loan losses, as a percentage of related net revenues, was
4.7% for each of the years ended December 31, 1998 and 1997 and 4.0% for the
year ended December 31, 1996. The Company records a provision for estimated
losses on uncollectible contracts receivable by a charge against earnings at the
time of sale. Such provision is recorded at an amount based upon the Company's
historical cancellation experience, management's estimate of future losses and
current economic factors. The allowance for contracts receivable is maintained
at a level believed adequate by management based on periodic analysis of the
contracts receivable portfolio.
Resort Management
-----------------
Resort management revenues totaled $37.2 million, $28.2 million and $27.0
million for 1998, 1997 and 1996, respectively. The increase in resort management
revenues in 1998 is primarily due to the expansion of the Company's resort
management services, including the sale of furnishings for VOI units to
independent resort operators and property owner associations, as well as an
increase in the number of operating resort locations.
Resort management expenses totaled $31.8 million, $24.6 million and $24.7
million for 1998, 1997 and 1996, respectively. Resort management expenses, as a
percentage of related revenues were 85.5%, 87.1% and 91.6% for the years ended
December 31, 1998, 1997 and 1996, respectively. This trend is primarily
reflective of certain economies of scale realized causing resort management
expenses to increase at a lower rate than resort management revenues.
Interest Income
---------------
For purposes of management's discussion of results of operations, interest
income includes (i) interest earned from the Company's receivable portfolio and
(ii) net interest income and fees from the Qualifying Special Purpose Entities
("QSPEs"). During the year ended December 31, 1998, the Company sold $212.7
million of contracts receivable to the QSPEs, with $172.1 million of these
contracts receivable outstanding at December 31, 1998. The QSPEs finance
purchases of contracts receivable through commercial paper credit facilities and
other financial conduits, with $142.9 million of borrowings outstanding at
December 31, 1998.
Interest income totaled $43.7 million, $37.2 million and $28.7 million in
1998, 1997 and 1996, respectively. These increases are due primarily to
corresponding increases in the average balances of outstanding contracts
receivable, which totaled $339.5 million at December 31, 1998, as compared to
$302.5 million and $230.2 million at December 31, 1997 and 1996, respectively.
The weighted average interest rate of the Company's contracts receivable
portfolio was 14.2%, 14.6% and 14.5% at December 31, 1998, 1997 and 1996,
respectively.
Interest Expense
----------------
Interest expense, net of amounts capitalized, totaled $8.5 million, $10.4
million and $10.8 million in 1998, 1997 and 1996, respectively. These decreases
are due primarily to (i) the
<PAGE>
refinancing of certain of the Company's credit agreements, including
substantially all of the secured obligations of Vacation Break, resulting in a
reduction in the Company's weighted average interest rate on outstanding debt
(8.5%, 10.0% and 10.6% for the years ended December 31, 1998, 1997 and 1996,
respectively) and (ii) a reduction in borrowings under the Company's revolving
credit agreements, which resulted from a shift in funding sources from the
Company's revolving credit agreements to the credit facilities of the QSPEs.
The Company uses interest rate cap and swap agreements to manage the
interest rate characteristics of certain of its outstanding financing
arrangements to a more desirable fixed rate basis and to limit the Company's
exposure to rising interest rates. Interest rate differentials paid or received
under the terms of the interest rate swap and cap agreements are recognized as
adjustments of interest expense related to the designated financing
arrangements.
General and Administrative
--------------------------
General and administrative expenses, as a percentage of total revenues,
were 7.2%, 8.7% and 8.5% for 1998, 1997 and 1996, respectively. The decrease in
1998 was due primarily to benefits realized from integrating Vacation Break's
operational infrastructure with that of the Company, which more than offset the
cost associated with the relocation of the Company's executive offices to
Orlando, Florida and the credit and collection functions to Las Vegas, Nevada.
Other
-----
Other revenues for the years ended December 31, 1998, 1997 and 1996
includes home sales revenue of $12.3 million, $11.1 million and $8.8 million,
respectively, and lot sales revenue of $8.2 million, $8.1 million and $8.7
million, respectively.
Other expenses for the years ended December 31, 1998, 1997 and 1996
includes costs of home sales, including selling expenses, of $10.8 million, $9.8
million and $8.1 million, respectively, and cost of lot sales of $2.3 million,
$2.2 million and $2.1 million, respectively.
PROVISION FOR INCOME TAXES
The Company provides for income taxes under the liability method in
accordance with Statement of Financial Accounting Standards 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 of
$19.1 million in 1996.
At December 31, 1998, the Company had net operating loss carryforwards
totaling $108.4 million which reflect the amount available to offset regular
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
<PAGE>
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, 1998, net operating loss carryforwards which are available to
offset regular taxable income, 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 - $22.7 million; 2011 - $24.2 million; 2012 - $7.2 million
and 2018 - $9.4 million.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents of the Company increased $1.9 million from
December 31, 1997 to December 31, 1998. Cash provided by operating activities
totaled $67.8 million, $44.0 million and $33.8 million in 1998, 1997 and 1996,
respectively. The single largest usage of operating cash involves acquisition
and development of real estate inventories which totaled $35.3 million, $16.6
million and $7.2 million in 1998, 1997 and 1996, respectively. During 1998, the
Company acquired real estate inventories in Sedona, Arizona; Durango, Colorado;
Las Vegas, Nevada and Gatlinburg, Tennessee, as well as funded significant VOI
construction at several of its other resorts, including the Royal Vista and Palm
Aire resorts in South Florida, and the resorts in Alexandria, Virginia and
Branson, Missouri.
During 1998, the Company incorporated the QSPEs for the specific purpose of
purchasing contracts receivable from the Company. The Company's cumulative
residual interests in the contracts receivable sold to the QSPEs are classified
as net investment activities of qualifying special purpose entities.
The Company's primary investment activity is the financing of VOI sales
through originations of contracts receivable. Due to increasing levels of VOI
sales, originations of contracts receivable have historically exceeded principal
collections resulting in the usage of $105.3 million and $53.9 million of cash
in 1997 and 1996, respectively. During 1998, the Company generated $24.5 million
of cash from its investing activities through the sale of contracts receivable
to its wholly owned qualifying special purpose entities.
The Company's resort development plans in 1999 are expected to require
approximately $120.0 million for vacation ownership building construction as
well as infrastructure, amenity and lot development. The Company expects to
finance its resort development activities through cash flow generated from
operations, sales of contracts receivable to the QSPEs and supplemented, as
necessary, by the existing revolving credit agreements or through other public
or private financing sources. The Company's projection of resort development
activity is based on a continuation of the Company's current growth projections.
The actual level of resort development may vary from current expectations in the
event of a change in the economy or the Company's inability or restrictions on
obtaining adequate credit availability.
The Company has traditionally engaged in financing activities to fund its
resort development activities and to support its loan receivable portfolio. In
1998, the Company's financing activities used $90.4 million, primarily to reduce
outstanding revolving credit facilities. During 1997 and 1996, the Company's
financing activities provided $51.1 million and $22.8 million, respectively.
In 1998, Fairfield repurchased $20.0 million of its Common Stock. The
repurchased shares of Common Stock are accounted for as treasury shares and will
be used to meet the Company's obligations under its employee stock option plans
or for other corporate purposes.
<PAGE>
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, (iv)sales of contracts
receivable to the QSPEs and (v) 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 and the interest paid
on the related borrowings.
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). 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, (iii) sales of contracts receivable to the QSPEs and (iv)
future financings through public or private financing sources.
Credit Facilities of the Company
--------------------------------
In 1998, the Company amended its previously existing revolving credit
agreements between Fairfield, Fairfield Acceptance Corporation - Nevada ("FAC -
Nevada") and their primary lender. The Amended and Restated Revolving Credit
Agreements (the "Credit Agreements") provide borrowing availability of up to
$80.0 million (including up to $11.0 million for letters of credit) and mature
in October 2001. At December 31, 1998, borrowing availability under the Credit
Agreements totaled $45.7 million and will be used to finance the Company's
acquisition and development of additional vacation resorts and for the general
operations of the Company.
At December 31, 1998, Fairfield Capital Corporation ("FCC"), a wholly owned
subsidiary of FAC - Nevada, had outstanding borrowings of $43.6 million under
the FCC Agreement, which provides for the purchase of contracts receivable from
FAC - Nevada. There are no additional fundings available under the FCC
Agreement. At December 31, 1998, contracts receivable totaling $56.0 million
collateralized the FCC borrowings.
Credit Facilities of Qualifying Special Purpose Entities
--------------------------------------------------------
In January 1998, Fairfield Receivables Corporation ("FRC"), a wholly owned
qualifying special purpose subsidiary of FAC - Nevada, entered into the FRC
Agreement which provides for borrowings of up to $150.0 million for the purchase
of contracts receivable pursuant to a Receivables Purchase Agreement, between
Fairfield, FAC - Nevada and FRC. At December 31, 1998, FRC held $112.7 million
of contracts receivable, with $93.0 million of related borrowings. An additional
$57.0 million of fundings are available under the FRC Agreement.
In August 1998, Fairfield Funding Corporation, II ("FFC II"), a wholly
owned qualifying special purpose subsidiary of FAC - Nevada, purchased $60.1
million of contracts from FRC. The purchase was financed by the issuance of
$49.8 million of private placement notes. The borrowing arrangement provides for
a reinvestment period whereby collateral and related debt will remain constant
for an eighteen month period ending the earlier of March 2000 or the occurrence
of an Early Amortization Event as defined in the Pledge and Servicing Agreement
related to this transaction. At December 31, 1998, FFC II held $59.4 million of
contracts receivable with $49.8 million of related borrowings.
<PAGE>
Interest Rate Risk
------------------
The Company has historically derived net interest income from its financing
activities as the interest rates it charges its customers who finance their
purchases of VOIs exceed the interest rates the Company pays to its lenders.
Because substantially all of the Company's indebtedness bears interest at
variable rates and the Company's respective receivables bear interest at fixed
rates, increases in interest rates will reduce net interest margins and could
result in the rate on borrowings exceeding the rate at which financing is
provided to customers. To mitigate the impact of fluctuations in market rates of
interest, the Company has entered into interest rate swap agreements on
approximately fifty percent of its financing arrangements. The interest rate
swap agreements effectively convert certain of the Company's variable interest
rate financing arrangements to fixed interest rate financing agreements, thereby
reducing the interest rate exposure of the Company. The Company's investment in
QSPEs is also subject to interest rate risk for the same reasons as the Company.
If market interest rates increased two hundred basis points during 1999 as
compared to 1998, the Company's interest expense, after considering the effects
of its interest rate swap agreements, would increase, net interest income and
fees from the QSPEs would decrease and earnings before provision for income
taxes would decrease by $1.2 million. Comparatively, if market interest rates
decreased two hundred basis points during 1999 as compared to 1998, the
Company's interest expense, after considering the effects of its interest rate
swap agreements, would decrease, and net interest income and fees from the QSPEs
would increase and earnings before provision for income taxes would increase by
$1.2 million. These amounts are determined by considering the impact of the
hypothetical interest rates on the Company's borrowing costs and interest rate
swap and cap agreements. These analyses do not consider the effects of the
reduced level of overall economic activity that could exist in such an
environment. Further, in the event of a change of such magnitude, management
would likely take actions to further mitigate its exposure to the change.
However, due to the uncertainty of the specific actions that would be taken and
their possible effects, the sensitivity analysis assumes no changes in the
Company's financial structure.
Income Taxes
------------
The Company reports its sales of VOIs on the installment method for federal
income tax purposes. Under this method, the Company does not recognize taxable
income on VOI sales until the installment payments have been received from the
Company's customers. The Company's federal alternative minimum tax ("AMT") is
impacted by the net deferral of income resulting from the Company's election of
the installment sales method. Prior to 1997, the Company had AMT net operating
loss carryforwards that could be used to offset the AMT. During 1997, these net
operating loss carryforwards were fully utilized; resulting in an increase in
AMT paid during 1998. The payment of AMT reduces the future regular tax
liability and creates a deferred tax asset. During the year ended December 31,
1998, the Company made payments totaling $2.7 million and $2.5 million
related to the 1997 and 1998 AMT, respectively. In the first quarter of 1999,
the Company made additional 1998 AMT payments totaling $8.3 million and
anticipates that it will continue to make significant AMT payments in future
periods.
Other
-----
In August 1998, the Company's Board of Directors authorized the repurchase
of up to $20.0 million of the Company's Common Stock. Repurchased shares of
common stock become treasury shares of the Company, and may be used to meet the
Company's obligations under its employee stock option plans or for other
corporate purposes. At December 31, 1998, the Company had repurchased 1,991,601
shares of common stock at an aggregate cost, including commissions, of
approximately $20.0 million.
<PAGE>
The Company intends to continue its growth-oriented strategy and,
accordingly, may from time to time acquire additional vacation ownership
resorts, additional land upon which vacation ownership resorts may be expanded
or developed and companies operating resorts or having vacation ownership
assets, management, or sales and marketing expertise commensurate with the
Company's operations in the vacation ownership industry. The Company is
currently evaluating the acquisition of certain additional land parcels for the
expansion of existing resorts and the development of additional resorts. In
addition, the Company is also evaluating certain VOI and property management
acquisitions to integrate into or expand the operations of the Company. The
Company expects to finance its short- and long-term cash needs, including
potential acquisitions, from (i) contract payments generated from its contracts
receivable portfolio, (ii) operating cash flows, (iii) borrowings under its
credit facilities, (iv) sales of contracts receivable to the QSPEs and (v)
future financings, including additional securitizations of contracts receivable.
FINANCIAL CONDITION
Consolidated assets of the Company decreased $32.8 million from December
31, 1997 to December 31, 1998. This decrease is due to the previously noted
sales of contracts receivable to the QSPEs ($212.7 million during the year ended
December 31, 1998). Real estate inventories increased due to VOI construction at
several of the Company's resorts, including resorts located in Branson,
Missouri; Pompano Beach, Florida and Alexandria, Virginia. Additionally, during
1998, the Company acquired undeveloped land located in Las Vegas, Nevada;
Gatlinburg, Tennessee; Sedona, Arizona; Durango, Colorado and Williamsburg,
Virginia.
Total consolidated liabilities of the Company decreased $68.3 million in
1998 due to reductions in the outstanding balance of the Company's revolving
credit agreements, which were funded by the proceeds received from the sales of
the contracts receivable to the QSPEs. Due to favorable interest rates available
through the credit facilities of the QSPEs, it is the Company's intention to
continue selling contracts receivable to the QSPEs until such time as the credit
facilities of the QSPEs are fully utilized. The Company anticipates that this
activity will result in a reduction of consolidated assets and liabilities in
1999.
Total stockholders' equity increased by $35.4 million in 1998. This
increase is due to the net effect of (i) current year net earnings of $43.6
million, (ii) issuance of Common Stock under the Company's employee stock
benefit plans and (iii) the repurchase of the Company's Common Stock at an
aggregate cost of $20.0 million.
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 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. Additionally,
as the Company opens new resorts and expands into new markets and geographical
locations, it may experience increased or different seasonality dynamics
creating fluctuations in operating results that are different from those
experienced in the past.
<PAGE>
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
With the addition of the five new destination resorts scheduled for 1999,
the Company will operate 31 resorts, and anticipates approximately 40% of its
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 in this state. 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 and 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.
YEAR 2000 READINESS DISCLOSURE
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the Company's
computer programs or hardware that have date-sensitive software or embedded
chips may 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.
Based on recent assessments, the Company determined that it will be
required to modify or replace portions of its software and certain hardware so
that those systems will properly utilize dates beyond December 31, 1999. The
Company presently believes that with modifications or replacements of existing
software and certain hardware, its Year 2000 issue can be mitigated. However, if
such modifications and replacements are not made, or are not completed timely,
the Year 2000 issue could have a material impact on the operations of the
Company.
The Company's plan to resolve the Year 2000 issue involves the following
four phases: assessment, remediation, testing and implementation. To date, the
Company has fully completed its assessment of all internal systems that could be
significantly affected by the Year 2000 issue. The completed assessment
indicated that most of the Company's significant information technology systems
could be affected, particularly the general ledger, billing, and inventory
systems. In addition, the Company has gathered information about the Year 2000
compliance status of its significant vendors and continues to monitor their
compliance.
State of Readiness
------------------
For its information technology exposures, the Company estimates that it is
approximately 70% complete on the internal remediation phase and expects to
complete software reprogramming and replacement by August 31, 1999. Once
software is reprogrammed or replaced for a system, the
<PAGE>
Company begins testing and implementation. These phases run concurrently for
different systems. To date, the Company estimates that it has completed
approximately 80% of its testing and has completed approximately 75% of its
implementation. Completion of the testing phase for all significant internal
systems is expected by June 30, 1999, with all remediated systems fully tested
and implemented by July 31, 1999, with 100% completion targeted for September
30, 1999.
The remediation of non-information technology equipment is not as
significant to the on-going operations of the Company as the remediation of
information technology systems. Non-information technology equipment includes
elevators at certain resort locations, heating and air conditioning systems,
alarm systems, sprinkler systems and other miscellaneous equipment. The Company
is currently in the process of evaluating its non-information technology systems
and estimates that it will complete the remediation, testing and implementation
phases by September 30, 1999. The Company anticipates that the cost, if any, of
modifying non-information technology equipment will be the responsibility of the
respective property owners' association unless the resort is operating under a
developer subsidy agreement, in which case the cost will be the Company's
responsibility.
Third Parties
-------------
The Company's most significant third party relationship is its banking
relationship with its primary correspondent bank, due to the fact that the
Company's cash management systems interface directly with the systems of the
bank. The Company has completed its review of the interface routine between
itself and the bank and has determined that the interface applications are
currently Year 2000 compliant. Additionally, the Company has been informed by
the bank that its internal systems are currently Year 2000 compliant. The other
vendors queried by the Company either indicated that they were currently Year
2000 compliant or believed that their computerized systems would be Year 2000
compliant by the end of 1999.
The Company is not currently aware of any other third party with a Year
2000 issue that would materially impact the Company's results of operations,
liquidity, or capital resources. However, the Company has no means of ensuring
that all third parties will be Year 2000 ready. The inability of third parties
to complete their Year 2000 resolution process in a timely fashion could
materially impact the Company. The effect of non-compliance by third parties is
not determinable.
Cost
----
The Company will utilize both internal and external resources to reprogram,
or replace, test, and implement hardware and software changes for Year 2000
modifications. The total cost of the Year 2000 project is estimated at $2.0
million and is being funded through operating cash flows. To date, the Company
has incurred approximately $0.5 million ($0.3 million expensed and $0.2 million
capitalized for new systems and equipment), related to all phases of the Year
2000 project. Of the total remaining project costs, approximately $1.3 million
is attributable to the purchase of new software and operating equipment, which
will be capitalized. The remaining $0.2 million relates to repair of hardware
and software and will be expensed as incurred. All internal payroll costs
relating to the evaluation, remediation, testing and implementation are also
expensed as incurred. The Company has not deferred any significant information
technology projects as a result of its Year 2000 compliance efforts.
Contingency Plan
----------------
The Company currently has no contingency plans in place in the event it
does not complete all phases of the Year 2000 program. The Company plans to
evaluate the status of completion in June 1999 and determine whether such a plan
is necessary.
<PAGE>
Summary
-------
Management of the Company believes it has an effective program in place to
resolve the Year 2000 issue in a timely manner. As noted above, the Company has
not yet completed all necessary phases of the Year 2000 program. The most
reasonably likely worst case scenario, in the event that the Company does not
complete certain critical phases, would be an inability to take customer orders,
invoice customers or collect payments. In addition, as is the case for most
companies involved in Year 2000 system modifications, disruptions in the general
economy resulting from Year 2000 issues could also materially adversely affect
the Company's ability to market and sell its product. The Company could also be
subject to litigation for computer system failure, equipment shutdown at its
resort facilities or failure to properly date business records. The amount of
potential liability and lost revenue cannot be reasonably estimated at this
time.
The preceding Year 2000 discussion contains "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995. Such
statements, including without limitation, anticipated costs and the dates by
which the Company expects to complete certain actions, are based on management's
best current estimates, which were derived utilizing numerous assumptions about
future events, including the continued availability of certain resources,
representations received from third parties 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 ability to
identify and remediate all relevant information technology and non-information
technology systems, results of Year 2000 testing, adequate resolution of Year
2000 issues by businesses and other third parties who are service providers,
suppliers or customers of the Company, unanticipated system costs, the adequacy
of and ability to develop and implement contingency plans and similar
uncertainties. The "forward-looking statements" made in the foregoing Year 2000
discussion speak only as of the date on which such statements are made, and the
Company undertakes no obligation to update any forward-looking statement to
reflect events or circumstances after the date on which such statement is made
or to reflect the occurrence of unanticipated events.
FORWARD-LOOKING INFORMATION
Statements in this Management's Discussion and Analysis of Financial
Condition and Results of Operations include 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, beliefs and
assumptions of management 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 Year 2000 considerations. Representative examples of
these factors include (without limitation) general industry and economic
conditions; interest rate trends; regulatory changes; availability of real
estate properties; competition from national hospitality companies and other
competitive factors and pricing pressures; shifts in customer demands; the
Company's success, or lack thereof, to remediate, test and implement necessary
hardware and
<PAGE>
software modifications to become Year 2000 compliant; changes in operating
expenses, including employee wages, commission structures and related benefits;
economic cycles; the Company's lack of experience in certain of the markets
where it has purchased land and is developing vacation ownership resorts; the
Company's success in its ability to hire, train and retain qualified employees;
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 the continued integration of the Vacation
Break operations.
<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, 1998 and 1997,
and the related consolidated statements of earnings, stockholders' equity and
cash flows for each of the three years in the period ended December 31, 1998.
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 consolidated financial statements of
Vacation Break U.S.A., Inc., a wholly owned subsidiary, which statements reflect
total revenues constituting 37% 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, 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, 1998 and 1997, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Little Rock, Arkansas
March 24, 1999
<PAGE>
FAIRFIELD COMMUNITIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PAR VALUE)
<TABLE>
December 31,
-----------------------------
1998 1997
---- ----
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 5,017 $ 3,074
Receivables, net 202,849 296,699
Real estate inventories 128,397 93,139
Investments in and net amounts due from
qualifying special purpose entities 31,917 -
Property and equipment, net 30,062 24,370
Restricted cash 11,154 25,607
Other assets 21,697 21,043
-------- --------
$431,093 $463,932
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Financing arrangements $ 79,441 $170,081
Deferred revenue 27,085 29,769
Accounts payable 26,550 20,398
Deferred income taxes 19,470 10,273
Other liabilities 55,917 46,229
-------- --------
208,463 276,750
-------- --------
Stockholders' Equity:
Common stock, $.01 par value,
100,000,000 shares authorized;
50,663,851 and 49,491,666 shares
issued in 1998 and 1997, respectively 507 495
Paid-in capital 120,403 107,920
Retained earnings 122,711 79,083
Unamortized value of restricted stock - (316)
Treasury stock, at cost, 6,496,959 shares in
1998 and 4,573,266 shares in 1997 (20,991) -
-------- --------
222,630 187,182
-------- --------
$431,093 $463,932
======== ========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
FAIRFIELD COMMUNITIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
Year Ended December 31,
--------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
REVENUES
Vacation ownership interests, net $301,119 $256,141 $194,612
Resort management 37,210 28,237 26,987
Interest 33,916 37,179 28,651
Net interest income and fees from qualifying
special purpose entities 9,739 - -
Other 25,909 24,622 23,562
-------- -------- --------
407,893 346,179 273,812
-------- -------- --------
EXPENSES
Vacation ownership interests -
cost of units sold 83,743 67,846 51,385
Sales and marketing 144,996 121,638 99,437
Provision for loan losses 14,270 12,121 7,827
Resort management 31,820 24,595 24,724
General and administrative 29,517 30,079 23,340
Interest, net 8,490 10,353 10,754
Depreciation 7,072 5,157 4,079
Other 18,448 17,983 16,823
Costs associated with merger - 13,308 -
-------- -------- --------
338,356 303,080 238,369
-------- -------- --------
Earnings before provision for income
taxes and extraordinary loss 69,537 43,099 35,443
Provision for income taxes 25,909 19,727 13,340
-------- -------- --------
Earnings before extraordinary loss 43,628 23,372 22,103
Extraordinary loss from early extinguishment
of debt, net of income tax benefit of $1,379 - 2,195 -
-------- -------- --------
Net earnings $ 43,628 $ 21,177 $ 22,103
======== ======== ========
BASIC EARNINGS PER SHARE:
Earnings before extraordinary loss $.98 $.53 $.54
Extraordinary loss - .05 -
---- ---- ----
Net earnings $.98 $.48 $.54
==== ==== ====
DILUTED EARNINGS PER SHARE:
Earnings before extraordinary loss $.93 $.51 $.51
Extraordinary loss - .05 -
---- ---- ----
Net earnings $.93 $.46 $.51
==== ==== ====
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 44,544 44,200 40,558
====== ====== ======
Diluted 46,846 46,282 43,265
====== ====== ======
</TABLE>
See notes to consolidated financial statements.
<PAGE>
FAIRFIELD COMMUNITIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
Unamortized
Value of
Common Stock Paid-in Retained Restricted Treasury
------------
Shares Amount Capital Earnings Stock Stock Total
------ ------ ------- -------- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1996 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
Net earnings - - - 43,628 - - 43,628 -
Amortization of unearned
compensation - restricted
stock - - - - 316 - 316
Activity related to
employee stock
benefit plans 1,172 12 11,678 - - - 11,690
Acquisition of
treasury shares - - - - - (20,991) (20,991)
Other - - 805 - - - 805
------ ---- -------- -------- ------- -------- --------
Balance, December 31, 1998 50,664 $507 $120,403 $122,711 $ - $(20,991) $222,630
====== ==== ======== ======== ======= ======== ========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
FAIRFIELD COMMUNITIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
Year Ended December 31,
--------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net earnings $ 43,628 $ 21,177 $ 22,103
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation 7,072 5,157 4,079
Provision for loan losses 14,270 12,121 7,827
Net interest income and fees from
qualifying special purpose entities (9,739) - -
Deferred income taxes, net 17,012 16,784 (7,860)
Tax benefit from exercise of stock warrants 4,869 612 801
Charges associated with merger - 5,869 -
Utilization of pre-confirmation
income tax attributes - - 19,108
Changes in operating assets and liabilities,
net of acquisitions:
Real estate inventories (35,258) (16,647) (7,240)
Net investment activities of qualifying
special purpose entities 20,148 - -
Deferred revenue (2,684) (13,558) (6,231)
Accrued income taxes 6,394 6,331 655
Other 2,098 6,139 599
--------- --------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 67,810 43,985 33,841
--------- --------- ---------
INVESTING ACTIVITIES:
Purchases of property and equipment, net (12,764) (7,019) (11,187)
Principal collections on receivables 94,372 105,197 104,302
Originations of receivables (227,514) (181,750) (149,841)
Sales of receivables to qualifying
special purpose entities 170,396 - -
Cash paid for acquisitions - (13,500) -
Other - ( 8,242) 2,815
--------- --------- ---------
Net cash provided by (used in)
investing activities 24,490 (105,314) (53,911)
--------- --------- ---------
FINANCING ACTIVITIES:
Proceeds from financing arrangements 236,952 356,199 357,026
Repayments of financing arrangements (327,592) (299,413) (360,662)
Activity related to employee
stock benefit plans 6,821 2,304 477
Net decrease (increase) in restricted cash 14,453 (8,003) 5,386
Acquisition of treasury stock (20,991) - -
Net proceeds of stock offerings - - 19,065
Other - - 1,500
--------- --------- ---------
NET CASH (USED IN) PROVIDED BY
FINANCING ACTIVITIES (90,357) 51,087 22,792
--------- --------- ---------
Net increase (decrease) in cash
and cash equivalents 1,943 (10,242) 2,722
Cash and cash equivalents, beginning of year 3,074 13,316 10,594
--------- --------- ---------
Cash and cash equivalents, end of year $ 5,017 $ 3,074 $ 13,316
========= ========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid, net of amounts capitalized $ 9,951 $ 11,204 $ 15,454
========= ========= =========
Income taxes paid $ 5,490 $ 710 $ 757
========= ========= =========
Capitalized interest $ 1,534 $ 2,986 $ 2,577
========= ========= =========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
FAIRFIELD COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
Note 1 - Organization and Summary of Significant Accounting Policies
- ------ -----------------------------------------------------------
Description of Business
- -----------------------
Fairfield Communities, Inc. ("Fairfield", and together with its
consolidated subsidiaries, the "Company") is one of the largest vacation
ownership companies in the United States. The Company's primary business is the
sale of vacation ownership interests ("VOIs") through its innovative
points-based vacation system, FairShare Plus. The VOIs offered by the Company
consist of either individual fee simple interests or specified fixed week
interval ownership in fully furnished vacation units. The Company also offers
financing for VOI purchasers, which results in the creation of high-quality,
medium-term contracts receivable.
In 1997, Fairfield acquired all of the outstanding common stock of Vacation
Break U.S.A., Inc. ("Vacation Break") in exchange for approximately 10.6 million
shares of its common stock. The merger was accounted for as a pooling of
interests and, accordingly, all prior period financial information was restated
as if the merger took place at the beginning of the earliest period presented.
Additionally, in 1997, Fairfield acquired the remaining 45% minority interest 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.
Basis of Presentation
- ---------------------
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.
Fairfield Acceptance Corporation - Nevada ("FAC-Nevada") was incorporated
in December 1997 as a wholly owned subsidiary of Fairfield. All operations of
Fairfield Acceptance Corporation ("FAC"), a wholly owned finance subsidiary of
Fairfield, were merged into FAC - Nevada on July 13, 1998.
Investments in and Net Amounts Due From Qualifying Special Purpose Entities
- ---------------------------------------------------------------------------
Fairfield Receivables Corporation ("FRC") and Fairfield Funding
Corporation, II ("FFC II" and together with FRC, the "QSPEs") were incorporated
in 1998 as wholly owned, qualifying special purpose subsidiaries of FAC - Nevada
for the specific purpose of purchasing contracts receivable from the Company.
Statement of Financial Accounting Standards ("SFAS") No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities",
requires that qualifying special purpose entities, which engage in qualified
purchases of financial assets with affiliated companies, be accounted for on an
unconsolidated basis.
Sales of contracts receivable from the Company to the QSPEs occur on a
periodic basis and are recorded based on the relative fair value of the
contracts receivable sold. Fair value is estimated using discounted cash flows
at an interest rate which the Company believes a purchaser would require as a
rate of return. The Company's assumptions are based on experience with its
contracts receivable portfolio, available market data, estimated prepayments,
the cost of servicing and net transaction costs.
<PAGE>
The Company's cumulative residual interests in the contracts receivable
sold to the QSPEs are classified as "Investments in and net amounts due from
qualifying special purpose entities" in the Consolidated Balance Sheet, with
income from the residual interests reflected as "Net interest income and fees
from qualifying special purpose entities" in the Consolidated Statement of
Earnings.
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. Such estimates include
the allowance for loan losses on receivables, revenue recognition under the
percentage of completion method on VOI sales, depreciation of property and
equipment, accrued liabilities and deferred revenue on the sale of vacation
packages. Consequently, actual results could differ from these estimates and
assumptions.
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.
Restricted Cash
- ---------------
Restricted cash consists primarily of (i) deposits received on sales of
VOIs that are held in escrow until the applicable statutory rescission period
has expired and the related customer contract receivable has been recorded and
(ii) amounts received prior to the attainment of the required 10% down payment.
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 furniture, 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.
Real Estate Inventories
- -----------------------
Real estate inventories are stated at the lower of cost or net realizable
value. VOI inventories include the cost of land and land improvements;
construction materials; direct labor and overhead; taxes and capitalized
interest incurred during the construction of the VOI units and a portion of the
costs of amenities constructed for the use and benefit of property owners. These
costs are capitalized as inventory and are allocated to individual VOI units
based upon their relative sales values. VOIs reacquired are placed back into
inventory at the lower of their original cost basis or estimated market value.
Company management periodically reviews the carrying value of its inventories to
determine that the carrying value does not exceed market.
Receivables
- -----------
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,
1
<PAGE>
for periods of up to seven years. The Company records a provision for estimated
losses on uncollectible contracts receivable by a charge against earnings at the
time of sale. Such provision is recorded at an amount based upon the Company's
historical cancellation experience, management's estimate of future losses and
current economic factors. The allowance for contracts receivable is maintained
at a level believed adequate by management based on periodic analysis 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.
The Company recognizes VOI sales on an accrual basis after a binding sales
contract has been executed, a 10% minimum down payment (including interest) has
been received, the statutory rescission period has expired and construction is
substantially complete. If all the criteria are met except that construction is
not substantially complete, revenues are recognized using the
percentage-of-completion method. Under this method, the portion of revenues
applicable to costs incurred, as compared to total estimated acquisition,
construction and direct 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.
<PAGE>
The Company's Discovery Vacations program allows purchasers to receive a
one-year trial membership in the FairShare Plus system. Revenues recognized in
conjunction with the Discovery Vacations program are recorded in a manner
consistent with VOI sales. The net profit generated from the Discovery Vacations
program is reflected as a credit against "Sales and marketing" in the Statements
of Earnings.
The Company sells vacation package certificates on a non-refundable basis.
The customer typically has up to eighteen months to exercise the certificate, at
which time the certificate expires, if not extended 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
- ------------------
Earnings per share is based on the weighted average number of common shares
outstanding and includes both basic and diluted earnings per share computations.
The computation of basic earnings per share excludes any dilutive effects of
options, warrants and convertible securities. The computation of diluted
earnings per share includes the dilutive effects of the Company's outstanding
options and warrants, along with contingently issuable shares and shares held in
escrow.
Income Taxes
- ------------
The Company provides for income taxes under the liability method in
accordance with SFAS No. 109, "Accounting for Income Taxes". Deferred income
taxes are recorded for temporary differences between the financial statement
bases of assets and liabilities and their respective income tax bases and net
operating loss and tax credit carryforwards. Deferred tax assets and liabilities
are measured using enacted income tax rates expected to apply to taxable income
in the years in which those temporary differences are expected to be recovered
or settled. The effect on deferred tax assets and liabilities resulting from a
change in the income tax rate is recognized in income during the period of
change.
Business Segment of the Company
- -------------------------------
On December 31, 1998, the Company adopted SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information". SFAS No. 131 establishes
standards for the manner in which 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. The adoption of SFAS No. 131 did not affect the results of
operations or the financial position of the Company.
The Company's operations involve one reportable segment - Vacation
Ownership operations. This segment derives its revenues from the sale of VOIs
and from the associated interest income on contracts receivable generated by the
Company's financing of VOI sales.
Derivative Financial Instruments
- --------------------------------
The Company uses derivative financial instruments on a limited basis and
does not use them for trading purposes. However, to manage risk associated with
the Company's borrowings bearing interest at variable rates, the Company may
from time to time purchase interest rate caps, interest rate swaps or similar
instruments. Interest rate differentials to be paid or received as a result of
these instruments are recognized as an adjustment of interest expense related to
the designated debt.
<PAGE>
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities", which requires
the Company to recognize all derivatives on the balance sheet at fair value.
SFAS No. 133 is required to be adopted in years beginning after June 15, 1999.
However, because of the Company's limited use of derivatives, management does
not anticipate that the adoption of SFAS No. 133 will have a significant impact
on the Company's financial position or results of operations.
Note 2 - Receivables, net
- ------ ----------------
Receivables consisted of the following (In thousands):
December 31,
-----------------------
1998 1997
---- ----
Contracts $197,888 $302,519
Mortgages and other 17,966 15,028
-------- --------
215,854 317,547
Less allowance for loan losses (13,005) (20,848)
-------- --------
Receivables, net $202,849 $296,699
======== ========
During 1998, the Company sold $212.7 million of contracts receivable to
the Qualifying Special Purpose Entities. In conjunction with these sales the
Company received non-cash consideration, primarily in the form of a subordinated
note receivable, of $42.3 million. At December 31, 1998, these entities held
contracts receivable totaling $172.1 million, with related borrowings of $142.9
million. Except for the repurchase of contracts that fail to meet initial
eligibility requirements, the Company is not obligated to repurchase defaulted
or any other contracts sold to the Qualifying Special Purpose Entities. It is
anticipated, however, that the Company will repurchase defaulted contracts to
facilitate the remarketing of the underlying collateral. The Company maintains
an allowance for loan losses in connection with its option to repurchase the
defaulted contracts and, at December 31, 1998, this allowance totaled $10.3
million and was classified in "Investments in and net amounts due from
qualifying special purpose entities" in the Consolidated Balance Sheet.
The weighted average interest rate on the Company's contracts receivable
was 14.2% and 14.6% at December 31, 1998 and 1997, respectively, with interest
rates on these receivables ranging generally from 13.3% to 17.9%. The Company's
contracts receivable were 97.8% and 98.2% current on a 60 day basis at December
31, 1998 and 1997, respectively.
Transactions in the allowance for loan losses were as follows (In
thousands):
Year Ended December 31,
---------------------------
1998 1997 1996
---- ---- ----
Balance at January 1 $ 20,848 $16,528 $15,471
Provision for loan losses 14,270 12,121 7,827
Reclassification of allowance pertaining
to receivables sold to QSPEs (10,326) - -
Net charge-offs (11,787) (7,801) (6,770)
-------- ------- -------
Balance at December 31 $ 13,005 $20,848 $16,528
======== ======= =======
<PAGE>
Note 3 - Real Estate Inventories
- ------ -----------------------
Real estate inventories are summarized as follows (In thousands):
December 31,
-----------------------
1998 1997
---- ----
Land and improvements $ 39,814 $26,666
Residential housing:
Vacation ownership 85,350 62,410
Homes 3,233 4,063
-------- -------
88,583 66,473
-------- -------
$128,397 $93,139
======== =======
During 1998, the Company acquired, for $19.9 million, certain undeveloped
land located in Sedona, Arizona; Durango, Colorado; Las Vegas, Nevada;
Gatlinburg, Tennessee; and Williamsburg, Virginia for future VOI development.
Additionally, in 1998, the Company increased its investments in VOI residential
housing at certain of its destination resort properties, including those resorts
located in Pompano Beach, Florida, Branson, Missouri and Alexandria, Virginia.
Note 4 - Property and Equipment, Net
- ------ ---------------------------
Property and equipment, net consisted of the following (In thousands):
December 31,
-----------------------
1998 1997
---- ----
Land, buildings and improvements $ 30,663 $ 24,052
Furniture, fixtures and equipment 19,014 18,273
-------- --------
49,677 42,325
Accumulated depreciation (19,615) (17,955)
-------- --------
$ 30,062 $ 24,370
======== ========
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 $7.2 million
for 1998 and $4.8 million for 1997 and 1996. Future minimum lease commitments
for non-cancelable operating leases with initial or remaining terms in excess of
one year are as follows: 1999 - $5.0 million; 2000 - $3.7 million; 2001 - $2.6
million; 2002 - $1.6 million; 2003 - $1.1 million and thereafter - $.7 million.
<PAGE>
Note 5 - Financing Arrangements
- ------ ----------------------
Financing arrangements are summarized as follows (In thousands):
December 31,
--------------------
1998 1997
---- ----
Revolving credit agreements $29,181 $ 94,101
Notes payable collateralized by
Contracts receivable:
Fairfield Capital Corporation Notes 43,574 60,147
Fairfield Funding Corporation Notes - 12,330
Notes payable - other 6,686 3,503
------- --------
$79,441 $170,081
======= ========
During 1998, the Company reduced the borrowings outstanding under
certain of its financing arrangements as a result of financing arrangements
available to the Qualifying Special Purpose Entities (see Note 2).
Revolving Credit Agreements
---------------------------
At December 31, 1998, the Company's Amended and Restated Revolving Credit
Agreements (the "Credit Agreements") provide borrowing availability of up to
$80.0 million (including up to $11.0 million for letters of credit, of which
$4.6 million is outstanding at December 31, 1998) and mature in October 2001. At
December 31, 1998, borrowings under the Credit Agreements bear interest at
variable rates ranging from the base rate minus .25% to the base rate minus .75%
(weighted average stated interest rate of 7.0% at December 31, 1998). Borrowings
under the Credit Agreements are collateralized by contracts receivable and
certain construction work-in-process, with an aggregate book value of $141
million at December 31, 1998. At December 31, 1998, the Company's borrowing
availability under its Credit Agreements totaled $45.7 million.
Notes Payable Collateralized by Contracts Receivable
----------------------------------------------------
Fairfield Capital Corporation ("FCC"), is a wholly owned subsidiary of FAC
- - Nevada. Borrowings under the FCC Credit Agreement mature principally within 47
months and bear interest at varying rates, based on commercial paper rates. The
weighted average stated interest rate on the FCC Notes was 5.77% at December 31,
1998. At December 31, 1998, contracts receivable totaling $56.0 million
collateralized the FCC Notes. Contractual maturities within the next five years
of contracts receivable which serve as collateral for and will be used to reduce
notes payable as follows: 1999 - $7.9 million; 2000 - $8.9 million; 2001 - $10.0
million; 2002 - $9.5 million and 2003 - $5.3 million.
In February 1998, FAC - Nevada entered into an interest rate swap with its
primary lender, which provides for a fixed interest rate of 5.63% on up to $50.0
million of FCC Notes. This agreement is subject to the scheduled amortization of
a pool of contracts receivable and will expire in February 2002.
Notes Payable - Other
---------------------
At December 31, 1998, notes payable - other consisted primarily of a $5.2
million borrowing secured by the Company's corporate office building in Little
Rock, Arkansas. This borrowing matures in December 2003 and bears interest at
6.9%. Scheduled principal repayments are as follows: 1999 - $.2 million; 2000 -
$.2 million; 2001 - $.2 million; 2002 - $.3 million and 2003 - $4.3 million.
<PAGE>
Note 6 - Deferred Revenue - Estimated Costs to Develop Land Sold
- ------ -------------------------------------------------------
At December 31, 1998, estimated cost to complete development work in
subdivisions from which lots had been sold totaled $13.5 million. The estimated
cost to complete development work within the next five years is as follows: 1999
- - $.3 million; 2000 - $.3 million; 2001 - $.4 million; 2002 - $.3 million and
2003 - $.5 million.
Note 7 - Income Taxes
- ------ ------------
At December 31, 1998, the Company had net operating loss carryforwards
totaling $108.4 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, 1998, net operating loss
carryforwards which are available to offset regular taxable income, 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 - $22.7 million;
2011 - $24.2 million; 2012 - $7.2 million and 2018 - $9.4 million.
Components of the provision for income taxes are as follows (In
thousands):
Year Ended December 31,
---------------------------------------
1998 1997 1996
---- ---- ----
Current:
Federal $ 8,356 $ 2,779 $ 254
State 541 164 426
------- ------- -------
8,897 2,943 680
------- ------- -------
Deferred:
Federal 14,111 14,050 11,380
State 2,901 2,734 1,280
------- ------- -------
17,012 16,784 12,660
------- ------- -------
$25,909 $19,727 $13,340
======= ======= =======
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. During 1996, the Company recognized
the utilization of pre-confirmation income tax attributes totaling $19.1
million.
<PAGE>
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):
Year Ended December 31,
----------------------------------
1998 1997 1996
---- ---- ----
Statutory tax provision $24,338 $15,085 $12,405
State income taxes, net of
Federal benefit 2,237 1,720 1,109
Impact of merger expenses - 2,294 -
Other (666) 628 (174)
------- ------- -------
Provision for income taxes $25,909 $19,727 $13,340
======= ======= =======
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):
December 31,
------------------------
1998 1997
---- ----
Deferred tax assets:
Net operating loss carryforwards $ 40,397 $ 38,259
Loan and cancellation loss reserves 7,672 8,308
Deferred revenue 6,267 4,619
Tax over book basis in inventory
and fixed assets 2,975 724
Credit carryforwards 12,694 4,338
Other 4,376 3,271
-------- --------
74,381 59,519
-------- --------
Deferred tax liabilities:
Installment sales 90,234 68,234
Other 3,617 1,558
-------- --------
93,851 69,792
-------- --------
Net deferred tax liabilities $(19,470) $(10,273)
======== ========
Note 8 - Other Liabilities
- ------ -----------------
Other liabilities consisted of the following (In thousands):
December 31,
-------------------
1998 1997
---- ----
Accrued employee compensation and benefits $17,592 $15,165
Accrued income taxes 8,687 2,293
Accrual for Discovery fulfillment 6,299 5,588
Deposits associated with sales contracts 3,302 6,639
Accrued association subsidies 3,154 1,549
Other 16,883 14,995
------- -------
$55,917 $46,229
======= =======
<PAGE>
Note 9 - Stockholders' Equity
- ------ --------------------
Fairfield is authorized to issue 100 million shares of Common Stock, par
value of $.01 per share. During 1997, Fairfield's Board of Directors declared
two-for-one and three-for-two common stock splits. In connection with these
stock splits, the par value of the additional shares resulting from the splits,
totaling $304,000, was reclassified from paid-in capital to common stock.
In August 1998, Fairfield's Board of Directors authorized the repurchase of
up to $20.0 million of Common Stock. Repurchased shares of Common Stock are
accounted for as treasury shares of the Company, and may be used to meet the
Company's obligations under its employee stock option plans or for other
corporate purposes. At December 31, 1998, the Company had repurchased 1,991,601
shares of Common Stock at an aggregate cost, including commissions, of $20.0
million.
In 1996, the Company issued from treasury, 180,000 shares 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 vested 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 amortized to compensation expense over the
restricted period. During 1998, Fairfield acquired a total of 59,310 shares of
its Common Stock ("Surrendered Shares") in settlement of federal and state
withholding taxes pursuant to the issuance of the Restricted Stock. The cost to
the Company related to the Surrendered Shares is reflected in "Treasury stock"
in the Consolidated Balance Sheet and Consolidated Statement of Stockholders'
Equity.
In 1996, the Company completed an underwritten public offering of 2,700,000
shares of Common Stock at a price of $7.21 per share. The net proceeds totaling
$17.7 million were used to repay certain indebtedness and to temporarily pay
down the outstanding indebtedness under the Company's revolving credit
agreements.
At December 31, 1998, five million shares of Preferred Stock with a par
value of $.01 per share were authorized, none of which have been issued. 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 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 distributions of its Common
Stock.
<PAGE>
Note 10 - Earnings per Share
- ------- ------------------
The following table sets forth the computation of basic and diluted
earnings per share ("EPS") (In thousands, except per share data):
Year Ended December 31,
-----------------------------
1998 1997 1996
---- ---- ----
Numerator:
Net income before extraordinary loss $43,628 $23,372 $22,103
Extraordinary loss from early
extinguishment of debt - 2,195 -
------- ------- -------
Numerator for basic and diluted EPS $43,628 $21,177 $22,103
======= ======= =======
Denominator:
Denominator for basic EPS -
weighted average shares 44,544 44,200 40,558
Effect of dilutive securities:
Options and warrants 1,727 1,626 1,600
Common stock held in escrow 575 366 366
Restricted common stock - 90 180
Other - - 561
------- ------- -------
Dilutive potential common shares 2,302 2,082 2,707
------- ------- -------
Denominator for diluted EPS - adjusted
weighted-average shares and
assumed conversions 46,846 46,282 43,265
======= ======= =======
Basic earnings per share $.98 $.48 $.54
==== ==== ====
Diluted earnings per share $.93 $.46 $.51
==== ==== ====
Note 11 - Segment Disclosures
- ------- -------------------
The Company, which is organized based on products and services offered,
operates one reportable segment Vacation Ownership operations. This segment
derives its revenues from the sale of VOIs and from the associated interest
income on contracts receivable generated by the Company's financing of VOI
sales. The Company evaluates performance and allocates resources based on
operating profit before income taxes. This basis includes depreciation expense;
however, the related property and equipment are not allocated to the segment
level.
Segment assets include all contracts receivable. In addition, for the
consolidated financial statement presentation, portions of interest income and
interest expense allocated to the segment are included in "Net interest income
and fees from qualifying special purpose entities" in the Consolidated Statement
of Earnings.
The following table summarizes VOI segment information for the periods
indicated (In thousands):
Year Ended December 31,
------------------------------
1998 1997
---- ----
VOI revenue, net $301,119 $256,141
Interest income 49,575 37,179
Interest expense, net 14,346 10,353
Depreciation expense 2,480 1,484
The difference in interest income and interest expense for the year
ended December 31, 1998 reported by the segment and consolidated interest income
and expense of $33.9 million and $8.5 million, respectively, is attributable to
interest income and interest expense recorded by the QSPEs. The
<PAGE>
difference between depreciation expense reported by the segment and consolidated
depreciation expense for the same time period is attributable to depreciation
expense by non-reportable operating segments or business activities.
Reconciliation to consolidated totals (In thousands):
- ----------------------------------------------------
Year Ended December 31,
-----------------------------------------------------
1998 1997
------------------------ ---------------------------
Earnings Earnings
Revenues Before Taxes Revenues Before Taxes
Total segment revenue
and operating profit,
respectively $356,188 $ 90,161 $290,050 $ 80,741
Other revenues and other
operating profit,
respectively 57,625 (20,560) 56,129 (37,642)
Adjustment to interest income
and net interest and fees
from QSPEs (5,920) (64) - -
-------- -------- -------- --------
Consolidated revenues and
earnings before taxes and
extraordinary loss,
respectively $407,893 $ 69,537 $346,179 $ 43,099
======== ======== ======== ========
Other revenues consist primarily of resort management revenue and home
sales for the year ended December 31, 1998. Other operating profits for the same
time period includes general and administrative expenses, which are not
allocated on a segment basis.
December 31,
---------------------------
1998 1997
---- ----
Reportable segment total assets $ 484,015 $398,663
Other assets 108,856 65,269
Adjustment to contracts receivable,
allowance for loan losses and
investments in and net amounts
due from QSPEs (161,778) -
--------- --------
Total consolidated assets $ 431,093 $463,932
========= ========
Other assets consists primarily of property and equipment, real estate
inventories - homes, and unamortized costs in excess of net assets acquired.
All revenue and assets of Fairfield's reportable segment are attributed
to or located in the United States. The Company does not have any customers
which represents ten percent or more of its consolidated revenues.
Note 12 - 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 $3.4 million, $2.0 million and $1.2 million for 1998, 1997 and
1996, respectively.
<PAGE>
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 was $0.3
million for each of 1998 and 1997 and $0.1 million for 1996.
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 2,587,000 shares of
Fairfield'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.
In 1997, the Company's stockholders approved the 1997 Stock Option Plan
(the "1997 Plan"). Under the terms of the 1997 Plan, non-qualified stock options
to purchase a maximum of 1,650,000 shares 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. On May 21, 1998, the Company's stockholders approved an amendment to the
1997 Plan to increase the maximum number of shares of Common Stock that may be
issued pursuant to the exercise of options granted under the 1997 Plan by
1,000,000 shares.
<PAGE>
The following table summarizes the activity under the Company's option
and warrant plans (shares in thousands):
Weighted Average
Shares Price Per Share
------------------------ ---------------------------
1998 1997 1996 1998 1997 1996
---- ---- ---- ---- ---- ----
Outstanding at beginning
of year 4,802 3,103 3,028 $ 5.66 $ 2.03 $1.52
Granted - 2,299 674 N/A 10.78 3.83
Exercised (1,179) (380) (488) 4.31 3.51 1.28
Forfeited (102) (220) (111) 14.48 6.70 1.68
------ ----- ----- ------ ------ -----
Outstanding at end
of year 3,521 4,802 3,103 5.45 5.66 2.03
====== ===== =====
Exercisable at end
of year 1,918 2,739 1,779
====== ===== =====
Reserved for future
issuance 1,320 220 107
====== ===== =====
The following table summarizes information concerning outstanding and
exercisable stock options and warrants as of December 31, 1998 (shares in
thousands):
Outstanding Exercisable
- ----------------------------------------------------- ------------------------
Weighted
Average Weighted Weighted
Number Remaining Average Number Average
Range of of Shares Contractual Exercise of Shares Exercise
Exercise Prices Outstanding Life Price Exercisable Price
- --------------- ----------- ---- ----- ----------- -----
Less than $2 1,533 4.2 years $ 1.01 1,533 $1.01
$2 - $9 508 6.2 years 3.53 385 3.95
$10 or more 1,480 8.5 years 10.71 - -
----- -----
3,521 1,918
===== =====
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 SFAS No. 123
"Accounting for Stock-Based Compensation". 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 and 1996, respectively: risk free interest rates of 6.6% and 6.5%; dividend
yields of 0% for each year presented; volatility factors of the expected market
price of the Company's Common Stock of 43.8 and 44.5; and the weighted-average
expected life of the options and warrants of six years in 1997 and 1996. The
weighted-average fair value of the options and warrants granted in 1997 and 1996
was $4.90 and $2.07, respectively.
<PAGE>
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 $42.3 million or $.91 per diluted share, $19.6
million or $.42 per diluted share and $21.5 million or $.50 per diluted share,
for 1998, 1997 and 1996, respectively. Such pro forma effects are not
necessarily indicative of the effect on future years.
Note 13 - Supplemental Information
- ------- ------------------------
Other revenues consisted of the following (In thousands):
Year Ended December 31,
-------------------------------
1998 1997 1996
---- ---- ----
Home sales $12,252 $11,124 $ 8,752
Lot sales 8,155 8,060 8,735
FairShare Plus conversion fees 2,494 2,069 1,076
Other 3,008 3,369 4,999
------- ------- -------
$25,909 $24,622 $23,562
======= ======= =======
Other expenses consisted of the following (In thousands):
Year Ended December 31,
--------------------------------
1998 1997 1996
---- ---- ----
Home cost of sales $10,796 $ 9,800 $ 8,145
Subsidies to property
owner associations 2,488 686 874
Lot cost of sales 2,335 2,170 2,068
FairShare Plus conversion
commissions 1,222 706 462
Other 1,607 4,621 5,274
------- ------- -------
$18,448 $17,983 $16,823
======= ======= =======
Included in other assets at December 31, 1998 and 1997 are (i) costs in
excess of net assets acquired of $4.9 million and $4.8 million, respectively,
related primarily to the 1997 acquisition of the remaining minority interests in
certain of Vacation Break's joint ventures, (ii) prepaid assets of $4.9 million
and $4.7 million, respectively, and (iii) unamortized capitalized financing
costs of $3.0 million and $2.4 million, respectively.
Note 14 - Contingencies
- ------- -------------
During 1993, two lawsuits (the "Recreation Fee Litigation") were filed
against Fairfield in the District Court of Archuleta County, Colorado. The
Recreation Fee Litigation, which seeks certification as class actions, alleges
that Fairfield wrongfully imposed an annual recreation fee on owners in
Fairfield's Pagosa, Colorado development. The Recreation Fee Litigation seeks,
among other things, refund, with interest, of recreation fees collected by
Fairfield (estimated to total in excess of $600,000), damages, punitive damages
and attorneys' fees. Two additional related lawsuits were subsequently filed in
the Archuleta County District Court: the Fiedler case, filed in October 1994,
concerns two lots, while the Lobdell case, filed in November 1994, is a
purported class action. By orders dated June 19, 1998, the Colorado District
Court generally denied plaintiffs' motions for summary judgments and granted
Fairfield's motions for summary judgments in all of the cases. Attorneys for the
plaintiffs have filed motions to disqualify the state court judge and to vacate
the June 19, 1998 summary judgment orders.
<PAGE>
In 1993, Charlotte T. Curry, who purchased a lot from Fairfield under an
installment sale contract subsequently sold to First Federal Savings and Loan
Association of Charlotte ("First Federal"), previously a wholly-owned subsidiary
of Fairfield, filed suit against First Federal, initially alleging breach of
contract, breach of fiduciary duty and unfair trade practices. The litigation
contested Fairfield's method of calculating refunds for lot purchasers whose
installment sale contracts were cancelled due to their defaults. The Curry
lawsuit sought damages, punitive damages, treble damages under North Carolina
law for unfair trade practices, prejudgment interest and attorneys' fees and
costs. By order dated July 6, 1994, the court dismissed most claims, primarily
based on statutes of limitations, except for the claim asserting unfair trade
practices. By order filed September 15, 1995, the court denied plaintiff's
motion for class certification, which decision was upheld by the North Carolina
Court of Appeals, with the Supreme Court of North Carolina declining to grant
discretionary review. In April 1998, Ms. Curry dismissed the lawsuit. On January
7, 1998, the plaintiff's attorneys filed another lawsuit (the Scarvey lawsuit),
currently pending in Superior Court in Mecklenburg County, North Carolina, as a
purported class action, against First Federal, alleging matters similar to the
original complaint in the Curry case and seeking similar damages. 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 under the Stock
Purchase Agreement to indemnify the buyer of First Federal for the Scarvey
litigation, but the buyer has filed a third party action against Fairfield
contesting Fairfield's interpretation of the Stock Purchase Agreement and
asserting other common law and statutory grounds for indemnification.
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, filed suit 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) disputed 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) disputed the $7.9 million cash transfer,
seeking instead the issuance of 1,764,706 shares of Fairfield'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 $2.0 million
from the proceeds of the collateral transferred in satisfaction of the FCI Notes
(including, if applicable, shares of Fairfield's Common Stock) in excess of the
amount of principal and accrued interest due at maturity. The indenture trustee
has asserted that the $2.0 million premium limit is not applicable to the
Contested Shares, 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 opposed the indenture
trustee's motion and requested summary judgment, asserting that the noteholders
were not entitled to any of the Contested Shares. The indenture trustee
indicated that the Real Estate Collateral was sold for approximately $4.4
million. The court on April 24, 1998 entered an order denying the relief sought
by the indenture trustee and granting the Company's motion for summary judgment.
The indenture trustee appealed the court's order to the Court of Appeals for the
Second Circuit, which heard oral argument on January 13, 1999. 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
<PAGE>
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. 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, it appears from the initial complaint, and subsequent
submissions by MRG&L's counsel, to be substantially in excess of $50.0 million.
The Company intends to vigorously defend this action and has filed a
separate action in federal District Court asserting various antitrust tying and
other claims against MRG&L and related parties. 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 defense of 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 $6.0 million. Such indemnification agreement has been
collateralized by, and recourse under the indemnity agreement is limited to, the
pledge of shares of Fairfield's Common Stock, valued as of December 18, 1997
(adjusted for stock splits and certain other similar items), at an
indemnification value of $21.59375 per share, and the proceeds thereof. Any
shares of Common Stock the Company receives under the indemnification agreement
will reduce the number of shares outstanding. The amount of any settlement,
adverse judgement or defense costs, in excess of amounts accrued, would be
charged to operations, notwithstanding the availability of indemnification under
the Principal Stockholders Agreement.
The Company is involved in various other claims and lawsuits arising in the
ordinary course of business. However, management believes the outcome of these
matters will not have a materially adverse effect on the Company's financial
position or results of operations.
Note 15 - Fair Value of Financial Instruments
- ------- -----------------------------------
The estimated fair value amounts presented herein have been determined by
the Company using relevant market information and appropriate valuation
methodologies. However, as these estimates are subjective in nature and involve
uncertainties and significant judgment, they are not necessarily indicative of
the amounts the Company could realize in a current market exchange. The use of
different market assumptions or estimation methodologies may have a material
effect on the estimated fair value amounts.
The carrying value of cash and cash equivalents, restricted cash and
accounts payable approximate fair value due to the relatively short-term nature
of the financial instruments. The carrying amount of the investment in and net
amounts due from qualifying special purpose entities approximates fair value
based on valuation models using risk adjusted interest rates, estimated
pre-payments, the cost of servicing and net transaction costs. The carrying
amounts of receivables approximates fair value based on valuation models using
risk adjusted interest rates and historical pre-payment experiences to be
received on similar current receivables. The fair value of the interest rate
swap agreements approximates carrying value based on valuation models using risk
adjusted interest rates.
The carrying amounts of the Company's borrowings with variable interest
rates approximated their fair values at December 31, 1998 and 1997. The carrying
amounts of the Company's borrowings with fixed interest rates totaled $5.2
million and $14.3 million at December 31, 1998 and 1997, respectively. The fair
values of these borrowings totaled $5.0 million and $14.2 million at December
31, 1998 and 1997, respectively, and were estimated using discounted cash flow
analyses based on the Company's current borrowing rates, or other appropriate
market rates, for similar types of borrowing arrangements.
<PAGE>
Note 16 - Unaudited Consolidated Quarterly Financial Data
- ------- -----------------------------------------------
(Dollars in thousands, except per share data)
Year Ended December 31, 1998
--------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
Total revenues $85,939 $107,984 $112,737 $101,233
Total expenses 72,287 86,647 93,522 85,900
------- -------- -------- --------
Earnings before provision
for income taxes 13,652 21,337 19,215 15,333
Provision for income taxes 5,247 8,199 6,975 5,488
------- -------- -------- --------
Net earnings $ 8,405 $ 13,138 $ 12,240 $ 9,845
======= ======== ======== ========
Basic earnings per share $.19 $.29 $.27 $.23
==== ==== ==== ====
Diluted earnings per share $.18 $.28 $.26 $.22
==== ==== ==== ====
Year Ended December 31, 1997
---------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
Total revenues $68,784 $95,110 $99,274 $83,011
Total expenses 58,999 78,056 80,833 85,192
------- ------- ------- -------
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)
==== ==== ==== =====
In conjunction with the closing of the Vacation Break merger in the
fourth quarter of 1997, the Company 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 have been reclassified to conform to the 1998 fourth quarter
presentation.
SUBSIDIARIES OF FAIRFIELD COMMUNITIES, INC.
Fairfield Communities, Inc. Delaware
Apex Marketing, Inc. Arkansas
Fairfield Acceptance Corporation - Nevada Delaware
Fairfield Capital Corporation Delaware
Fairfield Funding Corporation Delaware
Fairfield Funding Corporation II Delaware
Fairfield Receivables Corporation Delaware
Fairfield Bay, Inc. Arkansas
Fairfield Flagstaff Realty, Inc. Arizona
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 Sapphire Valley, Inc. North Carolina
Fairfield Vacation Resorts, Inc. Delaware
Fairfield Virgin Islands, Inc. Delaware
Imperial Life Insurance Company Arkansas
Ocean Ranch Development, Inc. Florida
Palm Resort Group, Inc. Florida
Shirley Realty Company Arkansas
Suntree Development Company Florida
The Florida Companies Florida
Vacation Break, U.S.A., Inc. Florida
Atlantic Marketing Realty, Inc. Florida
Resorts Title, Inc. Florida
Sea Gardens Beach and Tennis Resort, Inc. Florida
Serenity Yacht Club, Inc. Florida
Vacation Break at Ocean Ranch, 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 Company Limited Bahamas
PARTNERSHIPS
Davis Beach Company (50%) Virgin Islands
Ocean Ranch Vacation Group (100%) Florida
Palm Vacation Group (100%) Florida
Port Lucaya Resort Company Limited (50%) Bahamas
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 March 24, 1999, included in
the 1998 Annual Report to Shareholders of Fairfield Communities, Inc.
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.333-55841) 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 March 24, 1999, with respect to the consolidated financial
statements incorporated herein by reference in this Annual Report (Form 10-K) of
Fairfield Communities, Inc.
Ernst & Young LLP
Little Rock, Arkansas
March 29, 1999
Exhibit 23.2
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 audit of the consolidated
statements of operations, stockholders' equity and cash flows of Vacation Break
U.S.A., Inc. for the year 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.
PricewaterhouseCoopers LLP
Miami, Florida
March 29, 1999
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, 1998,
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 17, 1999 /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, 1998,
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 17, 1999 /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, 1998,
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 17, 1999 /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, 1998,
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 17, 1999 /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, 1998,
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 24, 1999 /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, 1998,
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 17, 1999 /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, 1998,
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 24, 1999 /s/William C. Scott
------------------------
William C. Scott
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary information extracted from the Registrant's
December 31, 1998 Form 10-K and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<CIK> 0000276189
<NAME> Fairfield Communities, Inc.
<MULTIPLIER> 1,000
<CURRENCY> U. S. Dollars
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1.000
<CASH> 5,017
<SECURITIES> 0
<RECEIVABLES> 215,854
<ALLOWANCES> 13,005
<INVENTORY> 128,397
<CURRENT-ASSETS> 0
<PP&E> 49,677
<DEPRECIATION> 19,615
<TOTAL-ASSETS> 431,093
<CURRENT-LIABILITIES> 0
<BONDS> 79,441
0
0
<COMMON> 507
<OTHER-SE> 222,123
<TOTAL-LIABILITY-AND-EQUITY> 431,093
<SALES> 338,329
<TOTAL-REVENUES> 364,238
<CGS> 115,563
<TOTAL-COSTS> 134,011
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 14,270
<INTEREST-EXPENSE> 8,490
<INCOME-PRETAX> 69,537
<INCOME-TAX> 25,909
<INCOME-CONTINUING> 43,628
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 43,628
<EPS-PRIMARY> 0.98
<EPS-DILUTED> 0.93
</TABLE>
