UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarter ended June 30, 1999
[ ] 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
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (407) 370-5200
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
--- ---
The number of shares of the registrant's Common Stock, $.01 par value,
outstanding as of July 30, 1999 totaled 44,396,195.
<PAGE>
FAIRFIELD COMMUNITIES, INC. AND SUBSIDIARIES
INDEX TO QUARTERLY REPORT ON FORM 10-Q
Page
No.
----
PART 1. - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of June 30, 1999
(unaudited) and December 31, 1998 3
Consolidated Statements of Earnings for the Three and Six
Months Ended June 30, 1999 and 1998 (unaudited) 4
Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 1999 and 1998 (unaudited) 5
Notes to Consolidated Financial Statements (unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 18
<PAGE>
PART I - FINANCIAL INFORMATION
- ------ ---------------------
Item I - Financial Statements
- ------ --------------------
FAIRFIELD COMMUNITIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PAR VALUE)
<TABLE>
June 30, December 31,
1999 1998
---- ----
(Unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 7,952 $ 5,017
Receivables, net 213,238 202,849
Real estate inventories 133,547 128,397
Investments in and net amounts due
from qualifying special purpose entities 38,284 31,917
Property and equipment, net 32,346 30,062
Restricted cash 11,012 11,154
Other assets 22,778 21,697
-------- --------
$459,157 $431,093
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Financing arrangements $ 75,624 $ 79,441
Deferred revenue 23,473 27,085
Accrued income taxes 30,371 28,157
Accounts payable 27,734 26,550
Other liabilities 51,832 47,230
-------- --------
209,034 208,463
-------- --------
Stockholders' Equity:
Common stock, $.01 par value, 100,000,000
shares authorized, 50,768,849 and
50,663,851 shares issued as
of June 30, 1999 and December 31, 1998,
respectively 508 507
Paid-in capital 122,021 120,403
Retained earnings 148,585 122,711
Treasury stock, at cost, 6,387,843 and
6,496,959 shares as of June 30, 1999
and December 31, 1998, respectively (20,991) (20,991)
-------- --------
250,123 222,630
-------- --------
$459,157 $431,093
======== ========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
FAIRFIELD COMMUNITIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES
Vacation ownership interests, net $ 99,206 $ 80,155 $171,964 $140,360
Resort management 12,517 9,947 24,033 19,547
Interest 7,040 8,080 13,964 18,379
Net interest income and fees from
qualifying special purpose entities 4,925 2,378 9,359 2,776
Other 6,798 7,424 10,231 12,861
-------- -------- -------- --------
130,486 107,984 229,551 193,923
-------- -------- -------- --------
EXPENSES
Vacation ownership interests -
costs of units sold 25,611 22,945 45,058 39,620
Sales and marketing 47,609 37,083 83,064 65,675
Provision for loan losses 5,132 3,993 8,754 6,910
Resort management 9,828 8,387 19,132 16,089
General and administrative 8,191 6,141 16,057 13,283
Interest, net 1,344 1,828 2,956 5,452
Depreciation and amortization 1,940 1,677 3,947 3,329
Other 6,111 4,593 10,062 8,576
-------- -------- -------- --------
105,766 86,647 189,030 158,934
-------- -------- -------- --------
Earnings before provision
for income taxes 24,720 21,337 40,521 34,989
Provision for income taxes 8,780 8,199 14,647 13,446
-------- -------- -------- --------
Net earnings $ 15,940 $ 13,138 $ 25,874 $ 21,543
======== ======== ======== ========
Basic earnings per share $0.36 $0.29 $0.59 $0.48
===== ===== ===== =====
Diluted earnings per share $0.35 $0.28 $0.57 $0.46
===== ===== ===== =====
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic 44,028 44,940 43,954 44,608
====== ====== ====== ======
Diluted 45,677 47,416 45,470 47,264
====== ====== ====== ======
</TABLE>
See notes to consolidated financial statements.
<PAGE>
FAIRFIELD COMMUNITIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
Six Months Ended
June 30,
-----------------
1999 1998
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net earnings $ 25,874 $ 21,543
Adjustments to reconcile net earnings to net
cash provided by (used in) operating activities:
Depreciation and amortization 3,947 3,329
Provision for loan losses 8,754 6,910
Net interest income and fees from
qualifying special purpose entities (9,359) (2,776)
Tax benefit from employee stock benefit plans 387 4,111
Changes in operating assets and liabilities:
Real estate inventories (5,150) (9,498)
Net investment activities of qualifying
special purpose entities 13,883 8,810
Deferred revenue, accounts payable
and other liabilities 4,388 (193)
Other (1,081) (1,685)
--------- ---------
Net cash provided by operating activities 41,643 30,551
--------- ---------
INVESTING ACTIVITIES
Purchases of property and equipment, net (6,231) (4,438)
Principal collections on receivables 42,868 61,222
Originations of receivables (118,471) (107,974)
Sales of receivables to qualifying
special purpose entities 53,469 101,362
--------- ---------
Net cash (used in) provided by investing activities (28,365) 50,172
--------- ---------
FINANCING ARRANGEMENTS
Proceeds from financing arrangements 64,882 97,869
Repayments of financing arrangements (76,599) (183,820)
Activity related to employee stock benefit plans 1,232 5,197
Repurchase of treasury stock - (724)
Net decrease in restricted cash 142 5,119
--------- ---------
Net cash used in financing activities (10,343) (76,359)
--------- ---------
Net increase in cash and cash equivalents 2,935 4,364
Cash and cash equivalents, beginning of period 5,017 3,074
--------- ---------
Cash and cash equivalents, end of period $ 7,952 $ 7,438
========= ==========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid, net of amounts capitalized $ 2,749 $ 5,979
========= ==========
Income taxes paid $ 11,876 $ 3,645
========= ==========
Capitalized interest $ 1,340 $ 473
========= ==========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
FAIRFIELD COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999
(Unaudited)
NOTE 1 - GENERAL
- ------ -------
Organization
------------
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 undivided 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.
The accompanying consolidated financial statements of the Company have
been prepared in accordance with generally accepted accounting principles for
interim financial statements and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. The interim financial information is unaudited, but
reflects all adjustments consisting only of normal recurring accruals which are,
in the opinion of management, necessary for a fair presentation of the results
of operations for such interim periods. Operating results for the three and six
months ended June 30, 1999 are not necessarily indicative of the results that
may be expected for the entire year. For further information, refer to the
consolidated financial statements and footnotes thereto included in the Annual
Report on Form 10-K for the year ended December 31, 1998.
Basis of Presentation
---------------------
The consolidated financial statements include the accounts of Fairfield
and its wholly owned consolidated 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.
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 Fairfield
Acceptance Corporation - Nevada ("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 Extinguishment 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.
The Company's cumulative residual interest in the contracts receivable
sold to the QSPEs are classified as "Investments in and net amounts due from
qualifying special purpose entities" in the Condensed Consolidated Balance
Sheets with income from the residual interests reflected as "Net interest income
and fees from qualifying special purpose entities" in the Consolidated
Statements of Earnings.
<PAGE>
NOTE 2 - RECEIVABLES, NET
- ------ ----------------
Receivables consist of the following (In thousands):
<TABLE>
June 30, December 31,
1999 1998
---- ----
<S> <C> <C>
Contracts $200,663 $197,888
Mortgages and other 26,088 17,966
-------- --------
226,751 215,854
Less allowance for loan losses (13,513) (13,005)
-------- --------
Receivables, net $213,238 $202,849
======== ========
</TABLE>
During the six months ended June 30, 1999 and 1998, the Company sold
approximately $64.4 million and $129.3 million, respectively, of contracts
receivable to the QSPEs. The QSPEs primarily funded these purchases through
advances under their various credit agreements and, in conjunction with these
purchases, the Company received non-cash consideration, primarily in the form of
a subordinated note receivable, of $10.9 million and $27.9 million during the
six months ended June 30, 1999 and 1998, respectively.
At June 30, 1999 and December 31, 1998, the QSPEs held contracts receivable
totaling $200.2 million and $172.1 million, respectively, with related
borrowings of $165.6 million and $142.9 million, respectively. 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 QSPEs. 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 June 30, 1999 and December 31,
1998, this allowance totaled $12.4 million and $10.3 million, respectively, and
was classified in "Investments in and net amounts due from qualifying special
purpose entities" in the Condensed Consolidated Balance Sheets.
NOTE 3 - REAL ESTATE INVENTORIES
- ------ -----------------------
Real estate inventories are summarized as follows (In thousands):
June 30, December 31,
1999 1998
---- ----
<TABLE>
<S> <C> <C>
Land and improvements $ 37,197 $ 39,814
Residential housing:
Vacation ownership 92,788 85,350
Homes 3,562 3,233
-------- --------
96,350 88,583
-------- --------
$133,547 $128,397
======== ========
</TABLE>
NOTE 4 - FINANCING ARRANGEMENTS
- ------ ----------------------
Financing arrangements are summarized as follows (In thousands):
<TABLE>
June 30, December 31,
1999 1998
---- ----
<S> <C> <C>
Revolving credit agreements $24,806 $29,181
Notes payable:
Fairfield Capital Corporation 36,663 43,574
Other 14,155 6,686
------- -------
$75,624 $79,441
======= =======
</TABLE>
At June 30, 1999, the Amended and Restated Revolving Credit Agreements (the
"Credit Agreements") provided borrowing availability of up to $100.0 million
(including up to $13.0 million for letters of credit, of which
<PAGE>
$8.7 million is outstanding at June 30, 1999) and mature in October 2001.
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 June 30, 1999).
Fairfield Capital Corporation is a wholly owned subsidiary of FAC - Nevada.
Borrowings under the Fairfield Capital Corporation credit agreement principally
mature within 41 months, which represents the approximate remaining weighted
average life of the underlying contracts receivable. Additionally, substantially
all of these borrowings bear interest at 5.63% under an interest rate swap
agreement.
At June 30, 1999, notes payable - other consisted primarily of (i) $5.1
million borrowing secured by the Company's corporate office building in Little
Rock, Arkansas which matures in December 2003 and bears interest at a fixed rate
of 6.9% and (ii) a $7.9 million note payable for the Company's 10% Senior
Subordinated Secured Notes (see Note 8).
NOTE 5 - EARNINGS PER SHARE
- ------ ------------------
The following table sets forth the computation of basic and diluted
earnings per share ("EPS") (In thousands, except per share data):
<TABLE>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ -----------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Numerator:
Net earnings - Numerator for basic
and diluted EPS $15,940 $13,138 $25,874 $21,543
======= ======= ======= =======
Denominator:
Denominator for basic EPS -
weighted average shares 44,028 44,940 43,954 44,608
Effect of dilutive securities:
Options and warrants 1,324 1,837 1,166 1,988
Common stock held in escrow 325 549 350 578
Other - 90 - 90
------- ------- ------- -------
Dilutive potential common shares 1,649 2,476 1,516 2,656
------- ------- ------- -------
Denominator for diluted EPS -
adjusted weighted average shares
and assumed conversions 45,677 47,416 45,470 47,264
======= ======= ======= =======
Basic earnings per share $.36 $.29 $.59 $.48
==== ==== ==== ====
Diluted earnings per share $.35 $.28 $.57 $.46
==== ==== ==== ====
</TABLE>
NOTE 6 - 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 revenues totaled $197.8 million and $166.7 million for the six
months ended June 30, 1999 and 1998, respectively. A reconciliation of segment
operating profit to consolidated net earnings before taxes for the three and six
months ended June 30, 1999 and 1998, is as follows:
<TABLE>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Total segment operating profit $30,543 $24,397 $ 53,829 $42,828
Other operating loss (5,823) (3,060) (13,308) (7,839)
------- ------- -------- -------
Consolidated net earnings before taxes $24,720 $21,337 $ 40,521 $34,989
======= ======= ======== =======
</TABLE>
Other operating loss includes primarily general and administrative
expenses, which are not allocated on a segment basis.
<PAGE>
NOTE 7 - SUPPLEMENTAL INFORMATION
- ------ ------------------------
Included in other assets at June 30, 1999 and December 31, 1998 are (i)
costs in excess of net assets acquired of $4.7 million and $4.9 million,
respectively, (ii) prepaid assets of $3.6 million and $4.4 million,
respectively, and (iii) unamortized capitalized financing costs totaling $3.2
million and $3.0 million, respectively.
Included in other liabilities at June 30, 1999 and December 31, 1998
are (i) accruals totaling $17.2 million and $17.6 million, respectively, related
to the Company's employee compensation programs and related benefits, (ii)
accruals totaling $6.6 million and $6.3 million, respectively, for the
fulfillment costs associated with the Company's Discovery Vacations program, and
(iii) deposits associated with sales contracts totaling $5.9 million and $3.3
million, respectively.
Other revenues for the six months ended June 30, 1999 and 1998 include
home sales revenue totaling $4.7 million and $6.0 million, respectively, and lot
sales revenue totaling $2.0 million and $3.5 million, respectively. Other
expenses for the six months ended June 30, 1999 and 1998 include costs of home
sales, including selling expenses, of $4.2 million and $5.2 million,
respectively, and accrued subsidies for certain property owners' associations
totaling $2.5 million and $1.0 million, respectively.
NOTE 8 - CONTINGENCIES
- ------ -------------
During the first quarter of 1997, the Company's 10% Senior Subordinated
Secured Notes (the "FCI Notes"), having a principal amount of $15.1 million,
matured. In settlement of the FCI Notes, the Company transferred $7.9 million in
cash (the "$7.9 Million Payment") and the assets collateralizing the FCI Notes,
with an appraised market value of $7.2 million (the "Real Estate Collateral"),
to IBJ Schroder Bank & Trust Company, as indenture trustee for the FCI Notes.
The indenture trustee filed suit in the United States District Court for the
Southern District of New York (the "District Court"), 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 interest and the fees and
expenses of the action, in addition to the $7.9 Million Payment, or (b) disputed
the $7.9 Million Payment, 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 (the
"Collateral") transferred in satisfaction of the FCI Notes (including, if
applicable, the Contested Shares) in excess of the amount of principal and
accrued interest due at maturity. The indenture trustee 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 "Injunction Demand"). The Company opposed the Injunction
Demand and requested summary judgment, asserting that the noteholders were not
entitled to any of the Contested Shares. The indenture trustee indicates that it
has sold the Real Estate Collateral for approximately $4.4 million. The District
Court on April 24, 1998 entered an order denying the Injunction Demand and
granting the Company's motion for summary judgment. The indenture trustee
appealed the District Court's order to the Court of Appeals for the Second
Circuit (the "Court of Appeals"), which on May 6, 1999 reversed the District
Court decision and granted partial summary judgment to the indenture trustee,
holding that the Company's method of satisfying the FCI Notes at maturity
violated the terms of the indenture, but declining to enter the indenture
trustee's Injunction Demand. The Court of Appeals upheld the Company's position
that the Contested Shares should not be distributed to the noteholders without
limitation, limiting any premium to $2.0 million. The Company filed a motion,
which was denied, requesting that the Court of Appeals reconsider its decision
granting partial summary judgment against the Company. The Court of Appeals
remanded the case to the District Court for further proceedings to enforce the
terms of the indenture, including specifically consideration of whether or not
to enter the indenture trustee's Injunction Demand and whether or not the sale
of the Real Estate Collateral for $4.4 million by the indenture trustee was
commercially reasonable and, if not, how this would bear upon the relief sought
by the indenture trustee.
The indenture is non-recourse to the Company except as to recourse to the
Collateral and except for the indenture trustee's fees and expenses, which are
fully recourse obligations. The Contested Shares are not included in the number
of shares outstanding for earnings per share or other purposes. The Company
anticipates that its exposure in this litigation, in excess of amounts accrued,
as of June 30, 1999 was less than $4 million, which would be charged to
operations in the event of an adverse decision on the outstanding issues by the
District Court on remand.
<PAGE>
On March 28, 1997, a lawsuit was filed against Vacation Break in the
Circuit Court for Pinellas County, Florida by Market Response Group & Laser
Company, Inc. ("MRG&L") alleging that Vacation Break and others conspired to
boycott MRG&L and fix prices for mailings in violation of the Florida Antitrust
Act, and in concert with others, engaged in various acts of unfair competition,
deceptive trade practices and common law conspiracy. The complaint also alleges
that Vacation Break breached its contract with MRG&L, that Vacation Break
misappropriated proprietary information from MRG&L and that Vacation Break
interfered with, and caused other companies to breach their contracts with
MRG&L. 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.
On June 2, 1998, Vacation Break filed a separate action in federal District
Court for the Middle District of Florida, Tampa Division, asserting various
antitrust tying and other claims against MRG&L and related parties. On April 7,
1999, the federal District Court denied MRG&L's motion for judgment on the
pleadings, without prejudice to MRG&L's right to refile such motion following
Vacation Break's amendment of its complaint in that action. MRG&L has asserted
in the federal action similar counterclaims as the claims alleged in the state
court action. 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.
Certain other litigation is described in "Note 14 - Contingencies" to the
financial statements contained in the Company's 1998 annual report and reference
is made thereto for a description of such litigation. Additionally, the Company
is involved in various other claims and lawsuits arising in the ordinary course
of business. However, management believes the outcome of these other claims and
lawsuits will not have a materially adverse effect on the Company's financial
position or results of operations.
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ---- ---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
RESULTS OF OPERATIONS
The Company currently owns and/or operates 31 resorts located in 12 states
and the Bahamas. Of these resorts, which are in various stages of development,
21 are located in destination areas with popular vacation attractions and 10 are
located in scenic regional locations. During the three months ended June 30,
1999, the Company began sales operations on a start-up basis at is five newest
destination resorts, located in Sedona, Arizona; Durango, Colorado; Daytona
Beach, Florida; Las Vegas, Nevada and Gatlinburg, Tennessee.
The following table sets forth certain consolidated operating
information for the three and six months ended June 30, 1999 and 1998,
respectively.
<TABLE>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
As a percentage of total revenues:
Vacation ownership interests, net 76.0% 74.2% 74.9% 72.4%
Resort management 9.6 9.2 10.5 10.1
Interest income 5.4 7.5 6.1 9.5
Net interest income and fees from
qualifying special purpose entities 3.8 2.2 4.1 1.4
Other revenue 5.2 6.9 4.4 6.6
----- ----- ----- -----
100.0% 100.0% 100.0% 100.0%
===== ===== ===== =====
As a percentage of related revenues:
Cost of sales - vacation ownership
interests 25.8% 28.6% 26.2% 28.2%
Resort management 78.5% 84.3% 79.6% 82.3%
Sales and marketing 47.3% 45.0% 47.7% 45.6%
Provision for loan losses 5.1% 4.8% 5.0% 4.8%
As a percentage of total revenues:
General and administrative 6.3% 5.7% 7.0% 6.8%
Depreciation and amortization 1.5% 1.6% 1.7% 1.7%
Other expense 4.3% 3.6% 4.1% 3.9%
</TABLE>
Six Months Ended June 30, 1999 Compared to Six Months Ended June 30, 1998
Vacation Ownership
------------------
Gross revenues from vacation ownership interests ("VOIs") increased 18.5%
to $169.3 million for the six months ended June 30, 1999 as compared to $142.9
million for the six months ended June 30, 1998. Gross VOI revenues at the
Company's destination resorts continue to be the largest dollar contributor to
total VOI sales, accounting for 80.0% and 78.5% of total VOI revenues for the
six months ended June 30, 1999 and 1998, respectively. Gross VOI revenues for
the six months ended June 30, 1999, as compared to the same period in 1998,
increased 20.5% at the Company's destination resorts. Management anticipates
that these revenue growth trends will continue throughout the remainder of 1999
as a result of the additional sales volumes to be realized from the Company's
five newest destination resorts as noted above, as well as a full year of sales
at the Company's destination resorts located in Pompano Beach, Florida and
Alexandria, Virginia.
Net VOI revenues increased 22.5% to $172.0 million for the six months ended
June 30, 1999 from $140.4 million for the six months ended June 30, 1998. Net
VOI revenue growth trends were affected by the same factors that impacted gross
VOI revenue growth trends as well as net revenue recognition of $2.6 million
during the six months ended June 30, 1999, related to the percentage of
completion method of accounting, as compared to net revenue deferral of $2.6
million during the six months ended June 30, 1998. Under the percentage of
completion method of accounting, 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. The Company is currently in
the development stage at certain of its projects. Therefore, VOI sales at these
projects will generate deferred revenue as the Company
<PAGE>
completes sales at a more rapid pace than the completion of related VOI units.
At June 30, 1999, the Company had deferred revenue totaling $5.6 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>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Vacation ownership interests $97,193 $82,572 $169,341 $142,931
Add: Deferred revenue at
beginning of period 7,615 5,379 8,225 5,225
Less: Deferred revenue at
end of period (5,602) (7,796) (5,602) (7,796)
------- ------- ------- --------
Vacation ownership interests, net $99,206 $80,155 $171,964 $140,360
======= ======= ======== ========
</TABLE>
VOI cost of sales, as a percentage of related net revenue, decreased to
26.2% from 28.2% for the six months ended June 30, 1999 and 1998, respectively.
This reduction reflects a shift from selling the remaining higher cost
fixed-week inventory acquired during the Vacation Break merger to selling
exclusively the Company's points-based inventory. Additionally, the reduction
reflects the impact of a Company-wide sales price increase initiated in February
1999.
Sales and marketing expenses, as a percentage of related net revenues, were
47.7% and 45.6%, for the six months ended June 30, 1999 and 1998, respectively.
This increase is due to the realization of certain benefits in sales and
marketing expenses during the six months ended June 30, 1998 related to the
expiration of vacation package certificates.
The provision for loan losses, as a percentage of related net revenues,
remained relatively constant for the six months ended June 30, 1999 as compared
to the same period in 1998. The Company provides for losses on contracts
receivable by a charge against earnings at the time of sale at a rate based upon
the Company's historical cancellation experience, 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 upon
periodic analysis of the contracts receivable portfolio. Management anticipates
the provision for loan losses will remain relatively constant during the
remainder of 1999.
Resort Management
-----------------
Resort management revenues increased 22.9% to $24.0 million for the six
months ended June 30, 1999 from $19.5 million for the six months ended June 30,
1998. The increase in 1999 is primarily due to (i) expansion of the Company's
resort management services, including the sale of furnishings for VOI units to
independent resort operators and property owner associations, (ii) continued
growth in the number of units under management and the management fees
associated with this growth and (iii) increases in rental income.
Interest
--------
For purposes of management's discussion of results of operations, net
interest income includes (i) interest earned from the Company's receivable
portfolio, (ii) interest expense from the Company's financing arrangements and
(iii) net interest income and fees from the Qualifying Special Purpose Entities
("QSPEs").
Net interest income increased 29.7% to $20.4 million for the six months
ended June 30, 1999, from $15.7 million for the same period in 1998. This
increase is primarily attributable to (i) an increase in the average balance of
outstanding contracts receivable ($379.2 million compared with $319.4 million
for the six months ended June 30, 1999 and 1998, respectively), (ii) an increase
in the weighted average interest rate of the Company's contract receivable
portfolio to 15.0% for the six months ended June 30, 1999 from 14.0% for the
comprable period in 1998 and (iii) a reduction in borrowings under the Company's
revolving credit agreements due to increased utilization of QSPE credit
facilitation, which carry a lower weighted average cost of funds than the
revolving credit agreements. The QSPEs finance purchases of contracts receivable
through their commercial paper credit facilities and other financial conduits,
with $165.6 million of borrowings outstanding at June 30, 1999.
The Company uses interest rate cap and swap agreements to manage the
interest rate characteristics of certain of its outstanding financing
arrangements to obtain 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 agreements of the interest rate cap and swap
agreements are recognized as adjustments of interest expense related to the
designated financing arrangements.
<PAGE>
General and Administrative
--------------------------
While remaining constant as a percentage of total revenues, general and
administrative expenses increased during the six months ended June 30, 1999 as
compared to the same period in 1998. These increases are commensurate with the
increased VOI revenues and additional business activities as previously noted.
In addition, during the six months ended June 30, 1999, the Company invested in
its management and organizational infrastructure in order to efficiently manage
its anticipated VOI sales growth.
Other
-----
Other revenues for the six months ended June 30, 1999 and 1998 include home
sales revenue totaling $4.7 million and $6.0 million, respectively, and lot
sales revenue totaling $2.0 million and $3.5 million, respectively. Other
expenses for the six months ended June 30, 1999 and 1998 include cost of home
sales, including selling expenses, totaling $4.2 million and $5.2 million,
respectively, and accrued subsidies for certain property owners' associations
totaling $2.5 million and $1.0 million, respectively.
Three Months Ended June 30, 1999 Compared to Three Months Ended June 30, 1998
All revenue and expense trends, other than those mentioned below, for the
three months ended June 30, 1999, compared to the same period in the prior year,
were generally consistent with the trends of the related six month period.
Vacation Ownership
------------------
Gross revenue from VOIs increased 17.7% to $97.2 million for the three
months ended June 30, 1999 as compared to $82.6 million for the three months
ended June 30, 1998. Gross VOI sales at the Company's destination resorts
continue to be the largest dollar contributor to total VOI sales, accounting for
78.8% and 76.3% of total VOI sales for the three months ended June 30, 1999 and
1998, respectively. Gross VOI sales for the three months ended June 30, 1999
increased 21.7% at the Company's destination resorts, as compared to the same
period in 1998.
Net VOI revenue increased 23.8% to $99.2 million for the three months ended
June 30, 1999 from $80.2 million for the three months ended June 30, 1998. Net
VOI revenue was affected by net revenue recognition of $2.0 million during the
three months ended June 30, 1999, resulting from the percentage of completion
method of accounting, as compared to net revenue deferral of $2.4 million for
the three months ended June 30, 1998.
VOI cost of sales, as a percent of related revenue, was 25.8% and 28.6% for
the three months ended June 30, 1999 and 1998, respectively. This decrease is
directly related to the Company-wide sales price increase initiated in February
1999.
As previously noted, sales and marketing expenses, as a percentage of
related net revenues, increased in the second quarter of 1999 as compared to the
similar period in 1998. This increase is due to the realization of certain
benefits in sales and marketing expenses during the three months ended June 30,
1998 related to the expiration of vacation package certificates.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1999, the Company's cash and cash equivalents totaled $8.0
million, an increase of $2.9 million from December 31, 1998. Cash provided by
operating activities totaled $41.6 million for the six months ended June 30,
1999 compared to cash provided by operating activities of $30.6 million for the
six months ended June 30, 1998. The fluctuation in operating cash results
primarily from various real estate acquisitions closed during the six months
ended June 30, 1998 and the payments of construction costs in January 1999 for
the Company's Myrtle Beach property.
Cash used in investing activities totaled $28.4 million for the six months
ended June 30, 1999 compared to cash provided by investing activities of $50.2
million for the six months ended June 30, 1998. As a result of increased VOI
sales volumes and increasing levels of principal collections occurring at the
QSPE level, originations of receivables exceeded principal collections by $75.6
million for the six months ended June 30, 1999, as compared to $46.8 million for
the six months ended June 30, 1998. For the six months ended June 30, 1999 and
1998, the Company received $53.5 million and $101.4 million, respectively, in
cash from the sale of contracts receivable to the QSPEs.
<PAGE>
Cash used in financing activities totaled $10.3 million for the six months
ended June 30, 1999 compared to cash used in financing activities of $76.4
million for the six months ended June 30, 1998. During the six months ended June
30, 1999 and 1998, repayments of financing arrangements exceeded proceeds by
$11.7 million and $86.0 million, respectively.
Credit Facilities of the Company
--------------------------------
The Amended and Restated Revolving Credit Agreements (the "Credit
Agreements") provide borrowing availability of up to $100.0 million (including
up to $13.0 million for letters of credit). At June 30, 1999, borrowing
availability under the Credit Agreements totaled $66.5 million.
At June 30, 1999, Fairfield Capital Corporation ("FCC"), a wholly owned
subsidiary of FAC - Nevada, had outstanding borrowings of $36.7 million under
the FCC Agreement, which provides for the purchases of contracts receivable from
FAC - Nevada. There are no additional fundings available under the FCC
Agreement. At June 30, 1999, contracts receivable totaling $47.2 million
collateralized the FCC borrowings.
Credit Facilities of Qualifying Special Purpose Entities
--------------------------------------------------------
In June 1999, the credit facilities of the QSPEs were increased by $100.0
million to provide for borrowings up to $300.0 million for the purchase of
contracts receivable from FAC - Nevada. At June 30, 1999, the Qualifying Special
Purpose Entities held $200.2 million of contracts receivable, with $165.6
million of related borrowings.
Interest Rate Risk
------------------
The Company uses interest rate swap agreements to mitigate the impact of
fluctuations in market rates of interest. If market interest rates increased two
hundred basis points for the six months ended June 30, 1999 and 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
$0.9 million and $0.8 million, respectively. 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. This analysis does
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. The payment of AMT reduces the future regular tax
liability and creates a deferred tax asset. For the six months ended June 30,
1999 and 1998, the Company made AMT payments totaling $11.5 million and $3.4
million, respectively, and anticipates that it will continue to make significant
AMT payments in future periods.
Other
-----
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, (v)
additional securitizations of contracts receivable and (vi) future financings
through public or private financing sources.
<PAGE>
YEAR 2000 READINESS DISCLOSURE
As more fully described in the Company's annual report on Form 10-K for the
year ended December 31, 1998, the Company is modifying or replacing portions of
its software and certain hardware so that those systems will properly utilize
dates beyond December 31, 1999. As of June 30, 1999, the Company estimates that
it is 85% complete on the Year 2000 Readiness Project comprised of software and
hardware remediation, testing, and implementation. Workstation and network
hardware replacement or upgrade is 90% complete with less than 50 replacements
remaining. Once software is reprogrammed or replaced for a system, the Company
tests the software on two levels before implementing current date and advanced
date testing. (Advanced date testing involves running programs in an environment
in which the computer date is advanced past January 1, 2000.) At the end of June
1999, the Company estimates that it has completed 80% of its remediation and
testing and 80% of its implementation. Completion of the remediation and testing
of all significant internal systems is expected by August 31, 1999, with all
remediated systems implemented by 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.
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.
To date, the Company has incurred costs of approximately $1.3 million for
the Year 2000 project, of which $0.9 million has been capitalized representing
hardware replacement costs. Management estimates that the total project cost
will be $1.7 million. Management's assessment of the risks associated with the
Year 2000 project and the status of the Company's contingency plans are
unchanged from that described in the 1998 annual report. Currently, the Company
does not have a contingency plan in place, but assessed the need for such a plan
based on the status of completion at the end of June 1999. Although completion
of the Company project is on schedule, the unpredictability of third party
preparedness and other unknowns will make it necessary for the Company to
develop a contingency plan. This plan will be completed before the end of
October 1999.
The Company's plans to complete the Year 2000 modifications are based on
management's best estimates, which are based on numerous assumptions about
future events including the continued availability of certain resources and
other factors. Estimates on the status of completion and the expected completion
dates are based on the level of effort expended to date to total expected
internal staff effort. However, there can be no guarantee that these estimates
will be achieved and actual results could differ materially from those plans.
Specific factors that might cause such material differences include, but are not
limited to, the availability and cost of personnel trained in this area, the
ability to locate and correct all relevant computer codes and similar
uncertainties.
The 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
<PAGE>
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 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; and the continued availability of financing in the amounts
and at the terms necessary to support the Company's future business.
<PAGE>
PART II - OTHER INFORMATION
- ------- -----------------
Item 1 - Legal Proceedings
Incorporated by reference (see Note 8 of "Notes to Consolidated
Financial Statements").
Item 4 - Submission of Matters to a Vote of Security Holders
The 1999 Annual Meeting of Stockholders of the Registrant was held on
May 20, 1999. The following items of business were presented to the
stockholders:
Total Vote For Total Vote Withheld
Each Director From Each Director
------------- ------------------
Ernest D. Bennett, III 37,972,553 71,332
Philip L. Herrington 37,278,147 765,738
Gerald Johnston 37,972,701 71,184
Bryan D. Langton 37,972,719 71,166
John W. McConnell 37,972,273 71,612
Charles D. Morgan 37,972,719 71,166
Ralph P. Muller 37,972,711 71,174
William C. Scott 37,972,719 71,166
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
--------
Reference is made to the Exhibit Index.
(b) Reports on Form 8-K
-------------------
None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
FAIRFIELD COMMUNITIES, INC.
Date: August 13, 1999 /s/Robert W. Howeth
------------------------------------------
Robert W. Howeth, Executive Vice President
and Chief Financial Officer
Date: August 13, 1999 /s/William G. Sell
---------------------------------------------
William G. Sell, Vice President and Controller
(Chief Accounting Officer)
<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 Amendment No. 2 to Credit Agreement among Fairfield Receivables
Corporation, EagleFunding Capital Corporation, Fairfield Acceptance
Corporation - Nevada, Fairfield Communities, Inc., BancBoston
Robertson Stephens Inc., CIBC World Markets Corp. and BankBoston, N.A.
dated June 9, 1999 (attached)
10.2 Third Amendment to Amended and Restated Revolving Credit Agreement
between Fairfield Communities, Inc. and BankBoston, N.A. dated June
30, 1999 (attached)
27 Financial Data Schedule (attached)
AMENDMENT NO. 2
TO
CREDIT AGREEMENT
THIS AMENDMENT NO. 2 TO CREDIT AGREEMENT, dated as of June 9,
1999 (the "Amendment"), is entered into by and among FAIRFIELD RECEIVABLES
---------
CORPORATION, a Delaware corporation (the "Borrower"), EAGLEFUNDING CAPITAL
--------
CORPORATION, a Delaware corporation ("EagleFunding"), FAIRFIELD ACCEPTANCE
------------
CORPORATION - NEVADA, a Delaware corporation (formerly known as Fairfield
Acceptance Corporation) ("FAC"), as Servicer (in such capacity, the "Servicer"),
--- --------
FAIRFIELD COMMUNITIES, INC., a Delaware corporation ("FCI"), BANCBOSTON
---
ROBERTSON STEPHENS INC., a Massachusetts corporation (formerly known as
BancBoston Securities Inc.) ("BRSI"), as Deal Agent (in such capacity, the "Deal
---- ----
Agent"), CIBC WORLD MARKETS CORP., a Delaware corporation, as Deal Co-Agent (in
- -----
such capacity, the "Deal Co-Agent"), and BANKBOSTON, N.A., ("BKB"), as
---
Collateral Agent (in such capacity, the "Collateral Agent"). Capitalized terms
----------------
used herein and not otherwise defined herein shall have the meanings ascribed to
such terms in the "Credit Agreement" (as defined below).
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the parties hereto (other than the Deal Co-Agent)
entered into that certain Credit Agreement dated as of January 15, 1998, as
amended pursuant to Amendment No. 1 to Credit Agreement, dated as of February 2,
1999 (the "Credit Agreement"), pursuant to which, among other things,
------------------
EagleFunding agreed to make EagleFunding Loans on Borrowing Dates and the
Borrower agreed to make additional Grants of Contracts on Contract Grant Dates;
and
WHEREAS, the parties hereto have agreed to modify certain
terms and provisions of the Credit Agreement as set forth herein;
NOW, THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
SECTION 1. Amendments to the Agreement. Effective as of the date first
---------------------------
written above and subject to the satisfaction of each of the conditions set
forth in Section 2 hereof (the "Effective Date"), the Credit Agreement is
--------- ---------------
amended as follows:
(a) The Preamble is hereby deleted in its entirety and the following
is substituted therefor:
"CREDIT AGREEMENT, dated as of January 15, 1998, (the
'Credit Agreement'), among FAIRFIELD RECEIVABLES CORPORATION, a
----------------
Delaware corporation (the 'Borrower'),
--------
<PAGE>
EAGLEFUNDING CAPITAL CORPORATION, a Delaware corporation
('EagleFunding'), FAIRFIELD ACCEPTANCE CORPORATION-NEVADA, a
------------
Delaware corporation ('FAC'), in its capacity as Servicer
---
hereunder (in such capacity, the 'Servicer'), FAIRFIELD
--------
COMMUNITIES, INC., a Delaware corporation ('FCI'), BANCBOSTON
---
ROBERTSON STEPHENS INC. (formerly known as BancBoston Securities,
Inc.), a Massachusetts corporation ('BSI') in its capacity as
---
Deal Agent (in such capacity, the 'Deal Agent'), CIBC World
Markets Corp., a Delaware corporation in its capacity as Deal
Co-Agent (in such capacity the 'Deal Co-Agent') and BANKBOSTON,
--------------
N.A., in its capacity as Collateral Agent, (in such capacity, the
'Collateral Agent')."
----------------
(b) Section 2.02 is hereby amended to delete the first sentence of such
Section in its entirety and substitute therefore the following sentence:
"All of the EagleFunding Loans shall be evidenced by an
Amended and Restated Promissory Note in substantially the form attached
hereto as Exhibit A (the "EagleFunding Note") appropriately completed,
--------- -----------------
duly executed and delivered on behalf of the Borrower and payable to
the order of EagleFunding which EagleFunding Note shall replace and
supersede in its entirety that certain promissory note from the
Borrower to EagleFunding dated as of January 15, 1998 in the original
principal amount of $150,000,000."
(c) Section 2.06(a)(iii) is hereby deleted in its entirety and the
following is substituted therefor:
"(iii) on any Interest Payment Date for EagleFunding
Loans funded or maintained through the making of Eurodollar
Rate Advances under the Liquidity Agreement, accrued and
unpaid interest on such EagleFunding Loans at a rate per annum
equal at all times during each applicable Interest Period for
each such EagleFunding Loan to the Eurodollar Rate for such
Interest Period, plus,
(1) 0.50%for the first six months that the underlying
Eurodollar Rate Advance remains outstanding, and
(2) 1.50% from the seventh month and for as long
thereafter as the underlying Eurodollar Rate Advance remains
outstanding.
each computed on the basis of the actual number of days
elapsed over a year of 360 days."
<PAGE>
(d) Section 3.01(f) is hereby deleted in its entirety and the following
is substituted therefor:
"(f) Reserved."
--------
(e) Section 3.02(k)(i)(A)(2) is hereby amended to delete the words "84
months" and substitute the phrase "the actual amortization schedule of payments
but not to exceed 120 months" therefor.
(f) Section 4.01(l) is hereby deleted in its entirety and the following
is substituted therefor:
"(l) Lock-Box Accounts. Except in the case of any
------------------
Lock-Box Account pursuant to which only Collections subject to
a PAC or Credit Card Account are deposited, the Borrower has
filed or has caused FAC or FCI to file a standing delivery
order with the United States Postal Service authorizing each
Lock-Box Bank to receive mail delivered to the related Post
Office Box. The account numbers of all Lock-Box Accounts,
together with the names, addresses, ABA numbers and names of
contact persons of all the Lock-Box Banks maintaining such
Lock-Box Accounts and the related Post Office Boxes, are
specified in Exhibit E. From and after the Effective Date,
---------
none of FCI, the Seller or the Borrower have any right, title
and/or interest in or to any of the Lock-Box Accounts or the
Post-Office Boxes and maintain no lock-box accounts in their
own names for the collection of Payments in respect of Pledged
Contracts. The Borrower has no other lock-box accounts for the
collection of Payments in respect of Pledged Contracts except
for the Lock-Box Accounts."
(g) Section 4.02(v)(iii) is hereby deleted in its entirety and the
following is substituted therefor:
"(iii) in the case of any Contracts in respect of
which the related VOI or Lot has been deeded out to the
relevant Obligor:
(A) a copy of the deed for the related VOI or Lot,
and
(B) the original of any related recorded or
unrecorded Mortgage (or a copy of such recorded Mortgage, if
the original of the recorded Mortgage is unavailable)
(other than in the case of any Contract with respect to which
the relevant Mortgage and/or deed is outside the Contract File
for purposes of recording such Mortgage in the relevant local
real property recording office, but only to the
<PAGE>
extent that: (x) such Mortgage and copy of deed shall not
have been outside of the relevant Contract File for such
purposes for more than (1) 180 days from the relevant
Contract Grant Date (in the case of Contracts relating to
VOIs located in the State of Florida) and (2) 180 days from
the date on which the related VOI or Lot is required to be
deeded to an Obligor (in the case of Contracts relating to
VOIs or Lots located in any other Development), and (y)
unless and to the extent waived by the Deal Agent in
writing, the Servicer shall retain in its files (and provide
copies of same to the Deal Agent upon request) certificates
from FCI's applicable title agents in Florida to the effect
that the Mortgage in question has been delivered for
purposes of recordation to the appropriate local real
property recording office (in the case of Contract relating
to VOIs located in the State of Florida))."
(h) Section 4.02(w) is hereby deleted in its entirety and the following
is substituted therefor:
"(w) Lock-Box Accounts. The Obligor of such Contract
-----------------
either
(1) shall have been instructed, pursuant to the
Servicer's routine distribution of a periodic statement to
such Obligor next succeeding
(A) the Effective Date or any Contract Grant Date
(as applicable), or
(B) the day on which a PAC or Credit Card Account
ceased to apply to such Contract, in the case of a Pledged
Contract formerly subject to a PAC or Credit Card Account,
but in no event later than the then next succeeding due date
for Payment under the related Pledged Contract, to remit
Payments thereunder to a Post Office Box for credit to a
Lock-Box Account, or directly to a Lock-Box Account, in each
case maintained at a Lock-Box Bank pursuant to the terms of a
Lock-Box Agreement substantially in the form of Exhibit G
----------
hereto, or
(2) has entered into a PAC or Credit Card Account,
pursuant to which a deposit account of such Obligor is made
subject to a pre-authorized debit in respect of Payments as
they become due and payable, and the Borrower has, and has
caused each of the Servicer, a Lock-Box Bank and/or the
Collection Account Bank, to take all necessary and appropriate
action to ensure that each such pre-authorized debit is
credited directly to a Lock-Box Account."
<PAGE>
(i) Section 5.01(c) is hereby amended as follows:
(i) the phrase "the Deal Agent or its agent or representative"
in the introductory clause of such Section is hereby deleted in its
entirety and the phrase "the Deal Agent, the Deal Co-Agent or either of
their agents or representatives" is substituted therefor;
(ii) the phrase "the Deal Agent and/or its agents and
representatives", in each instance where such phrase appears in clause
(i) of such Section, is hereby deleted in its entirety and the phrase
"the Deal Agent, the Deal Co-Agent and/or their respective agents or
representatives" is substituted therefor;
(iii) the phrase "the Deal Agent's" in the first sentence of
the last paragraph of such Section is hereby deleted in its entirety
and the phrase "the Deal Agent's and the Deal Co-Agent's"; and
(iv) the phrase "the Deal Agent and its agents and
representatives" in the last sentence of the last paragraph of such
Section is hereby deleted in its entirety and the phrase "the Deal
Agent, the Deal Co-Agent and their respective agents and
representatives" is substituted therefor.
(v) the following sentence is hereby added immediately
following the last sentence of the last paragraph of such Section
-------
5.01(c):
-------
"In connection with all audits performed under this
Credit Agreement, the Deal Agent, the Deal Co-Agent and the
Collateral Agent shall use reasonable efforts to coordinate
the staffing and timing of such audits in order to minimize
the cost and expense thereof."
(j) Section 5.01(g) is hereby amended to delete clause (1) and (2)
thereof in their entirety and to substitute the following therefor:
"(1) Instruct all Obligors to either
(A) send all Collections directly to a Post Office
Box or Lock-Box Account, or
(B) in the alternative, make Payments by way of
pre-authorized debits from a deposit account of such Obligor
pursuant to a PAC or from a credit card of such Obligor
pursuant to a Credit Card Account, which Payments shall be
electronically transferred directly to a Lock-Box Account
immediately upon each such debit (provided that, for the
--------
avoidance of doubt, each Obligor may at any time cease to
deposit its Collections directly to a Post Office Box
<PAGE>
or a Lock-Box Account, or pursuant to a PAC or Credit Card
Account, so long as such Borrower promptly instructs such
Obligor to commence one of the two alternative methods of
funds transfer provided for in either of subclauses (A) or
-------------
(B) of this clause (1)).
---------
(2) In the case of funds transfers pursuant to a PAC
or Credit Card Account, take, or cause each of the Servicer, a
Lock-Box Bank and/or the Collection Account Bank to take all
necessary and appropriate action to ensure that each such
preauthorized debit is credited directly to a Lock-Box
Account."
(k) Section 6.01(a) is hereby amended to delete clause (x) thereof in
its entirety and to substitute the following therefor:
"(x) a report on computer tape (or other computer
record format reasonably acceptable to the Deal Agent)
containing the master file for each Pledged Contract, updated
through the close of business on the prior Business Day and
appropriately filled-out (which master file shall contain,
among other things, (i) the Contract Pool Principal Balance of
each Pledged Contract as of the close of business on the
preceding Business Day, (ii) the interest rate payable under
each Pledged Contract, and (iii) an identifying notation for
each Pledged Contract to which a PAC or Credit Card Account is
applicable), which tape shall be delivered to a repository
which may be designated by the Deal Agent from time to time
(which repository initially shall be Offsite Data Storage,
Inc., Mabelvale, Arkansas, and which repository shall in all
cases provide an acknowledgment in form and substance
satisfactory to the Deal Agent to the effect that such
repository maintains an account in the name of the Collateral
Agent); and"
(l) The following Section is hereby added immediately after Section
8.04 and immediately prior to Article IX:
"Section 8.05. Deal Co-Agent. Notwithstanding anything
--------------
herein or elsewhere to the contrary, CIBC World Markets Corp.
shall have no duties or responsibilities to any Person whatsoever
by virtue of its designation as 'Deal Co-Agent' hereunder."
<PAGE>
(m) Section 9.04(a) is hereby amended as follows:
(i) in each instance where the phrase "the Deal Agent" appears
in such Section 9.04(a) it is hereby deleted and the phrase "the Deal
Agent, the Deal Co-Agent" is substituted therefor.
(ii) the following sentence is added immediately following the
last sentence of such Section 9.04(a):
"In connection with all inspections performed under
this Credit Agreement, the Deal Agent, the Deal Co-Agent and
the Collateral Agent shall use reasonable efforts to
coordinate the staffing and timing of such investigations in
order to minimize the cost and expense thereof."
(n) Section 9.12(f) is hereby deleted in its entirety and the following
is substituted therefor:
"(f) Notice to Obligors. The Servicer shall ensure
------------------
that the Obligor of each Contract either
(1) shall have been instructed, pursuant to the
Servicer's routine distribution of a periodic statement to
such Obligor next succeeding
(A) any Contract Grant Date, or
(B) the day on which a PAC or Credit Card Account
ceased to apply to such Contract, in the case of a Pledged
Contract formerly subject to a PAC or Credit Card Account,
but in no event later than the then next succeeding due date
for Payment under the related Pledged Contract, to remit
Payments thereunder to a Post Office Box for credit to a
Lock-Box Account, or directly to a Lock-Box Account, in each
case maintained at a Lock-Box Bank pursuant to the terms of a
Lock-Box Agreement, or
(2) has entered into a PAC or Credit Card Account,
pursuant to which a deposit account of such Obligor is made
subject to a pre-authorized debit in respect of Payments as
they become due and payable, and the Borrower has, and has
caused each of the
<PAGE>
Servicer, a Lock-Box Bank and/or the Collection Account
Bank, to take all necessary and appropriate action to ensure
that each such pre-authorized debit is credited directly to
a Lock-Box Account."
(o) Section 10.01(n) is hereby deleted in its entirety and the
following is substituted therefor:
"(n) On any Determination Date, the arithmetic
average of the Default Percentages for the six most recently
concluded Calculation Periods exceeds 1.25%."
(p) Section 10.01(p)(B) is hereby amended as follows:
(i) the phrase "which do not constitute Canceled Contracts" is
hereby deleted in its entirety; and
(ii) the reference to the percentage "14.5%" is hereby deleted
and a reference to the percentage "14.0%" is substituted therefor.
(q) Article XII is hereby amended to delete the phrase "the Deal
Agent", in each instance where such phrase appears in Section 12.01, 12.02,
----- -----
12.03, 12.04, 12.05 (except for clause (iii) thereof), and 12.06 of such
- ----- ----- ----- -----
Article, and substitute therefor the phrase "the Deal Agent, the Deal Co-Agent
(solely in its capacity as Deal Co-Agent)".
(r) The definition of "Contract Rate" in Appendix A is hereby deleted
--------------
in its entirety and the following is substituted therefor:
"'Contract Rate' means, with respect to a Pledged
--------------
Contract, the annual rate at which interest accrues on such
Pledged Contract, as modified from time to time only in
accordance with (a) the terms of PAC or Credit Card Account
(if applicable) or (b) the terms of such Pledged Contract, if
such Pledged Contract provides for a variable interest rate."
(s) The definition of "Contract Schedule" in Appendix A is hereby
------------------
amended to delete clause (f) thereof in its entirety and to substitute the
following therefor:
"(f) whether the Obligor has elected PAC or Credit
Card Account with respect to the Contract;"
<PAGE>
(t) Appendix A is hereby amended to add the following definition
immediately after the definition of "CP Disruption" and immediately prior to the
-------------
definition of "Credit Standards and Collections Policies":
-----------------------------------------
"'Credit Card Account' means an arrangement whereby
-------------------
an Obligor makes Payments under a Contract via pre-authorized
debit to a Major Credit Card."
(u) Appendix A is hereby amended to add the following definition
immediately after the definition of "Deal Agent" and immediately prior to the
----------
definition of "Dealer":
------
"'Deal Co-Agent' means CIBC World Markets Corp. in its
--------------
capacity as 'Deal Co-Agent', and any successor thereto."
(v) The definition of "Default Percentage" in Appendix A is hereby
-------------------
deleted in its entirety and the following is substituted therefor:
"'Default Percentage' means, for any Calculation
-------------------
Period, a fraction (stated as a percentage) equal to (i) the
aggregate outstanding Principal Balance of all Pledged
Contracts which became Defaulted Contracts during such
Calculation Period, divided by (ii) the Eligible Contract Pool
Principal Balance outstanding as of the last day of such
Calculation Period."
(w) The definition of "Delinquency Percentage" in Appendix A is hereby
-----------------------
deleted in its entirety and the following is substituted therefor:
"'Delinquency Percentage' means, for any Calculation
-----------------------
Period, a fraction (stated as a percentage) equal to (i) the
aggregate outstanding Principal Balance of all Pledged
Contracts which became Delinquent Contracts during such
Calculation Period, divided by (ii) the Eligible Contract Pool
Principal Balance outstanding as of the last day of such
Calculation Period."
(x) The definition of "Eligible Development" in Appendix A is hereby
---------------------
amended to add the following language to clause (a) of such definition
immediately following the term "'Eligible Development'":
--------------------
"provided that the Servicer shall deliver to the Deal Agent a
--------
written request for the Deal Agent's approval of a Development as an
Eligible Development at least 30 days
<PAGE>
prior to the date upon which it is intended that such Development will
become an Eligible Development"
(y) The definition of "Excess Concentration Reserve" in Appendix A is
------------------------------
hereby amended to delete clause (d) thereof in its entirety and to substitute
the following therefor:
"(d) the amount by which the aggregate Principal
Balance of all Eligible Contracts related to Lots exceeds 5%
of the Eligible Contract Pool Principal Balance on such day;"
(z) The definition of "Facility Limit" in Appendix A is hereby deleted
---------------
in its entirety and the following is substituted therefor:
"'Facility Limit' means $250,000,000."
--------------
(aa) The definition of "Liquidity Agreement" in Appendix A is hereby
--------------------
deleted in its entirety and the following is substituted therefor:
"'Liquidity Agreement' means that certain Amended and
-------------------
Restated Liquidity Agreement dated as of June 9, 1999, by and
among EagleFunding, as Liquidity Borrower, the Liquidity
Providers party thereto, the Liquidity Agent and the Liquidity
Collateral Agent, as the same may be amended, restated,
supplemented or otherwise modified from time to time."
(bb) Appendix A is hereby amended to add the following definition
immediately after the definition of "Lot" and immediately prior to the
---
definition of "Material Adverse Effect":
-----------------------
"'Major Credit Card' means any one of Visa, Mastercard,
-------------------
American Express, Discover Card or Diners Club."
(cc) The definition of "Spread Account Requirement" in Appendix A is
----------------------------
hereby amended to delete the following parenthetical contained in the last line
thereof:
"(including all Defaulted Contracts required to be released on
the Settlement Date with respect to which the Spread Account
Requirement is being calculated)"
(dd) The definition of "Weighted Average Seasoning" in Appendix A
--------------------------
is hereby deleted in its entirety.
SECTION 2. CONDITIONS PRECEDENT. This Amendment shall become effective
--------------------
upon the satisfaction of the following conditions precedent:
<PAGE>
(a) The Deal Agent shall have received:
(1) eight fully executed copies of this Amendment and the
Amended and Restated Liquidity Agreement;
(2) an opinion of Kutak Rock with respect to enforceability
and such other issues as the Deal Agent may reasonably request;
(3) an opinion of Sidley & Austin with respect to
enforceability and perfection against EagleFunding;
(4) an opinion of Nevada counsel with respect to perfection
and such other issues as the Deal Agent shall reasonably request; and
(5) such other further documents and information as the Deal
Agent shall reasonably request.
(b) The Purchaser shall have obtained confirmation from each of S&P,
Moody's and DCR that the amendments herein and in the Amended and Restated
Liquidity Agreement of even date herewith among EagleFunding, as Liquidity
Borrower, BKB, as Liquidity Agent, the Liquidity Providers party thereto, and
Bankers Trust Company, as Liquidity Collateral Agent (the "Amended and Restated
--------------------
Liquidity Agreement") will not result in a withdrawal or reduction of the
- --------------------
ratings of the Transaction Commercial Paper Notes;
(c) All of the fees and expenses referred to in Section 8 below and any
other fees and expenses owing under Section 14.07 of the Agreement or any other
agreement between the parties thereto shall have been paid in full; and
(d) The conditions precedent to the effectiveness of the Amended and
Restated Liquidity Agreement shall have been fully satisfied.
SECTION 3. REPRESENTATIONS, WARRANTIES AND COVENANTS. (a) Upon the
--------------------------------------------
effectiveness of this Amendment, each of the Borrower, FCI, FAC and the Servicer
hereby remakes and reaffirms all covenants, representations and warranties made
by it (or deemed made by it) in the Agreement (except, in each case, to the
extent that such covenants, representations or warranties expressly speak as to
another date or to the extent otherwise disclosed in writing to the Deal Agent).
(b) Each of the Borrower, FCI, FAC and the Servicer hereby represents
and warrants that:
(i) It has duly and validly executed and delivered this
Amendment, and this Amendment constitutes its legal, valid and binding
obligation, enforceable against it in accordance with its terms except
as enforceability may be subject to or limited by Debtor Relief Laws or
by general principles of equity (whether considered in a suit at law or
in equity).
<PAGE>
(ii) Its execution, delivery and performance of this
Amendment, and its consummation of each of the transactions
contemplated hereby, have in all cases been duly authorized by all
necessary corporate action, do not contravene (A) its charter or
by-laws, (B) any law, rule or regulation applicable to it, (C) any
contractual restriction contained in any indenture, loan or credit
agreement, lease, mortgage, deed of trust, security agreement, bond,
note, or other agreement or instrument binding on or affecting it or
its property or (D) any order, writ, judgment, award, injunction or
decree binding on or affecting it or its property (except where such
contravention would not have a Material Adverse Effect), and do not
result in or require the creation of any Lien upon or with respect to
any of its properties; and no transaction contemplated hereby requires
compliance with any bulk sales act or similar law.
(iii) All approvals, authorizations, consents, order or other
actions of, and all registration, qualification, designation,
declaration, notice to or filing with, any Person or of any
governmental body or official required in connection with the execution
and delivery of this Amendment, the consummation of the transactions
contemplated hereby, the performance of and the compliance with the
terms hereof, have been obtained, except where the failure so to do
would not have a Material Adverse Effect.
(iv) As of the date hereof, no event has occurred and is
continuing, or would result from the execution, delivery and
performance hereof, which constitutes an Event of Default, Unmatured
Event of Default, Servicer Default or Unmatured Servicer Default, and
there is no Termination Date currently in effect.
SECTION 4. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY AND
--------------
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (AS DISTINGUISHED FROM THE
CONFLICT OF LAW PROVISIONS) OF THE STATE OF NEW YORK.
SECTION 5. SEVERABILITY. Each provision of this Amendment shall be
------------
severable from every other provision of this Amendment for the purpose of
determining the legal enforceability of any provision hereof, and the
unenforceability of any provision hereof in one jurisdiction shall not have the
effect of rendering such provision or provisions unenforceable in any other
jurisdiction.
SECTION 6. REFERENCE TO AND EFFECT ON THE AGREEMENT. Upon the
----------------------------------------------
effectiveness of this Amendment, each reference in the Agreement to "this
Agreement", "hereunder", "hereof", "herein" or words of like import shall mean
and be, and references to the Agreement in any other document, instrument or
agreement executed and/or delivered in connection with the Agreement shall mean
and be, a reference to the Agreement as previously amended and as amended
hereby. Except as otherwise amended by this Amendment, the Agreement as
previously amended shall continue in full force and effect and is hereby
ratified and confirmed.
<PAGE>
SECTION 7. COUNTERPARTS. This Amendment may be executed in one or more
------------
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
SECTION 8. FEES AND EXPENSES. The Borrower hereby confirms its agreement to
-----------------
pay on demand all reasonable costs and expenses in connection with the
preparation, execution and delivery of this Amendment and any of the other
instruments, documents and agreements to be executed and/or delivered in
connection herewith including, without limitation, the reasonable fees and
out-of-pocket expenses of counsel to the Deal Agent and Deal Co-Agent with
respect thereto.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed as of the date first above written.
FAIRFIELD RECEIVABLES
CORPORATION
By: Ralph E. Turner
-----------------------------------
Title: President
Address: 7730 West Sahara Avenue, Suite 105
Las Vegas, Nevada 89117
Attn: President
Telephone: (702) 227-3100 (Ext. 3107)
Telecopy: (702) 227-3114
FAIRFIELD ACCEPTANCE
CORPORATION - NEVADA
By: Ralph E. Turner
-----------------------------------
Title: President
Address: 7730 West Sahara Avenue, Suite 105
Las Vegas, Nevada 89117
Attn: President
Telephone: (702) 227-3100
Telecopy: (702) 227-3180
FAIRFIELD COMMUNITIES, INC.
By:Ralph E. Turner
--------------------------------------
Title: Treasurer
Address: 8669 Commodity Circle, #200
Orlando, Florida 32819
Attn: President
Telephone: (407) 370-5200
Telecopy: (407) 370-5222
<PAGE>
EAGLEFUNDING FUNDING CAPITAL
CORPORATION
By: BancBoston Robertson Stephens Inc.,
its Attorney-in-Fact
By: /s/Amy Roberts
--------------------------------------
Title: Director
Address: 100 Federal Street
Boston, Massachusetts 02110
Mail Stop: 01-09-02
Attn: Amy Roberts
Telephone: (617) 434-5796
Telecopy: (617) 434-1533
BANCBOSTON ROBERTSON STEPHENS INC.,
as Deal Agent
By: /s/Amy Roberts
--------------------------------------
Title: Director
Address: 100 Federal Street
Boston, Massachusetts 02110
Mail Stop: 01-09-02
Attn: Amy Roberts
Telephone: (617) 434-5796
Telecopy: (617) 434-1533
CIBC WORLD MARKETS CORP.,
as Deal Co-Agent
By: /s/Britt Fletcher
-------------------------------------
Title: Authorized Signatory
Address: 425 Lexington Avenue, 7th Floor
New York, New York 10017
Attn: Asset Securitization Group
Telephone: (212) 856-3753
Telecopy: (212) 856-3643
<PAGE>
BANKBOSTON, N.A.,
as Collateral Agent
By: /s/Amy Roberts
-------------------------------------
Title: Director
Address: 100 Federal Street
Boston, Massachusetts 02110
Mail Stop: 01-09-02
Attn: Amy Roberts
Telephone: (617) 434-5796
Telecopy: (617) 434-1533
THIRD AMENDMENT TO AMENDED AND
RESTATED REVOLVING CREDIT AGREEMENT
between
FAIRFIELD COMMUNITIES, INC.
and
BANKBOSTON, N.A.,
INDIVIDUALLY AND AS AGENT
THIS THIRD AMENDMENT (this "Amendment") dated as of June 30, 1999, is
made by and among FAIRFIELD COMMUNITIES, INC., a Delaware corporation (the
"Company", "FCI" or "Fairfield"), BANKBOSTON, N.A., a national banking
association ("BKB"), and BANKBOSTON, N.A., as agent for itself and the Banks
(the "Agent"), all 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"). This Amendment is joined in by Fairfield
Acceptance Corporation-Nevada (successor by merger to Fairfield Acceptance
Corporation), a Nevada domiciled Delaware corporation ("FAC"), 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") (FAC, FMB, Vacation Break, SGR,
VBR, VBRS, PVG and ORV are hereinafter collectively referred to as the
"Subsidiary Guarantors") by reason of the Amended and Restated Unconditional
Payment and Performance Guaranty, dated as of January 15, 1998, from the
Subsidiary Guarantors in favor of the Agent and the Banks (the "FCI Guaranty").
All capitalized terms used herein and not otherwise defined shall have the same
respective meanings herein as in the Credit Agreement.
WHEREAS, FCI has requested and BKB has agreed to increase the letter of
credit sublimit under the Credit Agreement from $10,000,000 to $12,000,000 upon
the terms and subject to the conditions set forth herein;
NOW, THEREFORE, in consideration of the foregoing premises, FCI, BKB,
the Agent and the Subsidiary Guarantors hereby agree as follows:
ss.1. AMENDMENT TO CREDIT AGREEMENT. Section 4.1.1 of the Credit Agreement
-----------------------------
is hereby amended by deleting the dollar figure "$10,000,000" from clause (a) of
the proviso at the end of such section and substituting therefor the dollar
figure "$12,000,000".
<PAGE>
ss.2. CONDITIONS TO EFFECTIVENESS. The effectiveness of this Amendment is
---------------------------
subject to satisfaction of all of the following conditions:
(a) this Amendment shall have been duly executed and
delivered by the respective parties hereto and shall
be in full force and effect; and
(b) after giving effect to this Amendment, no Default or
Event of Default shall have occurred and be continuing.
ss.3. SUBSIDIARY GUARANTORS' CONSENT. The Subsidiary Guarantors hereby
-------------------------------
consent to the amendments to the Credit Agreement set forth in this Amendment
and each confirms its obligation to the Agent and the Banks under the FCI
Guaranty and agrees that the FCI Guaranty shall extend to and include the
obligations of FCI under the Credit Agreement as amended by this Amendment. Each
of the Subsidiary Guarantors agrees that all of its obligations to the Agent and
the Banks evidenced by or otherwise arising under the FCI Guaranty are in full
force and effect and are hereby ratified and confirmed in all respects.
ss.4. REPRESENTATIONS AND WARRANTIES. Each of FCI and the Subsidiary
--------------------------------
Guarantors hereby represents and warrants to BKB and the Agent as follows:
(a) Representations and Warranties in Credit Agreement. The
-----------------------------------------------------
representations and warranties of FCI and the Subsidiary
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 relate expressly 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 of FCI and the Subsidiary
Guarantors, as the case may be, of this Amendment and the
consummation of the transactions contemplated hereby (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
<PAGE>
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.
(c) Enforceability of Obligations. This Amendment, the
-------------------------------
Credit Agreement as amended hereby, the FCI Guaranty and the
other Loan Documents constitute the legal, valid and binding
obligations of each of FCI and the Subsidiary 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.5. NO OTHER AMENDMENTS. Except as expressly provided in this
---------------------
Amendment, all of the terms and conditions of the Credit Agreement and the other
Loan Documents remain in full force and effect. FCI and each Subsidiary
Guarantor confirm and agree that the Obligations of FCI to the Banks and the
Agent under the Credit Agreement, as amended hereby, and all of the other
obligations of any of such parties under the other Loan Documents, are secured
by and entitled to the benefits of the Security Documents.
ss.6. EXECUTION IN COUNTERPARTS. This Amendment may be executed in any
-------------------------
number of counterparts and by each party on a separate counterpart, each of
which when so executed and delivered shall be an original, but all of which
together shall constitute one instrument. In proving this Amendment, it shall
not be necessary to produce or account for more than one such counterpart signed
by the party against whom enforcement is sought.
ss.7. HEADINGS. The captions in this Amendment are for convenience
--------
of reference only and shall not define or limit the provisions hereof.
[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 COMMUNITIES, INC.
By: /s/Robert W. Howeth
------------------------------
Name: Robert W. Howeth
----------------------------
Title: Executive Vice President
---------------------------
FAIRFIELD ACCEPTANCE
CORPORATION-NEVADA
By:/s/Ralph E. Turner
------------------------------
Name: Ralph E. Turner
----------------------------
Title: 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 and as Agent
By: /s/Lori Litow
----------------------------
Name: Lori Litow
--------------------------
Title: Vice President
--------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Registrant's June 30, 1999 10-Q 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<EXCHANGE-RATE> 1,000
<CASH> 7,952
<SECURITIES> 0
<RECEIVABLES> 226,751
<ALLOWANCES> 13,513
<INVENTORY> 133,547
<CURRENT-ASSETS> 0
<PP&E> 50,954
<DEPRECIATION> 18,608
<TOTAL-ASSETS> 459,157
<CURRENT-LIABILITIES> 0
<BONDS> 75,624
0
0
<COMMON> 508
<OTHER-SE> 249,615
<TOTAL-LIABILITY-AND-EQUITY> 459,157
<SALES> 195,997
<TOTAL-REVENUES> 206,228
<CGS> 64,190
<TOTAL-COSTS> 74,252
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 8,754
<INTEREST-EXPENSE> 2,956
<INCOME-PRETAX> 40,521
<INCOME-TAX> 14,647
<INCOME-CONTINUING> 25,874
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 25,874
<EPS-BASIC> 0.59
<EPS-DILUTED> 0.57
</TABLE>
