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 September 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 November 1, 1999 totaled 44,497,948.
<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 September 30, 1999
(unaudited) and December 31, 1998 3
Consolidated Statements of Earnings for the Three and Nine
Months Ended September 30, 1999 and 1998 (unaudited) 4
Consolidated Statements of Cash Flows for the Nine Months
Ended September 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
Item 3. Quantitative and Qualitative Disclosures about Market Risk 16
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings 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>
September 30, December 31,
1999 1998
---- ----
(Unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 7,208 $ 5,017
Receivables, net 233,060 202,849
Real estate inventories 133,897 128,397
Investments in and net amounts due
from qualifying special purpose entities 39,269 31,917
Property and equipment, net 34,673 30,062
Restricted cash 10,802 11,154
Other assets 22,980 21,697
-------- --------
Total Assets $481,889 $431,093
======== ========
Liabilities and Stockholders' Equity
Liabilities:
Financing arrangements $ 56,206 $ 79,441
Deferred revenue 24,813 27,085
Accrued income taxes 39,486 28,157
Accounts payable 34,755 26,550
Other liabilities 58,518 47,230
-------- --------
Total Liabilities $213,778 $208,463
======== ========
Stockholders' Equity:
Common stock, $.01 par value, 100,000,000
shares authorized, 50,769,031 and
50,663,851 shares issued as
of September 30, 1999 and December 31,
1998, respectively 508 507
Paid-in capital 122,667 120,403
Retained earnings 165,927 122,711
Treasury stock, at cost, 6,286,205
and 6,496,959 shares as of September 30,
1999 and December 31, 1998, respectively (20,991) (20,991)
-------- --------
Total stockholders' equity 268,111 222,630
======== ========
Total liabilities and stockholders' equity $481,889 $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 Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES
Vacation ownership interests, net $110,975 $ 86,272 $282,939 $226,632
Resort management 9,459 8,997 33,492 28,544
Interest 7,780 7,989 21,744 26,368
Net interest income and fees
from qualifying special
purpose entities 5,337 3,072 14,696 5,848
Other 8,933 6,407 19,164 19,268
-------- -------- -------- --------
Total revenues 142,484 112,737 372,035 306,660
-------- -------- -------- --------
Costs and Operating Expenses
Vacation ownership interests -
costs of units sold 28,755 23,595 73,813 63,215
Sales and marketing 53,400 42,376 136,464 108,051
Provision for loan losses 5,702 3,648 14,456 10,558
Resort management 7,036 7,858 26,168 23,947
General and administrative 9,262 8,190 25,319 21,473
Interest, net 1,711 1,441 4,667 6,893
Depreciation and amortization 1,977 1,781 5,924 5,110
Other 6,542 4,633 16,604 13,209
-------- -------- -------- --------
Total costs and operating expenses 114,385 93,522 303,415 252,456
-------- -------- -------- --------
Earnings before provision for
income taxes 28,099 19,215 68,620 54,204
Provision for income taxes 10,755 6,975 25,402 20,421
-------- -------- -------- --------
Net earnings $ 17,344 $ 12,240 $ 43,218 $ 33,783
======== ======== ======== ========
Basic earnings per share $.39 $.27 $.98 $.75
==== ==== ==== ====
Diluted earnings per share $.38 $.26 $.95 $.72
==== ==== ==== ====
Weighted average shares outstanding
Basic 44,074 44,997 43,995 44,788
====== ====== ====== ======
Diluted 45,734 46,820 45,556 47,203
====== ====== ====== ======
</TABLE>
See notes to consolidated financial statements.
<PAGE>
FAIRFIELD COMMUNITIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
Nine Months Ended
September 30,
1999 1998
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net earnings $ 43,218 $ 33,783
Adjustments to reconcile net earnings
to net cash provided by (used in)
operating activities:
Depreciation and amortization 5,924 5,110
Provision for loan losses 14,456 10,558
Net interest income and fees from
qualifying special purpose entities (14,696) (5,848)
Tax benefit from employee stock
benefit plans 428 4,787
Changes in operating assets and liabilities:
Real estate inventories (5,500) (30,752)
Net investment activities of
qualifying special purpose entities 24,345 14,725
Deferred revenue, accounts payable
and other liabilities 28,550 14,538
Other (1,283) (7,688)
--------- ---------
Net cash provided by operating activities 95,442 39,213
--------- ---------
INVESTING ACTIVITIES
Purchases of property and equipment, net (10,535) (9,813)
Principal collections on receivables 64,363 73,709
Originations of receivables (202,948) (152,929)
Sales of receivables to qualifying
special purpose entities 84,817 126,001
--------- ---------
Net cash (used in) provided by
investing activities (64,303) 36,968
--------- ---------
FINANCING ACTIVITIES
Proceeds from financing arrangements 114,757 150,749
Repayments of financing arrangements (145,892) (216,775)
Activity related to employee
stock benefit plans 1,835 6,005
Repurchase of treasury stock - (12,977)
Net decrease (increase) in restricted cash 352 (1,907)
--------- ---------
Net cash used in financing activities (28,948) (74,905)
--------- ---------
Net increase in cash and cash equivalents 2,191 1,276
Cash and cash equivalents,
beginning of period 5,017 3,074
--------- ---------
Cash and cash equivalents,
end of period $ 7,208 $ 4,350
========= =========
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Interest paid, net of
amounts capitalized $ 3,838 $7,653
======= ======
Income taxes paid $13,476 $5,140
======= ======
Capitalized interest $ 1,708 $ 970
======= ======
</TABLE>
See notes to consolidated financial statements.
<PAGE>
FAIRFIELD COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999
(Unaudited)
NOTE 1 - GENERAL
- ------ -------
Organization
------------
The operations of Fairfield Communities, Inc. ("Fairfield" and together
with its consolidated subsidiaries, the "Company") consist of (i) sales and
marketing of vacation ownership interests ("VOIs") at its resort locations and
off-site sales centers, which entitle the purchaser to use a fully furnished
vacation unit at the Company's resort locations, (ii) acquiring, developing and
operating vacation ownership resorts, (iii) providing consumer financing to
individual purchasers for the purchase of VOIs and (iv) providing rental
management and maintenance services for which it receives fees paid by the
respective property owners' associations. 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 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 nine
months ended September 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>
September 30, December 31,
1999 1998
---- ----
<S> <C> <C>
Contracts $224,481 $197,888
Mortgages and other 24,799 17,966
-------- --------
249,280 215,854
Less allowance for loan losses (16,220) (13,005)
-------- --------
Receivables, net $233,060 $202,849
======== ========
</TABLE>
During the nine months ended September 30, 1999 and 1998, the Company sold
approximately $101.8 million and $158.9 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 $17.0 million and $33.9 million during the
nine months ended September 30, 1999 and 1998, respectively.
At September 30, 1999 and December 31, 1998, the QSPEs held contracts
receivable totaling $216.1 million and $172.1 million, respectively, with
related borrowings of $178.0 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 September 30, 1999
and December 31, 1998, this allowance totaled $14.5 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):
<TABLE>
September 30, December 31,
1999 1998
---- ----
<S> <C> <C>
Land improvements $ 36,706 $ 39,814
Residential housing:
Vacation ownership 92,580 85,350
Homes 4,611 3,233
-------- --------
97,191 88,583
-------- --------
$133,897 $128,397
======== ========
</TABLE>
NOTE 4 - FINANCING ARRANGEMENTS
- ------ ----------------------
Financing arrangements are summarized as follows (In thousands):
<TABLE>
September 30, December 31,
1999 1998
---- ----
<S> <C> <C>
Revolving credit agreements $ 8,801 $29,181
Notes payable:
Fairfield Capital Corporation 33,327 43,574
Other 14,078 6,686
------- -------
$56,206 $79,441
======= =======
</TABLE>
At September 30, 1999, the Amended and Restated Revolving Credit Agreements
(the "Credit Agreements") provided borrowing availability of up to $100.0
million (including up to $17.0 million for letters of
<PAGE>
credit, of which $8.7 million is outstanding at September 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 7.5% at September 30, 1999).
At September 30, 1999, borrowings under the Fairfield Capital Corporation
credit agreement had a weighted average maturity of approximately 38 months,
which represents the approximate remaining weighted average life of the
underlying contracts receivable. Substantially all of these borrowings bear
interest at 5.63% under an interest rate swap agreement.
At September 30, 1999, notes payable - other consisted primarily of (i) a
$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 related to 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 Nine Months Ended
September 30, September 30,
---------------------- ---------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Numerator:
Net earnings - Numerator for
basic and diluted EPS $17,344 $12,240 $43,218 $33,783
======= ======= ======= =======
Denominator:
Denominator for basic EPS -
weighted average shares 44,074 44,997 43,995 44,788
Effect of dilutive
securities:
Options and warrants 1,336 1,242 1,220 1,777
Common stock held in escrow 324 491 341 548
Other - 90 - 90
------- ------- ------- -------
Dilutive potential common shares 1,660 1,823 1,561 2,415
------- ------- ------- -------
Denominator for diluted EPS -
adjusted weighted average shares
and assumed conversions 45,734 46,820 45,556 47,203
====== ====== ====== ======
Basic earnings per share $.39 $.27 $.98 $.75
==== ==== ==== ====
Diluted earnings per share $.38 $.26 $.95 $.72
==== ==== ==== ====
</TABLE>
NOTE 6 - SEGMENT DISCLOSURES
- ------ -------------------
The Company operates one reportable industry segment, which includes the
marketing, sales and financing of its vacation ownership resorts. 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's management 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 $326.0 million and $267.2 million for the nine
months ended September 30, 1999 and 1998, respectively. A reconciliation of
segment operating profit to consolidated net earnings before taxes for the three
and nine months ended September 30, 1999 and 1998, is as follows:
<TABLE>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- -------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Total segment operating profit $33,933 $25,167 $ 87,762 $ 67,995
Other operating loss (5,834) (5,952) (19,142) (13,791)
------- ------- -------- --------
Consolidated net earnings
before taxes $28,099 $19,215 $ 68,620 $ 54,204
======= ======= ======== ========
</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 September 30, 1999 and December 31, 1998 are
(i) costs in excess of net assets acquired of $4.6 million and $4.9 million,
respectively, (ii) prepaid assets of $5.0 million and $4.4 million,
respectively, and (iii) unamortized capitalized financing costs totaling $2.9
million and $3.0 million, respectively.
Included in other liabilities at September 30, 1999 and December 31, 1998
are (i) accruals totaling $20.2 million and $17.6 million, respectively, related
to the Company's employee compensation programs and related benefits, (ii)
accruals totaling $7.9 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 $6.9 million and $3.3
million, respectively.
Other revenues for the nine months ended September 30, 1999 and 1998
include home sales revenue totaling $8.4 million and $8.8 million, respectively,
and lot sales revenue totaling $4.5 million and $5.9 million, respectively.
Other expenses for the nine months ended September 30, 1999 and 1998 include
costs of home sales, including selling expenses, of $7.5 million and $7.7
million, respectively, and accrued subsidies for certain property owners'
associations totaling $3.7 million and $1.7 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, which the Company opposed, 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
indenture trustee indicates that it has sold the Real Estate Collateral for
approximately $4.4 million, although the Company was advised in late October
1999 that one or more of the noteholders participated in such purchase. 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 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,
does not exceed $4.0 million, plus accrued interest and fees, which would be
charged to operations in the event of an adverse decision on the outstanding
issues by the District Court on remand.
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
<PAGE>
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 judgment 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 nine months ended September 30,
1999, the Company began sales operations on a start-up basis at its six newest
destination resorts, located in Sedona, Arizona; Durango, Colorado; Daytona
Beach, Florida; Destin, Florida; Las Vegas, Nevada and Gatlinburg, Tennessee.
The following table sets forth certain consolidated operating information
for the three and nine months ended September 30, 1999 and 1998, respectively.
<TABLE>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- --------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
As a percentage of total revenues:
Vacation ownership interests, net 77.9% 76.5% 76.1% 73.9%
Resort management 6.6 8.0 9.0 9.3
Interest income 5.5 7.1 5.8 8.6
Net interest income and fees
from qualifying special
purpose entities 3.7 2.7 4.0 1.9
Other revenue 6.3 5.7 5.1 6.3
----- ----- ----- -----
100.0% 100.0% 100.0% 100.0%
===== ===== ===== =====
As a percentage of related revenues:
Cost of sales - vacation
ownership interests 25.9% 27.3% 26.1% 27.9%
Resort management 74.4% 87.3% 78.1% 83.9%
Sales and marketing 47.1% 47.7% 47.5% 46.5%
Provision for loan losses 5.0% 4.1% 5.0% 4.5%
As a percentage of total revenues:
General and administrative 6.5% 7.3% 6.8% 7.0%
Depreciation and amortization 1.4% 1.6% 1.6% 1.7%
Other expense 4.6% 4.1% 4.5% 4.3%
</TABLE>
Nine Months Ended September 30, 1999 Compared to Nine Months
Ended September 30, 1998
Vacation Ownership
------------------
Gross revenues from vacation ownership interests ("VOIs") increased 22.6%
to $281.4 million for the nine months ended September 30, 1999 as compared to
$229.4 million for the nine months ended September 30, 1998. Gross VOI revenues
at the Company's destination resorts continue to be the largest dollar
contributor to total VOI sales, accounting for 79.9% and 76,7% of total VOI
revenues for the nine months ended September 30, 1999 and 1998, respectively.
Gross VOI revenues for the nine months ended September 30, 1999, as compared to
the same period in 1998, increased 27.9% 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 six newest destination resorts as noted above.
Net VOI revenues increased 24.8% to $282.9 million for the nine months
ended September 30, 1999 from $226.6 million for the nine months ended September
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
$1.6 million during the nine months ended September 30, 1999, related to the
percentage of completion method of accounting, as compared to net revenue
deferral of $2.8 million during the nine months ended September 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 completes sales at a more rapid pace than the completion of
related VOI units. At September 30,
<PAGE>
1999, the Company had deferred revenue totaling $6.7 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 Nine Months Ended
September 30, September 30,
-------------------- -------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Vacation ownership interests $112,024 $86,501 $281,365 $229,432
Add: Deferred revenue at
beginning of period 5,602 7,796 8,225 5,225
Less: Deferred revenue at
end of period (6,651) (8,025) (6,651) (8,025)
-------- ------- -------- --------
Vacation ownership
interests, net $110,975 $86,272 $282,939 $226,632
======== ======= ======== ========
</TABLE>
VOI cost of sales, as a percentage of related net revenue, decreased to
26.1% from 27.9% for the nine months ended September 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 in
VOI cost of sales reflects the impact of a Company-wide sales price increase
initiated in February 1999.
The provision for loan losses, as a percentage of related net revenues,
increased from 4.1% for the nine months ended September 30, 1998 to 5.0% for the
same period in 1999. 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.
Resort Management
-----------------
Resort management revenues increased 17.3% to $33.5 million for the nine
months ended September 30, 1999 from $28.5 million for the nine months ended
September 30, 1998 reflecting (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 25.5% to $31.8 million for the nine months
ended September 30, 1999, from $25.3 million for the same period in 1998. This
increase is primarily attributable to (i) an increase in the average balance of
outstanding contracts receivable ($395.1 million compared with $358.0 million
for the nine months ended September 30, 1999 and 1998, respectively), (ii) an
increase in the weighted average interest rate of the Company's contract
receivable portfolio to 15.1% for the nine months ended September 30, 1999 from
14.7% for the comparable period in 1998 and (iii) a reduction in borrowings
under the Company's financing arrangements due to increased utilization of the
QSPE credit facilities, which carry a lower weighted average cost of funds.
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.
General and Administrative
--------------------------
General and administrative expenses, as a percentage of total revenues,
decreased slightly for the nine months ended September 30, 1999 as compared to
the same period in 1998. In absolute dollars, general and administrative
expenses increased in conjunction with the increased VOI revenues and additional
business activities as previously noted. Additionally, the Company continues to
invest in its management and organizational infrastructure in order to
efficiently manage its anticipated VOI sales growth.
<PAGE>
Other
-----
Other revenues for the nine months ended September 30, 1999 and 1998
include home sales revenue totaling $8.4 million and $8.8 million, respectively,
and lot sales revenue totaling $4.5 million and $5.9 million, respectively.
Other expenses for the nine months ended September 30, 1999 and 1998 include
cost of home sales, including selling expenses, totaling $7.5 million and $7.7
million, respectively, and accrued subsidies for certain property owners'
associations totaling $3.7 million and $1.7 million, respectively.
Three Months Ended September 30, 1999 Compared to Three Months Ended September
30, 1998
All revenue and expense trends, other than those mentioned below, for the
three months ended September 30, 1999, compared to the same period in the prior
year, were generally consistent with the trends of the related nine month
period.
Vacation Ownership
------------------
Gross revenue from VOIs increased 29.5% to $112.0 million for the three
months ended September 30, 1999 as compared to $86.5 million for the three
months ended September 30, 1998. Gross VOI sales at the Company's destination
resorts continue to be the largest dollar contributor to total VOI sales,
accounting for 80.1% and 73.6% of total VOI sales for the three months ended
September 30, 1999 and 1998, respectively. Gross VOI sales for the three months
ended September 30, 1999 increased 40.9% at the Company's destination resorts,
as compared to the same period in 1998.
Net VOI revenue increased 28.6% to $111.0 million for the three months
ended September 30, 1999 from $86.3 million for the three months ended September
30, 1998. Net VOI revenue was affected by net revenue deferral of $1.0 million
during the three months ended September 30, 1999, resulting from the percentage
of completion method of accounting, as compared to $0.2 million for the three
months ended September 30, 1998.
VOI cost of sales, as a percentage of related revenue, was 25.9% and 27.3%
for the three months ended September 30, 1999 and 1998, respectively. This
decrease is directly related to the Company-wide sales price increase initiated
in February 1999.
Sales and marketing expenses, as a percentage of related net revenues,
decreased from 47.7% for the three months ended September 30, 1998 to 47.1% for
the similar period in 1999. This decrease is due to sales and marketing
efficiencies experienced during the three months ended September 30, 1999.
Other
-----
Other revenues for the three months ended September 30, 1999 and 1998
include home sales revenue totaling $3.7 million and $2.8 million, respectively,
and lot sales revenue totaling $2.4 million for each period, respectively. Other
expenses for the three months ended September 30, 1999 and 1998 include cost of
home sales, including selling expenses, totaling $3.3 million and $2.5 million,
respectively, and accrued subsidies for certain property owners' associations
totaling $1.2 million and $0.7 million, respectively.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1999, the Company's cash and cash equivalents totaled
$7.2 million, an increase of $2.2 million from December 31, 1998. Cash provided
by operating activities totaled $95.4 million for the nine months ended
September 30, 1999 compared to cash provided by operating activities of $39.2
million for the nine months ended September 30, 1998. The fluctuation in
operating cash results primarily from various real estate acquisitions closed
during the nine months ended September 30, 1998 and the payments of construction
costs in January 1999 for the Company's Myrtle Beach property.
Cash used in investing activities totaled $64.3 million for the nine months
ended September 30, 1999 compared to cash provided by investing activities of
$37.0 million for the nine months ended September 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 $138.6 million for the nine months ended September 30, 1999, as
compared to $79.2 million for the nine months ended September 30, 1998. For the
nine months ended September 30, 1999 and 1998, the Company received $84.8
million and $126.0 million, respectively, in cash from the sale of contracts
receivable to the QSPEs.
<PAGE>
Cash used in financing activities totaled $28.9 million for the nine months
ended September 30, 1999 compared to cash used in financing activities of $74.9
million for the nine months ended September 30, 1998. During the nine months
ended September 30, 1999 and 1998, repayments of financing arrangements exceeded
proceeds by $31.1 million and $66.0 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 $17.0 million for letters of credit). At September 30, 1999, borrowing
availability under the Credit Agreements totaled $82.5 million.
At September 30, 1999, Fairfield Capital Corporation ("FCC"), a wholly
owned subsidiary of FAC - Nevada, had outstanding borrowings of $33.3 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 September 30, 1999, contracts receivable totaling $42.8
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 September 30, 1999, the QSPEs held
$216.1 million of contracts receivable, with $178.0 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 nine months ended September 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
a total of $1.5 million and $1.2 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 nine months ended September
30, 1999 and 1998, the Company made AMT payments totaling $13.1 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 October 31, 1999, the Company is 100%
complete on the Year 2000 Readiness Project comprised of software and hardware
remediation, testing, and implementation. Workstation and network hardware
replacement or upgrade is 100% complete. Once software was reprogrammed or
replaced for a system, the Company tested 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).
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
has completed the process of evaluating its non-information technology systems
and anticipates that the cost, if any, of modifying non-information technology
equipment will be limited to those property owner associations operating under a
developer subsidy agreement.
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 $1.5 million for
the Year 2000 project, of which $1.0 million has been capitalized representing
hardware replacement costs. Management estimates that the total project cost
will be $1.6 million. The Company assessed the need for the development of a
contingency plan at the end of June 1999 based on the unpredictability of third
party preparedness and other unknowns. This plan was completed in October 1999.
The preceding Year 2000 discussion contains forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995. Such
statements, including without limitation, anticipated costs and the dates by
which the Company expects to complete certain actions, are based on management's
best current estimates, which were derived utilizing numerous assumptions about
future events, including the continued availability of certain resources,
representations received from third parties and other factors. However, there
can be no guarantee that these estimates will be achieved, and actual results
could differ materially from those anticipated. Specific factors that might
cause such material differences include, but are not limited to, the ability to
identify and remediate all relevant information technology and non-information
technology systems, results of Year 2000 testing, adequate resolution of Year
2000 issues by businesses and other third parties who are service providers,
suppliers or customers of the Company, unanticipated system costs, the adequacy
of and ability to develop and implement contingency plans and similar
uncertainties. The forward-looking statements made in the foregoing Year 2000
discussion speak only as of the date on which such statements are made, and the
Company undertakes no obligation to update any forward-looking statement to
reflect events or circumstances after the date on which such statement is made
or to reflect the occurrence of unanticipated events.
<PAGE>
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.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- ------ ----------------------------------------------------------
Information required by Item 3 is incorporated herein by reference to
Management's Discussion and Analysis of Financial Condition and Result of
- --------------------------------------------------------------------------------
Operations in Part 2 above.
- ----------
<PAGE>
PART II - OTHER INFORMATION
- ------- -----------------
Item 1 - Legal Proceedings
Incorporated by reference (see Note 8 of "Notes to
Consolidated Financial Statements").
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: November 12, 1999 /s/Robert W. Howeth
----------------------- -------------------------------------------
Robert W. Howeth, Executive Vice President
and Chief Financial Officer
Date: November 12, 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 Fourth Amendment to Amended and Restated Revolving Credit
Agreement, dated August 10, 1999, between Fairfield Communities,
Inc. and BankBoston, N.A.(attached)
10.2 Fifth Amendment to Amended and Restated Revolving Credit
Agreement, dated October 4, 1999, between Fairfield Communities,
Inc. and BankBoston, N.A.(attached)
10.3 Fourth Amendment to Amended and Restated Revolving Credit
Agreement, dated October 4, 1999, between Fairfield Acceptance
Corporation-Nevada and BankBoston, N.A. (attached)
10.4 Employment Agreement, executed on August 31, 1999, by and between
the Registrant and James G. Berk (attached)
10.5 Amendment Number Two to Employment Agreement, dated September 24,
1999, by and between the Registrant and John W. McConnell
(attached)
27 Financial Data Schedule (attached)
FOURTH AMENDMENT TO AMENDED AND
RESTATED REVOLVING CREDIT AGREEMENT
between
FAIRFIELD COMMUNITIES, INC.
and
BANKBOSTON, N.A.,
INDIVIDUALLY AND AS AGENT
THIS FOURTH AMENDMENT (this "Amendment") dated as of August 10, 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 $12,000,000 to $16,000,000 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 "$12,000,000" from clause (a) of
the proviso at the end of such section and substituting therefor the dollar
figure "$16,000,000".
<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
<PAGE>
all necessary corporate action on the part of each
respective party, (ii) do not require any approval or
consent of, or filing with, any governmental authority or
other third party, and (iii) do not conflict with,
constitute a breach or default under or result in the
imposition of any lien or encumbrance pursuant to any
agreement, instrument or other document to which any of such
entity is a party or by which any such party or any of its
properties are bound or affected.
(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 REORTS, 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 Y. Litow
----------------------------------
Name: Lori Y. Litow
-------------------------------
Title: Vice President
-------------------------------
FIFTH AMENDMENT TO AMENDED AND
RESTATED REVOLVING CREDIT AGREEMENT
between
FAIRFIELD COMMUNITIES, INC.
and
BANKBOSTON, N.A.,
INDIVIDUALLY AND AS AGENT
THIS FIFTH AMENDMENT (this "Amendment") dated as of October 4, 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 (or successors in interest to parties) to a certain
Amended and Restated Revolving Credit Agreement dated as of January 15, 1998 (as
amended and in effect as of the date hereof, the "Credit Agreement"), and BKB as
Collateral Agent under the Collateral Agency Agreement, as amended. 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, among other things, to
amend the definition of the term Borrowing Base, to modify the dates on which
FCI is to deliver Borrowing Base Reports and to designate certain projects as
Approved Projects;
NOW, THEREFORE, in consideration of the foregoing premises, FCI, BKB,
the Agent and the Subsidiary Guarantors hereby agree as follows:
<PAGE>
ss.1. Amendments to Credit Agreement. The Credit Agreement shall be amended
------------------------------
as follows:
ss.1.1. The definition of "Borrowing Base" appearing in Section 1.1 of the
Credit Agreement is hereby amended by deleting the period at the end of clause
(d) thereof, by replacing it with a semicolon and the word "minus" and by
inserting immediately thereafter the following new clause (e):
(e) the amount by which (i) the sum of (x) the aggregate
Principal Balances of all Eligible Base Contracts that are Lot
Contracts, and (y) the aggregate Principal Balances of all Eligible
Prime Base Contracts that are Lot Contracts exceeds (ii) 10% of the sum
of (a), (b), (c) and (d) above.
ss.1.2. The definition of "Eligible Prime Base Contract" appearing in
Section 1.1 of the Credit Agreement is hereby amended by deleting the words
"Timeshare Contract" appearing in the first sentence of such definition and by
replacing them with the words "Base Contract".
ss.1.3. Section 8.4(f) of the Credit Agreement is hereby deleted in its
entirety and replaced with the following new subsection:
(f) within three Business Days after the first and fifteenth
day of each month, or at such earlier time as the Agent may reasonably
request, a Borrowing Base Report setting forth the Borrowing Base as of
the first and fifteenth day of such month or other date so requested by
the Agent, provided that immediately prior to the occurrence of a sale
--------
or other disposition of assets permitted by ss.9.5.2 hereof, the
Borrower shall deliver to the Banks (A) a Borrowing Base Report setting
forth the Borrowing Base prior to such permitted sale or disposition
and (B) a Borrowing Base Report indicating the Borrowing Base after
giving effect to such sale or disposition (provided, however, that for
so long as the Banks hereunder and the banks under the FAC Credit
Agreement are identical, the Borrowing Base Reports required by the
foregoing clauses (A) and (B) need not be delivered to the Agent in
connection with the sale or disposition of Base Contracts to FAC
pursuant to paragraph (ii) of ss.9.5.2);
ss.2. Designation of Approved Projects. The Agent and BKB hereby approve
---------------------------------
the designation of the following vacation ownership resorts and developments as
additional "Approved Projects" under and as defined in the Credit Agreement:
Approved Project Location
---------------- --------
Grand Desert Resort Las Vegas, Nevada
Fairfield Destin (currently known Okaloosa and Walton
as the "Club Life", "Bayclub" Counties, Florida
<PAGE>
and "Majestic Sun" resorts)
Fairfield Smokey Mountains Sevierville, Tennessee
at Governors Crossing
Fairfield Durango Durango Colorado
ss.3. 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.4. 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.5. 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
<PAGE>
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 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.6. 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.7. Execution in Counterparts. This Amendment may be executed in any
-------------------------
number of counterparts and by each party on a separate counterpart, each of
which when so executed and delivered shall be an original, but all of which
together shall constitute one instrument. In proving this Amendment, it shall
not be necessary to produce or account for more than one such counterpart signed
by the party against whom enforcement is sought.
ss.8. Headings. The captions in this Amendment are for convenience of
--------
reference only and shall not define or limit the provisions hereof.
[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 REORTS, 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.,
Idividually, as Agent and as Collateral Agent
By:/s/Lori Y. Litow
------------------------------
Name: Lori Y. Litow
----------------------------
Title: Vice President
---------------------------
FOURTH AMENDMENT TO AMENDED AND
RESTATED REVOLVING CREDIT AGREEMENT
THIS AMENDMENT (this "Amendment") dated as of October 4, 1999, is made
by and among FAIRFIELD ACCEPTANCE CORPORATION-NEVADA (successor by merger to
Fairfield Acceptance Corporation), a Nevada domiciled Delaware corporation (the
"Company", "FAC" or the "Borrower"), BANKBOSTON, N.A., a national banking
association ("BKB") and the other lending institutions that are or may become a
party to the Credit Agreement (the "Banks"), and BANKBOSTON, N.A., as agent for
itself and the Banks (the "Agent"), all parties (or successors in interest to
parties) to a certain Amended and Restated Revolving Credit Agreement dated as
of January 15, 1998 (as amended and in effect as of the date hereof, the "Credit
Agreement"), and BKB, as Collateral Agent (the "Collateral Agent") under that
certain Collateral Agency Agreement dated as of January 15, 1998, as amended by
a First Amendment to Collateral Agency Agreement dated as of July 31, 1998, by
and among certain parties hereto (including the Guarantors, as defined below),
BKB, as agent under the FCI Credit Agreement, BancBoston Securities, Inc., Eagle
Funding Capital Corporation and First Security Bank, National Association. This
Amendment is joined in by Fairfield Communities, Inc., a Delaware corporation
("FCI"), Fairfield Myrtle Beach, Inc. ("FMB"), Vacation Break USA, Inc.
("Vacation Break"), Sea Gardens Beach and Tennis Resorts, Inc. ("SGR"), Vacation
Break Resorts, Inc. ("VBR"), Vacation Break Resorts at Star Island, Inc.
("VBRS"), Palm Vacation Group ("PVG") and Ocean Ranch Vacation Group ("ORV")
(FCI, FMB, Vacation Break, SGR, VBR, VBRS, PVG and ORV are hereinafter
collectively referred to as the "Guarantors") by reason of the Amended and
Restated Unconditional Payment and Performance Guaranty, dated as of January 15,
1998, from the Guarantors in favor of the Agent and the Banks, as amended (as so
amended, the "FAC Guaranty"). All capitalized terms used herein and not
otherwise defined shall have the same respective meanings herein as in the
Credit Agreement.
WHEREAS, FAC has requested and the Majority Banks and the Agent have
agreed, among other things, to amend the definition of the term Borrowing Base,
to modify the dates on which FAC is to deliver Borrowing Base Reports and to
designate certain projects as Approved Projects;
NOW, THEREFORE, in consideration of the foregoing premises, FAC, the
Majority Banks, the Agent and the Guarantors hereby agree as follows:
ss.1. AMENDMENTS TO CREDIT AGREEMENT. The Credit Agreement shall be amended
------------------------------
as follows:
ss.1.1. The definition of "Borrowing Base" appearing in Section 1.1 of the
Credit Agreement is hereby amended by deleting the period at the end of clause
(c) thereof, by
<PAGE>
replacing it with a semicolon and the word "minus" and by inserting immediately
thereafter the following new clause (d):
(d) the amount by which (i) the sum of (x) the aggregate
Principal Balances of all Eligible Base Contracts that are Lot
Contracts, and (y) the aggregate Principal Balances of all Eligible
Prime Base Contracts that are Lot Contracts exceeds (ii) 10% of the sum
of (a), (b) and (c) above.
ss.1.2. The definition of "Eligible Prime Base Contract" appearing in
Section 1.1 of the Credit Agreement is hereby amended by deleting the words
"Timeshare Contract" appearing in the first sentence of such definition and by
replacing them with the words "Base Contract".
ss.1.3. Section 8.4(f) of the Credit Agreement is hereby deleted in its
entirety and replaced with the following new subsection:
(f) within three Business Days after the first and
fifteenth day of each month, or at such earlier time as the
Agent may reasonably request, a Borrowing Base Report setting
forth the Borrowing Base as of the first and fifteenth day of
such month or other date so requested by the Agent, provided
--------
that immediately prior to the occurrence of a sale or other
disposition of assets permitted by ss.9.5.2 hereof, the
Borrower shall deliver to the Banks (A) a Borrowing Base
Report setting forth the Borrowing Base prior to such
permitted sale or disposition and (B) a Borrowing Base Report
indicating the Borrowing Base after giving effect to such sale
or disposition (provided, however, that the Borrowing Base
Reports required by the foregoing clauses (A) and (B) need not
be delivered to the Agent in connection with the sale or
disposition of Base Contracts to FCI, FCC, FRC and FFC, II
pursuant to paragraph (i) of ss.9.5.2 until such time as the
Agent has given the Borrower a notice to the effect that such
Borrowing Base Reports shall thereafter be delivered);
ss.2. DESIGNATION OF APPROVED PROJECTS. The Agent and the Majority Banks
---------------------------------
hereby approve the designation of the following vacation ownership resorts and
developments as additional "Approved Projects" under and as defined in the
Credit Agreement:
Approved Project Location
---------------- --------
Grand Desert Resort Las Vegas, Nevada
Fairfield Destin (currently known Okaloosa and Walton
as the "Club Life", "Bayclub" Counties, Florida
and "Majestic Sun" resorts)
Fairfield Smokey Mountains Sevierville, Tennessee
at Governors Crossing
Fairfield Durango Durango Colorado
<PAGE>
ss.3. AMENDMENT TO THE FAC GUARANTY. The Majority Banks, the Agent and the
-----------------------------
Guarantors hereby agree that upon the effectiveness of this Amendment in
accordance with Section 4 below, Section 17 of the FAC Guaranty shall be amended
by deleting the words "as in effect as of February 8, 1999, in each case"
appearing in the fifth and sixth lines thereof and by replacing them with the
words "as in effect immediately after giving effect to the Fifth Amendment
thereto dated as of October 4, 1999 and all prior amendments, but".
ss.4. 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 Borrower, the Majority Banks, the Agent and
the Guarantors 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.5. GUARANTORS' CONSENT. The 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 FAC Guaranty as amended by this
Amendment and agrees that the FAC Guaranty as amended by this Amendment shall
extend to and include the obligations of FAC under the Credit Agreement as
amended by this Amendment. Each of the Guarantors agrees that all of its
obligations to the Agent and the Banks evidenced by or otherwise arising under
the FAC Guaranty as amended by this Amendment are in full force and effect and
are hereby ratified and confirmed in all respects.
ss.6. REPRESENTATIONS AND WARRANTIES. Each of FAC and the Guarantors hereby
represents and warrants to the Banks, the Agent and the Collateral Agent as
follows:
(a) Representations and Warranties in Credit Agreement. The
------------------------------------------------------
representations and warranties of FAC and the Guarantors, as the
case may be, contained in the Loan Documents were true and
correct in all material respects when made and continue to be
true and correct in all material respects on the date hereof,
with the same effect as if made at or as of the date hereof
(except to the extent of changes resulting from transactions
contemplated or permitted by the Credit Agreement and the other
Loan Documents and changes occurring in the ordinary course of
business that singly or in the aggregate are not materially
adverse, and to the extent that such representations and
warranties expressly relate solely to an earlier date) and no
Default or Event of Default has occurred or is continuing under
the Credit Agreement.
<PAGE>
(b) Authority, No Conflicts, Etc. The execution, delivery and
------------------------------
performance by each of FAC and the Guarantors of this Amendment
and the consummation of the transactions contemplated hereby and
thereby, (i) are within the corporate power of each respective
party and have been duly authorized by all necessary corporate
action on the part of each respective party, (ii) do not require
any approval or consent of, or filing with, any governmental
authority or other third party, and (iii) do not conflict with,
constitute a breach or default under or result in the imposition
of any lien or encumbrance pursuant to any agreement, instrument
or other document to which any of such entity is a party or by
which any such party or any of its properties are bound or
affected.
(c) Enforceability of Obligations. This Amendment, the Credit
------------------------------
Agreement as amended hereby, the FAC Guaranty as amended hereby
and the other Loan Documents constitute the legal, valid and
binding obligations of each of FAC and the Guarantors parties
thereto, enforceable against such party in accordance with their
respective terms, provided that (i) enforcement may be limited by
--------
applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws of general application affecting the rights and
remedies of creditors, and (ii) enforcement may be subject to
general principles of equity, and the availability of the
remedies of specific performance and injunctive relief may be
subject to the discretion of the court before which any
proceedings for such remedies may be brought.
ss.7. OTHER AMENDMENTS. Except as expressly provided in this Amendment, all
----------------
of the terms and conditions of the Credit Agreement, the FAC Guaranty and the
other Loan Documents remain in full force and effect. FAC and each Guarantor
confirm and agree that the Obligations of FAC to the Banks and the Agent under
the Credit Agreement, as amended hereby, the FAC Guaranty, as amended hereby,
and the Replacement Notes, and all of the other obligations of any of such
parties under the other Loan Documents, are secured by and entitled to the
benefits of the Security Documents.
ss.8. 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.9. HEADINGS. The captions in this Amendment are for convenience of
--------
reference only and shall not define or limit the provisions hereof.
[Remainder of page intentionally left blank.]
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment as an
instrument under seal to be governed by the laws of the Commonwealth of
Massachusetts, as of the date first above written.
FAIRFIELD ACCEPTANCE
CORPORATION-NEVADA
By:/s/Ralph E. Turner
------------------------------
Name: Ralph E. Turner
---------------------------
Title: President
---------------------------
FAIRFIELD COMMUNITIES, INC.
By:/s/Robert W. Howeth
-----------------------------
Name: Robert W. Howeth
--------------------------
Title: Executive Vice President
--------------------------
FAIRFIELD MYRTLE BEACH, INC.
By:/s/Robert W. Howeth
--------------------------
Name: Robert W. Howeth
-----------------------
Title:Vice President
-----------------------
VACATION BREAK USA, INC.
By:/s/Robert W. Howeth
-----------------------------
Name: Robert W. Howeth
---------------------------
Title: Vice President
--------------------------
SEA GARDENS BEACH AND TENNIS
RESORTS, INC.
By:/s/Robert W. Howeth
----------------------------
Name: Robert W. Howeth
-------------------------
Title: Vice President
------------------------
<PAGE>
VACATION BREAK RESORTS, INC.
By:/s/Robert W. Howeth
----------------------------
Name: Robert W. Howeth
-------------------------
Title: Vice President
-------------------------
VACATION BREAK RESORTS AT
STAR ISLAND, INC.
By:/s/Robert W. Howeth
----------------------------
Name: Robert W. Howeth
-------------------------
Title: Vice President
-------------------------
PALM VACATION GROUP, by its
General Partners:
Vacation Break Resorts
at Palm Aire, Inc.
By:/s/Robert W. Howeth
---------------------------
Name: Robert W. Howeth
------------------------
Title: Vice President
------------------------
PALM RESORT GROUP, INC.
By:/s/Robert W. Howeth
---------------------------
Name: Robert W. Howeth
------------------------
Title: Vice President
------------------------
<PAGE>
OCEAN RANCH VACATION GROUP,
by its General Partners:
VACATION BREAK AT OCEAN
RANCH, INC.
By: /s/Robert W. Howeth
---------------------------
Name: Robert W. Howeth
-------------------------
Title: Vice President
-------------------------
OCEAN RANCH
DEVELOPMENT, INC.
By:/s/Robert W. Howeth
----------------------------
Name: Robert W. Howeth
--------------------------
Title: Vice President
-------------------------
BANKBOSTON, N.A.,
Individually, as Agent and as
Collateral Agent
By:/s/Lori Y. Litow
--------------------------
Name: Lori Y. Litow
------------------------
Title:Vice President
-----------------------
FIRST MASSACHUSETTS BANK,
NATIONAL ASSOCIATION
By:/s/Robert A. Kolb
---------------------------
Name: Robert A. Kolb
------------------------
Title: Vice President
------------------------
SOVEREIGN BANK
By:/s/Frank Casale
---------------------------
Name: Frank Casale
-------------------------
Title: Vice President
------------------------
<PAGE>
UNION BANK OF
CALIFORNIA, N.A.
By:/s/Michael D. Beaupre
----------------------------
Name: Michael D. Beaupre
--------------------------
Title: Vice President
-------------------------
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement"), executed on the 31st day of
August, 1999, is by and between Fairfield Communities, Inc., a Delaware
corporation (the "Company"), and James G. Berk ("Executive").
WITNESSETH:
WHEREAS, Executive has been selected by the Company, and has agreed to
serve the Company, in the position of President and Chief Executive Officer
("CEO"), in which position Executive is expected to make major contributions to
the short- and long-term profitability, growth and financial strength of the
Company;
WHEREAS, the Company desires (a) to assure itself of both present and
future continuity of management and (b) to provide certain compensation and
benefits for Executive; and
WHEREAS, Executive is willing to render services to the Company on the
terms and subject to the conditions set forth in this Agreement.
NOW, THEREFORE, the Company and Executive agree as follows:
1. Employment. The Company agrees to and does hereby employ Executive
----------
to perform the duties of President and CEO of the Company, and Executive accepts
such employment, upon the terms and conditions set forth herein. During the Term
hereof, Executive shall not be engaged in any other employment, nor shall
Executive engage in any business activities that interfere with his performance
of his duties hereunder. Executive shall devote his full business time and
effort to the Company and shall not serve as an officer or director of any
public company, other than the Company, except as permitted herein. Executive
may serve as a director of not more than (2) other companies, including public
companies, as well as of philanthropic, charitable or civic entities, as long as
participation on such boards does not interfere with the performance of
Executive's duties hereunder.
2. Term. The term of this Agreement shall be the period commencing as
----
of the 1st day of October, 1999 (which is the date the parties have selected for
Executive to undertake his duties and responsibilities for the Company) and
continuing thereafter through October 1, 2002 (the "Initial Term"). The Initial
Term shall be automatically extended by one day on each day beginning October 2,
1999 for thirty-six (36) months such that on any given day the Term of this
Agreement shall be thirty-six (36) months from such day. The Term shall
automatically extend past October 1, 2002 and shall automatically be extended as
described above for as long as Executive is employed by the Company. Nothing
herein shall be construed as to limit in any manner the rights of the parties
hereto to terminate Executive's employment with the Company in accordance with
the provisions for termination and for compensation upon termination that are
contained herein.
<PAGE>
3. Duties and Services.
-------------------
(a) Executive agrees to serve the Company as President and CEO, and to
devote such working time as is reasonably necessary for proper performance of
the duties and obligations attaching to such offices. Executive also agrees to
perform from time to time such other executive services as the Company's Board
of Directors ("Board") and/or Chairman shall reasonably request, provided that
such services shall be consistent with his position and status as President and
CEO. Executive shall report solely to the Chairman and the Board of the Company.
No officer other than the Chairman shall be senior to Executive. In attending to
the business and affairs of the Company, Executive agrees to serve the Company
faithfully, diligently and to the best of his ability.
(b) The duties and responsibilities of Executive shall be commensurate
with those of the President and CEO of any large, publicly-held corporation
similar to the Company, and shall include, without limitation, the primary
responsibility for all operations of the Company and its various enterprises.
(c) The Company's Board shall take all actions necessary to elect
Executive as a member of the Board, and Executive agrees to serve as a member of
the Board during the Term hereof. Executive shall receive no additional
compensation for his services as a member of the Board.
4. Base Salary Compensation. As consideration for the services to be
-------------------------
rendered hereunder by Executive, the Company agrees to pay Executive, and
Executive agrees to accept, payable in accordance with the Company's standard
payroll practices for executives, but payable in not less than monthly
installments, base salary compensation of Five Hundred Sixty Five Thousand
Dollars ($565,000) per annum or such greater amount as may be determined from
time to time by the Board of Directors or the Compensation Committee of the
Board of Directors of the Company (the "Salary").
5. Incentive Compensation. The Company shall pay Executive a bonus for
----------------------
fiscal year 1999 in the amount of Four Hundred Twenty Three Thousand Seven
Hundred Fifty Dollars ($423,750.00), payable no later than March 31, 2000.
Beginning with fiscal year 2000, Executive shall participate in the Company's
executive bonus plan as determined and implemented by the Board or the
Compensation Committee of the Board of the Company, and his maximum bonus
potential shall be not less than that of any other executive officer of the
Company.
6. Grants of Equity and Options.
----------------------------
a. Restricted Stock. Executive shall upon commencement of the
----------------
Term hereof be entitled to Twenty Five Thousand (25,000) Shares of the common
stock of the Company, subject to the restrictions set forth hereinafter (the
"restricted stock"). In the event that Executive voluntarily resigns his
employment with the Company, or is terminated by the Company for Cause as
defined herein, prior to October 1, 2003, Executive shall forfeit all rights
<PAGE>
to the restricted stock.
b. Grant of Options. Executive shall upon commencement of the
----------------
Term hereof be entitled to participation in the Company's Stock Option Plan for
executives and employees, in the form of receipt of a grant of options to
purchase Six Hundred Thousand (600,000) Shares of the common stock of the
Company (the "option shares"). The price at which Executive will be entitled to
purchase the option shares shall be the average closing price of the Company's
common stock on the New York Stock Exchange on the five (5) trading days
immediately prior to the date of execution of this Agreement, which shall have
occurred prior to any announcement that the parties have entered into this
Agreement. Executive's right to purchase the option shares shall vest in
increments of One Hundred Fifty Thousand (150,000) Shares on October 1 of each
year from 2000 to 2003, provided that Executive continues in the employment of
the Company as of each vesting date. Executive's right to purchase the option
shares shall vest immediately in the event that (1) his employment with the
Company is terminated without Cause as defined herein, or (2) the Company
experiences a Change of Control as defined herein.
c. Change of Control. For purposes of this Agreement, "Change
-----------------
of Control" shall mean: (i) a sale, merger or other business combination which
results in transfer to a third party of an ownership interest of greater than
50% of the Company or any successor entity to the Company, (ii) a sale of all or
substantially all of the Company's assets, or (iii) election by the shareholders
of the Company of persons to serve as directors of the Company, comprising more
than one-half (1/2) the total number of directors, who were not nominated or
recommended to the shareholders for election as directors by the Board's
nominating committee.
7. Other Benefits.
--------------
(a) Business, Entertainment and Travel Expenses. It is
------------------------------------------------
contemplated that, in connection with his employment hereunder, Executive may be
required to incur reasonable business, entertainment and travel expenses. The
Company agrees to reimburse Executive in full for all reasonable and necessary
business, entertainment and other related expenses, including travel expenses,
incurred or expended by him incident to the performance of his duties hereunder,
upon submission by Executive to the Company of such vouchers or expense
statements satisfactorily evidencing such expenses as may be reasonably
requested by the Company.
(b) Vacation. It is understood and agreed by the Company that
--------
during the term of Executive's employment hereunder, he shall be entitled to
annual paid vacations not to exceed a total of four (4) weeks per year (taken
consecutively or in segments), the scheduling of which shall be consistent with
the effective discharge of Executive's duties and the general customs and
practices of the Company applicable to its executive officers.
(c) Life Insurance. The Company shall, at its sole expense,
---------------
obtain and maintain in full force and effect life insurance on Executive's life,
payable to a beneficiary of Executive's choice, as follows: (i) a term life
insurance policy or policies with death benefit in a
<PAGE>
total amount equal to four (4) times Executive's Salary; and (ii) an accidental
death policy or policies with death benefit in a total amount equal to four (4)
times Executive's Salary, payable in the event of Executive's accidental death.
Executive represents that, to his knowledge, he has no health condition that
would prevent the Company from obtaining this coverage or cause Executive to be
rated in a high risk category such as to necessitate payment of premiums in
excess of those normally associated with an individual of Executive's age.
(d) Disability Insurance. Executive will be entitled to
---------------------
disability insurance coverage under the Company's existing disability insurance
plan or policy, as same may be amended from time to time. The Company's existing
plan will provide Executive with disability income of Ten Thousand ($10,000.00)
Dollars per month subject to its terms and conditions. The Company will provide
Executive, in addition to its existing coverage, supplemental disability
insurance coverage to provide for a total monthly disability income of Twenty
Nine Thousand ($29,000.00) Dollars (including the amount provided by the
Company's existing plan). The qualifying, waiting or elimination period on all
disability insurance provided for Executive shall be no more than ninety (90)
days. Executive represents that, to his knowledge, he has no health condition
that would prevent the Company from obtaining this coverage or cause Executive
to be rated in a high risk category such as to necessitate payment of premiums
in excess of those normally associated with an individual of Executive's age.
(e) Salary Continuation for Disability. The Company shall, in
----------------------------------
connection with or in supplementation of, any salary continuation and/or short
term disability rules, policies or procedures it may have in force from time to
time, continue payment of Executive's Salary as described in Section 4 herein,
as same may from time to time be modified, for a period of up to ninety (90)
days during any disability of Executive as defined herein that prevents him from
performing the duties and responsibilities of his position with the Company.
(f) Dental Insurance. The Company will provide Executive with
----------------
dental coverage equal to that Executive had at the company employing Executive
on that date hereof, either by purchasing for Executive a supplemental detal PPO
or other insurance coverage, or by paying such portions of Executive's dental
claims as are not paid by Company's plan but would have been paid by such
employer's plan.
(g) Club Memberships. The Company will reimburse to or pay on
----------------
behalf of Executive up to Eight Thousand Nine Hundred ($8,900.00) Dollars per
annum for Executive's club memberships and related expenses.
(h) Financial Advisor. The Company will reimburse to or pay on
-----------------
behalf of Executive the cost of retention of Executive's financial advisor, in
an amount not to exceed Five Thousand Nine Hundred Twenty ($5,920.00) Dollars
per annum.
(i) Except as expressly provided herein, this Agreement shall
not: (1) be deemed to limit or affect the right of Executive to receive other
forms of additional compensation or to participate in any insurance, retirement,
disability, profit-sharing, stock purchase, stock option, stock appreciation
rights, cash or stock bonus or other plan or arrangement or in any other
<PAGE>
benefits now or hereafter provided by the Company or any of the Company's
subsidiary or affiliated companies for its employees; or (2) be deemed to be a
waiver by Executive of any vested rights which Executive may have or may
hereafter acquire under any employee benefit plan or arrangement of the Company
or any of the Company's subsidiary or affiliated companies.
8. Termination.
-----------
(a) Termination by Company for Cause. In the event that the Company
----------------------------------
provides Executive with written notice terminating his employment for "Cause",
as defined in Section 8(b), the Company's obligation to pay Executive's Salary
shall cease as of the scheduled effective date of termination as defined in
Section 8(c) hereof, and the Company shall have no further obligations with
respect thereto, nor shall the Company be obligated to pay Executive termination
pay under Section 8(f) or any incentive compensation for the calendar year in
which termination occurs (other than incentive compensation earned by Executive
under the executive bonus plan for a prior calendar year but unpaid by the
Company as of the effective date of termination). The Company shall, however, be
obligated to make any additional payments determined to be due Executive by the
Board upon hearing, or by the arbitration panel upon arbitration, pursuant to
the provisions of Sections 8(c) and 8(d) hereof.
(b) "Cause" Defined. For the purposes of this Agreement, "Cause" shall
--------------
mean (i) the commission by Executive of an act of fraud, embezzlement, or theft
against the Company; (ii) the commission by Executive of a breach of any
covenant, provision, term, condition, understanding or undertaking set forth in
Sections 9, 10, 11, or 12 of this Agreement; (iii) the conviction of Executive
(other than in Executive's capacity as an agent of the Company) of a crime
constituting a felony under applicable law (or a plea of nolo contendere in lieu
thereof); (iv) the sustaining of any final (after all appeals are exhausted)
determination of criminal liability against the Company or Executive directly
caused by Executive's intentional criminal conduct or knowing and intentional
express approval of criminal conduct, which results in a material adverse effect
upon the Company's business, operations, financial condition or results of
operations or causes a material difficulty in obtaining registration for the
Company's products; (v) the exposure of the Company to any civil liability as
the result of a claim that reasonably appears to be legitimate and substantial
upon completion of a diligent investigation of the facts and circumstances
thereof, directly caused by Executive's direct, personal unlawful harassment of
an employee or other person encountered by Executive while acting within the
course and scope of his employment; (vi) any habitual absenteeism, gross
negligence, bad faith or willful misconduct by Executive in the performance of
Executive's duties to the Company which misconduct results in a material
detriment to the Company; (vii) the continued, repeated, intentional and willful
refusal by Executive to perform the duties associated with Executive's position
with the Company, which is not cured within fifteen (15) days following notice
to Executive; or (viii) Executive's habitual use of alcohol or any controlled
substance or Executive's performance of work-related duties under the influence
of alcohol or a controlled substance (other than those for which Executive is
taking under a current prescription), but expressly excluding (with respect to
consumption of alcohol only) occasions in which Executive participates in
work-related socializing or entertaining.
<PAGE>
(c) Determination of Existence of Cause for Termination. In the event
---------------------------------------------------
that the Company determines that Cause for termination of Executive exists
pursuant to Section 8(b), the Company shall provide Executive written notice no
less than fifteen (15) days prior to the scheduled effective date of Executive's
termination ("scheduled effective date"), providing Executive with a detailed
summary of the facts and circumstances believed by the Company to warrant
termination for Cause. The Company may suspend Executive with pay in the written
notice or at any later time prior to the scheduled effective date of Executive's
termination. Executive may, by written notice to the Company delivered prior to
the scheduled effective date, request a hearing before the Board to present
evidence or argument as to why he believes Cause for termination does not exist.
If Executive does not request a hearing before the Board as permitted herein,
the Company's determination as set forth in the notice to Executive shall become
a final determination that Executive's termination is for Cause, and the
scheduled effective date shall be the effective date of termination for Cause.
If Executive requests a hearing, the Board shall convene and conduct a hearing
within fifteen (15) days thereafter, at which Executive shall be permitted to
appear with counsel and present evidence personally, or through testimony of
witnesses and presentation of documentary evidence. Notwithstanding a request by
Executive for hearing, Executive shall be deemed suspended without pay as of the
scheduled effective date, and the Company shall not thereafter be obligated to
make further payments or provide benefits to Executive hereunder after the
scheduled termination date, unless it is subsequently determined by the Board or
arbitration panel that Executive's termination was not for Cause. The Board
shall make a final determination within a reasonable time, not to exceed fifteen
(15) days, after the hearing as to whether Executive should be terminated and,
if so, whether such termination is for Cause. If the Board determines that
Executive should be terminated for Cause, the scheduled effective date shall be
the effective date of Executive's termination, and the Company shall not be
required to make any further payments to Executive unless such payments are
required by this Agreement in the case of a termination for Cause, or unless
Executive requests arbitration as permitted herein and the arbitration panel
rules that Executive's termination was not for Cause.
(d) Binding Arbitration. At Executive's option, to be exercised by
--------------------
notice in writing to the Company not later than fifteen (15) days after the date
of determination by the Board after hearing that Executive should be terminated
for Cause, Executive may request binding arbitration of the issue of whether his
termination is for Cause as defined herein. If Executive makes such a request,
the parties shall select an arbitration panel comprised of three (3) persons who
are on the panel of the American Arbitration Association for arbitration of
disputes related to executive employment. Executive shall select one (1) person
and so notify the Company in writing within five (5) days following his delivery
of written notice requesting arbitration. The Company shall select one (1)
person and so notify the Executive in writing within five (5) days following
Executive's delivery to the Company of written notice of the person selected by
Executive. The arbitrators selected by the parties shall, within five (5) days
after the Company's selection, select a third person to serve as an arbitrator.
The panel shall meet with the parties or their counsel no later than ten (10)
days after its formation and make a determination of the rules to be followed by
the parties in preparing for and conducting the arbitration. The arbitration
shall be conducted by the panel no later than sixty (60) days after formation of
the panel. An arbitration requested and conducted under this Section 8(d) shall
be considered to be litigation
<PAGE>
for purposes of application of Section 15 of this Agreement. In the event
Executive prevails in an arbitration, he shall be entitled to an award of any
payments and benefits that would have been due to him hereunder in the case of a
termination by the Company without Cause, and of interest at a rate two hundred
(200) basis points above the Company's cost of capital as of the date of the
award (as verified by the arbitration panel) from the date that any payments due
Executive hereunder should have been made, to the date such payments are
actually made by the Company.
(e) Finality of Determination of Whether Termination is for Cause. It
---------------------------------------------------------------
is the intention of the parties to avoid litigation with respect to the issue of
whether any termination of Executive by the Company is for Cause as defined
herein. Accordingly, the procedure for review set forth in Sections 8(c) and
8(d) provides the sole and exclusive means whereby Executive may obtain review
of termination for Cause. If Executive fails to timely request the hearing
permitted by Section 8(c) or the arbitration permitted by Section 8(d), the
notice of termination for Cause submitted to him by the Company, or the Board
determination upon hearing that Executive's termination is for Cause, shall be a
final determination of this issue, not subject to appeal, review, or reversal by
any Court. In the event an arbitration is conducted pursuant to Section 8(d),
the determination by the arbitration panel of whether the Executive's
termination was for Cause shall be binding upon the parties, shall constitute a
final determination of this issue, and shall be enforceable by any court of
competent jurisdiction over the parties pursuant to the terms of this Agreement.
(f) Termination by Company Without Cause. Notwithstanding anything to
------------------------------------
the contrary contained herein, Executive's employment may be terminated by the
Company without Cause and without notice at any time, with the Company's only
obligation to Executive being payment to Executive of an amount equal to three
(3) times his Salary in a lump sum on the termination date. Company shall not be
obligated to pay Executive any incentive compensation for the calendar year in
which termination occurs (other than incentive compensation earned by Executive
under the executive bonus plan for a prior calendar year but unpaid by the
Company as of the effective date of termination).
(g) Termination by Executive for Constructive Discharge; "Constructive
-------------------------------------------------------------------
Discharge" Defined. At the Executive's discretion, Executive may terminate this
- ------------------
Agreement upon fifteen (15) days prior written notice if there shall have
occurred a Constructive Discharge (as such term is defined hereinafter), in
which case the Company shall pay Executive an amount equal to three (3) times
his Salary. For the purposes of this Agreement, "Constructive Discharge" shall
mean:
(i) any reduction in Salary;
(ii) a material reduction in Executive's job function, duties
or responsibilities, or a similar change in Executive's reporting
relationships;
(iii) a required relocation of Executive of more than
thirty-five (35) miles from the Company's offices at the address set
forth in Section 18 hereof; provided, however, that it is understood
that Executive's job responsibilities will require that he travel
extensively to other locations on the Company's business; or
<PAGE>
(iv) any breach of any of the material terms of this Agreement
by the Company which is not cured within fifteen (15) days following
written notice thereof by Executive to the Company;
provided, however, that the term "Constructive Discharge" shall not include a
specific event described in the preceding clause (i), (ii), (iii) or (iv) unless
Executive actually terminates his employment with the Company within sixty (60)
days after the occurrence of such event. In the event Executive gives notice of
termination deemed by him to be due to Constructive Discharge as defined herein,
the Company shall have the right to request a binding arbitration of this issue
by notice delivered to Executive prior to the effective date of termination of
this Agreement. In the event of such a request by the Company, the provisions of
Sections 8(d) and 8(e) hereof shall be applicable to such arbitration and the
result thereof, with the exception that the Company shall be required to select
its arbitrator and provide notice of selection to Executive, who shall then
select his arbitrator and provide notice of selection to Company, all within the
time frames provided in Section 8(d).
(h) Termination Upon Executive's Death. This Agreement shall terminate
-----------------------------------
immediately upon the death of the Executive. In the event of the Executive's
death, the Executive's estate shall be paid by the Company all of the
compensation and benefits due to the Executive through the date of his death,
including, without limitation, incentive compensation earned by Executive under
the executive bonus plan for a prior calendar year but unpaid by the Company as
of the date of his death.
(i) Termination Upon Executive's Disability. This Agreement shall
------------------------------------------
terminate in the event Executive suffers a Disability as defined hereinafter,
provided that the Executive shall be entitled to the continuation of Salary
provided in Section 7(e) hereof and incentive compensation earned by Executive
under the executive bonus plan for a prior calendar year but unpaid by the
Company as of the date of such Disability.
(j) Termination by Executive. This Agreement may be terminated at the
------------------------
discretion of the Executive upon thirty (30) days prior written notice to the
Company, in which event the Company shall pay Executive all amounts due
hereunder through the date of termination set forth in such notice, including,
without limitation, incentive compensation earned by the Executive under the
executive bonus plan for a prior calendar year but unpaid by the Company as of
the date of termination set forth in such notice.
(k) Set-Off and/or Advance Notice in Lieu of Payment Not Permitted. The
--------------------------------------------------------------
amount of compensation payable pursuant to this Section 8 is not subject to any
deduction (except for withholding taxes), reduction, offset or counterclaim, and
the Company may not give advance notice of termination in lieu of the payment
provided for in this Section 8.
(l) "Disability" Defined. For purposes of this Agreement, "Disability"
--------------------
shall mean an illness or accident which prevents Executive, for a continuous
period lasting three months, from performing the material job duties normally
associated with his position. In the event that any
<PAGE>
disagreement or dispute arises between the Company and Executive as to whether
Executive has incurred a "Disability", then, in any such event, Executive shall
submit to a physical and/or mental examination by a competent and qualified
physician licensed under the laws of the State of Florida who shall be mutually
selected by the Company and Executive, and such physician shall make the
determination of whether Executive suffers from any "Disability". In the absence
of fraud or bad faith, the determination of such physician as to Executive's
condition at such time shall be final and binding upon both the Company and
Executive. The entire cost of any such examination shall be borne solely by the
Company.
(m) Limitation on Payments to Executive. Notwithstanding anything to
-----------------------------------
the contrary contained in this Agreement, if Executive is a "disqualified
individual" (as that term is defined in Section 280G of the Internal Revenue
Code of 1986, as amended (the "Code") or any successor provision thereto) and if
any portion of the payments provided for in this Section 8 would be an "excess
parachute payment" (as that term is defined in Section 280G of the Code or any
successor provision thereto) but for the application of this sentence, then the
amount of such payments otherwise payable to Executive under this Agreement
shall be reduced to the minimum extent necessary (but in no event to less than
zero) so that no portion of such payments, as so reduced, constitutes an excess
parachute payment, provided, that, any separate compensation arrangements
extended to Executive by the Company which involve non-cash compensation shall
be reduced first in priority before any reduction in payment hereunder. The
Company shall bear responsibility for performing the necessary calculations
under this subsection and shall indemnify Executive, on a grossed-up, after tax
(federal, state and local) basis, for any error or omission on the part of the
Company which results in additional tax liability to Executive, within five
business days following determination of the amount of indemnity owed to
Executive.
(n) Condition Precedent to Payments Due Executive Upon Termination.
-----------------------------------------------------------------
Compliance by Executive with the terms and conditions of Section 9 hereof shall
be a condition precedent to the Company's obligation to make any payments to
Executive that are required by this Agreement upon termination of Executive's
employment.
9. Termination Obligations.
-----------------------
(a) Executive hereby acknowledges and agrees that all personal property
and equipment, including, without limitation, all computers, books, manuals,
records, reports, notes, contracts, lists, blueprints, and other documents, or
materials, or copies thereof (including computer files), and all other
proprietary information relating to the business of the Company, furnished to or
prepared by Executive in the course of or incident to Executive's employment,
belongs to the Company and shall be promptly returned to the Company within ten
days after Executive's last work day. Following Executive's last work day,
Executive will not retain any written or other tangible material containing any
proprietary information of the Company.
(b) Effective as of Executive's last work day, Executive shall be
deemed to have resigned from all offices and directorships then held with the
Company or any subsidiaries or affiliates of the Company. Executive shall
provide the Company with signed letters of resignation from all such positions.
<PAGE>
(c) Notwithstanding anything herein to the contrary, and without
limitation of enforceability of any other provisions hereof, the covenants and
agreements of Executive contained in Sections 9, 10, 11 and 12 shall survive
termination of Executive's employment by the Company and the termination of this
Agreement, whether or not for "Cause".
(d) In exchange for the Company entering into this Agreement, and as a
condition precedent to payment of any amounts owed to Executive hereunder,
Executive agrees that, at the time of Executive's resignation or termination
from the Company, and upon receipt by him of all payments due to him hereunder,
Executive will execute a release reasonably acceptable to the Company of all
liability of the Company and its subsidiaries and their officers, shareholders,
employees, directors and affiliates to Executive in connection with or arising
out of Executive's employment by the Company, except with respect to (i) any
then-vested rights under the Company's stock warrant or stock option plans, it
being understood that Executive shall have ninety (90) days after his last work
day within which to exercise vested options and warrants in accordance with
their terms; (ii) any then-vested rights under the Company's employee benefit
plans (including Executive's right, if any, to continued coverage under the
Company's medical plan under COBRA and for payment at termination of any accrued
but unused vacation time in accordance with the Company's usual policies), (iii)
rights of indemnification under the Company's Bylaws and directors' and
officers' liability coverages, (iv) any amounts which may be payable to
Executive pursuant to the terms of this Agreement, and (v) any claims Executive
may have pursuant to the Company's disability and workmen's compensation
insurance programs.
10. Covenant Not to Compete. Unless the Company's Board of Directors
-----------------------
determines that any of the following conduct is in the Company's best interests,
during the Term of this Agreement and for the Non-Compete Period, Executive
shall not:
(a) directly or indirectly for himself or for any other person or
entity, engage, whether as owner, investor, creditor, consultant, partner,
shareholder, director, financial backer, agent, employee or otherwise, in the
business, enterprise or employment of owning, operating, marketing or selling a
time-share, vacation plan, vacation ownership or interval ownership project
within the Territory; or
(b) directly or indirectly for himself or for any other person or
entity, sell, or otherwise procure purchasers for, any time-share, vacation
plan, vacation ownership or interval ownership project within the Territory; or
(c) have any business (as owner, investor, creditor, consultant,
partner, debtor or otherwise) or be employed in any capacity by a person or
entity that is engaged, directly or indirectly, in (i) operating, or providing
sales, marketing or development services to, a time-share, vacation plan,
vacation ownership or interval ownership project within the Territory, or (ii)
in an activity formed or entered into for the primary purpose of engaging in a
time-share, vacation plan, vacation ownership or interval ownership business
within the Territory; or
<PAGE>
(d) directly or indirectly for himself or for any other person or
entity become employed in any capacity by or otherwise render services in any
capacity to any national enterprise having time-share, vacation plan, vacation
ownership or interval ownership activities, including, without limitation, Walt
Disney Company, Hilton Hotels Corporation, Hyatt Corporation, Four Seasons
Hotels and Resorts, Inc., Marriott International, Inc., Inter-Continental Hotels
and Resorts, Inc., Promus Hotels, Inc., Sunterra Corporation, Starwood Lodging,
Inc. or Vistana, Inc. or any of their respective subsidiaries or affiliates; or
(e) directly or indirectly, for himself, or for any other person or
entity, pursue or consummate or otherwise interfere with any Existing Project;
or
(f) directly or indirectly, for himself, or for any other person or
entity, pursue or consummate or otherwise interfere with any Prospective
Project; or
(g) directly or indirectly, for himself, or for any other person or
entity, become employed in any capacity by or otherwise render services in any
capacity to any other person or entity (other than the Company and its
subsidiaries and affiliates) described in clause (b) of the definition of
Prospective Project.
Notwithstanding the foregoing, Executive may purchase stock as a
stockholder in any publicly traded company, including any company engaged in the
timeshare or vacation ownership business; provided, however, that Executive may
not own (individually or collectively with Executive's family members, trusts
for the benefit of Executive's family members and affiliates of Executive) more
than 5% of any company engaged in the timeshare or vacation ownership business
(other than the Company).
"Existing Project" means a time-share, vacation plan, vacation
ownership or interval ownership resort or project which the Company or any of
its subsidiaries or affiliates owns, operates, is under contract to provide
property management services, is part of the Company's FairShare Plus
reservation system or has commenced to develop, acquire or otherwise undertake
as of the date Executive's employment with the Company terminates.
"Non-Compete Period" shall mean the period commencing on the date
Executive's employment with the Company terminates (regardless of cause or
reason for termination) and continuing for a period of two (2) years thereafter.
"Prospective Project" means (a) a prospective time-share, vacation
plan, vacation ownership or interval ownership resort or project with respect to
which Executive has been made aware or has been advised prior to the termination
of his employment with the Company that the Company or any of its subsidiaries
or affiliates is considering developing or undertaking and (b) any person or
entity, including its respective affiliates, with respect to which Executive has
been made aware or has been advised prior to the termination of his employment
by the Company that the Company or any of its subsidiaries or affiliates has
commenced to evaluate or negotiate with in respect of any transaction involving
(i) the acquisition by the Company or any of its subsidiaries or affiliates of
all or a portion of such person or entity or its consolidated assets or
<PAGE>
(ii) the acquisition by such person or entity (or its affiliates) of all or a
portion of the Company or its consolidated assets.
"Territory" means the total geographic area located within a 150-mile
radius of each Existing Project and each Prospective Project.
In light of the substantial remuneration provided to Executive
hereunder and Executive's management position with the Company, Executive hereby
specifically acknowledges and agrees that the payments, promises and covenants
of the Company contained herein constitute good and sufficient consideration to
Executive for the provisions of this Section 10 as well as the provisions of
Sections 9, 11 and 12, and further that the provisions of this Section 10
(including, without limitation, its time and geographic limits), as well as the
provisions of Sections 9, 11 and 12, are reasonable and appropriate, and that
Executive will not claim to the contrary in any action brought by the Company to
enforce any of such provisions.
11. Covenant Against Solicitation of Employees and Contractors.
-----------------------------------------------------------------
Executive shall not, directly or indirectly or on behalf of any person,
organization, business or enterprise with which Executive may become associated
in any capacity (whether as an employee, officer, director, consultant, investor
(debt or equity) or otherwise), during the Term of this Agreement and for a
period of two (2) years from the date Executive ceases to be employed by the
Company (regardless of the reason for such change in Executive's employment
status): (a) solicit or cause or suggest that there be solicited for employment
or as an independent contractor, consultant or other service provider, or hire,
any people then serving, or serving within the 180 days prior thereto, as
employees of the Company or any of its subsidiaries or affiliates or (b) contact
or solicit or attempt to establish a commercial relationship with any of the
Company's or its subsidiaries' or affiliates' outside providers of information
systems, marketing services, OPC locations or sales prospects.
12. Confidentiality.
---------------
(a) Recognizing that the knowledge and information about the business
methods, systems, plans and policies of the Company and of its affiliated
companies which Executive has heretofore and shall hereafter receive, obtain or
establish as an employee of the Company or its affiliated companies are valuable
and unique assets of the Company and its affiliated companies, Executive agrees
that he shall not (otherwise than pursuant to his duties while an employee)
disclose or use (whether for himself or, directly or indirectly, for any person,
organization, business or enterprise with which Executive may become associated
in any capacity (whether as an employee, officer, director, consultant, investor
(debt or equity) or otherwise)), without the express prior written consent of
the Chief Executive Officer of the Company, any knowledge or information not
readily available to the general public pertaining to the Company or its
affiliated companies (including specifically any information relating to the
Company's points based product or reservation system, lists of current or
prospective clients, marketing and other service providers, business plans and
proposals, current or prospective business opportunities, financial records,
research and development and marketing strategies and programs (including
present and prospective OPC locations and the terms of leases of similar
arrangements)), or any of their
<PAGE>
business, personnel or plans, for any reason or purpose whatsoever, unless
required by law or legal process. In the event Executive is required by law or
legal process to provide documents or disclose information, he shall take all
reasonable steps to maintain the confidentiality of such documents and
information, including notifying the Company as soon as reasonably practical in
advance of such disclosure and giving it an opportunity to seek a protective
order, at its sole cost and expense.
(b) The provisions of this Section 12 shall survive the expiration or
termination of this Agreement, without regard to the reason therefor, for a
period of two years following termination of Executive's employment with the
Company.
13. Remedies For Breach. It is understood and agreed by the parties
-------------------
that no amount of money would adequately compensate the Company for damages
which the parties acknowledge would be suffered as a result of a violation by
Executive of the covenants contained in Sections 9, 10, 11 and 12 hereof, and
that, therefore, the Company shall be entitled, upon application to a court of
competent jurisdiction, to obtain injunctive relief (without the need to post
bond or prove irreparable injury or inadequate remedy at law) to enforce the
provisions of Sections 9, 10, 11 or 12, which injunctive relief shall be in
addition to any other rights or remedies available to the Company. The
provisions of this Section 13 shall survive the termination of this Agreement.
14. No Mitigation Obligation. The Company hereby acknowledges that it
-------------------------
will be difficult and may be impossible (a) for Executive to find reasonably
comparable employment following the date of termination and (b) to measure the
amount of damages which Executive may suffer as a result of termination of
employment hereunder. Accordingly, the payment of the termination compensation
by the Company to Executive in accordance with the terms of this Agreement is
hereby acknowledged by the Company to be reasonable and will be liquidated
damages, and Executive will not be required to mitigate the amount of any
payment provided for in this Agreement by seeking other employment or otherwise,
nor will any profits, income, earnings or other benefits from any source
whatsoever create any mitigation, offset, reduction or any other obligation on
the part of Executive hereunder or otherwise.
15. Legal Fees and Expenses. In the event a dispute arises between the
-----------------------
parties hereto and suit is instituted, the prevailing party in such litigation
shall be entitled to recover reasonable attorneys' fees and other costs and
expenses from the non-prevailing party, whether incurred at arbitration, trial
or in any appellate proceeding. For purposes hereof, the Company shall be deemed
to have prevailed in any suit involving a breach or alleged breach by Executive
of any of the covenants contained in Sections 9, 10, 11 and 12 above if the
Company prevails to any degree in such suit (even if such covenant or covenants
are not enforced to the fullest extent sought by the Company).
16. Withholding of Taxes. The Company may withhold from any amounts
---------------------
payable under this Agreement all federal, state, city or other taxes as the
Company is required to withhold pursuant to any law or government regulation or
ruling.
<PAGE>
17. Successors and Binding Agreement.
--------------------------------
(a) The Company will require any successor (whether direct or indirect,
by purchase, merger, consolidation, reorganization or otherwise) to all or
substantially all of the business or assets of the Company, by agreement in form
and substance reasonably satisfactory to Executive, expressly to assume and
agree to perform this Agreement in the same manner and to the same extent the
Company would be required to perform if no such succession had taken place. This
Agreement will be binding upon and inure to the benefit of the Company and any
successor to the Company, including, without limitation, any persons acquiring
directly or indirectly all or substantially all of the business or assets of the
Company whether by purchase, merger, consolidation, reorganization or otherwise
(and such successor shall thereafter be deemed the "Company" for the purposes of
this Agreement), but will not otherwise be assignable, transferable or delegable
by the Company.
(b) This Agreement will inure to the benefit of and be enforceable by
Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees and legatees.
(c) This Agreement is personal in nature and neither of the parties
hereto shall, without the consent of the other, assign, transfer or delegate
this Agreement or any rights or obligations hereunder. Without limiting the
generality or effect of the foregoing, Executive's right to receive payments
hereunder will not be assignable, transferable or delegable, whether by pledge,
creation of a security interest or otherwise, other than by a transfer by
Executive's will or by the laws of descent and distribution and, in the event of
any attempted assignment or transfer contrary to this Section 19(c), the Company
shall have no liability to pay any amount so attempted to be assigned,
transferred or delegated.
18. Notices. For all purposes of this Agreement, all communications,
-------
including, without limitation, notices, consents, requests or approvals,
required or permitted to be given hereunder will be in writing and will be
deemed to have been duly given when hand delivered or dispatched by electronic
facsimile transmission (with receipt thereof orally confirmed); or five business
days after having been mailed by United States registered or certified mail,
return receipt requested, postage prepaid; or three business days after having
been sent by a nationally recognized overnight courier service such as Federal
Express, UPS or Purolator, addressed to the Company (to the attention of the
Chairman of the Company, with a copy to the General Counsel of the Company, both
at 8669 Commodity Circle, Suite 200, Orlando, Florida 32819), facsimile number
407-370-5222, and to Executive at his principal residence located at 9025 Pointe
Cypress Drive, Orlando, Florida 32836, facsimile number 407-876-0032, or to such
other address as any party may have furnished to the other in writing and in
accordance herewith, except that notices of changes of address shall be
effective only upon receipt.
19. Governing Law and Venue. The validity, interpretation, construction
-----------------------
and performance of this Agreement will be governed by and construed in
accordance with the substantive laws of the State of Florida, without giving
effect to the principles of conflict of laws of such State. In the event of any
legal or equitable action arising under this Agreement, the
<PAGE>
venue of such action shall be exclusively within either the state courts of
Florida located in Orange County, Florida, or the United States District Court
for the Middle District of Florida, Orlando Division, and the parties waive any
other jurisdiction and venue.
20. Validity and Construction. If any provision of this Agreement or
--------------------------
the application of any provision hereof to any person or circumstances is held
invalid, unenforceable or otherwise illegal, the remainder of this Agreement and
the application of such provision to any other person or circumstances will not
be affected, and the provision so held to be invalid, unenforceable or otherwise
illegal will be reformed to the extent (and only to the extent) necessary to
make it enforceable, valid or legal.
The parties have participated jointly in the negotiation and drafting
of this Agreement. In the event of an ambiguity or a question of intent or
interpretation arises, this Agreement shall be construed as if drafted jointly
by the parties hereto and no presumption or burden of proof shall arise favoring
or disfavoring either party by virtue of the authorship of any of the provisions
of this Agreement.
21. Miscellaneous. No provision of this Agreement may be modified,
-------------
waived or discharged unless such waiver, modification or discharge is agreed to
in writing signed by Executive and the Company. No waiver by either party hereto
at any time of any breach by the other party hereto or compliance with any
condition or provision of this Agreement to be performed by such other party
will be deemed a waiver of similar or dissimilar provisions or conditions at the
same or at any prior or subsequent time. No agreements or representations, oral
or otherwise, expressed or implied with respect to the subject matter hereof
have been made by either party which are not set forth expressly in this
Agreement. References to Sections are references to Sections of this Agreement.
22. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same agreement.
23. Warranty. Executive warrants and represents that he is not a party
--------
to any agreement, contract or understanding, whether of employment or otherwise,
which would in any way restrict or prohibit him from undertaking or performing
employment in accordance with the terms and conditions of this Agreement.
24. Approval. By executing this Agreement, the Company represents and
--------
warrants that this Agreement has been approved by the Compensation Committee of
the Board of Directors of the Company and that no other approvals are required
as a condition precedent for this Agreement to become effective.
25. Prior Agreement. This Agreement shall in all respects supersede all
---------------
previous agreements providing severance pay benefits, whether written or oral,
between Executive and the Company, including any existing or future adopted
Company policies or procedures with respect to separation, severance or
termination pay.
<PAGE>
26. Confidentiality and Disclosure of this Agreement. The Company and
------------------------------------------------
the Executive shall each maintain the confidentiality of the existence, terms
and conditions of this Agreement, except as expressly permitted below. The
Company shall only disclose the existence, terms, and conditions of this
Agreement to those persons within the Company who need to have knowledge of
same, and to the extent required by law. The Executive shall disclose the
existence of this Agreement to his immediate superior and to those persons to
whom he has committed to announce his resignation as the result of personal
relationships that depend upon his continued employment with his existing
employer, and to the extent required by law.
27. Indemnification Agreement. The Company will execute and deliver an
--------------------------
indemnification agreement in favor of Executive in substantially the same form
and substance as those provided to other senior executives and directors of the
Company.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement.
FAIRFIELD COMMUNITIES INC.
By:/s/Bryan D. Langton
----------------------------------
Bryan D. Langton, Chairman
/s/James G. Berk
----------------------------------
JAMES G. BERK
AMENDMENT NUMBER TWO
TO EMPLOYMENT AGREEMENT
THIS AGREEMENT (hereinafter referred to as "Amendment Two" and/or "this
Agreement") to Employment Agreement is dated as of the 24th day of September,
1999, and is by and between Fairfield Communities, Inc., a Delaware corporation
(the "Company"), and John W. McConnell ("Executive").
WITNESSETH:
WHEREAS, the Company has, with full support from and cooperation of the
Executive, commenced and conducted an orderly search for a President and CEO to
succeed Executive (the "successor"), and the Company has selected the successor
to Executive;
WHEREAS, the parties agree that an orderly transition will require that the
Executive relinquish his position and its responsibilities;
WHEREAS, the Company and the Executive are parties to an Employment
Agreement dated as of September 20, 1991 (the "original Agreement"), as modified
by Amendment Number One to Employment Agreement dated as of July 30, 1992
("Amendment One"), with both the original Agreement and Amendment One being
collectively included within the phrase "original Agreement" hereinafter;
WHEREAS, the Company and the Executive desire to amend the original
Agreement as provided herein, in order to provide for the orderly transition of
the successor into Executive's position with the Company, and to provide for
certain rights, compensation and benefits pursuant to, or in some cases, in lieu
of, the rights, compensation and benefits that would otherwise have been
provided pursuant to the original Agreement; and
WHEREAS, the Company wishes to secure from Executive covenants of
non-competition
<PAGE>
and non-solicitation upon the terms and conditions described herein, and to
obtain a full release by Executive of any and all claims that Executive might
otherwise have against the Company arising out of his employment by the Company,
his resignation as President, CEO and Board member of the Company, and/or the
termination of his employment as contemplated by this Amendment Two, all of
which Executive desires to provide in return for a mutual Release and the
promises, covenants and consideration from the Company as set forth herein.
IT IS, THEREFORE, MUTUALLY AGREED AS FOLLOWS:
1. Resignation by Executive as an Officer and Director of the Company;
-------------------------------------------------------------------
Continuation of Employment in Consulting Capacity.
- --------------------------------------------------
a. Resignation as President, CEO, and from Board of Directors.
-----------------------------------------------------------
Executive and the Company agree that Executive will voluntarily resign from the
offices of President and CEO of the Company, and from the Board of Directors of
the Company, effective as of the date that the Company provides written notice
to Executive that the Company deems the time appropriate for the successor to
assume all duties and responsibilities of President and CEO of the Company,
which shall occur no later than October 15, 1999. The effective date of
Executive's resignation shall be deemed to be October 15, 1999 for all purposes
set forth in the Amendment ("Effective Date"). The provisions of Section 2 of
the original Agreement with respect to "Term" are amended in accordance with the
foregoing. The provisions of Section 7 of the original Agreement are unaffected
by this Amendment Two with the exception of Paragraph 7(b)(ii) which is hereby
deleted in its entirety, and shall continue as revised to be available to the
Company and fully enforceable against the Executive. Section 8 of the Original
Agreement pertaining to termination without cause is hereby deleted in its
entirety. Neither this Amendment Two nor any of the events contemplated and
provided for herein shall be relied upon by Executive as a "Constructive
<PAGE>
Discharge" as defined by Section 9 of the original Agreement, which Section 9 is
hereby deleted in its entirely.
b. Continued Employment and Availability of Executive. Executive shall
--------------------------------------------------
continue to be employed by the Company until January 2, 2002, pursuant to the
provisions of this Amendment Two, and shall make himself available to the Board
of Directors, its Chairman, and to the President and CEO succeeding the
Executive ("Successor CEO"), and to other officers of the Company at the
direction of the Chairman or the Successor CEO, to advise and consult with them
at reasonable times and upon reasonable advance notice so as to provide for an
orderly transition of the Successor CEO. The Executive shall not be required to
be physically present at the offices of the Company for more than four full days
per month, unless during the period from the Effective date through January 31,
2000, the Chairman or CEO requests a more extensive presence by Executive and
Executive agrees that the Executive's advice and consultation are necessary
because of the Executive's past experience and expertise. Failure of the parties
to mutually agree or failure of the Executive to agree to a more extensive
presence request by the Chairman or successor CEO shall not in any manner affect
any of the ongoing obligations of the Company under this Agreement. Any travel
by the Executive shall only be for short periods of time, unless otherwise
agreed by the Executive. In consideration of the compensation and other benefits
for which provision is made herein, Executive will not be paid any additional
compensation for his consulting services, but will be entitled to reimbursement
of his travel and other out-of-pocket expenses associated with any assignment
for the Company. All requests for services of the Executive shall be coordinated
with vacation, leisure time, personal activities or any employment in which the
Executive is then engaged. The provisions of Section 3 of the Original Agreement
as to duties and services are hereby deleted in their entirety.
<PAGE>
c. Base Salary Compensation of Executive. The Executive, as an
-------------------------------------
employee of the Company until January 2, 2002, shall receive a base salary
commencing as of the Effective Date of this Amendment Two and continuing until
January 2, 2002, of Three Hundred Fifty Thousand ($350,000.00) Dollars per annum
("Base Salary"), payable in accordance with the Company's standard payroll
practices for executives, but in not less than consecutive equal monthly
installments. Payment of Executive's Base Salary shall not be subject to any
financial or other contingencies. The Base Salary shall be prorated for calendar
years 1999 and 2002. Prior to the Effective Date Executive shall continue to
receive the Base Salary under the original Agreement. Section 4 of the Original
Agreement is deleted as of the Effective Date.
d. Incentive Bonus. The Executive shall receive, in addition
---------------
to Base Salary, a bonus for the full calendar year 1999 ("Bonus"), based upon
the Bonus Plan as stated in Exhibit A attached hereto, which was agreed upon by
the parties prior to the Effective Date. The Company shall pay the Bonus to the
Executive as and when all other executives are paid bonuses, but no later than
March 31, 2000. The Bonus Plan for the Executive shall be determined in the same
manner as provided for those executives in the memorandum dated June 17, 1999,
attached hereto as Exhibit B, which restates the bonus plan that is also
applicable to the Executive in Exhibit A. The Bonus Plan is based upon an
increase in the earnings per share of the Company for the calendar year 1999
over the earnings per share of the Company for the calendar year 1998. For
example, if the earnings per share for the calendar year 1999 has increased from
the earnings per share for 1998 by $1.26 per share, or 35%, the Executive's
Bonus shall be 100% of the Executive's Base Salary as provided herein.
Notwithstanding anything herein to the contrary, the successor CEO's salary and
bonus shall not reduce the earnings per share in determining Executive's 1999
Bonus pursuant to the Bonus Plan (Exhibit A). The Bonus Provision of Paragraph 2
of Amendment One and Section
<PAGE>
5 of the original Agreement are hereby deleted. Executive shall not be entitled
to any incentive bonus for any year after 1999, except by action of the
Compensation Committee of the Board.
2. Severance Pay and Benefits. a. Severance Pay. The parties hereto agree
--------------------------
that, upon the consideration set forth in this Agreement, Executive waives and
releases any and all right that he would otherwise have had to severance pay
calculated in accordance with Section 3 of Amendment One, which amended Section
9(a) of the original Agreement by deleting the Section and substituting for it a
provision which establishes a "Severance Pay Multiplier" of 1-1/2 times the
highest annualized rate of Executive's salary prior to the date of Executive's
termination.
b. Health and Dental Insurance. Until January 2, 2002, or until Executive
----------------------------
advises that he has other adequate health insurance coverage, which ever occurs
first, the Company will continue to provide Executive with the same or similar
medical and dental insurance coverage as he now has with the Company or
reimburse Executive or pay on his behalf a sum sufficient so that the cost to
him of the same or similar medical and dental insurance coverage does not exceed
the cost he would have incurred had he remained employed by the Company. As of
January 2, 2002, Executive (or his spouse if he is not living) will be offered
the opportunity to purchase continuation health and dental insurance coverage,
at Executive's option and at his sole expense, pursuant to provisions of, and
for the maximum period permitted under, COBRA.
c. Key Employee Retirement Plan. Executive has been a participant in the
-------------------------------
Company's Key Employee Retirement Plan, as the result of which Executive has a
vested benefit under the Plan in the amount of $475,957.63 as of December 31,
1998, plus interest from said date as per the terms of the Plan. Pursuant to
this Agreement, the Company shall by not later than July 31, 2000 pay, and
Executive shall accept, as full, final and complete satisfaction of all benefits
to
<PAGE>
which Executive is entitled under the Plan, the entire vested amount of
Executive's benefit, plus accrued interest at the BankBoston prime rate.
d. Stock Options and Warrants. Executive is fully vested in options for
----------------------------
purchase of One Hundred Fourteen Thousand (114,000) Shares of the common stock
of the Company, and Four Hundred Fifty Thousand (450,000) Warrants, and all
conditions of exercise thereof are deemed to be satisfied. Executive shall be
deemed to be an employee of the Company until January 2, 2002 for purposes of
the provisions of the Plan or Plans governing exercise of the options and
Warrants. Executive's right to exercise the options for purchase of One Hundred
Fourteen Thousand (114,000) Shares of the common stock of the Company shall be
extended through April 1, 2002. The Warrants and options shall be exercisable
pursuant to the terms and provisions set forth therein as modified by this
Agreement.
e. 401(k) and Profit Sharing Plan; Excess Benefit Plan. Throughout each of
---------------------------------------------------
calendar years 1999, 2000 and 2001, Executive shall be an employee of the
Company for purposes of continuing eligibility for allocation of Company
contributions to its "401(k) and Profit Sharing Plan" including matching and
profit-sharing contributions and contributions made by the Company to the Excess
Benefit Plan for executive employees. If such contributions are not allocated to
the Executive by the Company under the 401(k) and Profit Sharing Plan, but would
otherwise be allocated but for the discrimination rules, the equivalent amount
that would otherwise be required or should otherwise be allocated to the
Executive's account under the 401(k) and Profit Sharing Plan of the Company
shall be allocated to the Executive directly or pursuant to the Executive's
directions. The parties agree that the Executive is 100% vested in all of his
accounts in the 401(k) and Profit Sharing Plan and Excess Benefit Plan.
f. Employee Retention Program Bonus. Executive is entitled to a bonus as
--------------------------------
<PAGE>
ordered by the United States Bankruptcy Court pursuant to the Company's
reorganization, which by the Bankruptcy Court's order is deferred until the
Company's stock traded at $8.50 per share (which has already occurred) and the
last of the restructured debts of the Company is repaid. The bonus is in the
amount of 7.5% of Executive's base salary plus interest earned thereon, and is
on deposit and held by the Company pending occurrence of the last of the
conditions precedent to payment thereof. The parties expect this bonus to become
due and payable pursuant to the terms of the Bankruptcy Court order at such time
as pending litigation pertaining to the Company's payment of certain Exchange
Notes is resolved. Executive shall receive payment of this bonus by the Company
immediately upon becoming payable pursuant to the terms of the Bankruptcy Court
order.
g. Accrued Vacation Time. Executive shall receive payment, within fifteen
---------------------
(15) days after the Effective Date, of all of Executive's unused available
prior-accrued vacation as stated in the Company's payroll records as of the date
of execution hereof, plus Executive's additional accrued vacation allocated
through the Effective Date, pursuant to the Company's standard policy, based
upon Executive's Base Salary.
h. Life Insurance; Disability Insurance. Company shall continue to provide
-------------------------------------
Executive with the life insurance and long-term disability coverage that the
Company provides for Executive as of the date of this Amendment, through January
2, 2002. Upon Executive's request and if the terms of coverage so permit, life
insurance and long term disability coverage shall be assigned to Executive after
January 2, 2002, with any continued coverage to be at Executive's expense.
i. Relocation Benefits. All relocation benefits due the Executive pursuant
-------------------
to the Company's standard policy for his 1999 move to Orlando shall be paid in
full, including any
<PAGE>
gross-up amount owed for tax purposes, within 15 days after the Effective Date
of this Amendment.
j. Effect of Executive's Death Upon Payments Provided for herein. In the
---------------------------------------------------------------
event of Executive's death prior to January 2, 2002, the Company shall be
obligated to continue making the payments described in Sections 1(c), 1(d),
2(c), 2(e), 2(g), 2(i) and 8 hereof (which shall be made to Executive's estate
or as lawfully and validly assigned by Executive's duly qualified and acting
personal representative), and to provide the health and dental insurance
benefits described in Section 2(b) hereof to Executive's spouse, if she survives
him.
k. Original Agreement Deemed Amended. To the extent that any provisions of
---------------------------------
the original Agreement, including without limitation Sections 4, 5, 9, 13, and
21 thereof, are inconsistent with the provisions of this Amendment Two, the
original Agreement is deemed amended by deletion of any and all such
inconsistent provisions and insertion of the provisions hereof.
3. Obligations Regarding Company Property.
--------------------------------------
a. Executive hereby acknowledges and agrees that all personal property and
equipment, including, without limitation, all computers, books, manuals,
records, reports, notes, contracts, lists, blueprints, and other documents, or
materials, or copies thereof (including computer files), and all other
proprietary information relating to the business of the Company, furnished to or
prepared by Executive in the course of or incident to Executive's employment as
President and CEO, belongs to the Company and shall be promptly returned to the
Company upon the Effective Date, except that Executive will be entitled to
retain and/or receive the materials and information he reasonably deems
necessary in connection with his ongoing consulting responsibilities.
<PAGE>
b. As of the Effective Date, Executive shall be deemed to have resigned
from all offices and directorships then held with the Company or any
subsidiaries or affiliates of the Company, except as is expressly provided
herein. Executive shall provide the Company with signed letters of resignation
from all such positions.
c. Notwithstanding anything herein to the contrary, and without limitation
of enforceability of other provisions of this Agreement, the covenants and
agreements of Executive contained in Sections 3, 5, 6, 7, 12 and 13 shall
expressly survive termination of Executive's employment by the Company.
d. In exchange for the Company entering into this Agreement and a mutual
release from the Company, Executive agrees (except as to the obligations of the
Company under the terms, and provisions of this Agreement) to release and
forever discharge, and by these presents for Executive's self, Executive's
heirs, successors, assigns and representatives, if any, does hereby release and
forever discharge, the Company and each of its employees, former employees,
associates, representatives, officers, directors, agents, insurers, attorneys,
successors and assigns from any and all charges, claims, grievances, demands,
obligations, agreements, rights, liabilities, damages and causes of action of
whatever kind or nature, known or unknown, foreseen or unforeseen, arising or
having arisen through the date of Executive's signature of this Agreement out of
or in any way related to Executive's employment with the Company, or relating to
any other association, contact or involvement with the Company, including but
not limited to claims based on express or implied contract (including covenants
of fair dealing and good faith), tort (including wrongful discharge), employee
benefit plans (except for (a) any contributions properly made, in accordance
with the provisions thereof, to the Company's savings and profit sharing plan,
which shall be governed by applicable law and the provisions of
<PAGE>
this Agreement, (b) the book accruals under the excess benefit plan and key
employee retirement plan, which shall be governed by such plans' terms as herein
modified, (c) the unexercised stock warrants and options granted to Executive,
as modified by this Agreement, (d) rights of indemnification granted to
Executive under the bylaws and certificate of incorporation of the Company and
any related insurance coverage, and (e) the right to continued participation in
the Company's medical plan as provided herein and under COBRA and all other
rights and entitlements of Executive under this Amendment Two), covenants of
fair dealing and good faith, wrongful discharge, the Age Discrimination in
Employment Act, Title VII of the Civil Rights Act of 1964/1991, the Civil Rights
or Human Rights Act of any State, or any other applicable federal, state or
local laws, ordinances and regulations and hereby renounces, releases and waives
any claim or right to reinstatement with the Company or to further compensation,
attorneys' fees or costs from the Company or any of its respective employees,
former employees, associates, representatives, officers, directors, agents,
insurers, attorneys, successors or assigns. It is specifically agreed that
Executive shall not be entitled to, and hereby irrevocably releases the Company
from any obligation to pay, any termination pay under this Agreement except to
the extent of the compensation and benefits expressly provided to Executive by
this Agreement.
Executive specifically agrees and acknowledges that: (v) Executive is
releasing any and all claims under the Age Discrimination in Employment Act, as
amended by the Older Workers Benefit Protection Act, arising up to and including
the Effective Date; (w) the consideration being received by Executive is greater
than normally provided by the Company's policies and in addition to anything of
value to which Executive is already entitled; (x) Executive is advised to
consult with an attorney of Executive's choice prior to the execution of this
Agreement and has consulted with an attorney with respect to this Agreement; (y)
Executive has been given an
<PAGE>
opportunity for at least twenty-one (21) days (unless waived by Executive) from
the date of presentment to decide whether or not to execute this Agreement; and
(z) Executive has seven (7) days from the execution of this Agreement to revoke
its execution. In the event of such revocation, all obligations of the Company
under this Agreement shall immediately cease and terminate.
Executive hereby acknowledges that Executive has carefully read and
understands this Agreement in its entirety, understands the contents and agrees
to the terms and conditions of Executive's own free will. Executive understands
that this Agreement is a final general release and that neither Executive, nor
anyone on Executive's behalf, can make any further claims of any kind against
the Company or any of its employees, former employees, associates,
representatives, officers, directors, agents, insurers, attorneys, successors or
assigns, having any connection with Executive's employment as President and CEO
of the Company or the events surrounding his resignation from such positions,
except as, and to the limited extent, herein expressly provided.
Executive represents that there are no complaints, charges, grievances,
actions or proceedings of any kind whatsoever that Executive, or anyone on
Executive's behalf, has filed against the Company with any local, state or
federal agency, court or tribunal, that Executive will not file or have filed on
Executive's behalf any such action at any time hereafter based on any incident,
event or fact which occurred prior to the execution of this Agreement, or which
is predicated on or arises as a result of the events resulting in Executive's
resignation from the offices of President and CEO in accordance with this
Agreement, and that if any such agency, court or tribunal assumes jurisdiction
of any complaint, grievance, charge, action or proceeding against the Company on
Executive's behalf, Executive will request such agency, court or tribunal to
withdraw from the matter.
<PAGE>
Executive is fully entitled to enter into this Agreement and represents and
warrants that Executive has not heretofore assigned or transferred or purported
to assign or transfer any right or claim hereunder. Executive represents and
acknowledges in executing this Agreement that Executive does not rely and has
not relied upon any representation or statement made by the Company or any of
its employees, former employees, associates, representatives, officers,
directors, agents, insurers, attorneys, successors or assigns with regard to the
subject matter, basis or effect of this Agreement.
Executive acknowledges and agrees that the consideration received and/or
promised hereunder for this release is good, valuable and sufficient.
e. Executive acknowledges that another release will be presented to him by
the Company upon termination of his employment on January 2, 2002, shall be
intended by the Company to meet all of the requirements of the Older Workers
Benefit Protection Act of 1990 ("OWBPA"), shall contain substantially the same
provisions as those set forth in the release contained in Section 3(d) above,
and that the Company intends for him to be furnished the rights and
opportunities provided by the OWBPA in connection with such release. Executive
shall sign such release in consideration of the payments made and provided for
herein, which Executive agrees exceed the benefits that would normally be
provided for a resigning employee pursuant to Company policies and procedures,
subject to and provided full payment of all amounts due Executive hereunder have
been paid (except for the $100,000.00 for the final Release on January 2, 2002
which shall be paid into escrow as provided hereinafter in Section 8) and
Company delivers to Executive the mutual release of liability as to Executive as
herein required on the Effective Date and January 2, 2002.
4. Denial of Violations. Executive acknowledges and agrees that the making
-------------------
of these
<PAGE>
promises by the Company in this Agreement does not mean that the Company or any
of its Related Entities or Related Persons has violated any federal or state law
or regulation, or violated any contractual or other obligation it may have to
Executive, and that any such violation expressly is denied. Rather, the Company
is making these promises solely in exchange for Executive's promises to the
Company, as contained in this Agreement.
5. Mutual Promises and Covenants. Executive also agrees that he will not
-------------------------------
engage in any conduct or make any statements which are critical of the Company,
the Related Entities, or any of the Related Persons regarding, relating to or in
connection with his employment, Employment Agreement, this Amendment Two to the
Employment Agreement and Executive's resignation from the offices of President,
CEO, and Board member of the Company; that he will not disclose any information,
knowledge or data about the Company or any of the Related Entities which has
been designated and/or treated as confidential; that he will not claim as his
own, make use of or take with him any intellectual property, including without
limitation trade secrets, trademarks, trade names and/or copyrighted material
that he developed while employed by the Company; and that he will surrender or
has surrendered to the Company as of the Effective Date all letters, papers,
documents, instruments, records, books, products, keys, charge cards,
identification cards, computer and telephone passwords and any other material
owned by the Company or used by him in the performance of his duties as
President, CEO, and Board member, except as to those documents and/or
information which Executive is expressly permitted to receive and/or retain
pursuant to the terms hereof. The Company agrees that it will not engage in any
conduct or make any statements which are critical of Executive regarding his
employment, the Employment Agreement, this Amendment Two to the Employment
Agreement, or Executive's resignation from the offices of President, CEO, and
Board member of the Company or notify or interfere
<PAGE>
with future employers of Executive, except as to a written notice to an employer
whose employment of Executive is in violation of the non-compete provisions of
this Agreement. Executive acknowledges that he will have no rights as regards
employment with or holding offices in the Company or the Related Entities, other
than as specifically and expressly provided herein. Executive further
acknowledges that he understands that this provision may not be waived, except
by Company's Board of Directors.
6. Covenant Not to Compete. Unless the Company's Board of Directors
-------------------------
determines that any of the following conduct is in the Company's best interests,
during the Term of this Agreement and for the Non-Compete Period, Executive
shall not:
(a) directly or indirectly for himself or for any other person or entity,
engage, whether as owner, investor, creditor, consultant, partner, shareholder,
director, financial backer, agent, employee or otherwise, in the business,
enterprise or employment of owning, operating, marketing or selling a
time-share, vacation plan, vacation ownership or interval ownership project
within the Territory; or
(b) directly or indirectly for himself or for any other person or entity,
sell, or otherwise procure purchasers for, any time-share, vacation plan,
vacation ownership or interval ownership project within the Territory; or
(c) have any business (as owner, investor, creditor, consultant, partner,
debtor or otherwise) or be employed in any capacity by a person or entity that
is engaged, directly or indirectly, in (i) operating, or providing sales,
marketing or development services to, a time-share, vacation plan, vacation
ownership or interval ownership project within the Territory, or (ii) in an
activity formed or entered into for the primary purpose of engaging in a
time-share, vacation plan, vacation ownership or interval ownership business
within the Territory; or
<PAGE>
(d) directly or indirectly for himself or for any other person or entity
become employed in any capacity by or otherwise render services in any capacity
to any national enterprise having time-share, vacation plan, vacation ownership
or interval ownership activities, including, without limitation, Walt Disney
Company, Hilton Hotels Corporation, Hyatt Corporation, Four Seasons Hotels and
Resorts, Inc., Marriott International, Inc., Inter-Continental Hotels and
Resorts, Inc., Promus Hotels, Inc., Sunterra Corporation, Starwood Lodging, Inc.
or Vistana, Inc. or any of their respective subsidiaries or affiliates; or
(e) directly or indirectly, for himself, or for any other person or entity,
pursue or consummate or otherwise interfere with any Existing Project; or
(f) directly or indirectly, for himself, or for any other person or entity,
pursue or consummate or otherwise interfere with any Prospective Project; or
(g) directly or indirectly, for himself, or for any other person or entity,
become employed in any capacity by or otherwise render services in any capacity
to any other person or entity (other than the Company and its subsidiaries and
affiliates) described in clause (b) of the definition of Prospective Project.
Notwithstanding the foregoing, Executive may purchase stock as a
stockholder in any publicly traded company, including any company engaged in the
timeshare or vacation ownership business; provided, however, that Executive may
not own (individually or collectively with Executive's family members, trusts
for the benefit of Executive's family members and affiliates of Executive) more
than 5% of any company (other than the Company) engaged in the timeshare or
vacation ownership business.
"Existing Project" means a time-share, vacation plan, vacation ownership or
interval ownership resort or project which the Company or any of its
subsidiaries or affiliates owns,
<PAGE>
operates, is under contract to provide property management services, is part of
the Company's FairShare Plus reservation system or has commenced to develop,
acquire or otherwise undertake as of the date Executive's employment with the
Company terminates.
"Non-Compete Period" shall mean the period commencing on the Effective Date
hereof and ending on January 2, 2002.
"Prospective Project" means (a) a prospective time-share, vacation plan,
vacation ownership or interval ownership resort or project with respect to which
Executive has actual knowledge prior to the Effective Date hereof that the
Company or any of its subsidiaries or affiliates is considering developing or
undertaking and (b) any person or entity, including its respective affiliates,
with respect to which Executive has actual knowledge prior to the Effective Date
hereof that the Company or any of its subsidiaries or affiliates has commenced
to evaluate or negotiate with in respect of any transaction involving (i) the
acquisition by the Company or any of its subsidiaries or affiliates of all or a
portion of such person or entity or its consolidated assets or (ii) the
acquisition by such person or entity (or its affiliates) of all or a portion of
the Company or its consolidated assets.
"Territory" means the total geographic area located within a 150-mile
radius of each Existing Project and each Prospective Project.
Notwithstanding the provisions set forth above, and in any other Section of
this Agreement to the contrary. Executive shall [subject to his obligation of
availability to the Company contained in Section 1(b) hereof] have the
unconditional and absolute right to serve as an officer, director, employee, or
consultant or otherwise to be involved in any manner with, or on behalf of, the
American Resort Development Association ("ARDA"), Resort Condominium
International ("RCI"), and/or Interval International ("II") and to receive
compensation therefor,
<PAGE>
and such compensation shall not in any manner affect the Company's obligations
under this Agreement. The parties agree that, as of the Effective Date, ARDA,
RCI and II are timeshare industry groups or entities devoted to general
improvement of the timeshare industry, and activities and services for the
general use and benefit of all their members, and that their activities and
services are not in violation of any of the non-compete covenants under this
Agreement. Executive's work for ARDA, RCI or II may involve assisting in their
efforts to improve the quality of timeshare products generally, or to develop
new timeshare products, marketing and sale plans or methods for general
distribution or availability to, and use and benefit of, the entire membership
of ARDA, RCI or II, or for the general use and benefit of the timeshare
industry. Executive may not work for ARDA, RCI, II, or any member thereof, or
any time share developer other than the Company, to consult or assist in the
development or operational implementation, marketing or sale of any specific
timeshare products or projects in direct competition with the Company.
In light of the substantial remuneration provided to Executive hereunder
and Executive's management position with the Company, Executive hereby
specifically acknowledges and agrees that the provisions of this Section 6
(including, without limitation, its time and geographic limits), as well as the
provisions of Sections 7, 8 and 9 and 12, are reasonable and appropriate, and
that neither the Executive nor the Company will claim to the contrary in any
action brought by the Company or the Executive to enforce or defend any of such
provisions.
7. Covenant Against Solicitation of Employees and Contractors. Executive
------------------------------------------------------------
shall not, directly or indirectly or on behalf of any person, organization,
business or enterprise with which Executive may become associated in any
capacity (whether as an employee, officer, director, consultant, investor (debt
or equity) or otherwise), during the Term of this Agreement
<PAGE>
and for the duration of the Non-Compete Period, (a) solicit or cause or suggest
that there be solicited for employment or as an independent contractor,
consultant or other service provider, or hire, any people serving on the date of
execution hereof or on the Effective Date, as employees of the Company or any of
its subsidiaries or affiliates or (b) contact or solicit or attempt to establish
a commercial relationship with any of the Company's or its subsidiaries' or
affiliates' outside providers of information systems, marketing services, OPC
locations or sales prospects, if such contact, solicitation, or commercial
relationship would be competitive to the Company.
8. Additional Consideration to be Paid by Company to Executive for Covenant
------------------------------------------------------------------------
Not to Compete, Covenant Against Solicitation of Employees and Contractors, and
- --------------------------------------------------------------------------------
Release of all Claims. In consideration of Executive's Agreement not to compete
- ---------------------
with the Company as described in Section 6 above, and not to solicit the
Company's employees and contractors as set forth in Section 7 above, the Company
agrees to pay and Executive agrees to accept a total payment of Two Hundred
Thousand ($200,000.00) Dollars, of which One Hundred Thousand ($100,000.00)
Dollars shall be paid on the Effective Date, and One Hundred Thousand
($100,000.00) Dollars shall be paid no later than March 31, 2000, provided that
Executive is not at that time in breach of, and has not breached, the
non-compete and non-solicitation covenants of this Agreement, subject to the
provisions of Section 9(b) herein. The Company shall pay into an escrow account
at BankBoston an additional sum of One Hundred Thousand ($100,000.00) Dollars,
and execute and deliver a mutual release to Executive as herein required,
simultaneously upon Executive's execution and delivery on January 2, 2002 of a
release both of which releases shall be consistent with the provisions of
Sections 3(d) and (e) herein as applicable. The escrow shall be solely
conditioned upon Executive's revocation of the release and if the applicable
period for revocation of same under applicable law expires without Executive
having revoked the
<PAGE>
release, the escrow funds shall be promptly paid by BankBoston to Executive. All
escrow costs and fees shall be paid by the Company.
9. Remedies For Breach. (a) Injunctive Relief. It is understood and agreed
-------------------
by the parties that no amount of money would adequately compensate the Company
for damages which the parties acknowledge would be suffered as a result of a
violation by Executive of the covenants contained in Sections 5, 6, 7 and 12
hereof, and that, therefore, the Company shall be entitled, upon application to
a court of competent jurisdiction, to obtain injunctive relief (without the need
to post bond or prove irreparable injury or inadequate remedy at law) to enforce
the provisions of Sections 5, 6, 7 or 12, which injunctive relief shall be in
addition to any other rights or remedies available to the Company. The
provisions of this Section shall survive the termination of this Agreement.
(b) Notice of Breach; Remedies. In the event of a breach by either party of
--------------------------
this Agreement, the other party shall, as a prerequisite to pursuit of remedies
for such breach, provide the party alleged to have breached this Agreement with
a notice describing the acts and/or omissions of the alleged breaching party
which it is contended give rise to a breach hereof, and specifying the
provisions of this Agreement alleged to have been breached. The alleged
breaching party shall have a period of thirty (30) days within which to cure any
alleged breach or otherwise provide the other party with adequate and reasonable
evidence that a breach has not occurred or reasonable assurances of performance
of this Agreement except for payment by the Company of monetary amounts such as
salary, bonus, and other amounts required hereunder which shall require only ten
(10) days notice. Neither party shall be entitled to cease or withhold its or
his performance of the terms and conditions of this Agreement, including without
limitation requirements for the payment of money and provision of benefits, and
observance of
<PAGE>
the non-compete and non-solicitation provisions hereof, based upon an alleged
breach by the other party of this Agreement, until the non-breaching party has
obtained a final judgment in its or his favor in a Court of competent
jurisdiction as provided hereinafter. Notwithstanding the foregoing, the Company
shall be entitled to withhold payment to Executive of the $100,000.00 payment
Executive would otherwise be due on March 31, 2000, in the event Executive is at
that time in breach of, or has breached prior to that time, the non-compete or
non-solicitation provisions of this Agreement, and has failed or fails to cure
such breach within the time specified after notice as provided above. Upon a
final judgment rendered by a Court of competent jurisdiction holding that the
Company breached any monetary provision or any other provision of this
Agreement, and failed to cure such breach within the time specified after notice
as provided above, Executive shall be entitled to judgment against the Company
for all sums owed by Company hereunder, including such sums as would not yet
otherwise be due and payable, without limitation of any other legal or equitable
remedies that may be available to Executive by reason of such breach, and the
non-compete and non-solicitation provisions of this Agreement shall become null
and void retroactively, and of no further force and effect. Upon a final
judgment by a Court of competent jurisdiction that the Executive breached any
provision of this Agreement, including without limitation the non-compete and
non-solicitation provisions herein, and failed to cure such breach within the
time specified after notice as provided above, the Company shall have no further
obligation to make any payments or provide any benefits hereunder, and shall be
entitled to a money judgment against the Executive for all amounts paid to
Executive by the Company after the occurrence of the breach as determined by the
Court, without limitation of any other legal or equitable remedies that may be
available to Company by reason of such breach.
<PAGE>
(c) Non-Waiver Provision. Failure of a party hereto to act to declare a
---------------------
breach of this Agreement based upon an act or omission of the other party that
would or might constitute a breach of this Agreement shall not for any purposes
be deemed a waiver of enforceability of the provision of this Agreement that may
have been breached by such act or omission, nor a waiver of the right of that
party to declare a breach of this Agreement based upon future act or omission of
the other party of the same or similar nature.
10. Other Benefits. Except as expressly provided herein, this Agreement
--------------
shall not: (a) be deemed to limit or affect the right of Executive to continue,
as an employee of the Company until January 2, 2002, to participate in any
benefit plans currently provided by the Company and in which Executive is a
participant as of the date of execution of this Amendment; or
(b) be deemed to be a waiver by Executive of any vested rights which
Executive may have under any employee benefit plan or arrangement of the
Company. The Company shall not, however, be required to include Executive as a
participant in any benefit plans presently or in the future provided by the
Company to executives or other employees, other than those in which Executive is
a participant as of the date of execution of this Amendment.
12. Confidentiality.
---------------
(a) Both parties ratify and confirm the content of the press release
initially made and disclosed to media and the public, and the announcements made
to employees of the Company pertaining to selection of the successor CEO and
Executive's resignation. Other than the press release, employee announcements
and such subsequent explanations by the Executive or the Company as either may
deem necessary as to the events leading up to selection of the
<PAGE>
successor CEO, Executive's resignation, the personal reasons for his
resignation, and that the Executive will continue to assist the Company in the
future [which explanations shall be factually accurate and shall be consistent
in all material respects with prior approved announcement(s) by the Company and
the Executive], neither party shall publicly comment upon the terms or
provisions regarding this Agreement or Executive's resignation. Notwithstanding
the foregoing to the contrary, Executive may disclose or discuss the terms of
this Agreement with his agents, representatives, advisors, and family members.
It is understood that either party may disclose this Agreement to the extent
required pursuant to any obligations under the Agreement, in pursuit of remedies
for breach of this Agreement by the other party, and in such financial
documents, operational documents, or public filings as may be required of or by
either party in compliance with generally accepted accounting principles, tax
laws, or other laws or regulations applicable to public disclosure.
(b) The provisions of Section 13 of the original Agreement shall continue
to be applicable to Executive in regard to confidentiality.
13. Legal Fees and Expenses. Section 14 of the original Agreement is
------------------------
deleted in its entirety and the following is substituted:
The Company shall pay or reimburse Executive for all reasonable attorney's
fees (at a rate of $250.00 per hour) incurred by the Executive pertaining to his
resignation as President, CEO, and Board member of the Company, including
without limitation all reasonable fees and expenses incurred in connection with
the negotiation, drafting, review, and revision of any documents pertaining to
his resignation and this Amendment Two. In the event a dispute arises between
the parties hereto and suit is instituted, the prevailing party in such
litigation shall be entitled to recover reasonable attorneys' fees and other
costs and expenses from the non-
<PAGE>
prevailing party, whether incurred at the trial level or in any appellate
proceeding, but only upon determination by the Court that the claim or defense
presented by the non-prevailing party is spurious. Each party shall bear his or
its own legal fees and expenses in the event the non-compete and/or
non-solicitation covenants are modified by the Court.
14. Withholding of Taxes. The Company may withhold from any amounts payable
--------------------
under this Agreement all federal, state, city or other taxes as the Company is
required to withhold pursuant to any law or government regulation or ruling and
shall pay Federal Employee Taxes as required by law for employees.
15. Successors and Binding Agreement.
----------------------------------
(a) The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation, reorganization or otherwise) to all or
substantially all of the business or assets of the Company, by agreement in form
and substance reasonably satisfactory to Executive, expressly to assume and
agree to perform this Agreement in the same manner and to the same extent the
Company would be required to perform if no such succession had taken place. This
Agreement will be binding upon and inure to the benefit of the Company and any
successor to the Company, including, without limitation, any persons acquiring
directly or indirectly all or substantially all of the business or assets of the
Company whether by purchase, merger, consolidation, reorganization or otherwise
(and such successor shall thereafter be deemed the "Company" for the purposes of
this Agreement), but will not otherwise be assignable, transferable or delegable
by the Company.
(b) This Agreement will inure to the benefit of and shall be enforceable by
or against Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees and legatees, and by or against
the Company and its successors and assigns.
<PAGE>
(c) This Agreement is personal in nature and neither of the parties hereto
shall, without the consent of the other, assign, transfer or delegate this
Agreement or any rights or obligations hereunder. Without limiting the
generality or effect of the foregoing, Executive's right to receive payments
hereunder will not be assignable, transferable or delegable, whether by pledge,
creation of a security interest or otherwise, other than by a transfer by
Executive's will or by the laws of descent and distribution and, in the event of
any attempted assignment or transfer contrary to this Section, the Company shall
have no liability to pay any amount so attempted to be assigned, transferred or
delegated.
16. Notices. For all purposes of this Agreement, all communications,
-------
including, without limitation, notices, consents, requests or approvals,
required or permitted to be given hereunder will be in writing and will be
deemed to have been duly given when hand delivered or dispatched by electronic
facsimile transmission (with receipt thereof orally confirmed); or five business
days after having been mailed by United States registered or certified mail,
return receipt requested, postage prepaid; or three business days after having
been sent by a nationally recognized overnight courier service such as Federal
Express, UPS or Purolator, addressed to the Company (to the attention of the
Chairman of the Company, with a copy to the General Counsel of the Company, both
at 8669 Commodity Circle, Suite 200, Orlando, Florida 32819), and to Executive
at his principal residence located at 9077 Great Heron Circle, Orlando, FL
32836, or to such other address as any party may have furnished to the other in
writing and in accordance herewith, except that notices of changes of address
shall be effective only upon receipt.
17. Validity and Construction. If any provision of this Agreement or the
--------------------------
application of any provision hereof to any person or circumstances is held
invalid, unenforceable or otherwise illegal, the remainder of this Agreement and
the application of such provision to any
<PAGE>
other person or circumstances will not be affected, and the provision so held to
be invalid, unenforceable or otherwise illegal will be reformed to the extent
(and only to the extent) necessary to make it enforceable, valid or legal
The parties have participated jointly in the negotiation and drafting of
this Agreement. In the event of an ambiguity or a question of intent or
interpretation arises, this Agreement shall be construed as if drafted jointly
by the parties hereto and no presumption or burden of proof shall arise favoring
or disfavoring either party by virtue of the authorship of any of the provisions
of this Agreement.
18. Miscellaneous. No provision of this Agreement may be modified, waived
-------------
or discharged unless such waiver, modification or discharge is agreed to in
writing signed by Executive and the Company. No waiver by either party hereto at
any time of any breach by the other party hereto or compliance with any
condition or provision of this Agreement to be performed by such other party
will be deemed a waiver of similar or dissimilar provisions or conditions at the
same or at any prior or subsequent time. No agreements or representations, oral
or otherwise, expressed or implied with respect to the subject matter hereof
have been made by either party which are not set forth expressly in this
Agreement. References to Sections are references to Sections of this Agreement.
19. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same agreement.
20. Approval. By executing this Agreement, the Company acknowledges that
--------
this Agreement has been approved by the Compensation Committee of the Board of
Directors of the Company and that no other approvals are required as a condition
precedent for this Agreement to
<PAGE>
become effective.
21. Governing Law, Venue and Jurisdiction. Section 18 of the original
----------------------------------------
Agreement is amended by deletion of the word "Arkansas" and substitution of the
word "Florida" therefor. The Venue and Jurisdiction of any legal action brought
by either party for construction, interpretation or enforcement of the original
Agreement, Amendment One, or this Amendment Two, shall be a state court of
record and of competent jurisdiction in Orange County, Florida.
22. Prior Agreements Superseded. This Agreement shall in all respects
-----------------------------
supersede all prior agreements in regard to all things and matters for which
provision is made herein, whether written or oral, between Executive and the
Company, including any existing or future adopted Company policies or procedures
with respect to separation, severance or termination pay.
23. Mutual Release. The Company and the Executive shall on January 2, 2002,
--------------
or at any other time a release is required hereunder to be provided by either
party, execute a mutual release of any and all claims each may have against the
other, except for those obligations of each party as provided under this
Amendment Two. The release shall include a waiver by Executive of any severance
pay pursuant to Section 3 of Amendment One and/or the original Agreement.
24. Director's and Officer's Insurance Coverage. The Company agrees to
----------------------------------------------
provide directors' and officers' insurance coverage for the Executive from the
time of his resignation as CEO, President and Board member for the full statute
of limitation period.
REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
dated above.
FAIRFIELD COMMUNITIES INC.
By: /s/Bryan D. Langton
---------------------------------
Bryan D. Langton, Chairman
/s/John W. McConnell
---------------------------------
JOHN W. McCONNELL
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial inforamtion extracted from the
Resgistrant's September 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 1,000
<CASH> 7,208
<SECURITIES> 0
<RECEIVABLES> 249,280
<ALLOWANCES> 16,220
<INVENTORY> 133,897
<CURRENT-ASSETS> 0
<PP&E> 54,586
<DEPRECIATION> 19,913
<TOTAL-ASSETS> 461,889
<CURRENT-LIABILITIES> 0
<BONDS> 56,206
0
0
<COMMON> 508
<OTHER-SE> 267,603
<TOTAL-LIABILITY-AND-EQUITY> 481,889
<SALES> 316,431
<TOTAL-REVENUES> 335,595
<CGS> 99,981
<TOTAL-COSTS> 116,585
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 14,456
<INTEREST-EXPENSE> 4,667
<INCOME-PRETAX> 68,620
<INCOME-TAX> 25,402
<INCOME-CONTINUING> 43,218
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 43,218
<EPS-BASIC> 0.98
<EPS-DILUTED> 0.95
</TABLE>
