==============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): July 3, 2000
Fairfield Communities, Inc.
(Exact name of Registrant as specified in its charter)
Delaware 1-8096 71-0390438
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification Number)
Suite 200, 8669 Commodity Circle, Orlando, Florida 32819
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (407) 370-5200
==============================================================================
<PAGE>
ITEM 5. Other Events.
As previously disclosed in the "Contingencies" footnote to the financial
statements contained in filings for Fairfield Communities, Inc. (the "Company")
under the Securities Exchange Act of 1934, on March 1, 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 trustee has filed a motion (the "Stock Issuance Motion") with the
District Court, which the Company initially opposed, seeking to compel
issuance of the Contested Shares and authority to sell a portion of such
shares, to permit approximately $12.3 million to be distributed in the interim
to the noteholders.
On July 3, 2000, the Company tendered 1,764,704 shares of its common
stock to the indenture trustee and indicated that it would generally withdraw
its opposition to the Stock Issuance Motion. The Company believes that it is
in the Company's best interest to conclude this litigation, to avoid the
continuing expenses and need to devote management time to the defense of this
action. The Company intends to seek return of the $7.9 Million Payment and an
order closing the case. The indenture trustee has indicated that it intends
to seek payment of its fees and expenses associated with the litigation and to
amend its complaint to allege that Fairfield's wrongful failure in 1997 to
issue the Contested Shares allows the indenture trustee to seek a cash
recovery from the Company for the reduced value of the stock. The amended
complaint has not yet been served, so the Company is unable to evaluate the
legal basis of any such claim, but expects to oppose any theory advanced by
the indenture trustee which seeks to hold the Company liable on a recourse
basis for the underlying debt obligation. 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 1,764,704 shares delivered to the indenture trustee on July 3, 2000 will
be considered outstanding for earnings per share calculations as of April 1,
2000, the beginning of the Company's second quarter of 2000.
On March 2, 2000, the Company authorized a stock repurchase program of up
to $60 million of its common stock from time to time in open market or
privately negotiated transactions. Through July 13, 2000, the Company has
repurchased 4,356,900 shares under this program. After giving effect to the
shares repurchased under this program and the shares issued in connection with
the litigation described above, the Company anticipates that the number of
shares outstanding for diluted earnings per share calculations for the second
quarter of 2000 will be approximately 43.7 million shares, as compared to
45.3 million shares outstanding for diluted earnings per share calculations
for the first quarter of 2000.
<PAGE>
ITEM 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(c) Exhibits:
Exhibit Description
------- -----------
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)
SIGNATURE
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, hereunto duly authorized.
FAIRFIELD COMMUNITIES, INC.
By: /s/Marcel J. Dumeny
Marcel J. Dumeny
Executive Vice President
Date: July 14, 2000
<PAGE>
INDEX TO EXHIBITS
Exhibit Description
------- -----------
Exhibit Description
------- -----------
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)
