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 March 31, 2000
[ ] 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 April 28, 2000 totaled 41,078,539.
<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 March 31, 2000
(unaudited) and December 31, 1999 3
Consolidated Statements of Earnings for the Three Months
Ended March 31, 2000 and 1999 (unaudited) 4
Consolidated Statements of Cash Flows for the Three
Months Ended March 31, 2000 and 1999 (unaudited) 5
Notes to Consolidated Financial Statements (unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 12
Item 3. Quantitative and Qualitative Disclosures about Market Risk 15
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 17
<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>
March 31, December 31,
2000 1999
---- ----
(Unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 8,179 $ 17,716
Receivables, net 231,454 234,061
Real estate inventories 131,614 133,874
Investments in and net amounts due
from qualifying special purpose entities 45,046 39,385
Property and equipment, net 42,995 41,578
Restricted cash 10,531 8,624
Other assets 27,289 23,398
-------- --------
$497,108 $498,636
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Financing arrangements $ 60,304 $ 53,537
Deferred revenue 23,138 23,011
Accrued income taxes 38,053 38,300
Accounts payable 35,302 38,251
Other liabilities 62,321 62,582
-------- --------
219,118 215,681
-------- --------
Stockholders' Equity:
Common stock, $.01 par value, 100,000,000
shares authorized, 50,870,125 and
50,849,153 shares issued as of
March 31, 2000 and December 31, 1999,
respectively 509 509
Paid-in capital 124,568 124,120
Retained earnings 192,290 179,576
Unamortized value of restricted stock (242) (259)
Treasury stock, at cost, 8,376,486 and
6,245,723 shares as of March 31, 2000
and December 31, 1999, respectively (39,135) (20,991)
-------- --------
277,990 282,955
-------- --------
$497,108 $498,636
======== ========
</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
March 31,
---------------------
2000 1999
---- ----
<S> <C> <C>
REVENUES
Vacation ownership interests, net $ 88,883 $72,758
Resort management 13,282 11,516
Interest 7,076 6,924
Net interest income and fees from qualifying
special purpose entities 6,047 4,434
Other 5,687 3,433
-------- -------
120,975 99,065
-------- -------
EXPENSES
Vacation ownership interests -
cost of sales 23,912 19,447
Sales and marketing 44,208 35,455
Provision for loan losses 4,084 3,622
Resort management 10,809 9,304
General and administrative 9,848 7,866
Interest, net 1,023 1,612
Depreciation and amortization 2,220 2,007
Other 4,365 3,951
-------- -------
100,469 83,264
-------- -------
Earnings before provision for income taxes 20,506 15,801
Provision for income taxes 7,792 5,867
-------- -------
Net earnings $ 12,714 $ 9,934
======== =======
Basic earnings per share $0.29 $0.23
===== =====
Diluted earnings per share $0.28 $0.22
===== =====
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic 44,037 43,879
====== ======
Diluted 45,318 45,275
====== ======
</TABLE>
See notes to consolidated financial statements.
<PAGE>
FAIRFIELD COMMUNITIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
Three Months Ended
March 31,
----------------------
2000 1999
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net earnings $ 12,714 $ 9,934
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 2,220 2,007
Provision for loan losses 4,084 3,622
Net interest income and fees from
qualifying special purpose entitites (6,047) (4,434)
Tax benefit from employee stock benefit plans 24 355
Changes in operating assets and liabilities:
Real estate inventories 2,260 (632)
Net investment activities of qualifying
special purpose entities 8,340 5,715
Deferred revenue 127 (1,043)
Accrued income taxes (198) (3,165)
Accounts payable (2,998) (9,551)
Other (4,135) (1,935)
-------- -------
Net cash provided by operating activities 16,391 873
-------- -------
INVESTING ACTIVITIES
Purchases of property and equipment, net (3,637) (1,746)
Principal collections on receivables 34,157 21,352
Originations of receivables (82,999) (49,557)
Sales of receivables to qualifying
special purpose entities 39,411 23,473
-------- --------
Net cash used in investing activities (13,068) (6,478)
-------- --------
FINANCING ACTIVITIES
Proceeds from financing arrangements 48,949 47,407
Repayments of financing arrangements (42,182) (44,209)
Activity related to employee stock benefit plans 425 669
Net (increase) decrease in restricted cash (1,907) 896
Acquisition of treasury stock (18,145) -
-------- --------
Net cash (used in) provided by
financing activities (12,860) 4,763
-------- --------
Net decrease in cash and cash equivalents (9,537) (842)
Cash and cash equivalents, beginning of period 17,716 5,017
-------- --------
Cash and cash equivalents, end of period $ 8,179 $ 4,175
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid, net of amounts capitalized $ 657 $ 1,408
======== ========
Income taxes paid $ 8,000 $ 8,676
======== ========
Capitalized interest $ 330 $ 669
======== ========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
FAIRFIELD COMMUNITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(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 home 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 vacation ownership interests and (iv)
providing property management 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 homes.
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 months
ended March 31, 2000 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, 1999.
Basis of Presentation
---------------------
The consolidated financial statements include the accounts of Fairfield and
its wholly owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation. Certain amounts in the
consolidated financial statements of prior years have been reclassified to
conform to the current year presentation.
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 Extinguishments of Liabilities", as amended, 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 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>
March 31, December 31,
2000 1999
---- ----
<S> <C> <C>
Contracts $224,566 $225,111
Mortgages and other 21,573 24,892
-------- --------
246,139 250,003
Less allowance for loan losses (14,685) (15,942)
-------- --------
Receivables, net $231,454 $234,061
======== ========
</TABLE>
During the three months ended March 31, 2000 and 1999, the Company sold
$47.4 million and $28.2 million, respectively, of contracts receivable to the
QSPEs. In conjunction with these sales, the Company received non-cash
consideration, primarily in the form of a subordinated note receivable, of $8.0
million and $4.7 million during the three months ended March 31, 2000 and 1999,
respectively. At March 31, 2000 and December 31, 1999, the QSPEs held contracts
receivable totaling $243.3 million and $225.9 million, respectively, with
related borrowings of $200.6 million and $187.6 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 March
31, 2000 and December 31, 1999, this allowance totaled $14.6 million and $14.5
million, respectively, and was classified in "Investments in and net amounts due
from qualifying special purpose entities" in the Consolidated Balance Sheets.
NOTE 3 - REAL ESTATE INVENTORIES
- ------ -----------------------
Real estate inventories are summarized as follows (In thousands):
<TABLE>
March 31, December 31,
2000 1999
---- ----
<S> <C> <C>
Land and improvements $ 35,741 $ 35,581
Residential housing:
Vacation ownership 90,331 93,207
Homes 5,542 5,086
-------- --------
95,873 98,293
-------- --------
$131,614 $133,874
======== ========
</TABLE>
NOTE 4 - FINANCING ARRANGEMENTS
- ------ ----------------------
Financing arrangements are summarized as follows (In thousands):
<TABLE>
March 31, December 31,
2000 1999
---- ----
<S> <C> <C>
Revolving credit agreements $19,018 $ 9,300
Notes payable collateralized
by contracts receivable 27,496 30,338
Notes payable - other 13,790 13,899
------- -------
$60,304 $53,537
======= =======
</TABLE>
At March 31, 2000, the Company's 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 credit, of which
$10.1 million was outstanding at March 31, 2000) 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
<PAGE>
minus .75% (weighted average stated interest rate of 8.0% at March 31, 2000). At
March 31, borrowing availability Credit Agreements totale $70.8 million.
At March 31, 2000, borrowings collateralized by contracts receivable had a
weighted average maturity of approximately 32 months, which represents the
approximate remaining weighted average life of the underlying contracts
receivable. The weighted average stated interest rate on the borrowings was
5.94% at March 31, 2000. At March 31, 2000, contracts receivable totaling $34.4
million collateralized the borrowings. There are no additional fundings
available under this financing arrangement.
At March 31, 2000, notes payable - other consisted primarily of (i) a $5.0
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 9).
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
March 31,
--------------------
2000 1999
---- ----
<S> <C> <C>
Numerator:
Net earnings - numerator for
basic and diluted EPS $ 12,714 $ 9,934
======== =======
Denominator:
Denominator for basic EPS -
weighted average shares 44,037 43,879
Effect of dilutive securities:
Options and warrants 953 1,021
Common stock held in escrow 303 375
Restricted common stock 25 -
-------- -------
Dilutive potential common shares 1,281 1,396
-------- -------
Denominator for diluted EPS -
adjusted weighted average
shares and assumed conversions 45,318 45,275
====== ======
Basic earnings per share $0.29 $0.23
===== =====
Diluted earnings per share $0.28 $0.22
===== =====
</TABLE>
NOTE 6 - SEGMENT DISCLOSURES
- ------ -------------------
The Company operates one reportable business 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 $105.7 million and $86.0 million for the three
months ended March 31, 2000 and 1999. A reconciliation of segment operating
profit to consolidated earnings before income taxes is as follows:
<TABLE>
Three Months Ended
March 31,
---------------------
2000 1999
---- ----
<S> <C> <C>
Total segment operating profit $28,271 $23,286
Other operating loss (7,765) (7,485)
------- -------
Consolidated earnings before income taxes $20,506 $15,801
======= =======
</TABLE>
Other operating loss includes primarily general and administrative
expenses, which are not allocated on a segment basis.
<PAGE>
NOTE 7 - SUPPLEMENTAL INFORMATION
- ------ ------------------------
On January 23, 2000, the Company entered into a letter of intent with
Carnival Corporation ("Carnival") for a proposed business combination of the
Company and Carnival by a merger of the Company and a subsidiary of Carnival. On
February 25, 2000, the Company and Carnival announced their mutual decision to
terminate the strategic merger of the companies without any liability by the
Company to Carnival. The Company incurred legal, accounting and various other
costs in anticipation of and preparation for the proposed merger. These costs,
totaling approximately $0.3 million, were charged to "General and
Administrative" expenses in the first quarter of 2000.
Included in other assets at March 31, 2000 and December 31, 1999 are (i)
costs in excess of net assets acquired of $4.1 million and $4.5 million,
respectively, (ii) prepaid assets of $5.5 million and $5.4 million,
respectively, and (iii) unamortized capitalized financing costs totaling $2.5
million and $2.8 million, respectively.
Included in other liabilities at March 31, 2000 and December 31, 1999 are
(i) accruals totaling $13.7 million and $17.2 million, respectively, related to
the Company's employee compensation programs and related benefits, (ii) accruals
totaling $10.9 million and $11.1 million, respectively, for the fulfillment
costs associated with the Company's Discovery Vacations program, and (iii)
deposits associated with sales contracts totaling $9.2 million and $7.7 million,
respectively.
Other revenues for the three months ended March 31, 2000 and 1999 include
home sales revenue totaling $2.7 million and $2.1 million, respectively, and lot
sales revenue totaling $1.1 million and $0.6 million, respectively. Other
expenses for the three months ended March 31, 2000 and 1999 include costs of
home sales, including selling expenses, of $2.4 million and $1.9 million,
respectively, and accrued subsidies for certain property owners' associations
totaling $0.6 million and $1.2 million, respectively.
NOTE 8 - STOCKHOLDERS' EQUITY
- ------ --------------------
On March 2, 2000, Fairfield's Board of Directors authorized the repurchase
of up to $60.0 million of Common Stock in open market or privately negotiated
transactions. As of April 28, 2000, Fairfield had repurchased $29.7 million of
its Common Stock utilizing availability under its revolving credit agreements.
The repurchased shares, totaling 3.6 million, were accounted for as treasury
shares and will be used to meet the Company's obligations under its employee
stock-based plans or for other corporate purposes. Additional repurchases may
occur from time to time and are subject to prevailing market conditions and
other considerations.
NOTE 9 - CONTINGENCIES
- ------ -------------
During 1993, two lawsuits, the Storm and the Daleske cases (the "Recreation
Fee Litigation") were filed against Fairfield in the District Court of Archuleta
County, Colorado. The Recreation Fee Litigation, which seeks certification as
class actions, alleges that Fairfield wrongfully imposed an annual recreation
fee on owners in Fairfield's Pagosa, Colorado development. The Recreation Fee
Litigation seeks, among other things, refund, with interest, of recreation fees
collected by Fairfield (estimated to total in excess of $800,000), damages,
punitive damages and attorneys' fees. Two additional related lawsuits were
subsequently filed in the Archuleta County District Court: the Fiedler case,
filed in October 1994, concerns two lots, while the Lobdell case, filed in
November 1994, is a purported class action. By orders dated June 19, 1998, the
Colorado District Court generally denied plaintiffs' motions for summary
judgments and granted Fairfield's motions for summary judgments in all of the
cases. Fairfield has filed motions seeking payment of past due recreation fees,
plus interest and attorneys' fees and expenses.
In 1993, Charlotte T. Curry, who purchased a lot from Fairfield under an
installment sale contract subsequently sold to First Federal Savings and Loan
Association of Charlotte ("First Federal"), previously a wholly-owned subsidiary
of Fairfield, filed suit against First Federal, initially alleging breach of
contract, breach of fiduciary duty and unfair trade practices. The litigation
contested Fairfield's method of calculating refunds for lot purchasers whose
installment sale contracts were cancelled due to their defaults. The Curry
lawsuit sought damages, punitive damages, treble damages under North Carolina
law for unfair trade practices, prejudgment interest and attorneys' fees and
costs. By order dated July 6, 1994, the court dismissed most claims, primarily
based on statutes of limitations, except for the claim asserting unfair trade
practices. By order filed September 15, 1995, the court denied plaintiff's
motion for class certification, which decision was upheld by the North Carolina
Court of Appeals, with the Supreme Court of North Carolina declining to grant
discretionary review. In April 1998, Ms. Curry dismissed the lawsuit. On January
7, 1998, the plaintiff's attorneys filed another lawsuit (the Scarvey lawsuit),
currently pending in
<PAGE>
Superior Court in Mecklenburg County, North Carolina, as a purported class
action, against First Federal, alleging matters similar to the original
complaint in the Curry case and seeking similar damages. The Scarvey case seeks
to relitigate the North Carolina courts' refusal to certify the Curry case as a
class action and asserts that the Curry case tolled the statute of limitations
for Ms. Scarvey's claims, which are alleged to post-date Ms. Curry's claims. The
court, by order and opinion dated February 23, 2000, determined that the Scarvey
claims are collaterally estopped from proceeding on a class action basis and
that Ms. Scarvey's claims are barred by the applicable statutes of limitations.
Ms. Scarvey filed a motion seeking reconsideration of the court's February 23,
2000 decision, which was denied, and has filed a notice of appeal from the
court's decision. Under the Stock Purchase Agreement for the sale of First
Federal, Fairfield agreed to indemnify the buyer against any liability in the
Curry litigation. Fairfield does not believe that it is obligated under the
Stock Purchase Agreement to indemnify the buyer of First Federal for the Scarvey
litigation, but the buyer has filed a third party action against Fairfield
contesting Fairfield's interpretation of the Stock Purchase Agreement and
asserting other common law and statutory grounds for indemnification.
During 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 with the District Court, which the Company
has 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.
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, in the event of an adverse decision on the outstanding issues
by the District Court on remand, its maximum exposure in this litigation, in
excess of amounts accrued, would not exceed $4.0 million, plus any applicable
accrued interest and fees.
During 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
<PAGE>
also alleges that Vacation Break breached its contract with MRG&L, that Vacation
Break misappropriated proprietary information from MRG&L and that Vacation Break
interfered with, and caused other companies to breach their contracts with
MRG&L. While the Company cannot calculate the total amount of damages sought by
MRG&L, it appears from the initial complaint, and subsequent submissions by
MRG&L's counsel, to be substantially in excess of $50.0 million.
On June 2, 1998, Vacation Break filed a separate action in federal District
Court for the Middle District of Florida, Tampa Division, asserting various
antitrust tying and other claims against MRG&L and related parties. On April 7,
1999, the federal District Court denied MRG&L's motion for judgment on the
pleadings, without prejudice to MRG&L's right to refile such motion following
Vacation Break's amendment of its complaint in that action. MRG&L has asserted
in the federal action similar counterclaims as the claims alleged in the state
court action. Under the terms of the Principal Stockholders Agreement, entered
into in connection with the acquisition of Vacation Break, Fairfield has been
indemnified for (a) 75% of the damages which may be incurred in connection with
the defense of the MRG&L litigation and (b) 25% of the expense incurred in
defending the MRG&L litigation, in excess of the June 30, 1997 reserve on
Vacation Break's books, with the maximum amount of indemnification to be $6.0
million. Such indemnification agreement has been collateralized by, and recourse
under the indemnity agreement is limited to, the pledge of shares of Fairfield's
Common Stock, valued as of December 18, 1997 (adjusted for stock splits and
certain other similar items), at an indemnification value of $21.59375 per
share, and the proceeds thereof. Any shares of Common Stock the Company receives
under the indemnification agreement will reduce the number of shares
outstanding. The amount of any settlement, adverse judgment or defense costs, in
excess of amounts accrued, would be charged to operations, notwithstanding the
availability of indemnification under the Principal Stockholders Agreement.
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
Fairfield Communities, Inc. ("Fairfield," and together with its
consolidated subsidiaries, the "Company") currently owns and/or operates 33
resorts located in 12 states and the Bahamas. Of these resorts, which are in
various stages of development, 23 are located in destination areas with popular
vacation attractions and 10 are located in scenic regional locations. During the
second quarter of 1999, the Company began sales operations on a start-up basis
at its six newest destination resorts to be developed 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 months ended March 31, 2000 and 1999, respectively.
<TABLE>
Three Months Ended
March 31,
---------------------
2000 1999
---- ----
<S> <C> <C>
As a percentage of total revenues:
Vacation ownership interests, net 73.5% 73.4%
Resort management 11.0 11.6
Interest income 5.8 7.0
Net interest income and fees
from qualifying special purpose
entities 5.0 4.5
Other revenue 4.7 3.5
----- -----
100.0% 100.0%
===== =====
As a percentage of related revenues:
Cost of sales - vacation
ownership interests 26.9% 26.7%
Resort management 81.4% 80.8%
Sales and marketing 49.1% 48.3%
Provision for loan losses 4.5% 4.9%
As a percentage of total revenues:
General and administrative 8.1% 7.9%
Depreciation and amortization 1.8% 2.0%
Other expense 3.6% 3.9%
</TABLE>
Vacation Ownership
------------------
Gross revenues from vacation ownership interests ("VOIs") increased 23.4%
to $89.0 million for the three months ended March 31, 2000 as compared to $72.1
million for the three months ended March 31, 1999. Gross VOI revenues at the
Company's destination resorts continue to be the largest dollar contributor to
total VOI sales, accounting for 76.3% and 81.2% of total VOI revenues for the
three months ended March 31, 2000 and 1999, respectively. Management anticipates
that these revenue growth trends will continue throughout 2000 due to the
addition of the destination resorts noted above.
Net VOI revenues increased 22.1% to $88.9 million for the three months
ended March 31, 2000 from $72.8 million for the three months ended March 31,
1999. Net VOI revenue growth trends were affected by the same factors that
impacted gross VOI revenue growth trends as well as net revenue deferral of $0.1
million during the three months ended March 31, 2000, related to the percentage
of completion method of accounting, as compared to net revenue recognition of
$0.6 million during the three months ended March 31, 1999. 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 March
31, 2000, the Company had deferred revenue totaling $6.8 million, which will be
recognized upon completion of the respective VOI units.
<PAGE>
The following table reconciles VOI sales recorded to VOI revenues
recognized for the respective periods (In thousands):
<TABLE>
Three Months Ended
March 31,
--------------------
2000 1999
---- ----
<S> <C> <C>
Vacation ownership interests $88,982 $72,148
Add: Deferred revenue at beginning of period 6,724 8,225
Less: Deferred revenue at end of period (6,823) (7,615)
------- -------
Vacation ownership interests, net $88,883 $72,758
======= =======
</TABLE>
Sales and marketing expenses, as a percentage of related net revenues, were
49.1% and 48.3%, for the three months ended March 31, 2000 and 1999,
respectively. Exclusive of the Company's six newest destination resorts (all of
which began "start-up" operations in the second quarter of 1999), sales and
marketing expenses, as a percentage of related net revenues, were 46.8% for the
three months ended March 31, 2000. New sales operations typically experience
lower operating margins in the start-up phase of operations as the Company
develops its property owner base and establishes sales and marketing programs
for each new location.
The provision for loan losses, as a percentage of related net revenues,
decreased to 4.5% for the three months ended March 31, 2000 as compared to 4.9%
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 15.3% to $13.3 million for the three
months ended March 31, 2000 from $11.5 million for the three months ended March
31, 1999. This increase is primarily due to the (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 respective 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 for the Company (including its QSPEs) increased 24.7%
to $12.1 million for the three months ended March 31, 2000, as compared to $9.7
million for the same period in 1999. This increase is primarily attributable to
(i) an increase in the average balance of outstanding contracts receivable
($450.5 million for the three months ended March 31, 2000 as compared to $370.7
million for the three months ended March 31, 1999) and (ii) a shift in funding
sources from the Company's financing arrangements to the credit facilities of
the QSPEs, which carry a lower weighted average cost of funds.
The Company uses interest rate caps, interest rate swaps or similar
instruments on a limited basis 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 these
instruments 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,
remained basically flat for the three months ended March 31, 2000 as compared to
the three months ended March 31, 1999. Included in general and administrative
expenses for the three months ended March 31, 2000 are costs totaling $0.3
million related to the terminated merger with Carnival. The Company anticipates
that general and administrative expenses, in absolute dollars, will increase as
the Company continues to invest in its management and organizational
infrastructure, in addition to its information technology infrastructure, in
order to more efficiently manage its anticipated VOI sales growth.
<PAGE>
Other
-----
Other revenues for the three months ended March 31, 2000 and 1999 include
home sales revenue totaling $2.7 million and $2.2 million, respectively, and lot
sales revenue totaling $1.1 million and $0.6 million, respectively. Other
expenses for the three months ended March 31, 2000 and 1999 include cost of home
sales, including selling expenses, totaling $2.4 million and $2.1 million,
respectively, and accrued subsidies for certain property owners' associations
totaling $0.6 million and $1.2 million, respectively.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2000, the Company's cash and cash equivalents totaled $8.2
million, a decrease of $9.5 million from December 31, 1999. Cash provided by
operating activities totaled $16.4 million for the three months ended March 31,
2000 compared to cash provided by operating activities of $0.9 million for the
three months ended March 31, 1999. The fluctuation in cash provided by operating
activities is a result of payments made for construction costs for the Company's
Myrtle Beach property during the three months ended March 31, 1999.
Cash used in investing activities totaled $13.1 million for the three
months ended March 31, 2000 compared to cash used in investing activities of
$6.5 million for the three months ended March 31, 1999. 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
$48.8 million for the three months ended March 31, 2000, as compared to $28.2
million for the three months ended March 31, 1999. For the three months ended
March 31, 2000 and 1999, the Company received $39.4 million and $23.5 million,
respectively, in cash from the sale of contracts receivable to the QSPEs.
Cash used in financing activities totaled $12.9 million for the three
months ended March 31, 2000 compared to cash provided by financing activities of
$4.8 million for the three months ended March 31, 1999. During the three months
ended March 31, 2000, proceeds of financing arrangements exceeded repayments by
$6.8 million. During the three months ended March 31, 1999, proceeds of
financing arrangements exceeded repayments by $3.2 million.
On March 2, 2000, Fairfield's Board of Directors authorized the repurchase
of up to $60.0 million of Common Stock in open market or privately negotiated
transactions. As of April 28, 2000, Fairfield had repurchased $29.7 million of
its Common Stock utilizing availability under its revolving credit agreements.
The repurchased shares, totaling 3.6 million, were accounted for as treasury
shares and will be used to meet the Company's obligations under its employee
stock-based plans or for other corporate purposes. Additional repurchases may
occur from time to time and are subject to prevailing market conditions and
other considerations.
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 intends to finance its short- and long-term cash needs, including
potential acquisitions and the stock repurchase program, 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.
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) and mature in October 2001. At March
31, 2000, borrowing availability under the Credit Agreements totaled $70.8
million.
At March 31, 2000, Fairfield Capital Corporation ("FCC"), a wholly owned
subsidiary of FAC - Nevada, had outstanding borrowings of $27.5 million, which
provide for the purchase of contracts receivable from FAC - Nevada. At March 31,
2000, contracts receivable totaling $34.4 million collateralized the borrowings.
There are no additional fundings available under this financing arrangement.
<PAGE>
Credit Facilities of Qualifying Special Purpose Entities
--------------------------------------------------------
The credit facilities of the QSPEs provide for borrowings of up to
approximately $300.0 million for the purchase of contracts receivable from FAC -
Nevada. At March 31, 2000, the QSPEs held $240.7 million of contracts
receivable, with $200.6 million of related borrowings.
Interest Rate Risk
------------------
The Company uses interest rate swap agreements to mitigate the impact of
fluctuations in market rates of interest. If market interest rates increased two
hundred basis points for the three months ended March 31, 2000 and 1999, the
Company's interest expense, after considering the effects of its interest rate
swap agreements, would increase, net interest income and fees from the QSPEs
would decrease and earnings before provision for income taxes would decrease by
$1.8 million and $1.7 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.
Provision for 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 these 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 three months ended March 31,
2000 and 1999, the Company made AMT payments totaling $8.0 million and $8.3
million, respectively, and anticipates that it will continue to make significant
AMT payments in future periods.
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. Such 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.
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; an increase or
decrease in the number of resort properties subject to the
percentage-of-completion method of accounting which requires deferral of sales
and profit on such projects to the extent that the construction is not
substantially complete; shifts in customer demands; changes in operating
expenses, including employee wages, commission structures and related benefits;
economic cycles; the risk of the Company incurring an unfavorable judgment in
any litigation or audit, and the impact of any related monetary or equity
damages; 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 operations.
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 Results of
- --------------------------------------------------------------------------------
Operations in Item 2 above.
- ----------
<PAGE>
PART II - OTHER INFORMATION
- ------- -----------------
Item 1 - Legal Proceedings
Incorporated by reference (see Note 9 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
-------------------
On January 24, 2000, the Company announced the signing of a letter of
intent with Carnival Corporation ("Carnival") for a proposed business
combination of the Company and Carnival by a merger of the Company and
a subsidiary of Carnival.
<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: May 12, 2000 /s/Robert W. Howeth
----------------- ---------------------------------------------
Robert W. Howeth, Executive Vice President
and Chief Financial Officer
Date: May 12, 2000 /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 First Amendment to Pledge and Servicing Agreement between Fairfield
Funding Corporation II, Fairfield Acceptance Corporation - Nevada,
Fairfield Communities, Inc., First Security Bank, N.A. and BankBoston,
N.A., dated October 31, 1998 (attached)
10.2 Option Agreement between the Registrant and James G. Berk entered into
on October 1, 1999 (attached)
10.3 Option Agreement between the Registrant and James G. Berk entered into
on January 3, 2000 (attached)
10.4 Second Amendment to Pledge and Servicing Agreement between Fairfield
Funding Corporation II, Fairfield Acceptance Corporation - Nevada,
Fairfield Communities, Inc., First Security Bank, N.A. and Fleet
National Bank, formerly BankBoston, N.A., dated March 15, 2000
(attached)
10.5 Option Agreement between the Registrant and Matthew J. Durfee entered
into on March 27, 2000 (attached)
27 Financial Data Schedule (attached)
FIRST AMENDMENT
TO
PLEDGE AND SERVICING AGREEMENT
THIS FIRST AMENDMENT TO PLEDGE AND SERVICING AGREEMENT ("Agreement"),
dated as of October 31, 1998, amends and modifies that certain Pledge and
Servicing Agreement, dated as of July 31, 1998 (the "Pledge Agreement"), by and
among Fairfield Funding Corporation, II, a Delaware corporation, Fairfield
Acceptance Corporation - Nevada, a Delaware corporation in its capacity as
Servicer thereunder, Fairfield Communities, Inc., a Delaware corporation, First
Security Bank, National Association, as Trustee and BankBoston, N.A. as
Collateral Agent, and is joined in by the Noteholders for the sole purpose of
evidencing their consent hereto.
WHEREAS, the parties to the Purchase Agreement have agreed and
consented to make a clarifying change to the Pledge Agreement in order to
reflect their understanding regarding the practical application and operation of
said agreement;
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. Capitalized terms used but not otherwise defined herein shall have the
meanings ascribed to them in the Pledge Agreement.
2. The language beginning on the fourth line of Section 2.4 of the Pledge
Agreement which reads "...equal to the aggregate amount then on deposit in the
Reinvestment Account..." is hereby amended to read "...equal to the aggregate
amount on deposit in the Reinvestment Account as of such Payment Date...."
3. Except as expressly provided in this Agreement, all of the terms and
conditions of the Pledge Agreement shall remain in full force and effect.
4. This Agreement shall be governed by, and construed in accordance with,
the laws of the State of Nevada.
5. This Agreement 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.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
FAIRFIELD FUNDING CORPORATION, II
By:/s/ Ralph E. Turner
---------------------------------
Name: Ralph E. Turner
Title: President
FAIRFIELD ACCEPTANCE CORPORATION-
NEVADA
By:/s/Ralph E. Turner
---------------------------------
Name: Ralph E. Turner
Title: President
FAIRFIELD COMMUNITIES, INC.
By:/s/Robert W. Howeth
---------------------------------
Name: Robert W. Howeth
Title: Senior Vice President
FIRST SECURITY BANK NATIONAL
ASSOCIATION, as Trustee
By:/s/Francine Schartz
----------------------------------
Name: Francine Schartz
Title: Vice President
BANKBOSTON, N.A., as Collateral Agent
By:/s/Amy Roberts
----------------------------------
Name: Amy Roberts
Title: Director
<PAGE>
Consented to as of the date first written above.
JOHN HANCOCK MUTUAL LIFE
INSURANCE COMPANY
By:/s/Bruce Martin
---------------------------------
Name: Bruce Martin
------------------------------
Title: Investment Officer
INVESTORS PARTNER LIFE INSURANCE
COMPANY
By:/s/Francis X. Felcon
---------------------------------
Name: Francis X. Felcon
------------------------------
Title: Second Vice President
JOHN HANCOCK VARIABLE LIFE
INSURANCE COMPANY
By:/s/Francis X. Felcon
---------------------------------
Name: Francis X. Felcon
------------------------------
Title: Second Vice President
<PAGE>
CONNECTICUT GENERAL LIFE
INSURANCE COMPANY
By: CIGNA INVESTMENTS, INC.
By:/s/David M. Cass
---------------------------------
Name: David M. Cass
------------------------------
Title: Vice President
CONNECTICUT GENERAL LIFE
INSURANCE COMPANY
ON BEHALF OF ONE OR MORE
SEPARATE ACCOUNTS
By: CIGNA INVESTMENTS, INC.
By:/s/David M. Cass
---------------------------------
Name: David M. Cass
------------------------------
Title: Vice President
FAIRFIELD COMMUNITIES, INC.
OPTION AGREEMENT
----------------
WHEREAS, James G. Berk (hereinafter called the "Participant") is a key
employee of Fairfield Communities, Inc., a Delaware corporation ("FCI"); and
WHEREAS, as part of its compensation programs, FCI has available for award
to key employees of FCI and its Subsidiaries options to purchase shares of FCI's
Common Stock pursuant to the terms of its Third Amended and Restated 1997 Stock
Option Plan (a copy of which is attached hereto as Exhibit A) (the "Plan"); and
WHEREAS, the grant of this Option to the Participant and the execution of
an Option Agreement in the form hereof have been duly authorized by the
Compensation Committee of FCI's Board of Directors, to become effective on the
Date of Grant (as defined below);
NOW, THEREFORE, effective as of the Date of Grant, FCI grants to the
Participant an Option pursuant to the Plan to purchase 300,000 shares of Common
Stock at a price equal to $13.10 per share, subject to adjustment in certain
circumstances as provided below or pursuant to the Plan, and agrees to cause
certificates for any shares purchased hereunder to be delivered to the
Participant upon payment of the aggregate Option Price in full and any
withholding taxes, all subject, however, to the terms and conditions hereinafter
set forth. Capitalized terms used in this Agreement that are not otherwise
defined in this Agreement are used as defined in the Plan.
1. The "Date of Grant" is October 1, 1999.
2. This Option shall become exercisable to the extent of 25% of the shares
hereinabove specified on each of the first, second, third and fourth anniversary
dates of the Date of Grant; provided, that, the Participant has remained in
continuous service from and after the Date of Grant as, and is, on such
anniversary date, an employee of FCI, and further provided, that, this Option
shall become exercisable to the extent of 100% of the shares hereinabove
specified in the event that (a) subject to the limitation provided below, a
"Change in Control" occurs at such time as Participant is employed by FCI, and
has remained in continuous service from and after the Date of Grant, or (b)
Participant's employment by FCI is terminated (i) by FCI without "Cause" (other
than due to death or "Disability", as defined in Participant's Employment
Agreement dated August 31, 1999, including satisfaction of the procedures
therein described for determining whether a "Disability" exists) or (ii) by
Participant due to "Constructive Discharge", with the terms "Cause" and
"Constructive Discharge" to have the respective meanings attributed to such
terms in Participant's Employment Agreement dated August 31, 1999 (including
<PAGE>
satisfaction of the procedures therein described for determining whether proper
grounds exist to claim "Cause" or "Constructive Discharge"). The term "Change in
Control" shall mean the happening of any of the following:
(w) During any period of 24 consecutive months, ending after the date
hereof:
(i) individuals who were directors of FCI at the beginning of such
24-month period, and
(ii) any new director whose election or nomination for election by the
Board of Directors was approved by a vote of the greater of (A) at least
two-thirds (2/3), or (B) four affirmative votes, in each case, of the
directors then still in office who were either directors at the beginning
of such 24-month period or whose election or nomination for election was
previously so approved
cease for any reason to constitute a majority of the Board of Directors of FCI;
(x) Any person or entity (other than FCI or its Subsidiary employee benefit
plan or plans or any trustee of or fiduciary with respect to such plan or plans
when acting in such capacity), or any group acting in concert, shall
beneficially own, directly or indirectly, more than fifty percent (50%) of the
total voting power represented by the then outstanding securities of FCI
entitled to vote generally in the election of directors ("Voting Securities");
(y) Upon a merger, combination, consolidation or reorganization of FCI,
other than a merger, combination, consolidation or reorganization which would
result in (i) the Voting Securities of FCI outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into Voting Securities of the surviving entity) at least 50% of the voting power
represented by the Voting Securities of FCI or such surviving entity outstanding
immediately after such transaction and (ii) at least such 50% of voting power
continuing to be held in the aggregate by the holders of the Voting Securities
of FCI immediately prior to such transaction (conditions (i) and (ii) are
referred to as the "Continuance Conditions"); or
(z) All or substantially all of the assets of FCI are sold or otherwise
disposed of, whether in one transaction or a series of transactions, unless the
Continuance Conditions shall have been satisfied with respect to the purchaser
of such assets and such purchaser assumes FCI's obligations under this Option.
Notwithstanding any provision of this Option to the contrary, if any amount
or benefit to be paid or provided under this Option would be an "Excess
Parachute Payment", within the meaning of Section 280G of the Internal Revenue
Code of 1986, as amended (the "Code"), or any successor provision thereto, but
for the application of this sentence, then the payments and benefits to be paid
or provided under this Option shall be reduced to the minimum extent necessary
(but in no event to less than zero) so that no portion of any
<PAGE>
such payment or benefit, as so reduced, constitutes an Excess Parachute Payment;
provided, however, that the foregoing reduction shall be made only if and to the
extent that such reduction would result in an increase in the aggregate payment
and benefits to be provided, determined on an after-tax basis (taking into
account the excise tax imposed pursuant to Section 4999 of the Code, or any
successor provision thereto, any tax imposed by any comparable provision of
state law, and any applicable federal, state and local income taxes). The
determination of whether any reduction in such payments or benefits to be
provided under this Option or otherwise is required pursuant to the preceding
sentence shall be made at the expense of FCI, if requested by Participant or
FCI, by FCI's independent accountants. The fact that Participant's right to
payments or benefits may be reduced by reason of the limitations contained in
this paragraph shall not of itself limit or otherwise affect any other rights of
Participant other than pursuant to this Option. In the event that any payment or
benefit intended to be provided under this Option or otherwise is required to be
reduced pursuant to this paragraph, Participant shall be entitled to designate
the payments and/or benefits to be so reduced in order to give effect to this
paragraph. FCI shall provide Participant with all information reasonably
requested by Participant to permit Participant to make such designation. In the
event that Participant fails to make such designation within 10 business days
following the date of an occurrence of a "Change in Control", FCI may effect
such reduction in any manner it deems appropriate.
To the extent exercisable, this Option may be exercised in whole or in part
from time to time, subject to the time limitations set forth in paragraph 4
below.
3. The Option shall be exercised by delivery to the Secretary of FCI of
both (a) an originally signed, irrevocable written notice of exercise of the
number of shares being purchased (which shall not exceed the number of shares
exercisable pursuant to paragraph 2 above), specifying a lawful rate of
withholding for any federal, state, local and any other income taxes, and (b)
full payment of the Option Price. The Option Price shall be payable in cash or
by check acceptable to FCI. In addition, the Participant shall be required to
satisfy any taxes required or requested to be withheld in the manner provided in
the first sentence of Paragraph 7 of the Plan prior to delivery of any share
certificates.
4. This Agreement shall automatically expire on the earliest of (a) ten
years from the Date of Grant (the "Specified Term") or (b) immediately following
the lapsing of either of the exercise periods specified in subparagraphs (i) or
(iii) below or (c) upon the occurrence of the circumstances described in
subparagraph (ii) below.
(i) If the Participant dies while an employee of FCI or its Subsidiary
during the Specified Term, the Option shall be exercisable by the proper duly
qualified and empowered executor, administrator, legatee or distributee of the
Participant's estate only during the three hundred and sixty-five (365) calendar
days following his or her death, but in no event after the expiration of the
Specified Term.
(ii) If the Participant ceases to be an employee of FCI or its Subsidiary
due to discharge for "Cause", or resignation in anticipation of a discharge for
"Cause", then the
<PAGE>
Option shall not be exercisable. The term "Cause" shall have the meaning
provided in Participant's Employment Agreement dated August 31, 1999 (including
the procedures therein described for determining whether proper grounds exist to
claim "Cause").
(iii) If the Participant ceases to be an employee of FCI or its Subsidiary
for any reason other than death or discharge for "Cause" or resignation in
anticipation of discharge for "Cause", the Option shall be exercisable by the
Participant only during the ninety (90) calendar days following such
termination, but in no event after the expiration of the Specified Term.
Only shares for which this Option is exercisable under paragraph 2 hereof at the
time of the Participant's death or at such other time as the Participant ceases
to be an employee of FCI or its Subsidiary, other than by reason of discharge
for "Cause" or resignation in anticipation of discharge for "Cause", may be
exercised under subparagraphs (i) or (iii) above, as the case may be.
5. This Option is not transferable or exercisable other than by will or the
laws of descent and distribution. This Option may only be exercisable during the
Participant's lifetime by the Participant or by his or her guardian or legal
representative.
6. Adjustments shall be made in the Option Price and in the number or kind
of shares of Common Stock or other securities covered by this Option pursuant to
Paragraph 6 of the Plan.
7. Upon each exercise of this Option and satisfaction of the conditions for
issuance, FCI as promptly as practicable shall mail or deliver to the
Participant a stock certificate or certificates representing the shares then
purchased, and shall pay all stamp taxes payable in connection therewith. The
issuance of such shares and delivery of the certificate or certificates therefor
shall, however, be subject to any delay necessary to complete (a) the listing of
such shares on any stock exchange upon which shares of the same class are then
listed and (b) such registration or qualification of such shares under any state
or federal law, rule or regulation as FCI may determine to be necessary or
advisable.
8. Neither the Participant nor any of the Participant's beneficiaries or
legal representatives will be deemed to have any rights as a stockholder with
respect to any shares covered by this Agreement until the issuance of a
certificate to the Participant evidencing such shares.
9. This Agreement is intended to be construed and enforced in accordance
with, and governed by, the laws of Florida, except as to matters of corporate
law, which will be governed by the laws of the State of Delaware.
10. Any amendment to the Plan shall be deemed to be an amendment to this
Agreement to the extent that the amendment is applicable hereto; provided,
however,
<PAGE>
that no amendment shall adversely affect the rights of the Participant hereunder
without the Participant's consent.
EXECUTED effective as of the 1st day of October, 1999.
FAIRFIELD COMMUNITIES, INC.
By: /s/Bryan D. Langton
-----------------------------
Bryan D. Langton
Chairman
The undersigned Participant hereby acknowledges receipt of an executed
original of this Agreement and accepts the option granted hereunder.
/s/James G. Berk
-------------------------------
Participant
FAIRFIELD COMMUNITIES, INC.
OPTION AGREEMENT
----------------
WHEREAS, James G. Berk (hereinafter called the "Participant") is a key
employee of Fairfield Communities, Inc., a Delaware corporation ("FCI"); and
WHEREAS, as part of its compensation programs, FCI has available for award
to key employees of FCI and its Subsidiaries options to purchase shares of FCI's
Common Stock pursuant to the terms of its Third Amended and Restated 1997 Stock
Option Plan (a copy of which is attached hereto as Exhibit A) (the "Plan"); and
WHEREAS, the grant of this Option to the Participant and the execution of
an Option Agreement in the form hereof have been duly authorized by the
Compensation Committee of FCI's Board of Directors, to become effective on the
Date of Grant (as defined below);
NOW, THEREFORE, effective as of the Date of Grant, FCI grants to the
Participant an Option pursuant to the Plan to purchase 300,000 shares of Common
Stock at a price equal to $13.10 per share, subject to adjustment in certain
circumstances as provided below or pursuant to the Plan, and agrees to cause
certificates for any shares purchased hereunder to be delivered to the
Participant upon payment of the aggregate Option Price in full and any
withholding taxes, all subject, however, to the terms and conditions hereinafter
set forth. Capitalized terms used in this Agreement that are not otherwise
defined in this Agreement are used as defined in the Plan.
1. The "Date of Grant" is January 3, 2000.
2. This Option shall become exercisable to the extent of 25% of the shares
hereinabove specified on October 1 of each of 2000, 2001, 2002 and 2003;
provided, that, the Participant has remained in continuous service from and
after the Date of Grant as, and is, on each such vesting date, an employee of
FCI, and further provided, that, this Option shall become exercisable to the
extent of 100% of the shares hereinabove specified in the event that (a) subject
to the limitation provided below, a "Change in Control" occurs at such time as
Participant is employed by FCI, and has remained in continuous service from and
after the Date of Grant, or (b) Participant's employment by FCI is terminated
(i) by FCI without "Cause" (other than due to death or "Disability", as defined
in Participant's Employment Agreement dated August 31, 1999, including
satisfaction of the procedures therein described for determining whether a
"Disability" exists) or (ii) by Participant due to "Constructive Discharge",
with the terms "Cause" and "Constructive Discharge" to have the respective
meanings attributed to such terms in Participant's Employment Agreement dated
August 31, 1999 (including satisfaction of the procedures therein described for
<PAGE>
determining whether proper grounds exist to claim "Cause" or "Constructive
Discharge"). The term "Change in Control" shall mean the happening of any of the
following:
(w) During any period of 24 consecutive months, ending after the date
hereof:
(i) individuals who were directors of FCI at the beginning of such
24-month period, and
(ii) any new director whose election or nomination for election by the
Board of Directors was approved by a vote of the greater of (A) at least
two-thirds (2/3), or (B) four affirmative votes, in each case, of the
directors then still in office who were either directors at the beginning
of such 24-month period or whose election or nomination for election was
previously so approved
cease for any reason to constitute a majority of the Board of Directors of FCI;
(x) Any person or entity (other than FCI or its Subsidiary employee benefit
plan or plans or any trustee of or fiduciary with respect to such plan or plans
when acting in such capacity), or any group acting in concert, shall
beneficially own, directly or indirectly, more than fifty percent (50%) of the
total voting power represented by the then outstanding securities of FCI
entitled to vote generally in the election of directors ("Voting Securities");
(y) Upon a merger, combination, consolidation or reorganization of FCI,
other than a merger, combination, consolidation or reorganization which would
result in (i) the Voting Securities of FCI outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into Voting Securities of the surviving entity) at least 50% of the voting power
represented by the Voting Securities of FCI or such surviving entity outstanding
immediately after such transaction and (ii) at least such 50% of voting power
continuing to be held in the aggregate by the holders of the Voting Securities
of FCI immediately prior to such transaction (conditions (i) and (ii) are
referred to as the "Continuance Conditions"); or
(z) All or substantially all of the assets of FCI are sold or otherwise
disposed of, whether in one transaction or a series of transactions, unless the
Continuance Conditions shall have been satisfied with respect to the purchaser
of such assets and such purchaser assumes FCI's obligations under this Option.
Notwithstanding any provision of this Option to the contrary, if any amount or
benefit to be paid or provided under this Option would be an "Excess Parachute
Payment", within the meaning of Section 280G of the Internal Revenue Code of
1986, as amended (the "Code"), or any successor provision thereto, but for the
application of this sentence, then the payments and benefits to be paid or
provided under this Option shall be reduced to the minimum extent necessary (but
in no event to less than zero) so that no portion of any such payment or
benefit, as so reduced, constitutes an Excess Parachute Payment; provided,
<PAGE>
however, that the foregoing reduction shall be made only if and to the extent
that such reduction would result in an increase in the aggregate payment and
benefits to be provided, determined on an after-tax basis (taking into account
the excise tax imposed pursuant to Section 4999 of the Code, or any successor
provision thereto, any tax imposed by any comparable provision of state law, and
any applicable federal, state and local income taxes). The determination of
whether any reduction in such payments or benefits to be provided under this
Option or otherwise is required pursuant to the preceding sentence shall be made
at the expense of FCI, if requested by Participant or FCI, by FCI's independent
accountants. The fact that Participant's right to payments or benefits may be
reduced by reason of the limitations contained in this paragraph shall not of
itself limit or otherwise affect any other rights of Participant other than
pursuant to this Option. In the event that any payment or benefit intended to be
provided under this Option or otherwise is required to be reduced pursuant to
this paragraph, Participant shall be entitled to designate the payments and/or
benefits to be so reduced in order to give effect to this paragraph. FCI shall
provide Participant with all information reasonably requested by Participant to
permit Participant to make such designation. In the event that Participant fails
to make such designation within 10 business days following the date of an
occurrence of a "Change in Control", FCI may effect such reduction in any manner
it deems appropriate.
To the extent exercisable, this Option may be exercised in whole or in part from
time to time, subject to the time limitations set forth in paragraph 4 below.
3. The Option shall be exercised by delivery to the Secretary of FCI of
both (a) an originally signed, irrevocable written notice of exercise of the
number of shares being purchased (which shall not exceed the number of shares
exercisable pursuant to paragraph 2 above), specifying a lawful rate of
withholding for any federal, state, local and any other income taxes, and (b)
full payment of the Option Price. The Option Price shall be payable in cash or
by check acceptable to FCI. In addition, the Participant shall be required to
satisfy any taxes required or requested to be withheld in the manner provided in
the first sentence of Paragraph 7 of the Plan prior to delivery of any share
certificates.
4. This Agreement shall automatically expire on the earliest of (a)
September 30, 2009 (the "Specified Term") or (b) immediately following the
lapsing of either of the exercise periods specified in subparagraphs (i) or
(iii) below or (c) upon the occurrence of the circumstances described in
subparagraph (ii) below.
(i) If the Participant dies while an employee of FCI or its Subsidiary
during the Specified Term, the Option shall be exercisable by the proper duly
qualified and empowered executor, administrator, legatee or distributee of the
Participant's estate only during the three hundred and sixty-five (365) calendar
days following his or her death, but in no event after the expiration of the
Specified Term.
(ii) If the Participant ceases to be an employee of FCI or its Subsidiary
due to discharge for "Cause", or resignation in anticipation of a discharge for
"Cause", then the Option shall not be exercisable. The term "Cause" shall have
the meaning provided in
<PAGE>
Participant's Employment Agreement dated August 31, 1999 (including the
procedures therein described for determining whether proper grounds exist to
claim "Cause").
(iii) If the Participant ceases to be an employee of FCI or its Subsidiary
for any reason other than death or discharge for "Cause" or resignation in
anticipation of discharge for "Cause", the Option shall be exercisable by the
Participant only during the ninety (90) calendar days following such
termination, but in no event after the expiration of the Specified Term.
Only shares for which this Option is exercisable under paragraph 2 hereof at the
time of the Participant's death or at such other time as the Participant ceases
to be an employee of FCI or its Subsidiary, other than by reason of discharge
for "Cause" or resignation in anticipation of discharge for "Cause", may be
exercised under subparagraphs (i) or (iii) above, as the case may be.
5. This Option is not transferable or exercisable other than by will or the
laws of descent and distribution. This Option may only be exercisable during the
Participant's lifetime by the Participant or by his or her guardian or legal
representative.
6. Adjustments shall be made in the Option Price and in the number or kind
of shares of Common Stock or other securities covered by this Option pursuant to
Paragraph 6 of the Plan.
7. Upon each exercise of this Option and satisfaction of the conditions for
issuance, FCI as promptly as practicable shall mail or deliver to the
Participant a stock certificate or certificates representing the shares then
purchased, and shall pay all stamp taxes payable in connection therewith. The
issuance of such shares and delivery of the certificate or certificates therefor
shall, however, be subject to any delay necessary to complete (a) the listing of
such shares on any stock exchange upon which shares of the same class are then
listed and (b) such registration or qualification of such shares under any state
or federal law, rule or regulation as FCI may determine to be necessary or
advisable.
8. Neither the Participant nor any of the Participant's beneficiaries or
legal representatives will be deemed to have any rights as a stockholder with
respect to any shares covered by this Agreement until the issuance of a
certificate to the Participant evidencing such shares.
9. This Agreement is intended to be construed and enforced in accordance
with, and governed by, the laws of Florida, except as to matters of corporate
law, which will be governed by the laws of the State of Delaware.
10. Any amendment to the Plan shall be deemed to be an amendment to this
Agreement to the extent that the amendment is applicable hereto; provided,
however, that no amendment shall adversely affect the rights of the Participant
hereunder without the Participant's consent.
<PAGE>
EXECUTED effective as of the 3rd day of January, 2000.
FAIRFIELD COMMUNITIES, INC.
By:/s/Bryan D. Langton
-------------------------------
Bryan D. Langton
Chairman
The undersigned Participant hereby acknowledges receipt of an executed
original of this Agreement and accepts the option granted hereunder.
/s/James G. Berk
-------------------------------
Participant
SECOND AMENDMENT
TO
PLEDGE AND SERVICING AGREEMENT
THIS SECOND AMENDMENT TO PLEDGE AND SERVICING AGREEMENT ("Agreement"),
dated as of March 15, 2000, amends and modifies that certain Pledge and
Servicing Agreement, dated as of July 31, 1998, and amended by a First Amendment
dated as of October 31, 1999 (the "Pledge Agreement"), by and among Fairfield
Funding Corporation, II, a Delaware corporation, Fairfield Acceptance
Corporation - Nevada, a Delaware corporation in its capacity as Servicer
thereunder, Fairfield Communities, Inc., a Delaware corporation, First Security
Bank, National Association, as Trustee and Fleet National Bank, formerly
BankBoston, N.A., as Collateral Agent, and is joined in by the Noteholders for
the sole purpose of evidencing their consent hereto.
WHEREAS, the parties to the Purchase Agreement have agreed and consented to
modify the Pledge Agreement in order to reflect their understanding regarding
the application and operation of said agreement;
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. Capitalized terms used but not otherwise defined herein shall have the
meanings ascribed to them in the Pledge Agreement.
2. The definition of Amortization Commencement Date in Section 1.1 of the
Pledge Agreement is hereby amended and restated as follows:
"'Amortization Commencement Date' means the first Payment Date
following the earlier of (a) April 1, 2000, or (b) the occurrence of an
Early Amortization Event."
3. Except as expressly provided in this Agreement, all of the terms and
conditions of the Pledge Agreement shall remain in full force and effect.
4. This Agreement shall be governed by, and construed in accordance with,
the laws of the State of Nevada.
5. This Agreement 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.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
FAIRFIELD FUNDING CORPORATION, II
By:/s/Ralph E. Turner
-------------------------------
Name: Ralph E. Turner
Title: President
FAIRFIELD ACCEPTANCE CORPORATION-
NEVADA
By:/s/Ralph E. Turner
--------------------------------
Name: Ralph E. Turner
Title: President
FAIRFIELD COMMUNITIES, INC.
By:/s/Robert W. Howeth
---------------------------------
Name: Robert W. Howeth
Title: Senior Vice President
FIRST SECURITY BANK NATIONAL
ASSOCIATION, as Trustee
By:/s/Francine Schartz
----------------------------------
Name: Francine Schartz
Title: Vice President
FLEET NATIONAL BANK, formerly BankBoston,
N.A., as Collateral Agent
By:/s/Amy Roberts
-----------------------------------
Name: Amy Roberts
Title: Director
<PAGE>
Consented to as of the date first written above.
JOHN HANCOCK MUTUAL LIFE
INSURANCE COMPANY
By:/s/Bruce Martin
----------------------------------
Name: Bruce Martin
-------------------------------
Title: Investment Officer
INVESTORS PARTNER LIFE INSURANCE
COMPANY
By:/s/Francis X. Felcon
----------------------------------
Name: Francis X. Felcon
-------------------------------
Title: Second Vice President
JOHN HANCOCK VARIABLE LIFE
INSURANCE COMPANY
By:/s/Francis X. Felcon
----------------------------------
Name: Francis X. Felcon
-------------------------------
Title: Second Vice President
<PAGE>
CONNECTICUT GENERAL LIFE
INSURANCE COMPANY
By: CIGNA INVESTMENTS, INC.
By:/s/David M. Cass
----------------------------------
Name: David M. Cass
-------------------------------
Title: Vice President
CONNECTICUT GENERAL LIFE
INSURANCE COMPANY
ON BEHALF OF ONE OR MORE
SEPARATE ACCOUNTS
By: CIGNA INVESTMENTS, INC.
By:/s/David M. Cass
----------------------------------
Name: David M. Cass
-------------------------------
Title: Vice President
FAIRFIELD COMMUNITIES, INC.
OPTION AGREEMENT
----------------
WHEREAS, Matthew J. Durfee (hereinafter called the "Participant") is a key
employee of Fairfield Communities, Inc., a Delaware corporation ("FCI"); and
WHEREAS, as part of its compensation programs, FCI has available for award
to key employees of FCI and its Subsidiaries options to purchase shares of FCI's
Common Stock pursuant to the terms of its Third Amended and Restated 1997 Stock
Option Plan (a copy of which is attached hereto as Exhibit A) (the "Plan"); and
WHEREAS, the grant of this Option to the Participant and the execution of
an Option Agreement in the form hereof have been duly authorized by the
Compensation Committee of FCI's Board of Directors, to become effective on the
Date of Grant (as defined below);
NOW, THEREFORE, effective as of the Date of Grant, FCI grants to the
Participant an Option pursuant to the Plan to purchase 80,000 shares of Common
Stock at a price equal to $8.375 per share, subject to adjustment in certain
circumstances as provided below or pursuant to the Plan, and agrees to cause
certificates for any shares purchased hereunder to be delivered to the
Participant upon payment of the aggregate Option Price in full and any
withholding taxes, all subject, however, to the terms and conditions hereinafter
set forth. Capitalized terms used in this Agreement that are not otherwise
defined in this Agreement are used as defined in the Plan.
1. The "Date of Grant" is March 27, 2000.
2. This Option shall become exercisable to the extent of 25% of the shares
hereinabove specified on each of the first, second, third and fourth anniversary
dates of the Date of Grant; provided, that, the Participant has remained in
continuous service from and after the Date of Grant as, and is, on each such
vesting date, an employee of FCI, and further provided, that, this Option shall
become exercisable to the extent of 100% of the shares hereinabove specified in
the event that, subject to the limitation provided below, a "Change in Control"
occurs at such time as Participant is employed by FCI, and has remained in
continuous service from and after the Date of Grant. The term "Change in
Control" shall mean the happening of any of the following:
(a) During any period of 24 consecutive months, ending after the date
hereof:
<PAGE>
(i) individuals who were directors of FCI at the beginning of such
24-month period, and
(ii) any new director whose election or nomination for election by the
Board of Directors was approved by a vote of the greater of (A) at least
two-thirds (2/3), or (B) four affirmative votes, in each case, of the
directors then still in office who were either directors at the beginning
of such 24-month period or whose election or nomination for election was
previously so approved
cease for any reason to constitute a majority of the Board of Directors of FCI;
(b) Any person or entity (other than FCI or its Subsidiary employee benefit
plan or plans or any trustee of or fiduciary with respect to such plan or plans
when acting in such capacity), or any group acting in concert, shall
beneficially own, directly or indirectly, more than fifty percent (50%) of the
total voting power represented by the then outstanding securities of FCI
entitled to vote generally in the election of directors ("Voting Securities");
(c) Upon a merger, combination, consolidation or reorganization of FCI,
other than a merger, combination, consolidation or reorganization which would
result in (i) the Voting Securities of FCI outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into Voting Securities of the surviving entity) at least 50% of the voting power
represented by the Voting Securities of FCI or such surviving entity outstanding
immediately after such transaction and (ii) at least such 50% of voting power
continuing to be held in the aggregate by the holders of the Voting Securities
of FCI immediately prior to such transaction (conditions (i) and (ii) are
referred to as the "Continuance Conditions"); or
(d) All or substantially all of the assets of FCI are sold or otherwise
disposed of, whether in one transaction or a series of transactions, unless the
Continuance Conditions shall have been satisfied with respect to the purchaser
of such assets and such purchaser assumes FCI's obligations under this Option.
Notwithstanding any provision of this Option to the contrary, if any amount or
benefit to be paid or provided under this Option would be an "Excess Parachute
Payment", within the meaning of Section 280G of the Internal Revenue Code of
1986, as amended (the "Code"), or any successor provision thereto, but for the
application of this sentence, then the payments and benefits to be paid or
provided under this Option shall be reduced to the minimum extent necessary (but
in no event to less than zero) so that no portion of any such payment or
benefit, as so reduced, constitutes an Excess Parachute Payment; provided,
however, that the foregoing reduction shall be made only if and to the extent
that such reduction would result in an increase in the aggregate payment and
benefits to be provided, determined on an after-tax basis (taking into account
the excise tax imposed pursuant to Section 4999 of the Code, or any successor
provision thereto, any tax imposed by any comparable provision of state law, and
any applicable federal, state and local income taxes). The determination of
whether any reduction in such payments or benefits to be
<PAGE>
provided under this Option or otherwise is required pursuant to the preceding
sentence shall be made at the expense of FCI, if requested by Participant or
FCI, by FCI's independent accountants. The fact that Participant's right to
payments or benefits may be reduced by reason of the limitations contained in
this paragraph shall not of itself limit or otherwise affect any other rights of
Participant other than pursuant to this Option. In the event that any payment or
benefit intended to be provided under this Option or otherwise is required to be
reduced pursuant to this paragraph, Participant shall be entitled to designate
the payments and/or benefits to be so reduced in order to give effect to this
paragraph. FCI shall provide Participant with all information reasonably
requested by Participant to permit Participant to make such designation. In the
event that Participant fails to make such designation within 10 business days
following the date of an occurrence of a "Change in Control", FCI may effect
such reduction in any manner it deems appropriate.
To the extent exercisable, this Option may be exercised in whole or in part from
time to time, subject to the time limitations set forth in paragraph 4 below.
3. The Option shall be exercised by delivery to the Secretary of FCI of
both (a) an originally signed, irrevocable written notice of exercise of the
number of shares being purchased (which shall not exceed the number of shares
exercisable pursuant to paragraph 2 above), specifying a lawful rate of
withholding for any federal, state, local and any other income taxes, and (b)
full payment of the Option Price. The Option Price shall be payable in cash or
by check acceptable to FCI. In addition, the Participant shall be required to
satisfy any taxes required or requested to be withheld in the manner provided in
the first sentence of Paragraph 7 of the Plan prior to delivery of any share
certificates.
4. This Agreement shall automatically expire on the earliest of (a) ten
years from the Date of Grant (the "Specified Term") or (b) immediately following
the lapsing of either of the exercise periods specified in subparagraphs (i) or
(iii) below or (c) upon the occurrence of the circumstances described in
subparagraph (ii) below.
(i) If the Participant dies while an employee of FCI or its Subsidiary
during the Specified Term, the Option shall be exercisable by the proper duly
qualified and empowered executor, administrator, legatee or distributee of the
Participant's estate only during the three hundred and sixty-five (365) calendar
days following his or her death, but in no event after the expiration of the
Specified Term.
(ii) If the Participant ceases to be an employee of FCI or its Subsidiary
due to discharge for "Cause", or resignation in anticipation of a discharge for
"Cause", then the Option shall not be exercisable. The term "Cause" means (A) an
intentional act or acts of fraud, embezzlement or theft constituting a felony
and resulting or intended to result directly or indirectly in gain or personal
enrichment for the Participant at the expense of FCI or its Subsidiary or (B)
the continued, repeated, intentional and willful refusal to perform the duties
associated with the Participant's position with FCI or its Subsidiary which is
not cured within 15 days following written notice to the Participant. For
purposes of this Agreement, no act or failure to act on the part of the
Participant shall be deemed
<PAGE>
"intentional" if it was due primarily to an error in judgment or negligence, but
shall be deemed "intentional" only if done or omitted to be done by the
Participant not in good faith and without reasonable belief that his or her
action or omission was in the best interest of FCI or its Subsidiary.
(iii) If the Participant ceases to be an employee of FCI or its Subsidiary
for any reason other than death or discharge for "Cause" or resignation in
anticipation of discharge for "Cause", the Option shall be exercisable by the
Participant only during the ninety (90) calendar days following such
termination, but in no event after the expiration of the Specified Term.
Only shares for which this Option is exercisable under paragraph 2 hereof at the
time of the Participant's death or at such other time as the Participant ceases
to be an employee of FCI or its Subsidiary, other than by reason of discharge
for "Cause" or resignation in anticipation of discharge for "Cause", may be
exercised under subparagraphs (i) or (iii) above, as the case may be.
5. This Option is not transferable or exercisable other than by will or the
laws of descent and distribution. This Option may only be exercisable during the
Participant's lifetime by the Participant or by his or her guardian or legal
representative.
6. Adjustments shall be made in the Option Price and in the number or kind
of shares of Common Stock or other securities covered by this Option pursuant to
Paragraph 6 of the Plan.
7. Upon each exercise of this Option and satisfaction of the conditions for
issuance, FCI as promptly as practicable shall mail or deliver to the
Participant a stock certificate or certificates representing the shares then
purchased, and shall pay all stamp taxes payable in connection therewith. The
issuance of such shares and delivery of the certificate or certificates therefor
shall, however, be subject to any delay necessary to complete (a) the listing of
such shares on any stock exchange upon which shares of the same class are then
listed and (b) such registration or qualification of such shares under any state
or federal law, rule or regulation as FCI may determine to be necessary or
advisable.
8. Neither the Participant nor any of the Participant's beneficiaries or
legal representatives will be deemed to have any rights as a stockholder with
respect to any shares covered by this Agreement until the issuance of a
certificate to the Participant evidencing such shares.
9. This Agreement is intended to be construed and enforced in accordance
with, and governed by, the laws of Florida, except as to matters of corporate
law, which will be governed by the laws of the State of Delaware.
10. Any amendment to the Plan shall be deemed to be an amendment to this
Agreement to the extent that the amendment is applicable hereto; provided,
however,
<PAGE>
that no amendment shall adversely affect the rights of the Participant hereunder
without the Participant's consent.
EXECUTED effective as of the 27th day of March, 2000.
FAIRFIELD COMMUNITIES, INC.
By: /s/James G. Berk
------------------------------------
James G. Berk
President and Chief Executive Officer
The undersigned Participant hereby acknowledges receipt of an executed
original of this Agreement and accepts the option granted hereunder.
/s/Matthew J. Durfee
-------------------------------
Participant
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
the Registrant's March 31, 2000 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<EXCHANGE-RATE> 1,000
<CASH> 8,179
<SECURITIES> 0
<RECEIVABLES> 246,139
<ALLOWANCES> 14,685
<INVENTORY> 131,614
<CURRENT-ASSETS> 0
<PP&E> 65,907
<DEPRECIATION> 22,912
<TOTAL-ASSETS> 497,108
<CURRENT-LIABILITIES> 0
<BONDS> 60,304
0
0
<COMMON> 509
<OTHER-SE> 277,481
<TOTAL-LIABILITY-AND-EQUITY> 497,108
<SALES> 102,165
<TOTAL-REVENUES> 107,852
<CGS> 34,721
<TOTAL-COSTS> 39,086
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 4,084
<INTEREST-EXPENSE> 1,023
<INCOME-PRETAX> 20,506
<INCOME-TAX> 7,792
<INCOME-CONTINUING> 12,714
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,714
<EPS-BASIC> 0.29
<EPS-DILUTED> 0.28
</TABLE>
