PRINCIPAL STOCKHOLDERS AGREEMENT
This PRINCIPAL STOCKHOLDERS AGREEMENT (this "Agreement"), is made and
entered into as of August 8, 1997, by and among Fairfield Communities, Inc., a
Delaware corporation ("Fairfield"), FCVB Corp., a Florida corporation and wholly
owned subsidiary of Fairfield ("Merger Sub"), Xxxxx X. Xxxxxx ("RM"), R & A
Partnership, Ltd., a Texas limited partnership ("R&A"), and Xxxxx Xxxxxxx ("KS"
and together with RM and R&A, the "Stockholders"). Capitalized terms used and
not otherwise defined in this Agreement have the meanings ascribed to those
terms in the Merger Agreement referred to below.
RECITALS
A. As of the date of this Agreement, RM beneficially owns (such term being used
herein within the meaning of Rule 13d-3 promulgated under the Securities
Exchange Act of 1934, as amended) 5,172,026 shares of Common Stock, par value
$.01 per share ("Vacation Break Common Stock"), of Vacation Break USA, Inc., a
Florida corporation ("Vacation Break"), of which 5,150,526 shares are owned
beneficially and of record by R&A (of which 350,000 shares (the "RM/JN Option
Shares") are subject to an option granted to Xxxxx North ("JN")) and 21,500
shares are owned beneficially and of record by RM and RM's spouse as joint
tenants (such 5,172,026 shares of Vacation Break Common Stock together with any
other voting or equity securities of Vacation Break of which RM acquires
beneficial ownership after the date of this Agreement but prior to the
consummation of the Merger being referred to herein collectively as the "RM
Shares"). As of the date of this Agreement, KS beneficially owns 1,428,572
shares of Vacation Break Common Stock, of which 175,000 shares are issuable upon
the exercise of currently exercisable options and 1,253,572 shares are held of
record by KS (of which 50,000 shares (the "KS/JN Option Shares") are subject to
an option granted to JN) (such 1,428,572 shares of Vacation Break Common Stock
together with any other voting or equity securities of Vacation Break of which
KS acquires beneficial ownership after the date of this Agreement but prior to
the consummation of the Merger being referred to herein collectively as the "KS
Shares"). The shares of Vacation Break Common Stock described in the preceding
two sentences together with any other voting or equity securities of Vacation
Break of which the Stockholders acquire beneficial ownership after the date of
this Agreement but prior to the consummation of the Merger are referred to
herein collectively as the "Shares". Each Stockholder is entitled to vote the
Shares beneficially owned by the Stockholder, and no Stockholder has entered
into any voting arrangement with respect to the Shares except as provided in
this Agreement or granted any proxy in respect of any of the Shares.
B. Concurrently with the execution of this Agreement, Fairfield, Merger
Sub and Vacation Break are entering into an Agreement and Plan of Merger (as the
same may be amended or modified from time to time, the "Merger Agreement"),
pursuant to which and upon the terms and subject to the conditions of which,
Merger Sub will be merged with and into Vacation Break and shares of Vacation
Break Common Stock outstanding immediately prior to the Effective Time of the
Merger will be converted into and represent the right to receive, among other
things, a number of shares of Common Stock, par value $.01 per share, of
Fairfield ("Fairfield Common Stock").
C. As a condition to the willingness of Fairfield and Merger Sub to
enter into the Merger Agreement, Fairfield and Merger Sub have required that
each of the Stockholders agree, and in order to induce Fairfield and Merger Sub
to enter into the Merger Agreement, each of the Stockholders is willing to
agree, to (i) vote the Shares owned by such Stockholder for the adoption of the
Merger Agreement and the approval of the Merger and the other transactions
contemplated by the Merger Agreement subject to the conditions set forth herein,
and (ii) the other matters provided for in this Agreement, upon the terms and
subject to the conditions set forth herein.
D. The Stockholders acknowledge receipt and review of a copy of the
Merger Agreement.
NOW THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements contained herein, and intending to be legally bound
hereby, the parties hereto hereby agree as follows:
1. Voting Agreement.
(a) Vacation Break Stockholders Meeting. Subject to Section 1(c)
hereof, at the Vacation Break Stockholders Meeting or any meeting of the
stockholders of Vacation Break, however called, and in any action by consent of
the stockholders of Vacation Break, each of the Stockholders will vote all of
the Shares beneficially owned by such Stockholder and entitled to vote (i) for
approval of the Merger Agreement and the other transactions contemplated by the
Merger Agreement, (ii) against any action or agreement that would result in a
breach of any representation, warranty, covenant, agreement or other obligation
of Vacation Break under the Merger Agreement or may result in any of the
conditions to Vacation Break's obligations under the Merger Agreement not being
fulfilled and (iii) in favor of any other matter necessary to consummate the
transactions contemplated by the Merger Agreement and considered and voted upon
by the stockholders of Vacation Break.
(b) Other Actions. Subject to Section 1(c) hereof, the Stockholders
will not solicit, encourage or recommend to other holders of Vacation Break
Common Stock that those holders (i) vote their shares of Vacation Break Common
Stock or any other securities of Vacation Break in any manner that would,
directly or indirectly, impede or adversely effect stockholder approval of the
Merger Agreement and the other transactions contemplated by the Merger
Agreement, (ii) at the Vacation Break Stockholders Meeting, abstain from voting,
or otherwise fail to vote, their shares of Vacation Break Common Stock, (iii)
sell, transfer, tender or otherwise dispose of their shares of Vacation Break
Common Stock or (iv) exercise any dissenters' appraisal or other similar rights.
(c) Limitation on Obligations. The obligations of each Stockholder
under Sections 1(a) and 1(b) who is a director or officer of Vacation Break are
subject to his obligation to faithfully discharge his duties as a director or an
officer of Vacation Break; provided, however, if Vacation Break has not
terminated the Merger Agreement pursuant to Section 7.1(e) of the Merger
Agreement, each such Stockholder will vote his Shares in accordance with
Sections 1(a) and 1(b).
2. Transfer of Shares. Until the close of business on the date on which
results covering at least 30 days of combined operations of Fairfield and
Vacation Break have been published by Fairfield, in the form of a quarterly
earnings report, an effective registration statement filed with the SEC, a
report filed with the SEC on Form 10-K, 10-Q or 8-K, or any other public filing
or announcement which includes those combined results of operations (a "Combined
Operations Filing"), none of the Stockholders will, directly or indirectly, (a)
sell, assign, transfer, pledge, encumber or otherwise dispose of any of the
Shares or the shares of Fairfield Common Stock into which the Shares are
converted or exchanged pursuant to the Merger Agreement (the "Merger Shares"),
(b) deposit any of the Merger Shares into a voting trust or enter into a voting
agreement or arrangement with respect to any of the Merger Shares or grant any
proxy or power of attorney with respect thereto or (c) enter into any contract,
option or other arrangement or undertaking with respect to the direct or
indirect sale, assignment, transfer or other disposition of any Shares or Merger
Shares. Notwithstanding the foregoing restrictions of this Section 2, R&A (or
RM) may transfer the RM/JN Option Shares to JN following the exercise of the
options covering the RM/JN Option Shares and maintain the existing pledges of
3,000,000 RM Shares to Xxxxxx Xxxxxxx and not more than 550,000 RM Shares to
Bear Xxxxxx (collectively, the "RM Pledged Shares"), and KS may transfer the
KS/JN Option Shares to JN following the exercise of the options covering the
KS/JN Option Shares and maintain the existing pledges of 200,000 KS Shares to
Sun Trust Bank, 233,000 KS Shares to Xxxxxxxxxx Xxxx & Xxxx Incorporated and
133,000 KS Shares to PPM, Inc. (collectively, the "KS Pledged Shares").
Fairfield will cause a Combined Operations Filing to be filed or announced as
promptly as practicable consistent with past practice in making such filings or
announcements.
3. Registration Rights. At the Effective Time, Fairfield, R&A and KS
will enter into a Registration Rights Agreement in substantially the form of
Exhibit A in respect of the Merger Shares to be acquired by each of RM, R&A and
KS in the Merger. Notwithstanding any provisions of the Registration Rights
Agreement, each of RM, R&A and KS acknowledges that neither any rights provided
under the Registration Rights Agreement nor any registration effected thereunder
will relieve R&A or KS of their respective obligations under this Agreement.
4. Restrictive Covenants.
(a) Non-competition. Each of RM and KS shall not, for a period
of one year following the Effective Time, or if employed by or otherwise engaged
to provide services to Fairfield or any of its Subsidiaries or elected to the
Board of Directors of Fairfield, during such employment, engagement, or tenure
on the Board of Directors and for a period of one year after the termination of
that employment, engagement, or tenure on the Board of Directors, directly or
indirectly, engage in or have any interest in any sole proprietorship,
partnership, corporation, limited liability company, firm, association or
business or any other person or entity (whether as an employee, officer,
director, partner, member, agent, security holder, creditor, consultant or
otherwise) that, directly or indirectly, engages in sales of leads for vacation
ownership marketing, marketing or sales of vacation ownership interests,
timeshares, travel certificates, vacation packages, or other travel or vacation
related services or products and any other business or activity in which
Vacation Break and its Subsidiaries is engaged (the "Business") in the State of
Florida with respect to marketing or sales of vacation ownership interests or
timeshares, and in any geographic area in which Vacation Break and its
Subsidiaries presently conduct any part of the Business with respect to all
other aspects of the Business that are conducted in that area; provided,
however, that each of RM and KS may (i) devote his time and efforts to the
business and affairs of companies which are part of Fairfield's consolidated
group or (ii) continue to hold securities of Fairfield and/or acquire, solely as
an investment, shares of capital stock or other equity securities of any company
which are traded on any national securities exchange or are regularly quoted in
the over-the-counter market, so long as he does not control, acquire a
controlling interest in or become a member of a group which exercises direct or
indirect control of, more than one percent of any class of capital stock of such
corporation; and provided further, however, that RM's involvement with the
respective businesses as presently conducted, and ownership of the capital
stock, of Coconut Bay Resort Properties, Inc. and Intracoastal Resorts, Inc.,
which have completed the development of the properties owned or managed by such
corporations, and Serenity Homes, Sea America and Serenity shall not be deemed
to be a violation of this Section 4(a).
(b) Nondisclosure. Each of RM and KS, as applicable, shall not
divulge, communicate, use to the detriment of Fairfield or its Subsidiaries
(including, without limitation, Vacation Break and its Subsidiaries) or for the
benefit of any other person or persons, or misuse in any way, any Confidential
Information (as hereinafter defined) pertaining to the business of Fairfield and
its Subsidiaries (including, without limitation, Vacation Break and its
Subsidiaries). Any Confidential Information or data now or hereafter acquired by
Fairfield with respect to the business of Fairfield or its Subsidiaries
(including, without limitation, Vacation Break and its Subsidiaries), which
shall include, but not be limited to, information concerning their financial
condition, prospects, technology, customers, methods of doing business, and
marketing and promotion of their services and products, shall be deemed a
valuable, special and unique asset of Fairfield and its Subsidiaries that is
received by RM or KS, as applicable, in confidence and as a fiduciary, and RM or
KS, as applicable, shall remain a fiduciary to Fairfield and its Subsidiaries
(including, without limitation, Vacation Break and its Subsidiaries) with
respect to all of such Confidential Information. For purposes of this Agreement,
"Confidential Information" means information disclosed to RM or KS, as
applicable, or known by RM or KS, as applicable, as a consequence of or through
his employment by Vacation Break or Fairfield or any of their respective
Subsidiaries or service as a director of Vacation Break or Fairfield or any of
their respective Subsidiaries or as a consequence of the Merger and all related
transactions (including information conceived, originated, discovered or
developed by RM or KS, as applicable) prior to or after the date hereof, and not
known to the general public, about Fairfield and its Subsidiaries, Vacation
Break and its Subsidiaries, and their respective businesses. Confidential
Information shall not include information that on the date of this Agreement is,
or, other than a result of the public disclosure by or at the direction of RM or
KS or disclosure by a Person who RM or KS should have known was subject to an
obligation to maintain the confidentiality of such information, subsequent to
the date of this Agreement becomes, (i) publicly available, (ii) generally
available in the timeshare industry, (iii) non-proprietary to Fairfield and its
Subsidiaries (including Vacation Break and its Subsidiaries), such as general
information related to marketing programs widely utilized in the timeshare
industry. If RM or KS, as applicable, is legally compelled, pursuant to a
subpoena, civil investigative demand or similar process, to disclose any
Confidential Information, RM or KS, as applicable, shall promptly, and in all
cases prior to disclosing the same, notify Fairfield to permit Fairfield to seek
a protective order or take other appropriate action. RM or KS, as applicable,
shall also cooperate in Fairfield's efforts to obtain a protective order or
other reasonable assurance that confidential treatment will be accorded such
Confidential Information. If, in the absence of a protective order, RM or KS, as
applicable, is, in the written opinion of their respective counsel addressed to
Fairfield, compelled as a matter of law to disclose such Confidential
Information, RM or KS, as applicable shall disclose to the party compelling
disclosure only that part of such Confidential Information as is required by law
to be disclosed (in which case, prior to such disclosure, RM or KS, as
applicable, shall advise and consult with Fairfield and its counsel as to such
disclosure and the nature and wording of such disclosure), and RM or KS, as
applicable, shall use his best efforts to obtain confidential treatment for any
Confidential Information so disclosed.
(c) Nonsolicitation of Employees. Each of RM and KS shall not,
for a period of two years following the Effective Time, or if employed by or
otherwise engaged to provide services to Fairfield or any of its Subsidiaries or
elected to the Board of Directors of Fairfield, during such employment,
engagement or tenure on the Board of Directors and for a period of two years
after the termination of that employment, engagement, or tenure on the Board of
Directors, directly or indirectly, for himself or for any sole proprietorship,
partnership, corporation, limited liability company, firm, association or
business or any other person or entity, employ or attempt to employ, or enter
into any contractual arrangement with any employee or sales agent or former
employee or former sales agent of Fairfield or Vacation Break or their
respective Subsidiaries (except with respect to the employment of Mr. Xxxxxxx
Xxxxxxx by RM), unless such person has not been employed or otherwise engaged by
Fairfield or Vacation Break or their respective Subsidiaries for a period in
excess of six months.
(d) Books and Records. All books, records, accounts and
similar repositories of Confidential Information of Fairfield or Vacation Break
or their respective Subsidiaries, whether prepared by RM or KS or otherwise
coming into his possession, shall be the exclusive property of Fairfield and
shall be returned immediately to Fairfield on Fairfield's request at any time.
5. Indemnification.
(a) Indemnification of Fairfield.
(i) Subject to Sections 5(a)(ii) and 5(d), RM and R&A, jointly and
severally as a group, and KS, severally and not jointly, indemnify and hold
Fairfield and its Subsidiaries (including, without limitation, Vacation Break
and its Subsidiaries) (each an "Indemnified Person") harmless from and against
the sum of (1) 75% of any and all losses, deficiencies, liabilities and damages
incurred or suffered by an Indemnified Person resulting from or arising out of
the matters that are the subject of the proceedings described on Schedule 1
(each, an "Indemnified Matter"), plus (2) 25% of all Litigation Expenses (as
hereinafter defined) incurred by any Indemnified Person in connection with or as
a result of any Indemnified Matter in excess of the lesser of (A) $500,000 or
(B) any reserve for the Indemnified Matter that is reflected in Vacation Break's
consolidated financial statements at June 30, 1997 (the sum of (1) and (2) are
referred to as an "Indemnifiable Loss"). Litigation Expenses shall mean all
reasonable legal, investigatory, expert and similar fees and expenses, witness
fees, transcript costs, court costs, appeal bonds, appeal bond premiums and
printing costs related to the defense of an Indemnified Matter.
(ii) Subject to Section 5(g), the maximum liability that the Stockholders
may incur under this Section 5(a) with respect to any Indemnified Matter is the
amount (the "Maximum Amount") specified on Schedule 1 opposite the respective
Indemnified Matter and the maximum liability of RM and R&A, as a group, and KS
under this Section 5(a) with respect to an Indemnified Matter is 80% and 20%,
respectively, of the Maximum Amount for that Indemnified Matter. The
Stockholders will satisfy any indemnity obligation under this Section 5 by
payment of Holdback Shares (as hereinafter defined) from the Escrow Account (as
hereinafter defined) valued at the Share Value (as hereinafter defined) unless
some or all of the Holdback Shares have been sold or otherwise disposed of in
accordance with this Agreement, in which case the payment will be made first
from the cash held in the Escrow Account and then from the Holdback Shares in
accordance with the Escrow Agreement. For purposes of this Section 5, Share
Value will mean the closing price of a share of Fairfield Common Stock on the
New York Stock Exchange (or, if not quoted on the New York Stock Exchange, on
the principal national securities exchange upon which the Fairfield Common Stock
is then traded) on the business day immediately preceding the Closing Date, as
such price may be equitably adjusted after that date to give effect to any stock
split, dividend, or combination or reclassification of Fairfield's capital
stock.
(b) Security for Indemnification of Fairfield.
(i) As security for the agreement by the Stockholders to indemnify and hold
the Indemnified Persons harmless under Section 5(a), at the Effective Time the
Stockholders shall place in an escrow (the "Escrow Account") with a title
company or financial institution reasonably acceptable to Fairfield (the "Escrow
Agent"), pursuant to an escrow agreement in substantially the form of Exhibit B,
certificates representing Merger Shares equal to $7.0 million divided by the
Share Value (the "Holdback Shares"). The Holdback Shares so deposited shall be
free and clear of any Liens. Further, there shall also be deposited with the
Escrow Agent all cash dividends paid on the Holdback Shares and all shares of
Fairfield Common Stock or other securities issued or distributed to the
Stockholders with respect to the Holdback Shares as a result of any stock split,
stock dividend, or combination or reclassification of or in respect of
Fairfield's capital stock, together with any associated share purchase rights.
RM and R&A will deposit 80% and KS will deposit 20% of the Holdback Shares in
the Escrow Account. In no event will the number of Holdback Shares (valued at
the Share Value) plus any proceeds from any such shares that are sold or
otherwise disposed of pursuant to the terms of this Section 5, plus any other
securities or other cash amounts required to be deposited in the Escrow Account
that are received in respect of such shares or other cash amounts, that may be
applied to the Stockholders' obligations under Section 5(a) with respect to an
Indemnified Matter exceed the Maximum Amount.
(ii) All Holdback Shares shall be deemed to be beneficially owned by the
Stockholders, and the Stockholders shall be entitled to vote the Holdback Shares
and, subject to the terms of the Escrow Agreement, to receive promptly as paid
by Fairfield all cash dividends or distributions paid thereon in respect thereof
until any such shares are actually delivered to Fairfield as provided in the
Escrow Agreement. To the extent that Fairfield applies the Holdback Shares
against Indemnifiable Losses, such application shall be effected against the
Stockholders' Holdback Shares in the manner set forth in the Escrow Agreement.
The Stockholders may require that all or any portion of the Holdback Shares be
sold in market transactions at any time in accordance with the provisions of the
Escrow Agreement, provided that such sales shall be made in compliance with
state and federal securities laws and not in violation of the provisions of this
Agreement. The net sales proceeds of any such sales of Holdback Shares shall be
retained in the Escrow Account pending disbursement to Fairfield or distribution
to the Stockholders in accordance with the Escrow Agreement (the Holdback
Shares, any other securities required to be deposited in the Escrow Account, and
any cash proceeds, interest thereon, dividends paid on the Holdback Shares and
any other amounts required to be deposited in the Escrow Account are referred to
as the "Escrow Funds"). All cash proceeds held in the Escrow Account shall be
invested in obligations issued or unconditionally guaranteed by the United
States government, or issued by any agency or instrumentality thereof and backed
by the full faith and credit of the United States government, which obligations
mature within one year from the date of investment or as otherwise provided in
the Escrow Agreement, and any interest received in respect of any investment
shall be disbursed in accordance with the Escrow Agreement.
(iii) If an Indemnified Matter is finally and fully resolved pursuant to an
approved settlement or a final, nonappealable judgment or order of a court of
competent jurisdiction, any Escrow Funds allocated to the payment of
Indemnifiable Losses arising from such Indemnified Matter in excess of the
Escrow Funds paid to Fairfield to satisfy the Stockholders' obligations under
this Section 5 will be released to the Stockholders in accordance with the
Escrow Agreement. Before the fourth anniversary of the Closing Date (the
"Release Date"), Fairfield and the Stockholders will meet and confer in good
faith to agree upon and establish prior to the Release Date the realistic
Exposure (as defined below) to the Indemnified Persons with respect to each
Indemnified Matter which has not previously been adjudicated, dismissed or
settled with respect to each such remaining Indemnified Matter. As used herein,
"Exposure" shall mean the reasonably projected cost of defense or prosecution
through a final judgment of such matter (including attorneys' fees, costs and
any direct expenses of the Indemnified Persons in connection therewith) plus a
realistic assessment expressed as a dollar amount of the likelihood and amount
of either an adverse or favorable judgment on all claims and counterclaims in
connection with each of such matters. The portion of the Exposure determined for
each of such Indemnified Matters remaining as of the Release Date plus the
cumulative amount of unreimbursed Litigation Expenses through the Release Date
for which the Stockholders would be responsible under this Section 5 if such sum
was an actual Indemnifiable Loss shall be the "Cumulative Exposure" in
connection with an Indemnified Matter pending on the Release Date. Escrow Funds
held in the Escrow Account on the Release Date in excess of the Escrow Funds
required to satisfy any Cumulative Exposure in respect of the Indemnified Matter
for which those Escrow Funds were allocated under Section 5(b)(i) will be
released to Stockholders in accordance with the terms of the Escrow Agreement;
provided, however, if an Indemnified Person has suffered an Indemnifiable Loss
pursuant to an order or judgment in respect of an Indemnified Matter and the
Indemnified Person has appealed or stayed the execution of such order or
judgment, none of the Escrow Funds allocated for the payment of an Indemnifiable
Loss in respect of that Indemnified Matter shall be released from the Escrow
Account to the Stockholders and shall remain subject to the terms of the Escrow
Agreement and this Section 5 until 30 days after a final, nonappealable order or
judgment has been entered (unless earlier settled or compromised) in respect of
that Indemnified Matter and all related Litigation Expenses have been paid.
(iv) The Stockholders acknowledge that, subject to the provisions of this
Section 5 and acting in good faith, Fairfield will pursue settlements of the
Indemnified Matters in a manner or on terms that it reasonably determines are in
the best interests of its stockholders.
(c) Waiver. The Stockholders waive any claim for
indemnification or contribution against any Indemnified Person (including
Vacation Break and its Subsidiaries) with respect to any Indemnifiable Matter
for which they have any obligation under this Section 5.
(d) Payment of Litigation Expenses. Upon Fairfield's delivery
to the Stockholders no more frequently than once each calendar quarter of
reasonable documentation evidencing any Litigation Expenses, Fairfield will be
entitled to obtain reimbursement for the portion of Litigation Expenses the
Stockholders are obligated to pay under this Section 5 from the Holdback Shares
or cash held in the Escrow Account. Fairfield will also deliver to the Escrow
Agent copies of the documentation evidencing the Litigation Expenses as set
forth in the Escrow Agreement.
(e) Counsel; Cooperation. Fairfield shall defend each
Indemnified Matter and shall prosecute any reasonable counterclaim or third
party claim in respect of any Indemnified Matter in a reasonable manner
consistent with its management of other litigation. Fairfield shall retain legal
counsel to assist it in the defense of the Indemnified Matters ("Counsel") who
shall be reasonably satisfactory to the Stockholders. The Stockholders
acknowledged that the existing counsel for each Indemnified Matter, as well as
Xxxxx, Day, Xxxxxx & Xxxxx, Xxxxxxx Fields and Akerman, Senterfitt & Xxxxxx,
P.A. are satisfactory. Fairfield shall have sole authority to instruct Counsel
with respect to the Indemnified Matters and Counsel shall be entitled to rely
upon such instructions without verification or confirmation from any other
Person. Each of the Stockholders shall cooperate with and assist Fairfield and
Counsel in Fairfield's defense of the Indemnified Matters and prosecution of any
claims. Stockholders and counsel to Vacation Break have identified to Fairfield
defenses that they reasonably believe to be good and valid defenses to the
Indemnified Matters. In connection therewith, the Stockholders (i) shall be
available to Fairfield and Counsel at mutually agreeable times and will make
available their records and other documents that are relevant to the Indemnified
Matters, (ii) shall assist Fairfield and Counsel in locating and maintaining
those records and other documents that would be necessary or useful in preparing
to defend and/or in defending the Indemnified Matters, and (iii) shall execute
such affidavits, certificates, pleadings, discovery responses and similar
documents ("Litigation Papers") as are necessary in the conduct of the defense
of the Indemnified Matters, in each case, however, after review and approval
(which approval shall not be unreasonably withheld or delayed) of such
Litigation Papers.
(f) Status. On a regular basis, Fairfield and Counsel shall
advise the Stockholders of all material aspects of such Indemnified Matter to
the extent that such discussions between Fairfield (and its officers, agents and
affiliates), Counsel and Stockholders would not impair the attorney client
privilege. Counsel will provide copies of all material pleadings and
correspondence regarding each Indemnified Matter to Stockholders.
(g) Settlement. Fairfield and Counsel will keep the
Stockholders fully advised in a timely manner of all settlement proposals,
discussions and negotiations concerning an Indemnified Matter. Fairfield will
not effect any settlement of the first Indemnified Matter identified on Schedule
1 (the "MRG Matter") without the Stockholders' consent (which consent will not
be unreasonably withheld); provided, however, if the Stockholders' obligation
under Section 5(a) with respect to that settlement would be less than $2.0
million (excluding Litigation Expenses), Fairfield may settle the MRG Matter
without Stockholders' consent. If Fairfield receives a settlement proposal with
respect to the MRG Matter pursuant to which the Stockholders' obligation under
Section 5(a) (excluding Litigation Expenses) exceeds $2.0 million that Fairfield
desires to accept, Fairfield will notify the Stockholders in writing of its
desire and submit to the Stockholders that settlement proposal for their
approval. If the Stockholders approve that proposed settlement within 5 business
days (or fail to respond to such request within such 5 business day period of
their receipt of that notice), Fairfield may settle the MRG Matter on
substantially the terms described in that notice and the Stockholders will pay
Fairfield from the Escrow Fund, subject to the limits set forth herein, the
Indemnifiable Loss in respect thereof. If the Stockholders do not approve of the
settlement, they shall (i) notify Fairfield in writing that they do not approve
the proposed settlement within such 5 business day period and (ii) provide
Fairfield a written undertaking that they (A) will be responsible, jointly and
severally, for any Indemnifiable Loss up to the amount of the proposed
settlement and shall, jointly and severally, indemnify the Indemnified Persons
for 100% of any Indemnifiable Loss in excess of the proposed settlement
(including 100% of Litigation Expenses incurred after that date) and (B) assume
the defense of that Indemnified Matter, and shall have sole authority to retain
and direct Counsel with respect to such Indemnified Matter, on the same terms as
set forth in Sections 5(e) and 5(f). The Stockholders shall not effect a
settlement of the MRG Matter unless Fairfield reasonably consents to that
settlement or the settlement includes an unconditional release of each
Indemnified Person.
(h) Application of Awards. Any monetary damages awarded to,
and received by Fairfield or its Subsidiaries, or insurance proceeds received by
Fairfield or its Subsidiaries, in respect of an Indemnified Matter, shall be
applied after termination of such Indemnified Matter on a pro rata basis, first
to reimburse the parties for any Litigation Expenses and then to reduce the
Indemnifiable Losses arising from such Indemnified Matter and to reimburse the
parties for payments made in respect of the Indemnified Matter. All amounts
exceeding the Indemnifiable Losses arising from such Indemnified Matter shall be
retained by Fairfield or its Subsidiaries.
(i) Continuing Obligations. Any failure of Fairfield to
perform any of its obligations under Sections 5(e), 5(f) or the first sentence
of 5(g) will not relieve the Stockholders of their obligations under this
Agreement. If the Stockholders know or have reason to believe that Fairfield has
failed to perform its obligations under Section 5(f) or the first sentence of
Section 5(g), the Stockholders must notify Fairfield in writing thereof and
permit Fairfield 15 business days to cure any such failure before Fairfield will
be deemed to be in breach of such obligations. If the Stockholders believe that
Fairfield is not performing its obligations under the first sentence of Section
5(e), they shall notify Fairfield in writing of their belief. Within 10 business
days after Fairfield's receipt of that notice, an executive officer of Fairfield
and the Stockholders will meet at a mutually agreed time and place to discuss
the Indemnified Matters and Fairfield will consult in good faith with the
Stockholders regarding the defense of any Indemnified Matter or prosecution of
any claim.
6. Effectiveness; Termination. Sections 4 and 5 will not be effective
until the Effective Time has occurred. This Agreement shall terminate upon the
earlier of (a) any termination of the Merger Agreement in accordance with the
terms thereof and (b) the mutual written consent of the parties hereto.
7. Share Ownership. RM and R&A represent and warrant to Fairfield that,
as of the date of this Agreement, the RM Shares constitute all of the shares of
Vacation Break Common Stock beneficially owned by RM and R&A and the description
of the beneficial and record ownership of the RM Shares and of the voting rights
related thereto in Recital A of this Agreement is in all respects true, complete
and correct and such shares, other than the RM Pledged Shares, are owned free
and clear of any Liens. KS represents and warrants to Fairfield that, as of the
date of this Agreement, the KS Shares constitute all of the shares of Vacation
Break Common Stock beneficially owned by KS and the description of the
beneficial and record ownership of the KS Shares and of the voting rights
related thereto in Recital A of this Agreement is in all respects true, complete
and correct and such shares, other than the KS Pledged Shares, are owned free
and clear of any Liens.
8. Severance Waiver. Each of RM and KS waives any severance or other
compensation which he would otherwise be entitled to receive under his existing
employment agreement (or any other agreement) with Vacation Break or any of its
Subsidiaries as a consequence of the termination of his employment by, or
service on the board of directors of, Vacation Break or any of its Subsidiaries
except, with respect to KS, any amount payable to him under the Amendment to
Amended and Restated Employment Agreement dated of even date herewith.
9. Release of Guarantees. Fairfield and the Surviving Corporation shall
use their reasonable efforts (but will not be required to expend any funds or
incur any additional liability) to obtain the release by the applicable lender
of RM from any obligation under any outstanding guarantee of indebtedness for
borrowed money of the Surviving Corporation and its Subsidiaries and shall
indemnify and hold RM harmless from any losses or liabilities incurred by RM
after the Effective Time under any such guarantee.
10. Miscellaneous.
(a) Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be deemed given if
delivered personally or sent by overnight courier (providing proof of delivery)
to the parties at the following addresses (or at such other address for a party
as shall be specified by like notice):
(i) if to Fairfield or Merger Sub:
Fairfield Communities, Inc.
00000 Xxxxxxxxx Xxxxxx Xxxxx
Xxxxxx Xxxx, Xxxxxxxx 00000
Attention: Xx. Xxxx X. XxXxxxxxx
with a copy to:
Xxxxx, Day, Xxxxxx & Xxxxx
0000 Xxxx Xxxxxx, Xxxxx 0000
Xxxxxx, Xxxxx 00000
Attention: Xxxx X. Xxxxxx, Esq.
(ii) if to RM:
Xx. Xxxxx X. Xxxxxx
Vacation Break USA, Inc.
0000 X. Xxxxxxx Xxxxxx
Xxxx Xxxxx, Xxxxx 000
Ft. Xxxxxxxxxx, Xxxxxxx 00000
with a copy to:
Greenberg, Traurig, Hoffman,
Lipoff, Xxxxx & Xxxxxxx, P.A.
0000 Xxxxxxxx Xxxxxx
Xxxxx, Xxxxxxx 00000
Attention: Xxxx X. Xxxxxxx, Esq.
(iii) if to R&A:
R & A Partnership, Ltd.
0000 X. Xxxxx Xxxxxxxxx
Xxxxxxxx Xxxxx, Xxxxxxx 00000
Attention: Xx. Xxxxx X. Xxxxxx
with a copy to:
Xxxxx & XxXxxxxx
Xxxxxxx Tower
000 Xxxxxxxx Xxxxxx
Xxxxx 0000
Xxxxx, Xxxxxxx 00000-0000
Attention: Xxxxxxxx XxXxxxx, Esq.
(iv) if to KS:
Mr. Xxxxx Xxxxxxx
Vacation Break USA, Inc.
0000 X. Xxxxxxx Xxxxxx
Xxxx Xxxxx, Xxxxx 000
Ft. Xxxxxxxxxx, Xxxxxxx 00000
with a copy to:
Greenberg, Traurig, Hoffman,
Lipoff, Xxxxx & Xxxxxxx, P.A.
0000 Xxxxxxxx Xxxxxx
Xxxxx, Xxxxxxx 00000
Attention: Xxxx X. Xxxxxxx, Esq.
(b) Severability. If any term or provision of this Agreement is found
to be invalid, illegal or unenforceable by a final determination of a court of
competent jurisdiction (i) the remaining terms and provisions hereof shall be
unimpaired and shall nevertheless remain in full force and effect and (ii) the
invalid or unenforceable term or provision shall be deemed replaced by a term or
provision that is valid and enforceable and that comes closest to expressing the
intention of the invalid or unenforceable term or provision. In the event that,
notwithstanding the preceding sentence, any of the provisions of Section 4
hereof relating to the geographic or temporal scope of the covenants contained
therein or the nature of the business restricted thereby shall be declared by a
court of competent jurisdiction to exceed the maximum restrictiveness such court
deems enforceable, such provision shall be deemed to be replaced herein by the
maximum restriction deemed enforceable by such court.
(c) Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties.
(d) Entire Agreement; No Third-party Beneficiaries. This Agreement
constitutes the entire agreement, and supersede all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter of this Agreement and except for the provisions of Section 5, are
not intended to confer upon any person other than the parties any rights or
remedies.
(e) Governing Law. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of Florida, regardless of the laws
that might otherwise govern under applicable principles of conflicts of laws
thereof.
(f) Assignment. Neither this Agreement nor any of the rights, interests
or obligations hereunder shall be assigned, in whole or in part, by operation of
law or otherwise by any of the parties without the prior written consent of the
other parties. This Agreement will be binding upon, inure to the benefit of, and
be enforceable by, the parties and their respective heirs, legal
representatives, successors and assigns.
(g) Enforcement. The parties agree that irreparable injury would occur
for which there is no adequate remedy at law in the event that any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to an injunction or injunctions to prevent breaches of
this Agreement and to enforce specifically the terms and provisions of this
Agreement in any court of the United States located in the State of Florida or
in Florida state court, without posting bond, this being in addition to any
other remedy to which they are entitled at law or in equity. In addition, each
of the parties hereto (a) consents to submit itself to the personal jurisdiction
of any federal court located in the State of Florida or any Florida state court
in the event any dispute arises out of this Agreement or the transactions
contemplated by this Agreement, (b) agrees that it will not attempt to deny or
defeat such personal jurisdiction by motion or other request for leave from any
such court and (c) agrees that it will not bring any action relating to this
Agreement or the transactions contemplated by this Agreement in any court other
than a federal court sitting in the State of Florida or a Florida state court.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the parties have signed this Agreement personally
or by their respective officers thereunto duly authorized, all as of the date
first written above.
FAIRFIELD COMMUNITIES, INC.
By:/s/ X. X. XxXxxxxxx
-------------------------------
Name: X. X. XxXxxxxxx
Title: President and Chief Executive Officer
FCVB CORP.
By: /s/ X. X. XxXxxxxxx
--------------------------------
Name: X. X. XxXxxxxxx
Title: President
R & A PARTNERSHIP, LTD.
By: RPM Investments, Inc.,
Its General Partner
By:/s/ Xxxxx X. Xxxxxx
-----------------------------------
Name: Xxxxx X. Xxxxxx
Title: President
/s/ Xxxxx X. Xxxxxx
------------------------------------
Xxxxx X. Xxxxxx
/s/ Xxxxx Xxxxxxx
------------------------------------
Xxxxx Xxxxxxx
IN WITNESS WHEREOF, the parties have signed this Agreement personally
or by their respective officers thereunto duly authorized, all as of the date
first written above.
FAIRFIELD COMMUNITIES, INC.
By:/s/ X. X. XxXxxxxxx
--------------------------------
Name: X. X. XxXxxxxxx
Title: President and Chief Executive Officer
FCVB CORP.
By:/s/ X. X. XxXxxxxxx
---------------------------------
Name: X. X. XxXxxxxxx
Title: President
R & A PARTNERSHIP, LTD.
By: RPM Investments, Inc.,
Its General Partner
By:/s/ Xxxxx X. Xxxxxx
--------------------------------
Name: Xxxxx X. Xxxxxx
Title: President
/s/ Xxxxx X. Xxxxxx
---------------------------------
Xxxxx X. Xxxxxx
/s/Xxxxx Xxxxxxx
--------------------------------
Xxxxx Xxxxxxx
Schedule 1
Indemnified Matters Maximum Amount
1. Market Response Group and Laser $6,000,000
Company, Inc. v. Vacation Break USA, Inc.
2. Global Marketing & Travel, Inc. v. 500,000
Vacation Break USA, Inc.
3. Xxxxx Xxxxxxx, et al. v. 500,000
Vacation Break USA, Inc.
