Wyndham Worldwide (WYN)

Trendwest

Trendwest markets and sells vacation ownership interests, which are called vacation credits (holiday credits in the South Pacific), in resorts owned by the vacation ownership programs WorldMark, The Club and WorldMark South Pacific Club, which we refer to collectively as the Clubs, which Trendwest formed in 1989 and 2000, respectively. The Clubs provide owners with flexibility (subject to availability) as to resort location, length of stay, unit type, the day of the week and time of year. Trendwest is usually involved in the development of the resorts owned by the Clubs. In addition to developing resorts and marketing and selling vacation credits, Trendwest manages the Clubs and the majority of resorts owned by the Clubs.

In October 1999, Trendwest formed Trendwest South Pacific, Pty. Ltd., an Australian corporation, or Trendwest South Pacific, as its direct wholly owned subsidiary for the purpose of conducting sales, marketing and resort development activities in the South Pacific. Trendwest South Pacific is currently the largest vacation ownership business in Australia, with approximately 30,000 owners of vacation credits as of March 31, 2006. Resorts in the South Pacific typically are owned and operated through WorldMark South Pacific Club, other than 66 units at Denarau Island, Fiji, which are owned by WorldMark, The Club.

Vacation Credits, Portfolio of Resorts and Maintenance Fees. Vacation credits in the Clubs entitle the owner of the credits to reserve units at the resorts that are owned and operated by the Clubs. Trendwest and Trendwest South Pacific are the developers or acquirors of the resorts that the Clubs own and operate. After Trendwest or Trendwest South Pacific develops or acquires resorts, it conveys the resorts to WorldMark, The Club or WorldMark South Pacific Club, as applicable. In exchange for the conveyances, Trendwest or Trendwest South Pacific receives the exclusive rights to sell the vacation credits associated with the conveyed resorts and to receive the proceeds from the sales of the vacation credits. Although vacation credits, unlike vacation ownership interests in Fairfield resorts, do not constitute deeded interests in real estate, vacation credits are regulated in most jurisdictions by the same agency that regulates vacation ownership interests evidenced by deeded interests in real estate. In 2005, the average purchase by a new owner of vacation credits was approximately $11,700. Of

140

Table of Contents

the more than 750,000 owners of vacation ownership interests in Fairfield and Trendwest resorts and of other real estate interests in Fairfield resorts as of March 31, 2006, over 250,000 owners held vacation credits in Trendwest resorts.

Trendwest resorts are located primarily in the Western United States, Canada, Mexico and the South Pacific and, as of March 31, 2006, consisted of 69 resorts that represented approximately 4,900 units. Of the Trendwest resorts and units, Trendwest South Pacific has a total of 12 resorts with approximately 400 units. In 2004, Trendwest expanded its portfolio of resorts to include properties in San Francisco, California; Windsor, California; and Australia, and in 2005, Trendwest further expanded its portfolio of resorts to include properties in Seattle, Washington; Estes Park, Colorado; Solvang, California; Sydney, Australia; and New Zealand. In 2006, Trendwest expects to expand its portfolio in Midway, Utah; Indio, California; and Estes Park, Colorado.

The resorts in which Trendwest markets and sells vacation credits are primarily drive-to resorts. Most Trendwest resorts are affiliated with Wyndham Worldwide’s vacation exchange subsidiary, RCI. Among Trendwest’s 69 resorts, 63 have been awarded designations of an RCI Gold Crown Resort or an RCI Silver Crown Resort.

Owners of vacation credits pay annual maintenance fees to the Clubs. The annual maintenance fee associated with the average vacation credit purchased is approximately $480. The maintenance fee that an owner pays is based on the number of the owner’s vacation credits. These fees are intended to cover the Clubs’ operating costs, including the dues to the property owners’ associations, which are generally the Clubs. Fees paid to property owners’ associations are generally used to renovate and replace furnishings, pay maintenance and cleaning costs, pay management fees and expenses, and cover taxes (in some states), insurance and other related costs. Maintenance of common areas and the provision of amenities typically is the responsibility of the property owners’ associations. Trendwest has a minimal ownership interest in the Clubs that results from Trendwest’s ownership of unsold vacation credits in the Clubs. As the owner of unsold vacation credits, Trendwest pays maintenance fees to the Clubs.

WorldMark, The Club and WorldMark South Pacific Club. The Clubs provide owners of vacation credits with flexibility (subject to availability) as to resort location, length of stay, unit type and time of year. Depending on how many vacation credits an owner has purchased, the owner may use the vacation credits for one or more vacations annually. The number of vacation credits that are required for each day’s stay at a unit is listed on a published schedule and varies depending upon the resort location, unit type, time of year and the day of the week. Owners may also redeem their credits for a wide variety of travel and leisure products, including airfare, cruises, and specialized leisure activities and attractions.

Owners of vacation credits are able to carry over unused vacation credits in one year to the next year and to borrow vacation credits from the next year for use in the current year. Owners of vacation credits are also able to purchase bonus time from the Clubs for use when space is available. Bonus time gives owners the opportunity to use available resorts on short notice and at a reduced rate and to obtain usage beyond owners’ allotments of vacation credits. In addition, Trendwest offers owners the opportunity to “upgrade,” or acquire additional vacation credits to increase the number of credits such owners can use in the Clubs.

Owners of vacation credits can make reservations through the Clubs, or may elect to join and exchange their vacation ownership interests through our vacation exchange business, RCI, or Interval International, Inc., which is a third-party exchange company.

Club and Property Management. In exchange for management fees, Trendwest, itself or through a Trendwest affiliate, serves as the exclusive property manager and servicing agent of the Clubs and all resort units owned or operated by the Clubs. On behalf of the Clubs, Trendwest or its affiliate provides day-to-day management for vacation ownership resorts, including oversight of housekeeping services, maintenance and

141

Table of Contents

refurbishment of the units, and provides certain accounting and administrative services. Trendwest or its affiliate also manages the reservation system for the Clubs and provides owner services and billing and collections services. The management agreements of the Clubs provide for automatic one-year and five-year renewals, respectively, unless renewal is denied by a majority of the voting power of the owners (excluding Trendwest).